MEDIX RESOURCES INC (NASDAQ:MDIX) files SEC Form 10KSB
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
We are an information technology company headquartered in Denver,
Colorado, with offices in Thousand Oaks, California, East Brunswick, New Jersey
and New York City. We specialize in the development, marketing and management of
software and connectivity solutions for clinical and business transactions
within the healthcare industry Through our wholly owned subsidiary, Cymedix Lynx
Corporation, a Colorado corporation, we have developed Cymedix.com, a unique
healthcare communication technology product. Created by a team of healthcare
professionals, Cymedix.com provides instantaneous access to patient clinical,
financial and administrative information. Its software also supplies healthcare
institutions, such as health plans, insurers and hospitals, as well as
practicing physicians with a set of non-invasive technology tools that can be
attached to their existing software applications and provide Internet-enabled
transaction capability between all parties.
Implementation of the Cymedix.com software suite promises to speed and
improve the efficacy of daily interactions between health caregivers and their
staffs, other ancillary providers (such as labs or pharmacy benefit managers),
insurance companies, hospitals, Integrated Delivery Networks (IDNs) and Health
Management Organizations (HMOs). We believe that the market for robust and
practical healthcare solutions is growing rapidly, and that segment growth will
continue to accelerate as the joined emphases of consumer choice, quality,
administrative service and cost containment ratchets up demand for ever more
efficient and user-friendly methods of delivering quality healthcare.
Forward-Looking Statements and Associated Risks
This Report contains forward-looking statements, which mean that such
statements relate to events or transactions that have not yet occurred, our
expectations or estimates for our future operations and economic performance,
our growth strategies or business plans or other events that have not yet
occurred. Such statements can be identified by the use of forward-looking
terminology such as "might," "may," "will," "could," "expect," "anticipate,"
"estimate," "likely," "believe," or "continue" or the negative thereof or other
variations thereon or comparable terminology. The following paragraphs contain
discussions of important factors that should be considered by prospective
investors for their potential impact on forward-looking statements included in
this Report. These important factors, among others, may cause actual results to
differ materially and adversely from the results expressed or implied by the
forward-looking statements.
We have reported net losses of ($4,847,000), ($5,422,000) and ($515,000)
for the years ended December 31, 1999, December 27, 1998 and December 28, 1997.
At December 31, 1999, we had an accumulated deficit of ($18,008,000). We expect
to continue to experience loses, in the near term, as we attempt to develop and
market our Cymedix software products. The current operation of our business and
our ability to continue to develop and market our Cymedix software products will
depend upon our ability to obtain additional financing. At present, we are not
receiving any significant revenues from the sale of our Cymedix software
products. We are attempting to meet our current cash flow needs by raising
capital in the private debt and equity markets and through the exercise of
currently outstanding warrants. The development and marketing of the Cymedix
software products require substantial capital investments. There can be no
assurance that additional investments or financings will be available to us as
needed to support the development of Cymedix products. Failure to obtain such
capital on a timely basis could result in lost business opportunities, the sale
of the Cymedix business at a distressed price or the financial failure of our
company.
Our company, through its subsidiary Cymedix Lynx Corporation, has only
recently begun its medical software line of business through the acquisition of
a development stage medical software business in 1998. Our company has little
experience in marketing software products, providing software support services,
evaluating demand for products, financing a software business and dealing with
government regulation of software products. While we have recently put together
a team of experienced executives, they have come from different backgrounds and
may require some time to develop an efficient operating structure and corporate
culture for our company. We believe our structure of multiple offices serves our
customers well, but it does present an additional challenge in building our
corporate culture and operating structure.
Our products are still in the development stage and have not yet proven
their effectiveness or their marketability. As a developer of software products,
we will be required to anticipate and adapt to evolving industry standards and
new technological developments. The market for our software products is
characterized by continued and rapid technological advances in both hardware and
software development, requiring ongoing expenditures for research and
development, and timely introduction of new products and enhancements to
existing products. The establishment of standards is largely a function of user
acceptance. Therefore, such standards are subject to change. Our future success,
if any, will depend in part upon our ability to enhance existing products, to
respond effectively to technology changes, and to introduce new products and
technologies to meet the evolving needs of its clients in the healthcare
information systems market. We are currently devoting significant resources
toward the development of products. There can be no assurance that we will
successfully complete the development of these products in a timely fashion or
that our current or future products will satisfy the needs of the healthcare
information systems market. Further, there can be no assurance that products or
technologies developed by others will not adversely affect our competitive
position or render our products or technologies noncompetitive or obsolete.
Certain of our products provide applications that relate to patient
medical histories and treatment plans. Any failure by our products to provide
accurate, secure and timely information could result in product liability claims
against us by our clients or their affiliates or patients. We maintain insurance
that we believe is adequate to protect against claims associated with the use of
our products, but there can be no assurance that our insurance coverage would
adequately cover any claim asserted against us. A successful claim brought
against us in excess of our insurance coverage could have a material adverse
effect on our results of operations, financial condition or business. Even
unsuccessful claims could result in the expenditure of funds in litigation, as
well as diversion of management time and resources.
We have been granted certain patent rights, a trademark and copyrights
relating to its software business. However, patent and intellectual property
legal issues for software programs, such as the Cymedix products, are complex
and currently evolving. Since patent applications are secret until patents are
issued, in the United States, or published, in other countries, we cannot be
sure that we are first to file any patent application. In addition, there can be
no assurance that competitors, many of which have far greater resources than we
do, will not apply for and obtain patents that will interfere with our ability
to develop or market product ideas that we have originated. Further, the laws of
certain foreign countries do not provide the protection to intellectual property
that is provided in the United States, and may limit our ability to market our
products overseas. We cannot give any assurance that the scope of the rights we
have are broad enough to fully protect our Cymedix software from infringement.
Litigation or regulatory proceedings may be necessary to protect our
intellectual property rights, such as the scope of our patents. In fact, the
computer software industry in general is characterized by substantial
litigation. Such litigation and regulatory proceedings are very expensive and
could be a significant drain on our resources and divert resources from product
development. There is no assurance that we will have the financial resources to
defend our patent rights or other intellectual property from infringement or
claims of invalidity.
We also rely upon unpatented proprietary technology and no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to or disclose
our proprietary technology or that we can meaningfully protect our rights in
such unpatented proprietary technology. We will use our best efforts to protect
such information and techniques, however, no assurance can be given that such
efforts will be successful. The failure to protect our intellectual property
could cause us to loose substantial revenues and to fail to reach our financial
potential over the long term.
The healthcare and medical services industry in the United States is in a
period of rapid change and uncertainty. Governmental programs have been
proposed, and some adopted, from time to time, to reform various aspects of the
U.S. healthcare delivery system. Some of these programs contain proposals to
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for our customers. We cannot predict
with any certainty what impact, if any, proposals for healthcare reforms might
have on our software business.
As with any business, growth in absolute amounts of selling, general and
administrative expenses or the occurrence of extraordinary events could cause
actual results to vary materially and adversely from the results contemplated by
the forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to incorrect decisions and
periodic revisions based on actual experience and business developments, the
impact of which may cause us to alter our marketing, capital expenditures or
other budgets, which may, in turn, affect our results of operation. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate, and therefore, there can be no assurance that the
results contemplated in the forward-looking statements will be realized.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by us or any other person that our objectives or
plans for the Company will be achieved.
Results of Operation
Comparison of Years Ended December 31, 1999 and December 27, 1998
Total revenues for the year ended December 31, 1999 ("1999") were $24,000
compared with $0 for the year ended December 27, 1998 ("1998"). Cymedix
currently provides all of our revenues. Cymedix first recorded revenue in
November 1999 for pilot program fees.
Selling, general, and administrative expenses increased approximately
$2,009,000 or 85% from $2,364,000 in 1998 to $4,373,000 in 1999. This increase
included $2,163,000 of expenses related to options and warrants issued for
services, which was partially offset by a reduction in other expenses.
Loss from operations increased approximately $1,987,000 from $2,364,000 in
1998 to $4,351,000 in 1999. This increase is primarily related to the increase
in selling, general, and administrative expenses.
Interest expense increased approximately 32% from $149,000 in 1998 to
$197,000 in 1999. The increase is primarily due to interest paid and imputed on
a convertible promissory note in 1999.
Net loss from continuing operations increased approximately $2,035,000 from
$2,513,000 in 1998 to $4,548,000 due to all of the reasons discussed above.
Loss from discontinued operations decreased approximately $2,610,000 from
$2,909,000 in 1998 to $299,000 in 1999. The decrease was primarily due to
$2,040,000 impairment of goodwill in 1998.
Net loss decreased approximately $575,000 from $5,422,000 in 1998 to
$4,847,000 in 1999 due to the reasons discussed above.
Liquidity and Capital Resources
We have $1,229,000 in cash as of December 31, 1999 compared with $40,000
as of December 27, 1998. Net working capital was $644,000 as of December 31,
1999 compared with a working capital deficit of ($2,612,000) as of December 27,
1998. During 1999, net cash used in operating activities was $3,241,000. During
1999, we raised $4,112,000 from private placements of preferred stock, $500,000
from issuance of a convertible promissory note, and $150,000 from exercise of
options and warrants.
In February of 2000, we sold the assets of our remaining staffing
businesses for $1,000,000. The purchase price was paid with $500,000 cash at
closing and a $500,000 subordinated note which is payable in May 2001. During
2000, we expect to generate approximately $800,000 in net cash related to the
sale.
Subsequent to year-end and through March 17, 2000 we received
approximately $2,080,000 from the exercise of options and warrants. As of March
17, 2000, we had 1,026,000 warrants with a total exercise price of $633,000,
which are callable for $.01 per warrant upon thirty days written notice. Also as
of March 17, 2000, we had 7,980,000 warrants with a total exercise price of
$3,990,000 which are callable for $.01 per warrant upon thirty days written
notice if the trading price of our common stock remains above $2.00 for ten
consecutive days subsequent to April 1, 2000. We expect to receive $4,623,000
from the exercise of these callable warrants over the next several months.
However, there can be no assurance that any of these warrants will be exercised.
We expect to continue to experience loses and negative cash flows from
operations, in the near term, as we attempt to develop our Cymedix software
products. The current operation of our business and our ability to continue to
develop our Cymedix software products will depend upon our ability to obtain
additional financing. At present, we are not receiving any significant revenues
from the sale of our Cymedix software products. We are attempting to meet our
current cash flow needs by raising capital in the private debt and equity
markets and through the exercise of currently outstanding warrants. The
development and marketing of the Cymedix software products require substantial
capital investments. We believe that we have adequate cash on hand and available
from likely exercise of currently outstanding options and warrants to fund
operations for the year ended December 31, 2000. However, there can be no
assurance that additional funding, if needed, will be available on terms
acceptable to us, or at all. |
