MEDIX RESOURCES INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number: 0-24768
--------------------------------------------------------

MEDIX RESOURCES, INC.
(Exact name of issuer as specified in its charter)

Colorado 84-1123311
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)

420 Lexington Avenue, Suite 1830 New York, New York 10170
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(212) 697-2509
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 11, 2002.

Common Stock, $0.001 par value 71,302,815
------------------------------ ----------
Class Number of Shares

MEDIX RESOURCES, INC.

INDEX

PART I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets - September 30, 2002 (Unaudited) and
December 31, 2001

Unaudited Consolidated Statements of Operations -- For the Nine
Months Ended September 30, 2002 and September 30, 2001

Unaudited Consolidated Statements of Cash Flows -- For the Nine
Months Ended September 30, 2002 and September 30,
2001

Notes to Unaudited Consolidated Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II. Other Information

SIGNATURES

Index to Exhibits

MEDIX RESOURCES, INC.

Consolidated Balance Sheets

September 30, December 31,
2002 2001
(Unaudited)
Assets
Current assets
Cash and cash equivalents ..................... $ 267,000 $ 8,000
Accounts receivable, trade .................... 1,000 --
Prepaid expenses and other .................... 240,000 344,000
----------- -----------
Total current assets ...................... 508,000 352,000

Software development costs, net ................. 1,024,000 649,000
Property and equipment, net ..................... 335,000 365,000
Goodwill, net ................................... 1,735,000 1,735,000
----------- -----------

Total assets .................................... $ 3,602,000 $ 3,101,000
=========== ===========

Liabilities and Stockholders' Equity

Current liabilities
Notes payable ................................. $ 17,000 $ 158,000
Convertible notes payable ..................... 1,000,000 --
Advance from related party ................... 50,000
Accounts payable .............................. 567,000 851,000
Accounts payable-related parties .............. 130,000 166,000
Accrued expenses .............................. 407,000 450,000
Deferred revenue .............................. 155,000 --
Accrued payroll taxes interest and penalties .. 131,000 131,000
----------- -----------
Total current liabilities ................. 2,457,000 1,756,000
----------- -----------

Stockholders' equity
1996 Preferred stock, 10% cumulative
convertible, $1 par value; 488 shares
authorized; 155 shares issued; 1 share
outstanding .................................. -- --
1999 Series B convertible preferred stock,
$1 par value; 2,000 shares authorized; 1,832
shares issued; 50 shares outstanding ......... -- --
1999 Series C convertible preferred stock,
$1 par value; 2,000 shares authorized; 1,995
shares issued; 100 and 375 shares
outstanding .................................. -- --
Common stock, $.001 par value; 100,000,000
authorized; 65,842,599 and 56,651,409 issued
and outstanding .............................. 66,000 56,000
Dividends payable with common stock ........... 8,000 7,000
Additional paid-in capital .................... 39,848,000 35,341,000
Accumulated deficit ........................... (38,777,000) (34,059,000)
------------ ------------
Total stockholders' equity ................ 1,145,000 1,345,000
------------ ------------

Total liabilities and stockholders' equity ...... $ 3,602,000 $ 3,101,000
============ ============

MEDIX RESOURCES, INC.

Unaudited Consolidated Statements of Operations

For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
............. ............. ............. .............

Revenues ...................... $ -- $ -- $ 10,000 $ 30,000

Direct costs of services ...... 103,000 5,000 495,000 38,000
------------ ------------ ------------ ------------

Gross margin .................. (103,000) (5,000) (485,000) (8,000)
------------ ------------ ------------ ------------

Software research and
development costs ............ 153,000 348,000 533,000 947,000

Selling, general and
administrative expenses ...... 1,422,000 1,594,000 3,390,000 4,611,000

Impairment of intangible Assets -- 1,111,000 -- 1,111,000
------------ ------------ ------------ ------------

Net loss from operations ...... (1,678,000) (3,058,000) (4,408,000) (6,677,000)

Other income .................. 2,000 11,000 7,000 11,000

Financing Costs ............... (43,000) (121,000) (246,000) (346,000)

Interest expense .............. (13,000) (15,000) (71,000) (64,000)
------------ ------------ ------------ ------------

Net loss ...................... $ (1,732,000) $ (3,183,000) $ (4,718,000) $ (7,076,000)
============ ============ ============ ============

Net loss per common share ..... $ (0.03) $ (0.06) $ (0.08) $ (0.14)
============ ============ ============ ============

Weighted average shares
outstanding ................... 63,767,646 51,267,407 60,698,928 49,308,780
============ ============ ============ ============

Had the Company adopted FAS 142 as of January 1, 2001, the historical amounts previously
reported would have been adjusted to the following:

Net (loss) as reported $(3,183,000) $(7,076,000)
Add back: Goodwill amortization 39,000 121,000
----------- -----------

Adjusted net loss $(3,144,000) $(6,955,000)
=========== ===========

Basic and diluted loss per share
as reported $ (0.06) $ (0.14)
========== ==========

Goodwill amortization $ -- $ --
=========== ==========

Adjusted loss per share $ (0.06) $ (0.14)
========== ==========

MEDIX RESOURCES, INC.

Unaudited Consolidated Statements of Cash Flows

For the Nine Months
Ended September 30,
---------------------------
2002 2001
------------ -----------
Cash flows from operating activities
Net loss ............................................. $(4,718,000) $(7,076,000)
Adjustments to reconcile net income (loss) to net
cash flows (used in) provided by operating activities
Depreciation and amortization ...................... 238,000 375,000
Amortization of discount and warrants-
convertible debt .................................. 70,000 374,000
Options and warrants issued in conjunction with
stock issuance, services and for litigation
settlements, respectively .......................... 177,000 503,000
Options and warrants issued in for consulting
services ........................................... 92,000 --
Write off of unrecoverable intangible assets, net -- 1,111,000
Write off of leasehold improvements ................. 7,000 --
Net changes in current assets and current liabilities 589,000 1,130,000
----------- -----------
Net cash flows (used in) provided by operating
activities ...................................... (3,545,000) (3,583,000)
----------- -----------
Cash flows from investing activities
Software development costs incurred .................. (522,000) (366,000)
Purchase of property and equipment ................... (69,000) (66,000)
----------- -----------
Net cash flows (used in) investing activities .... (591,000) (432,000)
----------- -----------
Cash flows from financing activities
Advances received on convertible note ................ 1,000,000 1,500,000
Advances from related party .......................... 50,000 --
Proceeds from short term borrowings-related parties .. 155,000 --
Repayment of short term borrowings-related parties ... (191,000) --
Payments on capital leases and debt .................. (208,000) (130,000)
Proceeds from the issuance of common stock, net of
offering costs ...................................... 3,474,000 1,481,000
Net proceeds from exercise of options and warrants ... 115,000 230,000
----------- -----------
Net cash flows provided by (used in) financing
activities ...................................... 4,395,000 3,081,000
----------- -----------

Net increase (decrease) in cash and cash equivalents ... 259,000 (934,000)
Cash and cash equivalents at beginning of period ....... 8,000 1,007,000
----------- -----------

Cash and cash equivalents at end of period ............. $ 267,000 $ 73,000
=========== ===========

Non-cash and investing and financing activities for the nine months ended September 30,
2002:

Options and warrants valued at $92,000 for services provided.
Options valued at $132,000 as financing costs issued to an officer for past
financial support.
An accrued liability of $590,000 for warrants earned in 2001 was satisfied by
issuing the warrants.
Warrants issued to related party in connection with advances provided valued at
$45,000.
In-the-money conversion feature on convertible debt valued at $70,000.
Financed insurance policies of $65,000 by issuing a note payable.

Non-cash and investing and financing activities for the nine months ended September 30,
2001:

Conversion of preferred stock into common stock.
Conversion of $1,000,000 note payable into 1,618,477 shares of common stock.
Financed insurance policies of $3,000 by issuing a note payable.

MEDIX RESOURCES, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

The consolidated financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The unaudited consolidated financial
statements as of September 30, 2002 have been derived from audited financial
statements. The unaudited consolidated financial statements contained herein
should be read in conjunction with the financial statements and notes thereto
contained in the Company's Form 10-K for the fiscal year ended December 31,
2001. The results of operations for the nine months ended September 30, 2002 are
not necessarily indicative of the results for the entire fiscal year ending
December 31, 2002.

Cost of Services Provided

Cost of services provided includes amortization of software development costs on
projects ready for their intended use, license and data service fees.

Note 2 - Goodwill

September 30,
2002
-------------
Goodwill acquired through the Cymedix acquisition $ 2,369,000
Less accumulated amortization (634,000)
-----------
$ 1,735,000
===========

The Company has completed step one, impairment review of FAS 142, effective
January 1, 2002, and has determined that the fair value of that goodwill
associated with its Cymedix reporting unit using a discounted cash flow method
had no impairment.

Note 3 - Equity Transactions

The Company received proceeds of $114,750 from the exercise of stock options
resulting in the issuance of 315,000 shares of common stock during the first
three quarters of 2002.

Equity Line

The Company had entered into an Equity Line of Credit Agreement dated as of June
12, 2001, which was terminated by the mutual agreement of the parties on August
6, 2002. During the period January to April 2002, the Company received $972,000,
net of commissions and escrow fees from eight equity line advances, resulting in
the issuance of 1,954,715 shares of common stock.

Warrants

As of February 18, 2002, the Company executed a Amended and Restated Common
Stock Purchase Warrant obligating the Company to issue up to 7,000,000 warrants
under an agreement with a pharmacy management company for the Company's
proprietary software to be interfaced with core medical service providers, in
which one of the Company's audit committee members is a related party to the
pharmacy management company. The agreement provides for 3,000,000 warrants with
an exercise price of $.30, 3,000,000 warrants with an exercise price of $.50,
and 1,000,000 warrants with an exercise price of $1.75 all expiring September 8,
2004. The right to exercise the warrants are earned in increments based on
certain performance criteria. At September 30, 2002, 1,850,000 of the warrants
had been earned.

The Company has the obligation to provide 5,150,000 warrants under the Amended
and Restated Common Stock Purchase Warrant in the future if the performance
criteria specified are met.

The agreement provides for a total of 5,150,000 remaining warrants under five
performance criteria categories which can be earned in any order or
concurrently. Had all of the remaining performance criteria been met at
September 30, 2002, the fair value of the related warrants and resulting expense
would have been approximately $ $1,691,000, using the Black-Scholes option
pricing model, with assumptions of 121% volatility, no dividend yield and a
risk-free rate of 5.5%.

Convertible Loan

The Company entered into a secured convertible loan agreement dated February 19,
2002 with WellPoint Health Networks Inc. in which a member of the Company's
audit committee is a related party, pursuant to which we borrowed $1,000,000.
The loan would have become payable on February 19, 2003, if not converted into
our common stock. The loan earned annual interest at a floating rate of 300
basis points over prime, as it is adjusted from time to time, which was also
payable at maturity and may be converted into common stock. Conversion into
common stock was at the option of either WellPoint or Medix at a contingent
conversion price. The Company recorded financing costs during the first quarter
of 2002 associated with this loan agreement as a result of the in-the-money
conversion feature totaling $70,000. The loan was secured by the grant of a
security interest in all Medix's intellectual property, including its patent,
copyrights and trademarks. Medix converted the principal of and interest accrued
on the note into 2,405,216 common shares on October 9, 2002. The security
interest in Medix's intellectual property was also released.

The Company received a $50,000 advance from a director of the Company, during
July 2002. The advance allows for conversion into 125,000 shares of the
Company's common stock. The Company also issued 125,000 warrants, exercisable at
$.50 per share in connection with the advance. This advance was converted into
125,000 shares of common stock subsequent to September 30, 2002. The warrants
and number of conversion shares are identical to those offered under the private
placements.

Private Placements

During April 2002, the Company initiated a private placement of its $.001 par
value common stock. A total of 3,452,500 units were placed, each consisting of
one share of common stock and one warrant. Subscribers purchased each unit for
$0.40 and are entitled to exercise warrant rights to purchase one share of the
common stock of the company at a purchase price of $.0.50 per share for a five
year period on or after September 1, 2002 and prior to September 1, 2007. The
Company received a total of $1,381,000 from this private placement. The Company
has committed to register the above underlying shares in a registration
statement with the Securities and Exchange Commission within 90 days of
completion of the offering. Subsequently, some of these subscribers holding
warrants to purchase 1,770,000 shares of common stock, have agreed to amend the
exercise period of their warrants from July 1, 2003 to December 31, 2008

During July 2002, the Company initiated a second private placement of its $.001
par value common stock. A total of 3,600,000 units were placed during the period
July to October 2002, each consisting of one share of common stock and one
warrant. Subscribers purchased each unit for $0.40 and are entitled to exercise
warrant rights to purchase one share of the common stock of the company at a
purchase price of $.0.50 per share for a five year period on or after January 1,
2003 and prior to January 1, 2008. The Company received a total of $1,440,000
from this private placement. The Company has committed to register the above
underlying shares in a registration statement with the Securities and Exchange
Commission within 90 days of completion of the offering.

Note 4 - Stock Options

During the first nine months of 2002, the Company granted options to purchase
1,918,500 shares at exercise- prices of $.38 to $.94 per share to current
employees and directors and consultants of the Company, under the Company's 1999
Stock Option Plan. During the first nine months of 2002, 315,000 stock options
were exercised.

Note 5 - Related Party Transactions

The Company received advances from a related party in 2001 that totaled $166,000
at December 31, 2001. The entire amount was repaid during February 2002. During
July and August 2002, the Company received advances that totaled $130,000 from a
related party.

The Company also received an advance of $50,000 from a member of the board of
directors during July 2002, which was converted subsequent to September 30, 2002
into 125,000 shares of common stock. The Company also issued 125,000 warrants,
exercisable at $.50 per share in connection with the advance. The warrants and
number of conversion shares are identical to those offered under the private
placements.

The Company has also entered into transactions and agreements with Wellpoint
Health Networks, Inc., in which a member of the Company's audit committee is a
related party. (See Note 3, Warrants and Convertible Loan.)

Note 6 - Litigation

August 7, 2001, a former officer of the Company filed an action, entitled Barry
J. McDonald v. Medix Resources, Inc., f/k/a International Nursing Services,
Inc., and John Yeros, CN 01CV2119, in the District Court of Arapahoe County,
Colorado, against the Company and its former President and CEO. The plaintiff
alleged (1) breach of an employment agreement, a stock option agreement and the
related stock option plan, (2) a duty of good faith and fair dealing, and (3)
violation of the Colorado Wage Claim Act. On August 13, 2002, we reached an
agreement in principal with the plaintiff to settle the litigation by paying
plaintiff $25,000 on or before October 1, 2002, with no admission of liability
on our part. This settlement agreement has been signed and the $25,000 was paid
during September 2002.

On December 17, 2001, Vision Management Consulting, L.L.C., filed suit against
us in the Superior Court of New Jersey, Law Division - Essex County, in an
action entitled Vision Management Consulting, L.L.C. v. Medix Resources, Inc.,
Docket No. ESX-L-11438-01. The complaint filed by Vision alleged breach of
contract, unjust enrichment, breach of the duty of good faith and fair dealing
and misrepresentation on the part of Medix in connection with our performance
under a negotiated settlement agreement which we had entered into to resolve
certain claims that existed between the parties and that arose out of the
termination of operations of our Automated Design Concepts division earlier in
2001. On August 12, 2002, we reached an agreement in principal with Vision to
settle this litigation by payment from us to Vision of $55,000, to be paid over
the next three months, with no admission of liability on our part. The
settlement agreement has been signed and $32,000 of the settlement amount was
paid during September 2002.

Subsequent Events - Acquisition Letter of Intent

On October 30, 2002, the Company announced that it has entered into a
non-binding Letter of Intent with PocketScript, LLC. Under the Letter of Intent,
Medix would purchase all of the assets of PocketScript and related companies,
subject to the completion of satisfactory due diligence on the part of both
companies and negotiation and execution of definitive documents by December 20,
2002. If consummated, Medix would issue its convertible preferred stock to
PocketScript, convertible into 12 million shares of common stock, subject to a
downward adjustment if a certain closing value is not realized. In addition,
Medix would issue up to $4 million in additional convertible preferred stock if
certain business enhancement events occur within six months of the closing of
the acquisition. The sale of any stock issued by Medix would be restricted for
periods from 3 to 24 months after closing. Medix must also pay to PocketScript
$100,000 on or before October 31, 2002. Medix will also enter into employment or
consulting agreements with key PocketScript employees, and will be required to
raise $1 million prior to closing. Finally, PocketScript will obtain the
termination of a right of first refusal held by a third party.

Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

We are an information technology company headquartered in New York City, with
offices in Agoura Hills, California, Greenwood Village, Colorado and Marietta,
Georgia. We specialize in the development, marketing and management of
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(R), a unique
healthcare communication technology product. Cymedix(R)software provides
healthcare institutions, such as health plans, insurers and hospitals, as well
as practicing physicians, with a set of non-invasive technology tools to enable
Internet-based health care transactions among all parties.

Implementation of the Cymedix(R)products 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 will grow 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. Using the
Cymedix(R)tools, medical professionals can order, prescribe and access medical
information from participating insurance companies and managed care
organizations, as well as from any participating outpatient service provider,
such as a laboratory or pharmacy. Currently we provide our products to physician
users at no charge, and collect transaction fees from sponsoring payors whenever
our products are used to provide services. From time to time, we will pay
honorariums or provide other incentives to selected physicians to engage their
expertise as members of Company-sponsored advisory panels provide in-depth
product feedback and establish "model office" operations in selected areas.

The detection of market restrictions that are local to Georgia has led to a
rethinking and recalibration of physician marketing and distribution
initiatives. Specifically, the Company will aggressively implement and test a
variety of complementary pathways to expedite distribution and deployment of our
technologies to physician communities in multiple markets, including: (i)
nationally-oriented brand building; (ii) potential franchising and outsource
arrangements; and (iii) licensing and co-branding opportunities.

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 ($10,636,000), ($5,415,000) and ($4,847,000) for
the years ended December 31, 2001, 2000 and 1999, respectively. At September 30,
2002 we had an accumulated deficit of ($38,777,000) and a negative net working
capital deficit of $(1,949,000). These losses and negative operating cash flow
have caused our accountants to include a "going concern" qualification in their
report in connection with their audit of our financial statements for the year
ended December 31, 2001.

We expect to continue to experience losses, in the near term, as our
connectivity products are not yet deployed in full-scale transaction production
and therefore are not generating significant revenue. Working capital is
required to support the ongoing development and marketing of the
Cymedix(R)service products until such time as revenue generation can support the
Company financially. To address this need, we are presently in negotiations with
institutional sources regarding debt and equity instruments to fund the Company.
While there can be no assurance that additional investments or financings will
be available to us as needed, management fully expects to conclude the necessary
financing in the near term. Failure to obtain such capital on a timely basis
could result in lost business opportunities, the sale of the Cymedix(R)business
at a distressed price or the financial failure of our Company.

We develop products for Internet-based communications and information management
for medical service providers, through our wholly owned subsidiary, Cymedix Lynx
Corporation. Our Cymedix(R)products are still in the development and early
deployment stage and have not generated any significant revenue to date. We are
funding our operations through the sale of our securities. Our ability to
continue to sell our securities can not be assured.

We are still in the process of gaining experience in marketing physician
connectivity products, providing support services, evaluating demand for
products, financing a technology business and dealing with government regulation
of health information technology products. While we are putting 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. See "The Company-Recent Developments."

As a developer of connectivity technology products, we will be required to
anticipate and adapt to evolving industry standards and new technological
developments. The market for our 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 that are
functional and meet the evolving needs of our clients and users in the
healthcare information systems market. The introduction of physician
connectivity products in our market has been slow due, in part, to the large
number of small practitioners who are resistant to change and the implicit costs
associated with change, particularly in a period of rising pressure to reduce
costs in the market. In addition, the integration of processes and procedures
with several payors and management intermediaries in a market area has taken
more time than anticipated. The resulting delays continue to prevent the receipt
of significant transaction fees and cause us to continue to raise money by the
sale of our securities to finance our operations.

Our early-stage market approach concentrated product distribution efforts in a
single market (Atlanta, GA), thereby amplifying the effect of localized market
restrictions on Company prospects, and delaying large-scale distribution of our
products. While the Company intends to mitigate these local factors with an
aggressive strategy to develop alternate distribution channels in multiple
markets, there can be no assurance of near term success.

We are currently devoting significant resources toward the development,
distribution and deployment of our Cymedix(R)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.

The success of our products and services in generating revenue may be subject to
the quality and completeness of the data that is generated and stored by the
physician or other healthcare professional and entered into our
interconnectivity systems, including the failure to input appropriate or
accurate information. Failure or unwillingness by the healthcare professional to
accommodate the required information quality may result in the payor refusing to
pay Medix for its services.

Certain of our products provide applications that relate to patient medication
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 do not yet have significant
transactions over our network, so that the risks of a product liability claim
are low. However, we are seeking product liability coverage, which may be
prohibitive in cost. There can be no assurance that we will be able to obtain
such coverage at an acceptable cost or that our insurance coverage would
adequately cover any claim asserted against us. Such a claim could be in excess
of the limits imposed by any policy we might be able to obtain. A successful
claim brought against us in excess of any insurance coverage we might have 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, trademarks 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 patent. 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 have been notified by a party that it believes our
pharmacy product may infringe on patents that it holds. We have retained patent
counsel who made an investigation and determined, in its opinion, that our
pharmacy product does not infringe on the identified patent. We have responded
to the initial notice based on our counsel's opinion. At this time, no legal
action has been instituted.

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 lose 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. Particularly, HIPAA and the
regulations that are being promulgated thereunder are causing the healthcare
industry to change its procedures and incur substantial cost in doing so.
Although we expect these regulations to have the beneficial effect of spurring
adoption of our software products, we cannot predict with any certainty what
impact, if any, these and future healthcare reforms might have on our software
business.

Competition can be expected to emerge from established healthcare information
vendors and established or new Internet related vendors. The most likely
competitors are companies with a focus on clinical information systems and
enterprises with an Internet commerce or electronic network focus. Many of these
competitors will have access to substantially greater amounts of capital
resources than we have access to, for the financing of technical, manufacturing
and marketing efforts. Frequently, these competitors will have affiliations with
major medical product or software development companies, who may assist in the
financing of such competitor's product development. We will seek to raise
capital to develop Cymedix products in a timely manner, however, so long as our
operations remain under-funded, as they now are, we will be at a competitive
disadvantage.

The success of the development, distribution and deployment of our
Cymedix(R)products is dependent to a significant degree on our key management
and technical personnel. We believe that our success will also depend upon our
ability to attract, motivate and retain highly skilled, managerial, sales and
marketing, and technical personnel, including software programmers and systems
architects skilled in the computer languages in which our Cymedix(R)products
operate. Competition for such personnel in the software and information services
industries is intense. The loss of key personnel, or the inability to hire or
retain qualified personnel, could have a material adverse effect on our results
of operations, financial condition or business.

We have raised substantial amounts of capital in private placements from time to
time. The securities offered in such private placements were not registered with
the SEC or any state agency in reliance upon exemptions from such registration
requirements. Such exemptions are highly technical in nature and if we
inadvertently failed to comply with the requirements of any of such exemptive
provisions, investors would have the right to rescind their purchase of our
securities or sue for damages. If one or more investors were to successfully
seek such rescission or institute such suit, Medix could face severe financial
demands that could material and adversely affect our financial position.

As of October 10, 2002, we had 68,935,315 shares of common stock outstanding. As
of that date, approximately 29,777,312 shares were issuable upon the exercise of
outstanding options, warrants or other rights, and the conversion of preferred
stock. Most of these shares will be immediately saleable upon exercise or
conversion under registration statements we have filed with the SEC. The
exercise prices of options, warrants or other rights to acquire common stock
presently outstanding range from $0.19 per share to $4.97 per share. During the
respective terms of the outstanding options, warrants, preferred stock and other
outstanding derivative securities, the holders are given the opportunity to
profit from a rise in the market price of the common stock, and the exercise of
any options, warrants or other rights may dilute the book value per share of the
common stock and put downward pressure on the price of the common stock. The
existence of the options, conversion rights, or any outstanding warrants may
adversely affect the terms on which we may obtain additional equity financing.
Moreover, the holders of such securities are likely to exercise their rights to
acquire common stock at a time when we would otherwise be able to obtain capital
on terms more favorable than could be obtained through the exercise or
conversion of such securities.

Financings that may be available to us under current market conditions,
frequently involve below market current sales, as well as warrants or
convertible debt that require exercise or conversion prices that are calculated
in the future at a discount to the then market price of our common stock. Any
agreement to sell, or convert debt or equity securities into, common stock at a
future date and at a price based on the then current market price will provide
an incentive to the investor or third parties to sell the common stock short to
decrease the price and increase the number of shares they may receive in a
future purchase, whether directly from us or in the market. The issuance of the
common stock in connection with such exercise or conversion may result in
substantial dilution to the common stock holdings of other holders of our common
stock.

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 These Three Months Ended September 30, 2002 and September 30, 2001

Direct costs increased $98,000 from $5,000 at September 30, 2001 to $103,000 at
September 30, 2002. The increase reflects expenses incurred by the company for
licenses and service fees incurred in 2002 related to establishment of
infrastructure necessary to provide connectivity services to our customers.

Research and development costs decreased approximately $195,000 or 56% for the
three months ended September 30, 2001, to the three months ended September 30,
2002. This decrease represents the Company's capitalization of software
development costs for products where the preliminary project stage has been
completed, management has committed to funding the project and completion and
use of the software for its intended use is probable. The Company is currently
capitalizing costs related to various projects under its Cymedix Lab, Cymedix
Pharmacy, Cymedix Universal Interface and Cymedix Internal Support Systems
areas.

Selling, general, and administrative expenses decreased approximately $172,000,
or 11% from $1,594,000 for the three months ended September 30, 2001, to
$1,422,000 for the three months ended September 30, 2002.

Decreases consisted of the following:

3 Months 3 Months
ended ended Expense
September September Increase/
2001 2002 (Decrease)
......... ......... ..........
Black Scholes expense related to
options and warrants granted to
non-employees for services, and
WellPoint warrant expense .......... 590,000 66,000 (524,000)

Goodwill Amortization .............. 43,000 -- (43,000)
------- ------- ---------
(567,000)

This was partially offset by the following increases in expenses:

Salaries, Wages and related taxes
and benefits ...................... 372,000 574,000 202,000

Rent expense ....................... 97,000 137,000 40,000

Legal fees and settlement costs .... 67,000 177,000 110,000

Consulting fees .................... 66,000 104,000 38,000

Insurance expense .................. 63,000 90,000 27,000
------- ------- -------- --------
417,000

Loss from impairment decreased 100% from $1,111,000 for the three months ended
September 30, 2001 to $0 for the three months ended September 30, 2002, due to
the write off of impaired goodwill relating to Automated Design Concepts, Inc.,
and ZirMed.com during the third quarter of 2001.

Net loss from operations decreased approximately $1,380,000 from $3,058,000 for
the three months ended September 30, 2001, to $1,678,000 for the three months
ended September 30, 2002, due to all of the reasons discussed above.

Financing costs decreased in 2002 due to financing costs incurred in 2001 of
$121,000 related to a $2.5 million convertible debt credit facility available
that did not exist in 2002 offset by $43,000 in financing costs related to a
convertible note issued during July 2002..

Total net loss decreased approximately $1,451,000 from $3,183,000 for the three
months ended September 30, 2001, to $1,732,000 for the three months ended
September 30, 2002, also due to the reasons discussed above.

Comparison of The Nine Months Ended September 30, 2002 and September 30, 2001

Total revenues for the nine months ended September 30, 2002, were $10,000
compared with $30,000 for the nine months ended September 30, 2001.

Direct costs increased $457,000 from $38,000 at September 30, 2001 to $495,000
at September 30, 2002. The increase reflects expenses incurred by the company
for licenses and service fees incurred in 2002 related to establishment of
infrastructure necessary to provide connectivity services to our customers.
Selling, general, and administrative expenses decreased approximately $1,221,000
or 26% from $4,611,000 for the nine months ended September 30, 2001, to
$3,390,000 for the nine months ended September 30, 2002.

The decrease is due to cost cutting measures implemented by the company during
2001, which resulted in the following decreases at September 30, 2002 compared
to September 30, 2001:

9 Months 9 Months
ended ended Expense
September September Increase/
2001 2002 (Decrease)
--------- --------- ----------

Black Scholes expense related
to options and warrants 892,000 93,000 (799,000)
granted to non-employees for
services, and WellPoint
warrant expense

Salaries and wages, 1,485,000 1,257,000 (228,000)

Consulting fees, 419,000 291,000 (128,000)

Goodwill Amortization 122,000 - (122,000)

Settlements (of lawsuits), 179,000 80,000 (99,000)

Shareholder relations, 189,000 141,000 (48,000)

Travel and entertainment, 126,000 97,000 (29,000)
--------- --------- ----------
(1,453,000)

This was partially offset by the following increases in expenses:

Rent expense 308,000 490,000 182,000

Insurance expense 153,000 255,000 102,000
--------- --------- ----------
284,000

Loss from impairment decreased 100% from $1,111,000 for the nine months ended
September 30, 2001 to $0 for the nine months ended September 30, 2002, due to
the write off of impaired goodwill relating to Automated Design Concepts, Inc.,
and ZirMed.com during the third quarter of 2001.

Net loss from operations decreased approximately $2,269,000 from $6,677,000 for
the nine months ended September 30, 2001, to $4,408,000 for the nine months
ended September 30, 2002, due to all of the reasons discussed above.

Financing costs decreased in 2002 due to financing costs incurred in 2001 of
$346,000 related to a $2.5 million convertible debt credit facility available
that did not exist in 2002, offset by financing costs of $70,000 incurred in
February 2002 related to a $1,000,000 convertible debt facility, $133,000 in
financing costs related to warrants issued to an officer of the company for
loans he had made to the company during 2001, and $43,000 in financing costs
related to a convertible note issued during July 2002.

Net loss decreased approximately $2,358,000 from $7,076,000 for the nine months
ended September 30, 2001, to $4,718,000 for the nine months ended September 30,
2002, due to the reasons discussed above.

Liquidity and Capital Resources

We have $267,000 in cash as of September 30, 2002 with net working capital
deficit of $(1,949,000) at September 30, 2002. During the nine months ended
September 30, 2002, net cash used in operating activities was $3,545,000. During
the nine months ended September 30, 2002, we raised $4,639,000 from the exercise
of options and warrants, and the issuance of common stock and issuance of
convertible debt. The additional cash generated allowed us to pay down
outstanding accounts payable outstanding at December 31, 2001. We have been
delinquent, from time to time, in the payment of our current obligations,
including payments of withholding and other tax obligations. From time to time,
members of senior management have made short-term loans to us to meet payroll
obligations. However, there is no commitment to continue that practice. As noted
above, we are presently in negotiations with institutional sources regarding
debt and equity instruments to fund the Company. While there can be no assurance
that additional investments or financings will be available to us as needed,
management expects to obtain the necessary financing. Failure to obtain such
capital on a timely basis could result in lost business opportunities, the sale
of the Cymedix(R)business at a distressed price or the financial failure of
Medix.

The Company entered into a secured convertible loan agreement, dated February
19, 2002, pursuant to which we borrowed $1,000,000 from WellPoint Health
Networks Inc. See footnote 3 to the Financial Statements. Medix converted the
note into 2,405,216 common shares on October 9, 2002.

During April 2002, the Company initiated a private placement of its $.001 par
value common stock. A total of 3,452,500 units were placed through May 14, 2002,
each consisting of one share of common stock and one warrant. Subscribers
purchased each unit for $0.40 and are entitled to exercise warrant rights to
purchase one share of the common stock of the company at a purchase price of
$.0.50 per share for a five year period on or after September 1, 2002 and prior
to September 1, 2007. The Company received a total of $1,381,000 from this
private placement. The Company has committed to register the above underlying
shares in a registration statement with the Securities and Exchange Commission
and has filed the registration statement with the Commission, [although it has
not yet been declared effective].

During July 2002, the Company initiated a second private placement of its $.001
par value common stock. A total of 3,600,000 units were placed, each consisting
of one share of common stock and one warrant. Subscribers purchased each unit
for $0.40 and are entitled to exercise warrant rights to purchase one share of
the common stock of the company at a purchase price of $.0.50 per share for a
five year period on or after January 1, 2003 and prior to January 1, 2008. The
Company received a total of $1,440,000 from this private placement. The Company
has committed to register the above underlying shares in a registration
statement with the Securities and Exchange Commission and has filed the
registration statement with the Commission, [although it has not yet been
declared effective].

Item 4: Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of Medix Resources,
Inc. have conducted an evaluation of the Company's disclosure controls and
procedures (as defined in Rule 13a-14(c) as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) within 90 days of the filing date of this quarterly report.
Based upon the results of this evaluation, the Chief Executive Officer and the
Chief Financial Officer believe that the Company maintains controls and
procedures that are effective in gathering, analyzing and disclosing all
information in a timely fashion that is required to be disclosed in its Exchange
Act reports. There have been no significant changes in the Company's controls
subsequent to the evaluation date.

MEDIX RESOURCES, INC.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is involved in claims and litigation that arise
out of the normal course of business. Currently, other than as discussed above,
there are no pending matters that in Management's judgment might be considered
potentially material to us. Management does not believe that any of the
litigation described above will have a material adverse effect on the Company.

Item 2. Changes in Securities and Use of Proceeds

Set forth below are the unregistered sales of securities by the Company for the
quarter reported on. See Note 3 to the unaudited consolidated financial
statements elsewhere herein for a description of the terms of the Units of
Common Stock and warrants.

Security Number of Exemption
Issued Date Shares Consideration Purchasers Claimed
- --------- --------- --------- ------------- ------------ -------------

Common July 2002 387,500 $155,000 A total of 2 Section 4(2);
Stock and private Rule 506 of
Warrants investors Regulation D

Common August 750,000 $310,000 A total of 10 Section 4(2);
Stock and 2002 private Rule 506 of
Warrants investors Regulation D

Common September 1,781,475 $710,000 A total of 17 Section 4(2);
Stock and 2002 private Rule 506 of
Warrants investors Regulation D

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

Ms. Patricia A Miniccuci, formerly Executive Vice President of Operations, is
leaving her employment with Medix and is currently negotiating the terms of a
separation agreement.

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

Included as exhibits are the items listed on the Exhibit Index. The
Registrant will furnish a copy of any of the exhibits listed below
upon payment of $5.00 per exhibit to cover the costs to the Registrant
of furnishing such exhibit.

99.1 Certification by Darryl R. Cohen, President and CEO under Section
302 of the Sarbanes-Oxley Act of 2002

99.2 Certification by Mark W. Lerner, Executive Vice President and CFO
under Section 302 of the Sarbanes-Oxley Act of 2002

99.3 Copy of Letter of Intent between the Company and Pocket Script
LLC dated 10/25/025

b. Reports on Form 8-K during the quarter reported on:

1) Form 8-K, filed with the Commission on August 5, 2002, reporting in Item
5 a press release announcing the initial field test findings for a
laboratory connectivity project with Loyola University Medical Center.

2) Form 8-K, filed with the Commission on August 13, 2002, reporting in
Item 5 a press release announcing the termination of the company's equity
line of credit agreement.

3) Form 8-K, filed with the Commission on September 16, 2002, reporting in
Item 5 a press release giving a progress report on the deployment of the
company's product in the State of Georgia.

4) Form 8-K, filed with the Commission on September 27, 2002, reporting in
Item 5 a press release announcing that the Board of Directors had appointed
and new President and Chief Executive Officer of the company.

5) Form 8-K, filed with the Commission on September 30, 2002, reporting in
Item 5 a press release announcing that the Board of Directors had selected
a new Chairman of the Board.

MEDIX RESOURCES, INC.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: November 13, 2002

MEDIX RESOURCES, INC.
(Registrant)

By:/s/ Mark W. Lerner
------------------
Mark W. Lerner

Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Certifications

President and CEO

I, Darryl R. Cohen, the President and Chief Executive Officer of Medix
Resources, Inc. (the "Registrant"), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Registrant;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated: November 7, 2002

/s/ Darryl R. Cohen
-------------------
Name: Darryl R. Cohen
Title: President and Chief Executive Officer

Executive Vice President and CFO

I, Mark W. Lerner, the Executive Vice President and Chief Financial Officer of
Medix Resources, Inc (the "Registrant"), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Registrant;

b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and

Dated: November 7, 2002

/s/ Mark W. Lerner
------------------
Name: Mark W. Lerner
Title: Executive Vice President and Chief
Financial Officer