The success of the development, distribution and deployment of our technology 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 technology operates. 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 expect to continue to experience losses, in the near term, until such time as our technology can be successfully deployed with physicians and produce revenue. The continuing development, marketing and deployment of our technology will depend upon our ability to obtain additional financing. Our technology is in the development stage and has not generated any recurring revenues to date. We are funding our operations now through the sale of our securities. There can be no assurance that additional investments or financings will be available to us on favorable terms, or at all, as needed to support the development and deployment of our technology. Failure to obtain such capital on a timely basis could result in lost business opportunities, the sale of our technology at a distressed price or the financial failure of our Company. We currently have 400,000,000 shares of common stock authorized for issuance under our certificate of incorporation, and as of September 30, 2003, had 96,227,565 outstanding shares of common stock and 61,250,428 shares of common stock reserved for issuance under options, warrants and shares of our convertible preferred stock and convertible debentures outstanding on such date.

          We may not be able to retain our listing on the American Stock Exchange. The American Stock Exchange has not notified us of any listing concerns. However, should our common stock trade at a low price for a substantial period of time or should the American Stock Exchange consider our circumstances for continued listing in a negative light, we may not be able to retain our listing. The American Stock Exchange has certain listing requirements in order for the Company to continue to have its common stock traded on this exchange. Although the American Stock Exchange does not identify a specific minimum price per share that the Company's stock must trade above or any other rigid standards compelling delisting, the Company may risk delisting if its common stock trades at a low price per share for a substantial period of time or if it fails to meet the financial condition, result of operations, market capitalization or other financial or non-financial standards considered by the American Stock Exchange. Trading in our common stock after a delisting, if any, would likely be conducted in the over-the-counter markets in the so-called "pink sheets" or on the National Association of Securities Dealers' Electronic Bulletin Board. As a consequence of a delisting our shareholders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock and our common stock would become substantially less attractive as collateral for margin and purpose loans, for investment by financial institutions under their internal policies or state investment laws or as consideration in future capital raising transactions.

          Although we have had operations since 1988, because of our move away from temporary healthcare staffing to provide healthcare connectivity solutions at the point of care, we have a relatively short operating history in the healthcare connectivity solutions business and limited financial data to evaluate our business and prospects, and are better considered a development stage company. In addition, our business model is likely to continue to evolve as we attempt to develop our product offerings and enter new markets. As a result, our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by development stage companies that are attempting to move into new markets and continuing to innovate with new and unproven technologies. 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.

          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 professionals 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 user refusing to pay Medix for its services.

          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 technology 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 market for our connectivity products in the healthcare information systems has been slow to develop due to the large number of practitioners who are resistant to change, as well as the financial investment and workflow interruptions associated with change, particularly in a period of rising pressure to reduce costs in the marketplace. 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. There can be no assurance that products or technologies developed by others will not adversely affect our competitive position or render our products or technology noncompetitive or obsolete.

          Certain of our products provide applications that relate to patient medication histories and treatment plans. Any failure by our products to provide and maintain 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 currently 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.

          The healthcare and medical services industry in the United States is in a period of ongoing 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. Major legislation is now before the U. S. Congress and may be adopted in some form. Some of these programs contain proposals to increase government involvement in healthcare, lower reimbursement rates and otherwise change the operating environment for our physician users and customers. Particularly, compliance with the Health Insurance Portability and Accountability Act and related regulations are causing the healthcare industry to incur substantial cost to change its procedures. 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 business.

          We have been granted certain patent rights, trademarks and copyrights relating to our software. However, patent and intellectual property legal issues for software programs, such as the our 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. Furthermore, 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 technology from infringement.

          Litigation or regulatory proceedings may be necessary to protect our intellectual property rights, such as the scope of our patent. 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 has made a preliminary investigation and determined that our product does not infringe on the identified patents. 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. No assurance can be given that efforts to protect such information and techniques 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.

          As of September 30, 2003, we had 96,227,565 shares of common stock outstanding. As of that date, approximately 61,250,428 shares were issuable upon the exercise of options, warrants or other rights, and the conversion of preferred stock and convertible debentures then outstanding. 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 $0.01 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.

          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 prevail in any such suit, we could face severe financial demands that could materially and adversely affect our financial position.

           Financings that may be available to us under current market conditions frequently involve sales at prices below the prices at which our common stock trades on the American Stock Exchange, as well as the issuance of 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 our 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.

          Historically, our common stock has experienced significant price fluctuations. One or more of the following factors influence these fluctuations:

•          unfavorable announcements or press releases relating to the technology sector;

 

•          regulatory, legislative or other developments affecting our Company or the healthcare industry generally;

 

•          conversion of our preferred stock and convertible debt into common stock at conversion rates based on current market prices or discounts to market prices, of our common stock and exercise of options and warrants at below current market prices;

 

•          sales by those financing our Company through an equity line of credit or convertible securities which have been registered with the SEC and may be sold into the public market immediately upon receipt; and

 

•          market conditions specific to technology and internet companies, the healthcare industry and general market conditions.

          In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations, which are often unrelated to the operating performance of specific companies, have had a substantial effect on the market price for many healthcare related technology companies. Factors such as those cited above, as well as other factors that may be unrelated to our operating performance, may adversely affect the price of our common stock.

           Trading of our common stock may be subject to the penny stock rules under the Securities Exchange Act of 1934 unless an exemption from such rules is available. Broker-dealers making a market in our common stock will be required to provide disclosure to their customers regarding the risks associated with our common stock, the suitability for the customer of an investment in our common stock, the duties of the broker-dealer to the customer and information regarding bid and asked prices for our common stock, and the amount and description of any compensation the broker-dealer would receive in connection with a transaction in our common stock. The application of these rules may further result in fewer market makers making a market in our common stock and further restrict the liquidity of our common stock.

          We have not had earnings, but if earnings were available, it is our general policy to retain any earnings for use in our operation. Therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future despite the recent reduction of the federal income tax rate on dividends. Any payment of cash dividends on our common stock in the future will be dependent upon our financial condition, results of operations, current and anticipated cash requirements, preferred rights of holders of preferred stock, plans for expansion, as well as other factors that the Board of Directors deems relevant. We anticipate that our future financing agreements will prohibit the payment of common stock dividends without the prior written consent of those providers.

          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 operations. 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.

Critical Accounting Policies and Items Affecting Comparability

          Quality financial reporting relies on consistent application of Company accounting policies that are based on accounting principles generally accepted in the United States. The policies discussed below are considered by management to be critical to understanding our financial statements and often require management judgment and estimates regarding matters that are inherently uncertain.

Revenue Recognition

          The Company will recognize revenue only when it has completed all of its obligations to the customer and is entitled to payment from the customer. The Company, at its stage of development, has not earned recurring revenues from the sale of its technology. The Company did not earn or recognize recurring revenue in the quarter ended September 30, 2003 from the use of its software; however, the Company signed an agreement with a client providing for $10,000 of sign-up fees and possible additional revenues in connection with the introduction of our e-prescribing software to physician customers of the client. The Company is recognizing the sign-up fees ratably during the period in which it expects to introduce the software to physicians. Additional revenue will not be recognized until it is earned and due under the terms of the agreement.

Intangibles

          Intangibles represent acquisition costs in excess of the fair value of net tangible assets of businesses purchased. In conjunction with our adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), we evaluate our goodwill annually for impairment, or earlier if indicators of potential impairment exist. The determination of whether or not goodwill or other intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the reporting units. Changes in our strategy and or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets. The Company will continue to evaluate its goodwill for impairment on an annual basis or sooner if indicators of potential impairment exist.

Long-lived Assets

          With the exception of goodwill, long-lived assets such as property and equipment, are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of these assets and their eventual disposition is less than their carrying amount. Impairment, if any, is assessed using discounted cash flows. During the nine months ended September 30, 2003, no such impairment losses were recognized.

Contingencies

          We are subject to legal proceedings, lawsuits and other claims related to labor, service and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies are made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.

Notes Receivable

          We are required to estimate the collectibility of notes receivable. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the current credit-worthiness of the counterparties. Changes in required reserves may occur due to changing circumstances, including changes in the current market environment.

Equity Transactions

          In many of our financing transactions, warrants have been issued. Additionally, we issue options and warrants to non-employees from time to time as payment for services. In all these cases, we apply the principles of SFAS 123 to value these awards, which inherently include a number of estimates and assumptions including stock price volatility factors. We based our estimates and assumptions on the best information available at the time of valuation, however, changes in these estimates and assumptions could have a material effect on the valuation of the underlying instruments.

Recently Issued Accounting Pronouncements

          In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity ("SFAS 150"), which is effective for the first interim period beginning after June 15, 2003, with the exception of certain provisions which the FASB has deferred.. SFAS 150 establishes standards for the Company's classification of liabilities in the financial statements that have characteristics of both liabilities and equity. The Company believes the adoption of SFAS 150 will not have a material effect on the Company's consolidated financial statements.

          In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure ("SFAS 148"), an amendment to SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which provides alternatives for companies electing to account for stock-based compensation using the fair value criteria established by SFAS 123. The Company intends to continue to account for stock-based compensation under the provisions of the Accounting Principles Board's Option No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), but has provided the required disclosures of SFAS 123 and SFAS 148.

Results of Operations

Comparison of the three months ended September 30, 2003 to the three months ended September 30, 2002

          At present we are not receiving recurring revenue from the sale of our products. The revenue recorded in the 2003 period was related to the ratable recognition of sign-up fees in connection with the agreement entered into with a client during the period. No revenue was recognized in the 2002 quarter.

          Software and technology costs totaled $789,000 during the quarter ended September 30, 2003, representing a $636,000 increase over the prior year's spending of $153,000. Effective December 31, 2002, the Company no longer capitalized its software development expenses as it considered its technology to be marketable. Software development costs of $147,000 were capitalized in the 2002 period. Software and technology costs for the three months ended September 30, 2003 reflected an increase in personnel costs of approximately $79,000 and higher consulting and technical licensing costs of $226,000, legal expenses of $60,000 and other expenses of $124,000. Higher personnel and consulting costs were incurred to support the development of the Company's technology.

          Selling, general, and administrative expenses totaled $4,134,000 during the quarter ended September 30, 2003, versus $1,525,000 in the comparable period last year. The increase of $2,609,000 is primarily accounted for by the write off of $462,000 related to advances for development of technology (see note 2, Acquisition of Assets), an increase in advertising and promotion costs of approximately $636,000, an increase in travel related costs of $185,000 and personnel related costs of $164,000, consulting costs of $543,000, accounting and legal fees of $241,000 and the value of options to directors of $237,000. Consulting expenses increased due to spending to develop marketing relationships in newly defined market segments as well as general consulting.

          Other income (expense) reflects a net expense of $138,000 in the 2003 period, in comparison with an expense of $11,000 in the 2002 quarter, largely caused by an increase in interest expense. Financing costs of $364,000 were charged to the 2003 quarter resulting from the sale of the Notes while the 2002 period only had a charge of $43,000.

          Net loss for the three months ended September 30, 2003 was $5,424,000 as compared with a net loss of $1,732,000 for the three months ended September 30, 2002.

          The three months ended September 30, 2003 was also impacted by a deemed disproportionate dividend caused by the modification of warrants held by purchasers of our common stock. The Black-Scholes value of that modification was $113,000 and is reflected as an increase in net loss applicable to common stockholders and basic and diluted loss per share.

Comparison of the nine months ended September 30, 2003 to the nine months ended September 30, 2002

          It was determined that deferred revenue of $173,000 at the end of 2002 should have been recognized in the first quarter of 2003. This amount is now therefore reflected in the nine months ended September 30, 2003.

          Software and technology costs for the 2003 nine-month period were $1,980,000 as compared to $533,000 for the nine months ended September 30, 2002. The increase was $1,447,000. Effective December 31, 2002, the Company no longer capitalized its software development expenses as it considered its technology to be marketable. Software development costs of $521,000 were capitalized in the 2002 period. Personnel costs increased by $170,000, consulting costs by $421,000, legal fees by $165,000 and other expenses by a net of $170,000, in the 2003 period over the prior comparable period.

          Selling, general and administrative expenses for the nine months ended September 30, 2003 were $7,811,000 compared to $3,885,000 for the first nine months of 2002. This increase of $3,926,000 is largely due to the write off of $462,000 related to advances for development of technology, increases of advertising and marketing of $758,000, of personnel costs of $187,000, of travel and related costs of $462,000, of consulting fees of $886,000, of accounting and legal costs of $495,000 and the value of options to directors of $237,000.

          In addition, we entered into an agreement to acquire PocketScripts, LLC in December 2002 and the agreement was terminated in March 2003. Costs associated with the terminated acquisition amount to $142,000 and relate to the write-off of certain expenses associated with that potential acquisition.

          Other income (expense), including interest expense, for the nine months ended September 30, 2003 was an expense of $129,000 compared to an expense of $64,000 in the 2002 nine-month period. Financing costs increased by $253,000 in the 2003 nine-month period compared to the nine months ended September 30, 2002.

          The nine months ended September 30, 2003 was also impacted by a deemed disproportionate dividend caused by the modification in the first quarter of 2003 of warrants held by certain warrant holders and in the third quarter of warrants held by certain purchasers of our common stock. The Black-Scholes value of those modifications was $1,246,000 and is reflected as an increase in net loss applicable to common stockholders and basic and diluted loss per share.

          Our net loss for the nine months ended September 30, 2003 was $10,387,000 compared to $4,718,000 for the first nine months of 2002.

Liquidity and Capital Resources

          As of September 30, 2003 the Company has $31,000 in cash and a net working capital deficit of $3,602,000. During the nine months ended September 30, 2003, our cash and cash equivalents decreased by $1,338,000. Net cash used in operating activities was $7,575,000 reflecting our net loss of $10,360,000. During the nine months ended September 30, 2003, net cash used in investing activities was $460,000.

          During the nine months ended September 30, 2003, the Company raised $6,697,000, net, from financing activities; reflecting $3,180,000 from the issuance of common stock net of cash offering costs of $169,000, $773,000 from the exercise of options and warrants, and $2,833,000 from the sale of the Notes. These financing amounts were partially offset by principal payments on debt of $89,000.

          We are currently funding our operations through the sale of our securities, and continued to do so in the fourth quarter of 2003. We also funded the Frontline acquisition through a sale of securities. See note 9, Subsequent Events. Under our financing agreements, when we sell securities convertible into our common stock we are required to register those securities so that the holder will be free to sell them in the open market. There can be no assurance that additional investments or financings will be available to us on favorable terms, or at all, as needed to support the development and deployment of our technology. Failure to obtain such capital on a timely basis could result in lost business opportunities, the sale of our technology at a distressed price or the financial failure of our Company. See "Forward Looking Statements and Associated Risks".

Subsequent Events

          In October 2003 the Company borrowed $600,000 and $250,000 and issued 10% promissory notes due on November 15, 2003 and December 1, 2003, respectively. These notes are secured by the pledge of one million shares of the Company's common stock owned by Darryl Cohen, the Company's Chairman and CEO, and by 500,000 shares of the Company's common stock owned by Andrew Brown, the Company's President and COO. In connection with these transactions the Company issued warrants expiring in October 2008 to the finder and its designees to purchase a total of 260,000 shares of its common stock at $.01 per share, combined with warrants to purchase in the aggregate 140,000 shares of the Company's common stock at $.01 per share in satisfaction of a finder's fee due on the September Note discussed above. The Black-Scholes valuation of these warrants to purchase 400,000 shares is $176,000, 65% of which will be amortized in the fourth quarter and the balance over the life of the September Note.

          In October 2003 the holders of the Series 3-01, Series 3-02 and Series 3-03 convertible debentures elected to convert them into common stock, and the holder of the Series 3-01 debenture, who received a warrant to purchase 1,500,000 shares of common stock at $.01, also exercised the warrant in a cashless exercise. The Company issued a total of 13,330,743 shares of its common stock, of which 11 million shares were based upon the principal amount of these debentures, 1,476,923 on the exercise of the warrant and the balance of 853,820 shares were issued for interest and due to the delay in the effectiveness of the registration statement applicable to these shares. The value of the 853,820 shares on October 24, 2003, the date of issue, at $.48 per share (the closing price of our common stock on the American Stock Exchange that day), less $33,000 of interest and $105,000 of late effectiveness penalty, both accrued in the third quarter of 2003, is $273,000, and that amount will be charged to expense in October 2003. As a result of the conversion of these debentures, the total unamortized debt discount and issuance costs of $1,439,000 related to these converted debentures as of September 30, 2003 will be charged to expense in the fourth quarter of 2003.

          In September 2003 Joan Herman and Guy Scalzi resigned as directors of the Company and the options granted to Mr. Scalzi to purchase 200,000 shares of our common stock at $.25 on July 10, 2003, were forfeited with no accounting impact to the Company. Ms. Herman had declined to accept any options for her service on the Board. On October 7, 2003 Andrew Brown, David Friedensohn, J. D. Kleinke and Jeffrey A. Stahl, MD, were elected as directors. Each of them were granted an option to purchase 200,000 shares of common stock of the Company, vesting in one year if they are still serving as a director at that time, at an exercise price of $.50 per share, the closing price of the Company's common stock on the American Stock Exchange that day.

          On October 9, 2003 Patrick Jeffries resigned as Chairman of the Board of the Company and the next day the Board elected Darryl Cohen as Chairman in his place, in addition to Mr. Cohen's duties as the Company's Chief Executive Officer. At the same meeting the Board elected Andrew Brown, formerly serving the Company as a consultant, to become its President and Chief Operating Officer. The various options and restricted stock granted to Mr. Jeffries on July 10, 2003, vested in full upon his resignation. The value of these options at date of full vesting, in excess of amounts charged to expense in the third quarter of 2003 was $826,000, and that amount will be charged to expense in the fourth quarter of 2003. The value of the options granted to Mr. Brown while he was a consultant to the Company, in excess of the amounts charged to expense in the third quarter of 2003 was $141,000 and that amount will be charged to expense, along with any amounts he earns as President and Chief Operating Officer during the fourth quarter of 2003.

          At its October 2, 2003 meeting, the Board awarded six employees and one consultant options to purchase a total of 1,100,000 shares of Common Stock at exercise prices equal to the closing price of our common stock on the American Stock Exchange on date of grant.

          In October 2003 the Company purchased 75 shares of its 1999 series C convertible preferred stock, representing all of the remaining outstanding shares of such series, and issued 150,000 shares of its common stock in exchange therefore. This transaction will be treated as a capital transaction with no net value being recorded in equity; however, the fair value of the common shares issued in excess of the carrying value of the preferred shares will be accounted for as a dividend to the affected equity holders during the fourth quarter of 2003.

          In October 2003 the Board, subject to shareholder approval, adopted the 2004 Stock Incentive Plan and the 2003 Consultants Stock Option, Stock Warrant and Stock Award Plan under which 15,000,000 and 5,000,000 shares of common stock, respectively, have been reserved for issuance.

          On November 5, 2003 the Company sold a $1,000,000 7% convertible debenture that matures on April 30, 2005, but the holder may require the Company to redeem it after March 31, 2004 at a price that would reflect any increase in the market price of our common stock above the conversion price. The debenture is convertible into common stock at $.25 per share while the closing price of our common stock on the American Stock Exchange on November 5, 2003 was $.66 and, therefore, this debenture was issued with an in-the-money conversion feature. The Company reserved 8,000,000 shares of its common stock pursuant to this debenture.

          On November 7, 2003 the Company sold $3,000,000 of its 7% convertible promissory notes to two buyers, these notes being convertible at $.25 per share and also issued warrants to purchase 600,000 shares of common stock at $1.00 per share to the buyers. Finders were paid $200,000 in cash and received 7% convertible debentures in the face amount of $200,000 convertible into common stock at $.25 per share. The closing price of our common stock on the American Stock Exchange on November 7, 2003 was $.77 and therefore these notes and debentures were issued with in-the-money conversion features. The Company reserved 26,400,000 shares of its common stock pursuant to these notes, warrants and debentures.

          On November 7, 2003 the Company completed the purchase of substantially all of the tangible and intangible assets, and assumed certain liabilities (such liabilities at June 30, 2003 approximated $249,000), of the Frontline Physicians Exchange and Frontline Communications divisions of The Duncan Group, Inc. The Company (a) paid $1,567,000 in cash at the closing, (b) $500,000 worth of its common stock (approximately 916,000 shares) the resale value of which is guaranteed to the sellers under certain conditions, (c) $1,500,000 worth of its common stock (approximately 2,547,000 shares) that will be delivered to the sellers only if the revenue of the acquired business exceeds $1 million for all of 2003, (d) a royalty equal to 15% of the gross revenue of the business during 2003 and 2004, (e) up to an additional $1,500,000 worth of common stock based on the number of physician offices that are active customers of the seller who adopt the Company's technology and generate certain revenues to the Company, and (f) an additional $1 million of common stock if the average annual revenue of the acquired business for the calendar years 2003 and 2004 equals or exceeds $1,500,000.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

          We do not hold or engage in transactions with market risk sensitive instruments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

          Our management, including our chief executive officer and chief financial officer, have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2003, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e). Based upon that evaluation, our chief executive officer and chief financial officer have concluded that as of such date, our disclosure controls and procedures in place are adequate to ensure material information and other information requiring disclosure is identified and communicated on a timely basis.

Changes in Internal Control Over Financial Reporting

          During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.  

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 below, there are no pending matters that in management's judgment may be considered potentially material to us.

          During the quarter ended September 30, 2003 the Company was in default in the payment of severance obligations under separation agreements with two former executive officers. On June 3, 2003 these two former executive officers, John Prufeta and Patricia Minicucci, commenced a lawsuit against the Company by filing a Complaint in the Supreme Court of the State of New York for Nassau County (Index No. 03--008576), in which they alleged that the Company breached these separation agreements entered into in December 2002, and that the Company failed to repay amounts loaned by Mr. Prufeta to the Company. On July 15, 2003, the Company paid in full the amounts so loaned together with interest, without admitting the claimed default. The Company intends to honor its future severance obligations to these two former executives and has commenced negotiations with the plaintiffs to settle the dispute amicably and to have them withdraw the Complaint without prejudice as an indication of good faith in the settlement negotiations. The Complaint was served on the Company on July 23, 2003. The Company believes that any settlement of this matter will not substantially increase the liabilities reflected on the Company's balance sheet dated September 30, 2003 included in this Form 10-Q or the number of shares reserved for issuance under existing options, warrants or convertible preferred stock set forth in this Form 10-Q.

          In August 2003 the Company commenced an action in the Federal district court for the southern district of Ohio against PocketScript, LLC for $154,000, representing the unpaid principal amount of a note payable to the Company for advances made to PocketScript while the Company was performing due diligence leading to a potential purchase of PocketScript, which did not occur. In what the Company believes to be essentially a negotiating tactic to obtain a more favorable settlement in the Company's case, the individuals who were owners of an entity that was an owner of PocketScript filed an action on September 15, 2003 against the Company and against Darryl Cohen, our CEO, personally, in the Court of Common Pleas, Hamilton County, Ohio. The Company was served on October 27, 2003. This action alleges breach of contract and claims $850,000 of damages, and also alleges fraud and claims $1 million of "compensatory" damages and $3 million of punitive damages. The Company believes that this action is entirely without merit and it intends to defend against it.

Item 2. Changes in Securities and Use of Proceeds

* The Company issued the identified securities in private placement

transactions to accredited investors who invested in the Company. The

12,330,163 shares of common stock including those covered by warrants were

not registered under the Securities Act of 1933 (the "Act") for purposes of

the initial issuance of the shares to the investors. For purposes of the

initial issuance, the Company relied upon the exemption from registration

afforded by Section 4(2) of the Act. To support such exemption the

investors made various investment representations to the Company and the

certificates representing the warrants and the shares of common stock bore

a restrictive legend.

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.

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

SIGNATURES

          Pursuant to 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, and the undersigned has also signed in his capacity as principal financial officer of the Registrant.

Dated: November 14, 2003

EXHIBIT INDEX

EXHIBIT 31.1

I, Darryl R. Cohen, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Medix Resources, Inc.;

2.     Based on my knowledge, this 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 report;

3.     Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

EXHIBIT 31.2

I, Arthur Goldberg, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Medix Resources, Inc.;

2.     Based on my knowledge, this 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 report;

3.     Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

EXHIBIT 32.1

CERTICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Medix Resources, Inc. ( the "Company") on Form 10-Q for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Darryl R. Cohen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Darryl R. Cohen

Chief Executive Officer

Date: November 14, 2003

EXHIBIT 32.2

CERTICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Medix Resources, Inc. ( the "Company") on Form 10-Q for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Arthur Goldberg, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Arthur Goldberg

Chief Financial Officer

Date: November 14, 2003