U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  Form 10-KSB

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 For the Fiscal Year Ended December 27, 1998
[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      FOR THE TRANSITION PERIOD FROM _______________ TO ____________

                         Commission File Number 0-24768

                             MEDIX RESOURCES, INC.
                (Formerly INTERNATIONAL NURSING SERVICES, INC.)
                 (Name of small business issuer in its charter)

           Colorado                                    84-1123311
(State or Other Jurisdiction of                      (IRS Employer
Incorporation or Organization                      Identification No.)

                      7100 E. Belleview Avenue, Suite 301
                           Englewood, Colorado 80111
                    (Address of Principal Executive Offices)

                   Issuer's Telephone Number: (303) 741-2045

      Securities Registered Under Section 12(b) of the Exchange Act: None

         Securities Registered Under Section 12(g) of the Exchange Act:

                         Common Stock. $.001 Par Value;
                   1994 Warrants to Purchase Common Stock

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 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. Yes [X]
No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.[X]

Registrant's revenues for its most recent fiscal year:  $17,412,000

The  aggregate   market  value  of  the   registrant's   Common  Stock  held  by
non-affiliates  of  the  registrant  as  of  April  6,  1999  was  approximately
$15,060,000  (for purposes  of  the  foregoing  calculation  only,  each  of the
registrant's officers and directors is deemed to be an affiliate).

There were  21,643,581  shares of  registrant's  Common Stock  outstanding as of
April 6, 1999.

Documents  incorporated  by  reference:   Portions  of  the  registrant's  Proxy
Statement  that will be filed with the  Securities  and Exchange  Commission  in
connection with the registrant's annual meeting of stockholders are incorporated
by reference into Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

                               TABLE OF CONTENTS


PART I ................................................      1

ITEM 1. DESCRIPTION OF BUSINESS .......................      1
ITEM 2  DESCRIPTION OF PROPERTY .......................      9
ITEM 3. LEGAL PROCEEDINGS .............................     10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
        HOLDERS .......................................     11

PART II ...............................................     12

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS ...........................     12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
        OF OPERATION ..................................     12
ITEM 7. FINANCIAL STATEMENTS ..........................     19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
        ON ACCOUNTING AND FINANCIAL DISCLOSURE ........     20

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
        CONTROL PERSONS; COMPLIANCE WITH SECTION
        16(A) OF THE EXCHANGE ACT .....................     20
ITEM 10.EXECUTIVE COMPENSATION ........................     20
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
        AND AGREEMENT .................................     20
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS      20
ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K ..............     21

<PAGE>

                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS

General

Medix Resources,  Inc., a Colorado corporation,  formerly known as International
Nursing  Services,  Inc. (the  "Company"),  has two principal lines of business,
healthcare services and medical information software.

The Company,  doing business as National Care Resources and  TherAmerica,  Inc.,
provides skilled nursing, therapists, rehabilitation and other medical personnel
for  supplemental  staffing in home care and in a broad  spectrum of health care
and educational  facilities.  The Company's  supplemental  staffing services are
provided through a pool of approximately 900 caregivers  including  licensed and
registered  nurses,  rehabilitation,  physical,  respiratory,  occupational  and
speech therapists,  medical social workers, home care aides and other unlicensed
personnel.  The Company's supplemental and home care staff currently serves over
300  hospitals,  clinics,  nursing  homes,  physician  groups,  assisted  living
facilities, health maintenance organizations and other health care institutions,
a variety of  educational  facilities  and  individual  home care  clients.  The
Company  operates  through  offices  located in Houston and San Antonio,  Texas,
Emeryville  and  Ontario,  California,  and  Englewood,  Colorado.  The  Company
currently  provides  supplemental  staffing  services and  therapists  in Texas,
Colorado and California.  Travel nurses and therapists are provided in seventeen
states and the District of Columbia.

In early 1998, the Company acquired Cymedix Corporation,  which has developed an
Internet-based  communications and information management product, Cymedix Lynx,
which the Company began marketing to medical professionals nationwide. Growth of
the medical  information  management  marketplace is being driven by the need to
share  significant   amounts  of  clinical  and  patient   information   between
physicians, their outpatient service providers,  hospitals,  insurance companies
and  managed  care  organizations.  This  market  is one of the  fastest-growing
sectors in healthcare  today,  commanding a projected  two-thirds of health care
capital investments.  Cymedix Lynx is a secure medical  communications  product,
with patent application pending,  that makes use of the Internet.  Using Cymedix
Lynx, medical professionals can order,  prescribe and access medical information
from  insurance  companies and managed care  organizations,  as well as from any
participating  outpatient  service  provider  such  as a  laboratory,  radiology
center,  pharmacy or hospital.  The Company  will  provide its software  free of
charge to  physicians  and clinics,  and will collect user fees  whenever  these
products connect to the Internet.  The product's  relational database technology
provides  physicians  with a permanent,  ongoing record of each patient's  name,
address,  insurance  or  managed  care  affiliation,  referral  status,  medical
history,  personalized  notes and an audit trail of past encounters.  Physicians
can  electronically  order medical  procedures,  receive and store test results,
check patient eligibility,  make medical referrals, request authorizations,  and
report  financial and encounter  information  in a cost-  effective,  secure and
timely manner.

During 1999, the Company's  Chairman and CEO intends to accomplish the following
goals: (1) the sale of all the business operations of the Company other than the
operations of its wholly-owned subsidiary,  Cymedix Lynx Corporation; (2) adding
at least three  additional  members to the Board of Directors of the Company who
have experience and expertise in one or more  disciplines  that are important to
the success of a company  operating in the computer software  business;  (3) the
election by the Board of Directors of the Company of a successor  President  and
Chief Executive Officer who has experience in successfully  operating a software
company or marketing medical software products;  and (4) obtaining  financing to
provide  working capital to the Company and to fun the  development,  marketing,
sales and  servicing  of  Cymedix  computer  software,  in an amount of at least
$1,000,000.


                                     - 1 -

<PAGE>

History of the Company; Acquisitions and Dispositions

The Company was  incorporated  in the State of  Colorado on April 22,  1988.  On
August 12,  1988,  the Company  completed a  self-underwritten  public  offering
pursuant to which an aggregate of 150,100  units,  each unit  consisting  of one
share of common stock and one  redeemable  warrant,  were offered and sold.  The
Company  received gross proceeds of $150,100 from its initial public offering of
such units.  On September 19, 1994, the Company  completed a public  offering of
225,000 Units,  each Unit consisting of two shares of preferred stock, one share
of common stock and three 1994 Warrants.  This offering raised gross proceeds of
$5,287,500.  $1,937,500  of the  proceeds  of this public  offering  was used to
finance the  Company's  acquisitions  in  September,  1994 of certain  assets of
Paxxon  Services,  Inc.  ("Paxxon  Services")  and certain assets of Mint Energy
Corporation, doing business as Nurse Connection ("Nurse Connection").

In April 1996, the Company  acquired  certain  assets of Ellis Health  Services,
Inc.  ("Ellis").  The purchase  price for the Ellis assets was  $1,025,000.  The
purchase price was paid by issuing 256,250 shares of the Company's  common stock
and  guaranteeing  that  the  former  owner  of  Ellis  would  receive  at least
$1,025,000 in proceeds from the sale of the shares. Ellis had been an affiliated
company of Paxxon Services, Inc., which the Company acquired in September, 1994.

In July 1996, the Company  acquired certain assets of STAT Health Care Services,
Inc.  ("STAT") for a purchase price of  approximately  $2,145,000.  The purchase
price was paid $1,550,000 in cash,  approximately $468,500 worth of common stock
of the Company and warrants to purchase  125,000 shares of common stock at $1.88
per share, which have since expired.

In January 1997, the Company acquired  certain assets of Colorado  Therapists On
Call,  Inc.  ("CTOC")  and  Professional  Healthcare  Providers,  Inc.  ("PHP"),
together  doing  business  under  the  name  TherAmerica  ("TherAmerica").   The
acquisition  was  effective  January 1, 1997 and the Company paid  $2,000,000 in
cash and assumed  approximately  $175,000  in  liabilities  for the  TherAmerica
assets which was treated as a purchase for accounting purposes.

In September 1997, the Company sold its Denver home care and certified  medicare
provider  operations for $200,000 in cash. In October 1997, the Company sold the
assets and  business  of Paxxon  Services,  one of its New York  operations  for
$1,468,000.  And,  in  September  1998,  the  Company  sold  Ellis  and STAT for
$1,463,000.  The three New York operations provided approximately $10,262,000 in
revenue for the 1997 fiscal  year,  and the two  remaining  New York  operations
provided approximately  $4,679,000 in revenue for the 1998 fiscal year. The sale
of these operations has and will continue to substantially  reduce the Company's
revenues.

In  January  1998,  the  Company  acquired  Cymedix  Corporation,  a  California
corporation  ("Cymedix")  which was merged into the Company's  own  wholly-owned
subsidiary,  Cymedix Lynx Corporation,  a Colorado corporation,  and the Company
issued  or  committed  to issue  7,212,985  shares  of its  Common  Stock to the
shareholders  of Cymedix  and granted or  committed  to grant  options  covering
1,200,000 shares of the Company's Common Stock to employees of the subsidiary.

The  Company  intends  to  dispose  of all of its  healthcare  operations  if an
adequate price is offered and to focus its  operational  efforts on the software
products of  Cymedix.  The Company may pursue  other  possible  acquisitions  or
dispositions as opportunities are presented.  However,  the Company has no other
current   agreements,   understandings   or  commitments   regarding  any  other
acquisitions or dispositions.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION - Overview."

                                     - 2 -

<PAGE>

Healthcare Services

Overview.  The Company provides medical  supplemental  staffing,  principally to
healthcare  institutions in the form of either staffing done on a daily basis or
through travel nurse assignments that are generally  thirteen weeks or longer in
length.  Health care  institutions use  supplemental  staffing for the following
reasons:

     Local and regional health care worker shortages;

     Episodic needs for specialty health care during specific disease epidemics;

     Increased patient acuity mix within the hospital markets;

     Increases in labor intensive medical care technology;

     The aging of the population;

     Hospital  trends to contain  costs by cutting  back  staff  positions  to a
     minimal  level and  supporting  periodic  increased  occupancy  rates  with
     supplemental staffing;

     Early discharge  pressures have caused hospitals to provide more outpatient
     and home health care programs; and

     Numerous  health care  organizations  have developed  special or innovative
     arrangements for early discharges,  including both pre- and  post-admission
     services.

Proposals to reform the United States healthcare system have been made from time
to time over the last  decade,  and can be  expected  to be made in the  future.
Legislation  at both the federal  and state  levels  have  increased  government
involvement  in  health  care,  lowered  reimbursement  rates,  limited  capital
expenditures and otherwise  changed the operating  environment for the Company's
customers.  Future  legislation  to enact  current and future  proposals  can be
expected.  Healthcare facilities have reacted to these proposals and legislation
and the  uncertainty  surrounding  them by curtailing the use of flexible staff,
which adversely affects the Company's business.  The Company cannot predict with
any certainty what impact, if any,  proposals for healthcare  reforms might have
on the  Company's  business.  The  healthcare  industry  is subject to  changing
political,  economic and regulatory  influences  that may affect the procurement
practices  and  operations  of hospitals  and other  healthcare  facilities.  In
addition,  major third party payers of hospital services  (insurance  companies,
Medicare and  Medicaid)  have  significantly  revised  payment  procedures in an
effort to contain health care costs. These developments have negatively impacted
the Company's operations.

Business Strategy The Company's strategy is to provide comprehensive services to
patients located in hospitals, health care organizations, and homes. Staffing is
provided in homes,  school settings,  hospitals,  clinics and physician  offices
utilizing a supplemental diversified mix of traditional nursing and other allied
health  care  professionals  such  as  physical,  occupational  and  respiratory
therapists, home health aides, and other nursing professionals.

The services  provided by the Company bridge the gap between  hospital and home.
Frequently,  the same professionals  caring for patients in the hospital setting
are  involved  in the care at home.  Healthcare  institutions  request  that the
Company provide the same trained  professional for both home and hospital health
care.  This  request  has driven the Company to provide  supplemental  staffing,
travel nurse and home health care in each of the  geographical  markets that the
Company operates.

                                     - 3 -
<PAGE>

Other key elements of the Company's strategy include:

     Improvement of customer relationships;

     Continued contracting and marketing efforts; and

     Expansion services in response to customer demand.

The  foregoing  business  strategies  include  forward-looking  statements,  the
realization of which are subject to risks and uncertainties that may be impacted
by certain  important  factors  discussed  elsewhere  herein.  See "MANAGEMENT'S
DISCUSSION  AND ANALYSIS OR PLAN OF OPERATION -  Forward-Looking  Statements and
Associated Risks".

Customers.  The Company's  customers include,  but are not limited to, patients,
hospitals,  physicians,  third party payers,  educational  facilities  and other
types of health care organizations.  Billing,  payment arrangements and staffing
agreements  with the Company's  customers are  stipulated by contracts  with the
customer.  The  contracts  are not exclusive and do not obligate the customer to
utilize a certain amount of service for any specific  period of time.  Customers
often use  several  supplemental  staffing  agencies to meet their needs and the
Company  competes with these agencies on the basis of pricing,  availability  of
caregivers, and quality of service.

Services.  The Company offers a broad range of professional and support services
to meet medical and personal  needs in the home or in health care or educational
facilities.   The  following  provides  a  brief  description  of  the  services
customarily  provided by skilled nursing  personnel and other caregivers  placed
with customers.

     Registered Nurses provide a broad range of nursing care services, including
     skilled  observation  and  assessment,  instruction  of patients  regarding
     medical  and  technical   procedures,   direct  hands-on   treatment,   and
     communication  and  coordination  with  the  attending  physician  or other
     service agencies.

     Licensed  Practical  Nurses perform,  under the supervision of a registered
     nurse,  technical nursing procedures,  which include  injections,  dressing
     changes, assistance with ambulation and catheter care.

     Physical and  Rehabilitation  Therapists  provide  services  related to the
     reduction  of pain and  improved  rehabilitation  of  joints  and  muscles,
     including  strengthening and range-of-motion  exercises,  heat lamp therapy
     and massage.

     Occupational  Therapists  assist  patients in  restoring  their  ability to
     perform routine activities of daily living by offering  instruction in self
     care,  discussing  techniques  for  coping  with  physical  disability  and
     suggesting the use of assistant  devices or home adaption to make living at
     home easier.

     Speech  Therapists  retrain  patients who have  swallowing  difficulties or
     speech, language or hearing problems to improve their physical capabilities
     or communication abilities.

     Respiratory Therapists specialize in the prevention, assessment, treatment,
     management, and rehabilitation of individuals with respiratory disorders or
     cardiopulmonary disease.

                                     - 4 -

<PAGE> 

     Home Health and certified  Nurse Aides,  working under the supervision of a
     registered nurse, provide health-related services and personal care such as
     assistance  with  ambulation,   limited  range-  of-motion   exercises  and
     monitoring of vital signs.

     Homemakers/Companions  provide  personal  care and  assistance  with  daily
     living activities, including bathing, dressing, grooming, meal preparation,
     light housekeeping and occasional shopping for essential items.

     Rehabilitation  Consulting  provides  medical  and  vocational  counseling,
     consulting, training and expert testimony to businesses,  employee-patients
     and  disabled   individuals   in  connection   with   physical   disability
     rehabilitation   programs  and   obligations   under  the  Americans   with
     Disabilities Act.

Recruiting.  The Company is active in recruiting  skilled nursing  personnel and
other caregivers in order to assure availability of personnel as customer demand
warrants.  Location of assignment,  compensation  and benefits are generally the
principal factors  considered by medical  personnel when determining  whether to
contract with a particular  flexible staffing  business.  To date, the Company's
operations have not been adversely affected by the shortage of nurses in certain
geographical regions or specialties.

The Company's  ability to deliver quality nursing services is dependent upon the
Company's ability to recruit qualified skilled nursing personnel.  The Company's
recruiting  efforts  include  advertising,  attendance  at national and regional
conventions,  personal  and  professional  referrals  and  participation  by the
Company's  officers  in nursing and other  trade  associations.  The Company has
recruited  and  continues  to recruit  medical  personnel  and has entered  into
agreements  with other staffing  agencies  whereby the Company can use the other
agency's  personnel under  contract.  The Company has compiled a listing of over
900  qualified  nurses  and  medical  personnel  who are  classified  by skills,
experience  and  availability  for  assignment.  These nurses and other  medical
personnel generally do not work exclusively for the Company.  The Company has in
the past been generally successful in meeting its staffing requirements from its
existing  pool of  caregivers  and, in cases  where a  particular  specialty  or
expertise was  unavailable,  the Company has been successful in hiring personnel
on a subcontract basis from other flexible staffing companies.

Marketing and Sales. The Company's clientele currently consists of hospitals and
other  healthcare and educational  facilities  located in Texas,  California and
Colorado and its travel  nursing and therapist  clientele  consists of hospitals
and  other  healthcare  facilities  in  seventeen  states  and the  District  of
Columbia.   The  Company  has  secured   non-exclusive   agreements   to  supply
supplemental  staff to these  healthcare  facilities for a period of between one
and two years. The Company derives a significant portion of its business through
its marketing efforts and expects to continue its marketing efforts to local and
regional  hospital  chains as the  expected  consolidation  in the  health  care
industry  is  anticipated  to result in an  increasing  number of  regional  and
national hospital chains.

The Company  markets its  supplemental  staffing  services  principally  through
direct contact with hospitals,  direct mail, attendance at national and regional
conventions and seminars and telephone solicitations. Management anticipates the
Company will continue to develop its marketing programs.

                                     - 5 -

<PAGE>

The Company's  marketing and sales strategy  consists of working to increase its
shift  count and  improve  its gross  margins  with  existing  clients,  bidding
competitively  on new contracts and  continuing to expand its  opportunities  to
place its  personnel  at  non-traditional  facilities.  The  Company  intends to
utilize the existing  infrastructure in each of its branch offices to expand its
service offerings in each branch office.

Competition.  The Company's  supplemental staffing businesses compete with other
medical recruitment and supplemental staffing organizations which offer the same
or similar  services  provided by the Company.  Many of these  competitors  have
greater  financial  and  other  resources  than are  available  to the  Company.
Competition for hospital and other health care clients is generally based on the
ability to provide qualified nurses and medical personnel on a timely basis in a
cost-competitive  manner. The Company also experiences competition in recruiting
for professional nursing staff.

The  Company  believes  the key  competitive  factors  in its  industry  include
service,  price and its ability to deliver  staff to the  geographic  area where
needed.  The range of  specialized  services  offered,  together  with the price
charged for the services, are also competitive factors in attracting clients.

Regulation.  The healthcare  system in the United States is highly  regulated at
the federal,  state and local level.  The object of such regulation is generally
quality and, more recently,  cost control.  Most individual healthcare providers
are  required  to be  licensed  at the state by the states in which the  provide
services. As mentioned earlier, over the last decade, several programs have been
proposed to reform the United States healthcare system, and certain  legislation
enacted  at the  federal  and  state  levels.  This  legislation  has  generally
increased governmental  involvement in healthcare.  The Company, as it currently
operates, is not required to be licensed by any governmental agency. Most of the
Company's  customers are licensed and the impact of  governmental  regulation on
these  customers  has in the past and may in the  future  adversely  affect  the
Company's  operations.  There can be no  assurance  the Company  will be able to
operate profitably in the current regulatory environment.

Several  states have enacted  legislation  requiring  providers of  supplemental
staffing  services to publicly post their billing rates.  At least one state has
adopted  legislation that provides for regulatory  review of such billing rates.
The adoption of similar legislation by other states could have an adverse impact
on the supplemental staffing industry.

The Company is subject to various city,  county and state payroll,  occupational
and professional licensing laws that apply to medical professionals. Many states
have  statutes  requiring   training,   monitoring  and  regulating  of  medical
professionals.  The Company complies with such requirements as applicable to its
operations and such requirements have not adversely impacted the Company.

                                     - 6 -

<PAGE>

Medical Information Software

In January 1998, the Company  acquired a developer of software  applications for
medical  information  management.  The acquired  business had been  organized in
November  1995.  The  Company's  first two software  products,  Cymedix Lynx and
Universal Data Interface are being  marketed to the medical  community.  Cymedix
Lynx manages remote  information  distribution  in the  healthcare  industry and
manages  information  integration.  These  two  products,  together  with  their
relational  database  technology,  will  provide  physicians  with a  permanent,
ongoing record of their patients' insurance, managed care affiliation,  referral
status,  medical  history and medical  history and  diagnosis.  Cymedix  Lynx is
Internet based, but completely  secure, and provides doctors with forms to order
medical procedures, make referrals and check insurance illegibility.

Customers and  Marketing.  The  marketing  strategy for the LYNX products of the
Company's  subsidiary,  Cymedix Lynx Corporation,  will focus on the direct cost
savings  that can be achieved by using the  Internet as the platform for medical
data exchange  compared to the current  manual and  semi-automated  practices of
competitors, relying on a combination of mail, telephone, fax or private network
communications.  The subsidiary  will also emphasize the value added features of
its LYNX software in making the flow of medical data more efficient.

The Company's  subsidiary will market LYNX to sponsoring  organizations  such as
HMOs,  hospital-based  physicians  networks and clinical  laboratories  that can
offer the product to physicians  without  charge as a cost savings  connectivity
solution for their routine transactions,  including medical orders,  eligibility
checks,  authorization of care and doctor referrals.  The subsidiary anticipates
that its LYNX sponsors will charge fees on a per transaction basis. As a result,
participants  will only pay for the product when it is used,  and the  Company's
subsidiary  will  charge  sponsors  a per  transaction  fee based on the type of
transaction.


                                     - 7 -

<PAGE>

Competition can be expected to emerge from  established  healthcare  information
vendors,  seeking to capitalize on Cymedix's  work in developing and proving the
market.  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 the  Company has access to, for the
financing of technical,  manufacturing and marketing efforts.  Frequently, these
competitors  will have  affiliations  with major  medical  product  companies or
software  developers,  who will  assist in the  financing  of such  competitor's
product  development.  The Company will seek to raise capital to develop Cymedix
products in a timely manner,  however,  so long as the operations of the Company
remain underfunded, as they now are, the Company and its subsidiary will be at a
competitive disadvantage.

Patents,  Trademarks  and  Copyrights.  The Company's  wholly-owned  subsidiary,
Cymedix  Lynx  Corporation,  has  filed  U.S.  patent  application,  Serial  No.
08/950,328, covering its Cymedix Lynx product, on October 14, 1997, and has made
a related filing under the Patent  Cooperation  Treaty ("PCT")  Application  No.
PCT/US97/18675.  The U.S. application set forth 29 claims for patentability. The
U.S. Patent and Trademark Office ("USPTO") responded in January 1999,  approving
5 claims,  rejecting 19 claims and stating  that 5 claims  constitute a separate
invention  that requires a separate  application.  The Company's  subsidiary has
responded  to the claim  denials  and  expects  to file a  separate  application
relating to the 5 claims that are deemed to be a separate invention. While it is
now clear a patent  will be issued in  response  to the  application,  it is not
clear  what the scope of such  patent  will be,  subject  to the  outcome of the
subsidiary's  response to the USPTO's denials and to the USPTO's response to the
separate  application.  Four of the ten claims in the PCT application  have been
found to contain  allowable  subject matter (this PCT opinion is advisory and is
not binding on foreign  patent  offices).  The subsidiary has not yet designated
the countries in which  national  applications  will be filed based upon the PCT
application.  The  subsidiary  has also  filed  applications  with the USPTO for
trademark  protection  of certain  "marks"  used or to be used with its software
products.  To date, the mark "Cymedix" has been approved for  registration.  The
subsidiary  has sought  copyright  protection  in two  versions of each of three
modular  software  components  of the  Cymedix  Lynx  product,  as  well as in a
technical evaluation document that describes the software products. All seven of
these applications have been granted.  No assurance can be given that any of the
Company's software products will receive additional patent or other intellectual
property protection.

Regulation. The health care industry in the United States is subject to changing
political,  economic and regulatory  influences  that may affect the procurement
practices and operations of health care  organizations.  During the past several
years,  the  health  care  industry  has been  subject to  increasing  levels of
government  regulation of, among other things,  reimbursement  rates and certain
capital expenditures. The Company cannot predict with any certainty what impact,
if any,  such  increased  regulation  might have on its  results of  operations,
financial condition or business.  In addition,  Medicare has, from time to time,
promulgated  regulations  concerning anti-fraud and (physician)  inducement that
heretofore  have not directly  affected the marketing of the Company's  software
and similar  products.  However,  these  regulations,  which are  usually  later
adopted by state-managed Medicaid plans have historically created uncertainty in
the  industry.  

                                     - 8 -

<PAGE>

The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the  regulation of certain  computer  software  products as medical  devices
under the 1976 Medical Device  Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has  recently  indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under  the  policy,  the  manufacturers  of such  products  could  be  required,
depending on the product,  to (i) register and list their products with the FDA,
(ii) notify the FDA and demonstrate substantial equivalence to other products on
the market  before  marketing  such  products,  or (iii)  obtain FDA approval by
demonstrating  safety and effectiveness before marketing a product. In addition,
such products would be subject to the FDC Acts general controls, including those
relating  to good  manufacturing  practices  and adverse  experience  reporting.
Although it is not  possible to  anticipate  the final form of the FDA's  policy
with regard to computer  software,  the Company expects that, whether or not the
draft is finalized or changed,  the FDA is likely to become  increasingly active
in  regulating  computer  software  that  is  intended  for use in  health  care
settings.   The  FDA  can  impose  extensive  requirements  governing  pre-  and
post-market  conditions  such as device  investigation,  approval,  labeling and
manufacturing.  In addition, the FDA can impose extensive requirements governing
development controls and quality assurance processes.  There can be no assurance
that actions taken by the FDA to regulate  computer  software  products will not
have a material adverse effect on the Company's results of operations, financial
condition or business.

Employees

Healthcare Services.  Exclusive of medical personnel,  the Company currently has
30 full-time and 6 part-time administrative  employees. The number of caregivers
on assignment varies from day to day. These medical personnel do not necessarily
work  full-time  shifts  and may not  work  exclusively  for  the  Company.  The
Company's employees are not represented by a union and the Company considers its
relations  with its employees to be good.  The Company  currently has in place a
screening process for all prospective medical personnel. The Company has entered
into  agreements  with other  staffing  agencies  whereby  the Company may place
medical personnel currently under contract with other staffing agents.

Medical Information Software. The Company's software subsidiary currently has 13
full-time and 2 part-time employees.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's  executive  offices are located at 7100 East Belleview Ave., Suite
301,  Englewood,  Colorado.  A summary of the  Company's  facilities is provided
below:


                                    Square   Expiration       1998
                                    Footage     Date          Rent
                                 ----------- ----------    ---------


Houston, Texas ..............        1,749     5/31/00      $ 15,000
San Antonio, Texas ..........        1,270     4/30/01        18,000
Englewood, Colorado .........        5,236     7/31/03        93,000
Ontario, California .........        1,151    11/30/01        25,000
Emeryville, California ......          791     8/31/00        18,000
Thousand Oaks, California ...        3,223    11/30/00        50,000
                                              --------      --------

                     Totals:        13,420                  $219,000
                                    ======                 =========



                                     - 9 -
<PAGE>

The  Company  believes  these  facilities,  which  are used  for  administrative
offices,  will be suitable for the Company's needs for the  foreseeable  future.
The Company believes that all of its properties are adequately insured.

ITEM 3. - LEGAL PROCEEDINGS

On or about  November  7, 1997,  an action was filed  against the Company in the
Eastern  District  of New York under the caption  New York  Healthcare,  Inc. v.
International  Nursing  Services,  Inc., et al.,  alleging,  among other things,
breach of contract against the Company and seeking damages in excess of $175,000
plus court costs and attorney fees. The Company filed answers and  counterclaims
in this  action.  The Company  intends to  vigorously  defend this action and to
press its  counterclaim.  The  Company  does not expect any  resolution  of this
matter to have a material effect on the Company's financial condition.

                                     - 10 -

<PAGE>

On March 19,  1998,  the  Company  announced  that its  wholly-owned  subsidiary
Cymedix Lynx Corporation had submitted a formal demand to Andrx  Corporation for
treble damages in the amount of $396.6 million,  suffered by Cymedix as a direct
and proximate result of the alleged  activities of Andrx, its affiliate  Cybear,
Inc.  and  certain   individuals.   The  demand   alleges   theft  and  unlawful
appropriation  of  Cymedix's   computer  medical  software  for  remote  on-line
healthcare providers and Cymedix's Internet medical  communications  technology,
commonly  referred to as Lynx, for which a preliminary  U.S. patent was filed on
October 15, 1996 and a final U.S.  patent  application  was filed on October 14,
1997.  On April 2, 1998,  Andrx and Cybear  filed suit in the  Circuit  Court of
Broward County,  Florida, Case No. 98-04613 CACE03,  against the Company and its
wholly-owned  subsidiary  Cymedix Lynx Corporation,  alleging libel and slander,
that the  Company's  claims are false and  defamatory,  and that damages of such
actions  were in  excess  of  $15,000.  On June 2,  1998  the  Company,  and its
subsidiary  Cymedix  Lynx  Corporation,  filed  suit  in the  Circuit  Court  of
Hillsborough County Florida, Case No. CI 94-4621, against Andrx Corporation, its
subsidiary Cybear,  Inc., Elliot Hahn, Richard Lucibella,  and Jerry Cazzell. On
February 10, 1999, the Company and Andrx  announced that their lawsuits had been
settled and a mutual release had been signed.  The settlement  required Andrx to
pay the Company $125,000.

In the normal course of business,  the Company is party to litigation related to
its staffing  employees.  The Company maintains  insurance to cover these claims
and  believes  that it will not incur any  material  losses in excess of accrued
amounts.


ITEM 4. SUBMISSION OF MATTERS TO  VOTE OF SECURITY HOLDERS

No vote of security  holders was solicited during the last quarter of the fiscal
year ending December 27, 1998.




                                     - 11 -

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's  common stock is traded on the OTC Bulletin Board under the symbol
"MDIX." Prior to the Company's  change of name effective  February 19, 1998, its
symbol was "NURS." The following table shows high and low bid price  information
for  each  quarter  in the last  two  calendar  years  as  reported  by  Prophet
Information Services, Inc., a provider of online historical stock price data for
all major U. S. securities markets. Such quotations reflect inter-dealer prices,
without  retail  mark-ups,  markdowns or  commissions,  and may not  necessarily
represent  actual  transactions.  On April 9,  1999,  the last  sales  price was
reported to be $0.70.



                                                         Common Stock
                                                           Bid Price
                                                    ----------------------
                                                       High          Low
                                                    ----------  ----------

1997 Fiscal Year
      First Quarter                                 $    1.50     $    0.63
      Second Quarter                                      .69           .19
      Third Quarter                                       .19            -
      Fourth Quarter                                      .38           .13

1998 Fiscal Year
      First Quarter                                 $     .38     $     .25
      Second Quarter                                      .81           .25
      Third Quarter                                       .44           .06
      Fourth Quarter                                      .31           .05



There  were  approximately  448  holders  of  record  (and  approximately  2,100
beneficial owners) of the Company's common stock as of April 9, 1999. The number
of record holders  includes  shareholders  who may hold stock for the benefit of
others.

The  Company  does not expect to pay any  dividends  on its common  stock in the
foreseeable future.  Management  currently intends to retain all available funds
for the development of its business and for use as working capital.  The payment
of dividends on the common stock is subject to the  Company's  prior  payment of
all accrued and unpaid dividends on any preferred stock outstanding.

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

The Company's revenues are provided primarily from its supplemental  staffing of
therapy  and  nursing  professionals.  The  Company  intends  to  dispose of its
supplemental  staffing  business if an adequate  price is offered.  Until such a
sale occurs,  and if the Company's  projections  for the  supplemental  staffing
portion of its business is met, such business should provide  adequate cash flow
to fund the  operation  of such portion of the  Company's  business for the next
twelve months.


                                     - 12 -

<PAGE>

The Company's  medical  information  software  business  (Cymedix)  will require
adequate  funding in order to  continue  its  efforts to bring its  products  to
market.  Such  funding  is not  currently  secured.  If the  Company  sells  its
supplemental healthcare staffing business, the proceeds of such sale will not be
sufficient to fund the shortfall in the currently  budgeted  Cymedix  operations
for the  next  twelve  months.  The  Company  will  attempt  to  fund  Cymedix's
development  through raising capital in the private debt or equity markets.  The
Company may not be  successful  in raising  such  capital.  In which  case,  the
continued operation of the Company as a going concern would be doubtful.

Forward-Looking Statements and Associated Risks

This filing contains certain  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange  Act  of  1934  and  the  Company  intends  that  such  forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements  include  the plans  and  objectives  of the  management  for  future
operations,  including plans and objectives  relating to services offered by and
future economic performance of the Company.

Healthcare Services Operations.  The forward-looking  statements included herein
are  based  on  current   expectations  that  involve  a  number  of  risks  and
uncertainties.  These  forward-looking  statements are based on assumptions that
the  Company  will  continue  to be  able to  provide  on a cost  effective  and
competitive basis quality home health care and interim staffing  services,  that
the regulatory  environment  governing the Company's industry will not change in
ways that are  materially  adverse to the Company and its  operations,  that the
Company  will be able to continue to fund  operations,  that the Company will be
able to raise additional  equity or debt capital if required to fund operations,
that the Company  will be able to achieve  operating  efficiencies  resulting in
cost  reductions,  that a sufficient  supply of qualified  health care personnel
will be available to the Company for deployment in the health care industry on a
competitive and cost effective basis and that there will be no material  adverse
change in the demand for the Company's  services or in the Company's  operations
or business.  Additional risks and uncertainties  that the Company faces include
the current  uncertainty in the health care industry and government  health care
reform proposals  considered from time to time, which has already and may in the
future adversely affect the regulatory environment in which the Company operates
and the  reimbursement  rate payable  under  government  programs,  resulting in
decreased revenues from home care services; the Company's dependence on customer
relationships, which makes the Company vulnerable to consolidation in the health
care industry,  changes in customer  personnel and other factors that may impact
customer relationships; the Company's ability to obtain needed licenses, permits
and  governmental  approvals;  the  Company's  ability  to compete in the highly
competitive  supplemental  staffing services market;  hospital budgetary cycles,
increased  competition  for  qualified  medical  personnel,   patient  admission
fluctuations and  seasonality;  the adoption by hospitals and third party payers
of new or revised  reimbursement  policies;  and uninsured risks associated with
providing home care and supplemental  staffing services,  which the Company will
attempt to minimize, but which can not be entirely eliminated.



                                     - 13 -
<PAGE>

Medical Information  Software  Operations.  The Company,  through its subsidiary
Cymedix Lynx  Corporation,  has only recently begun its medical software line of
business  through  the  acquisition  of  a  development  stage  medial  software
business. The uncertainties and risks that accompany forward- looking statements
are enhanced by the Company's lack of experience in this  business.  The Company
has no experience in marketing of software products,  providing software support
services,  evaluating  demand for  products,  financing a software  business and
dealing  with  government  regulation  of software  products.  As a developer of
information  systems,  the Company will be required to  anticipate  and adapt to
evolving industry standards and new technological  developments.  The market for
the  Company's  software  products  is  characterized  by  continued  and  rapid
technological  advances in both  hardware  and software  development,  requiring
ongoing expenditures for research and development and the 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.  The Company's future success,  if at all, will depend in
part upon its ability to enhance existing  products,  to respond  effectively to
technology  changes,  and to introduce new products and technologies to meet the
evolving needs of its clients in the health care information systems market. The
Company is currently  devoting  significant  resources toward the development of
products.  There can be no assurance that the Company will successfully complete
the  development  of these  products in a timely  fashion or that the  Company's
current or future products will satisfy the needs of the health care information
systems market. Further, there can be no assurance that products or technologies
developed by others will not adversely affect the Company's competitive position
or render its products or technologies noncompetitive or obsolete.

Certain of the Company's  products provide  applications  that relate to patient
medical histories and treatment plans. Any failure by the Company's  products to
provide  accurate,  secure  and  timely  information  could  result  in  product
liability  claims  against  the Company by its  clients or their  affiliates  or
patients.  The  Company  maintains  insurance  that it  believes  is adequate to
protect against claims associated with the use of it products,  but there can be
no  assurance  that its  insurance  coverage  would  adequately  cover any claim
asserted against the Company.  A successful claim brought against the Company in
excess of its insurance  coverage  could have a material  adverse  effect on the
Company's  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  success of the  Company is  dependent  to a  significant  degree on its key
management,  sales and marketing,  and technical personnel. The Company believes
that its success  will also depend  upon its  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  the  Company's  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 the Company's  results of  operations,
financial condition or business.


                                     - 14 -

<PAGE>

The health care industry in the United States is subject to changing  political,
economic and regulatory influences that may affect the procurement practices and
operations  of health care  organizations.  During the past several  years,  the
health care  industry  has been  subject to  increasing  levels of  governmental
regulation  of,  among other  things,  reimbursement  rates and certain  capital
expenditures. The Company cannot predict with any certainty what impact, if any,
such increased  regulation  might have on its results of  operations,  financial
condition or business. In addition, Medicare has, from time to time, promulgated
regulations  concerning  anti-fraud and  (physician)  inducement that heretofore
have not directly  affected the marketing of the Company's  software and similar
products.  However,  these  regulations,  which are  usually  later  adopted  by
state-managed Medicaid plans, have created uncertainty in the industry.

The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the  regulation of certain  computer  software  products as medical  devices
under the 1976 Medical Device  Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has  recently  indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under  the  policy,  the  manufacturers  or such  products  could  be  required,
depending on the product, to (i) register and list their products with FDA, (ii)
notify the FDA and demonstrate  substantial equivalence to other products on the
market  before  marketing  such  products,  or  (iii)  obtain  FDA  approval  by
demonstrating  safety and effectiveness before marketing a product. In addition,
such products would be subject to the FDC Acts general controls, including those
relating  to good  manufacturing  practices  and adverse  experience  reporting.
Although it is not possible to anticipate the final form of the FDA" policy with
regard to computer software,  the Company expects that, whether or not the draft
is  finalized  or changed,  the FDA is likely to become  increasingly  active in
regulating  computer  software that is intended for use in health care settings.
The FDA  can  impose  extensive  requirements  governing  pre-  and  post-market
conditions such as device investigation,  approval,  labeling and manufacturing.
In addition,  the FDA can impose extensive  requirements  governing  development
controls and quality assurance processes. There can be no assurance that actions
taken by the FDA to regulate computer software products will not have a material
adverse effect on the Company's  results of operations,  financial  condition or
business.

Company Specific Factors.  Important factors to be considered in connection with
forward-looking  statements include,  without limitation,  (a) the fact that the
Company has reported net losses in the last several years and has an accumulated
deficit and a working  capital  deficit at the end of its 1998 fiscal year;  (b)
the Company's auditors have included a "going concern" exception in their report
on the Company's financial statements; (c) the Company's lack of working capital
and inability to generate  positive cash flow from  operations  will require the
Company to raise additional equity or debt financing in order to fund operations
and the Company may be unable to raise such debt or equity financing; (d) Nasdaq
informed  the  Company  on July 14,  1998 that it was  delisted  for  failing to
maintain  tangible net worth of $2.0 million,  which  significantly  impedes the
Company's  ability to raise future  equity  capital;  (e) at April 9, 1999,  the
Company  had  substantial  delinquent  liabilities,   which,  if  the  creditors
instituted  collection  proceedings,  could cause the  financial  failure of the
Company  if payment  could not be made or  extension  arrangements  could not be
negotiated;  and (f)  various  other  factors may cause  actual  results to vary
materially  from the  results  contemplated  in any  forward-looking  statements
included in this filing.  No assurances can be given that the foregoing  factors
will not result in a material adverse effect on the Company and its operations.

As of April 6, 1999, the Company does not have a source of funds for the funding
of the development of its Cymedix  software  products.  The Company is currently
pursuing  sources of funds,  but no assurance can be given that the Company will
be successful.


                                     - 15 -

<PAGE>

Any of these important factors discussed above or elsewhere in this filing could
cause the Company's revenues or net income, or growth in revenues or net income,
to differ materially from prior results. Failure to obtain financing on a timely
basis could  result in loss of business  opportunities,  the sale of the Cymedix
business at a  distressed  price or the  financial  failure of the  Company.  In
addition,  growth in  absolute  amounts of selling,  general and  administrative
expenses or the occurrence of extraordinary events could cause actual results to
vary materially from the results contemplated by the forward-looking statements.
Budgeting and other  management  decisions  are  subjective in many respects and
thus  susceptible  to  interpretations  and periodic  revisions  based on actual
experience and business developments,  the impact of which may cause the Company
to alter its marketing,  capital  expenditures  or other budgets,  which may, in
turn, affect the Company's 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 the control of the Company. Although the
Company believes 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 addition,  the business and  operations of the
Company,  because  of the  industries  in  which  operates  and its  underfunded
operations,  are subject to  substantial  risks which  increase the  uncertainty
inherent in such forward-looking statements.

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 the  Company  or any  other  person  that the
objectives or plans of the Company will be achieved.

Going Concern Issues

The  Company  has  suffered  recurring  losses  for the past  several  years and
incurred net losses for the year ended  December  29, 1996 of $858,000,  for the
year ended  December 29, 1997 of $515,000,  and for the year ended  December 27,
1998 of $5,442,000.  In addition,  the Company had a working  capital deficit of
$2,612,000 and  accumulated  deficit of $13,161,000 at December 27, 1998.  These
factors,  among  others,  raise a  substantial  doubt  about the  ability of the
Company to continue as a going concern. Additionally, the Company has maintained
its existence primarily through equity financing,  however,  because the Company
currently  has  outstanding  shares,  options,  and  warrants  in  excess of the
authorized  shares the ability of the Company to raise additional equity capital
and the potential to have to repurchase  shares to satisfy  conversion  features
raises  substantial  doubt  about the  Company's  ability to continue as a going
concern.  The accompanying  financial  statements do not include any adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.

Results of Operation
Comparison of Years Ended December 27, 1998 and December 28, 1997

Total net revenues  decreased  approximately  30% from  $24,875,000 for the year
ended  December  28,  1997  ("fiscal  1997") to  $17,412,000  for the year ended
December 27, 1998 ("fiscal 1998").  The decrease was mainly  attributable to the
sales of the homecare  division in September  1997,  Paxxon in October 1997, and
STAT  and  Ellis  in  September  1998.  Revenue  from the  divisions  sold  were
$4,679,000 in fiscal 1998 and $10,913,000 in fiscal 1997.  TherAmerica  revenues
were down  approximately  48% from  $8,388,000  in fiscal 1997 to  $5,236,000 in
fiscal 1998. These decreases were partially  offset by revenue  increases in the
Colorado and travel nursing divisions.


                                     - 16 -


The decrease in  TherAmerica  revenues has  substantially  reduced the Company's
revenues.  The Company has partially  addressed  this  decrease by  implementing
nurse staffing at the two California TherAmerica branches. The sale of the STAT,
Ellis,  Paxxon, and the homecare division has and will continue to substantially
reduce the Company's revenues.

The Company's  gross margin  percentage  decreased  from 23.5% in fiscal 1997 to
22.7% in fiscal 1998.  The decrease was  primarily due to the sale of the higher
margin  New  York  divisions,  downward  marging  pressure  in  the  TherAmerica
division, and increased revenues in the lower margin travel nursing division.

Selling,  general, and administrative  expenses increased approximately $488,000
or 9% from  $5,670,000  in the fiscal 1997 to  $6,158,000  in fiscal 1998.  This
increase   includes   approximately   $1,422,000   of  selling,   general,   and
administrative  expenses  incurred by Cymedix  which was  partially  offset by a
reduction of $934,000 related to the sale of divisions.

Income(Loss) from operations decreased $5,174,000 from income from operations of
$610,000  in fiscal 1997 to a loss from  operations  of  ($5,422,000)  in fiscal
1998. The decrease reflects loss on sale of divisions of $316,000 and impairment
of intangible  assets of $2,040,000 in fiscal 1998 compared to a gain on sale of
assets of  $422,000  in fiscal  1997  (see  Notes [1 and 4] to the  Consolidated
Financial  Statements).  The loss from  operations  in fiscal 1998 also reflects
increase of selling, general, and administrative expenses related to Cymedix and
the reduction in gross profit discussed in the above paragraphs.

Interest expense  decreased  approximately 24% from $1,125,000 in fiscal 1997 to
$858,000 in fiscal 1998.  The decrease is  primarily  due to interest  paid on a
bridge  loan in  fiscal  1997 and a  reduction  in  funding  costs  on  accounts
receivable due to the sale of the homecare  division,  Paxxon,  STAT, and Ellis.
The decrease was partially offset by increased  accrued interest on late payroll
taxes.  See  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR PLAN OF  OPERATION  --
Liquidity  of  Capital  Resources"  and Notes [1, 3, and 6] to the  Consolidated
Financial Statements.

Net loss  increased  from  ($515,000) in fiscal 1997 to  ($5,422,000)  in fiscal
1998.

Liquidity and Capital Resources

The Company's current liabilities at December 27, 1998 aggregated  approximately
$5,393,000  and current  assets at December  27, 1998  aggregated  approximately
$2,781,000. The Company is currently delinquent in the payment of certain of its
current  liabilities.  Such obligations  include federal income tax withholdings
from employees and employer  payroll taxes.  As of April 9, 1999 the Company was
current on all federal  payroll tax  deposits.  Penalties and inerest due to the
IRS on late payroll tax deposits are still  outstanding.  The Company is also in
default on a delinquent  note payable  assume din the Cymedix  merger.  The note
payable is secured by the intellectual  property of Cymedix.  If the note holder
were to  foreclose  its  security  interest,  the ability of Cymedix to generate
future  revenues would be adversely  affected.  See Note 6  to the  Consolidated
Financial Statements.

In order for the Company to meet its current  obligations,  including  penalties
and interest on late payroll tax deposits,  management  anticipates  the need to
raise  additional  debt or equity  capital or sell assets  (see  Forward-Looking
Statements and Associated Risks,  including Company Specific Factors).  However,
there are no current agreements in place to engage in any such transactions.  In
1999, the Company  completed a private  placement for $300,000.  The Company has
received $250,000 through April 7, 1999 under its private placement. See Note 12
to the  Consolidated  Financial  Statements.  The Company is currently  pursuing
other scenarios to raise additional capital.


                                     - 17 -

<PAGE>

On  September  14,  1998,  the  Company  sold  its two  remaining  two New  York
operations  for  approximately  $1,463,000  payable with  $1,000,000 in cash and
approximately  $463,000 in notes. The cash proceeds from the sale were primarily
used to reduce the balance on the Company's  line-of-credit.  In February  1999,
the  Company  accepted  a  prepayment  on the notes of  approximately  $463,000.
Proceeds  from the  prepayment  were  used to pay  dilinquent  IRS  payroll  tax
deposits.  In the three and a half months  subsequent  to the sale,  the Company
received  approximately  $1,600,000 in cash receipts from the  collection of New
York accounts  receivable.  During 1999, the Company expects to receive $500,000
from the same source.  These cash  receipts will not provide  adequate  funds to
support the projected  development and marketing  costs of the Cymedix  software
products.

Sales of  Cymedix  software  products  have  not met,  and  on-site  testing  of
installed  products has taken longer than, the Company's  initial  expectations.
See  "Forward-Looking  Statements  and  Associated  Risks - Medical  Information
Software Operations" and "Company Specific Factors" above.

The two New York operations that were sold,  provided $7,090,000 in revenues for
the 1997 fiscal  year and  $4,679,000  in revenues  for the first nine months of
1998 prior to their sale. The sale of these operations will significantly reduce
the Company's revenues.  The Company will need to obtain additional financing or
sell  additional  assets in order to  generate  sufficient  cash to support  its
operations,  including  the  development  of a  marketing  of  Cymedix  software
products,  for the next twelve months.  In 1999, the Company completed a private
placement for $300,000.  The Company has received $250,000 through April 7, 1999
under  its  private  placement.  See  Note  12  to  the  Consolidated  Financial
Statements.   The  Company  is  currently  pursuing  other  scenarios  to  raise
additional capital.

The Company has  historically  released certain of its checks in anticipation of
receiving cash proceeds from its line of credit agreement.  The Company does not
have an  arrangement  with its banks to cover checks  presented in excess of its
collected cash balance;  however, this situation has not occurred as the Company
releases its checks as close as possible to its funding date.

The Nasdaq Stock Market,  Inc.  delisted the Company's common stock from trading
on the Nasdaq  SmallCap  Market,  effective at the close of business on July 14,
1998, for failure to satisfy the revised listing  maintenance  standards adopted
by The Nasdaq  Stock  Market,  Inc.  last year.  The  Company's  common stock is
eligible to trade on the OTC Bulletin Board.  Information about the OTCBB can be
found on the Internet at www.OTCBB.com.  However, quotes for stock traded on the
OTC Bulletin Board are not published in major newspapers,  and can only be found
in specialized  publications or on the Internet.  Being delisted from the Nasdaq
SmallCap  Market  significantly  impedes the  Company's  ability to raise equity
capital.

In the light of such delisting,  the Company  determined that it would not be in
the best interests of its  shareholders to complete the reverse stock split that
had been approved by its shareholders at its Annual Meeting of Shareholders held
on May 29, 1998,  and the Board of Directors  exercised its authority to abandon
the reverse stock split.


                                     - 18 -

<PAGE>

Year 2000 Disclosure

The Company  currently  utilizes an external  vendor for  hardware  and packaged
software  support.  The  external  vendor  has tested  all  hardware,  operating
systems,  and software for year 2000 compliance.  The external vendor identified
13 PC's that are not compliant and would require  replacement  or upgrades.  The
Company uses current versions of widely used,  publicly  available  software for
its accounting and other data processing requirements.  The Company has obtained
year 2000 certification  from these software vendors.  The certification for the
Company's  accounting  software  involves an upgrade to the version currently in
use.  Cymedix Lynx was designed to be year 2000 compliant.  The Cymedix software
products have been tested  internally  and have been found to be compliant.  The
Company  does not  anticipate  the need to have the  Cymedix  software  products
independantly  certified  due to  it's  recent  development  and  Y2K  compliant
operating  system.  The Company's  relations with banks,  lending  institutions,
current and future  customers  and  vendors may be impacted by their  ability to
become year 2000 compliant.

Hardware  upgrades or  replacements  are scheduled to be completed by August 31,
1999. The upgraded and replaced  systems are scheduled to be tested by September
30, 1999. The Company  intends to obtain  documentation  of year 2000 compliance
from its banks, lending  institutions,  and significant customers and vendors by
June 30, 1999.

The  Company  does not feel  costs  relating  to year 2000 will have a  material
effect on the Company's financial statements.  Hardware replacements or upgrades
related to year 2000 should be less than $15,000 and software upgrades should be
less than $10,000.  If required,  an  independent  certification  of the Cymedix
software products would cost approximately $20,000.

ITEM 7.    FINANCIAL STATEMENTS

Attached  hereto and filed as a part of this Form  10-KSB  are the  Consolidated
Financial Statements of the Company.


                                     - 19 -
<PAGE>





                         MEDIX RESOURCES, INC.
                           AND SUBSIDIARIES

                   Consolidated Financial Statements
                           December 27, 1998

<PAGE>


                MEDIX RESOURCES, INC. AND SUBSIDIARIES







                           Table of Contents



                                                                   Page

Independent Auditors' Report........................................F-1

Financial Statements

    Consolidated Balance Sheet......................................F-3

    Consolidated Statements of Operations...........................F-4

    Consolidated Statement of Changes in Stockholders' Deficit......F-5

    Consolidated Statements of Cash Flows...........................F-6

Notes to Consolidated Financial Statements..........................F-8





<PAGE>







                     INDEPENDENT AUDITORS' REPORT






To the Board of Directors and Stockholders
Medix Resources, Inc.
Denver, Colorado


We have audited the accompanying  consolidated balance sheet of Medix Resources,
Inc. and  Subsidiaries,  as of December 27, 1998,  and the related  consolidated
statements of operations and changes in  stockholders'  deficit,  and cash flows
for the years ended December 27, 1998 and December 28, 1997. These  consolidated
financial   statements  are  the  responsibility  of  the  management  of  Medix
Resources, Inc. and Subsidiaries. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Medix
Resources,  Inc. and  Subsidiaries,  as of December 27, 1998, and the results of
their  operations and their cash flows for the years ended December 27, 1998 and
December 28, 1997 in conformity with generally accepted accounting principles.


<PAGE>


To the Board of Directors and Stockholders
Medix Resources, Inc.
Page Two


The accompanying  consolidated  financial statements have been prepared assuming
that  Medix  Resources,  Inc.  will  continue  as a going  concern.  As  further
discussed in Note 1 to the consolidated  financial  statements,  the Company has
incurred  operating  losses  for the past  several  years and has a  deficit  in
working capital and  stockholders'  equity which raises  substantial doubt about
its  ability to  continue  as a going  concern.  Additionally,  the  Company has
maintained its existence  primarily through equity financing,  however,  because
the Company currently has outstanding shares,  options and warrants in excess of
the  authorized  shares the  ability of the Company to raise  additional  equity
capital and the  potential to have to  repurchase  shares to satisfy  conversion
features raises  substantial  doubt about the Company's ability to continue as a
going  concern.  Current  management's  plans in regards to this matter are also
discussed in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from these uncertainties.





                                    /s/Ehrhardt Keefe Steiner & Hottman PC
                                    Ehrhardt Keefe Steiner & Hottman PC
April 2, 1999
Denver, Colorado


<PAGE>


                MEDIX RESOURCES, INC. AND SUBSIDIARIES

                      Consolidated Balance Sheet
                           December 27, 1998


                                   Assets
Current assets
  Cash ....................................................     $     40,000
  Accounts receivable, net of allowance of $509,000 .......        2,081,000
  Notes receivable ........................................          563,000
  Prepaid expenses and other ..............................           97,000
                                                                ------------
     Total current assets .................................        2,781,000


Property and equipment, net ...............................          220,000

Other assets
  Intangible assets, net ..................................        2,174,000

Total .....................................................     $  5,175,000

                   Liabilities and Stockholders' Deficit
Current liabilities
  Checks written in excess of bank balance ................     $     72,000
  Notes payable ...........................................          289,000
  Line-of-credit ..........................................          993,000
  Accounts payable ........................................          838,000
  Accrued expenses ........................................        1,097,000
  Accrued payroll taxes, interest and penalties ...........        1,469,000
  Preferred redemption payable ............................          635,000
                                                                ------------
     Total current liabilities ............................        5,393,000

Commitments and contingencies

Stockholders' deficit
  Preferred stock, 10% cumulative convertible, $1 par value
   488 shares authorized, 155 issued, 8.00 outstanding, ...             --
   liquidation preference $120,000
  1997 convertible preferred stock, $1 par value 300 shares
   authorized 167.15 shares issued, 19.50, liquidation ....             --
   preference $195,000
  Common stock, $.001 par value, 25,000,000 shares
   authorized, 21,500,727 issued and outstanding ..........           22,000
  Dividends payable with common stock .....................           39,000
  Additional paid-in capital ..............................       12,882,000
  Accumulated deficit .....................................      (13,161,000)
                                                                ------------
     Total stockholders' deficit ..........................         (218,000)

Total .....................................................     $  5,175,000


                See notes to consolidated financial statements.

                                      F-3

<PAGE>


                MEDIX RESOURCES, INC. AND SUBSIDIARIES

                 Consolidated Statements of Operations
<TABLE>
<CAPTION>


                                                     For the      For the Year
                                                    Year Ended       Ended
                                                   December 27,   December 28,
                                                      1998            1997
                                                  -------------   --------------

<S>                                               <C>               <C>         
Revenues ....................................     $ 17,412,000      $ 24,875,000

Direct costs of services ....................       13,462,000        19,017,000
                                                  ------------      ------------

Gross margin ................................        3,950,000         5,858,000

Selling, general, and administrative expenses        6,158,000         5,670,000

Impairment of goodwill ......................        2,040,000              --

(Loss) gain on sale of divisions ............         (316,000)          422,000
                                                  ------------      ------------

(Loss) income from operations ...............       (4,564,000)          610,000

Interest expense ............................          858,000         1,125,000
                                                  ------------      ------------

Net loss ....................................     $ (5,422,000)     $   (515,000)
                                                  ============      ============

Basic loss per common share .................     $       (.26)     $       (.15)
                                                  ============      ============

Weighted average common shares outstanding ..       20,772,801         9,848,824
                                                  ============      ============

                See notes to consolidated financial statements.

                                      F-4

</TABLE>



<PAGE>

                MEDIX RESOURCES, INC. AND SUBSIDIARIES

      Consolidated Statement of Changes In Stockholders' Deficit
     For the Years Ending December 27, 1998 and December 28, 1997

<TABLE>
<CAPTION>



                                                ----------------------------- -----------------------     ---------------------  
                                                Number of                     Number of                   Number of              
                                                  Shares            Amount     Shares         Amount        Shares     Amount    
                                                ------------     ------------  -------       --------      --------    -------  

<S>                                               <C>            <C>                 <C>      <C>          <C>      <C> 
Balance - December 29, 1996 ...............        5,688,292     $      6,000   155.50        $ --         --        $--

1997 preferred stock issuance, before
 imputed discount .........................             --               --         --          --      167.15        -- 

Imputed dividend on 1997 preferred stock ..             --               --         --          --         --         -- 

Exercise of 1996 unit options .............             --               --      20.00          --         --         -- 

Offering costs on 1997 preferred stock ....             --               --         --          --         --         -- 

Imputed value of issuance of warrants in
 connection with debt issued ..............             --               --         --          --         --         -- 

Imputed dividend on 1997 preferred stock as
 a result of warrant repricings ...........             --               --         --          --         --         -- 

Conversion of preferred stock and accrued
 dividends of $71,000 .....................        7,042,256            7,000  (149.25)         --      (66.65)       -- 

Common stock issued for satisfaction
 of debt ..................................          100,000             --         --          --         --         -- 

Common stock issued for services ..........           13,019             --         --          --         --         -- 

Net loss ..................................             --               --         --          --         --         -- 

Dividends declared ........................             --               --         --          --         --         -- 
                                                ------------     ------------     ------      ------     ------      ---

Balance - December 28, 1997 ...............       12,843,567           13,000    26.25         --      100.50         -- 

Common stock issued in connection with
 Cymedix merger ...........................        7,212,987            7,000       --          --         --         -- 

Issuance of options and warrants in
 connection with Cymedix merger ...........             --               --         --          --         --         -- 

Conversion of preferred stock and accrued
 dividends ................................        1,118,270            2,000     (18.25)       --       (5.00)       -- 

Common stock issued in connection with
 purchase of warrants .....................          175,900             --         --          --         --         -- 

Common stock and warrants issued in
 settlement ...............................          150,000             --         --          --         --         -- 

1997 preferred stock redemption payable ...             --               --         --          --      (76.00)       -- 

Net loss ..................................             --               --         --          --         --         -- 

Dividends declared ........................             --               --         --          --         --         -- 
                                                ------------     ------------     ------      ------     ------      ---

Balance at December 27, 1998 ..............       21,500,724     $     22,000      8.00       $ --       19.50       $--
                                                ============     ============     ======      ======     ======      ===

</TABLE>


<TABLE>
<CAPTION>



                                                                   Dividend                                         
                                                                 Payable With                                       
                                                  Paid-in           Common          Accumulated                     
                                                  Capital            Stock            Deficit           Total       
                                               ------------      ------------      ------------     -------------   

<S>                                            <C>               <C>               <C>               <C>
Balance - December 29, 1996 ..............     $ 10,199,000      $     66,000      $ (7,224,000)     $  3,047,000

1997 preferred stock issuance, before
 imputed discount .........................        1,672,000              --                --           1,672,000

Imputed dividend on 1997 preferred stock ..             --                --                --                --

Exercise of 1996 unit options .............          200,000              --                --             200,000

Offering costs on 1997 preferred stock ....         (152,000)             --                --            (152,000)

Imputed value of issuance of warrants in
 connection with debt issued ..............          134,000              --                --             134,000

Imputed dividend on 1997 preferred stock as
 a result of warrant repricings ...........             --                --                --                --

Conversion of preferred stock and accrued
 dividends of $71,000 .....................           64,000           (71,000)             --                --

Common stock issued for satisfaction
 of debt ..................................          100,000              --                --             100,000

Common stock issued for services ..........           18,000              --                --              18,000

Net loss ..................................             --                --            (515,000)         (515,000)

Dividends declared ........................          (44,000)           44,000              --                --
                                                ------------      ------------      ------------      ------------

Balance - December 28, 1997 ...............       12,191,000            39,000        (7,739,000)        4,504,000

Common stock issued in connection with
 Cymedix merger ...........................        1,385,000              --                --           1,392,000

Issuance of options and warrants in
 connection with Cymedix merger ...........           37,000              --                --              37,000

Conversion of preferred stock and accrued
 dividends ................................            9,000           (11,000)             --                --

Common stock issued in connection with
 purchase of warrants .....................             --                --                --                --

Common stock and warrants issued in
 settlement ...............................           31,000              --                --              31,000

1997 preferred stock redemption payable ...         (760,000)             --                --            (760,000)

Net loss ..................................             --                --          (5,422,000)       (5,422,000)

Dividends declared ........................          (11,000)           11,000              --                --
                                                ------------      ------------      ------------      ------------

Balance at December 27, 1998 ..............     $ 12,882,000      $     39,000      $(13,161,000)     $   (218,000)
                                                ============      ============      ============      ============
</TABLE>


                See notes to consolidated financial statements.

                                      F-5


<PAGE>


                MEDIX RESOURCES, INC. AND SUBSIDIARIES

                 Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>


                                                     For the      For the Year
                                                    Year Ended        Ended
                                                   December 27,   December 28,
                                                      1998            1997
                                                   ------------   -------------

<S>                                               <C>               <C>
Cash flows from operating activities
 Net loss ...................................     $ (5,422,000)     $   (515,000)
                                                  ------------      ------------
 Adjustments to reconcile net loss to net
  cash provided by operating activities -
  Depreciation and amortization .............          654,000           606,000
  Common stock issued for services ..........             --              18,000
  Impairment of goodwill ....................        2,040,000           349,000
  Basis in assets of divisions sold .........             --             770,000
  Loss on sale of divisions and fixed assets           334,000              --
  Imputed interest expense on convertible
   debt .....................................             --             134,000
   Change in assets and liabilities -
   Accounts receivable, net .................        2,478,000           (57,000)
   Prepaid expenses and other ...............           42,000          (108,000)
    Checks written in excess of bank balance            72,000           (65,000)
    Accounts payable and accrued expenses ...          864,000          (279,000)
                                                  ------------      ------------
                                                     6,484,000         1,368,000
       Net cash provided by operating
        activities ..........................        1,062,000           853,000
                                                  ------------      ------------

Cash flows from investing activities
 Proceeds from sale of divisions                     1,350,000              --
 Business acquisitions (net of cash acquired)          (20,000)       (2,000,000)
 Purchase of property and equipment .........          (35,000)          (21,000)
 Proceeds from the sale of fixed assets .....            3,000            57,000
 Issuance of notes receivable ...............             --            (491,000)
 Payments on notes receivable ...............           93,000              --
                                                  ------------      ------------
        Net cash provided by (used in)
         investing activities ...............        1,391,000        (2,455,000)
                                                  ------------      ------------

Cash flows from financing activities
 Proceeds from issuance of debt and notes
  payable ...................................           43,000         1,000,000
 Advances under financing agreement .........       17,425,000        23,589,000
 Payments under financing agreement .........      (19,975,000)      (23,364,000)
 Principal payments on debt and notes payable          (64,000)       (1,185,000)
 Issuance of preferred and common stock, net
  of offering costs .........................             --           1,720,000
                                                  ------------      ------------
           Net cash (used in) provided by
            financing activities ............       (2,571,000)        1,760,000
                                                  ------------      ------------

Net (decrease) increase in cash .............         (118,000)          158,000

Cash, beginning of period ...................          158,000              --
                                                  ------------      ------------

Cash, end of period .........................     $     40,000      $    158,000
                                                  ============      ============

</TABLE>


Supplemental disclosure of cash flow information:
     Cash paid  during the year for  interest  was  $496,000  and  $972,000  for
     December 27, 1998 and December 28, 1997, respectively.

Continued on next page.

                See notes to consolidated financial statements.

                                      F-6

<PAGE>

                     MEDIX RESOURCES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows


Continued from previous page.

Non-cash investing and financing activities:

     During 1998, the Company acquired Cymedix Corporation, and received certain
     assets and  liabilities  in exchange for 7,212,987  shares of the Company's
     common stock (Note 2). Assets and liabilities  acquired  included:  Cash of
     $20,000; Fixed Assets of $21,000;  Forgiveness of $298,000 note receivable;
     $250,000 Note Payable; and Other Liabilities of $380,000.

     During 1998, the Company capitalized as additional  paid-in-capital $68,000
     of settlements.

     During 1998,  the Company  converted  18.25 units of preferred  stock,  5.0
     units of 1997 preferred stock and accrued dividends of $11,000 to 1,118,270
     shares of common stock.

     During 1998, the Company sold two divisions with net book value of goodwill
     of $2,038,000 for cash of $1,000,000 and notes receivable of $463,000 (Note
     4).

     During  1998,  the  Company  accrued a liability  to  purchase  $760,000 of
     preferred stock.

     Dividends  declared  payable in common  stock were  $11,000 and $44,000 for
     December 27, 1998 and December 28, 1997, respectively.

     During 1997,  the Company  issued  100,000 shares of common stock valued at
     $100,000 for the satisfaction of debt.

     During 1997,  the Company  issued  13,019  shares of common stock valued at
     $18,000 for services provided by non-employees.

               See notes to consolidated financial statements.

                                      F-7


<PAGE>


                MEDIX RESOURCES, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements



Note 1 - Organization and Significant Accounting Policies

Organization

Medix  Resources,  Inc.  (formerly  International  Nursing  Services,  Inc.) and
subsidiaries   (the  Company)  provide  temporary  nurses   (registered   and/or
licensed),  therapists, nurse assistants, and other caregivers to nursing homes,
other long-term health-care facilities, hospitals, and private residences.

The Company  changed  its name to Medix  Resources,  Inc.  during the year ended
December  27, 1998 to more  accurately  reflect the types of services it will be
providing  in the  future  related  to the  development  of  healthcare  related
software (Note 2).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Medix
Resources,  Inc. and its  wholly-owned  subsidiaries,  National Care Resources -
Colorado,  Inc.,  National Care Resources - Texas, Inc.,  TherAmerica,  Inc. and
Cymedix, Lynx Corporation. All intercompany transactions have been eliminated.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
effect the  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Checks Issued in Excess of Bank Balance

As disclosed in Note 6, the Company  assigns its  receivables  with  recourse to
financial institutions.  These assignments are done and cash is received weekly.
The Company in anticipation of this funding issues checks which are in excess of
recorded  deposits.  Checks are never issued in excess of the  expected  funding
amounts.

Concentration of Credit Risk

The Company  maintains cash in depository  accounts which, at times,  may exceed
FDIC  insurance  limits.  At December 27, 1998 balances in excess of FDIC limits
were approximately $37,000.

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable.  The Company grants credit
to  health-care  facilities  primarily in  California,  Colorado,  New York, and
Texas;  however,  travel nurses are made available throughout the United States.
The Company  periodically  performs  credit  analysis and monitors the financial
condition of its clients in order to minimize credit risk.


<PAGE>




Note 1 - Organization and Significant Accounting Policies (continued)

Financial Instruments

The carrying  value of the  Company's  accounts and notes  receivable,  accounts
payable and accrued expenses approximate their fair values due to the short-term
nature of the financial instruments.

Due to current interest rates available to the Company for debt being similar to
rates on the  Company's  remaining  maturities,  the fair value of existing debt
approximates its carrying value.

Revenue Recognition

Revenue is recognized  when services are rendered at the net realizable  amounts
expected to be received from payers,  patients and others. Amounts reimbursed by
certain payers of healthcare services are subject to examination and adjustment.
These adjustments are accrued throughout the year and adjusted in future periods
as the final  settlements are determined.  At December 27, 1998, the Company has
recorded a liability of $194,000 for the amount due for the  difference  between
actual  costs and costs to be  reimbursed.  This  liability  was  recorded  as a
reduction in revenue.

Income Taxes

The  Company  recognizes  deferred  tax  liabilities  and  assets  based  on the
differences  between the tax basis of assets and  liabilities and their reported
amounts in the  financial  statements  that will result in taxable or deductible
amounts in future years. The Company's  temporary  differences  result primarily
from the cash to accrual transition adjustment due to a required change from the
cash to accrual basis and depreciation and amortization.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets which
range from five to seven years.

Intangible Assets

Intangible  assets are stated at cost,  and  consist  of  goodwill,  non-compete
agreements  and  acquisition  costs.  Goodwill and  non-compete  agreements  are
amortized  using  the  straight-line   method  over  fifteen  and  three  years,
respectively.

Acquisition  costs  represents  costs incurred in connection  with the Company's
proposed acquisitions.  Acquisition costs will be included in the purchase price
of the acquisitions if successful, or expensed in operations if the acquisitions
are unsuccessful.


<PAGE>




Note 1 - Organization and Significant Accounting Policies (continued)

Intangible Assets (continued)

The Company  reviews its  long-lived  assets for impairment  whenever  events or
changes in circumstances  indicate that the carrying amount of the asset may not
be recovered.  The Company looks primarily to the undiscounted future cash flows
of its  acquisition  in its  assessment  of  whether or not  goodwill  and other
intangibles have been impaired.

In  1998,  the  Company's  revenue  from  its  TherAmerica   Division  decreased
significantly.  This was primarily a result of a change in rate  structure  from
medicare  related to  physical  therapy and also a result  decreased  revenue as
hospitals  and third party users  started  hiring  therapists  rather than using
external  sources.  As a result of these  decreases,  the Company  reviewed  its
future  projected  cash flows from  TherAmerica  and  determined  that under the
current market and rate structure,  TherAmerica would not generate positive cash
flow  after  general  and  administrative  expenses,  and as a  result  impaired
goodwill associated with TherAmerica totaling $2,040,000 at December 27, 1998.

Reclassifications

Certain  amounts  in  the  1997  consolidated  financial  statements  have  been
reclassified to conform to the 1998 presentation.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expenses for the
years ended December 27, 1998 and December 28, 1997 were approximately  $100,000
and $180,000, respectively.

Basic Loss Per Share

The Company adopted the provisions of Statement of Financial Accounting Standard
No. 128,  "Earnings Per Share" (FAS 128). All dilutive  potential  common shares
have an  antidilutive  effect on diluted net loss per share and  therefore  have
been excluded in determining net loss per share. The Company's basic and diluted
loss per share are equivalent and accordingly only basic loss per share has been
presented.

Continued Existence

The  Company  has  suffered  recurring  losses  for the past  several  years and
incurred a net loss for the year  ended  December  27,  1998 of  $5,422,000.  In
addition,  the  Company  had a working  capital  deficit of  $2,612,000  and was
delinquent to the Internal  Revenue  Services for  approximately  $1,154,000 and
various states for $310,000 in past due payroll  taxes,  interest and penalties.
These factors,  among others,  raise  substantial doubt about the ability of the
Company to continue as a going concern.

Subsequent  to  December  27,  1998,  the  Company  paid  $450,000 of the amount
representing  the unpaid  federal  payroll  taxes,  exclusive  of  interest  and
penalties.


<PAGE>




Note 1 - Organization and Significant Accounting Policies (continued)

Continued Existence (continued)

At December 31, 1998,  the Company had common stock  outstanding  of  21,500,724
issuable  shares.  In  addition,  warrants  and options to acquire  common stock
totaled 7,675,069. Also, as discussed in Note 8, the Company may be obligated to
issue  1,800,000  shares of common  stock in  satisfaction  of its  liability to
purchase 1997 preferred stock units and 310,000 shares upon conversion of a note
payable.  The common  stock  under  conversion  features  exceeds  common  stock
authorized by approximately 6,400,000 shares. If the Company is unable to obtain
shareholder  approval to increase its  authorized  stock in excess of 25,000,000
shares,  it may be  required  to  purchase  stock in the open  market to satisfy
outstanding  options,  warrants  and  conversion  features.  If  all  conversion
features were exercised at the current market price of $.35 this liability would
approximate $2,240,000.

Management's  plans in regard to these  matters  include  holding a  shareholder
meeting to increase its authorized  stock and pursuing a number of  alternatives
for additional  financing which may include the sale of its remaining  divisions
or a public and/or private  offering of the Company's  securities (Note 12). The
Company is currently holding  discussions with investment  bankers and financial
institutions  related  to an  offering  of  securities  and new debt  financing.
Additionally,  during the year ended  December  27,  1998 (Note 2), the  Company
merged with Cymedix  Corporation,  which has  developed  software for the secure
exchange of medical data on the Internet.  Cymedix is in its development  stage,
and no significant revenue has been generated from its software products.  There
can be no assurance that the Cymedix  Corporation  merger will produce  positive
cash flows,  or that the Company  will be able to obtain any  additional  future
financing on terms acceptable to the Company.

The  accompanying   consolidated   financial   statements  do  not  include  any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and  classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.


Note 2 - Acquisitions

Cymedix Corporation

In January 1998, the Company  acquired all of the issued and outstanding  common
shares of Cymedix  Corporation for $2,345,000.  To finance the acquisition,  the
Company  issued  7,212,987  shares of common stock valued at $1,392,000  assumed
liabilities  of  $630,000  consisting  of notes  payable of  $250,000,  accounts
payable  and  accrued  expenses  of  $380,000  and  paid  $25,000  in  cash  and
forgiveness  of $298,000 of  advances.  The merger has been  accounted  for as a
purchase.


<PAGE>




Note 2 - Acquisitions (continued)

Cymedix Corporation (continued)

The purchase price has been allocated as follows:

      Cash                                            $  5,000
      Property and equipment                            21,000
      Excess of cost over net assets acquired
       (goodwill)                                    2,319,000
                                                    ----------

                                                    $2,345,000
                                                    ==========

The following  table reflects the unaudited  historical and pro forma results of
the Company's 1998 acquisitions.

<TABLE>
<CAPTION>



                              (Unaudited)




                                                        Medix                                           Combined
                                                     Historical(1)     Cymedix      Adjustments(1)       Totals
                                                     ------------    ------------    ------------     ------------
 Year Ended December 28, 1997

<S>                                                  <C>             <C>             <C>              <C>         
Revenues ...................................         $ 24,875,000    $       --      $       --       $ 24,875,000
                                                     ============    ============    ============     ============

Net (loss) .................................         $   (515,000)   $   (922,000)   $   (156,000)    $ (1,593,000)

Preferred stock dividends ..................             (972,000)        (29,000)         29,000         (972,000)
                                                     ------------    ------------    ------------     ------------

Net (loss) applicable to
 common shareholders .......................         $ (1,487,000)   $   (951,000)   $   (127,000)    $ (2,565,000)
                                                     ============    ============    ============     ============

Basic net (loss) per common
 share .....................................                (0.09)          (0.05)           (.01)            (.15)
                                                     ============    ============    ============     ============

Weighted average shares
 outstanding ...............................           16,828,824                                       16,828,824
                                                     ============                                     ============

</TABLE>

(1)Adjustments  relate  to  the  amortization  of  goodwill,  and  dividends  on
   convertible  preferred  stock  converted into common stock in the merger have
   been eliminated.


Note 3 - Balance Sheet Disclosures

Property and equipment consists of the following:

      Furniture and fixtures                        $ 93,000
      Computer hardware and software                 491,000
                                                     584,000
                                                    --------
      Less accumulated depreciation                 (364,000)
                                                    --------

                                                    $220,000
                                                    ========


<PAGE>




Note 3 - Balance Sheet Disclosures (continued)

Depreciation  expense was $96,000 and $121,000 for the years ended  December 27,
1998 and December 28, 1997, respectively.

Intangible assets consist of the following:

      Goodwill related to Cymedix                   $2,319,000
      Less accumulated amortization and
       impairment                                     (145,000)
                                                     ---------

                                                    $2,174,000
                                                     =========

Amortization  expense was $558,000 and $485,000 for the years ended December 27,
1998 and December 28,  1997,  respectively.  As discussed in Note 4, the Company
entered  into an  agreement  to sell two  entities  at a price  which would have
resulted  in on a loss  of  approximately  $350,000.  Accordingly,  the  Company
impaired  the  related  carrying  value of  goodwill  on these two  entities  by
approximately $350,000 in 1997.

Accrued liabilities consist of the following:

Health claims payable                             $  254,000
Amount due under Cymedix acquisition                 138,000
Amounts due Medicare                                 194,000
Other                                                511,000
                                                    --------

                                                  $1,097,000
                                                  ==========

At various  times  during the year the Company was  delinquent  with payroll tax
deposits.  At December 27, 1998, $606,000 was accrued for estimated interest and
penalties.


Note 4 - Sale of Operating Divisions

In February of 1998,  the Company sold the balance of the trade  receivables  of
Paxxon to the purchasor at a discount of $35,000  which has been offset  against
the gain on sale of Paxxon.

During the 3rd quarter of 1998,  the Company  consummated  the sale of Ellis and
STAT for approximately  $1,000,000 in cash and two note receivables for $325,000
each (Note 5). The Ellis and STAT sale resulted in a loss of $666,000.

In April 1998,  the Company  entered  into an  agreement  to sell its  remaining
staffing service businesses. In connection with the sale, the Company received a
deposit of $350,000. The purchaser defaulted on the terms of the sales agreement
and the Company retained the deposit.  This has been reflected as a reduction in
the loss on sale of divisions.

<PAGE>




Note 4 - Sale of Operating Divisions (continued)

In February of 1997 the Company sold its Medicare  division for $200,000 in cash
which  resulted in a gain of $190,000.  The  purchasor  did not assume any prior
liabilities  associated with operations  prior to the  acquisition.  The Company
believes it has adequate reserves for any final adjustment which may occur.

During the 4th quarter of 1997,  the Company  entered  into an agreement to sell
Paxxon Services, Inc. (Paxxon) for $1,468,000.  The Company consummated the sale
of Paxxon in the 4th  quarter of 1997 for  approximately  $1,275,000  cash and a
$193,000  note  receivable  (Note 5).  The  Paxxon  sale  resulted  in a gain of
$581,000.


Note 5 - Notes Receivable
                                                         December 31,
                                                   ------------------------
                                                      1998          1997
                                                   -----------   ----------

As part of consideration for the sale of 
 Paxxon (Note 4), the Company received a
 note   receivable  in   the  amount  of
 $192,795 that accrues interest at 5.75%.
 Two   principal  and  accrued  interest
 payments  of  $100 ,000 each are due in
 May 1998  and  November  1998.  Payment
 on  the  note  is  collateralized  by a 
 pledge of a subordinate interest in the
 debtors accounts receivable.                       $100,000       $193,000

The Company  advanced $298,000 to Cymedix
 prior to the  merger.  This  amount  was
 included  as part of the purchase  price
 allocation  during 1998 (Note 2).                          -       298,000

As  part of  consideration  for  the sale 
 of STAT and Ellis  (Note 4), the Company
 received  two  note  receivables  in the 
 amount of $325,000  each,  the second of
 which was adjusted  downward by $187,000
 in accordance  with  the  sale  contract,
 based   on   the   divisions    revenues
 subsequent to the sale.  Paid in full in
 March 1999.                                         463,000           -
                                                    --------      --------

                                                    $563,000      $491,000
                                                    ========      ========



<PAGE>




Note 6 - Line-of-Credit

The Company has entered into an  agreement  with a financial  institution  for a
revolving line-of-credit with a maximum principal balance of $5,000,000 which is
limited by a borrowing base calculation of 80% of qualified accounts receivable.
Interest  accrues on the  outstanding  balance at 2% above bank prime  (9.75% at
December 27,  1998).  Additionally,  the Company is required to pay the lender a
loan management fee on a monthly basis equal to 0.35% of the average outstanding
principal  balance  of the  preceding  month.  Interest  and  fees  paid to this
financial institution for the year ended December 27, 1998 and December 28, 1997
approximated  $470,000 and $650,000,  respectively.  The  outstanding  principal
balance  including  accrued interest and fees was $993,000 at December 28, 1997.
The  agreement  expires  May 2000 and can be  terminated  by the lender  without
notice or by the  Company  with a thirty day notice to the lender and payment of
defined early payment penalties. The loan is collateralized by substantially all
the Company's assets.  Subsequent to year end, the line-of-credit was reduced to
$1,500,000.

                                                         December 31,
                                                   ------------------------
                                                      1998          1997
                                                   -----------   ----------


Note payable -  corporation,  interest  accrues
 at a bank prime plus 2% (9.75% at December 27,
 1998).  The note is currently  in  default  as
 the maturity date was June 30, 1998.  The loan
 is collateralized by a security interest in all
 of Cymedix assets and  is  convertible,  at the 
 options   of the  holder,   into  approximately
 310,000 shares  of  shares  of Medix Resources,
 Inc.'s common stock.                                $250,000      $      -

Note payable - finance company, interest accrues
 at 9.67%, principal and  interest  are  payable 
 in full in August 1999.                               39,000             -
                                                     --------      ----------

                                                     $289,000      $      -
                                                     ========      ==========


Note 7 - Commitments and Contingencies

Operating Leases

The  Company  leases  office  facilities  and  equipment  under   non-cancelable
operating  leases.  Rent  expense  for the years  ended  December  27,  1998 and
December 28, 1997 was $318,000 and $289,000, respectively.

Future minimum lease payments under these leases are approximately as follows:

      Fiscal Year Ended December                      Amount


               1999                                 $351,000
               2000                                  248,000
               2001                                  158,000
               2002                                   94,000
               2003                                   54,000
                                                    --------

                                                    $905,000
                                                    ========



<PAGE>




Note 7 - Commitments and Contingencies (continued)

Litigation

During the fourth  quarter of 1997,  an action was filed  against the Company in
the Eastern District of New York under the caption New York Healthcare,  Inc. v.
International  Nursing  Services,  Inc., et al.,  alleging,  among other things,
breach of contract against the Company and seeking damages in excess of $175,000
plus court costs and attorney fees. The Company filed answers and  counterclaims
in this  action.  The Company  intends to  vigorously  defend this action and to
press its counterclaim.  The Company does not expect any possible  resolution of
this matter to have a material effect on the Company's financial condition.

In the normal course of business,  the Company is party to litigation related to
its staffing  employees.  The Company maintains  insurance to cover these claims
and  believes  that it will not incur any  material  losses in excess of accrued
amounts.


<PAGE>




Note 8 - Stockholders' Deficit

1996 Private Placement

In July and September  1996,  the Company  completed a private  placement of 244
units, each unit consisting of a share of convertible  preferred stock,  $10,000
per unit, $1 par value ("1996  Preferred  Stock"),  a warrant to purchase  8,000
shares of the  Company's  common  stock at $2.50  per share and a unit  purchase
option to purchase an additional unit at $10,000 per unit.

Approximately  $1,550,000  of the  proceeds  raised  was  used to fund  the cash
purchase portion of STAT. A shareholder who participated in the placement of the
private placement was paid a commission of $117,000 in 1996 and issued a warrant
to purchase 100,000 shares of common stock at $2.00 per share. The warrant price
was  subsequently  reduced  to $.63 per share in 1997  resulting  in an  imputed
preferred stock dividend of $375,000.

In 1997 a Unit Holder who held 20 Units  exercised  their Unit  purchase  option
resulting  in gross  proceeds  to the  Company  of  $200,000.  The  Unit  holder
immediately  converted  the  preferred  to common  resulting  in the issuance of
257,028 shares of common stock in January 1997.

During 1997,  129.25 units (with accrued  dividends) were converted to 3,133,361
shares of common stock.  During 1998, an additional  18.25 units were  converted
resulting in the  issuance of an  additional  939,320  shares of common stock in
1998.

1997 Private Placement

In January and  February  1997,  the Company  completed a private  placement  of
167.15 Units, each unit consisting of one share of convertible  preferred stock,
$10,000  per unit,  $1 par  value,  "1997  Preferred  Stock",  and a warrant  to
purchase  10,000  shares of common  stock at $1.00 per  share.  The  convertible
preferred  stock carries no dividend if the underlying  common stock is included
in an  effective  registration  statement  within  90  days  of the  date of the
agreement.  After 90 days,  if the  underlying  shares  are not  included  in an
effective  registration  statement,  the dividend rate becomes 18%. In addition,
the preferred  stock  contains a redemption  feature  whereby if the  underlying
common stock which the preferred  shares are convertible into is not effectively
registered by the second anniversary date of each respective unit, the holder at
their option may redeem the  preferred  shares for $10,000 back plus all accrued
unpaid  dividends.  The Company  raised gross  proceeds of $1,672,000  from this
private placement. Commissions of $100,000 were paid to individuals who assisted
in the private placement who are also  shareholders of the Company.  The Company
received  net  proceeds of  approximately  $1,520,000  from the sale of the 1997
preferred stock.

During 1997,  66.65 units were converted to 3,651,867 shares of common stock. In
1998,  an  additional  5.0 units were  converted  resulting  in the  issuance of
178,950 shares of common stock.


<PAGE>




Note 8 - Stockholders' Deficit (continued)

Preferred Redemption Payable

During 1998, the Company entered into an agreement with holders of 76.0 units of
1997 preferred stock to repurchase  those units.  The total redemption price was
$760,000 and was payable in  installments  due April 15, May 15 and September 1,
1998.  The holders had the option to convert  the  redemption  price into common
stock at $.50 a share.  If the Company did not make payments on the required due
dates then the Company is  obligated  to issue  common stock at a price equal to
75% of the NASDAQ  Small Cap Market  Price.  The Company paid  $125,000  leaving
$635,000 due under these agreements. Based on the terms of default, this equates
to a price of $.35 per share,  the Company may be obligated  to issue  1,800,000
shares of common stock in satisfaction of the liability.

Litigation Settlement

During the year ended December 31, 1998, the Company  settled a legal dispute in
which it was the defendant by issuing 150,000 shares of common stock.

Warrants

On January 28,  1997,  the Company  issued a  convertible  note for  proceeds of
$1,000,000  from a shareholder of the Company.  Interest  accrued on the note at
12.5% and the note  matured on January  27,  1998.  The  Company  also  issued a
warrant to purchase  200,000  shares of common  stock at $1.1875 per share until
July 31, 1999 to the convertible  note holder.  The Company  recorded an imputed
discount on the convertible debenture of $134,000 using the Black-Scholes option
pricing model related to the issuance of the warrant to purchase  200,000 shares
of common stock at $1.1875 per share. The Company amortized the imputed discount
over the expected term of the related  debt.  On May 28, 1997,  the Company paid
$500,000 of principal plus accrued interest to the noteholder,  and the exercise
price of the  warrant  was reduced to $0.27 from  $1.19.  The  reduction  of the
exercise price resulted in no material  change to the imputed  discount due to a
decrease in the market value of the Company's stock. During the forth quarter of
1997 the Company paid the remaining $500,000 plus accrued interest from proceeds
received on the Paxxon Sale.

Stock Options

In May 1988,  the Company  adopted an incentive  stock option plan (ISO),  which
provides  for the grant of  options  representing  up to  100,000  shares of the
Company's  common stock to officers and  employees of the Company upon terms and
conditions determined by the Board of Directors.  Options granted under the plan
are generally exercisable  immediately and expire up to ten years after the date
of grant.  Options are granted at a price equal to the market  value at the date
of grants,  or in the case of a  stockholder  who owns  greater  than 10% of the
outstanding  stock of the  Company,  the options are granted at 110% of the fair
market value.


<PAGE>




Note 8 - Stockholders' Deficit (continued)

Stock Options (continued)

In 1994,  the Board of  Directors  established,  the Omnibus  Stock Plan of 1994
(1994 Plan) and reserved  500,000 shares of the Company's common stock for grant
under terms which could extend  through  January 2004.  All options and warrants
issued under this plan are  non-qualified.  Grants under the 1994 Plan may be to
employees,  non-employee directors, and selected consultants to the Company, and
may take the form of  non-qualified  options,  not lower than 50% of fair market
value.  To date,  the Company has not issued any options below fair market value
at the date of grant.

In 1996,  the Board of  Directors  established  the 1996 Stock  Option Plan (the
"1996 Plan") with terms similar to the 1994 Plan.  The Board of Directors of the
Company  reserved  4,000,000  shares of common stock for issuance under the 1996
Plan.

The following is a summary of options and warrants granted,  all of which expire
at various times through 2008.

<TABLE>
<CAPTION>

                     Number of Options
                   --------------------
                                              Exercise                          Exercise
                                                Price          Number of          Price
                      Plan     Non-Plan       Per Share         Warrants         Per Share
                   ---------   --------     -------------      ----------     --------------
<S>                <C>           <C>         <C>                <C>            <C>
Outstanding
 December 29,
 1996              1,343,125     7,500       $0.63 - $6.00       5,547,604     $1.00 - $5.00

Options/warrants
 granted           3,019,155 (1)    -        $0.25 - $1.00       4,535,126 (2) $0.15 - $2.50

Unit options
 canceled                -          -                           (4,744,376)(2)         $2.50
Cancellations     (1,920,935)(1)    -        $0.63 - $3.25              -      $0.27 - $2.50
                  ----------      --------   -------------       ---------     -------------

Outstanding
 December 28,
 1997              2,441,345     7,500       $0.25 - $6.00       5,338,354     $0.15 - $5.00

Options/warrants
 granted           2,040,000   123,056(3)    $0.02 - $0.50         375,000     $0.12 - $0.19

Cancellations       (400,780)       -        $0.19 - $1.88        (869,400)    $1.00 - $4.00
Purchased                 -         -                  -        (1,380,000)(4)         $0.63
                   ---------    -------      -------------      -----------    -------------

Outstanding
 December 27,
 1998              4,080,565   130,550       $0.02 - $6.00       3,463,954    $0.12 - $5.00
                   =========    ======       =============       =========    =============
</TABLE>

<PAGE>



Note 8 - Stockholders' Deficit (continued)

(1)Includes  1,223,326  options  that were  canceled and reissued at an exercise
   price of $0.25 to $1.00 to officers, directors, and employees of the Company.
   The options were  originally  exerciseable  between $0.63 and $3.25.  Net new
   issues were 1,794,729 and net canceled were 696,509.

(2)Includes  287,626  warrants  that were  canceled  and reissued at an exercise
   price of $0.25 to an officer of the  Company.  The warrants  were  originally
   exerciseable  at $1.75.  Also includes the cancelation of 204 Unit Options in
   exchange  for the  cancellation  and reissue of the related  warrant  with an
   exercise price of $0.63. The warrants were previously  exerciseable at $2.50.
   Millenco  note  warrants  were issued on January 28, 1997 at $1.19,  Millenco
   also  exercised 20 unit options on 1996 preferred  stock.  On August 15, 1997
   the warrants  were canceled and reissued at an exercise  price of $0.63.  The
   warrants were originally exerciseable at $1.25. Net new issues were 1,871,500
   and net canceled were 163,750.

(3)Inconnection with the  acquisition of Cymedix,  the Company issued options to
   acquire  123,050  shares of stock at approximately  $.02. The Company imputed
   a value of   approximately  $37,000 to  the options  using the Black  Scholes
   pricing model.

(4)In 1998, the  Company  purchased  1,380,000  warrants to acquire common stock
   at   $.63 per share by issuing  175,900  shares of common  stock.  Since this
   transaction involved  equity components,  no gain or loss was recorded on the
   transaction.

   The weighted  average  exercise price of options and warrants  outstanding at
   December 27, 1998 is $1.03.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based   Compensation."
Accordingly,  no  compensation  cost has been  recognized  for the stock  option
plans. Had compensation  cost for the  Corporation's two stock option plans been
determined based on the fair value at the grant date for awards  consistent with
the  provisions of SFAS No. 123, the  Corporation's  net loss and loss per share
would have been increased to the pro forma amounts indicated below:

                                                        1998         1997
                                                   -----------   ----------


Net loss - as reported                              $(5,422,000)   $(515,000)
Net loss - pro forma                                 (5,899,000)  (1,963,000)
Basic loss per share - as reported                         (.26)        (.15)
Basic loss per share - pro forma                           (.28)        (.30)

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used for grants in 1998 and 1997,  respectively:  dividend yield of
0%; expected  volatility of 173% and 128%,  respectively;  discount rate of 5.5%
and 5.5%, respectively; and expected lives of 10 years.


<PAGE>




Note 9 - Income Taxes

As of December 27, 1998, the Company has net operating loss (NOL)  carryforwards
of  approximately  7,500,000  which expire in the years 1999 through  2013.  The
utilization  of the NOL  carryforward  is limited to $469,000 on an annual basis
due to an  effective  change in control  which  occurred as a result of the 1996
private placement.  Due to the existence of net operating losses incurred by the
Company which raise substantial doubt about the Company's ability to continue as
a going  concern,  the Company has  concluded it is more likely than not that it
will not  realize its  deferred  tax asset and  accordingly  has  established  a
valuation allowance of $7,500,000.


Note 10 - Loss Per Common Share

In  accordance  with the SEC's  position  on  preferred  stock with  convertible
features that are in the money at the time of issuance,  the Company has imputed
a value associated with such conversion features and has recorded the value as a
discount on the preferred stock.  The Company  amortizes the imputed discount on
the preferred  stock over the period from issuance of the preferred stock to the
earliest  period  at which  the  preferred  stock  becomes  convertible.  As the
Company's  1997  preferred  stock  issuances are  immediately  convertible,  the
Company has amortized the entire imputed discount as a component of dividends on
preferred  stock.  The  Company  recorded  additional   dividends  to  preferred
stockholders  of  approximately  $553,000 for the years ended December 29, 1997,
which represents an imputed increase to the dividend yield and not a contractual
obligation on the part of the Company to pay such imputed dividends.

The Company has also imputed additional dividends on the 1997 preferred stock of
$375,000 as a result of the repricing of the exercise price  associated with the
related warrants  issued.  The Company repriced the warrant exercise price as an
inducement for holders not to convert their 1997 preferred  stock into shares of
common stock.


<PAGE>




Note 10 - Loss Per Common Share (continued)

                                  December 31,
                                                   -----------------------
                                                       1998         1997
                                                   -----------   ---------


Net loss                                            $5,422,000    $515,000
Preferred stock dividends based on stated rate          11,000      44,000
Preferred stock dividends based on imputed
 discount at issuance                                     -        553,000
Preferred  stock  dividends  imputed  associated
 with related warrant repricing                           -        375,000
                                                    ----------   ---------

Net loss applicable to common stockholders          $5,433,000  $1,487,000
                                                    ==========  ==========

Basic loss per common share                         $     (.26) $     (.15)
                                                    ==========  ==========

Weighted average shares outstanding                 20,772,801   9,848,824
                                                    ==========  ==========


Note 11 - Retirement Savings Plan

Effective March 25, 1997, the Company adopted a defined contribution  retirement
savings plan which covers all employees age 21 or older with one thousand  hours
of annual service.  Matching  contributions are made by the Company at $0.25 for
each  $1  that  the  employee  contributes  up to 8%  of  compensation.  Company
contributions vest as follows:

               Years of Service                        Vested


                    1                                  10%
                    2                                  20%
                    3                                  30%
                    4                                  40%
                    5                                  60%
                    6                                  80%
                    7                                 100%

Contributions  for the years ended  December 27, 1998 and December 28, 1997 were
$21,000 and $35,000, respectively.


Note 12 - Subsequent Events (Unaudited)

In 1999, the Company  completed a private  placement of units consisting of 1999
Series A convertible  preferred stock (1999 Preferred Stock) and a warrant.  The
Preferred  Stock is  convertible  into common stock at a price of $.25 per share
from December 1, 1999 through March 1, 2003.  There are no dividends  unless the
Shares of Common Stock  underlying  the  preferred  is not  registered  with the
Securities and Exchange  Commission by September 30, 1999. If the aforementioned
registration  is not completed,  then the holder  receives  dividends of 10% per
annum.

The warrant entitles the holder to purchase one share of common stock at $1 from
October 1, 1999 to October 1, 2000.  The Company has received  $250,000  through
April 7, 1999 under its private placement.



ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

      None


PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT


ITEM 10.   EXECUTIVE COMPENSATION

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  required by the above four Items is omitted because the Company
intends to file a proxy statement with the Commission pursuant to Regulation 14A
not later than 120 days after the close of the fiscal  year in  accordance  with
General  Instruction  E(3) to Form 10-KSB.  The information  called for by these
Items is incorporated herein by reference to the proxy statement.





                                     - 20 -

<PAGE>


ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits  required by Item 601 of Regulation  S-B. The Company will furnish
     to its  shareholders  of record as of the record  date for its 1999  Annual
     Meeting of  Stockholders,  a copy of any of the exhibits  listed below upon
     payment of $.25 per page to cover the costs of the  Company  of  furnishing
     the exhibits.

Exhibit No.     Description

3.1.1Articles  of  incorporation  of the Company as filed on April 22, 1988 with
     the Secretary of State of the State of Colorado,  incorporated by reference
     to  Exhibit  3.1.1 to the  Registration  Statement  on Form  SB-2(Reg.  No.
     33-81582-D),  filed with the SEC in July  14,1994  (the "1994  Registration
     Statement").

3.1.2Articles of Amendment to Articles of  Incorporation of the Company as filed
     on May 24,  1988  with the  Secretary  of State of the  State of  Colorado,
     incorporated  by  reference  to  Exhibit  3.1.2  to the  1994  Registration
     Statement.

3.1.3Articles of Amendment to Articles of  Incorporation of the Company as filed
     on February 16, 1990 with the  Secretary of State of the State of Colorado,
     incorporated  by  reference  to  Exhibit  3.1.3  to the  1994  Registration
     Statement.

3.1.4Articles of Amendment to Articles of  Incorporation of the Company as filed
     on August 12, 1994 with the  Secretary  of State of the State of  Colorado,
     incorporated  by reference to Exhibit  3.1.4 to Amendment No. 1 to the 1994
     Registration Statement, filed with the SEC on August 15, 1994.

3.1.5Articles of Amendment to Articles of  Incorporation of the Company as filed
     on September 12, 1994 with the Secretary of State of the State of Colorado,
     incorporated  by reference to Exhibit  3.1.5 to Amendment No. 3 to the 1994
     Registration Statement, filed with the SEC on September 12, 1994.

3.1.6Certificate   of   Designation  of  1996   Convertible   Preferred   Stock,
     incorporated  by  reference  to  Exhibit  3.1  to  Amendment  No.  1 to the
     Registration  Statement  of the  Company  on Form S-3,  filed  with the SEC
     October 10, 1996.

3.1.7Articles  to  Amendment  to  Articles  of  Incorporation   filed  with  the
     Secretary   of  State  of  the  State  of  Colorado  on  October  9,  1996,
     incorporated  by  reference  to  Exhibit  3.2  to  Amendment  No.  1 to the
     Registration  Statement  of the  Company  on Form S-3 filed with the SEC on
     October 10, 1996.

3.1.8Articles  of  Amendment   containing   Articles  of   Designation  of  1997
     Convertible Preferred Stock,  incorporated by reference to Exhibit 3.1.8 to
     the Company's Form 10-KSB filed with the SEC on March 31, 1997.

                                     - 21 -
<PAGE>

3.1.9Articles of Amendment to Articles of  Incorporation of the Company as filed
     on November  14, 1997 with the  Secretary of State of the State of Colorado
     incorporated  by reference to Exhibit  3.1.9 to the  Company's  Form 10-KSB
     filed with the SEC on March 30, 1998.

3.1.10 Articles of  Amendment  to Articles  of  Incorporation  of the Company as
     filed on  February  17,  1999 with the  Secretary  of State of the State of
     Colorado, incorporated by reference to Exhibit 3.1.10 to the Company's Form
     10-KSB filed with the SEC on March 30, 1998.

3.1.11 Articles of  Amendment  to Articles  of  Incorporation  of the Company as
     filed  on  March  17,  1999  with the  Secretary  of State of the  State of
     Colorado, incorporated by reference to Exhibit 3.1.11 to the Company's Form
     10-KSB filed with the SEC on March 30, 1998.

3.2.1Amended and Restated  By-Laws of the Company,  incorporated by reference to
     Exhibit 3.2.2 to Amendment No. 1 to the  Registration  Statement filed with
     the SEC on August 15, 1994.

4.1  Form of specimen certificate for common stock of the Company,  incorporated
     by reference to Exhibit  4.1. to the  Company's  Form 10-KSB filed with the
     SEC on March 30, 1998.

4.2.1Form  of  specimen   certificate   for  1994   Warrants  of  the   Company,
     incorporated  by reference  to Exhibit No. 4.1.3 to Amendment  No. 1 to the
     1994 Registration Statement, filed with the SEC on August 15, 1994.

4.2.2Form  of  Warrant  Agreement  by  and  between  the  Company  and  American
     Securities Transfer,  Inc.,  incorporated by reference to Exhibit No. 4.1.4
     to Amendment No. 2 to the 1994 Registration  Statement,  filed with the SEC
     on September 1, 1994.

4.3  Form  of   Representative`s   Warrants   issued  by  the   Company  to  the
     underwriters'  representative  in connection with the Company's 1994 public
     offering,  incorporated  by reference to Exhibit No. 4.2 to Amendment No. 3
     to the 1994  Registration  Statement,  filed with the SEC on September  12,
     1994 .

4.4  Form of 1996 Unit  Warrant,  incorporated  by  reference  to Exhibit 4.1 to
     Amendment  No. 1 to the  Registration  Statement of the Company on Form S-3
     filed with the SEC on October 10, 1996.

4.5  Warrant issued January 28, 1997 to Millenco, L.P, incorporated by reference
     to Exhibit 4.9 to the Company's Form 10-KSB filed with the SEC on March 31,
     1997.

4.6  Form of 1997 Unit Warrant, incorporated by reference to Exhibit 4.11 to the
     Company's Form 10-KSB filed with the SEC on March 31, 1997.

                                     - 22 -

<PAGE>

10.1 Employment Agreement,  dated January 7, 1997, by and between John Yeros and
     the Company,  incorporated  by reference to Exhibit  10.22 to the Company's
     Form 10- KSB filed with the SEC on March 31, 1997.

10.2.1 Incentive  Stock Option Plan,  adopted May 5, 1988,  authorizing  100,000
     shares of common stock for issuance  pursuant to the Plan,  incorporated by
     reference to Exhibit No. 10.2.1 of the 1994 Registration Statement.

10.2.2 Omnibus Stock Option Plan, adopted effective January 1, 1994, authorizing
     500,000  shares  of  common  stock  for  issuance  pursuant  to  the  Plan,
     incorporated  by reference to Exhibit No.  10.2.2 of the 1994  Registration
     Statement.

10.2.3 1996 Stock Incentive Plan, adopted by the Company's Board of Directors on
     November  27,  1996,  authorizing  4,000,000  shares  of  common  stock for
     issuance pursuant to the Plan., incorporated by reference to Exhibit 10.2.3
     to the Company's Form 10-KSB filed with the SEC on March 30, 1998.

10.3 Asset Purchase and Sale Agreement, dated May 2, 1994 and as amended June 1,
     1994, by and between the Company and Paxxon Services, Inc., incorporated by
     reference to Exhibit 2.2 to the 1994 Registration Statement.

10.6 Asset Purchase and Sale Agreement  dated April 15, 1994 and as amended June
     1, 1994, by and between the Company and Mint Energy Corporation,  d/b/a the
     Nurse  Connection,  incorporated  by  reference  to Exhibit 2.4 to the 1994
     Registration Statement.

10.7 Asset Purchase Agreement between the Company and STAT Health Care Services,
     Inc. dated January 10, 1996,  incorporated by reference to Exhibit 10.18 to
     Form 8-K of the Company, filed with the SEC on January 11, 1996.

10.8 Asset  Purchase  and Sale  Agreement,  dated as of April 17,  1996,  by and
     between Ellis Home Care  Services,  Inc., JJ Care  Resources,  Inc. and the
     Company,  incorporated  by reference to Exhibit No. 10.1 to Form 8-K of the
     Company, filed with the SEC in April 1996.

10.9 First Amendment to Purchase  Agreement,  dated as of July 17, 1996, between
     the Company, JJ Care Resources,  Inc. and STAT Health Care Services,  Inc.,
     incorporated  by  reference  to Exhibit  10.19 to Form 8-K of the  Company,
     filed with the SEC on August 1, 1996.

10.10Form of  Registration  Rights/Purchase  Agreement  relating  to  1996  Unit
     Offering,  incorporated  by reference to Exhibit 10.1 to Amendment No. 1 to
     the  Registration  Statement of the Company on Form S-3, filed with the SEC
     on October 10, 1996.

10.10Asset  Purchase  Agreement,  dated  as of  January  31,  1997 by and  among
     Colorado Therapists on Call, Inc., Professional HealthCare Providers, Inc.,
     CoreStaff,  Inc. and the Company,  incorporated by reference to Exhibit 2.1
     to the Form 8-K of the Company filed on February 14, 1997.

                                     - 23 -

<PAGE>

10.11Form of  Registration  Rights/Purchase  agreement  relating  to  1997  unit
     offering,  incorporated by reference to Exhibit 10.21 to the Company's Form
     10-KSB filed with the SEC on March 31, 1997.

10.12Loan and Security  Agreement,  dated May 28, 1997, by and between  National
     Care Resources - New York, Inc.,  National Care Resources - Texas, Inc., JJ
     Care   Resources,   Inc.,   National  Care  Resources  -  Colorado,   Inc.,
     TherAmerica,  Inc.  and  International  Nursing  Services,  Inc.  and  HCFP
     Funding, Inc.,  incorporated by reference to Exhibit 10.23 in the Company's
     Form 10 - QSB for the Quarterly Period ended June 29, 1997.

10.13Agreement of Purchase and Sale (Assets),  dated as of September 1, 1997, by
     and between  National Care Resources,  Inc. and Life Source Service,  Inc.,
     incorporated  by reference to Exhibit 2.1 in the Company's  Form 10-QSB for
     the  Quarterly  Period  ended  September  28,  1997,  filed with the SEC on
     November 14, 1997.

10.14Purchase and Sale Agreement,  between International Nursing Services, Inc.,
     National Care Resources - New York, Inc., National Health Enterprises - NV,
     Inc.,  and  National  Health  Enterprises,  Inc.,  dated  October 19, 1997,
     incorporated  by reference to Exhibit 99.1 to the Company's  Current Report
     on Form 8-K filed with the SEC on November 26, 1997.

10.15Agreement  and  Plan of  Merger,  dated  as of  November  17,  1997,  among
     International Nursing Services, Inc., Cymedix Lynx Corporation and Cymendix
     Corporation,  incorporated  by  reference  to Exhibit 2.1 to the  Company's
     Current Report on Form 8-K filed with the SEC on December 24, 1997.

10.16Amendment No. 1 to Agreement  and Plan of Merger,  dated as of December 10,
     1997, among International Nursing Services,  Inc., Cymedix Lynx Corporation
     and Cymedix  Corporation,  incorporated  by reference to Exhibit 2.2 to the
     Company's  Current  Report on Form 8-K filed with the SEC on  December  24,
     1997.

10.17Stipulation of Settlement  between Ellis Home Care  Services,  Inc. and the
     Company,  incorporated  by reference to Exhibit 10.1 to the Company's  Form
     10-QSB for the Quarterly  Period ended  September 28, 1997,  filed with the
     SEC on November 14, 1997.

10.18Judgment  against the Company in favor of Ellis Home Care  Services,  Inc.,
     incorporated  by reference to Exhibit 99 to the  Company's  Form 10-QSB for
     the  Quarterly  Period  ended  September  28,  1997,  filed with the SEC on
     November 14, 1997.

10.19Settlement and Release  Agreement,  dated November 22, 1996,  among Cymedix
     Corporation,  Keith Berman,  Global Med Technologies,  Inc. and Mick Ruxin,
     incorporated  by reference to Exhibit 10.19 to the  Company's  Form 10-KSB,
     filed with the SEC on March 30, 1998.

                                     - 24 -
<PAGE>

10.20Loan and Security  Agreement,  dated  February 26,  1996,  between  MedSoft
     OnLine, Inc. and Global Med Technologies,  Inc.,  incorporated by reference
     to Exhibit 10.20 to the Company's Form 10-KSB,  filed with the SEC on March
     30, 1998.

10.21Loan and Security  Agreement,  dated May 28, 1997, by and between  National
     Care Resources - New York, Inc.,  National Care Resources - Texas, Inc., JJ
     Care Resources, Inc., National Care Resources - Colorado, Inc. TherAmerica,
     Inc. and  International  Nursing  Services,  Inc. and HCFP  Funding,  Inc.,
     incorporated  by reference to Exhibit 10.23 to the  Company's  Form 10-QSB,
     filed with the SEC on August 13, 1997.

10.22Purchase and Sale Agreement,  dated September 14, 1998,  among Premier Home
     Health Care Services,  Inc.,  National Care  Resources-New  York, Inc., and
     Medix  Resources,  Inc.,  incorporated by reference to Exhibit 10.23 to the
     Company's Form 8-K, filed with the SEC on September 28, 1998.

21.  Subsidiaries of the Company.*

23.  Consent of  Ehrhardt  Keefe  Steiner & Hoffman  PC,  independent  certified
     public  accountants for the Company,  to the  incorporation by reference of
     its report  dated April 2, 1999,  appearing  elsewhere  in this From 10-KSB
     into the Company's Registration Statement on Form S-2 (reg. No. 333- ).*

27.  Financial Data Schedule.*

*Filed herewith


     (b)  Reports on Form 8-K.  The Company  filed one report on Form 8-K during
          the last quarter of 1998 as follows:

          1.   Report filed with the SEC on November 13, 1998,  reporting  under
               Item 5 the issuance of a press release  announcing the initiation
               of an Internet based medical communications network product pilot
               project.




                                     - 25 -
<PAGE>

                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  Registrant  caused this  report to be signed on behalf by the  undersigned,
thereunto duly authorized on April 12, 1999.

                               INTERNATIONAL NURSING SERVICES,  INC.



                               By:  /s/ John P. Yeros
                                    John P. Yeros,
                                    Chairman of the Board and Chief
                                    Executive Officer

In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed below by the  following  persons on behalf of the  Registrant  and in the
capacities indicated and on the dates indicated.

      Signature                Title                Date


/s/ John P. Yeros           Chairman of the Board
    -------------           and Chief Executive                April 12, 1999
    John P. Yeros           officer (Principal Executive
                            Officer)

/s/ David Kinsella
    --------------          Controller (Principal
    David Kinsella          Accounting and Financial
                            Officer)                           April 12, 1999


/s/ Thomas J. Oberle        Director
    ----------------                                           April 12, 1999
    Thomas J. Oberle