As Filed with the Securities and Exchange Commission on September 30, 1998
Registration No. 333-58449
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO FORM SB-2
REGISTRATION STATEMENT
ON FORM S-3 REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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Metropolitan Health Network, Inc.
(Exact name of registrant as specified in its charter)
Florida 65-0635748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 Town Center Circle, Suite 560
Boca Raton, Florida 33486
(561) 416-9484
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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Noel J. Guillama
Chief Executive Officer
5100 Town Center Circle, Suite 560
Boca Raton, Florida 33486
(561) 416-9484
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(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Roxanne K. Beilly, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
(954) 763-1200
---------------------------------------------
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
If this Form is filed to register to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ] __________.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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Subject to Completion, dated September 30, 1998
PROSPECTUS
825,000 Shares
1,897,500 Warrants
METROPOLITAN HEALTH NETWORKS, INC.
On February 13, 1997 an offering of 825,000 shares of Common Stock par
value $.001 per share (the "Common Stock") and 1,897,500 redeemable Common Stock
Purchase Warrants ("Warrants") of Metropolitan Health Networks, Inc. (the
"Company") was underwritten on a firm commitment basis (the "IPO") by Brauer &
Associates, Inc. (the "Underwriter") at an offering price of $ 6.00 per share of
Common Stock and $.15 per Warrant. Each Warrant currently entitles the holder
thereof to purchase one share of Common Stock at an exercise price of $7.00 per
share of Common Stock (subject to further adjustment in certain events) until
February 13, 2001. The Warrants are redeemable by the Company for $.05 per
Warrant, at any time upon thirty (30) days' prior written notice, provided (i)
the average closing bid price of the Common Stock, as reported by the principal
exchange on which the Common Stock is traded, The Nasdaq SmallCap Market (TM) or
the National Quotation Bureau, Incorporated, as the case may be, equals or
exceeds $12.00 per share for any ten (10) consecutive trading days ending within
ten (10) days prior to the date of the notice of redemption, and (ii) the
Company has at the time notice of redemption is given an annualized Run Rate (as
hereinafter defined) of revenues of $20,000,000 for a minimum of one quarter as
evidenced by the filing of a Form 8-K with the Securities and Exchange
Commission containing historical pro forma financial statements reflecting said
revenues. Run Rate shall be defined as the combined gross revenue on a pro forma
basis of the Company's prior years gross revenue. Concurrent with the IPO, the
Company registered pursuant to an Alternate Prospectus, for the account of the
Selling Security Holders named therein, an additional 665,000 shares of Common
Stock, 867,000 warrants and 1,310,000 shares of Common Stock underlying the such
warrants (collectively, the "Selling Security Holder Securities"). See
"Concurrent Offering."
This Prospectus also relates to the Underwriters' Warrants and shares
of Common Stock underlying the Underwriters' Warrants as hereinafter described.
The Common Stock and the Warrants are quoted on The Nasdaq National
Market (TM) under the symbols "MDPA" and "MDPAW". On September 23, 1998, the
closing price on The Nasdaq National Market (TM) for the Common Stock was $2.88
and the closing price for the Warrants was $0.28.
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THESE SECURITIES ARE SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 5 THROUGH 18.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The original date of this Prospectus is February 13, 1997.
This Prospectus is amended pursuant to a Post-Effective
Amendment dated September 30, 1998.
[Front Cover Page Continues]
<PAGE>
The securities registered hereby may be sold from time to time in one
or more transactions that may take place on the over-the-counter market,
including ordinary brokerage transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
stockholders. The Company will not receive any of the proceeds from the sale of
the Shares offered hereby. Expenses of this offering, other than fees and
expenses of counsel to the selling security holders and selling commissions,
will be paid by the Company. The Company will pay all offering expenses for the
offering, estimated at approximately $17,000 including (i) legal fees and
expenses ($6,500); (ii) accounting fees and expenses ($5,500); (iii) printing
expenses ($3,000); and (iv) miscellaneous expenses ($2,000), but will not pay
any discounts or commissions incurred by selling stockholders or Selling
Security Holders in connection with the sale of their shares of Common Stock or
Warrants.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of this material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http//www.sec.gov.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the resale of the securities described
herein. This Prospectus, which is Part I of the Registration Statement, omits
certain information contained in the Registration Statement. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits thereto. Statements in this Prospectus as to any document are not
necessarily complete, and where any such document is an exhibit to the
Registration Statement or is incorporated by reference herein, each such
statement is qualified in all respects by the provisions of such exhibit or
other document, to which reference is hereby made, for a full statement of the
provisions thereof. A copy of the Registration Statement, with exhibits, may be
obtained from the Commission's office in Washington, D.C. (at the above address)
upon payment of the fees prescribed by the rules and regulations of the
Commission, or examined there without charge.
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TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
AVAILABLE INFORMATION............................................................................ 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................ 4
RISK FACTORS..................................................................................... 5
USE OF PROCEEDS.................................................................................. 19
CONCURRENT OFFERING.............................................................................. 19
THE COMPANY...................................................................................... 20
SELLING STOCKHOLDERS ............................................................................ 37
PLAN OF DISTRIBUTION............................................................................. 38
DESCRIPTION OF SECURITIES........................................................................ 39
LEGAL MATTERS.................................................................................... 49
EXPERTS.......................................................................................... 50
INDEMNIFICATION.................................................................................. 50
</TABLE>
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The Common Stock and Warrants are traded on The Nasdaq National Market
(TM) under the symbols "MDPA" and "MDPAW" respectively. The low and high prices
of the Common Stock as reported on The Nasdaq National Market (TM) on September
23, 1998 were $2.63 and $3.00, per share, respectively. The low and high prices
of the Warrants as reported on The Nasdaq National Market (TM) on September 23,
1998 were $0.28 and $0.28 per warrant, respectively.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
contained in this Prospectus, and if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the selling stockholders.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
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The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports and other information
with the Securities and Exchange Commission.
The Company has previously and intends to furnish its stockholders with
annual reports containing audited financial statements and distributes quarterly
reports containing unaudited summary financial information for each of the first
three quarters of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference:
1. Annual Report of the Company on Form 10-KSB for the fiscal year ended
June 30, 1997.
2. Quarterly Reports of the Company on Form 10-QSB for the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998.
3. The Company's current reports on Form 8-K, and amendments thereto,
filed March 26, 1997, May 27, 1997, August 21, 1997, October 20, 1997,
March 9, 1998, April 17, 1998, May 8, 1998, June 16, 1998, August
6,1998 and September 10, 1998.
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4. All reports and documents filed by the Company pursuant to Sections 13,
14 or 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered
hereby have been sold or which de-registers all securities then
remaining unsold, shall be deemed to be incorporated by reference
herein and to be a part hereof from the respective date of filing of
such documents.
Any statement incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document, which also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement modified or superseded shall not be deemed, except as
so modified or superseded, to constitute part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of the Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to Corporate Secretary, Metropolitan
Health Networks, Inc. at the Company's principal executive office, 5100 Town
Center Circle, Suite 560 Boca Raton, Florida 33486, Telephone (561) 416-9484,
Facsimile (561) 416-9487.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE THESE
SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CAREFULLY READ THIS PROSPECTUS AND CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS: LIMITED OPERATING HISTORY; LOSS
FROM OPERATIONS
Forward Looking Statements
The discussion in this Prospectus regarding the Company and its
business and operations includes "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1996. Such statements consist
of any statement other than a recitation of historical fact and can be
identified by the use of forward-looking terminology such as "may," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The reader is cautioned that all
forward-looking statements are necessarily speculative, and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward-looking statements. The
disclosure contained herein highlights
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some of the more important risks regarding the Company. The risks highlighted
below should not be assumed to be the only things that could affect future
performance. The Company does not have a policy of updating or revising
forward-looking statements, and thus, it should not be assumed that silence by
management of the Company over time means that actual events are bearing out as
estimated in such forward-looking statements.
The Prospectus further contains statements relating to completion of
pending Acquisitions, and other matters. Certain of these statements are
accompanied by important cautionary factors that could cause different results
than expected by the Company. In addition to those factors, other factors such
as shareholder, regulatory and third party consents with respect to
Acquisitions, among other events outside the Company's control could also cause
future results to differ from expectations.
Additional risks and uncertainties include the potential loss of
contractual relationships, fluctuations in the volume of procedures performed by
the Company's facilities and physicians, changes in the reimbursement rates for
those services as well as uncertainty about the ability to collect the
appropriate fees for services provided by the Company.
Risks Related to the Company's Acquisition Strategy
The Company's strategy is to increase its revenue and the markets it
serves through the acquisition of additional Physician Practices and Ancillary
Services. There can be no assurance that the company will be able to identify,
acquire or profitably manage additional companies or successfully integrate the
operations of additional companies into those of the Company without
encountering substantial costs, delays or other problems. In addition, there can
be no assurance that companies acquired in the future will achieve profitability
that justify the Company's investment in them or that acquired companies will
not have unknown liabilities that could materially adversely affect the
Company's results of operations or financial condition. The Company may compete
for acquisition and expansion opportunities with companies that have greater
resources than the Company. There can be no assurance that suitable acquisition
candidates will continue to be available, that financing for acquisitions will
be obtainable on terms acceptable to the Company, that acquisitions can be
consummated or that acquired businesses can be integrated successfully and
profitably into the Company operations. Further, the Company's results of
operations in fiscal quarters immediately following a material acquisition may
be materially adversely effected while the Company integrates the acquired
business into its existing operations. The Company may acquire certain
businesses that have either been unprofitable or that have had inconsistent
profitability prior to their acquisition. An inability of the Company to improve
the profitability of these acquired businesses could have a material adverse
effect on the Company. Finally, the Company's acquisition strategy places
significant demands on the Company's resources and there can be no assurance
that the Company's management and operational systems
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and structure can be expanded to effectively support the Company's continued
acquisition strategy. If the Company is unable to implement successfully its
acquisition strategy, this inability may have a material adverse effect on the
Company's business, results of operations or financial condition.
Dependence on Management to Integrate the Acquisitions and Ability to Manage
Growth
The business strategy of the Company involves growth through
acquisition, internal development and integration of the individual components
in order to form a provider network. The Company is subject to various risks
associated with its growth strategy, including the risk that it will be unable
to identify and recruit suitable acquisition candidates in the future or to
integrate and manage the acquired health care providers.
The Company has completed acquisitions and is still in the process of
integrating those acquired businesses. While the business plans of these
acquired companies are similar, their histories, geographical location, business
models and business cultures are different in many respects. The directors and
senior management of the Company face a significant challenge in their efforts
to integrate the businesses of the Company and the acquired companies or assets
and effectively manage the continued growth of the Company and historically
experienced by each of the acquired companies or assets separately. While
management of the Company believes that the diverse experience of the Company
and the acquired companies will strengthen the Company, there can be no
assurance that management's efforts to integrate the operations of the companies
will be successful, that management can manage the Company's growth or that the
anticipated benefits of the acquired companies or assets will be fully realized.
The dedication of management resources to such efforts may detract attention
from the day-to-day business of the Company. There can be no assurance that
there will not be substantial costs associated with such activities or the
success of integration efforts, which could have a material adverse effect on
the Company's operating results.
The profitability of the Company is largely dependent on its ability to
develop and integrate networks of health care providers to manage and control
costs in order to realize economies of scale. The Company's operating results
could be adversely affected in the event it incurs costs associated with
developing networks without generating sufficient revenues from such networks.
The Company's current and anticipated future expansion has placed, and
will continue to place, significant demands on the management, operational and
financial resources of the Company. The Company will need to continue to augment
its management and operational systems to support growth both within its
vertical as well as its horizontal components. There can be no assurance that
the Company will be able to manage its expanded operations effectively.
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Absence of Substantial Profitability; Accumulated Deficit; Prior Loss; Future
Operating Results
Although the Company has achieved increased levels of revenues for the
year ended June 30, 1997 and nine months ended March 31, 1998, the Company has
only achieved limited profitability. For the year ended June 30, 1997 and nine
months ended March 31, 1998, the Company incurred losses of $1,619,000 and
$2,434,000, respectively. The Company's operating expenses have increased and
can be expected to increase significantly in connection with the Company's
proposed expansion and, accordingly, the Company's future profitability may
depend on corresponding increases in revenues from operations. Future events,
including unanticipated expenses, increased competition or changes in government
regulation, could have an adverse affect on the Company's operating margins and
results of operations. As a result of the Company's losses from operations,
together with the costs associated with restructuring, the Company may
experience liquidity and cash flow problems if they are not able to raise
additional capital in the immediate future. There can be no assurance that the
Company's rate of revenue growth will continue in the future or that the
Company's future operations will be profitable.
Need for Additional Financing
The Company currently intends to effect future acquisitions with cash,
promissory notes and future issuances of debt or equity securities. There can be
no assurance that the Company will be able to obtain financing if and when it is
needed on terms the Company deems acceptable. The inability of the Company to
obtain financing would have a material adverse effect on the Company's ability
to implement its acquisition strategy, and as a result, could require the
Company to diminish or suspend its acquisition strategy.
Dependence on HMO Agreements; Capitated Nature of Revenues; Control of Health
Care Costs
The Company has a portion of its revenues derived from agreements with
Health Management Organizations ("HMOs") that provide for the receipt of
capitated fees. Capitated fees are negotiated fees that stipulate a specific
dollar amount or a percentage of total premium collected by an insurer or payor
source to cover the partial or complete healthcare services deliveries to a
person. The fees are determined on a per capita basis paid monthly by managed
care organizations. HMO enrollees may come from the integration or acquisition
of healthcare providing entities, additional affiliated physicians and acquire
and increase enrollment in HMOs currently contracting with the Company through
its Physician Practices and Ancillary Services or from agreements with new HMOs.
The Company intends to enter into HMO agreements which generally will be for
one-year terms and subject to annual negotiation of rates, covered benefits and
other terms and conditions. HMO agreements are often negotiated and executed in
arrears. There can be no assurance that such agreements will be entered into,
renewed or, if entered into
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and/or renewed, that they will contain these favorable reimbursement terms to
the Company and its affiliated providers. There can be no assurance that the
Company will be successful in identifying, acquiring and integrating HMO
entities or in increasing the number of HMO enrollees. Once acquired a decline
in enrollees in HMOs could also have a material adverse effect on the Company's
profitability.
Under the HMO agreements, the Company, through its affiliated
providers, will generally be responsible for the provision of all covered
hospital benefits, as well as outpatient benefits, regardless of whether the
affiliated providers directly provide the healthcare services associated with
the covered benefits. To the extent that enrollees require more care than is
anticipated or require supplemental healthcare which is not otherwise reimbursed
by the HMO, aggregate capitation rates may be insufficient to cover the costs
associated with the treatment of enrollees. If revenue is insufficient to cover
costs, the Company's operating results could be adversely affected. As a result,
the success of the Company will depend in large part on the effective management
of health care costs through various methods, including utilization management,
competitive pricing for purchased services and favorable agreements with payers.
Recently, many providers, including the Company, have experienced pricing
pressures with respect to negotiations with HMOs. In addition, employer groups
are becoming increasingly successful in negotiating reductions in the growth of
premiums paid for their employees' health insurance, which tends to depress the
reimbursement for health care services. At the same time, employer groups are
demanding higher accountability from payers and providers of health care
services with respect to measurable accessibility, quality and service. If these
trends continue, the cost of providing healthcare services could increase while
the level of reimbursement could grow at a significant lower rate. There can be
no assurance that these pricing pressures will not have a material adverse
effect on the operating results of the Company. Changes in health care
practices, inflation, new technologies, major epidemics, natural disasters and
numerous other factors affecting the delivery and cost of health care are beyond
the control of the Company and may adversely affect its operating results.
The Company currently has discounted fees for service arrangements with
managed care companies. In all cases they are either negotiated flat, mutually
agreed upon rates for covered services, usually providing for a discount of 30%
from usual and customary charges, or provide for payment at a percentage of
Medicare allowable rates (ranging from 60% to 150%). The Company is receiving
approximately 30% in revenues from managed care agreements.
Under HMO agreements, the Company is frequently responsible for the
provision of all covered hospital benefits regardless of whether it is
responsible for provision of the hospital services associated with the covered
benefits. The Company is currently not providing any full hospital covered
benefits under its managed care agreements. However, the Company anticipates in
the normal course of business to enter into such
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arrangements in the future. In connection with hospital covered benefits, the
Company will enter into a per diem arrangement with a hospital or hospital chain
whereby the Company would pay the hospital service provider a flat per diem fee,
for which the hospital would provide all hospital directed services for a single
per diem fee. This can range by the type of service the patient requires. These
fees can range from $400 per day to $2,000 or more per day. In some cases the
Company would be required to pay usual and customary hospital charges if a
capitated patient is seen or admitted in a hospital not under contract to the
Company. The Company intends to contract with a number of hospitals to provide
covered services to HMO enrollees who have been assigned to the physician
practices affiliated with the Company. The Company expects to seek additional
hospital providers to provide covered services to HMO enrollees assigned to its
affiliated physicians. To the extent that enrollees require more care than is
anticipated or require supplemental care that is not otherwise reimbursed by the
HMOs, aggregate capitation rates may be insufficient to cover the costs
associated with the treatment of enrollees. If such revenue is insufficient, the
Company's operating results could be adversely affected.
The HMO agreements often contain shared-risk provisions under which
additional revenue can be earned or economic penalties can be incurred based
upon the utilization of hospital physicians and ancillary services by HMO
enrollees. These estimates are based upon resource consumption, utilization and
associated costs incurred by HMO enrollees compared to budgeted costs.
Differences between actual contract settlements and amounts estimated as
receivable or payable relating to HMO risk-sharing arrangements are generally
reconciled annually, which may cause fluctuations from amounts previously
accrued. See "Business".
Reductions in Third-Party Reimbursement
Healthcare providers that render services on a fee-for-service basis
(as opposed to a capitated plan), typically submit bills for healthcare services
provided to various third-party payers, such as governmental programs (e.g.,
Medicare and Medicaid), private insurance plans and managed care plans, for the
health care services provided to their patients. A significant portion of the
revenue of the Company is derived from payments made by these third-party
payers. These third-party payers increasingly are negotiating the prices charged
for healthcare services, with the goal of lowering reimbursement and utilization
rates. The success of the Company therefore depends in large part on the
effective management of health care costs, including controlling utilization of
specialty care physicians and other ancillary providers and purchasing services
from third-party providers at competitive prices. There can be no assurance that
payments under governmental programs or from other third-party payers will
remain at present levels. In addition, third-party payers can deny reimbursement
if they determine that treatment was not performed in accordance with the
cost-effective treatment methods established by such payers, was experimental or
for other reasons. Any loss of revenues by the affiliated physicians caused by
this trend in the health care industry toward cost containment and oversight
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could have a material adverse effect on the Company's operating results. For the
year ended June 30, 1997, third party reimbursements accounted for approximately
88% of total revenues, consisting of; private insurance 34%, managed care (fee
for service) 24%, Medicare 23%, Workers Compensation 6% and Medicaid 1%.
Risks Associated with Development of Management Information Systems;
Dependence on Major Supplier for Management Information Systems
The Company's management information systems are important components
of the business and are becoming a more significant factor in the Company's
ability to remain competitive. The Company already possesses a physician billing
and collection system. In addition, in order to address the needs associated
with its expansion into the primary care capitated environment, the Company is
participating in the development of an integrated management information system.
This system is designed to provide centralized billing, permit the review of a
patient's electronic medical records and information on practice guidelines,
monitor utilization, and measure patient satisfaction and outcomes of care. The
development and implementation of such systems involve the risk of unanticipated
delay and expense, and there can be no assurance that the Company will be
successful in implementing the integrated management information system. Any
significant delay or increase in expense associated with the development of this
integrated management information system could have a material adverse effect on
the Company's business. The Company's primary supplier and developmental partner
for the management information system is Companion Technologies of Florida. The
Company has committed an aggregate of approximately $500,000 to the development,
installation and implementation of the main components of this management
system. See "Business-- Management Information System." The Company further
expects to allocate an additional $500,000 over the next two (2) years to
complete the management information system which funds the Company anticipates
will be generated from cash flow or lease payments, however, no assurances can
be given that such funds will be available or that the Company will be
successful in the development of the system. The Company expects to continue
committing capital and resources towards its management system.
Exposure to Professional Liability; Liability Insurance
In recent years, physicians, hospitals and other providers in the
health care industry have become subject to an increasing number of lawsuits
alleging medical malpractice and related legal theories. Many of these lawsuits
involve large claims and substantial defense costs. The Company maintains
professional liability insurance coverage, on a claim basis, for entities and
individuals, owned or employed by the Company, in amounts that exceed the
requirements as mandated by the State of Florida but which may not be adequate
to protect the Company's assets. The amount of professional coverage liability
coverage carried by the physicians and/or their practices exceed the
requirements as mandated by the State of Florida and adequately cover the
Company's exposure at present. The
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Company currently has a Master Professional Liability Policy at limits of
$5,000,000. No assurances can be made, however, that such amounts are sufficient
or that coverage will be available in the future.
Concentration of Customers
The combined facilities owned and proposed to be purchased by the
Company have a cumulative dependency on federal Medicare payments. Federal
Medicare payments account for approximately 15% of the Company's combined
revenues. This translates individually from a minimum of 2% to a maximum of
approximately 50% per facility. The Company additionally received approximately
25% from private insurance, 28% from agreements with managed care (fee for
service), 13% from managed care capitated contracts, 5% direct patient payment,
2% from workers compensation, 15% from personal injury and 1% from Medicaid,
account for the Company's combined revenues. No other individual payor accounts
for more than 9.9% of the combined revenues of the Company.
Competition
The demand for physicians and other health care professionals presently
exceeds the supply of qualified personnel. As a result, the Company experiences
competitive pressures for the recruitment and retention of qualified physicians
and other health care professionals to deliver their services. The Company's
future success depends on its ability to continue to recruit and retain
qualified physicians and other health care professionals to serve as employees
or independent contractors of the Company and its affiliates. There can be no
assurance that the Company will be able to recruit or retain a sufficient number
of competent physicians and other health care professionals to continue to
expand its operations.
The Company expects and will receive substantial competition from
substantially larger companies that will seek to purchase or manage physician
practices, as well as competition from companies that specialize in Ancillary
Services, most of which are substantially larger with access to virtually
unlimited amounts of capital to make such acquisitions. The Company has and will
experience substantial additional competition from both not-for-profit and
for-profit hospitals in South Florida, both for the acquisition of physical
practices and for providing Ancillary Services.
Government Regulation
Federal and state laws regulate the relationships among providers of
health care services, physicians and other clinicians. These laws include the
fraud and abuse provisions of the Medicare and Medicaid statutes and the Florida
Patient Brokering Law of 1996, which prohibit the solicitation, payment, receipt
or offering of any direct or indirect remuneration for the referral of Medicare
or Medicaid patients or for recommendation,
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leasing, arranging, ordering or purchasing of Medicare or Medicaid covered
services, as well as laws that impose significant penalties for false or
improper billings for physician services. These laws also impose restrictions on
physicians' referrals for designated health services to entities with which they
have financial relationships. Violations of these laws may result in substantial
civil or criminal penalties for individuals or entities, including large civil
money penalties, imprisonment, and exclusion from participation in the Medicare
and Medicaid programs. Such exclusion and penalties, if applied to the Company
and its affiliated physicians and ancillaries, could result in significant loss
of reimbursement and material adverse impact on the Company's business.
The Company believes its operations as currently conducted are in
material compliance with existing applicable laws, however, there can be no
assurance that the existing organization of the Company and its contractual
arrangements with affiliated physicians will not be successfully challenged or
that the enforceability of the provisions of such arrangements, including
non-competition agreements, will not be limited. There can be no assurance that
review of the business of the Company and its affiliates by courts or regulatory
authorities will not result in a determination that could adversely affect their
operations or that the health care regulatory environment will not change so as
to restrict existing operations or expansion of the Company and its affiliates.
In the event of action by any regulatory authority limiting or prohibiting the
Company or its affiliates from carrying on its business or from expanding the
operations of the Company to certain jurisdictions, the Company may be required
to make structural and organizational modifications of such organization or
arrangements. While the Company believes it will be able to restructure in
accordance with applicable laws and regulations, if required, the Company cannot
assure that such restructuring in all cases will be possible or would not have a
material adverse effect on the Company. See "Business."
Health Care Reform
As a result of the continued escalation of health care costs and the
inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the U.S. Congress and state legislatures
relating to health care reform. There can be no assurance as to the ultimate
content, timing or effect of any health care reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material to the Company, its operations and profitability.
Related Party Transactions and Potential Conflicts of Interest
The Company has entered into transactions and may do so in the future
with officers, directors and shareholders of the Company, as well as their
affiliated companies. The terms of these transactions were no less favorable to
the Company than those from and to unaffiliated parties. To the extent that the
Company enters into transactions with
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these affiliated persons and entities in the future, it will do so only on terms
no less favorable to the Company than those available from and to unaffiliated
parties.
The facility leases between Dr. Robert Kagan, the largest shareholder
and director of the Company, and the Company are for the addresses 3122 East
Commercial Boulevard and 3079 East Commercial Boulevard. The property located at
3122 East Commercial Boulevard is owned by Dr. Kagan and leased by Magnetic
Imaging Systems I, Ltd. The current rent is $12,469 per month net of expenses.
The total square footage is 4,656 of office space plus an additional 2,000
square feet of garage. Magnetic Imaging Systems, I, Ltd. built a garage in 1987.
The total leasehold improvements were approximately $285,289 at this location.
Magnetic Imaging Systems, I, Ltd. is currently paying $22.50 a square foot net
of expenses for the 4,656 square feet of office space and the 2,000 square foot
garage.
The property located at 3079 East Commercial Boulevard, is owned by KFK
Enterprises, Inc., a Florida corporation and leased by Magnetic Imaging Systems,
I, Ltd. Dr. Kagan, a director of the Company owns approximately 50% of KFK
Enterprises. The rental payment is $7,395 per month and the property is 5,740
square feet. Thus, Magnetic Imaging Systems, I, Ltd. is paying $18 per square
foot net of expenses. The Company believes that this price is equal to current
market value. Magnetic Imaging Systems, I, Ltd. made leasehold improvements of
$139,289 at this location.
Control by Management and Present Shareholders of the Company
Noel J. Guillama and Robert L. Kagan, M.D. beneficially own
approximately 8.76% and 12.15%, respectively of the outstanding shares of Common
Stock. Mr. Guillama, Dr. Kagan and a third shareholder have also entered into a
cross-nominating agreement/proxy that requires each to vote all of their
respective shares of Common Stock for the reelection of Mr. Guillama and Dr.
Kagan to the Board of Directors. This Agreement is valid for the period of time
Dr. Kagan is employed by the Company. Accordingly, Mr. Guillama and Dr. Kagan,
collectively under this agreement, are in a position to control the election of
directors as well as the other affairs of the Company.
Dependence on Key Personnel
Implementation of the Company's acquisition strategy is largely
dependent on the efforts of a few senior officers. In particular, the Company's
operations are dependent to a great degree on the continued efforts of the
President, Chief Executive and Operation Officer Noel J. Guillama of the
Company. Furthermore, the Company will likely be dependent on the senior
management of companies that are acquired. Competition for highly qualified
personnel is intense, and the loss of any executive officer or other key
employee, or the failure to attract and retain other skilled employees, could
have a material adverse effect upon the Company's business, results of
operations or financial condition. The Company is a party to employment
agreements with Mr. Guillama, as well as with the
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Medical Director of the MRI Scan Center, Robert L. Kagan, M.D., and the
Executive Vice President of the Company, Roman G. Fisher. Each of the employment
agreements with Messrs. Guillama, Kagan, and Fisher terminate in the year 2001,
unless terminated earlier pursuant to the agreements, and each contains
confidentiality provisions and covenants not to compete. The Company has
designated itself the beneficiary, key man life insurance in the amount of
$2,000,000 on the life of Mr. Guillama and $1,000,000 on the life of Dr. Kagan,
each for a term of ten years. There can be no assurance, however, that the
Company can maintain the policy in effect or that the coverage will be
sufficient to compensate the Company for the loss of the services of Mr.
Guillama and/or Dr. Kagan.
Forward Looking Statements
Statements contained in this Prospectus which are not historical facts
may be considered forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those projected.
The Prospectus further contains statements relating to completion of
pending Acquisitions, and other matters. Certain of these statements are
accompanied by important cautionary factors that could cause different results
than expected by the Company. In addition to those factors, other factors such
as shareholder, regulatory and third party consents with respect to
Acquisitions, among other events outside the Company's control could also cause
future results to differ from expectations.
Additional risks and uncertainties include the potential loss of
contractual relationships, fluctuations in the volume of procedures performed by
the Company's facilities and physicians, changes in the reimbursement rates for
those services as well as uncertainty about the ability to collect the
appropriate fees for services provided by the Company.
Exercise of Warrants and Capital Needs May Have Dilutive Effect
As of September 23, 1998, 5,000 shares of the Company's Series A
Convertible Preferred Stock (the "Series A Preferred Stock") were issued and
outstanding. Each share of the Series A Preferred Stock is convertible into such
number of shares of Common Stock as is determined by dividing the stated value
($100) of the share of Series A Preferred Stock by the then current Conversion
Price (which is equal to the lower of (i) 85% of the average closing bid price
for the ten (10) days immediately preceding the date of conversion; or (ii)
$6.00. If converted on September 23, 1998, the Series A Preferred Stock would
have been convertible into approximately 232,500 shares of Common Stock, but
this number of shares could prove to be significantly greater in the event of a
decrease in the trading price of the Common Stock.
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As of September 23, 1998, 1,200 shares of the Company's Series B
Preferred Stock were issued and outstanding. Each share of the Series B
Preferred Stock is convertible into such number of shares of Common Stock as is
determined by dividing the stated value ($1,000) of the share of Series B
Preferred Stock by the then current Conversion Price (which is 90% of the
average of the two (2) lowest closing bid prices of the Common Stock for the
last twelve (12) trading days). If converted on September 23, 1998, the Series B
Preferred Stock would have been convertible into approximately 515,500 shares of
Common Stock, but this number of shares could prove to be significantly greater
in the event of a decreased in the trading price of the Common Stock. Purchasers
of Common Stock could therefore experience substantial dilution of their
investment upon conversion of the Series A Preferred Stock and Series B
Preferred Stock. The shares of Series A Preferred Stock and Series B Preferred
Stock are not registered and may be sold only if registered under the Securities
Act or sold in accordance with an applicable exemption from registration, such
as Rule 144. The shares of Common Stock into which the Series A Preferred Stock
and a separate Series B Preferred Stock may be converted, have been registered
pursuant to this Registration Statement.
As of September 23, 1998, Warrants to purchase 240,000 shares of Common
Stock issued to the holders of the Series B Preferred Stock and exercisable over
the next five years at a price of $4.00 for 120,000 shares and $5.00 for 120,000
shares (as may be adjusted from time to time under certain anti-dilution
provisions) were outstanding. The shares of Common Stock issuable upon exercise
of these Warrants have been registered pursuant to this Registration Statement.
As of September 23, 1998, 5,377,325 shares of Common Stock were
reserved for issuance upon exercise of the Company's outstanding warrants and
options (excluding the Warrants) and an additional 465,000 shares of Common
Stock were reserved for issuance upon conversion of the Series A Preferred
Stock, 1,031,000 shares of Common Stock were reserved for issuance upon
conversion of the Series B Preferred Stock and 240,000 were reserved for
issuance upon exercise of the Warrants. At September 23, 1998, there were
6,498,437 shares of Common Stock outstanding. Of these outstanding shares,
2,288,658 were freely tradeable without restriction under the Securities Act
unless held by affiliates.
Possible Applicability of Rules Relating to Low-Priced Stocks; Penny Stock;
Possible Failure to Maintain Criteria for Nasdaq Securities
The Company's Common Stock is traded on The Nasdaq National Market (TM)
under the symbol "MDPA." If, for any reason, the Common Stock does not remain
accepted for inclusion on The Nasdaq National Market (TM), then, in such case,
the Company's Common Stock would be expected to continue to be traded on The
Nasdaq SmallCap Market (TM) or in the over-the-counter markets through the "pink
sheets" or the NASD's OTC Bulletin Board. In the event the Common Stock was not
included on The Nasdaq National Market (TM) or The Nasdaq SmallCap Market (TM),
the Company's
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Common Stock would be covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's securities and also may affect the ability of purchasers in this
offering to sell their shares in the secondary market. The ability of the
Company to secure a symbol on The Nasdaq National Market (TM) does not imply
that a meaningful trading market in its Common Stock will ever develop or, if
developed, will be sustained.
Shares Eligible for Future Sale
As of September 23, 1998, there were 6,498,437 shares of the Company's
Common Stock outstanding, of which 4,209,779 were "restricted securities" as
that term is defined by Rule 144 under the Securities Act. Such shares will be
eligible for public sale only if registered under the Securities Act or if sold
in accordance with Rule 144. Under Rule 144, a person who has held restricted
securities for a period of one year may sell a limited number of shares to the
public in ordinary brokerage transactions. Sales under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock due to the
potential increased number of publicly held securities. The timing and amount of
sales of Common Stock covered by the Registration Statement of which this
Prospectus is a part, as well as sales pursuant to other filed registration
statements, could also have a depressive effect on the market price of the
Company's Common Stock.
Anti-Takeover Provisions
Certain provisions of the Company's Articles of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may delay, defer or
prevent a takeover attempt of the Company, which include when and by whom
special meetings of the Company may be called. In addition, certain provisions
of the Florida Business Corporation Act also may be deemed to have certain
anti-takeover effects which include that control of shares acquired in excess of
certain specified thresholds will not possess any voting rights unless these
voting rights are approved by a majority of a corporation's disinterested
shareholders. In addition, the Company's Articles of Incorporation authorize the
issuance of up to 10,000,000 shares of Preferred Stock with such rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors may, without shareholder approval, issue
Preferred Stock with dividends, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. The Company, however, has agreed pursuant to the
terms of the Underwriting Agreement that without the consent
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of the Underwriter it, for a period of two (2) years will not issue any shares
of Preferred Stock (i) for purposes other than acquisitions from persons or
entities not affiliated with the Company; (ii) which have disproportionate
voting power to the shares of Common Stock; or (iii) that have rights to stock
or cash dividends disproportionate to the shares of Common Stock. See
"Description of Securities."
Additionally, the Company's Articles of Incorporation, Bylaws and
Florida law authorize the Company to indemnify its directors, officers,
employees and agents and limit the personal liability of corporate directors for
monetary damages, except in certain instances. See "Description of Securities --
Certain Florida Legislation; Anti-takeover Effects of Certain Provisions of the
Company's Articles of Incorporation and Bylaws."
Absence of Dividends
Holders of the Company's Common Stock are entitled to cash dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. As a newly organized corporation, the Company has never paid
dividends. The Company does not anticipate the declaration or payments of any
dividends in the foreseeable future. The Company intends to retain earnings, if
any, to finance the developments and expansion of its business. Future dividend
policy will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors. Future
dividends may also be subject to covenants contained in loan or other financing
documents. Therefore, there can be no assurance that cash dividends of any kind
will ever be paid.
Risks Relating to Capital Requirements
The Company's acquisition of physician practices requires substantial
capital investment. Capital is typically needed not only for the acquisition of
the physician practices, but also for the effective integration, operation and
expansion of the practices as well as the start-up of new contracts for
specialist physician services. The practices may require capital for renovation
and expansion and for the addition of medical equipment and technology.
Therefore, the Company will need to raise capital through the issuance of
long-term or short-term indebtedness or the issuance of its equity securities in
private or public transactions in order to complete further acquisitions and
expansion. This could result in dilution of existing equity positions and
increased interest expense. There can be no assurance that acceptable financing
for future acquisitions or for the integration and expansion of existing
physician practices can be obtained on suitable terms, if at all.
Volatility of Stock Price
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Historically there has been and there may continue to be volatility in
the market price for the Company's Common Stock. Quarterly operating results of
the Company and their relationship to analysts' projections, changes in general
conditions in the economy, the financial markets of the healthcare industry, or
other developments affecting the Company or its competitors, could cause the
market price of the Common Stock to fluctuate substantially. In addition, in
recent years, the stock market and, in particular, the healthcare industry
segment, has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered hereby. In the event all of the Warrants were to be exercised, the
Company would receive net proceeds of approximately $1,067,500, after payment of
offering expenses estimated to be approximately $12,500. No proceeds will be
obtained by the Company from the Warrants except upon the exercise of the
Warrants. It is anticipated that the net proceeds, if any, will be used by the
Company for acquisitions, building of infrastructure and for working capital
associated with continuing operations. The actual allocation of proceeds
realized from the exercise of the Warrants will depend upon the amount and
timing of such exercises, the Company's operating revenues and cash position at
such time and its working capital requirements during the course of such
exercise period. There can be no assurances that any of the Warrants will be
exercised.
While the intended use of proceeds is consistent with the Company's
current business plan objectives, the Company reserves the right to change the
use of proceeds depending on working capital requirements and opportunities
afforded to the Company. Pending utilization of the proceeds as described above,
the net proceeds of the offering will be deposited in interest bearing accounts
or invested in money market instruments, government obligations, certificates of
deposits or similar short-term investment grade interest bearing investments.
CONCURRENT OFFERING
Concurrent with the IPO the Company registered pursuant to an Alternate
Prospectus, for the account of the Selling Security Holders (the "Concurrent
Offering"), an additional 665,000 shares of Common Stock, 867,000 warrants and
1,310,000 shares of Common Stock underlying such warrants (collectively, the
"Selling Security Holder Securities"). Those Selling Security Holder Securities
were not underwritten in the IPO and the Company does not receive any proceeds
from the sale of such securities, except upon the exercise of the Warrants. The
Selling Security Holder Securities have been registered pursuant to this
Registration Statement under an Alternate Prospectus.
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Of these Selling Security Holders Securities, 221,500 shares of Common
Stock and 443,000 shares of Common Stock underlying Warrants ("Private Placement
Warrants") were being offered by investors in the Company's private placement
offering undertaken during March 1996 through October 1996 ("Private Placement
Offering"), and 433,500 shares of Common Stock, 867,000 Warrants ("Bridge
Warrants") and shares of Common Stock underlying the Bridge Warrants were being
offered by investors in the Company's bridge financing undertaken in October
1996 (the "Bridge Financing"). Except as provided below, Private Placement
Warrants and the Bridge Warrants offered are identical to the Warrants. Each
such warrant entitles the holder to purchase one share of Common Stock at $7.00
per share during the four year period commencing March 13, 1997. The warrants
are redeemable by the Company for $.05 per warrant, at any time commencing March
13, 1997, upon thirty (30) days' prior written notice, if (i) the average
closing bid price of the Common Stock, as reported by the principal exchange on
which the Common Stock is traded, The Nasdaq SmallCap Market (TM) or the
National Quotation Bureau, Incorporated, as the case may be, equals or exceeds
$12.00 per share for any ten (10) consecutive trading days ending within ten
(10) days prior to the date of the notice of redemption, and (ii) the Company
has at the time notice of redemption is given an annualized Run Rate (as
hereinafter defined) of revenues of $20,000,000 for a minimum of one quarter as
evidenced by the filing of a Form 8-K with the Securities and Exchange
Commission containing historical pro forma financial statements reflecting said
revenues. Run Rate shall be defined as the combined gross revenue on a pro forma
basis of the Company's prior years gross revenue (inclusive of Acquisitions as
hereafter defined) and acquisitions made subsequent to this offering. In
connection with any redemption thereof during the two-year period commencing
March 13, 1997, however, shall require the consent of the Underwriter. In the
event any Bridge Warrant is exercised without the consent of the Underwriter
within the two-year period, then the shares of Common Stock received upon the
exercise thereof shall be subject to a restriction on transferability until the
expiration of the two-year period. Other than having an exercise price of $6.00,
and the redeemable feature, the Private Placement Warrants are identical to the
Warrants being offered by the Company. See "Description of Securities".
Expenses of the Concurrent Offering, other than fees and expenses of
counsel to the Selling Security Holders and the selling commissions, will be
paid by the Company. The resale of the securities by the Selling Security
Holders is subject to prospectus delivery requirements. Resales by the Selling
Security Holders as well as sales by any others at any time may have an adverse
effect on the market prices of the securities. See "Risk Factors."
BUSINESS
Metropolitan Health Networks, Inc. (the "Company") was incorporated in
the State of Florida in January 1996 for the purpose of developing a vertically
and horizontally
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integrated health care delivery network (the "Network"). The Network will
provide primary and sub-specialty physician care as well as diagnostic and
therapeutic services.
The Company developed its Network through the acquisition, expansion
and integration of (i) physician care practices (the "Physician Practices")
together with (ii) laboratories, pharmacies and diagnostic and rehabilitation
centers ("Ancillary Services").
The Company is organized, in principal part, as a multi-county
vertically and horizontally integrated medical group practice. As such, all of
the physicians to be employed by the Company will provide an aggregate minimum
of 75% of their services through the group practice and all physician services
are to be billed under one common Medicare provider number. The Company believes
it will meet all government requirements of a "group practice" to avail itself
of benefits available to group practices under Florida and federal laws.
The Company's goal through its Network is to provide quality, cost
effective and outcome oriented health care in Dade, Broward and Palm Beach
Counties, Florida, a tri-county area with a population in excess of four
million.
Industry
General
The Health Care Financing Administration estimates that national health
care spending in the United States in 1994 was approximately $1 trillion, with
approximately $200 billion directly attributable to physician services and
another $612 billion under physician direction. Health care spending in the
tri-county Florida region was estimated to be $16 billion. Historically,
patients in need of medical care went directly to a specialist who typically
provided service on an inpatient basis. In the 1980's and early 1990's, managed
care entities began assuming a significant role by contracting with health care
providers on a capitated basis. At the same time, HMOs began to encourage the
use of alternate-site facilities (sites other than hospitals).
As a result of the trends toward increased HMO enrollment and physician
membership in group medical practices, health care providers have sought to
reorganize themselves into health care delivery systems that are better suited
to the managed care environment. The Company believes that physician groups are
joining with hospitals and other institutional providers in various ways to
create vertically and horizontally integrated delivery systems which provide
medical and hospital services ranging from community based primary medical care
to specialized inpatient services through single coordinated delivery systems.
These health care delivery systems contract with HMOs to provide hospital and
medical services to enrollees under full risk contracts, under which providers
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assume the obligation of providing both the professional and institutional
components of covered health care services to the enrollees for predetermined
fixed per capita payments.
In order to compete effectively in such an emerging environment,
physicians are concluding that they must have control over the delivery and
financial impact of a broader range of health care services. To this end, groups
of independent physicians and medium to large medical groups are taking steps to
assume responsibility and risk for health care services which they do not
provide. The Company believes that physicians are increasingly abandoning
traditional private practice in favor of affiliations with larger organizations
which offer skilled and innovative management, information systems and capital
resources. The Company believes that many payors and their intermediaries,
including governmental entities and HMOs are increasingly looking to outside
providers of physician services to develop and maintain quality outcomes,
management programs and patient care data. The Company believes that physicians
are increasingly turning to organizations such as the Company to provide the
resources necessary to function effectively in a managed care environment.
Strategy
The Company's strategy is to develop and expand a locally prominent,
integrated health care delivery network in Dade, Broward and Palm Beach counties
Florida within a medical group practice structure, that provides a high quality
and cost-effective health care delivery system. The Company's principal strategy
for developing and expanding its network is through the acquisition of (through
purchases, merger or otherwise) or affiliation with physicians, medical groups,
and other health care providers in the South Florida market. The Company seeks
to acquire or otherwise affiliate with physician groups and other providers in
their local markets with reputations for providing quality cost effective
healthcare services. The Company also seeks to acquire Ancillary Services,
including diagnostic and rehabilitation centers within its group practice
structure. The Company believes that by increasing marketing activities,
enhancing patient service and improving the accessibility of care, it will
increase the Company's market share. The Company also believes strategic
alliances with hospitals and health plans will improve the delivery of managed
health care. The Company also believes that by the consolidation of management
and administrative services that its costs should be reduced.
Overview of the Network
Medical Group Expansion
The Company is developing its Network mostly through the acquisition of
a broad range of multi-disciplinary physicians. These will range from primary
care through highly specialized sub-specialists. These physicians, once
acquired, will be merged directly into the medical group and form part of the
group's medical staff, where they will share all of
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the resources of the group and increase the cross-referral of all physicians
within the group.
In the South Florida region, the Company has primarily targeted
multi-specialty medical groups that are comprised of four to thirty physicians.
The Company will seek to purchase the medical groups or to enter into long term
management agreements with the affiliated physician groups (see below). The
Company believes the key to its growth will be its ability to greatly improve
and expand the health care services provided through its medical groups, to
enhance operating efficiency and profits of the medical group and to earn and
maintain the trust and confidence of the physicians associated with the Network.
Practice Management Activities
In situations where the Company is unable to or does not desire to
purchase a medical group, it will seek to enter into contractual arrangements
with the medical group that will allow the Company to receive substantially all
of the benefits of ownership without the additional capital.
The Company believes that as the health care industry continues to
become more complex, the administrative needs of medical groups will best be
served by professional managers. Under these types of contractual arrangements
the Company would acquire from the medical group substantially all of the groups
medically related assets and the Company would function as a management services
organization (MSO). The medical group, independent of the Company's own medical
group, could then enter into a 20 to 40-year service agreement with the Company
to have the Company provide all or part of the front and back office functions
of the medical group. The Company will provide the physicians and groups with
the equipment and facilities used in its medical practices, manage practice
operations and employ substantially all the practices' non-physician personnel
exclusive of those required by law to be employed by the practices. The
physicians will continue to be responsible for all the decisions regarding
patient health care, including diagnosis, treatment, surgery and therapy. The
Company believes the fees retained by the Company would range from 30% to 70% of
the medical groups' net collections depending on the size and specialty of the
medical group.
Independent Practice Associations
The Company does not now own or manage any independent practice
associations ("IPAs"). However, the Company anticipates organizing, managing
and/or purchasing an IPA management company in the future to complete its
network. An IPA allows an individual practitioner to access patients in his/her
area through contracting with HMOs without having to join a group practice or
sign exclusive contracts, and also coordinates utilization review and quality
assurance programs for its affiliated physicians. In addition to providing
access to HMO contracts, an IPA offers other benefits to the physicians
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seeking to remain independent, including enhanced risk sharing arrangements and
access to other strategic alliances within the Company's network. The Company
believes the IPAs will enable it to increase HMO market share with relative low
risk because of the low incremental investment required to recruit additional
physicians. The Company believes an IPA management company negotiates both
managed care contracts and discounted fees for service contracts and collects a
percentage of total revenues on the contract plus fees for providing billing and
collection functions. An IPA can also provide substantial savings to physicians
by pooling purchasing and insurance on behalf of physician members. Usually the
IPA Management Company collects a percentage of the savings generated for
physicians.
Ancillary Service Groups
The Company currently provides certain ancillary services, mostly
diagnostic and rehabilitation services. The Company intends to expand these
services both by acquisition and internal growth to cover the entire targeted
area as well as expand into additional ancillary services. The Company expects
that these Ancillary Services will complement the services provided by the
Physician Practices and the other Ancillary Services owned or acquired by the
Company. The Company intends to acquire those Ancillary Services which will
permit the Network to expand and provide services needed by patients. Through an
association of administrative services, as well as facilities, the Company
believes that it can increase revenues and profitability. As of the date hereof,
the Company has acquired (i) Magnetic Resonance Imaging Center ("MRI"), a fixed
and mobile magnetic resonance imagery business which is engaged in performing
and reading magnetic resonance images for patients primarily located in South
Florida, and (ii) Datascan of Florida, Inc., a mobile diagnostic services
company which provides nerve conduction, vascular and ultrasound studies in
South Florida.
HMO Arrangements
The Company intends to have a portion of its revenues derived from
agreements with Health Management Organizations ("HMOs") that provide for the
receipt of capitated fees. Capitated fees are negotiated fees that stipulate a
specific dollar amount or a percentage of total premium collected by an insurer
or payor source to cover the partial or complete health care services deliveries
to a person. The fees are determined on a per capita basis paid monthly by
managed care organizations. HMO enrollees may come from the integration or
acquisition of health care providing entities, additional affiliated physicians
and acquire and increase enrollment in HMOs currently contracting with the
Company through its Physician Practices and Ancillary Services or from
agreements with new HMOs. The Company intends to enter into HMO agreements which
generally will be for one-year terms and subject to annual negotiation of rates,
covered benefits and other terms and conditions. HMO agreements are often
negotiated and executed in arrears. There can be no assurance that such
agreements will be entered into, renewed or, if
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entered into and/or renewed, that they will contain these favorable
reimbursement terms to the Company and its affiliated providers. There can be no
assurance that the Company will be successful in identifying, acquiring and
integrating HMO entities or in increasing the number of HMO enrollees. Once
acquired a decline in enrollees in HMOs could also have a material adverse
effect on the Company's profitability.
Under the HMO agreements, the Company, through its affiliated
providers, will generally be responsible for the provision of all covered
hospital benefits, as well as outpatient benefits, regardless of whether the
affiliated providers directly provide the health care services associated with
the covered benefits. To the extent that enrollees require more care than is
anticipated or require supplemental health care which is not otherwise
reimbursed by the HMO, aggregate capitation rates may be insufficient to cover
the costs associated with the treatment of enrollees. If revenue is insufficient
to cover costs, the Company's operating results could be adversely affected. As
a result, the success of the Company will depend in large part on the effective
management of health care costs through various methods, including utilization
management, competitive pricing for purchased services and favorable agreements
with payers. Recently, many providers, including the Company, have experienced
pricing pressures with respect to negotiations with HMOs. In addition, the
Company believes that employer groups are becoming increasingly successful in
negotiating reductions in the growth of premiums paid for their employees'
health insurance, which tends to depress the reimbursement for health care
services. At the same time, employer groups are demanding higher accountability
from payers and providers of health care services with respect to measurable
accessibility, quality and service. If these trends continue, the cost of
providing health care services could increase while the level of reimbursement
could grow at a significant lower rate. There can be no assurance that these
pricing pressures will not have a material adverse effect on the operating
results of the Company. Changes in health care practices, inflation, new
technologies, major epidemics, natural disasters and numerous other factors
affecting the delivery and cost of health care are beyond the control of the
Company and may adversely affect its operating results.
The Company currently has three types of arrangements with managed care
companies. These are discount fee for service arrangements. The second is a
primary care capitation and the last is a "full rise" capitation. These
arrangements place no additional financial risk to the Company. The discounted
fee for service arrangements are either negotiated flat, mutually agreed upon
rates for covered services, usually calling for a discount of 30% from usual and
customary charges, or a call for payment at a percentage of Medicare allowable
rates (ranging from 100% to 150%).
Physician Practices Acquired
Effective July 1, 1997, the Company, through a wholly-owned subsidiary
of the Company, acquired General Medical Associates, Inc. ("GMA"). GMA was owned
by Martin
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Harrison, M.D. ("Harrison"). Pursuant to the merger agreement, the Company paid
(i) $300,000 in cash; (ii) a $400,000 8% promissory note with interest and
principal due monthly in an eleven month period commencing on September 5, 1997;
(iii) 523,077 shares of Common Stock of the Company, 156,923 shares of which can
be earned by Harrison based upon the annual performance of GMA. Subsequent to
the acquisition and pursuant to the terms of an amended agreement, the 523,077
originally issued were adjusted to be 373,077. If the earnings before interest,
taxes, depreciation and amortization ("EBITDA") of GMA for the years ended June
30, 1998 and 1999 equals or exceeds 80% of GMA's EBITDA, the twelve months ended
June 30, 1997 (the "Targeted Amount"), there shall be released from escrow
104,615 and 52,308, respectively, additional shares of the Common Stock of the
Company upon each occurrence. In the event, however, that the EBITDA is less
than the Targeted Amount, Harrison is entitled to receive additional shares of
the Company, as determined based upon a sliding scale down to 60%.
The Company has warranted to Harrison that if the gross proceeds of the
sale by Harrison, of up to 200,000 shares (over a period of time beginning July
1, 1998 and ending February 13, 1999) of the Company's Common Stock received in
the Merger, is less than $6.50 per share, the Company shall make up such
deficiency in cash. In the event the Company's Common Stock trades over $7.50
per share during any fifteen (15) day period in a calendar month, the price
protection shall be eliminated in 25,000 share blocks. The Company has also
guaranteed Harrison price per share protection in the event that the Company's
Common Stock trades at an average of less than $6.50 per share for any twenty
(20) day period beginning on August 1, 1999 and ending October 1, 1999, Harrison
shall receive additional shares of Company Common Stock determined by dividing
$3,400,000 (less certain shares sold x $6.50) by the lowest closing bid price
over such 20 day period and deducting 523,077 (subject to adjustment).
GMA is a multi-specialty group with components of neurology and
physiatry, in addition to chiropractic physicians, licensed massage therapists
and additional ancillary services. GMA uses both staff and subcontracting
services to provide the healthcare services and currently has three physicians,
two massage therapists, two medical assistants, one x-ray technician and two
electro-diagnostic technicians who perform nerve studies. GMA provides
full-service medical evaluations including x-rays, EKG, minor surgical
procedures as well as physical therapy and clerical and billing support persons.
GMA currently sees approximately 300 patients per week in its facilities and has
over 3,000 active charts.
On October 15, 1996 the Company acquired pursuant to an asset purchase
agreement ("International Agreement") certain medically related assets of
International Family Healthcare Centers, Inc. ("International") from Emergency
Care Services, Inc. ("ECSI"). The assets consist primarily of two medical
clinics one located in North Miami
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Beach and the second located in Aventura, Florida. The Company had previously
entered into a management agreement effective April 23, 1996 to operate the
facilities of International. Under the International Agreement, the Company
purchased the assets for 50,000 shares of its Common Stock and the issuance of
an 8% promissory note ("International Note") in the amount of $150,000. The
final payment of $11,503.63 was made on September 24, 1997. Management
discontinued operations of the Collins Avenue location and merged it with an
existing center to reduce cost and consolidate services. Effective June 1, 1998,
the Company has sold the Aventura location to the ex- employed physician running
this site.
On November 30, 1997, Metropolitan Health Networks, Inc. (the
"Registrant" or the "Company"), Metcare, VI, Inc. ("Metcare"), a wholly-owned
subsidiary of the Company (Subsidiary) and Trident Medical Concepts, Inc.
("Trident") entered into a definitive merger agreement which Merger Agreement
was amended on January 13, 1998 and February 22, 1998 (collectively the "Merger
Agreement") pursuant to which Trident was merged into Metcare. Pursuant to the
Merger Agreement, each share of common and preferred stock of Trident issued and
outstanding immediately preceding February 27, 1998, the Effective Date, were
converted into the right to receive 1.15 shares of the Common Stock of the
Company for an aggregate amount of 7,539,869 shares. The principals followed in
determining the amount of shares issued to the shareholders of Trident include
the worth of the businesses considering their historical, present and future
business operations, and the market for the Company's shares, including the
depth and trading activity in the shares.
The Merger Agreement provided, among other things, that the Company
shall have the absolute right to cause the Merger to be unwound solely upon the
occurrence of the failure to obtain Trident's lender's consent ("Lender's
Consent") to the Merger Agreement, as amended, or to replace Lender by May 1,
1998. The Company was unable to obtain the Lender's Consent or to replace the
Lender in the time specified by the merger agreement and therefore on May 8,
1998, elected to unwind the merger.
On April 2, 1998, Metropolitan Health Networks, Inc. (the "Registrant"
or the "Company"), Metcare, VII, Inc. ("Metcare"), a wholly-owned subsidiary of
the Company (Subsidiary) Inc. and Primedica Healthcare, Inc. (Primedica) entered
into an asset purchase agreement pursuant to which Metcare purchased
substantially all of the assets and operations related to two physician
practices (the Practices) located in North Miami Beach, Florida owned by
Primedica. The aggregate purchased price was Three Million Five Hundred Thousand
Dollars ($3,500,000). The purchase price was allocated as follows: (i) Accounts
Receivable - $135,000; (ii) Furniture and Fixtures - $465,000; and (iii)
Goodwill - $2,900,000.
Payment of the purchase price was made by delivery to Primedica of an
unsecured promissory note of Three Million Five Hundred Thousand Dollars
($3,500,000). The note, together with interest computed at the rate of Seven and
one half percent (7.5%) per
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annum, requires fifty-nine (59) monthly principal and interest payments of
Twenty-Eight Thousand One Hundred Ninety-Six Dollars ($28,196) and a final
payment due on April 2, 2003 of Three Million Sixty-Nine Thousand Seven Hundred
Forty-Eight Dollars ($3,069,748).
The purchase provides both capitated and non-capitated medical services
to approximately 2,600 members of various managed care organizations. The
capitated services comprise approximately ninety percent (90%) of its revenues
and one managed care organization accounts for approximately eighty-five percent
(85%) of total revenues. The unaudited revenues for the Practices for the twelve
months ended December 31, 1997 equaled approximately $5,700,000 resulting in a
gross margin of approximately $230,000.
An additional agreement was signed, the Repurchase Election Agreement,
whereby Primedica may be required to repurchase the Practices at the end of five
years in exchange for extinguishing Metcare and Registrant's further obligations
under the Note, provided certain conditions are met, among the most significant
of which is the requirement that the Company be in compliance with the terms of
the Promissory Note. Additionally, Primedica may elect not to be liable to
repurchase the Practices if the net revenue derived from the purchased assets
exceeds six million dollars ($6,000,000). The Company has been notified by
Primedica that certain conditions of the acquisition have not yet been completed
by the Company.
The Company, on March 12, 1997 acquired the clinical practice of Paul
Wand, M.D., P.A. ("Wand Practice").
Pursuant to the terms of the acquisition, the Company, through a
wholly-owned subsidiary, acquired by merger the Wand Practice for consideration
of 75,000 shares of Common Stock and $125,000 in cash. On July 22, 1998, the
Company entered into a Stock Purchase Agreement with Dr. Wand which provided for
the sale of the Wand Practice back to Dr. Wand, in consideration for the return
of the 75,000 shares of Metropolitan Health Network, Inc.'s Common Stock and a
$75,000 promissory note. The promissory note bears interest at 7.00% per annum
and is due and payable in thirty-six (36) equal monthly payments of Two Thousand
Three Hundred Fifteen Dollars 78/00 ($2,315.78) beginning November 1, 1998. In
the event a default occurs, interest shall accrue on the unpaid principal
balance at the rate of 18% per annum.
Diagnostic Services
The Company, through its group practice, owns a full range of
fixed-site and mobile diagnostic services. These will include x-ray, MRIs, CT,
neuro diagnostic equipment, vascular studies, nuclear equipment, ultrasound,
echocardiograph, Holter monitors and others. As a group practice, the Company
may own and benefit from historically profitable ancillary services for patients
of the group as well as, under current interpretations of state
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and federal laws, patients referred to the Company by other physicians and
providers not associated with the Company. This ability to own and refer
patients for ancillary services is significantly restricted for physicians not
in group practices by both state and federal health care laws, thus the Company
believes it will enjoy a competitive advantage over other health care providers
and physicians. The Company believes many self-insured employers and third party
payors have determined that the delivery of services in an outpatient
environment is often less costly than the provision of the identical services on
an inpatient basis. Consequently, some payors insist that services be obtained
solely on an outpatient basis where medically appropriate and contract with
diagnostic imaging centers for the provision of these services.
Acquired Ancillary Services
Effective September 1, 1996, the Company acquired 100% of the operating
assets of Nuclear Magnetic Imaging, Inc. ("NMI") and 97.5% of Magnetic Imaging
Systems I, Ltd. ("MIS"), which jointly operate as MRI Scan Center. The MRI Scan
Center, which began operations in 1984, performs approximately 9,000 procedures
per year. In May 1986, the MRI Scan Center began providing mobile MRI services
to outpatient facilities and to hospitals. The MRI Scan Center currently
operates at three locations, two in Fort Lauderdale and one in Coral Gables,
Florida. The MRI Scanner uses a highly technical process called magnetic
resonance imaging, which utilizes an extremely powerful magnetic field, radio
waves and computers to produce images of the body. While the patient is in the
magnetic field, radio waves stimulate the hydrogen molecules in the body to give
off their own signals. This information is fed through numerous computers, which
map the action and properties of the molecules. Images of the body are
constructed which display biochemistry of tissue as a picture. The MRI procedure
was approved by the Food and Drug Administration in the early 1980's. The MRI
Scanner differentiates between healthy tissue, tumors, fatty tissues and
muscles. This means that many uncomfortable tests, certain types of exploratory
surgeries, some biopsies, angiograms, mammographies and others, can be safely
replaced by MRIs. In most cases, a clear image is produced with no discomfort to
the patient or costly hospitalization.
Effective September 1, 1996, under two separate agreements with certain
limited partners of Magnetic Imaging Systems I, Ltd. (MIS), the Company acquired
each such partner's 4.75% interest in MIS in exchange for $30,000 in notes
payable and 7,500 shares of the Company's Common Stock, each.
Under a third agreement dated September 1, 1996 (MRI Agreement) between
Dr. Robert Kagan, who was a 28.5% limited partner in MIS and the sole
shareholder of Nuclear Magnetic Imaging, Inc. (NMI), the 59.5% general partner
in MIS (combined, MRI Group), the Company acquired 100% of NMI and the MRI
shareholders' 28.5% interest in MIS (resulting in a total interest in MIS of
97.5%), for consideration of 550,000 shares of Common Stock of the Company and
the issuance of a $400,000 note bearing interest at
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6.5%, $200,000 was paid during April 1997, and the remaining $200,000 plus
accrued interest on or before April 1, 1998. The MRI Agreement also provides for
the issuance of up to an additional 400,000 shares to the MRI Group as follows:
if the EBITDA of the MRI Group for the twelve months ended June 30, 1997 and
1998 is determined to have exceeded $1.2 million and $1.5 million respectively,
the Company shall deliver 200,000 additional shares of Common Stock of the
Company upon each such occurrence. The MRI Scan Center did not meet its EBITDA
requirement for the 12 month period ended June 30, 1997. On June 30, 1997, the
parties entered into an Amended Employment Agreement with Dr. Kagan which
provided for a decrease in Dr. Kagan's bonus compensation, and the Company
issued the first year's EBITDA shares of 200,000 shares of Common Stock to Dr.
Kagan. The amount of reduction in fiscal 1998 was approximately $120,000.
On August 21, 1997, the Company offered to convert any, or a portion,
of the limited partnership units purchased by the MRI Scan Center in 1993 and
1994, into the Company's common stock. The Company's offer was to allow the note
holders to convert any amount due into the appropriate amount of the Company's
Common Stock at a 25% discount to the market value of the Company's shares,
based on the closing price for the Company's Common Stock on the date they
notified the Company of acceptance of the conversion option. The Company's
shares were issued as legend shares and will not be eligible for sale in the
open market for 12 months from the date of issue under SEC Rule 144. The Company
warranted that at the time the restrictive legend is removed, the price of the
common stock will be no lower than the price on the conversion date, or the
Company will make up any shortfall in stock or cash. A total of $60,000 has been
converted to date at an average price of $4.39 per share.
The Company has warranted that the cumulative shares represented in the
MRI Agreement will be worth no less than 10 times the pre-tax earnings of the
combined consolidated companies following 12 and 24 months from the time of
acquisitions. If the average closing price of the Company's Common Stock for the
ten days prior to the years ended June 30, 1997 and 1998, multiplied by 550,000
plus the number of any contingent shares earned ("Trading Value") is less than
ten times the pretax earnings of the MRI Group for each respective twelve month
period, the Company must deliver additional shares such that the Trading Value
is equal to ten times, or pay the NMI and MRI shareholders the difference in
cash. Additionally, as part of the acquisition, Dr. Kagan received an employment
contract which calls for payment of $600,000 per year and a percentage of the
adjusted revenues of NMI jointly not to exceed 15% of all revenue generated by
NMI. The 5-year employment contract in addition, calls for numerous
non-solicitation and non-compete provisions that will prohibit Dr. Kagan from
competing with the Company for a period of no less than two (2) years following
termination.
On September 26, 1996, effective October 1, 1996, pursuant to a stock
purchase agreement ("Datascan Agreement") the Company acquired Datascan of
Florida, Inc. and Datascan Southeast, Inc., mobile and fixed site diagnostic
testing companies servicing
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Dade, Broward and Palm Beach Counties (collectively, "Datascan"). Datascan was
organized in May 1981 in Fort Lauderdale, Florida. Datascan serves its patients
from mobile facilities providing services directly to the physicians' offices.
Datascan has currently 32 employees and provides ultrasound procedures including
echocardiography, cardiac Doppler, colorflow mapping, transesophogeal
echocardiography and stress echocardiography and carotid artery, abdominal,
transrectal and transvaginal ultrasound, small parts imaging and peripheral
vascular ultrasound. It also provides Holter monitoring, event monitoring, EKG
and pacemaker checks, in addition to nuclear cardiac imaging. The Company sees
approximately 17,000 patients per year, with 32,000 procedure codes billed in
1995. The payor mix for the Company is approximately 40% Medicare, 20% private
insurance and 40% managed care. Its referral source includes over 400 local
physicians and hospitals.
Under the Datascan Agreement, the Company acquired all of the
outstanding stock and ownership interest in Datascan for consideration of
300,000 shares of Common Stock of the Company. The Datascan Agreement also
provides for the issuance of up to an additional 200,000 shares to the Datascan
shareholders as follows: if the EBITDA of Datascan for the twelve months ended
June 30, 1997 and 1998 is determined to have equaled or exceeded $288,000 and
$313,894 respectively, and if certain Datascan shareholders continue employment
(subject to certain exceptions) the Company shall deliver 100,000 additional
shares of Common Stock of the Company to the Datascan shareholders upon each
such occurrence. For the year ended June 30, 1997, the foregoing requirements
were met and accordingly, the Company issued the Datascan shareholders an
additional 100,000 shares of Common Stock. Kenneth J. Hall, a director of the
Company was an approximately 50% shareholder of Datascan, with the other
principal shareholder of Datascan, Michael P. Goldstein, Group Vice President of
the Company, a 29% stockholder of Datascan and at the time of acquisition a Vice
President of Datascan. In the event, however, that EBITDA does not equal or
exceed $288,000 in the twelve months ended June 30, 1997, but it equals or
exceeds $602,532 for the twenty-four months ended June 30, 1998, the Company
will deliver up to 200,000 additional shares. Datascan met its EBITDA
requirement for the 12 month period ended June 30, 1997. The Company, in
addition, agreed to enter into employment contracts with the principals of
Datascan that in part calls for an employment contract with a base salary of
$200,000 per year, plus a bonus to be paid in combination of cash and/or stock
to be negotiated.
In addition, the Datascan Agreement provides that, if the Company
merges, consolidates or otherwise reorganizes and such transaction results in
the Company not being the surviving corporation, depending upon when such
transaction occurs, additional consideration may be due. Specifically, if during
the twelve month period ended June 30, 1997, the EBITDA of Datascan for the most
recent three months (at the point in time as such transaction occurs) is
determined to have equaled or exceeded $72,000, the Company will deliver an
additional 200,000 shares and further, if such transaction occurs
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subsequent to June 30, 1997 but prior to June 30, 1998, and both the EBITDA for
the twelve months ended June 30, 1997 equaled or exceeded $288,000 and the
average monthly EBITDA for the prior months in the period equals or exceeds
$26,157, the Company shall deliver 100,000 additional shares of Common Stock to
the Datascan shareholders.
All the Acquisitions to date were accounted for under the "purchase"
method of accounting.
Management Information Systems
The Company has begun to install and maintain integrated information
systems to support its growth and acquisition plans. The Company believes that
effective and efficient access to key clinical patient data is crucial in
improving costs and quality outcomes. The Company will utilize its information
systems to improve productivity, manage complex reimbursement procedures,
measure patient care satisfaction and outcomes of care, and integrate
information from multiple facilities throughout the care spectrum. The Company's
overall information systems will be designed to be modular and flexible. The
Company has selected a partner to provide the information systems that will, in
part, allow the Company to track physician utilization, outcomes management,
patient scheduling and tracking and most importantly, managed care plan
processing.
The Company, through its wholly owned subsidiary MetBilling Group, Inc.
has invested over $500,000 in setting up the information and billing systems for
the Company. The services of MetBilling have been and will continue to be
provided to all of the Company's acquisitions and the general medical community.
Competition
The health care industry is highly competitive. The industry is also
subject to continuing changes in the provision of services and the selection and
compensation of providers. In addition, certain companies, including hospitals
and insurers, are expanding their presence in the physician management market.
The Company's operations will compete with national, regional and local
companies in providing its services. Many of the Company's competitors are
larger and better capitalized to provide a wider variety of services, may have
greater experience in providing health care management services and may have
longer established relationships with buyers of such services.
Government Regulation
As a participant in the health care industry, the Company's operations
and relationships are subject to extensive and increasing regulation by a number
of governmental entities at the federal, state and local levels. The Company
intends to
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structure its operations to be in material compliance with applicable laws.
Nevertheless, because of the uniqueness of the structure of the relationship of
the Physician Practices and Ancillary Services owned or acquired by the Company,
many aspects of the Company's actual and proposed business operations have not
been the subject of state or federal regulatory interpretation and there can be
no assurance that a review of the Company's or the affiliated physicians'
business by courts or regulatory authorities will not result in a determination
that could adversely affect the operations of the Company or the affiliated
physicians or that the health care regulatory environment will not change so as
to restrict the Company's or the affiliated physicians' existing operations or
their expansion.
The federal Medicare program adopted a system of reimbursement of
physician services, known as the resource based relative value scale schedule
("RBRVS"), which took effect in 1992 and was implemented in December 1996. The
government revises the RBRVS Physician Fee Schedule annually. The Company
expects that the RBRVS fee schedule and other future changes in Medicare
reimbursement will result in some cases in a reduction and in some cases in an
increase from historical levels in the per patient Medicare revenue received by
physicians affiliated with the Company. However, the Company does not believe
such reductions will result in a material adverse change in the Company's
operating results, although there can be no assurance that this will be the
case.
The laws of many states prohibit business corporations such as the
Company from practicing medicine and employing physicians to practice medicine.
In Florida, non-licensed persons or entities, such as the Company, are
prohibited from engaging in the practice of medicine directly; however, Florida
does not prohibit such non-licensed persons or entities from employing or
otherwise retaining licensed physicians to practice medicine, so long as the
Company does not interfere with the physicians' exercise of independent medical
judgment in the treatment of patients. The Company believes it is not in
violation of applicable Florida law relating to the practice of medicine. The
laws in most states, including Florida, regarding the corporate practice of
medicine have been subjected to limited judicial and regulatory interpretation
and, therefore, no assurances can be given that the Company's activities will be
found to be in compliance, if challenged.
There are also state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment,
administrative sanctions and possible exclusion from Medicare and other
governmental programs on health care providers that fraudulently or wrongfully
bill governmental or other third-party payers for health care services. The
federal law prohibiting false billings allows a private person to bring a civil
action in the name of the United States government for violations of its
provisions. Moreover, technical Medicare and other reimbursement rules affect
the structure of physician and ancillary billing arrangements. The Company
believes it is in material compliance with such laws, but there is no assurance
that the Company's activities will not be challenged or scrutinized by courts or
governmental authorities.
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Noncompliance with such laws may adversely affect the operation of the Company
and subject it to penalties and additional costs.
Certain provisions of the Social Security Act, commonly referred to as
the "Anti-Kickback Statute," prohibit the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease or order of items or services
that are covered by Medicare or state health programs. The Anti-Kickback Statute
is broad in scope and has been broadly interpreted by courts in many
jurisdictions. Read literally, the statute places at risk many business
arrangements, potentially subjecting such arrangements to lengthy, expensive
investigations and prosecutions initiated by federal and state governmental
officials. Violation of the Anti-Kickback Statute is a felony, punishable by
significant fines and/or imprisonment. In addition, the Department of Health and
Human Services may impose civil penalties excluding violators from participation
in Medicare or state health programs.
In July 1991 and November 1992, in part to address concerns regarding
the Anti-Kickback Statute, the federal government published regulations that
provide exceptions, or "safe harbors," for sections that will be deemed not to
violate the Anti-Kickback Statute. Although the Company believes that it is not
in violation of the Anti-Kickback Statute, its operations do not fit within any
of the existing or proposed safe harbors, and, accordingly, there can be no
assurance that the Company's practices, if scrutinized, would not be found to be
in violation of the statute, and any such finding could have a material adverse
effect on the Company. Transactions outside of a safe harbor are not per se
violations of the statute, but may be subject to government scrutiny on a case
by case basis. Among the safe harbors included in the regulations were
provisions relating to the sale of practitioner practices, management and
personal services agreements, and employee relationships. Additional safe
harbors were published in September 1993 offering new protections under the
statute to eight activities, including referrals within group practices
consisting of active investors. Proposed amendments to clarify these safe
harbors were published in July 1994 which, if adopted, would cause substantive
retroactive changes to the 1991 regulations.
The new federal Health Insurance Portability and Accountability Act of
1996, signed into law on August 21, 1996, expands the government's resources to
combat health care fraud, creates several new criminal health care offenses and
establishes a new advisory opinion mechanism under which the Office of Inspector
General is required to respond to requests for interpretation of the
Anti-Kickback Statute, in an effort to bring clarity and relief to the
uncertainty of the Anti-Kickback Statute. Due to the newness of the legislation,
it is impossible to predict the impact of the new law on the Company's
operations.
Florida has adopted state laws similar to the federal Anti-Kickback
Statute prohibiting payments intended to induce referrals of all patients,
regardless of payor
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source. The "Patient Brokering Law," effective October 1, 1996, makes it a crime
for any person, including any health care provider or health care facility, to
offer, pay, solicit, or receive any commissions, bonus, rebate, kickback, or
bribe, directly or indirectly, overtly or covertly, in cash or in kind, or to
engage in any split-fee arrangement, in any form whatsoever, to induce or in
return for referring patients or patronage to or from a health care provider or
health care facility, or to aid, abet, advise, or participate in any such act.
There are exceptions to the Patient Brokering Law, including exceptions for any
payment practice, discount, or waiver of payment not prohibited by the federal
Anti-Kickback Statute or the safe harbor regulations, and certain payment,
compensation, or financial arrangements within a group practice. The Company
believes its activities fit within exceptions to the Patient Brokering Law,
however, until the new law has been subjected to judicial and/or regulatory
interpretations, there can be no assurances given that the Company's activities
will be found to be in compliance, if challenged.
Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions,
commonly known as "Stark II," amended prior physician self-referral legislation
known as "Stark I" by dramatically enlarging the field of physician-owned or
physician-interested entities to which the referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits, subject to certain exceptions,
including a group practice exception, a physician from referring Medicare or
Medicaid patients to an entity providing "designated health services" in which
the physician or immediate family member has an ownership or investment interest
or with which the physician has entered into a compensation arrangement. The
designated health services include clinical laboratory services, radiology and
other diagnostic services, radiation therapy services, physical and occupational
therapy services, durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services, and inpatient and outpatient hospital services. The
penalties for violating Stark II include a prohibition on payment by these
government programs and civil penalties of as much as $15,000 for each violative
referral and $100,000 for participation in a "circumvention scheme." The Stark
legislation is broad and ambiguous. Interpretive regulations clarifying the
provisions of Stark II have not been issued. Florida has also enacted similar
self-referral laws. The Florida Patient Self-Referral Act of 1992 severely
restricts patient referrals for certain services by physicians with ownership or
investment interests, requires disclosure of physician ownership in businesses
to which patients are referred and places other regulations on health care
providers. While the Company believes it is in compliance with the Florida and
Stark legislation, and their exceptions, future laws, regulations or
interpretations of current law could require the Company to modify the form of
its relationships with physicians and ancillary service providers. Moreover, the
violation of Stark I or II or the Florida Patient Self-Referral Law of 1992 by
the Company's Physician group could result in significant fines and loss of
reimbursement which would adversely affect the Company.
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<PAGE>
As a result of the continued escalation of health care costs and the
inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the U.S. Congress and state legislatures
relating to health care reform. There can be no assurance as to the ultimate
content, timing or effect of any health care reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material on the Company.
Employees
As of September 23, 1998, the Company had approximately 130 full-time
and 5 part-time employees. Of the total, 13 were employed at the Company's
corporate office and 8 at the Company's billing subsidiary MetBilling Group,
Inc. No employee of the Company is covered by a collective bargaining agreement
or is represented by a labor union. The Company considers its employee relations
to be good.
Description of Property
The Company's Executive offices are located at 5100 Town Center Circle,
Suite 560, Boca Raton, Florida 33486 where it occupies 3,800 square feet and a
monthly rental of approximately $8,836 pursuant to a sublease expiring April 15,
2000.
MetBilling Group, Inc. occupies approximately 2,490 square feet in Boca
Raton, Florida 33486, at a monthly rental of approximately $3,321, which lease
expires on April 15, 2000.
Magnetic Imaging Systems, I, Ltd. also leases approximately 4,656
square feet for diagnostic facilities located in Fort Lauderdale, Florida at a
monthly rental rate of approximately $14,126 which lease expires April 30, 1999
and is leased from Dr. Kagan, a Director of the Company.
The Company also leases approximately 5,740 square feet for diagnostic
facilities in Fort Lauderdale, Florida at a monthly rate of approximately $6,708
which lease expires January 31, 1999 and is leased from KFK Enterprises, Inc., a
corporation in which Dr. Kagan is the largest shareholder and a director of the
Company. The lease was entered into on favorable terms for Dr. Kagan.
None of the Company's properties, except as otherwise indicated, are
leased from affiliates.
Legal Proceedings
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<PAGE>
The Company is not a party to any material legal proceedings and, to
the best of the Company's information, knowledge and belief, none is
contemplated or has been threatened, other than stated below.
On September 25, 1996, pursuant to a merger agreement ("FRSI
Agreement"), the Company, acquired Florida Rehabilitation Services, Inc.
("FRSI") and Southeast Medical Staffing, Inc. ("SMSI" and collectively "FR
Group") from the sole shareholder of both companies. On December 31, 1996, the
Company has rescinded this transaction as a result of the Company's belief that
a breach of the agreement has occurred and requested the return of all
consideration paid. In connection therewith, the Company has canceled the shares
of common stock issued as part of the purchase price and will take all action
necessary for the return of all cash and other expenses paid in connection with
the transaction. The merger transaction is not reflected in the financial
statements and the common stock is not considered to be outstanding at June 30,
1997. During the year ended June 30, 1997, the Company reserved approximately
$72,000 of advances incurred in connection with this transaction.
On or about June 24, 1997, the Company and Met Rehab Group, Inc.
(collectively the "Plaintiffs") instituted an action against FRSI, SMSI and
Frederick J. Kunen ("Kunen") (collectively the "Defendants") whereby the Company
is seeking damages against the Defendants in excess of $15,000 for fraud in the
inducement and for breach of the FRSI Agreement. The Company is also seeking a
rescission of the FRSI Agreement. The Plaintiffs have obtained a Default
Judgment against SMSI. On or about December 3, 1997, Kunen filed a Counterclaim
asserting causes of action against the Company for breach of promissory note,
fraud in the inducement, and securities fraud under Chapter 517 of the Florida
Statutes. The Company filed a Motion to Dismiss Kunen's Counterclaim on or about
May 18, 1998 which has not yet been heard. The Company intends to vigorously
litigate this action and to defend the claims brought against it by Kunen.
In January 1997, a medical billing group filed a complaint against the
company and FR Group claiming breach of a funding and security agreement, and
economic damages of approximately $150,000 plus treble damages of approximately
$208,000. Although the Company believes it has meritorious defenses against the
suit, the ultimate resolution of the matter could result in a material loss to
the Company.
SELLING SECURITY HOLDERS
Pursuant to the Company's initial public offering, the Company issued
825,000 shares of Common Stock and Warrants to purchase 1,897,500 shares of
Common Stock. The Company has agreed to maintain an effective registration
statement and current prospectus covering the issuance and public sale of shares
of Common Stock issuable upon exercise of the Warrants during their term. The
Warrants are exercisable at $7.00
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<PAGE>
per share, and the Company will receive an aggregate of $11,550,000 if all of
the Warrants are exercised. Such shares have been included in the Registration
Statement of which this Prospectus forms a part.
The Company has agreed to pay for all costs and expenses incident to
the issuance, offer, sale and delivery of the shares underlying the Warrants,
including, but not limited to, all expenses and fees of preparing, filing and
printing the Registration Statement and Prospectus and related exhibits,
amendments and supplements thereto and mailing of such items. The Company will
not pay selling commissions and expenses associated with any such sales by the
selling stockholders. Sales of the shares of common stock underlying the
Warrants may be made from time to time by or for the account of the selling
stockholders in one or more transactions in the over-the-counter market, in
negotiated transactions or otherwise, at prices related to the prevailing market
prices or at negotiated prices.
Additionally, pursuant to the terms of the Underwriting Agreement, the
Company sold the Underwriter, an aggregate options to purchase of 165,000
warrants (the "Underwriter's Warrants", of which 70,125 has been exercised) to
purchase up to 82,500 shares of Common Stock at an exercise price of 140% of the
price at which the Common Stock and Warrants are priced to the public. The
Underwriter's Warrants are exercisable commencing February 13, 1998 and will
continue until four years thereafter at the exercise price of $8.40 per share
and $.15 per Warrant (140% of the price at which the Common Stock and Warrants
were priced to the public).
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of any
of the Shares or Warrants by the selling stockholders. The sale of the
securities registered hereby may be effected by the selling stockholders from
time to time in transactions in the over-the-counter market, on The Nasdaq
National Market (TM), in negotiated transactions, or a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The securities registered hereby may be sold by one or
more of the following methods: (i) a block trade in which the broker or dealer
so engaged will attempt to sell the Shares as agent for the selling
stockholders; (ii) ordinary brokerage transactions; (iii) transactions in which
the broker solicits purchasers and (iv) privately negotiated transactions. In
effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions from the selling stockholders in amounts to be negotiated
immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales.
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<PAGE>
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the selling
stockholders.
The selling stockholders and any broker-dealers, agents or underwriters
that participate with the selling stockholders in the distribution of the
securities registered hereby may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any securities registered
hereby purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the securities registered hereby may not
simultaneously engage in market-making activities with respect to the Common
Stock for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation, Regulation M,
which provisions may limit the timing of the purchases and sales of shares by
the selling stockholders.
The Company has agreed to pay all fees and expenses incident to the
registration of the securities registered hereby except selling commissions and
fees and expenses of counsel or any other professionals or other advisors, if
any, to the selling stockholders.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 40,000,000 shares of
Common Stock, $.001 par value per share, of which 6,498,437 shares were
outstanding as of the date hereof. The Company is authorized to issue up to
10,000,000 shares of Preferred Stock, $.001 par value per share, of which 30,000
shares have been designated as Series A Preferred Stock, and 5,000 of which were
outstanding as of the date hereof, and 7,000 shares have been designated as
Series B Preferred Stock and 1,200 shares of which were outstanding as of the
date hereof.
Common Stock
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
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<PAGE>
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the shares
of Common Stock offered hereby, will be duly authorized, validly issued, fully
paid and nonassessable.
Market for Common Equity and Related Stockholder Matters
The Company's Common Stock and Warrants are currently traded on The
Nasdaq National Market (TM) under the symbols "MDPA" and "MDPAW." The following
table sets forth, since the Company's initial public offering on February 14,
1997, the high and low closing sales prices for the Common Stock and Warrants,
as reported by The Nasdaq Stock Market, Inc. (TM):
<TABLE>
<CAPTION>
Common Stock Warrants
------------ --------
High Low High Low
---- --- ---- ---
1997
<S> <C> <C> <C> <C>
Third Quarter....................... $7.56 $3.56 $2.75 $1.00
(ended March 31, 1997)
Fourth Quarter...................... $5.37 $3.18 $1.28 $0.50
(ended June 30, 1997)
1998
First Quarter....................... $6.13 $3.38 $ .97 $ .44
(ended September 30, 1997)
Second Quarter...................... $7.38 $5.63 $1.06 $ .53
(ended December 31, 1997)
Third Quarter....................... $6.13 $2.50 $ .66 $ .25
(ended March 31, 1998)
Fourth Quarter...................... $4.06 $2.75 $ .59 $ .31
(ended June 30, 1998)
</TABLE>
On September 23, 1998 the closing prices of the Common Stock and
Warrants as reported by The Nasdaq Stock Market, Inc. (TM) were $2.88 and $0.28,
respectively.
The Company has not declared or paid any dividends on Common Stock. The
Company presently intends to invest its earnings, if any, in the development and
growth of its operations.
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<PAGE>
As of September 23, 1998, there were approximately 1,040 record holders
of the Company's Common Stock.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of Preferred Stock
with such designation, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. In the event of
issuance, the Preferred Stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company.
The Board of Directors has designated 30,000 shares of Preferred Stock
as Series A Convertible Preferred Stock of which 5,000 are currently
outstanding. The Board of Directors has also designated 7,000 shares of
Preferred Stock as Series B Convertible Preferred Stock of which 1,200 shares
are currently issued and outstanding.
Series A Preferred Stock.
- -------------------------
Designation and Number of Shares. The Company has designated 30,000
shares of its Preferred Stock as "Series A Preferred Stock" of a par value of
$.001 per share of which 5,000 shares are issued and outstanding.
Dividend Rights. Holders of the Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors out of funds
legally available therefor, and the Company shall pay, cumulative dividends at
the rate per share, as a percentage of the stated value of $100 per share
("Stated Value") equal to 10% percent per annum ("Initial Dividends"), payable,
in cash or shares of Common Stock (subject to the terms and conditions hereof)
at the option of the Company quarterly in arrears, but in no event later than
conversion applicable to such share of Series A Preferred Stock.
Conversion.
(a) Each share of Series A Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio (as defined
herein) at the option of the holder in whole or in part at any time after the
expiration of the 360th day after the date of issuance. "Conversion Ratio"
means, at any time, a fraction, of which the numerator is Stated Value plus
accrued but unpaid dividends (including any accrued but unpaid interest thereon)
but only to the extent not paid in shares of Common Stock in accordance with the
terms hereof, and of which the denominator is the Conversion Price at such time.
The Company shall have the right to deny conversion of the Series A Preferred
Stock, at which
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<PAGE>
time the holder shall be entitled to receive and the Company shall pay
additional cumulative dividends at the rate per share (as a percentage of the
Stated Value) equal to 5% per annum, and together with the Initial Dividend
rate, to equal fifteen (15%) percent per annum payable under the same terms as
the Initial Dividends.
(b) The conversion price for each share of Series A Preferred
Stock (the "Conversion Price") in effect on any conversion date shall be the
lesser of (a) 85% of the average closing bid price of the Common Stock reported
by the principal exchange on which the Common Stock is traded, The Nasdaq
National Market (TM) or any other exchange the Common Stock is then traded, for
the ten (10) trading days immediately preceding the Conversion Date, or (b)
$6.00.
(c) The Conversion Price will be subject to adjustment in
certain events, including (i) the issuance of capital stock as a dividend or
distribution on Common Stock, (ii) subdivision, combinations, reverse stock
splits and reclassification of the Common Stock, (iii) the fixing of a record
date for the issuance to all holders of Common Stock of rights or warrants
entitling them (for a period expiring within 45 days of such record date) to
subscribe for Common Stock and (iv) the fixing of a record date for the
distribution to all holders of Common Stock of evidence of indebtedness or
assets (other than cash dividends) of the Company or subscription rights or
warrants (other than those referred to above).
Redemption. The Company shall have the right, exercisable at any time
upon ten (10) trading days notice to the holders of the Series A Preferred Stock
given at any time after the expiration of two years after the date of issuance,
to redeem, from funds legally available therefor at the time of such redemption,
all or any portion of the shares of Series A Preferred Stock which have not
previously been converted or redeemed, at a price equal to 105% of the product
of (i) the number of shares of Preferred Stock then held by the holder, and (ii)
the Stated Value.
Voting Rights. Except as provided by law, the Series A Preferred Stock
shall not be entitled to vote on matters submitted to a vote of the shareholders
of the Company.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Series A Preferred Stock shall be
entitled to receive, after due payment or provision for payment for the debts
and other liabilities of the Company, a liquidating distribution before any
distribution may be made to holders of Common Stock of the Company. The holders
of the Series A Preferred Stock outstanding shall be entitled to receive an
amount equal to the Stated Value, plus declared dividends to the date of the
final distribution, whether or not such liquidation, dissolution or winding up
is voluntary or involuntary on the part of the Company.
Miscellaneous. The Series A Preferred Stock has no preemptive rights.
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<PAGE>
Series B Convertible Preferred Stock
Designation and Amount. The Company has designated 7,000 shares of
Preferred Stock as Series B Preferred Stock with the stated value as One
Thousand Dollars ($1,000) per share (the "Stated Value").
Rank. The Series B Preferred Stock shall rank (i) prior to the
Company's common stock, par value $.001 per share (the "Common Stock"); (ii)
prior to any class or series of capital stock of the Company hereafter created
(unless, with the consent of the holders of Series B Preferred Stock, such class
or series of capital stock specifically, by its terms, ranks senior to or pari
passu with the Series B Preferred Stock) (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with any class or series of capital stock
of the Company hereafter created (with the consent of the holders of Series B
Preferred Stock) specifically ranking, by its terms, on parity with the Series B
Preferred Stock ("Pari Passu Securities"); and (iv) junior to any class or
series of capital stock of the Company hereafter created (with the consent of
the holders of Series B Preferred Stock obtained in accordance with Article IX
hereof) specifically ranking, by its terms, senior to the Series B Preferred
Stock ("Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary.
Dividend Rights. Holders of the Series B Preferred Stock shall be
entitled to receive, whether or not declared by the Board of Directors out of
funds legally available therefor, and the Company shall pay, cumulative
dividends at the rate per share, as a percentage of the stated value of $1,000
per share ("Stated Value") equal to 5% percent per annum ("Initial Dividends"),
payable, in cash or shares of Common Stock (subject to the terms and conditions
hereof) at the option of the Company quarterly in arrears, but in no event later
than conversion applicable to such share of Series B Preferred Stock.
Liquidation Preference
(a) At the option of any holder of Series B Preferred Stock,
upon the sale, conveyance or disposition of all or substantially all of the
assets of the Company, the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or the consolidation, merger or other business
combination of the Company with or into any other entity when the Company is not
the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Company pursuant to which the Company shall be required to
distribute upon consummation of such transaction an amount equal to 120% of the
Liquidation Preference with respect to each outstanding share of Series B
Preferred Stock or (ii) be treated pursuant to the provisions under "Conversion
at the Option of the Holder" described herein.
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<PAGE>
(b) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series B Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof plus (ii) and amount equal to five
percent (5%) per annum of such Stated Value for the period beginning on the date
of issuance of the Series B Preferred Stock (the "Issue Date") and ending on the
date of final distribution to the holder thereof (prorated for any portion of
such period).
Redemption
(a) If any of the following events (each, a "Mandatory
Redemption Event") shall occur:
(i) The Company fails to issue shares of Common Stock
to the holders of Series B Preferred Stock upon exercise by the holders of their
conversion rights, fails to transfer or to cause its transfer agent to transfer
any certificate for shares of Common Stock issued to the holders upon conversion
of the Series B Preferred Stock as and when required, fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate or any shares of Common Stock issued to the holders
of Series B Preferred Stock upon conversion of the Series B Preferred Stock, or
fails to fulfill its obligations pursuant to certain Sections of the Purchase
Agreement therefor and any such failure shall continue uncured for ten (10)
business days;
(ii) In connection with the Securities Purchase
Agreement dated April 24, 1998, the Company fails to obtain effectiveness with
the Securities and Exchange Commission of a Registration Statement registering
the shares of Common Stock underlying the Series B Preferred Stock prior to
October 31, 1998 or such Registration Statement lapses in effect (or sales
otherwise cannot be made thereunder, whether by reason of the Company's failure
to amend or supplement the prospectus included therein for more than thirty (30)
consecutive days or sixty (60) days in any twelve (12) month period after such
Registration Statement becomes effective. In connection with shares of Series B
Preferred Stock issued pursuant to any other securities purchase agreement the
Corporation fails to obtain effectiveness with the Securities and Exchange
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) prior to the expiration of six (6) months from the date of issuance
of the Series B Preferred Stock or such Registration Statement lapses in effect
(or sales otherwise cannot be made thereunder, whether by reason of the
Company's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement or otherwise) for more than
thirty (30) consecutive days or sixty (60) days in any twelve (12) month period
after such Registration Statement becomes effective;
(iii) The Company shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for all
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<PAGE>
or substantially all of its property or business; or such a receiver or trustee
shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Company or any subsidiary of the Company;
(v) The Company shall fail to maintain the listing of
the Common Stock on The Nasdaq National Market (TM), The Nasdaq SmallCap Market
(TM) ("Nasdaq SmallCap"), the New York Stock Exchange or the American Stock
Exchange and such failure shall remain uncured for at least ten (10) business
days, then, upon the occurrence and during the continuation of any Mandatory
Redemption Event, the Company shall purchase each holder's shares of Series B
Preferred Stock for an amount per share equal to the greater of (1) 120%
multiplied by the sum of (a) the Stated Value of the shares to be redeemed (the
"Mandatory Redemption Date"), and (2) the "parity value" of the shares to be
redeemed, where parity value means the product of (a) the number of shares of
Common Stock issuable upon conversion of such shares multiplied by (b) the
Closing Price for the Common Stock on such "Conversion Date" (the greater of
such amounts being referred to as the "Mandatory Redemption Amount").
In the case of a Mandatory Redemption Event, if the Company
fails to pay the Mandatory Redemption Amount for each share within five (5)
business days of written notice that such amount is due and payable, then
(assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series B Preferred Stock shall have the right
at any time, so long as the Mandatory Redemption Event continues, to require the
Company, upon written notice, to immediately issue in lieu of the Mandatory
Redemption Amount, with respect to each outstanding share of Series B Preferred
Stock held by such holder, the number of shares of Common Stock of the Company
equal to the Mandatory Redemption Amount divided by the Conversion Price then in
effect.
(b) If the Series B Preferred Stock ceases to be convertible
as a result of the limitations described under "Conversion at the Option of the
Holder" described herein (a "19.99% Redemption Event"), and the Company has not
prior to, or within thirty (30) days of, the date that such 19.99% Redemption
Event arises, (i) obtained approval of the issuance of the additional shares of
Common Stock by the requisite vote of the holders of the then-outstanding Common
Stock (not including any shares of Common Stock held by present or former
holders of Series B Preferred Stock that were issued upon conversion of Series B
Preferred Stock); or (ii) received other permission pursuant to Nasdaq
Marketplace Rule 4460(i) allowing the Company to resume issuances of shares of
Common Stock upon conversion of Series B Preferred Stock, then the Company shall
be obligated to redeem immediately all of the then outstanding Series B
Preferred Stock, in accordance with this Article 5(b). An irrevocable Redemption
Notice shall be delivered
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<PAGE>
promptly to the holders of Series B Preferred Stock at their registered address
appearing on the records of the Company and shall state (1) that 19.99% of the
Outstanding Common Amount (as defined herein) has been issued upon exercise of
the Series B Preferred Stock; (2) that the Company is obligated to redeem all of
the outstanding Series B Preferred Stock; and (3) the Mandatory Redemption Date,
which shall be a date within five (5) business days of the date of the
Redemption Notice. On the Mandatory Redemption Date, the Company shall make
payment of the Mandatory Redemption Amount (as defined in Article 5(a) above) in
cash. If the Company fails to redeem in accordance with the provisions hereof,
in addition to all other remedies available to the holders of the Series B
Preferred Stock, upon request of a majority-in-interest of the Series B
Preferred Stock, the Company shall terminate the listing of its Common Stock on
The Nasdaq SmallCap Market (TM)(and any other exchange or quotation system with
a rule substantially similar to Rule 4460(i)) and cause its Common Stock to be
eligible for trading on the over-the-counter electronic bulletin board.
(c) So long as no Mandatory Redemption Event shall have
occurred and be continuing, the Company shall have the right, on the date which
is the third (3rd) anniversary of the date on which the Registration Statement
is declared effective by the SEC, exercisable on not less than twenty (20)
Trading Days prior written notice to the holders of Series B Preferred Stock, to
redeem all of the outstanding shares of Series B Preferred Stock in accordance
herewith. If the Company exercises its right to redeem the Series B Preferred
Stock, the Company shall make payment to the holders of an amount in cash (the
"Optional Redemption Amount") equal to 120% of the Stated Value of the shares of
Series B Preferred Stock to be redeemed plus any unpaid dividends for each share
of Series B Preferred Stock then held.
Conversion at the Option of the Holder
(a) Each holder of shares of Series B Preferred Stock may,
convert any or all of the shares of Series B Preferred Stock into Common Stock
as follows (an "Optional Conversion"). Each share of Series B Preferred Stock
shall be convertible into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (1) the Stated Value thereof by (2)
the then effective Conversion Price (as defined below).
(b) The "Conversion Price" shall be the lesser of the Market
Price (as defined herein) and the Fixed Conversion Price (as defined herein),
subject to certain adjustments as described herein. "Market Price" shall mean
the average of the two (2) lowest Closing Bid Prices during the twelve (12)
consecutive Trading Day period ending one (1) Trading Day prior to the date (the
"Conversion Date") the Conversion Notice is sent by a holder to the Company via
facsimile (the "Pricing Period"). The "Fixed Conversion Price" shall mean $4.00.
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Notwithstanding anything contained in the foregoing, the
Conversion Prices are subject to certain adjustments including in the event of
merger, consolidation, stock dividends, stock splits as set forth in the
Company's Articles of Incorporation.
Automatic Conversion
So long as a Registration Statement cover the Common Stock underlying
the Series B Preferred Stock is effective and there is not then a continuing
Mandatory Redemption Event, each share of Series B Preferred Stock issued and
outstanding on April 24, 2003, subject to any adjustment (the "Automatic
Conversion Date"), automatically shall be converted into shares of Common Stock
on such date at the then effective Conversion Price in accordance with, and
subject to, the provisions of Article VI hereof (the "Automatic Conversion").
The Automatic Conversion Date shall be delayed by one (1) Trading Day for each
Trading Day occurring prior thereto and prior to the full conversion of the
Series B Preferred Stock that (i) sales cannot be made pursuant to the
Registration Statement (whether by reason of the Company's failure to properly
supplement or amend the prospectus included therein in accordance with the terms
of the Registration Rights Agreement or otherwise including any Allowed Delays;
or (ii) any Default Event exists, without regard to whether any cure periods
shall have run.
Voting Rights
The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Florida Company Law ("FCL").
Protective Provisions
So long as shares of Series B Preferred Stock are outstanding, the
Company shall not, without first obtaining the approval (by vote or written
consent, as provided by the FCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock: (a) alter or change the
rights, preferences or privileges of the Series B Preferred Stock or any Senior
Securities so as to affect adversely the Series B Preferred Stock; (b) create
any new class or series of capital stock having a preference over the Series B
Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up of the Company; (c) create any new class or series of capital stock
ranking pari passu with the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Company; (d) increase
the authorized number of shares of Series B Preferred Stock; or (e) do any act
or thing not authorized or contemplated by the terms of the Series B Preferred
Stock which would result in taxation of the holders of shares of the Series B
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
47
<PAGE>
Warrants
As of the date hereof, the Company has 1,967,625 warrants issued (which
includes 70,125 exercised underwriter options to purchase warrants) and
outstanding pursuant to the Company's initial public offering on February 13,
1998. The warrants were issued in registered form pursuant to an agreement (the
"Warrant Agreement") between the Company and Florida Atlantic Stock Transfer,
Inc., as Warrant Agent. Reference is made to said Warrant Agreement for a
complete description of the terms and conditions therein (the description herein
contained being qualified in its entirety by reference thereto). Each warrant
entitles the registered holder thereof to purchase one share of Common Stock, at
a price of $7.00, subject to adjustment in certain circumstances, at any time
until March 3, 2001. After the expiration date, the Warrant holders shall have
no further rights. The warrants are redeemable by the Company for $.05 per
warrant, at any time upon thirty (30) days' prior written notice, provided (i)
the average closing bid price of the Common Stock, as reported by the principal
exchange on which the Common Stock is traded, The Nasdaq SmallCap Market (TM) or
the National Quotation Bureau, Incorporated, as the case may be, equals or
exceeds $12.00 per share for any ten (10) consecutive trading days ending within
ten (10) days prior to the date of the notice of redemption, and (ii) the
Company has at the time that notice of redemption is given an annualized run
rate (as hereinafter defined) of revenues of $20,000,000 for a minimum of one
quarter as evidenced by the filing of a Form 8-K with the Securities and
Exchange Commission containing historical pro forma financial statements
reflecting said revenues. Run Rate shall be defined as the combined gross
revenue on a pro forma basis of the Company's prior years gross revenue.
As of September 23, 1998, Warrants to purchase 240,000 shares of Common
Stock issued to the purchasers of the Series B Preferred Stock and exercisable
over the next five years at a price of $4.00 for 120,000 shares and $5.00 for
120,000 shares (as may be adjusted from time to time under certain anti-dilution
provisions) were outstanding. The shares of Common Stock issuable upon exercise
of these Warrants have been registered pursuant to a separate Registration
Statement.
The Company also has outstanding options and warrants to purchase up to
an aggregate of 2,017,200 shares of Common Stock at exercise prices ranging from
$.10 to $18.00, substantially all of which are presently exercisable until
expiration dates ranging from June 30, 1998 to June 30, 2003.
Dividend Policy
Holders of Common Stock are entitled to receive such dividends as may
be declared and paid from time to time by the Board of Directors out of funds
legally available therefor. The Company intends to retain any earnings for the
operation and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future. Any
48
<PAGE>
future determination as to the payment of cash dividends will depend upon future
earnings, results of operations, capital requirements, the Company's financial
condition and such other factors as the Board of Directors may consider.
Anti-Takeover Law
Certain provisions of the Company's Articles of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may delay, defer or
prevent a takeover attempt of the Company, which include when and by whom
special meetings of the Company may be called. In addition, certain provisions
of the Florida Business Corporation Act also may be deemed to have certain
anti-takeover effects which include that control of shares acquired in excess of
certain specified thresholds will not possess any voting rights unless these
voting rights are approved by a majority of a corporation's disinterested
shareholders. In addition, the Company's Articles of Incorporation authorize the
issuance of up to 10,000,000 shares of Preferred Stock with such rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors may, without shareholder approval, issue
Preferred Stock with dividends, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. In addition, the issuance of large blocks of
Preferred Stock could possibly have a dilutive effect with respect to existing
holders of Common Stock of the Company. The Company, however, has agreed
pursuant to the terms of the Underwriting Agreement that without the consent of
the Underwriter it, for a period of two (2) years, will not issue any shares of
Preferred Stock (i) for purposes other than acquisitions from persons or
entities not affiliated with the Company; (ii) which have disproportionate
voting power to the shares of Common Stock; or (iii) that have rights to stock
or cash dividends disproportionate to the shares of Common Stock.
Additionally, the Company's Articles of Incorporation, Bylaws and
Florida law authorize the Company to indemnify its directors, officers,
employees and agents and limit the personal liability of corporate directors for
monetary damages, except in certain instances. See "Description of Securities --
Certain Florida Legislation; Anti-takeover Effects of Certain Provisions of the
Company's Articles of Incorporation and Bylaws."
Over-The-Counter Market
The Company's Common Stock is traded on The Nasdaq National Market (TM)
under the symbols "MDPA" and "MDPAW," respectively.
Transfer Agent
The Transfer Agent for the Company's shares of Common Stock is Florida
Atlantic Stock Transfer, Tamarac, Florida.
49
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson,
P.A., Counsel for the Company, Fort Lauderdale, Florida.
EXPERTS
The consolidated balance sheets as of June 30, 1997 and 1996, and the
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended, incorporated by reference in this prospectus, have been
incorporated herein in reliance on the reports of Kaufman, Rossin & Co., P.A.
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
INDEMNIFICATION
The Company has authority under Section 607.0850 of the Florida
Business Corporation Securities Act to indemnify its directors and officers to
the extent provided for in such statute. The Company's Articles of Incorporation
provide that the Company shall indemnify and may insure its officers and
directors to the fullest extent permitted by law.
The provisions of the Florida Business Corporation Securities Act that
authorize indemnification do not eliminate the duty of care of a director, and
in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Florida law. In
addition, each director will continue to be subject to liability for (i)
violations of criminal laws, unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) deriving an improper personal benefit from a transaction; (iii)
voting for or assenting to an unlawful distribution; and (iv) willful misconduct
or conscious disregard for the best interests of the Company in a proceeding by
or in the right of the Company to procure a judgment in its favor or in a
proceeding by or in the right of a shareholder. The statute does not affect a
director's responsibilities under any other law, such as the Federal securities
laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the
50
<PAGE>
foregoing provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore enforceable.
51
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with this offer made hereby. If given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
circumstance in which such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that information herein is correct at any
time subsequent to the date of this Prospectus.
--------------
TABLE OF CONTENTS
-----------------
Page
----
AVAILABLE INFORMATION.......................
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE..................
RISK FACTORS................................
............................................
USE OF PROCEEDS.............................
THE COMPANY.................................
SELLING STOCKHOLDERS........................
PLAN OF DISTRIBUTION........................
DESCRIPTION OF SECURITIES...................
LEGAL MATTERS...............................
EXPERTS.....................................
INDEMNIFICATION.............................
825,000 shares
1,897,500 warrants
METROPOLITAN
HEALTH NETWORKS,
INC.
-----------
PROSPECTUS
-----------
September ____, 1998
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1998
PROSPECTUS
655,000 Shares
867,000 Warrants
1,310,000 Shares Underlying Warrants
METROPOLITAN HEALTH NETWORKS, INC.
On February 13, 1997 Metropolitan Health Networks, Inc. (the "Company")
registered an aggregate of 655,000 shares of common stock ("Common Stock"), par
value $.001 per share, 867,000 Warrants and 1,310,000 shares of Common Stock
underlying the Warrants (collectively, the "Selling Security Holder
Securities"). Of these securities, 221,500 shares of Common Stock and 443,000
shares of Common Stock underlying Warrants ("Private Placement Warrants") were
offered by investors in the Company's private placement offering undertaken
during March 1996 through October 1996 ("Private Placement Offering"), and
433,500 shares of Common Stock, 867,000 Warrants ("Bridge Warrants") and shares
of Common Stock underlying the Bridge Warrants were offered by investors in the
Company's bridge financing undertaken in October 1996 (the "Bridge Financing").
Except as provided below, Private Placement Warrants and the Bridge Warrants
offered are identical to the Warrants offered by the Company in its initial
public offering of securities on February 13, 1997 (the "IPO"). Each Warrant
entitles the holder to purchase one share of Common Stock at $7.00 per share
during the four (4) year period commencing March 13, 1997. The Warrants are
redeemable by the Company for $.05 per Warrant, at any time commencing March 13,
1997, upon thirty (30) days' prior written notice, if (i) the average closing
bid price of the Common Stock, as reported by the principal exchange on which
the Common Stock is traded, The Nasdaq Small Cap Market (TM) or the National
Quotation Bureau, Incorporated, as the case may be, equals or exceeds $12.00 per
share for any ten (10) consecutive trading days ending within ten (10) days
prior to the date of the notice of redemption, and (ii) the Company has at the
time notice of redemption is given an annualized Run Rate (as hereinafter
defined) of revenues of $20,000,000 for a minimum of one quarter as evidenced by
the filing of a Form 8-K with the Securities and Exchange Commission containing
historical pro forma financial statements reflecting said revenues. Run Rate
shall be defined as the combined gross revenue on a pro forma basis of the
Company's prior years gross revenue (inclusive of Acquisitions as hereafter
defined) and acquisitions made subsequent to this offering. In connection with
any redemption thereof during the two-year period commencing thirty (30) days
after the Effective Date, however, shall require the consent of Brauer &
Associates, Inc. which acted as the underwriter (the "Underwriter") in
connection with the IPO. In the event any Bridge Warrant is exercised without
the consent of the Underwriter within the two-year period, then the shares of
Common Stock received upon the exercise thereof shall be subject to a
restriction on transferability until the expiration of the two-year period.
<PAGE>
Other than having an exercise price of $6.00, and the redeemable feature, the
Private Placement Warrants are identical to the Warrants being offered by the
Company. See "Description of Securities". The Private Placement Warrants and
Bridge Warrants are collectively referred to as the " Selling Security Holder
Warrants". The Bridge Financing and Private Placement Offering are collectively
referred to as the "Private Offerings". The holders of the Selling Security
Holder Securities being offered hereby are collectively referred to herein as
the "Selling Security Holders." The Selling Security Holder Securities offered
hereby were not transferable until after August 13, 1997, subject to earlier
release at the sole discretion of the Underwriter. The certificates evidencing
such securities include a legend with such restrictions. Upon thirty (30) days'
written notice to all holders of the Warrants, the Company shall have the right
to reduce the exercise price and/or extend the term of the Warrants in
compliance with the requirements of Rule 13e-4 to the extent applicable. See
"Description of Securities" and "Selling Security Holders."
The securities offered by this Prospectus may be sold from time to time
by the Selling Security Holders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Security Holders. The
distribution of the securities by the Selling Security Holders may be effected
in one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately- negotiated transactions or
through sales to one or more dealers for resale of such Securities as principals
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Security Holders in connection with sales of such securities. Transfers of the
securities may also be made pursuant to applicable exemptions under the
Securities Act of 1933, as amended (the "Securities Act"), including but not
limited to sales under Rule 144 under the Securities Act.
The Selling Security Holders and intermediaries through whom the
Selling Security Holder Securities may be sold may be deemed "underwriters"
within the meaning of the Securities Act with respect to the Securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation.
The Company will not receive any of the proceeds from the sale of the
Selling Security Holder Securities by the Selling Security Holders. All costs
incurred in the registration of the Selling Security Holder Securities of the
Selling Security Holders are being borne by the Company. See "Selling Security
Holders."
The Company intends to furnish its security holders with annual reports
containing audited financial statements and the audit report of the independent
certified public accountants and such interim reports as it deems appropriate or
as may be required by law. The Company's fiscal year ends June 30.
A-2
<PAGE>
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------
The original date of this Prospectus is February 13, 1997
This Prospectus is amended pursuant to a Post-Effective
Amendment dated September , 1998
A-3
<PAGE>
INITIAL PUBLIC OFFERING
On February 13, 1997, a registration statement under the Securities Act
with respect to the IPO of 825,000 shares of Common Stock and 1,650,000 Warrants
was declared effective by the Securities and Exchange Commission, and the
Company commenced the sale of the securities offered thereby. The IPO was
underwritten on a firm commitment basis by Brauer & Associates, Inc., the
Underwriter. In March 1997 the Company concluded its IPO which resulted in gross
proceeds of approximately $5,197,500.
Selling Security Holders
The registration statement of which this Prospectus is a part also
covers the registration for resale of an additional 655,000 shares of Common
Stock, 867,000 Warrants and 1,310,000 shares of Common Stock underlying certain
Warrants.
The following table sets forth the holders of the shares of Common
Stock and Warrants, the number of such securities being offered and the number
of such securities and percentage of the class to be owned after the offering is
complete. The securities being offered hereby are being registered to permit
public secondary trading, and the Selling Security Holders may offer all or part
of the Selling Security Holder Securities for resale from time to time. However,
such Selling Security Holders are under no obligation to either (a) exercise the
Warrants, or (b) if exercised, to sell all or any portion of such shares
immediately under this Prospectus. All information with respect to security
ownership has been furnished by the Selling Security Holders. Because the
Selling Security Holders may sell all or a portion of the Selling Security
Holder Securities, no estimate can be given as to the number of securities that
will be held by any Selling Security Holder upon termination of any offering
made hereby; accordingly, the following table assumes (i) the exercise of the
Warrants, and (ii) the sale of all shares of Common Stock by the Selling
Security Holders immediately following the date of this Prospectus.
<TABLE>
<CAPTION>
Common Number of Percentage
Stock Shares Owned Owned
Common Warrants Underlying After the After the
Stock Offered Offered(4) Warrants Offering(1) Offering(1)
------------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Andrew Barnett 23,750 -0- 47,500 -0- -0-
Boreel, Maximillaan W.F. 14,500 -0- 29,000 -0- -0-
Bruce and Michele Schulman(2) 12,500 -0- 25,000 -0- -0-
David and Claire Cameron(2) 17,500 -0- 35,000 -0- -0-
Davis, Felicia and Marvin (2) 6,750 -0- 13,500 -0- -0-
Delva Phillipe 500 -0- 1,000 -0- -0-
Hoover Marine Consultants, Ltd 17,500 -0- 35,000 -0- -0-
Atlas, Pearlman, Trop & Borkson P.A.(3) 10,000 20,000 20,000 -0- -0-
James Seals 25,000 -0- 50,000 -0- -0-
Kaj Peterson 500 -0- 1,000 -0- -0-
Mark and Jo Jass 14,500 -0- 29,000 -0- -0-
A-4
<PAGE>
Marty Schulman 12,500 -0- 25,000 -0- -0-
Michael Nissenbaum 25,000 -0- 50,000 -0- -0-
</TABLE>
<TABLE>
<CAPTION>
Common Number of Percentage
Stock Shares Owned Owned
Common Warrants Underlying After the After the
Stock Offered Offered(4) Warrants Offering(1) Offering(1)
------------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Norman Shulman 12,500 -0- 25,000 -0- -0-
Philip Shulman 12,500 -0- 25,000 -0- -0-
Randall and Flora Kirwan(2) 13,750 -0- 27,500 -0- -0-
Samual Churn 3,000 -0- 6,000 -0- -0-
Sandy Chwatuk 6,250 -0- 12,500 -0- -0-
Sune Eriksson 3,000 -0- 6,000 -0- -0-
Lisa Dawn Bower 10,000 20,000 20,000 -0- -0-
Christian and Erika Brunnschweiler(2) 22,000 44,000 44,000 -0- -0-
Domanco Venture Capital Fund, 20,000 40,000 40,000 -0- -0-
Fintry Investments, Ltd. 20,000 40,000 40,000 -0- -0-
Galit Capital, Ltd. 84,000 168,000 168,000 -0- -0-
Bambi Lyn Gallagher 10,000 20,000 0,000 -0- -0-
Lisa Maria Garber 10,000 20,000 20,000 -0- -0-
Dr. Paul David Goldstein 10,500 21,000 21,000 -0- -0-
Virginia Ruth Handin 10,000 20,000 20,000 -0- -0-
PCGI Advisory Services, Inc. 22,000 44,000 44,000 -0- -0-
Niki John Pagonis 50,000 100,000 100,000 -0- -0-
Gary P. and Joan L. Robinson(2) 7,500 15,000 15,000 -0- -0-
David Phillip Schwartz 50,000 100,000 100,000 -0- -0-
John and Carmen Snyder Trust 10,000 20,000 20,000 -0- -0-
Arthur Steinberg IRA 10,500 21,000 21,000 -0- -0-
Zachary Elias Stoumbos 10,000 20,000 20,000 -0- -0-
VanTech Salvage Group, S.A. 25,000 50,000 50,000 -0- -0-
Verdun Investments, Ltd. 20,000 40,000 40,000 -0- -0-
Timothy F. Wilson 22,000 44,000 44,000 -0- -0-
------ ------ ------
TOTAL 655,000 867,000 1,310,000
=========
</TABLE>
(1) Based on 5,469,479 shares of Common Stock. Assumes (i) the sale of
the 825,000 shares of Common Stock offered by the Company in the
Initial Public Offering, and (ii) 655,000 shares of Common Stock
offered hereby. Does not include the issuance of (i) 1,310,000 shares
of Common Stock underlying certain Warrants offered hereby or (ii)
1,650,000 shares of Common Stock underlying the Warrants offered
pursuant to the Company's Initial Public Offering nor the issuance of
shares pursuant to the exercise of the (i) Underwriters Over-Allotment
Option, (ii) Underwriters Warrants, or (iii) options under the
Company's Stock Option Plan.
(2) Held by Joint Tenancy.
(3) Counsel for the Company.
(4) All of the holders of the Warrants offered hereby will not own any
Warrants after the offering.
Of these Selling Security Holders Securities being offered, 221,500
shares of Common Stock and 443,000 shares of Common Stock underlying the Private
Placement
A-5
<PAGE>
Warrants are being offered by investors in the Private Placement Offering, and
433,500 shares of Common Stock, 867,000 Bridge Warrants and shares of Common
Stock underlying the Bridge Warrants are being offered by investors in the
Company's Bridge Financing. Except as provided below, the Private Placement
Warrants and the Bridge Warrants offered are identical to the Warrants offered
in the Company's IPO. Each Warrant entitles the holder to purchase one share of
Common Stock at $7.00 per share ("Warrant Exercise Price") during the four (4)
year period commencing March 13, 1997. The Warrants are redeemable by the
Company for $.05 per Warrant, at any time commencing March 13, 1997, upon thirty
(30) days' prior written notice, if (i) the average closing bid price of the
Common Stock, as reported by the principal exchange on which the Common Stock is
traded, The Nasdaq SmallCap Market (TM) or the National Quotation Bureau,
Incorporated, as the case may be, equals or exceeds $12.00 per share for any ten
(10) consecutive trading days ending within ten (10) days prior to the date of
the notice of redemption, and (ii) the Company has at the time notice of
redemption is given an annualized Run Rate (as hereinafter defined) of revenues
of $20,000,000 for a minimum of one quarter as evidenced by the filing of a Form
8-K with the Securities and Exchange Commission containing historical pro forma
financial statements reflecting said revenues. Run Rate shall be defined as the
combined gross revenue on a pro forma basis of the Company's prior years gross
revenue (inclusive of Acquisitions as hereafter defined) and acquisitions made
subsequent to this offering. See "Description of Securities".
The resale of the shares of Common Stock underlying the Private
Placement Warrants are subject to a twenty-four (24) month lock-up from February
13, 1997 unless the Underwriter releases the restriction.
PLAN OF DISTRIBUTION
The Selling Security Holder Securities offered hereby may be sold from
time to time directly by the Selling Security Holders. Alternatively, the
Selling Security Holders may from time to time offer such securities through
underwriters, dealers or agents. The distribution of the Securities by the
Selling Security Holders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such securities as principals, including the
Underwriter, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Security Holders in connection with such sales of the Selling Security Holder
Securities. The Selling Security Holders and intermediaries through whom such
Selling Security Holder Securities are sold may be deemed "underwriters" within
the meaning of the Securities Act with respect to the Selling Security Holder
Securities offered, and any profits realized or commission received may be
deemed underwriting compensation. The Selling Security Holders may also transfer
A-6
<PAGE>
the Selling Security Holder Securities pursuant to applicable exemptions from
registration under the Securities Act including Rule 144 under such act.
At the time a particular offer of the Selling Security Holder
Securities is made by or on behalf of a Selling Security Holder, to the extent
required, a Prospectus will be distributed which will set forth the number of
shares of Common Stock and Warrants being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, if any, the
purchase price paid by any underwriter for the shares of Common Stock and
Warrants purchased from the Selling Security Holder and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Exchange Act and the regulations thereto, any person engaged
in a distribution of the Selling Security Holders Securities of the Company
offered by this Prospectus may not simultaneously engage in market-making
activities with respect to such securities of the Company during the applicable
"cooling off" period (nine days) prior to the commencement of such distribution.
In addition, and without limiting the foregoing, the Selling Security Holders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Regulation M, in
connection with transactions in such Selling Security Holder Securities, which
provisions may limit the timing of purchases and sales of such Selling Security
Holder Securities by the Selling Security Holders.
A-7
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer contained herein. If given or made, such information
or representation must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer of any securities other
than the securities to which it relates or an offer to any person in any
jurisdiction in which such an offer would be unlawful. Any material modification
of the offering will be accomplished by means of an amendment to the
registration statement. In addition, the right is reserved by the Company,
completion of such sale would violate federal or state securities laws or a rule
or policy of the National Association of Securities Dealers, Inc., Washington,
D.C. 20006.
------------
TABLE OF CONTENTS
Page
----
Prospectus Summary...............................
Risk Factors ....................................
Dilution.........................................
Capitalization...................................
Dividend Policy..................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................
Business.........................................
Initial Public Offering..........................
Management.......................................
Certain Transactions.............................
Principal Stockholders...........................
Selling Security Holders.........................
Description of Securities........................
Plan of Distribution.............................
Legal Proceedings................................
Legal Matters ...................................
Experts .........................................
Additional Information...........................
Index to Financial Statements....................
655,000 Shares
867,000 Warrants
1,310,000 Shares Underlying
Certain Warrants
METROPOLITAN HEALTH
NETWORK, INC.
---------------
PROSPECTUS
----------------
September , 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
-------------------------------------------
The following table sets forth the estimated expenses, all of which are
being paid by the Company, in connection with this offering.
Legal fees and expenses............................ $6,500*
Accounting fees and expenses....................... 5,500*
Printing expenses.................................. 3,000*
Miscellaneous...................................... 2,000
-----
Total ........................................... $17,500
- ----------------
*Estimated
Item 15. Indemnification of Directors and Officers.
-----------------------------------------
The Company has authority under Section 607.0850 of the Florida
Business Corporation Securities Act to indemnify its directors and officers to
the extent provided for in such statute. The Company's Articles of Incorporation
provide that the Company shall indemnify and may insure its officers and
directors to the fullest extent permitted by law.
The provisions of the Florida Business Corporation Securities Act that
authorize indemnification do not eliminate the duty of care of a director, and
in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Florida law. In
addition, each director will continue to be subject to liability for (i)
violations of criminal laws, unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) deriving an improper personal benefit from a transaction; (iii)
voting for or assenting to an unlawful distribution; and (iv) willful misconduct
or conscious disregard for the best interests of the Company in a proceeding by
or in the right of the Company to procure a judgment in its favor or in a
proceeding by or in the right of a shareholder. The statute does not affect a
director's responsibilities under any other law, such as the Federal securities
laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed
II-1
<PAGE>
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
enforceable.
Item 16. Exhibits.
---------
Exhibit Description
- ------- -----------
1.1 Form of Underwriting Agreement.(1)
3.1 Articles of Incorporation.(1)
3.2 Articles of Amendment to the Articles of Incorporation.(1)
3.3 By-laws.(1)
3.4 Article of Amendment to the Articles of Incorporation designating the
Series A Preferred Stock. (7)
3.5 Article of Amendment to the Articles of Incorporation designating the
Series B Preferred Stock. (7)
3.6 Articles of Amendment to the Articles of Incorporation amending the
designation of the Series B Preferred Stock. (7)
4.1 Specimen Common Stock Certificate.(1)
4.2 Specimen Common Stock Purchase Warrant (issued pursuant to the Company's
initial public offering on February 13, 1997) (1)
4.3 Underwriter's Warrant.(1)
4.4 Warrant Agreement.(1)
4.5 Specimen of Class A Warrant (issued pursuant to the Company's Private
Placement in February 1996).(1)
II-2
<PAGE>
4.6 Stock Purchase Warrant (issued pursuant to the Securities Purchase
Agreement dated April 27, 1998).(7)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. concerning legality of
shares being registered pursuant to this Registration Statement.(9)
10.1 Stock Option Plan.(1)
10.2 Executive Employment Agreement between the Company and Noel
J. Guillama.(1)
10.3 Executive Employment Agreement between the Company and Robert L.
Kagan, M.D.(1)
10.4 Sub-Lease Agreement with the Company and Safeskin dated August 1, 1996.(1)
10.5 Purchase and Sales Agreement between the Company, Roman Fisher and
Ofra Fisher dated August 13, 1996.(1)
10.6 Purchase and Sales Agreement between the Company and Edwin Kagan dated
August 13, 1996.(1)
10.7 Agreement between the Company and Dr. Robert Kagan dated September 1,
1996.(1)
10.8 Merger Agreement between the Company, Florida Rehabilitation Services,
Inc., Southeast Medical Staffing, Inc. and Dr. Frederick J. Kunen dated
September 25, 1996.(1)
10.9 Stock Purchase Agreement between the Company, Kenneth J. Hall, Ira P.
Hall, Lee M. Hall and Michael Goldstein dated September 26, 1996.(1)
10.10 Assets Purchase Agreement between the Company, International Family
Healthcare Centers, Inc. and Emergency Care Services, Inc. dated
October 15, 1996.(1)
10.11 Merger Agreement between the Company, Metcare II, Inc., Paul Wand, M.D.,
P.A., and Paul Wand dated October 24, 1996.(1)
10.12 Promissory Note dated December 23, 1993 by Datascan of Florida, Inc. to
First Union National Bank.(1)
10.13 Promissory Note dated September 1, 1996 by the Company to
Robert L. Kagan.(1)
10.14 Promissory Note dated September 1, 1996 by the Company to
Robert L. Kagan.(1)
10.15 Promissory Note dated September 1, 1996 by the Company to
Robert L. Kagan.(1)
II-3
<PAGE>
10.16 Promissory Note dated September 25, 1996 by the Company to Frederick
J. Kunen.(1)
10.17 Promissory Note dated October 15, 1996 by the Company to International
Family Healthcare Center, Inc.(1)
10.18 Executive Employment Agreement between the Company and Kenneth Hall.(1)
10.19 Executive Employment Agreement between the Company and Roman Fisher.(1)
10.20 Agreement between Mr. Guillama, Mr. Kagan and Ms. Hilderbrand.(1)
10.21 Consulting Agreement between the Company and Euro-Atlantic Securities,
Inc.(1)
10.22 Consulting Agreement between the Company and Sternco, Inc.(1)
10.23 Letter of Intent between the Company and General Medical Associates,
Inc.(1)
10.24 Lease Agreement between the Company and Champion Technologies of Florida,
Inc.(1)
10.25 Letter of Intent between Martin Harrison, M.D. and Metropolitan Health
Networks, Inc.(1)
10.26 Option Agreement between Noel J. Guillama, Bonnie Hilderbrand and
Dr. Martin Harrison.(1)
10.27 Option Agreement between Noel J. Guillama, Bonnie Hilderbrand and
Dr. Robert L. Kagan.(1)
10.28 Option Agreement between Noel J. Guillama, Bonnie Hilderbrand and
Kenneth J. Hall.(1)
10.29 Merger Agreement dated August 6, 1997 by and among the Company,
Metcare, GMA and Martin Harrison, M.D.(2)
10.30 Promissory Note dated August 6, 1997(2)
10.31 Consulting Agreement dated July 28, 1997, between the Company and Lion
Capital(3)
10.32 Promissory Note dated August 6, 1997, by the Company to Dr. Harrison,
M.D.(3)
10.33 Post Effective Amendment No. 1 to Merger Agreement, dated October 1997,
by and among Metropolitan Health Networks, Inc. ("Metropolitan"), Metcare
III, Inc., General Medical Associates, Inc. and Martin Harrison(4)
II-4
<PAGE>
10.34 Agreement and Plan of Merger dated November 30, 1997 by and among the
Company, Metcare VI, Inc. and Trident Medical Concepts, Inc. (5)
10.35 First Amendment to Merger Agreement dated January 13, 1998 by and among
the Company, Metcare VI, Inc. and Trident Medical Concepts, Inc.(5)
10.36 Second Amendment to Merger Agreement dated February 22, 1998 by and among
Trident Medical Concepts, Inc.(5)
10.37 Asset Purchase Agreement dated April 2, 1997 by and among the Company,
Metcare VII, Inc. and Primedica Healthcare, Inc.(6)
10.38 Repurchase Election Agreement dated April 2, 1998 by and among the
Company, Metcare VII and Primedica Healthcare, Inc.(6)
10.39 Promissory Note dated April 2, 1998. (6)
10.40 Stock Purchase Agreement dated July 1997 between Neal Jay Tolar and the
Company.(7)
10.41 Securities Purchase Agreement dated April 27, 1998 between Pangaea Fund
Ltd. and the Company. (7)
10.42 Registration Rights Agreement dated April 27, 1998 between Pangaea Fund
Ltd. and the Company. (7)
10.43 Stock Purchase Agreement dated July 22, 1998 between the Company, Metcare
II, Inc. and Dr. Paul Ward. (8)
21 Subsidiaries of the Company.(1)
23.1 Consent of Kaufman, Rossin and Company.(9)
23.2 Consent of Atlas, Pearlman, Trop & Borkson, counsel for the Company
(included in opinion filed in Exhibit 5.1).(9)
- ------------------
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2 (No. 333-5884-A)
(2) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 6, 1997
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-KSB
for the year ended June 30, 1997
(4) Incorporated by reference to the Company's Current Report on Form 8-K/A
dated August 6, 1997
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
February 22, 1998
(6) Incorporated by reference to the Company's Current Report on Form 8-K dated
April 2, 1998
II-5
<PAGE>
(7) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration
Statement on Form S-3 (No. 333-_______)
(8) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 8, 1998
(9) Filed herewith
Item 17. Undertakings.
------------
(1) The undersigned Registrant hereby undertakes:
(a) to file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to include
any additional or changed material information on the plan of distribution;
(b) that, for determining any liability under the Securities
Act, treat each such post-effective amendment as a new Registration Statement of
the securities offered at that time shall be deemed to be the initial bona fide
offering thereof; and
(c) to file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(2) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer of controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Lauderdale and the State of Florida, on the
30th day of September 1998
METROPOLITAN HEALTH NETWORKS, INC.
By: /s/Noel J. Guillama
-------------------------------------
Noel J. Guillama
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chief Executive
and Operating Officer
(Principal Executive
/s/ Noel J. Guillama Operating Officer) and September 30, 1998
- ------------------------------- Chairman of the Board
Noel J. Guillama
Executive Vice President,
/s/ Donald B. Cohen (Principal Financial and September 30, 1998
- -------------------------------
Donald B. Cohen Accounting Officer) and
Director
/s/ Michael Goldstein Director September 30, 1998
- -------------------------------
Michael Goldstein
- ------------------------------- Director September 30, 1998
Robert Kagan, M.D.
- ------------------------------- Director September 30, 1998
Hans Hvide
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
1.1 Form of Underwriting Agreement.(1)
3.1 Articles of Incorporation.(1)
3.2 Articles of Amendment to the Articles of Incorporation.(1)
3.3 By-laws.(1)
3.4 Article of Amendment to the Articles of Incorporation designating the
Series A Preferred Stock. (7)
3.5 Article of Amendment to the Articles of Incorporation designating the
Series B Preferred Stock. (7)
3.6 Articles of Amendment to the Articles of Incorporation amending the
designation of the Series B Preferred Stock. (7)
4.1 Specimen Common Stock Certificate.(1)
4.2 Specimen Common Stock Purchase Warrant (issued pursuant to the Company's
initial public offering on February 13, 1997) (1)
4.3 Underwriter's Warrant.(1)
4.4 Warrant Agreement.(1)
4.5 Specimen of Class A Warrant (issued pursuant to the Company's Private
Placement in February 1996).(1)
<PAGE>
4.6 Stock Purchase Warrant (issued pursuant to the Securities Purchase
Agreement dated April 27, 1998).(7)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. concerning legality of
shares being registered pursuant to this Registration Statement.(9)
10.1 Stock Option Plan.(1)
10.2 Executive Employment Agreement between the Company and Noel
J. Guillama.(1)
10.3 Executive Employment Agreement between the Company and Robert L.
Kagan, M.D.(1)
10.4 Sub-Lease Agreement with the Company and Safeskin dated August 1, 1996.(1)
10.5 Purchase and Sales Agreement between the Company, Roman Fisher and
Ofra Fisher dated August 13, 1996.(1)
10.6 Purchase and Sales Agreement between the Company and Edwin Kagan dated
August 13, 1996.(1)
10.7 Agreement between the Company and Dr. Robert Kagan dated September 1,
1996.(1)
10.8 Merger Agreement between the Company, Florida Rehabilitation Services,
Inc., Southeast Medical Staffing, Inc. and Dr. Frederick J. Kunen dated
September 25, 1996.(1)
10.9 Stock Purchase Agreement between the Company, Kenneth J. Hall, Ira P.
Hall, Lee M. Hall and Michael Goldstein dated September 26, 1996.(1)
10.10 Assets Purchase Agreement between the Company, International Family
Healthcare Centers, Inc. and Emergency Care Services, Inc. dated
October 15, 1996.(1)
10.11 Merger Agreement between the Company, Metcare II, Inc., Paul Wand, M.D.,
P.A., and Paul Wand dated October 24, 1996.(1)
10.12 Promissory Note dated December 23, 1993 by Datascan of Florida, Inc. to
First Union National Bank.(1)
10.13 Promissory Note dated September 1, 1996 by the Company to
Robert L. Kagan.(1)
10.14 Promissory Note dated September 1, 1996 by the Company to
Robert L. Kagan.(1)
10.15 Promissory Note dated September 1, 1996 by the Company to
Robert L. Kagan.(1)
<PAGE>
10.16 Promissory Note dated September 25, 1996 by the Company to Frederick
J. Kunen.(1)
10.17 Promissory Note dated October 15, 1996 by the Company to International
Family Healthcare Center, Inc.(1)
10.18 Executive Employment Agreement between the Company and Kenneth Hall.(1)
10.19 Executive Employment Agreement between the Company and Roman Fisher.(1)
10.20 Agreement between Mr. Guillama, Mr. Kagan and Ms. Hilderbrand.(1)
10.21 Consulting Agreement between the Company and Euro-Atlantic Securities,
Inc.(1)
10.22 Consulting Agreement between the Company and Sternco, Inc.(1)
10.23 Letter of Intent between the Company and General Medical Associates,
Inc.(1)
10.24 Lease Agreement between the Company and Champion Technologies of Florida,
Inc.(1)
10.25 Letter of Intent between Martin Harrison, M.D. and Metropolitan Health
Networks, Inc.(1)
10.26 Option Agreement between Noel J. Guillama, Bonnie Hilderbrand and
Dr. Martin Harrison.(1)
10.27 Option Agreement between Noel J. Guillama, Bonnie Hilderbrand and
Dr. Robert L. Kagan.(1)
10.28 Option Agreement between Noel J. Guillama, Bonnie Hilderbrand and
Kenneth J. Hall.(1)
10.29 Merger Agreement dated August 6, 1997 by and among the Company,
Metcare, GMA and Martin Harrison, M.D.(2)
10.30 Promissory Note dated August 6, 1997(2)
10.31 Consulting Agreement dated July 28, 1997, between the Company and Lion
Capital(3)
10.32 Promissory Note dated August 6, 1997, by the Company to Dr. Harrison,
M.D.(3)
10.33 Post Effective Amendment No. 1 to Merger Agreement, dated October 1997,
by and among Metropolitan Health Networks, Inc. ("Metropolitan"), Metcare
III, Inc., General Medical Associates, Inc. and Martin Harrison(4)
<PAGE>
10.34 Agreement and Plan of Merger dated November 30, 1997 by and among the
Company, Metcare VI, Inc. and Trident Medical Concepts, Inc. (5)
10.35 First Amendment to Merger Agreement dated January 13, 1998 by and among
the Company, Metcare VI, Inc. and Trident Medical Concepts, Inc.(5)
10.36 Second Amendment to Merger Agreement dated February 22, 1998 by and among
Trident Medical Concepts, Inc.(5)
10.37 Asset Purchase Agreement dated April 2, 1997 by and among the Company,
Metcare VII, Inc. and Primedica Healthcare, Inc.(6)
10.38 Repurchase Election Agreement dated April 2, 1998 by and among the
Company, Metcare VII and Primedica Healthcare, Inc.(6)
10.39 Promissory Note dated April 2, 1998. (6)
10.40 Stock Purchase Agreement dated July 1997 between Neal Jay Tolar and the
Company.(7)
10.41 Securities Purchase Agreement dated April 27, 1998 between Pangaea Fund
Ltd. and the Company. (7)
10.42 Registration Rights Agreement dated April 27, 1998 between Pangaea Fund
Ltd. and the Company. (7)
10.43 Stock Purchase Agreement dated July 22, 1998 between the Company, Metcare
II, Inc. and Dr. Paul Ward. (8)
21 Subsidiaries of the Company.(1)
23.1 Consent of Kaufman, Rossin and Company.(9)
23.2 Consent of Atlas, Pearlman, Trop & Borkson, counsel for the Company
(included in opinion filed in Exhibit 5.1).(9)
- ------------------
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2 (No. 333-5884-A)
(2) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 6, 1997
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-KSB
for the year ended June 30, 1997
(4) Incorporated by reference to the Company's Current Report on Form 8-K/A
dated August 6, 1997
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
February 22, 1998
(6) Incorporated by reference to the Company's Current Report on Form 8-K dated
April 2, 1998
<PAGE>
(7) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration
Statement on Form S-3 (No. 333-_______)
(8) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 8, 1998
(9) Filed herewith
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
Direct Line: (954) 766-7833
September 30, 1998
Securities and Exchange Commission
Atlanta District Office - Suite 1000
3475 Lenox Road, N.E.
Atlanta, GA 30326-1232
Re: Metropolitan Health Networks, Inc. (the "Company")
Post-Effective Amendment No. 1 to the Registration Statement
on Form SB-2 (File No. 333-5884-A)
Dear Sir/Madam:
We have acted as special counsel to Metropolitan Health Networks, Inc.,
a Florida corporation, in connection with the sale of up to 825,000 shares of
Common Stock, par value $.001 per share and 1,650,000 Redeemable Common Stock
Purchase Warrants offered by the Company, the Underwriter's Warrants and 655,000
shares of Common Stock, 867,000 Warrants and 1,310,000 shares underlying certain
Warrants offered by certain Selling Securityholders (collectively the
"Securities"), as set forth in the above Registration Statement.
In our capacity as such counsel to the Company, we have examined the
original or certified copies of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
representatives of the Company and others, and such other documents as we deem
relevant and necessary as a basis for the opinions hereinafter expressed. In
such examination we have assumed the genuineness of all signatures on original
documents and the conformity to original documents of all copies submitted to us
as conformed or photostat copies. As to various questions of fact material to
such opinions, we have relied upon statements or certificates of officials and
representatives of the Company and others.
Based upon and in reliance of the foregoing, we are of the opinion that
the Common Stock previously issued and to be issued upon exercise of the
Warrants, when issued in accordance with the terms of the Warrants, will be
validly issued, fully paid and non-assessable.
<PAGE>
Securities and Exchange Commission
September 30, 1998
Page 2
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. We also hereby consent to the use of our name under
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
RKB/jz
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Form SB-2 Registration Statement on Form S-3 of our report,
dated September 26, 1997, which appears on page F-2 of the annual report on Form
10-KSB of Metropolitan Health Networks, Inc. and Subsidiaries for the year ended
June 30, 1997, and to the reference to our Firm under the caption "Experts" in
the Prospectus.
/s/ Kaufman, Rossin & Co.
- -------------------------
KAUFMAN, ROSSIN & CO.
Miami, Florida
September 30, 1998
<PAGE>
