PROSPECTUS
Filed Pursuant to Rule 424(B)(3)
Registration No. 333-68557
HEALTHCORE MEDICAL SOLUTIONS, INC.
1,137,500 REDEEMABLE CLASS A WARRANTS AND 3,605,000 SHARES OF CLASS A COMMON
STOCK
We are offering:
o 2,024,000 shares issuable upon exercise of the Class A Warrants we sold in
our initial public offering; and
o 12,500 shares issuable upon exercise of Class A Warrants we sold in a
private placement which were subsequently resold by the holders thereof.
Certain selling securityholders are offering for resale:
o 1,137,500 redeemable Class A Warrants we sold in a private placement;
o 1,137,500 shares issuable upon exercise of such warrants;
o 299,000 shares issuable upon exercise of certain other outstanding warrants
held by certain officers and directors; and
o 132,000 shares we issued in a private transaction.
If any of the selling securityholders sell their Class A Warrants to
purchasers wishing to exercise them, we will offer the underlying shares
pursuant to this Prospectus.
We will receive proceeds upon exercise of the Class A Warrants and upon the
exercise of the outstanding warrants if such warrants are exercised. We have
agreed to pay a solicitation fee equal to 5% of the exercise price upon exercise
of the Class A Warrants under certain conditions.
Our Units, Class A Common Stock and Class A Warrants are listed on the
Nasdaq SmallCap Market and trade under the symbols HMSIU, HMSI and HMSIW,
respectively.
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JANUARY 27, 1999.
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TABLE OF CONTENTS
Page
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Incorporation of Certain Documents by Reference.............................2
Available Information.......................................................3
Note Regarding Forward-Looking Statements...................................3
Prospectus Summary..........................................................4
The Company.................................................................4
Risk Factors................................................................6
Use of Proceeds............................................................14
Selling Securityholders....................................................15
Plan of Distribution.......................................................17
Indemnification of Officers and Directors..................................18
Legal Matters..............................................................19
Experts....................................................................19
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 000-22947)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1998, including any documents or portions thereof
incorporated by reference therein;
2. The Company's Registration Statement on Form 8-A declared effective
on October 14, 1997, as amended, registering the Units, Class A Common
Stock and Class A Warrants under the Exchange Act; and
3. All other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the Offering.
Any statement contained in any document incorporated or deemed to be
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 subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus. The Company will provide
without charge to each person to whom this Prospectus is delivered, upon written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference (other than exhibits to such documents which
are not specifically incorporated by reference into such documents). Requests
for such documents should be directed to the Company, 11904 Blue Ridge
Boulevard, Grandview, Missouri 64030, Attention: President, telephone (816)
763-4900.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended ("Securities Act") covering the securities
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
such statement is qualified by reference to each such contract or document filed
(or incorporated by reference) as an exhibit to the Registration Statement. The
Company is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), and in accordance therewith files
reports and other information with the Commission. Reports and other information
filed by the Company with the Commission can be inspected without charge and
copied at the public reference facilities maintained by the Commission at the
following addresses: New York Regional Office, Seven World Trade Center, New
York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained upon written request from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-800-SEC-0330. The Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file electronically with the Commission.
Reports and other information concerning the Company may also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for futures operations, assumptions underlying such plans and
objectives and other forward-looking terminology such as "may," "believes,"
"anticipates," "intends," "expects," "projects," or similar terms, variations of
such terms or the negative of such terms. Such forward-looking statements are
based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those described in such forward-looking statements. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is based.
Factors which could cause such results to differ materially from those described
in the forward-looking statements include, amongst other items, those set forth
under "Risk Factors."
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus
or incorporated by reference herein. It is not complete and may not contain all
of the information that you should consider before investing in the Company's
securities. You should read the entire Prospectus carefully, including the "Risk
Factors" section and the financial statements and the notes to those statements
incorporated by reference herein.
THE COMPANY
GENERAL
We provide access to health care services at discount prices. For an annual
fee of approximately $55 to $100, individuals can join our card membership
program and use their HealthCare Solutions Card to receive discounts of up to 5%
to 60% off the retail price of health care services and products including:
o eye care;
o dental;
o hearing;
o pharmaceutical;
o physical and occupational therapy;
o chiropractic;
o durable medical equipment; and
o vitamins and supplements.
In addition to the HealthCare Solutions Card we recently began marketing two new
products:
o the Savings Solutions Card, which we customized for an organization to
offer discounted ancillary health care services as well as non-medical
consumer products to certain subscribers in the New York metropolitan area;
and
o the Medical Solutions Card, which we developed to provide discounts to
enrollees for hospital and physician services.
We anticipate marketing the Savings Solutions Card on a nationwide basis similar
to the Medical Solutions Card and the HealthCare Solutions Card. As of January
18, 1999, we had contracts with approximately 40 different health care provider
networks which consist of approximately 450,000 participating providers.
Our target market includes uninsured individuals who, whether because of
medical history, age or occupation, either do not have insurance or have limited
insurance coverage but who seek to access health care products and services at
discounted costs. Acceptance into our membership program is unrestricted, and
our membership card products may be used by any member of the cardholder's
household. We primarily use brokers, insurance agents and consumer marketing
organizations to sell our products to either individuals or to group enrollees
such as employers, HMOs and other organizations who purchase our products for
their employees or members.
We established our operations in October 1995 as MegaVision L.C., a
Missouri limited liability company ("MegaVision"). In February 1997, MegaVision
merged into HealthCore Medical Solutions, Inc. All references to our operations
include MegaVision and its operations. Our executive offices are located at
11904 Blue Ridge Boulevard, Grandview, Missouri 64030, and our telephone number
is (816) 763-4900.
RECENT DEVELOPMENTS
SIGA Pharmaceuticals, Inc. filed a Schedule 13D dated October 15, 1998
stating that it beneficially owned 151,000 shares of our Class A Common Stock or
approximately 5.0% of the outstanding shares of our Class A Common Stock, and
149,800 Class A Warrants to purchase shares of our Class A Common Stock. SIGA
stated that the securities were acquired for investment purposes and that it
intended to request a meeting with us for the purpose of discussing methods of
maximizing or enhancing stockholder value. SIGA also stated that it had no
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present intention of acquiring additional securities. On January 11, 1999, SIGA
amended its Schedule 13D to state that it had met with our Chairman of the Board
and had sent a letter dated January 6, 1999 to our Chairman suggesting a
possible combination of us and SIGA and outlining the terms of a possible share
exchange transaction. The Schedule 13D also stated that no formal offer was made
by SIGA to acquire our Company and that SIGA had no present intention of
acquiring additional securities.
On January 15, 1999, our Board of Directors met to discuss the letter from
SIGA. On January 19, 1999, our Chairman sent a letter to SIGA. The letter stated
that in order for the Board of Directors to fully evaluate a possible
transaction and the terms thereof, the Board of Directors required a better
understanding of SIGA's business. The Board of Directors intends to fully
evaluate a possible transaction with SIGA and has retained a consultant to
assist in such evaluation.
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RISK FACTORS
Investing in our securities is very risky. You should be able to bear a
complete loss of your investment. Before making an investment, you should
carefully read this entire Prospectus and consider the following factors:
HISTORY OF OPERATING LOSSES; ANTICIPATED FUTURE LOSSES. Since our formation
in June 1995, we have experienced significant operating losses. We also expect
to incur losses in the future. At September 30, 1998, our accumulated deficit
was approximately $6.6 million. Our losses stem principally from expenses
associated with the development and marketing of our products. We can not assure
you that we will ever achieve significant commercial sales or become profitable.
Limited Operating History. Although we were organized in June 1995, we have
only recently contracted with networks of health care providers and have made
only minimal sales of the HealthCare Solutions Card, the Savings Card and the
Medical Solution Card. The success of our business depends upon several factors,
including:
o the quality and quantity of providers in our networks;
o the acceptance of our products by individuals, employers, HMOs, business
and other associations, and providers of medical benefits and members;
o the incentives we offer to independent sales representatives to sell our
products; and
o our ability to manage our business.
You should be aware of the difficulties we face as a new enterprise, as well as
the high rate of failure of new enterprises. Based on the short history of our
operations, we cannot assure that we will ever become a profitable business.
While we have initiated sales and marketing activities and have generated
minimal sales, we have yet to generate significant revenues and may experience
many of the problems, delays, expenses and difficulties commonly encountered by
early stage companies, many of which are beyond our control. These problems
include:
o delays or expenses related to product development and marketing;
o uncertain market acceptance;
o lack of sufficient capital;
o competition;
o regulatory compliance; and
o additional costs or expenses that may exceed our current estimates.
We may not be able to develop a strong cardholder base, enter into and maintain
agreements with a sufficient number of providers that are accessible and
acceptable to potential members, generate any revenues or ever develop
profitable operations.
NEED FOR SIGNIFICANT ADDITIONAL FUNDS. The proceeds from our initial public
offering completed in October 1997 will only be sufficient to fund our
operations, at our current utilization rate, until approximately January 2000.
Following such time, we will likely need significant additional funds to
continue our operations. In addition, our future cash requirements may vary
significantly from what we expect them to be based on factors such as:
o product development and marketing programs;
o changes in the forms and direction of our business activities; and
o the timing of receipt of revenues, if any.
We have no commitments for any future funding and we may not be able to obtain
additional financing in the future from either debt or equity financings, bank
loans, collaborative arrangements or other sources on terms acceptable to us, or
at all. If we are unable to obtain the necessary financing, we will have to
significantly curtail our activities or cease operations.
UNPROVEN COMMERCIAL ACCEPTANCE; NEED FOR MARKET ACCEPTANCE. Our success
depends on commercial acceptance of our membership cards, as well as any other
potential products we may offer in the future. Our
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commercial success will be determined in large part by the acceptance of our
membership cards by individuals, employers, HMOs, business and other
associations, providers of medical benefits and members. Our success will also
depend on our ability to market effectively and to build alliances with network
providers. To date, we have made only minimal sales of our membership cards. We
cannot assure that we will be able to successfully demonstrate that the benefits
associated with the our membership cards justify the costs of purchasing such
cards or that the benefits we offer outweigh benefits offered by either
competing medical benefits programs or traditional insurance programs. If we are
unable to achieve commercial acceptance of our membership cards, we may be
forced to cease operations.
LIMITED MARKETING CAPABILITIES; INTERDEPENDENCE ON THIRD PARTIES FOR
MARKETING ACTIVITIES. To a large extent, our operating results will depend upon
our ability to successfully market our membership cards and other potential
products we may offer to members. We will continue to expand in these areas and
concentrate the limited resources we have at present on defined segments of our
target markets. We anticipate that our success will depend, to a significant
degree, upon:
o independent brokers;
o insurance companies;
o selected marketing organizations; and
o our direct sales efforts.
Although third parties will receive a commission for their services, the success
of any alliance will depend in part upon the third parties' own competitive,
marketing and strategic considerations, including the relative advantages of
alternative competing products. Although we have entered into numerous
agreements with independent brokers and insurance agents, we cannot assure that
third parties will successfully market our products. To the extent that we
utilize third parties as a primary distribution source, our ability to control
sales and marketing will be limited. We cannot assure that we will be able to
hire experienced marketing personnel or establish any additional arrangements
with brokers. We also cannot assure that any current or future marketing efforts
will be successful or result in any significant sales of our products.
DEPENDENCE UPON PROVIDERS; POSSIBLE TERMINATION OF PROVIDER AGREEMENTS. The
success of our operations will depend, in part, upon our ability to enter into
and maintain service agreements with providers of health care products and
services which provide for discounts and other pricing terms favorable to our
card members. To date, we have entered into non-exclusive service agreements
with several provider networks. The agreements generally expire after
approximately one to three years, but are subject to earlier termination upon
the occurrence of certain events, including, notice by the other party. We can
not assure that the providers affiliated with such networks will actually
provide services to our members, that our agreements will be renewed or that our
agreements will not be terminated prior to the end of their respective terms.
The cancellation of a contract by any provider network may negatively affect our
business. Further, we cannot assure that we will successfully secure agreements
with additional providers or provider networks, nor can we be certain that
providers who have agreed to join the network will provide services or cost
savings that appeal to members. Our inability to retain our current service
providers or to obtain alternate or additional service providers will likely
detract from the real or perceived value of our membership cards and may cause
us to curtail or alter our activities or cease operations.
RISKS RELATED TO PHYSICIAN AND HOSPITAL NETWORK BUSINESS. We recently
entered the physician and hospital network business. This business segment is
subject to numerous risks, including:
o significant barriers to entry;
o intense competition with well-capitalized insurance companies and other
third party payors;
o significant additional sales and marketing costs to develop this benefits
program;
o certain risks related to health care and government regulations; and
o risks similar to those described in this Prospectus.
We are seeking opportunities to expand this business. However, we cannot be
certain that any such physician and hospital network will ever achieve
commercial acceptance or that we can expand this business. If we are unable
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to achieve commercial acceptance of this benefits program, we may be forced to
curtail or alter our activities or cease operations.
POSSIBLE EXPOSURE TO LIABILITY. Physicians and other medical entities have
become increasingly vulnerable to lawsuits alleging medical malpractice. While
we do not intend to practice medicine or control any affiliated provider's
practice of medicine, we can not assure that we will not become a party to
malpractice litigation in the future. We may also be exposed to claims for
personal injuries as a result of the incorrect preparation or packaging of
prescriptions or from the pilferage of or tampering with the prescription drugs
supplied by pharmacy benefits providers or injuries resulting from defective
products supplied by providers. We will attempt to take precautions to protect
us from such claims, including seeking indemnification from our providers.
However, we cannot assure that such precautions will be implemented or will
prove adequate. Because we are not permitted to and do not render medical
services, we cannot obtain malpractice insurance nor do we maintain errors and
omissions insurance. We do, however, maintain general liability insurance in the
amount of $2,000,000 which provides general coverage for property damage,
business liability and medical payments. There is the possibility that we could
be sued for malpractice as the result of the activities undertaken by our
providers. Any such suit could result in a recovery against us in excess of any
applicable general liability insurance coverage we have, which in turn will
negatively affect our financial position.
HEALTH CARE REFORM. In recent years there have been numerous proposals to
change the health care system in the United States. We are unable to predict the
effect of potential reforms in the health care industry on our business, either
by legislative mandate or through self policing mechanisms, particularly those
affecting physicians, health care payors and affiliated health systems. A change
in the health care system could negatively affect our business.
GOVERNMENT REGULATION. Numerous federal, state and local regulations affect
the health care industry, including:
o the prohibition of business corporations from providing medical care;
o fraud and abuse provisions of the Medicare and Medicaid statues;
o the prohibition against referral fees and fee splitting; and
o statutes regulating insurance companies and other organizations that are
associated with health care services.
Some of the states in which we intend to operate currently enforce or may
in the future implement registration and licensing regulations which may affect
our business. In addition, the health care entities with whom we may enter into
contracts are subject to a variety of regulations such as those relating to fee
splitting, referral fees, patient freedom of choice, provider rights to
participate and anti-discrimination. These regulations may result in the delay
or denial of any such organization's participation in our network, which in
turn, may affect our operations. The practice of receiving utilization fees from
our pharmacy benefits program may, in a number of states, be interpreted to
contravene the literal provisions of the statutes and regulations of such
states. In addition, certain states in which we offer our products have taken
the position that certain of the discounted services offered by our networks may
be interpreted as prepaid insurance. We have modified the services offered under
these products in these states in order to comply with such state's laws.
We have not obtained any rulings from any governmental authorities, nor
have we received an opinion of counsel relating to government regulation of our
business. However, we believe that we are in compliance with the laws and
regulations that are currently enforced and that apply to our business and
conduct our business in a manner consistent with current industry practices.
Legislation in these areas continues to evolve and we can not assure that
changes in enforcement and compliance practices will not change in the future,
nor can we be certain that existing legislation will not expand. If such change
or expansion affects our business, we may be required to register in additional
states, post substantial fidelity or surety bonds and/or meet other financial
requirements. Alternatively, we may be required to modify our products and
services, modify our contractual arrangements with providers or even cease
conducting business in certain states. If any of the above situations were to
occur, or it was determined that we violated any applicable laws or regulations,
such an occurrence or determination would negatively affect our business.
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COMPETITION. We believe that a critical element of our business is to
compete for a portion of the benefit dollars allocated by various organizations
for employee benefit programs. We compete for a portion of those dollars with
various other entities including:
o other cost-containment marketing organizations;
o pharmacy indemnity programs;
o retail pharmacies;
o mail order prescription companies;
o preferred provider organizations;
o HMOs;
o health care membership programs; and
o other health care insurance programs.
Many of these competitors have longer operating histories than we do and have
significantly greater financial, marketing and administrative resources. We can
not assure that we will ever develop products that achieve greater market
acceptance than products and services offered by our competitors. We cannot be
certain that our competitors will not develop products that would render our
products less competitive or obsolete.
PROPRIETARY RIGHTS; MANAGEMENT INFORMATION SYSTEMS. Our proprietary
database information management system greatly affects our ability to provide
customer service and to process important data. We rely on trade secrets and
proprietary software to establish and protect the proprietary rights affecting
our information system. However, trade secrets and proprietary software are
difficult to protect and we can not assure that others will not independently
develop substantially equivalent proprietary technology or otherwise gain access
to our trade secrets or disclose such technology. We also cannot be certain that
we will succeed in meaningfully protecting our rights to non-patented trade
secrets. We have applied for federal registrations of several service marks and
proprietary software from the United States Patent and Trademark Office.
However, we cannot assure that such rights will be granted or, if granted, that
they will provide meaningful protection. Although we intend to take steps that
we consider appropriate to protect our intellectual property rights, we believe
that the success of our business will depend primarily upon our ability to
effectively market our current products, introduce new products and services or
to enhance existing products, rather than on our ability to obtain legal
protection over our existing intellectual property.
RELIANCE UPON DATA PROCESSING; YEAR 2000 COMPLIANCE. Certain aspects of our
business, including our customer service capabilities, our ability to timely pay
brokers their commissions and pay network providers their fees, are dependent
upon the ability to store, retrieve, process and manage data and to maintain and
upgrade the data processing systems we currently rely on. Although we believe
that we have established appropriate safeguard mechanisms, interruption of data
processing capabilities for any extended period of time, loss of stored data,
programming errors or other computer problems may affect our ability to attract
and retain brokers and networks, which in turn may negatively affect our
business. We may experience problems, delays or unanticipated costs in the use
of our current systems.
We have commenced review of our computer systems to identify the systems
that could be affected by the "Year 2000" issue and are currently developing an
implementation plan to resolve the issue. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of our programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. The Year
2000 issue could:
o result in a major information system failure or miscalculation;
o affect our ability to pay commissions and fees to our brokers and
networks;
o affect our ability to review network providers in a timely manner; and
o disrupt our business operations.
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We are utilizing internal personnel, contract programmers and vendors to review
our information and operational systems for purposes of identifying Year 2000
non-compliance problems. We have identified two specific areas of risks relating
to the Year 2000 problem:
o internal business systems and software; and
o external noncompliance by third parties including suppliers of
provider data, suppliers requiring information about eligibility,
financial vendors and our sponsors.
Although we believe that our computer systems are Year 2000 compliant, we can
not assure that our systems will operate as anticipated. In addition,
unanticipated issues and problems may arise with our computer systems which
could affect our operating results. The inability of third parties to achieve
Year 2000 compliance could also affect our ability to conduct business and could
negatively affect our business.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL; CONFLICTS OF
INTEREST. We depend upon Neal J. Polan, our Chairman and Chief Executive Officer
with whom we have an employment agreement, and David L. Mullikin, our President,
Chief Operating Officer and acting Chief Financial Officer, as well as principal
members of our management team. Mr. Polan devotes approximately 50% of his
business time to our business activities. Mr. Polan devotes approximately 50% of
his business and investments outside of the Company, some of which are or may be
in the health care services field. In the course of his activities, Mr. Polan
may occasionally be presented with various business opportunities in the health
care services industry. Mr. Polan may present certain of these opportunities to
our business, although Mr. Polan has no agreement to do so and we cannot be
certain that any such opportunities will ever be presented to us. In addition,
we have entered into a one-year consulting agreement with Practice Management,
Inc., whereby Practice Management, Inc. will market our business to labor
groups, managed care entities, preferred provider organizations and third party
administrators for an annual fee of $50,000, plus expenses. Mr. Polan has
entered into a separate agreement with Practice Management, Inc. whereby
Practice Management, Inc. has agreed in exchange for a one-time payment of
$50,000 from Mr. Polan to present to Mr. Polan, in preference to others certain
business opportunities; provided, that the agreement between Practice
Management, Inc. and Mr. Polan provides that Practice Management, Inc. shall be
obligated to first present to us, prior to Mr. Polan, in his individual
capacity, any business opportunities that may be appropriate for our business.
These arrangements and agreements may give rise to certain conflicts of
interest.
We currently have only 16 full-time employees. The success of our business
will depend partially upon our ability to attract and retain additional skilled
personnel to manage our operations. The inability to do so, or the loss of
services of certain of our executive officers and directors or other executive
officers or key employees that we may hire in the future, may negatively affect
our business.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS; POTENTIAL ANTI-TAKEOVER
EFFECT OF SHARES HAVING DISPROPORTIONATE VOTING RIGHTS. Neal J. Polan, our
Chairman of the Board and Chief Executive Officer currently owns all of our
Class B Common Stock. As such, Mr. Polan has the power to vote shares of Common
Stock representing approximately 26.4% of the total voting power of the
outstanding shares of common stock held by our stockholders. Therefore, Mr.
Polan has significant control over the outcome of substantially all matters
submitted to a vote of the stockholders. Furthermore, the disproportionate vote
afforded the Class B Common Stock could impede or prevent a change of control of
our company. As such, potential acquirors seeking to acquire control of us
through the purchase of Class A Common Stock may be discouraged from doing so,
which in turn, could have a depressive effect on the price of our securities.
POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER
PROVISIONS. Our Certificate of Incorporation authorizes us to issue shares of
"blank check" preferred stock, which will have such designations, rights and
preferences our Board of Directors may determine from time to time. Accordingly,
our Board of Directors are empowered, without stockholder approval (but subject
to applicable government regulatory restrictions), to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could negatively
affect the voting power or other rights of the holders of the Common Stock. If
such preferred stock were to be issued, it could be used, under certain
circumstances, to discourage, delay or prevent a change in control of our
company. Although we have no present intention to issue any shares of preferred
stock, we cannot be certain that we will not do so in the future. There is also
a Delaware statute regulating business combinations that could discourage,
hinder or preclude an unsolicited acquisition of our company and make it less
likely that stockholders
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receive a premium for their shares as a result of such attempt. This Delaware
statute may negatively affect the market price of our securities.
CHARGES AND POTENTIAL CHARGES TO EARNINGS. As a condition to our initial
public offering completed in October 1997, the holders of our Class A and Class
B Common Stock prior to our initial public offering placed into escrow, on a pro
rata basis, 900,000 shares, or three-quarters of their outstanding shares of
Common Stock before the initial public offering. These escrow shares will be
released only if we attain certain earnings or market price thresholds. The
Securities and Exchange Commission has taken the position that in the event any
shares are released from escrow to holders who are officers, directors,
employees or consultants, a compensation expense will be recorded for financial
reporting purposes. Accordingly, if the escrow shares are released, we will
recognize for the period in which the earnings thresholds are probable of being
met or such stock levels achieved, a substantial non-cash charge to earnings
equal to the fair market value of such shares on the date of their release. This
kind of charge to earnings may significantly increase our loss or reduce or
eliminate earnings, if any, at such time. The recognition of such compensation
expense may also have a depressive effect on the market price of our securities.
In addition, the achievement of defined earnings or market price thresholds
affect whether certain warrants issued to Mr. Polan may be exercised. When
Mr. Polan is able to exercise these warrants, we will recognize during the
period in which the earnings thresholds are probable of being met or such stock
levels achieved, an additional non-cash charge to earnings equal to the fair
market value of the portion of the warrants subject to such earnings or market
price thresholds. This kind of charge to earnings may affect our market price
and significantly increase our loss or reduce or eliminate earnings, if any, at
such time.
POSSIBLE VOLATILITY OF MARKET PRICE. The securities market has from time to
time experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies. The market prices of our
Units (each Unit consisting of one share of Class A Common Stock and one Class A
Warrant), Class A Common Stock and Class A Warrants could fluctuate
significantly in response to various reasons, including:
o variations in our development efforts;
o intellectual property position;
o government regulation;
o competition;
o changes in results of operations, cash flow and earnings; and
o general trends in the industry.
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT OF OUTSTANDING OPTIONS AND
WARRANTS; EXERCISE OF REGISTRATION RIGHTS. Future sales of our securities by
existing securityholders through the exercise of outstanding registration rights
or through the issuance of shares of Class A Common Stock upon exercise of
options, warrants or otherwise may decrease the price of our securities. Of the
6,697,000 shares of Class A Common Stock to be outstanding after the Offering
(giving effect to the exercise of the outstanding warrants), approximately
5,629,000 shares of Class A Common Stock, including the shares of Class A Common
Stock offered in this Prospectus, will be freely tradeable without restriction
under the Securities Act, except if any shares are purchased by "affiliates" as
defined in Rule 144 under the Securities Act. The remaining 1,068,000 shares of
Class A Common Stock outstanding after the Offering (assuming the sale of the
shares of Class A Common Stock registered for resale under this Prospectus) are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act, and under certain circumstances may be sold without registration under Rule
144 or otherwise.
We have outstanding 3,473,000 warrants to purchase a total of 3,473,000
shares of Class A Common Stock (including the Class A Warrants to purchase
shares of Class A Common Stock being registered for resale in this Offering) and
a Unit Purchase Option to purchase a total of 352,000 shares of Class A Common
Stock, assuming exercise of the underlying Class A Warrants. We have also
reserved for issuance 500,000 shares of Class A Common Stock under our 1997
Stock Option Plan. To date, options to purchase 159,500 shares (net of
forfeitures) have been granted under our 1997 Stock Option Plan. 216,000 shares
of Class A Common Stock are issuable upon conversion of the 216,000 shares Class
B Common Stock which we have outstanding. The existence of these securities
could decrease the price of the Company's outstanding securities. If any of
these securities are exercised,
-11-
<PAGE>
the value of the Class A Common Stock held by public investors will be diluted
if the value of such stock immediately prior to the exercise of such securities
exceeds their exercise price, with the extent of such dilution depending upon
such excess. These securities afford the holders the opportunity, at nominal
cost, to profit from a rise in the market price of the Class A Common Stock,
which may negatively affect the terms upon which we could issue additional Class
A Common Stock during such term. In addition, holders of warrants and options
are likely to exercise them when, in all likelihood, we could obtain additional
capital on terms more favorable than those provided by the warrants and options.
While these securities are outstanding, our ability to obtain additional
financing on favorable terms may be negatively affected.
The holders of the Unit Purchase Option to purchase a total of 352,000
shares of Class A Common Stock (assuming exercise of the underlying Class A
Warrants) issued in our initial public offering have certain demand and
"piggy-back" registration rights. We have received waivers from holders of these
registration rights that are currently exercisable waiving their rights to have
their securities registered in this Offering. Sales of Class A Common Stock or
the possibility of such sales in the public market may negatively affect the
market price of the securities included in this Offering.
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET. While our
Units, Class A Common Stock and Class A Warrants are listed on the Nasdaq
SmallCap Market, we cannot assure that we will, on an ongoing basis, meet the
criteria for continued listing. In order to remain listed we must satisfy
certain criteria including maintaining:
o net tangible assets of at least $2,000,000; net income of $500,000 in
two of the last three years; or a market capitalization of at least
$35,000,000;
o a minimum bid price for the Class A Common Stock of $1.00;
o a minimum public float of 500,000 shares (the number of outstanding
shares of Class A Common Stock held by non-affiliates of the Company);
o a minimum market value of the public float of $1,000,000;
o a minimum of two active market makers; and
o a minimum of 300 stockholders.
From time to time, our Class A Common Stock has traded below the $1.00 minimum
bid price requirement.
If we are unable to satisfy Nasdaq's maintenance requirements, our
securities may be delisted from Nasdaq. Trading, if any, in these securities
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board" and could also be
subject to additional restrictions. Consequently, the liquidity of these
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions and
lower prices for our securities that may result.
NO DIVIDENDS. We have not paid any cash dividends on our Class A Common
Stock and do not expect to declare or pay any cash or other dividends in the
foreseeable future.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. We may redeem the Class
A Warrants at a redemption price of $.05 per warrant upon not less than 30 days'
prior written notice if the closing bid price of the Class A Common Stock
averaged in excess of $9.10 per share for 30 consecutive trading days ending
within 15 days of the notice. Redemption of the Class A Warrants could force the
holders:
o to exercise the warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so;
o to sell the warrants at the then current market price when they might
otherwise wish to hold the warrants; and
o to accept the nominal redemption price which, at the time the warrants
are called for redemption, is likely to be substantially less than the
market value of the warrants.
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<PAGE>
CURRENT PROSPECTUS AND STATE REGISTRATION TO EXERCISE WARRANTS. Holders of
Class A Warrants will be able to exercise the warrants only if:
o a current prospectus under the Securities Act relating to the
securities underlying the warrants is then in effect; and
o such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states in which the
various holders of warrants reside.
Although we have undertaken and intend to use our best efforts to maintain a
current prospectus covering the securities underlying the warrants following
completion of this Offering to the extent required by Federal securities laws,
we can not assure we will be able to do so. The value of the Class A Warrants
may be greatly reduced if a prospectus covering the securities issuable upon the
exercise of the warrants is not kept current or if the securities are not
qualified, or exempt from qualification, in the states in which the holders of
warrants reside. Persons holding Class A Warrants who reside in jurisdictions in
which such securities are not qualified and in which there is no exemption will
be unable to exercise their warrants and would either have to sell their
warrants in the open market or allow them to expire unexercised. If and when the
Class A Warrants become redeemable by their terms, we may exercise
our redemption right even if it is unable to qualify the underlying securities
for sale under all applicable state securities laws.
RISKS OF LOW-PRICED OR "PENNY" STOCK. If our securities were delisted from
Nasdaq (See "-- Possible Delisting of Securities from The Nasdaq Stock
Market"), they could become subject to Rule 15g-9 under the Exchange Act. Rule
15g-9 imposes additional sales practice requirements on broker-dealers which
sell such securities except in transactions exempted by such Rule, including
transactions meeting the requirements of Rule 505 or 506 of Regulation D under
the Securities Act and transactions in which the purchaser is an institutional
accredited investor (as defined) or an established customer (as defined) of the
broker or dealer. For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely affect the ability of broker-dealers to sell our securities.
SEC regulations define a "penny stock" to be any non-Nasdaq equity security
that has a market price (as therein defined) of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny stock market.
Disclosure is also required to be made about commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The above required penny stock restrictions will not apply to our
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or meet certain
minimum net tangible assets or average revenue criteria. We can not assure that
our securities will qualify for exemption from these restrictions. In any event,
even if our securities were exempt from such restrictions, they would remain
subject to Section 15(b)(6) of the Exchange Act, which gives the Securities and
Exchange Commission the authority to prohibit any person that is engaged in
unlawful conduct while participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a distribution of a penny
stock, if the Securities and Exchange Commission finds that such a restriction
would be in the public interest. If our securities were subject to the rules on
penny stocks, it may severely negative impact the market liquidity of our
securities.
-13-
<PAGE>
USE OF PROCEEDS
We will receive proceeds upon exercise of the redeemable Class A Warrants
("Class A Warrants") and upon exercise of certain other outstanding warrants
(the "Other Warrants") currently held by two selling securityholders (the Class
A Warrants together with the Other Warrants are hereinafter collectively
referred to as the "Warrants"). In the event that all of the 3,174,000
outstanding Class A Warrants are exercised, we would receive net proceeds of
approximately $19,599,450 after deducting the solicitation fee payable to
D.H. Blair Investment Banking Corp. ("Blair"), the underwriter of the Company's
initial public offering, and excluding other expenses of the Offering. The
Company has agreed to pay Blair a solicitation fee equal to 5% of the exercise
price upon exercise of the Class A Warrants under certain conditions. The
exercise price of the Class A Warrants was determined by negotiation between the
Company and Blair and are not necessarily related to the Company's asset value,
net worth or other established criteria of value. In the event that the 299,000
Other Warrants are exercised, we would receive net proceeds of approximately
$359,000.00, excluding expenses of the Offering.
Warrant
Warrant Solicitation Proceeds to
Exercise Price Fee (1) Company (2)
-------------- --------------- --------------
Per Class A Warrant ...... $ 6.50 $ .325 $ 6.175
Per Other Warrant(3) ..... $ 5.00 -- $ 5.00
$ 1.00 -- $ 1.00
-------------- ------------- --------------
Total .................... $20,990,000.00 $1,031,550.00 $19,958,450.00
- ------------------
(1) Represents solicitation fees the Company agreed to pay to Blair under the
Warrant Agreement between the Company and Blair. Specifically, the Company
agreed to pay Blair a 5% fee of the exercise price of each Class A Warrant
solicited by their representatives if the market price of the Company's
Class A Common Stock on the date the Class A Warrant is exercised is
greater than the then Class A Warrant exercise price, the exercise of the
Class A Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. ("NASD") as designated in writing on the Warrant
Certificate subscription form, the Class A Warrant is not held in a
discretionary account, disclosure of compensation arrangements was made
both at the time of the offering and at the time of the exercise of the
Class A Warrants, and the solicitation of exercise of the Class A Warrant
was not in violation of Regulation M promulgated under the Securities
Exchange Act of 1934, as amended.
(2) Assumes the exercise of (i) all outstanding Class A Warrants and that the
solicitation fee is paid on all Class A Warrants exercised and (ii) the
Other Warrants. As of January 25, 1999, none of the Warrants had been
exercised.
(3) The exercise price of each of the two Other Warrants is $5.00 and $1.00,
respectively.
Selling Securityholders holding Warrants have no obligation to exercise
their Warrants. We can not be certain that holders of the Warrants will choose
to exercise all or any of their Warrants.
The Company intends to use the net proceeds received upon exercise of the
Warrants, if any, for general corporate purposes and working capital to support
anticipated growth, including future acquisitions. The Company is evaluating and
is engaged in discussions relating to the potential acquisition of certain
similar or complementary businesses. However, the Company does not currently
have any agreement or commitment relating to any particular acquisition, and we
cannot assure that any such acquisitions will be consummated.
-14-
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for resale
to the public. The securities offered hereby are comprised of (i) 1,137,500
shares of Class A Warrants, (ii) 1,137,500 shares of Class A Common Stock
issuable upon exercise of the Class A Warrants, (iii) 299,000 shares of Class A
Common Stock issuable upon exercise of the Other Warrants, and (iv) 132,000
shares of Class A Common Stock currently issued and outstanding (the "Issued
Shares").
Except as set forth below, there are no material relationships between any
of the Selling Securityholders and the Company, nor have any such material
relationships existed within the past three years.
We have filed with the Securities and Exchange Commission ("Commission")
under the Securities Act a Registration Statement on Form S-3, of which this
Prospectus forms a part, with respect to the resale of the Securities. We have
agreed, among other things, to bear certain expenses in connection with the
registration and sale of the Securities being offered by the Selling
Securityholders. See "Plan of Distribution."
In February 1997, we issued 132,000 shares of Class A Common Stock to
Annette Lebor, the spouse of the President of M.K.D. Capital Corp. ("M.K.D.") as
consideration for consulting services that have been and will be rendered by
M.K.D. to the Company. In March 1997, we completed a private placement and
issued an aggregate of 1,150,000 warrants to certain investors, including Neal
J. Polan, the Chairman and Chief Executive Officer of the Company, and Eli
Levitin, a member of the Company's Board of Directors since July 1997. According
to the terms of the private placement, such warrants converted automatically
into Class A Warrants upon our initial public offering which was completed in
October 1997. We issued Other Warrants to purchase (i) an aggregate of 284,000
shares of Class A Common Stock to Mr. Polan in September 1997, 142,000 of which
are exercisable only in the event the Company reaches certain performance
targets, and (ii) an aggregate of 15,000 shares of Class A Common Stock to Mr.
Levitin in October 1997.
<TABLE>
<CAPTION>
NUMBER OF
SELLING SECURITIES BENEFICIALLY
SECURITY HOLDER OWNED PRIOR TO OFFERING SECURITIES TO BE OFFERED SECURITIES BENEFICIALLY OWNED AFTER OFFERING
- --------------- ------------------------ --------------------------------------- ---------------------------------------------
SHARES OF
CLASS A COMMON
SHARES OF SHARES OF STOCK
CLASS A CLASS A ISSUABLE UPON CLASS A
COMMON CLASS A COMMON CLASS A EXERCISE OF COMMON CLASS A PERCENT OF CLASS A
STOCK WARRANTS (1) STOCK WARRANTS WARRANTS STOCK WARRANTS COMMON STOCK (9)
-------- ------------- ------- -------- ------------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annette Lebor 132,000(10) 132,000(10) 0 0
Neal J. Polan 216,000(2)(3)(10) -- -- 284,000(4) 216,000(3)(5) 0 3.3(5)
Eli Levitin 3,750(8) 12,500(6) 12,500 27,500(7) 3,750(8) 0 *
Aleph Mad Family 12,500 12,500 12,500 0 0 0
Limited Partnership
Antelope Company 12,500 12,500 12,500 0 0 0
Bankruptcy 12,500 12,500 12,500 0 0 0
Consultants, Inc.
Brynde Berkowitz 12,500 12,500 12,500 0 0 0
Gary Braverman 25,000 25,000 25,000 0 0 0
R. Harwood Beville 25,000 25,000 25,000 0 0 0
Michael J. Cayre 12,500 12,500 12,500 0 0 0
Jack Dushey 12,500 12,500 12,500 0 0 0
Dan Drykerman 25,000 25,000 25,000 0 0 0
Robert I. Earl 25,000 25,000 25,000 0 0 0
Harriet O. Fordham 12,500 12,500 12,500 0 0 0
Debra L. Freedberg,TTEE, 12,500 12,500 12,500 0 0 0
Debra L. Freedberg,
Revocable Trust
Simon Glick 12,500 12,500 12,500 0 0 0
R. Merrill Hunter 25,000 25,000 25,000 0 0 0
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SELLING SECURITIES BENEFICIALLY
SECURITY HOLDER OWNED PRIOR TO OFFERING SECURITIES TO BE OFFERED SECURITIES BENEFICIALLY OWNED AFTER OFFERING
- --------------- ------------------------ --------------------------------------- ---------------------------------------------
SHARES OF
CLASS A COMMON
SHARES OF SHARES OF STOCK
CLASS A CLASS A ISSUABLE UPON CLASS A
COMMON CLASS A COMMON CLASS A EXERCISE OF COMMON CLASS A PERCENT OF CLASS A
STOCK WARRANTS (1) STOCK WARRANTS WARRANTS STOCK WARRANTS COMMON STOCK (9)
-------- ------------- ------- -------- ------------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Moise E. Hendeles 12,500 12,500 12,500 0 0 0
G. C. Jewell 5,000 17,500 12,500 12,500 5,000 5,000 *
Martin Klein 12,500 12,500 12,500 0 0 0
Pontaray Corp. 12,500 12,500 12,500 0 0 0
Terry Rucker 50,000 50,000 50,000 0 0 0
Ahmed Helmy Selim 50,000 50,000 50,000 0 0 0
Sarco & Company 12,500 12,500 12,500 0 0 0
Mike Sheen 25,000 25,000 25,000 0 0 0
Michael J. Sherman 12,500 12,500 12,500 0 0 0
Joel A. Stone 119,725 90,000 12,500 12,500 119,725 77,500 2.9 (11)
John E. Bishop, M.D. 30,000 36,250 6,250 6,250 30,000 30,000 *
Thomas P. Farkas 18,750 18,750 18,750 0 0 0
Isadore Goldberg 25,000 25,000 25,000 0 0 0
Harvey Krauss TTEE, 6,250 6,250 6,250 0 0 0
Brian Krauss
Irrevocable Trust
Ronald M. Krinick 25,000 25,000 25,000 0 0 0
Frank & Mary Anne 35,700 60,700 25,000 25,000 35,700 35,700 1.1 (11)
Loccisano, JTROS
Lawrence Manus 12,500 12,500 12,500 0 0 0
David H. McAlpin, Jr. 25,000 25,000 25,000 0 0 0
Yasser Hosny Moustafa 50,000 50,000 50,000 0 0 0
Anthony Pace 6,250 6,250 6,250 0 0 0
Neal & Amy Polan, JTROS 25,000 25,000 25,000 0 0 0
Anthony D. Ivankovich 25,000 25,000 25,000 0 0 0
Craig A. & Barbara 3,300 15,800 12,500 12,500 3,300 3,300 *
Peterson, JTROS
Parvin N. Rahban 12,500 12,500 12,500 0 0 0
& Natasha R.
Baradaran, JTROS
Eric Rose 25,000 25,000 25,000 0 0 0
Barry A. & Caren C. 6,250 6,250 6,250 0 0 0
Ruht, JTROS
Union Communi- 12,500 12,500 12,500 0 0 0
cations Company
Peter Muserlian 12,500 12,500 12,500 0 0 0
Sandra Seligman 25,000 25,000 25,000 0 0 0
Ernest C. Trefz 25,000 25,000 25,000 0 0 0
Leon M. Wagner 25,000 25,000 25,000 0 0 0
David C. Wohl TTEE, 12,500 12,500 12,500 0 0 0
The David C. Wohl
Trust
</TABLE>
- --------------
* Represents less than 1%.
(1) Excludes shares of Class A Common Stock issuable upon exercise of the
warrants. All of the 1,137,500 Class A Warrants being registered are
currently exercisable.
16
<PAGE>
(2) Represents 216,000 shares of Class A Common Stock which are issuable upon
conversion of the 216,000 shares of Class B Common Stock beneficially owned
by Mr. Polan. Mr. Polan beneficially owns all of the shares of Class B
Common Stock. 48,000 of such shares of Class B Common Stock are held by Mr.
Polan as custodian for his son. Mr. Polan is deemed to be the beneficial
owner of such shares by virtue of his authority to vote and/or dispose of
such shares.
(3) Excludes other securities deemed to be beneficially owned by Mr. Polan,
including (i) 284,000 shares of Class A Common Stock (which are being
registered for resale under this Prospectus) underlying the Other Warrants
held by Mr. Polan, 142,00 of which are exercisable only in the event the
Company reaches certain performance targets and (ii) 25,000 Class A
Warrants and the shares of Class A Common Stock underlying the warrants
held jointly by Mr. Polan and his wife (which are being registered for
resale under this Prospectus).
(4) Of these warrants, 142,000 are currently exercisable. The remaining 142,000
warrants will become exercisable upon the Company's attainment of certain
earnings or market price thresholds.
(5) As of the date of this Prospectus, Mr. Polan beneficially owned
approximately 11.3% of the outstanding shares of Class A Common Stock and
had the power to vote shares of common stock representing approximately
29.2% of the total voting power of the outstanding shares of common stock
of the Company (assuming the exercise of 167,000 warrants beneficially
owned by Mr. Polan which are currently exercisable and conversion of the
216,000 shares of Class B Common Stock held by Mr. Polan).
(6) Excludes 15,000 of the Other Warrants that are currently exercisable.
(7) Represents shares of Class A Common Stock issuable upon exercise of
(i) 12,500 Class A Warrants that were issued in connection with the private
placement completed in March 1997 and (ii) 15,000 of the Other Warrants
that are currently exercisable.
(8) Represents 3,750 shares of Class A Common Stock issuable upon exercise of
options which are exercisable within 60 days. Excludes 3,750 shares of
Class A Common Stock issuable upon exercise of options which are not
exercisable until June 15, 1999.
(9) Assuming the sale of all securities registered for resale under this
Prospectus.
(10) Certain of these shares are subject to the Escrow Agreement entered into in
connection with the Company's initial public offering.
(11) Assuming exercise of all outstanding warrants and the issuance of the Class
A Common Stock underlying such warrants.
PLAN OF DISTRIBUTION
We have been advised that the Selling Securityholders may sell Securities
from time to time in transactions on the Nasdaq SmallCap Market or on other
exchanges on which the Securities may be traded, in the over-the-counter market,
in negotiated transactions, through the writing of options on the Securities or
a combination of such methods of sale, or through other means. Sales may be
effected at fixed prices which may be changed, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Securityholders are not restricted as to the
price or prices at which they may sell their Securities. Sales of Securities by
the Selling Securityholders may depress the market price of our securities since
the number of Securities which may be sold by the Selling Securityholders is
relatively large compared to the historical average weekly trading of our
securities, and therefore, if the Selling Securityholders were to sell, or
attempt to sell, all of such Securities at once, the Company believes such a
transaction could adversely impact the market price for our securities. As used
herein, "Selling Securityholders" includes donees and pledgees selling
Securities received from a named Selling Securityholder after the date of this
Prospectus.
The Selling Securityholders may effect such transactions by selling the
Securities to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or the purchasers of the Securities for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
-17-
<PAGE>
customary commissions). The Selling Securityholders and any broker-dealers or
agents who participate in the distribution of Securities hereunder may be deemed
to be "underwriters" as that term is defined in the Securities Act of 1933, as
amended (the "Act"), and any commissions received by them and profit on any
resale of the Securities as principal might be deemed to be underwriting
discounts and commissions under the Act.
The Company has been advised that Sandra Seligman and Leon Wagner, Selling
Securityholders, are related to members of the NASD.
The Company has registered the Securities for resale pursuant to agreements
with the Selling Securityholders and has agreed to pay the expenses of
registration in connection with the Offering and to indemnify the Selling
Securityholders against certain liabilities, including certain liabilities under
the Act. Selling Securityholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
Securities against certain liabilities, including liabilities arising under the
Securities Act. The Company will not receive any proceeds from the sale of
Securities by the Selling Securityholders although the Company will receive
proceeds from any exercise of the Warrants.
The Company has agreed not to solicit Class A Warrant exercises other than
through Blair. Upon any exercise of the Class A Warrants, the Company will pay
Blair a fee of 5% of the aggregate exercise price if (i) the market price of the
Company's Class A Common Stock on the date the Class A Warrant is exercised is
greater than the then exercise price of the Class A Warrants; (ii) the exercise
of the Class A Warrant was solicited by a member of the NASD as designated in
writing on the Class A Warrant certificate subscription form; (iii) the Class A
Warrant is not held in a discretionary account; (iv) disclosure of compensation
arrangements was made both at the time of the offering and at the time of
exercise of the Class A Warrants, and (v) the solicitation of exercise of the
Warrant was not in violation of Regulation M promulgated under the Exchange Act.
At the time a particular offer of Securities is made, to the extent
required, a supplement to this Prospectus will be distributed which will
identify and set forth the aggregate amount of Securities being offered and the
terms of the offering.
The Selling Securityholders are subject to applicable provisions of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder, including without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of the Securities by the
Selling Securityholders.
In order to comply with certain states' securities laws, if applicable, the
Securities may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states the Securities may not be sold unless the
Securities have been registered or qualified for sale in such state, or unless
an exemption from registration or qualification is available and is obtained.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation and By-Laws of the Company provide that
the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law.
The Company also has Indemnification Agreements with each of its officers
and directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons 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 Securities 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 or 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 Securities Act and will be governed by the final
adjudication of such issue.
-18-
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby have been passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York.
EXPERTS
The balance sheet as of September 30, 1998 and the statements of
operations, changes in capital deficiency and cash flows for the years ended
September 30, 1998 and 1997 and the period from June 1, 1995 through September
30, 1998, incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1998, have been
incorporated herein in reliance on the report of Richard A. Eisner & Company,
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
-19-
<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 Offering herein contained, and, 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 to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since any of the dates as
of which information is furnished herein or since the date hereof.
HEALTHCORE MEDICAL
SOLUTIONS, INC.
1,137,500 Redeemable
Class A Warrants
3,605,000 Shares of
Class A Common Stock
----------
PROSPECTUS
----------
January 27, 1999
