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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB/A
2nd AMENDMENT
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
MEDIQUIK SERVICES, INC.
(Name of Small Business Issuer in its charter)
Delaware 74-2876711
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4295 San Felipe, Suite 200, Houston, Texas 77027
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713)888-1919
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered Each class is to be registered
none
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains statements relating to future
results of the Company (including certain projections and business trends)
that are "forward-looking statements" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical
fact, included in this Registration Statement regarding the Company's
financial position, future net revenues, net income, potential evaluations,
business strategy and plans and objectives for future operations are
"forward-looking statements." Although the Company believes that the
assumptions upon which such forward-looking statements are based are
reasonable, it can give no assurance that such assumptions will prove to be
correct. Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including, but not limited to,
changes in political and economic conditions, regulatory conditions,
government health care spending and competitive pricing pressures. Important
factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed elsewhere in
this Registration Statement. All forward-looking statements in this
Registration Statement are expressly qualified by the Cautionary Statements
and by reference to the underlying assumptions that may prove to be incorrect.
These forward-looking statements are commonly identified by the use
of such terms and phrases as "intends," "estimates," "expects," "projects,"
"anticipates," "foreseeable future," "seeks," "believes" and "scheduled" and,
in many cases, are followed by a cross-reference to "Risk Factors." Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company does not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
MediQuik Services, Inc. (the "Company" or "MediQuik") was organized to
take advantage of an identified niche market related to the delivery of health
care, medical and pharmaceutical supplies. This market is the management of
chronic disease patients for managed care payors by providing home delivery of
pharmaceuticals and supplies, educational materials, and patient monitoring and
consultations. These payors include self-insured, self-administered employers of
all sizes, small to moderate sized health insurance companies and small to
moderate sized health maintenance organizations, preferred provider
organizations, and third-party administrators. The Company's first product is
diabetes management and diabetes pharmaceutical supplies. As this product
matures, the Company intends to offer other chronic disease management products,
such as respiratory management and congestive heart failure management services.
Historically, as a cost saving and time saving strategy, MediQuik has contracted
with other entities to receive, bundle and deliver goods and services rather
than develop the necessary resources in-house.
The Company's predecessor, also chartered under the name "MediQuik
Services, Inc.," was organized in Delaware on April 7, 1998 ("Old MediQuik").
Effective December 31, 1998, Old MediQuik was merged with and into Cash Flow
Marketing, Inc., a Delaware corporation ("Cash Flow"), which, as the
surviving corporation, subsequently changed its name to MediQuik Services,
Inc. Cash Flow was originally organized in Colorado on July 9, 1997, and
changed its domicile to Delaware effective December 31, 1998. At the time of
the merger, Cash Flow was a "shell" corporation with substantially no assets,
business or operations.
Pursuant to the terms of the merger, each stockholder of Old
MediQuik received one share of common stock of the Company, $.001 par value
per share ("Common Stock"), for each .9327 shares of common stock of Old
MediQuik held by such stockholder. Each stockholder of Cash Flow received one
share of Company Common Stock for each 2 shares of Cash Flow common stock
held by such stockholders.
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BUSINESS OF THE ISSUER
In recent years, the demand for higher quality health care with
reduced cost has prompted dramatic changes in the United States health care
system. The industry response has been the emergence of managed care, whose
primary mission is to control costs. Today, more than two-thirds of all
Americans with private health insurance are enrolled in these plans.
MediQuik was organized to take advantage of these changes in the
delivery of health care. The Company provides chronic disease management
services to patients pursuant to contracts with managed care payors. MediQuik's
services include home delivery of pharmaceuticals, supplies and educational
materials, as well as patient monitoring and consultation services. MediQuik's
customers include self-insured, self-administered employers of all sizes, small
to moderate sized health maintenance organizations, third-party administrators
and preferred provider organizations. By entering into agreements with the
managed care payors, rather than individual patients, the Company believes that
it will be able to rapidly obtain a larger patient base. When MediQuik enters
into a contract with a managed care payor it typically becomes an approved
provider for thousands of patients who may select MediQuik's products and
services, ordinarily at a nominal cost to the patient (co-pay charges to the
patient typically represent less than 20% of price of MediQuik's products and
services). Other providers generally sell directly to patients. For them, one
sale ordinarily results in one patient.
Generally, the Company enters into agreements with managed care
payors which provide that, in consideration of being designated as a plan
provider, the Company will provide services to plan participants at a
discounted rate. The Company also offers capitated service contracts pursuant
to which the managed care payor reimburses the Company based on the total
number of participants in the plan rather than based on the amount of
products and services actually consumed by the participants. Under capitated
service contracts, MediQuik would share a portion of the risk related to
program costs with the managed care payor. MediQuik is currently offering
capitated services contracts to managed care payors but has not entered into
any such contracts to date.
The Company's first product is diabetes management, the major profit
component of which is the delivery of self testing supplies (test strips,
lancets and alcohol prep pads) directly to the home of the patient. Diabetes
mellitus is the most common and most costly chronic disease in the United
States. In a release dated November 1, 1998, the National Center for Chronic
Disease Prevention and Health Promotion of the Centers for Disease Control
and Prevention (the "CDC") estimated that 15.7 million people in the United
States, or 5.9% of the population, have diabetes, although only about 10.3
million have been diagnosed. According to the American Diabetes Association,
in 1997 the per capita costs of health care for people with diabetes was
$10,071 per annum.
There is no cure for diabetes. The disease can be controlled, but
only if the patient is willing to actively participate in that control. In
order to control diabetes, the patient must regularly determine personal
blood sugar levels. This is normally done at home by the patient and is a
simple and relatively painless process. Patients use a lancet to prick a
finger and draw a drop of blood which is deposited upon a test strip. The
test strip is then introduced into a glucometer and a few seconds later the
patient's blood sugar level is displayed.
The Company believes that it can provide pharmaceuticals for the
treatment of diabetes to patients covered by managed care providers and to
other MediQuik customers at substantial cost savings when compared with
alternative delivery systems because MediQuik has focused on preventive
diabetes care products and services and has successfully negotiated supply
contracts which permit the Company to purchase large quantities at favorable
prices. In addition, by providing educational materials and patient
monitoring and consultation services, the Company believes that it will
provide better patient management, which reduces a patient's need for
hospitalization and prevents the development of other chronic diabetic health
related problems. After the MediQuik product is authorized by a payor and a
patient is enrolled in the program, the Company will ship supplies to the
patient's home bimonthly or quarterly. Because of the chronic nature of the
disease, the Company expects its medical and financial relationship with a
patient to continue for many years. As of October 18, 1999, the Company had
entered into the following major provider agreements:
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<TABLE>
<CAPTION>
Major Providers Est. No. of Lives
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National HealthCare Alliance, Inc. 732,000
MultiPlan, Inc. 21,000,000
USA Managed Care Organization, Inc. 6,000,000
Cooperative Health Services of Colorado 1,700,000
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TOTAL LIVES 29,432,000
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The Estimated Number of Lives described above represent the total
number of participants in the plans as determined by the managed care payor.
Based on the CDC's estimate that 5.9% of the population in the United States
suffers from diabetes, the Company estimates that approximately 1,736,500 of
the plan participants are potential users of its products. The provider
agreements generally provide that, in consideration of being designated as a
plan provider, the Company will provide products and services to plan
participants at a discounted rate. The provider agreements typically have a
term of one to two years with provisions for automatic renewal unless
terminated at the election of either party.
Although the Company believes that its revenues for the foreseeable
future will be generated principally by sales under the provider agreements
described above, the Company estimates that for the nine months ended
September 30, 1999, its revenue has been derived as follows:
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Sales under the Global Medical Solutions, Inc., ancillary provider agreement 62%
Sales to Hanna Medical Corporation, a health care facility 12%
Sales under the National HealthCare Alliance, Inc. provider contract 10%
Sales under the Advantage Care Network, Inc. provider contract 5%
Other sales 11%
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The Company's agreements with its current purchasers described above
will continue from year to year unless terminated by either party. The Company
anticipates, however, that the revenue to be generated by its major provider
agreements in the future will exceed the revenue generated from its current
purchasers.
To support its business activity, MediQuik has formed a strategic
alliance with Bayer Corporation, a worldwide leader in the manufacturing and
supply of diabetes related products ("Bayer"). The company has entered into
(i) a Mail Order and Mail Order Health Plan Patient Testing Compliance
Agreement and (ii) a Nursing Home/Long Term Care/Home Health Care Distributor
Agreement with Bayer (collectively, the "Bayer Agreements"). Pursuant to each
agreement, the Company has committed to purchase a certain volume of products
from Bayer at a set price. In consideration of the Company's agreement to
provide certain customer information to Bayer, Bayer has agreed to credit the
Company's account based on the amount of the Company's purchase commitment.
If the Company does not meet its purchase commitment, Bayer will charge the
Company the difference between the credit given for its purchase commitment
and the credit given for the amount actually purchased. As a result of the
Bayer Agreements, Bayer products are available to the Company at deeply
discounted prices. The Bayer Agreements allow MediQuik to sell Bayer products
to managed care payors as well as long-term care facilities, including
nursing homes, assisted living centers and home health care agencies. With
the aging population and its increased risk of diabetes, this opens up a
significant growth market for supply to the elderly. The Company purchases
approximately 90% of its products from Bayer. The Bayer Agreements expire
upon 120 days notice and on December 31, 2000, respectively.
After MediQuik achieves meaningful market penetration with the
diabetes management product, the Company intends to develop and offer
respiratory management and congestive heart failure management services.
In May 1999, MediQuik formed a subsidiary known as ChronicRx.com to
provide Internet-based pharmacy services. ChronicRx.com will focus on the
chronic care niche and will specialize in prescription and non-prescription
medicines and management products used to treat chronic diseases of all
kinds. ChronicRx.com will provide 24-hour access to pharmacists, educational
material regarding the diagnosis, symptoms and treatment of chronic
illnesses, prescription and over-the-counter drugs, and personal care
products for chronic disease patients. The Company believes that a number of
factors poise ChronicRx.com for rapid growth: its access to discounted
pharmaceuticals through its
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relationship with MediQuik; the availability of cost efficient mail-order
distribution and the low cost, wide market reach of the Internet. The Company
believes that ChronicRx.com will be the first pharmacy on the Internet
focused primarily on the management of chronic diseases. The Company
anticipates that ChronicRx.com will begin offering on-line pharmacy services
by the end of April 2000.
ChronicRx.com also offers access to the Daily Health Zone, an
interactive personal health management web site which provides information
concerning preventative healthcare, nutrition, fitness and wellness.
ChronicRx.com provides access to the web site to MediQuik's employer and
managed care provider customers whose employees or plan participants,
respectively, are permitted to access the web site for daily self-improvement
tips, questions and answers, self-tests, news, reviews, and searchable health
data. The web site permits employers and managed care providers to reward use
of the web site by providing incentives based on frequency of activity. The
Daily Heath Zone is currently hosted by My Daily Heath pursuant to a term
sheet with Murray Hill Communications, Inc., owner of My Daily Health. The
Company is negotiating with Murray Hill in connection with the execution of a
final agreement to purchase a license for the web site.
As a cost saving and time saving strategy, management has historically
elected to out source major components of the business, such as order
fulfillment, billing and collecting, utilization reporting, legal and
accounting and a portion of sales. However, during the third and fourth
quarters of 1999, the Company has developed and implemented an in-house
enrollment and customer service department and shall finish implementation of
an in-house billing and collection department by the end of 1999. The Company
intends to hire a chief financial officer with experience in working for
public companies during the first quarter of 2000.
COMPETITION
The business of providing blood sugar monitoring supplies by mail
order is an immature industry characterized by high growth rates, low
barriers to enter the business, and many small competitors. Of the many
companies that are mail order providers of blood glucose monitoring supplies,
most do not directly compete with MediQuik because they generally concentrate
on Medicare patients by direct solicitation, rather than focusing on health
care payors. To the knowledge of the Company, each sells to patients rather
than payors under distribution agreements with the major manufacturers that
provide for relatively small price discounts. The Company believes that these
companies have little or no impact on the business of MediQuik. For them, one
sale results in one patient. For MediQuik, one sale will likely produce
hundreds or thousands of patients.
Several companies do compete with MediQuik in the traditional fee
for service market. MediQuik is aware of two companies that have exclusive
marketing agreements with certain manufacturers which target payors as
clients rather than individual patients. One is National Diabetic Pharmacies,
Inc. ("NDP"), based in Roanoke, Virginia. NDP works primarily with diabetic
managed care patients and has approximately $18,000,000 in annual sales. NDP
distributes products manufactured by Boehringer Mannheim. Another competitor
of the Company is TM Supply, Inc. doing business as Total Medical Supply,
located in Dothan, Alabama. It has a distribution agreement with Home
Diagnostics, Inc., a manufacturer of health care products. The Company
believes that Total Medical Supply has historically concentrated on Medicare
business but has begun to shift into the managed care private sector.
MediQuik believes that neither NDP nor Total Medical Supply is currently
soliciting capitated agreements.
MediQuik has developed a program that shares cost containment
directly with the payor, which makes MediQuik effective as both a capitated
fee and a fee for service provider. MediQuik believes that it is the first
company in its industry to offer capitated fee contracts. Under such an
arrangement, a managed care payor would make payments to the Company based on
the total number of participants in its plan rather than the amount of
products and services actually consumed by its participants. Although under
capitated fee contracts there is a risk that the cost of products and
services provided by the Company will exceed the payor's fee, the Company
believes that such contracts will create a financial commonality of interest
with its potential clients and that competitors will adopt this strategy as
well so it is important for MediQuik to acquire market share as quickly as
possible. MediQuik is currently offering capitated service contracts to
managed care payors but has not entered into any such contracts to date.
THE MARKET
The U.S. demand for diabetes monitoring and maintenance, supplies,
pharmaceuticals and equipment is expected to be $4.692 billion by 2000 and
$6.545 billion by 2005, as both the U.S. population and the incidence of
diabetes appear to be increasing, according to a March 1996 report of the
Genesis Group Associates, Inc. entitled "The Diabetes Dilemma Managing
Markets and Technology" (the "Genesis Report"). The Genesis Report also
indicates that on a worldwide basis, Johnson & Johnson, Boehringer Mannheim,
Bayer and MediSense, Inc. are the major manufacturers in the field. Effective
July 1, 1998, Medicare coverage was extended pursuant to the Balanced Budget
Act of 1997 to permit the reimbursement of diabetes self-testing supplies, as
well as educational and training services for diabetes. Management of the
Company believes that managed care payors will view Medicare's reimbursement
guidelines as the baseline for pricing these products and services.
MARKET SEGMENTATION. The Company believes that there are five
segments to the market for diabetes testing supplies, pharmaceuticals and
equipment:
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1. Retail pharmacies typically offer a range of manufacturers products
which are available without prescription to the general public.
Patients may be reimbursed directly by their insurance carrier. A large
portion of the retail purchasers are Medicare qualified and file their
own claims for Medicare reimbursement. Most payors, including Medicare,
reimburse for the cost of the supplies less annual deductible and
copayment amounts. Rules for qualification and reimbursement for
Medicaid patients vary from state to state.
2. Managed care payors may distribute products directly to patients
covered by their plan.
3. Mail order suppliers may enroll patients directly rather than through
managed care payor referrals. These suppliers tend to concentrate on
Medicare patients and typically have distribution agreements with each
of the major manufacturers. These suppliers take care of billing and
collecting from third-party payors for the patient and the patient is
responsible to the supplier for deductible and copay amounts.
4. MediQuik is aware of at least three companies that interface directly
with payors for patient referrals. MediQuik believes that each of these
companies has an exclusive agreement with a manufacturer which provides
a pricing advantage over other supply sources. MediQuik and at least
one of its competitors offer significant price discounts to the payors
and encourage the payors to waive deductible and co-pay amounts for
their patients.
5. MediQuik has developed and offers capitated fee arrangements under
which the Company will agree to provide certain diabetes related
services for a group of patients for a fixed fee. MediQuik believes
that it is the only company prepared to enter into agreements with
payors to share in the financial risk of patient treatment.
CHARACTERISTICS OF DIABETES. Diabetes is a disease characterized by
high levels of blood glucose. During the normal digestion process, the body
converts food into glucose (sugar) to be used by the body's cells as a source of
energy. Insulin, a hormone produced by the pancreas gland, is necessary for
normal utilization of glucose by most cells in the body. In people with
diabetes, insulin is either absent or lacking, or the body does not respond to
the insulin that is produced. As a result, the body cannot use glucose for
energy and it begins to build up in the blood, creating high sugar levels in the
body. Diabetes is categorized into four types:
1. Type 1 diabetes was previously called insulin-dependent diabetes
mellitus ("IDDM") or juvenile-onset diabetes. According to the CDC,
type 1 diabetes may account for 5% to 10% of all diagnosed cases of
diabetes. Risk factors contributing to the development of the disease
are less well defined for type 1 diabetes than for type 2 diabetes, but
autoimmune, genetic, and environmental factors are involved in the
development of this type of diabetes.
2. Type 2 diabetes was previously called non-insulin-dependent diabetes
mellitus ("NIDDM") or adult-onset diabetes. The CDC estimates that type
2 diabetes may account for about 90% to 95% of all diagnosed cases of
diabetes. Factors associated with type 2 diabetes include age, obesity,
family history of diabetes, prior history of gestational diabetes,
impaired glucose tolerance, physical inactivity, and race/ethnicity.
According to the CDC, African Americans, Hispanic/Latino Americans,
American Indians, and some Asian Americans and Pacific Islanders are at
particularly high risk for type 2 diabetes.
3. Gestational diabetes develops in 2% to 5% of all pregnancies, according
to the CDC, but disappears when a pregnancy is over. The CDC also
reports that gestational diabetes occurs more frequently in African
Americans, Hispanic/Latino Americans, American Indians, and persons
with a family history of diabetes. Obesity is also associated with
higher risk. Women who have had gestational diabetes are at increased
risk for later developing type 2 diabetes. According to the CDC, some
studies have found that nearly 40% of women with a history of
gestational diabetes developed diabetes in the future.
4. "Other specific types" of diabetes result from specific genetic
syndromes, surgery, drugs, malnutrition, infections, and other
illnesses. The CDC reports that such types of diabetes may account for
1% to 2% of all diagnosed cases of diabetes.
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PREVALENCE OF DIABETES IN THE UNITED STATES. In a release dated
November 1, 1998, the CDC estimated that 15.7 million people in the United
States, or 5.9% of the population, had diabetes and that approximately
798,000 new cases of diabetes are diagnosed each year. The cases were
segmented as follows:
Total (diagnosed and undiagnosed): 15.7 million
Diagnosed: 10.3 million
Undiagnosed: 5.4 million
Type 1 diabetes: 1 million
Type 2 diabetes: 14.9 million
Women: 8.1 million (8.2% of all adult women)
Men: 7.5 million (8.2% of all adult men)
Children age 19 years or younger: 123,000 (.16% of all people
in this age group)
Adults age 65 years or older: 6.3 million (18.4% of all people in
this age group)
The distribution of diabetes among adults, reported by race and
ethnicity (diagnosed and undiagnosed), is as follows: African Americans,
10.8%; Mexican Americans, 10.6%; White Americans, 7.8%; American Indians and
Alaska Natives, 9%.
According to the American Diabetes Association, the total cost of
diabetes in 1997 was estimated to be $98 billion. Direct costs, estimated to
be $44.1 billion in 1997, include costs attributable to medical treatment.
Indirect costs, estimated to be $54 billion in 1997, include costs
attributable to disability and mortality.
Based on death certificate data, the CDC reported that diabetes
contributed to the deaths of 193,140 persons in 1996. According to the CDC,
however, it is believed that death certificate data under-represents deaths
for which diabetes is the cause or a contributing factor. Diabetes was the
seventh leading cause of death listed on U.S. death certificates in 1996,
according to CDC's National Center for Health Statistics and is the sixth
leading cause of death by disease.
Treatment emphasizes control of blood glucose through blood glucose
monitoring, regular physical activity, meal planning, and attention to
relevant medical and psychosocial factors. In many patients, oral medications
and/or insulin injections are also required for appropriate glucose control.
Treatment of diabetes is an ongoing process that is planned and regularly
reassessed by the health care team, the person with diabetes, and his or her
family. Patient and family education are important parts of the process. IDDM
can only be treated with insulin injections. About 40% of NIDDM patients use
insulin.
Diabetes can lead to significant long-term complications especially
where the disease has not received proper treatment for long periods. The
following table identifies some of the long-term complications and contains
certain statistical data evidencing the relationship to diabetes:
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HEART DISEASE The American Diabetes Association reports
that heart disease is 2 to 4 times more
common in adults with diabetes and is
present in 75% of diabetes-related deaths.
STROKE According to the American Diabetes
Association, the risk of stroke is 2 to 4
times higher in people with diabetes.
HIGH BLOOD PRESSURE The CDC estimates that 60 to 65% of people
with diabetes have high blood pressure.
BLINDNESS Diabetes is the leading cause of new cases of
blindness among people 20 to 74 years of age,
according to the CDC, and 12,000 to 24,000
new cases of blindness each year are caused
by diabetic retinopathy.
</TABLE>
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NERVE DISEASE The CDC reports that about 60 to 70% of
people with diabetes have mild to severe
forms of diabetic nerve damage (with such
manifestations as impaired sensation or pain
in the feet or hands, delayed digestion of
food in the stomach, carpal tunnel syndrome,
and other nerve problems). Severe forms of
diabetic nerve disease are a major
contributing cause of lower extremity
amputations.
AMPUTATIONS More than half of lower limb amputations in
the United States occur among people with
diabetes according to reports by the CDC.
From 1993 to 1995, the average number of
amputations performed each year among people
with diabetes was 67,000.
DENTAL DISEASE According to the CDC, periodontal disease, a
gum disease that can lead to tooth loss,
occurs with greater frequency and severity
in people with diabetes. They report one
study which found that 30% of type 1
diabetes patients age 19 years or older had
periodontal disease.
COMPLICATIONS OF PREGNANCY The rate of major congenital malformations
in babies born to women with pre-existing
diabetes varies from 0 to 5% in women who
receive preconception care to 10% in women
who do not receive preconception care,
according to the CDC. Three to 5% of
pregnancies among women with diabetes result
in death of the newborn; this compares to a
rate of 1.5% for women who do not have
diabetes.
KIDNEY DISEASE The American Diabetes Association reports
that diabetes is the leading cause of kidney
disease, accounting for 40% of new cases.
</TABLE>
ACQUISITION STRATEGY
In addition to the internal growth of the Company described above,
the Company intends to grow by acquiring additional chronic disease
management companies. Through such acquisitions, the Company intends to
develop internally the capability to conduct order fulfillment, billing and
collecting, sales, utilization, reporting and other operations for the home
delivery of prescription drugs and disease management products and supplies
to patients nationwide.
DEPENDENCE ON MAJOR CUSTOMERS
The Company is dependant on the managed care payors with which it
has provider agreements. If any of National HealthCare Alliance, Inc.,
MultiPlan, Inc., USA Managed Care Organization, Inc. or Cooperative Health
Services of Colorado terminate its respective agreement with the Company and
the Company is not successful in generating sales to replace the lost
business, the Company's future business and operating results could be
materially adversely affected. In addition, the managed care industry is
undergoing substantial consolidation. In the event payors which currently
have provider agreements with the Company are acquired by payors not
associated with the Company, the acquired payor may elect to terminate its
agreement with the Company. For a discussion of the Company's sources of
revenue through September 30, 1999, see "BUSINESS OF THE ISSUER."
INTELLECTUAL PROPERTY
The Company is in the process of applying for registration of the
service mark "MediQuik" with the United States Patent and Trademark Office.
In an Office Action dated August 30, 1999, the United States Trademark and
Patent Office indicated that they had performed a search and found no similar
registered or pending mark which would bar registration. The Company believes
there will be no material adverse effect on its business, however, if it is
unable to successfully register such service mark. In such event, it is
possible that a company engaged in a similar business as MediQuik will be
able to successfully register this trademark. If that happens, MediQuik could
lose customers to such other company due to confusion caused by the similar
name. Moreover, there is a risk that such entity will bring
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an infringement action against the Company and, if successful, require the
Company to change its name or pay a license fee for the use of the name.
GOVERNMENTAL REGULATIONS
Numerous state and federal laws and regulations affect the Company's
business and operations, including, but not limited to those discussed below.
The Company believes that it is operating its business in substantial
compliance with all existing legal requirements material to the operation of
the business. There are, however, significant uncertainties regarding the
application of many of these legal requirements, and the Company cannot
provide an assurance that a regulatory agency charged with enforcement of any
of these laws or regulations will not interpret them differently or, if there
is an enforcement action brought against the Company, that the Company's
interpretation would prevail. In addition, there are numerous proposed
healthcare laws and regulations at the federal and state levels, many of
which could materially affect the Company's ability to conduct its business
or adversely affect the Company's results of operation.
The Company is unable to predict what additional federal or state
legislation or regulatory initiatives may be enacted in the future relating
to the Company's business or the healthcare industry in general, or what
effect such legislation or regulations may have on the Company. The Company
cannot provide any assurance that federal or state governments will not
impose additional restrictions or adopt interpretations of existing laws that
could have a material adverse effect on the Company's business or results of
operation. The Company believes that its operations are currently subject to
these laws only to a limited extent, however, because the Company's current
customers are managed care payors whose revenue is primarily derived from
private rather than government sources.
ANTI-REMUNERATION LAWS. The Company is subject to federal and state
anti-remuneration laws, such as the Medicare/Medicaid anti-kickback laws,
which govern certain financial arrangements among health care providers and
others who may be in a position to refer or recommend patients to such
providers. These laws prohibit, among other things, direct and indirect
payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
health care items or services. The Medicare/Medicaid anti-kickback law has
been broadly interpreted to apply to certain contractual relationships
between health care providers and sources of patient referral. State laws
vary from state to state, are sometimes vague and seldom have been
interpreted by courts or regulatory agencies. Violation of these laws can
result in civil and criminal penalties, and exclusion of health care
providers or suppliers from participation in (i.e., furnishing covered items
or services to beneficiaries of) the Medicare and Medicaid programs.
BILLING REGULATION. Certain provisions in the Social Security Act
authorize penalties, including exclusion from participation in Medicare and
Medicaid, for various billing-related offenses. The Department of Health and
Human Services can also initiate permissive exclusion actions for improper
billing practices such as submitting claims "substantially in excess" of the
provider's usual costs or charges, failure to disclose ownership and
officers, or failure to disclose subcontractors and suppliers.
FEDERAL AND STATE ASSISTANCE PROGRAMS. Funds received by the
healthcare providers under Medicare and Medicaid are subject to audit with
respect to the proper application of various payment formulas. Such audits
can result in retroactive adjustments of revenue from these programs,
resulting in either amounts due to the government agency from the provider or
amounts due the provider from the government agency. The Company does not
currently receive payments under any Medicare or Medicaid program, but it may
elect to engage in such business in the future.
ENVIRONMENTAL LAWS
Certain federal and state laws govern the handling and disposal of
medical, infectious and hazardous waste. Although MediQuik sells and supplies
products which, after use by the patient could be deemed medical, infectious
or hazardous waste, the Company is not involved in the handling or disposal
of such materials after use by patients. Further, the Company does not
manufacture products; own real property; or engage in activities which
involve hazardous materials, result in the discharge of pollutants into the
environment or are likely to result in the violation of any existing
environmental rules and/or regulations. Consequently, the Company believes it
is in compliance with
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federal, state and local laws and regulations regarding environmental matters
which may be applicable to it, if any. To date, the Company has not incurred
any material costs in complying with such laws and regulations and does not
anticipate that costs of compliance with such regulations will have a
material affect on its future expenditures, earnings or competitive position.
EMPLOYEES
As of August 1, 1999, the Company and its subsidiaries had
approximately 7 full-time employees. The employees of the Company are not
subject to collective bargaining agreements and management believes relations
with employees are good.
RISK FACTORS
In addition to the other information contained herein, the following
factors should be considered carefully by any interested party before investing
in the Company.
LIMITED OPERATING HISTORY/HISTORY OF OPERATING LOSSES. The business of
the Company was organized in April 1998. As a result, the Company has very
little operating history. In addition, the Company has experienced net losses
since inception. There can be no assurance that the recently assembled
management group will be able to successfully exploit the combined assets of the
Company and effectively implement the Company's operating strategies. Further,
the Company is subject to the general business risk factors that similar young
companies experience with the responsibilities and complexities attendant to a
new organization, including (i) the ability to attract and maintain competent
and experienced management and operating personnel, (ii) the ability to secure
appropriate debt and equity capital to finance desired growth, and (iii) the
efficient management and performance of the Company's everyday operations.
NEED FOR ADDITIONAL CAPITAL. The Company's acquisition strategy will
require substantial capital. In addition to requiring funding for acquisitions,
the Company may need additional funds to implement its internal growth and
operating strategies or to finance other aspects of its operations. No assurance
can be given that the Company will be able to obtain the necessary capital to
finance a successful acquisition program or its other cash needs. If the Company
is unable to obtain additional capital on acceptable terms, it may be required
to reduce the scope of its presently anticipated expansion. Reliance on
internally generated cash or debt to complete acquisitions could substantially
limit the Company's operational and financial flexibility. The extent to which
the Company will be able or willing to use shares of Common Stock to consummate
acquisitions will depend on its market value from time to time and the
willingness of potential sellers to accept it as full or partial payment. Using
shares of Common Stock for this purpose may result in significant dilution to
then existing stockholders. If the Company is unable to obtain additional
capital on acceptable terms, or if the use of internally generated cash or debt
to complete acquisitions significantly limits the Company's operational or
financial flexibility, or if the Company is unable to use shares of Common Stock
to make future acquisitions, there could be a material adverse effect on the
Company.
DIVIDENDS. The Company does not currently intend to pay cash dividends
on its Common Stock and does not anticipate paying such dividends at any time in
the foreseeable future. The Company will follow a policy of retaining all of its
earnings, if any, to finance development and expansion of its business.
LIMITED LIABILITY OF OFFICERS AND DIRECTORS. The Company has adopted
provisions to its Certificate of Incorporation and By-laws which limit the
liability of its officers and directors and provide for indemnification by
the Company of its officers and directors to the full extent permitted by the
Delaware General Corporation Law. The Company's Certificate of Incorporation
generally provides that its officers and directors shall have no personal
liability to the Company or its stockholders for monetary damages for
breaches of their fiduciary duties as directors, except for breaches of their
duties of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, acts involving unlawful
payment of dividends or unlawful stock purchases or redemptions, acts
specified in the Delaware General Corporation Law, or any transaction from
which a director derives an improper personal benefit. Such provisions
substantially limit the stockholders' ability to hold officers and directors
liable for breaches of fiduciary duty, and may require the Company to
indemnify its officers and directors.
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UNCERTAIN MARKET ACCEPTANCE. The business of the Company is chronic
disease management for managed care payors, managed care provider networks
and third-party administrators, based on discounted fee for service
agreements. In addition, the Company has recently developed and now offers
capitated service contracts. Although the Company has had early success in
signing customers to service contracts, there can be no assurance of market
acceptance of the Company's marketing strategy to the extent required for
long-term profitability of the Company. The Company is subject to all the
risks associated with introducing a new marketing concept. The Company has
not undertaken any independent market studies to determine the feasibility of
this concept.
COMPETITION. The business of providing blood sugar monitoring
supplies by mail order is an immature industry characterized by high growth
rates and low barriers to enter the business. The Company is aware of a
number of competitors that will compete directly with the Company's products
and marketing concept. Many of the Company's current and potential
competitors are larger and have significantly greater financial and marketing
resources than those of the Company. There can be no assurance that such
competition will not limit the Company's ability to maintain or to increase
its market share and will not adversely affect the Company's business.
DEPENDENCE ON THE EFFORTS OF MANAGEMENT. The success of the Company
will depend to a significant degree upon the involvement of its management,
who will be in charge of the Company's strategic planning and operations.
Certain officers and directors have significant experience in the health care
industry which will be important to the Company's success. However, the
Company will need to attract and retain additional individuals in order to
carry out its business objectives. The competition for qualified executives
is great and there are no assurances that these individuals will be available
to the Company.
RELIANCE ON SERVICE AGREEMENTS WITH INDEPENDENT CONTRACTORS. The
Company relies on independent contractors working pursuant to relatively
short term agreements to provide many of the services incidental to the
Company's performance of its obligations under its contracts with managed
care payors. Such services include order fulfillment, billing and collecting,
utilization reporting and sales. Many of these services are provided by small
companies and independent contractors. The success of the Company will depend
on its ability to continue to procure satisfactory services from providers of
such services at a reasonable cost.
UNCERTAIN PUBLIC MARKET FOR SHARES. Although previously listed on the
NASD Over-the-Counter Bulletin Board ("OTCBB"), at present the Company's Common
Stock is listed publicly on the National Quotation Bureau's Pink Sheets under
the symbol "MDQK". However, the Company has been advised by NASD representatives
that listing will resume on the OTCBB upon the satisfactory completion of this
amended registration statement. To date only limited public trading of the
Company's shares has occurred and there is no assurance the market will develop
sufficiently to create significant liquidity for the securities. There is also
no assurance as to the depth or liquidity of any such market or the prices at
which holders may be able to sell the Company's Common Stock. An investment in
the Common Stock may be highly illiquid. Investors may not be able to sell their
shares readily or at all when the investor needs or desires to sell.
Furthermore, under current provisions of Regulation T adopted by the Board of
Governors of the Federal Reserve System, so long as the market price of MediQuik
Common Stock is less than $5.00 per share and the Common Stock is traded in the
over-the-counter market, the Common Stock is not marginable and it is unlikely
that a lending institution would accept the Company's Common Stock as collateral
for a loan. See "MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS."
VOLATILITY OF STOCK PRICE. If the public market develops for the
Common Stock, many factors will influence the market prices. The Common Stock
will be subject to significant fluctuation in response to variations in
operating results of the Company, investor perceptions of the Company, supply
and demand, interest rates, general economic conditions and those specific to
the industry, developments with regard to the Company's activities, future
financial condition and management.
CERTAIN ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation provides for a classified Board of Directors. This provision
may inhibit a change in control of the Company. In addition, the Certificate
provides for "blank check" preferred stock, which may be issued without
stockholder approval. The ability of the Company to issue shares of preferred
stock, without further stockholder approval, may also inhibit a change in
control of the Company. See "DESCRIPTION OF SECURITIES."
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POTENTIAL ISSUANCE OF ADDITIONAL COMMON STOCK AND PREFERRED STOCK.
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
of which 5,944,803 shares are outstanding as of the date of this Registration
Period, excluding 250,000 shares issuable pursuant to warrants held by
financial, management and business advisors previously engaged by the
Company. See "SHARES ELIGIBLE FOR FUTURE SALES." To the extent it is
authorized, the Board of Directors of the Company will have the ability,
without seeking stockholder approval, to issue additional shares of Common
Stock in the future for such consideration as the Board of Directors may
consider sufficient. The issuance of additional Common Stock in the future
will reduce the proportionate ownership and voting power of the existing
stockholders. The Company is also authorized to issue up to 1,000,000 shares
of preferred stock, the rights and preferences of which may be designated in
series by the Board of Directors. To the extent of such authorization, such
designations may be made without stockholder approval. The designation and
issuance of series of preferred stock in the future would create additional
securities which may have dividend and liquidation preferences over the
Common Stock. The Company does not currently have any preferred stock issued
and outstanding.
CUMULATIVE VOTING AND PRE-EMPTIVE RIGHTS. There are no pre-emptive
rights in connection with the Company's Common Stock. Cumulative voting in
the election of directors is not permitted. Accordingly, the holders of a
majority of the shares of Common Stock, present in person or by proxy at a
duly called meeting, will be able to elect each member of the Company's Board
of Directors. See "DESCRIPTION OF SECURITIES."
APPLICABILITY OF LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS. Based
on recent trading prices reported on the National Quotation Bureau's Pink
Sheets, MediQuik Common Stock is considered a low priced security under rules
promulgated under the Exchange Act as currently in effect. Under these rules,
broker-dealers participating in transactions in low priced securities must
first deliver a risk disclosure document which describes the risks associated
with such stocks, the broker-dealer's duties, the customer's rights and
remedies, and certain market and other information, and make a suitability
determination approving the customer for low priced stock transactions based
on the customer's financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the
customer, and obtain specific written consent of the customer, and provide
monthly account statements to the customer. So long as MediQuik Common Stock
is trading below or near the threshold for low priced securities, the likely
effect of these restrictions will be a decrease in the willingness of
broker-dealers to make a market in the Common Stock, decreased liquidity of
the Common Stock and increased transaction costs for sales and purchases of
the Common Stock as compared to other securities. Generally, a low priced
security is an equity security other than a security that is (i) priced at
$5.00 or more, (ii) registered, or approved for registration, and traded on a
national securities exchange approved by the Securities and Exchange
Commission ("SEC"), (iii) authorized for quotation on an automated quotation
system sponsored by a registered securities association and approved by the
SEC, (iv) issued by an investment company registered under the Investment
Company Act of 1940, or (v) a security whose issuer has either net tangible
assets in excess of $2.0 million (or $5.0 million if the issuer has not been
in continuous operation for at least three years) or average revenues of at
least $6.0 million for the last three years.
YEAR 2000 READINESS.
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in
the year 2000, these date code fields will need to accept four digit entries
in order to distinguish dates beginning "20" from dates beginning "19". As a
result, computer systems and/or software used by many companies will need to
be upgraded to comply with "Year 2000" requirements. This is commonly known
as the "Year 2000 Issue." The Company is presently evaluating the impact of
the Year 2000 Issue as it affects its business operations and interfaces with
customers and vendors. The Company believes that its greatest Year 2000 risk
is related to reimbursement from managed care payors. Risk also exists
relative to the flow of inventory from vendors, including strips, monitors,
lancets and nurse triage, and relative to the fulfillment of orders. Minimal
risks are associated with the Company's information technologies, financial
systems and internal communications.
The Company has developed an internal team, consisting of Grant
Gables, Dale Toney and Larry Wedekind, (the "Team") to assess the Company's
Year 2000 readiness. The Team has completed a detailed inventory and risk
assessment of all systems and business operations and has confirmed the Year
2000 readiness of most of the Company's suppliers, including Bayer, the
Company's primary supplier of products. The Team is continuing to evaluate
the Year 2000 readiness of the Company's smaller suppliers and will increase
the inventory of products from any supplier that does not confirm its Year
2000 readiness. The Team engaged outside systems consultants to evaluate the
Company's
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internal computer systems. After performing an upgrade on the Company's
software, the consultants approved the Company's hardware and software
systems as Year 2000 compliant.
The Team has surveyed all of its managed care payors in an effort to
assess their Year 2000 readiness. All have responded that they are Year 2000
compliant. Nonetheless, as the Company deems the risk of non-payment by these
payors to be its greatest Year 2000 risk, the Company is attempting to
increase its cash reserves to cover any delay in its receipt of payment from
these managed care payors.
The Company believes that the Year 2000 project compliance will cost
approximately $5,000, of which it had spent $1,000 as of October 11, 1999.
The Company is committed to providing the necessary resources for Year 2000
compliance.
Prior to year end 1999, the Company plans to develop Year 2000
contingency plans for continuing operations in the event of disruptions due to
the Year 2000 Issue. There can be no assurance, however, that all instances of
noncompliance which could have a material adverse effect on the Company's
operations or financial condition have been identified. Additionally, there can
be no assurance that the systems of other companies with which the Company
transacts business will be corrected on a timely basis, or that such failure, or
a correction which is incompatible with the Company's information systems, would
not have a material adverse effect on the Company's operations or financial
condition. See "Management's Discussion and Analysis or Plan of Operation."
REPORTS TO SECURITY HOLDERS
Prior to the filing of this Registration Statement, the Company had
not been subject to the reporting requirements of the Securities Exchange Act
of 1934 and had not filed any reports with the SEC. The public may read and
copy any materials the Company files in the future with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the Company intends to
file all required reports with the SEC electronically. The SEC maintains an
Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC.
This site is available at http:/www.sec.gov. The Company also maintains an
Internet site which contains information about the Company. This site is
available at http:/www.mediquik.net. If the Company is not required to
deliver an annual report to security holders, the Company intends to
voluntarily send an annual report to its security holders, which report will
include audited financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This management discussion contains certain forward-looking
statements as identified by the use of words like "expects", "believes", and
"anticipates" and other similar phrases. Such statements reflect management's
current view of future financial performance based on certain assumptions,
risks and uncertainties. If any assumptions, risk or uncertainty factors
change, such changes may have a material impact on actual financial results.
The Company is under no obligation to revise any forward-looking statements
contained herein, which are as of the date hereof. Readers are cautioned to
not place undue reliance on any forward-looking statements contained in this
discussion.
OVERVIEW
MediQuik is an early stage healthcare services company specializing
in the delivery of medical supplies and chronic disease management programs to
chronically ill patients on behalf of managed care payors.
The Company's business was organized on April 7, 1998, and began
full-time operations in July 1998 as Old MediQuik. Effective December 31,
1998, Old MediQuik merged with and into Cash Flow Marketing, Inc., with Cash
Flow as the surviving corporation. Cash Flow changed its name to MediQuik
Services, Inc. immediately following the merger. This transaction has been
treated as a capital transaction in substance rather than a business
combination; thus, the accounting is similar to a reverse acquisition but no
goodwill and/or intangibles have been recorded. As a result Old MediQuik is
considered the accounting acquiror for financial statement purposes.
Therefore, the financial statements of the Company for periods prior to
January 1, 1999 are the financial statements of Old MediQuik, not Cash Flow.
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MediQuik is seeking to rapidly expand through internal sales growth
and strategic acquisition. During 1998 and the first half of 1999, the
Company established: (i) corporate marketing and fulfillment operations; (ii)
contractual relationships with product manufacturers; (iii) contractual
relationships with specialty service providers; (iv) contractual relationships
with insurance payors and provider networks; (v) a joint venture with a
pharmacy products distribution company; and (vi) initial patient enrollment
and fulfillment operations.
The Company offers comprehensive disease monitoring and maintenance
solutions by providing pharmacy and diagnostic products, disease education,
compliance review and reporting, and personal health resources via the U.S.
Mail, telecommunications and the Internet. MediQuik is focused on delivering
high quality products and services to chronic disease patients for insurance
organizations that bear the primary financial risk for healthcare treatment.
MediQuik also works directly with health maintenance organizations, preferred
provider organizations, self-insured companies and other third-party payors in
an effort to enhance the quality of life for chronically ill patients and
improve the financial outcomes for managed care payors.
The Company seeks to provide disease management products and services
to patients who: (i) require disease treatment and maintenance for long
periods of time; (ii) require medical testing products and prescription
medications; and (iii) require extensive disease education and self-management
tools.
The Company is currently serving patients with diabetes and is
developing new disease management programs for other high cost, chronic
diseases, such as respiratory disease and congestive heart failure. MediQuik
is focusing on certain diseases with large afflicted patient populations where
clinical research indicates that active management will improve the health
condition of the patient and reduce the financial burden for managed care
payors. Currently, the Company is in the process of conducting research
regarding the new disease management programs.
MediQuik offers patients and managed care plans a single source for
disease management products, mail-order medications, personalized education,
24 hour nurse assistance, and quarterly patient counseling. The Company
provides a complete line of blood glucose monitoring systems, testing strips,
lancets, swabs, insulin pumps, compliance and wound care products for diabetes
patients, and the Company is adding new products and services to complement
the existing disease management programs. The Company also provides billing
and collection activities on behalf of the patient to the healthcare plan.
Research indicates that patients who actively manage certain chronic
disease factors experience reduced disease complications and an enhanced
quality of life. The Company believes that a coordinated disease management
program, including convenient product delivery and billing, personalized
patient education, routine disease counseling, immediate access to healthcare
professionals, and ongoing compliance testing will improve clinical and
financial outcomes for patients and managed care payors.
Although initial Company revenues were derived primarily through
product sales, the Company has expanded beyond product delivery and has become
a full disease management provider working to improve patient care and reduce
costs to managed care payors. The Company currently offers managed care
agreements based on fee-for-service and capitated fee arrangements.
MediQuik receives patients primarily through agreements with managed
care plans and provider networks. Management believes that enrollment in
managed care plans has increased in recent years and, as a result, patient
referrals generated through the managed care plans should increase.
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REVENUE FROM OPERATIONS
Subsequent to the issuance of the Company's financial statements,
management determined that certain issuances of common stock and warrants to
third parties in exchange for services provided were not appropriately
recorded; that the weighted average number of shares were calculated
incorrectly; that certain interest expense was misclassified; the repurchase
of certain unexercised equity instruments had not been recorded; and that the
inventory and related payable balances originally reported were in error. As
a result, the accompanying financial information has been restated to give
effect to the correction of these errors. See Note 11 to the financial
statements included herein.
The Company commenced operations in July 1998 and received its initial
revenue in August 1998. For the period from April 7, 1998 to December 31,
1998, the Company reported revenue of $372,226. Total revenue increased to
$720,854 for the six months ended June 30, 1999.
Revenue growth was primarily derived from diagnostic product sales to
managed care plans, providers and patients. The Company expects increased
revenue from direct sales to managed care plans and decreased revenue from
sales to other managed care providers. The Company expects to realize
significant improvement in gross margin percentages with increased direct
managed care plan revenues. Cash flow from operations has not been sufficient
to fund all of the Company's initial operating activities to date. See
"LIQUIDITY AND CAPITAL RESOURCES."
GROSS PROFIT
The Company commenced operations in July 1998 and received its initial
gross profit in August 1998. For the period from April 7, 1998 to December
31, 1998, the Company reported gross profit of $54,673 or 14.7% of revenue for
the period. Gross profit increased to $115,495, or 16.0% of revenue, for the
six months ended June 30, 1999.
Gross profit was derived from diagnostic product sales to managed care
payors and patients. The gross profit percentage is the result of volume
purchase discounts and immediate payment on delivery terms. The Company
expects an increase in gross profit percentage with increased direct sales to
managed care plans.
OPERATING EXPENSES
For the period from April 7, 1998 to June 30, 1998, operating expenses
were $64,419. Operating expenses increased to $1,890,329 for the six months
ended June 30, 1999, an increase of 2,834% reflecting initiation of the
Company's operating activities. For the period from April 7, 1998 to December
31, 1998, operating expenses were $856,532. The increase in operating expenses
is primarily associated with the initiation of operating business activities
including marketing and selling expenses, general and administrative costs,
consultant's compensation and the hiring and training of staff.
NET LOSS
The Company experienced a net loss of $829,854 for 1998, primarily
attributed to the development of the Company's business operations. Net
loss increased from $68,794 for the period from April 7, 1998 to June 30, 1998
in comparison to $1,756,343 for the six months ended June 30, 1999. The
Company expects the net loss to decrease with increased revenues and gross
profits from business operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements to date have been to fund
working capital in order to support growth of net sales. Because revenue from
operations has been inadequate to completely fund these requirements, the
Company has supplemented its revenue from operations with proceeds from its
private offerings of securities, loans and extensions of credit from vendors
in order to meet its working capital requirements. The Company anticipates
that as revenue from sales to managed care plans increases, the Company will
be able to satisfy all of its funding requirements for operations from such
revenue. The Company had an aggregate of $58,243 in cash as of June 30, 1999.
The Company has $130,000 of 15% Subordinated Debentures due in June
and December 1999. The Company paid $15,000 of the debentures in July 1999,
and has received an extension from June to December 1999 with respect to
$50,000 of the debentures, plus accrued interest, and an extension from
December to June 28, 2000 with respect to $5,000 of the debentures, plus
accrued interest. The debentures are owed to significant shareholders of the
Company. The Company has accrued wages of $110,000 primarily to Company
officers and insiders who are significant shareholders in the Company. The
Company expects to pursue additional equity and debt financing to meet future
working capital requirements.
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Accounts receivable are primarily derived from payments due to the
Company by managed care plans and providers. As revenues increase, the Company
expects working capital requirements to increase. Standard medical billing
cycles for managed care plans average between 45-60 days. The Company expects
to experience similar billing cycles as direct managed care plan business
increases.
The Company had no lines of credit as of June 30, 1999. In July 1999,
the Company obtained a verbal agreement to provide up to $100,000 of credit
so long as an officer of the Company maintains sufficient compensating
balances in accounts with the lender. Pursuant to this arrangement, R. Craig
Christopher, Chief Operating Officer of the Company, deposited $100,000 with
First Bank Texas N.A. ("First Bank") and transferred $35,000 to the Company's
account, which the Company subsequently repaid to Mr. Christopher without
interest. Mr. Christopher currently maintains a $100,000 compensating balance
with First Bank to support the Company's liquidity needs. Neither First Bank
nor Mr. Christopher have made any commitment to continue this practice, and
it could be terminated by either First Bank or Mr. Christopher at any time.
Pursuant to an asset purchase agreement with Scardello Marketing
Group, LLC ("SMG") in July 1999, the Company assumed a Commercial Revolving or
Draw Note, dated May 19, 1999, in the original principal amount of $25,000
executed by SMG for the benefit of First Bank and with a maturity date of June
5, 2001. The outstanding principal amount of the note is currently $25,000,
which bears interest at a variable rate per annum of 1.5% over the prime rate
as quoted and adjusted by First Bank. The Company expects to seek additional
lines of credit to finance inventory purchase requirements associated with
revenue growth.
YEAR 2000 READINESS
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in
the year 2000, these date code fields will need to accept four digit entries
in order to distinguish dates beginning "20" from dates beginning "19". As a
result, computer systems and/or software used by many companies will need to
be upgraded to comply with "Year 2000" requirements. This is commonly known
as the "Year 2000 Issue." The Company is presently evaluating the impact of
the Year 2000 Issue as it affects its business operations and interfaces with
customers and vendors. The Company believes that its greatest Year 2000 risk
is related to reimbursement from managed care payors. Risk also exists
relative to the flow of inventory from vendors, including strips, monitors,
lancets and nurse triage, and relative to the fulfillment of orders. Minimal
risks are associated with the Company's information technologies, financial
systems and internal communications.
The Company has developed an internal team, consisting of Grant
Gables, Dale Toney and Larry Wedekind, (the "Team") to assess the Company's
Year 2000 readiness. The Team has completed a detailed inventory and risk
assessment of all systems and business operations and has confirmed the Year
2000 readiness of most of the Company's suppliers, including Bayer, the
Company's primary supplier of products. The Team is continuing to evaluate
the Year 2000 readiness of the Company's smaller suppliers and will increase
the inventory of products from any supplier that does not confirm its Year
2000 readiness. The Team engaged outside systems consultants to evaluate the
Company's internal computer systems. After performing an upgrade on the
Company's software, the consultants approved the Company's hardware and
software systems as Year 2000 compliant.
The Team has surveyed all of its managed care payors in an effort to
assess their Year 2000 readiness. All have responded that they are Year 2000
compliant. Nonetheless, as the Company deems the risk of non-payment by these
payors to be its greatest Year 2000 risk, the Company is attempting to
increase its cash reserves to cover any delay in its receipt of payment from
these managed care payors.
The Company believes that the Year 2000 project compliance will cost
approximately $5,000, of which it had spent $1,000 as of October 11, 1999.
The Company is committed to providing the necessary resources for Year 2000
compliance.
Prior to year end 1999, the Company plans to develop Year 2000
contingency plans for continuing operations in the event of disruptions due to
the Year 2000 Issue. There can be no assurance, however, that all instances
of noncompliance which could have a material adverse effect on the Company's
operations or financial condition have been identified. Additionally, there
can be no assurance that the systems of other companies with which the Company
transacts business will be corrected on a timely basis, or that such failure,
or a correction which is incompatible with the Company's information systems,
would not have a material adverse effect on the Company's operations or
financial condition.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive and administrative offices are located at
4295 San Felipe, Suite 200, Houston, Texas 77027, which facilities are leased
by the Company from an unaffiliated third party. The Company's lease on these
premises covers 3,820 square feet and expires on June 30, 2004. The monthly
rental rate for such premises is $5,252.50. Because services related to many
of the Company's business activities are provided by contractors or
consultants rather than Company employees, the Company requires only limited
office space and facilities for fulfillment operations. The Company believes
that the current facilities are adequate for its present needs. Furthermore,
the Company believes that suitable additional or replacement space will be
available when required on terms acceptable to the Company. The Company has
no present intent to invest in real estate, real estate mortgages or persons
primarily engaged in real estate activities, however the Company may change
this policy at any time without a vote of security holders. The Company has
obtained insurance to cover certain risks related to the premises as required
by the terms of the lease.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of December 8, 1999 as to (i)
each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock, (ii) each Director of the Company, (iii) each
Executive Officer of the Company and (iv) all Directors and Officers of the
Company as a group.
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<TABLE>
<CAPTION>
Name of Shares of Common Percent
Beneficial Owner Stock Owned(1) of Class(2)
- ---------------- ---------------- -----------
<S> <C> <C>
Fisher Management Group, Inc.(3) 1,317,642 22.16%
3121 Buffalo Speedway, Ste. 5407
Houston, Texas 77098
Grant M. Gables(4) 972,756 16.36%
11549 Riverview Way
Houston, Texas 77077
Jocody Financial , Inc. 474,543 7.98%
5773 Woodway, Suite 290
Houston, Texas 77057
Howard B. Butler, Jr. 313,784 5.28%
7721 San Felipe
Houston, Texas 77063
Roger Cotrofeld, Jr. 306,637 5.16%
123 Mohawk Drive
Fort Plain, NY 13339
R. Craig Christopher 272,865 4.59%
8335 Ariel
Houston, Texas 77074
William Marciniak (5) 332,373 5.59%
908 Antler
Schertz, Texas 78164
Benjamin J. Scardello (6) 171,450 2.88%
17003 Windrow Drive
Spring, Texas 77379
Lawrence J. Wedekind (7) 21,500 0.36%
16266 Salmon Drive
Spring, Texas 77379
All Officers and Directors as a 2,084,728 35.07%
group (6 persons)
</TABLE>
- -------------
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if such person has or
shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities if that
person has the right to acquire beneficial ownership within 60 days.
Accordingly, more than one person may be deemed to be a beneficial
owner of the same securities. Unless otherwise indicated by footnote,
the named entities or individuals have sole voting and investment power
with respect to the Shares of Common Stock beneficially owned.
(2) Represents the number of shares of Common Stock beneficially owned by
each named person or group, expressed as a percentage of all of the
shares of such class outstanding as of such date
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<PAGE>
without giving effect to 250,000 shares issuable pursuant to warrants
held by consultants and advisors to the Company. See "SHARES ELIGIBLE
FOR FUTURE SALES."
(3) Such shares are attributable to Fisher Management Group, Inc. in its
capacity as general partner of various limited partnerships which each
own shares of Common Stock.
(4) Includes 474,543 shares held by Jocody Financial, Inc., a corporation
wholly owned by Mr. Gables' spouse.
(5) Includes 196,208 shares held by Mr. Marciniak's minor children
(6) Includes 30,708 shares held by Mr. Scardello's spouse.
(7) Includes 11,500 shares held by Greater Gulf Medical Alliance, Inc., of
which Mr. Wedekind is the sole shareholder and serves as president and
chief executive officer.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information concerning the
Company's executive officers and directors. The members of the Board of
Directors are divided into three classes, as nearly equal in number as
possible. Generally, members are elected for a three-year term, with the term
of one class expiring each year. Howard B. Butler, Jr. is a Class I director,
William J. Marciniak is a Class II director, and Grant M. Gables is a Class
III director. The term of the Class I director expires at the Company's next
annual meeting of stockholders. The terms of the Class II and Class III
directors expire at the annual meeting of stockholders to be held in 2000 and
2001, respectively. At each annual meeting of stockholders, directors of the
class the term of which then expires will be elected by the holders of the
Common Stock to succeed those directors whose terms are expiring. Officers
are elected annually by, and serve at the discretion of, the Company's Board
of Directors.
<TABLE>
<CAPTION>
Name Age(1) Position
---- ------ --------
<S> <C> <C>
Lawrence J. Wedekind...............44 Chief Executive Officer
Grant M. Gables....................34 President and Director
William J. Marciniak...............49 Vice President of Marketing and Director
Howard B. Butler, Jr...............52 Secretary, Treasurer, Corporate Counsel and Director
R. Craig Christopher...............55 Chief Operating Officer
Benjamin J. Scardello..............45 Vice President of Managed Care Services
</TABLE>
- -------------------
(1) As of December 8, 1999.
LAWRENCE J. WEDEKIND has served as Chief Executive Officer of the
Company since September 7, 1999. In addition, Mr. Wedekind serves as
President and Chief Executive Officer of both IntegraNet Gulf Coast, Inc., an
independent practice association, and Greater Gulf Health Plan, Inc., a
non-profit occupational medicine network. Mr. Wedekind, 44, has 20 years of
experience in the healthcare industry, including management, marketing and
strategic development both in for-profit and not-for-profit entities. Since
1997, Mr. Wedekind has served as President and Chief Executive Officer of
Greater Gulf Medial Alliance, Inc., a comprehensive healthcare management
service organization. From 1996 to 1997, Mr. Wedekind managed and developed
multiple clinics for William D. Clark, M.D., who currently serves as medical
director of both IntegraNet Gulf Coast and Greater Gulf Health Plan. From
1995 to 1996, Mr. Wedekind served as administrator of Yale Hospital, a 99-bed
hospital located in Houston, Texas which was suffering financial difficulties
prior to Mr. Wedekind's engagement. From 1994, he served as the
court-appointed administrator of Twin Oaks Medical Center, a hospital located
in Ft. Worth, Texas, which was being reorganized under bankruptcy proceedings
pursuant to Chapter 11 of the United States Bankruptcy Code. In 1977, Mr.
Wedekind received a Bachelor of Science degree in Business Administration
from the University of Florida and, in 1979, he also received a Masters of
Health and Hospital Administration from the same school.
GRANT M. GABLES has been an officer and director of the Company
since April 7, 1998. Mr. Gables has served as executive management with three
health care billing and technology companies since January 1995. From March
1997 until June 1998, he was Vice President of Marketing for MediNet EDI
Solutions with responsibility for strategic
19
<PAGE>
planning and development of technology for health care organizations. From
September 1995 until February 1997, he was Executive Vice President of
Reimbursement Assurance Corporation with executive responsibility for
operations and sales and emphasis on information delivery technology for
health care groups. From January 1995 until August 1995, Mr. Gables was with
Rapid Reimbursement, Inc. as Chief Operating Officer with responsibility for
installation of medical billing capability and management of claims
processing and medical billing. From March 1994 until December 1994, he was
General Partner of GMG Capital Funding Company with responsibility for
investment analysis and financial planning for health care companies. He was
Senior Vice President of International Trade Exchange, Inc. from May 1992
until March 1994. Mr. Gables graduated from Texas A & M University in 1987
with a Bachelors of Business Administration degree with a major in Finance
and from the University of Houston in December 1993 with a Masters of
Business Administration - Finance with concentrations in Finance and
Marketing.
WILLIAM J. MARCINIAK has been an officer and director of the Company
since April 7, 1998. Since 1989, Mr. Marciniak has served as an independent
consultant to the health care industry. In such capacity he developed
employer funded employee stock ownership plans for the Mediplex Companies, an
infusion therapy company. In addition, he developed a medical receivables
securitization program for Advacare, Inc., a medical billing company, that
was funded by Prudential and arranged a $100,000,000 private placement for
Medical Funding, Inc. and $100,000,000 credit facility for Home Health Plan,
Inc. for the acquisition of infusion pharmacies. From 1982 to 1989 he was
President of Bankers United Trust and from 1974 to 1982 Regional Manager of
International Bank and Trust. Mr. Marciniak graduated from the Southern
Illinois University in 1973 with a major in Business Administration and a
minor in mathematics.
HOWARD B. BUTLER, JR. has been an officer and director of the
Company since April 7, 1998. Mr. Butler has been a practicing attorney in
Houston, Texas since 1972 and a sole practitioner since 1986. He is a 1969
graduate of Lamar University, Beaumont, Texas with a Bachelor of Business
Administration in economics and a 1972 graduate of the University of Houston
College of Law with a Doctor of Jurisprudence degree.
R. CRAIG CHRISTOPHER has been an officer of the Company since July
1, 1998. His primary responsibilities involve the development of strategic
alliances and distribution channels for MediQuik's health care products and
services. Prior to joining MediQuik, Mr. Christopher held senior level
management positions with a number of health care companies, most notably as
founder and Chairman of the Board of Directors of Taylor Medical, Inc., a
distributor of health supplies ("Taylor"). During his tenure, Taylor expanded
from a single location in Texas to 32 offices in 14 states having 150 sales
representatives and achieved total annual sales of $100 million. While at
Taylor, Mr. Christopher developed methods for marketing medical supplies to
physicians and new training and communications procedures to make the sales
force more responsive. In addition, Mr. Christopher led the development of
strict operating controls for Taylor. Mr. Christopher is a 1966 graduate of
Rice University where he was a scholarship athlete.
BENJAMIN J. SCARDELLO has been an officer of the Company since July 27,
1999. Mr. Scardello has held senior management and officer positions with both
regional and national firms in the retail and health care industries. Prior to
joining MediQuik, he was the founder and President of Scardello Marketing Group,
L.L.C. ("SMG"), which was formed to support the national marketing plans of
MediQuik. Prior to his association with MediQuik, Mr. Scardello served as a Vice
President for FH&R Healthcare Services, Inc., a Houston based information
management company. While at FH&R, he co-developed a series of new healthcare
information technologies designed to help physicians, hospital and insurance
companies improve their ability to manage health care operations under a managed
care reimbursement environment. In the early 1990's, Mr. Scardello founded and
served as President of Triad, a medical billing company with over 200 employees
serving leading healthcare providers throughout the nation.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the period ended December 31,
1998 all compensation received or accrued by the Chief Executive Officer and
by each of the other most highly compensated executive officers ("Named
Executive Officers"). As of the date hereof, the Company has not entered into
employment agreements with the Named Executives.
20
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------------------
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION (1) RESTRICTED STOCK
------------------------
SALARY (2) BONUS AWARDS (3)
- ----------------------------------------------- -------------------------------- -------------------------------------
<S> <C> <C> <C>
Grant M. Gables
President and
Chief Executive Officer (4)........... $ 56,000 - $400
William J. Marciniak
Vice President of Marketing........... $ 48,000 -- $100
R. Craig Christopher
Chief Operating Officer $ 34,000 - $250
</TABLE>
- ----------------
(1) The Named Executives received no compensation for periods prior to
April 7, 1998, the date of organization of Old MediQuik.
(2) Includes 1998 salary deferrals by Mr. Gables, Mr. Marciniak and Mr.
Christopher of $14,000, $14,000 and $12,625, respectively.
(3) Based on an estimated value of $.001per share for shares of restricted
stock issued by Old MediQuik pursuant to the Stock Incentive Plan
(defined below). The issuers right to repurchase the shares of
restricted stock expired June 17, 1999.
(4) Mr. Gables served as Chief Executive Officer until September 7, 1999,
at which time Mr. Lawrence J. Wedekind assumed the Chief Executive
Officer position.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has not entered into employment agreements with the
Named Executives. Effective September 7, 1999, the Company entered into a one
year employment agreement with Mr. Wedekind which is renewable for additional
one year periods at Mr. Wedekind's option if his efforts result in providing
the Company with an additional 40,000 patients by the end of his initial
term. The agreement provides for an annual salary equal to $150,000 (the
"Salary") which is initially payable $48,000 in cash and 51,000 shares of
Common Stock. The Common Stock portion of the Salary will be issued in equal
monthly installments and the cash portion will be paid in accordance with the
Company's payroll practices. When the Company achieves certain financial
performance, Mr. Wedekind may elect to receive up to 50% of the Salary in
cash. In addition, the Company issued 10,000 shares of Common Stock to
Mr. Wedekind in consideration of his execution of the employment agreement.
The employment agreement provides that the Company may not terminate Mr.
Wedekind's employment without cause during the initial term. If he is
terminated without cause during any subsequent year of employment, Mr.
Wedekind will be entitled to receive the compensation and benefits payable
over the remaining term of the employment agreement plus any other earned and
unpaid compensation. The employment agreement contains covenants limiting
competition with the Company during the term of the agreement and for an
additional one year period following termination of employment, except for
termination by the Company without cause.
STOCK INCENTIVE PLAN
The Board of Directors of the Company has approved and adopted by
written consent, the MediQuik Services, Inc. Stock Incentive Plan (the "Stock
Incentive Plan"). The purpose of the Stock Incentive Plan is to provide
deferred stock incentives to certain key employees and directors of the
Company who contribute significantly to the long-term performance and growth
of the Company. The following description provides a summary of the Stock
Incentive Plan. Such summary does not purport to be complete. Reference is
made to the more detailed provisions of the Company's Stock Incentive Plan,
which is included as an exhibit to this Registration Statement.
21
<PAGE>
GENERAL PROVISIONS OF THE STOCK INCENTIVE PLAN. The Stock Incentive
Plan is administered by the Board of Directors or a committee of the Board of
Directors duly authorized and given authority by the Board of Directors to
administer the Stock Incentive Plan (the Board of Directors or such
designated Committee as administrator of the Stock Incentive Plan shall be
hereinafter referred to as the "Board"). The Board has exclusive authority to
administer the Stock Incentive Plan including without limitation, to select
the employees to be granted awards under the Stock Incentive Plan, to
determine the type, size and terms of the awards to be made, to determine the
time when awards will be granted, and to prescribe the form of instruments
evidencing awards made under the Stock Incentive Plan. The Board is
authorized to establish, amend and rescind any rules and regulations relating
to the Stock Incentive Plan as may be necessary for efficient administration
of the Stock Incentive Plan. Board action with respect to the Stock Incentive
Plan requires a majority vote of the members of the Board taken at a meeting
at which a quorum is present (currently two directors).
Three types of awards are available under the Stock Incentive Plan:
(i) nonqualified stock options or incentive stock options, (ii) stock
appreciation rights, and (iii) restricted stock. An aggregate of 1,500,000
shares of Common Stock may be issued pursuant to the Stock Incentive Plan,
subject to adjustment to prevent dilution due to merger, consolidation, stock
split or other recapitalization of the Company.
The Stock Incentive Plan does not affect the right or power of the
Company or its stockholders to make or authorize any major corporate
transaction such as a merger, dissolution or sale of assets. Under terms of
the Stock Incentive Plan, if the Company is dissolved, liquidated or merged
out of existence, each participant will be entitled to a benefit as though he
became fully vested in all previous awards to him immediately prior to or
concurrently with such dissolution, liquidation or merger. The Board may
provide that an option or stock appreciation right will be fully exercisable,
or that a share of restricted stock will be free of such restriction upon a
change in control of the Company.
The Stock Incentive Plan may be amended at any time and from time to
time by the Board of Directors but no amendment which increases the aggregate
number of shares of Common Stock that may be issued pursuant to the Stock
Incentive Plan will be effective unless it is approved by the stockholders of
the Company. The Stock Incentive Plan will terminate upon the earlier of the
adoption of a resolution by the Board of Directors terminating the Stock
Incentive Plan, or ten years from the date of the Stock Incentive Plan's
initial approval by the Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF ASSETS
Effective April 7, 1998, MediQuik Services, L.L.C., a Nevada limited
liability company ("MSL"), transferred its interest in six provider
agreements to the Company in exchange for 2,750,000 shares of Common Stock
(the "MSL Shares"), the forgiveness of MSL's indebtedness to Old MediQuik in
the amount of $64,404, and the assumption by the Company of payment
obligations under the 15% Subordinated Debentures (the "Debentures") issued
by MSL in the aggregate principal amount of $130,000. The Debentures are
payable in two equal installments due on June 30, 1999 and December 31, 1999.
The Debentures accrue interest at a rate of 15% per annum, which is payable
quarterly. Fisher Management Group, Inc., which beneficially owns 22.20% of
the outstanding Common Stock, is the General Manager of MSL.
Jana J. Gables, Howard B. Butler, Jr., and Grant M. Gables acted as
promoters of the Company and Jacody Financial , Inc., a corporation owned by
Jana J. Gables, wife of Grant M. Gables, received 451,000 of the MSL Shares,
as a designee of MSL in proportion to its interest in the MSL Assets. Grant
M. Gables and Howard B. Butler, Jr. purchased 88,000 and 22,000 shares,
respectively, in connection with the organization of the Company for a
purchase price of $.01 per share.
Effective July 27, 1999, the Company acquired certain assets of
Scardello Marketing Group LLC ("SMG") in exchange for $25,000 in cash, the
forgiveness of SMG's indebtedness to the Company in the amount of $15,396,
and 330,000 shares of Common Stock. The assets acquired from SMG include
contract rights, rights to assumed names, revenues and accounts receivable,
customer lists, books and records, claims or causes of action and computer
hardware
22
<PAGE>
and software. Benjamin J. Scardello, an executive officer of MediQuik, is the
managing member and 57.5% owner of SMG.
FINANCIAL CONSULTING AND OTHER SERVICE AGREEMENTS
Effective April 7, 1998 the Company entered into a Consulting
Agreement with The Fisher Group, an Oklahoma limited partnership ("Fisher")
and an affiliate of the Company, for acquisition and financial consulting
services to continue until terminated by either party. The Fisher agreement
initially provided for the payment of a monthly fee in the amount of $8,000
plus reimbursement of expenses. In August, 1999, the Fisher agreement was
amended, reducing the monthly fee to $2,000 plus reimbursement of expenses.
Fisher Management Group, Inc., which beneficially owns 22.20% of the
outstanding Common Stock, is the general partner of Fisher. The Company
believes that the Fisher agreement provides for services on terms no less
favorable to the Company than those which would be obtained from unrelated
parties.
Effective April 7, 1998 the Company entered into a Consulting
Agreement with Jocody Financial, Inc. ("Jocody"), an affiliate of the
Company, for acquisition and financial consulting services to continue until
terminated by either party. The Jocody agreement initially provided for the
payment of a monthly fee in the amount of $8,000 plus reimbursement of
expenses. In August, 1999, the Jocody agreement was amended, reducing the
monthly fee to $2,000 plus reimbursement of expenses. Jocody owns 8.00% of
the Common Stock of the Company and is wholly-owned by Jana J. Gables. The
Company believes that the Jocody agreement provides for services on terms no
less favorable to the Company than those which would be obtained from
unrelated parties.
The Company entered into an independent sales contractor and
provider agreement with Horizon Medical Services, San Antonio, Texas,
("Horizon") to continue until the agreement is terminated by either party in
accordance with its terms. The Horizon agreement provides for payment to
Horizon of an amount equal to 50% of the profit after deduction of all costs
from all sales of products or services procured by Horizon. William J.
Marciniak, a director and officer of the Company, is the owner and General
Manager of Horizon. The Company believes that the Horizon agreement provides
for services on terms no less favorable to the Company than those that would
be obtained from unrelated parties.
In June, 1999, the Company entered into an Agreement with Scardello
Marketing Group LLC ("SMG") for SMG to assist in the acquisition of a
diabetic pharmaceutical supply company ("DPS, Co.") by MediQuik and in the
financing of that acquisition. Upon the acquisition of DPS, Co. by the
Company, SMG will receive 200,000 shares of MediQuik Common Stock or options
to acquire such MediQuik Common Stock in consideration for the successful
acquisition. In addition, if the Company acquires DPS, Co., SMG will receive
100,000 shares of Common Stock or options to acquire such MediQuik Common
Stock in consideration for arranging financing for the acquisition on terms
as set forth in the Agreement, whether or not MediQuik utilizes the financing
source. Benjamin J. Scardello, an executive officer of MediQuik, is the
managing member and 57.5% owner of SMG. See "SHARES ELIGIBLE FOR FUTURE
SALES." The Company believes that the Scardello Agreement provides for
services on terms no less favorable to the Company than those that would be
obtained from unrelated parties.
ITEM 8. DESCRIPTION OF SECURITIES
The following summary is a description of certain provisions of the
Company's Certificate of Incorporation and By-laws. Reference is made to the
more detailed provisions of the Company's Certificate of Incorporation and
By-laws, which are included as exhibits to this Registration Statement.
COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance
of up to 25,000,000 shares of Common Stock, $.001 par value, of which
5,944,803 shares are issued and outstanding as of December 8, 1999. The
holders of Common Stock are entitled to one vote per share on the election of
directors and on all other matters submitted to a vote of stockholders.
Shares of Common Stock do not have preemptive rights or cumulative voting
rights. The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes, as nearly equal in
23
<PAGE>
number as possible, and that at each annual meeting of stockholders all of
the directors of one class shall be elected for a three-year term.
The holders of Common Stock are entitled to receive dividends
ratably when, as and if declared by the Board of Directors, and upon
liquidation are entitled to share ratably in the Company's net assets.
Payment of dividends on the Common Stock may become subject to restrictions
contained in any agreement in connection with the future issuance of
preferred stock and to prior payment of dividends on future issuances of
preferred stock. See " - PREFERRED STOCK." The decision to pay dividends is
subject to such other financial considerations as the Board of Directors of
the Company may deem relevant. No assurance can be given as to the timing or
amount of any dividend that the Company may declare on the Common Stock.
PREFERRED STOCK
The Certificate of Incorporation of the Company authorizes the
issuance of up to 1,000,000 shares of serial preferred stock, $.001 par value
(the "Preferred Stock"), of which none have been issued or reserved for
issuance.
The Board of Directors of the Company is authorized by its
Certificate of Incorporation, without any action on the part of stockholders,
to issue Preferred Stock in one or more series, and to fix and state the
powers, designations, preferences and relative, participating, optional or
other special rights of the shares of each series, and the qualifications,
limitation or restrictions thereof, including, (1) the distinctive serial
designation and the number of shares constituting such series; (2) the rights
in respect of dividends, if any, to be paid on the shares of such series,
whether dividends shall be cumulative and, if so, from which date or dates,
the payment dates for dividends, and the participating or other special
rights, if any, with respect to dividends; (3) the voting powers, full or
limited, if any, of the shares of such series; (4) whether the shares of such
series shall be redeemable and, if so, the price or prices at which, and the
terms and conditions upon which such shares may be redeemed; (5) the amount
or amounts payable upon the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation; (6)
whether the shares of such series shall be entitled to the benefits of a
sinking or retirement fund to be applied to the purchase or redemption of
such shares; (7) whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or any other
series, the conversion price or prices, or the rate or rates of exchange; (8)
the subscription or purchase price and form of consideration for which the
shares of such series shall be issued; and (9) whether the shares of such
series which are redeemed or converted shall have the status of authorized
but unissued shares of serial preferred stock and whether such shares may be
reissued as shares of the same or any other series of serial preferred stock.
Thus, the Board of Directors, without stockholder approval, may authorize the
issuance of Preferred Stock which could make it more difficult for another
company to effect certain business combinations with the Company.
DEFENSES AGAINST HOSTILE TAKEOVERS
INTRODUCTION. While the following discussion summarizes the reasons
for, and the operation and effects of, certain provisions of the Company's
Certificate of Incorporation which management has identified as potentially
having an anti-takeover effect, it is not intended to be a complete
description of all potential anti-takeover effects. Reference is made to the
more detailed provisions of the Company's Certificate of Incorporation and
By-Laws, which are included as exhibits to this Registration Statement.
In general, the anti-takeover provisions in Delaware law and the
Company's Certificate of Incorporation are designed to minimize the Company's
susceptibility to sudden acquisitions of control which has not been
negotiated with and approved by the Company's Board of Directors. As a
result, these provisions may tend to make it more difficult to remove the
incumbent members of the Board of Directors. The provisions would not
prohibit an acquisition of control of the Company or a tender offer for all
of the Company's capital stock. The provisions are designed to discourage any
tender offer or other attempt to gain control of the Company in a transaction
that is not approved by the Board of Directors, by making it more difficult
for a person or group to obtain control of the Company in a short time and
then impose its will on the remaining stockholders. However, to the extent
these provisions successfully discourage the acquisition of control of the
Company or tender offers for all or part of the Company's capital stock
without approval of the Board of Directors, they may have the effect of
preventing an acquisition or tender offer which might be viewed by
stockholders to be in their best interests.
24
<PAGE>
Tender offers or other non-open market acquisitions of stock are
usually made at prices above the prevailing market price of a Company's
stock. In addition, acquisitions of stock by persons attempting to acquire
control through market purchases may cause the market price of the stock to
reach levels which are higher than would otherwise be the case. Anti-takeover
provisions may discourage such purchases, particularly those of less than all
of the Company's stock, and may thereby deprive stockholders of an
opportunity to sell their stock at a temporarily higher price. These
provisions may therefore decrease the likelihood that a tender offer will be
made, and, if made, will be successful. As a result, the provisions may
adversely affect those stockholders who would desire to participate in a
tender offer. These provisions may also serve to insulate incumbent
management from change and to discourage not only sudden or hostile takeover
attempts, but any attempts to acquire control which are not approved by the
Board of Directors, whether or not stockholders deem such transactions to be
in their best interests.
AUTHORIZED SHARES OF CAPITAL STOCK. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,000,000 Shares of serial
preferred stock. When issued, the Preferred Stock will become additional
capital stock required to be purchased by an acquiror. The Board of Directors
could authorize the issuance of Preferred Stock with voting rights increasing
the number of votes required to approve any proposed acquisition. The Board
of Directors of the Company can determine the extent, if any, to which the
holders of shares of Preferred Stock of any series will be entitled to vote
as a class or otherwise with respect to the election of directors or
otherwise, subject to certain limitations under Delaware law. If the Board of
Directors of the Company decides to issue an additional class of voting
preferred stock to a person opposed to a proposed acquisition, such person
might be able to prevent the acquisition single- handedly.
STOCKHOLDER MEETINGS. Delaware law provides that the annual
stockholder meeting may be called by a corporation's board of directors or by
such person or persons as may be authorized by a corporation's certificate of
incorporation or By-Laws. The Company's Certificate of Incorporation provides
that annual stockholder meetings may be called only by the Company's Board of
Directors or a duly designated committee of the Board. Although the Company
believes that this provision will discourage stockholder attempts to disrupt
the business of the Company between annual meetings, its effect may be to
deter hostile takeovers by making it more difficult for a person or entity to
obtain immediate control of the Company between annual meetings as a forum to
address certain other matters and discourage takeovers which are desired by
the stockholders. The Company's Certificate of Incorporation also provides
that stockholder action may be taken only at a special or annual stockholder
meeting and not by written consent.
CLASSIFIED BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS. The
Company's Certificate of Incorporation provides that the Company's Board of
Directors is to be divided into three classes which shall be as nearly equal
in number as possible. The directors in each class serve for terms of three
years, with the terms of one class expiring each year. Each class currently
consists of approximately one-third of the number of directors. Each director
will serve until his successor is elected and qualified.
A classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of the Company's outstanding
stock, to force an immediate change in the composition of a majority of the
Board of Directors. Since the terms of only one-third of the incumbent
directors expire each year, it requires at least two annual elections for the
stockholders to change a majority, whereas a majority of a non-classified
Board may be changed in one year. In the absence of the provisions of the
Company's Certificate of Incorporation classifying the Board, all of the
directors would be elected each year. The provision for a staggered Board of
Directors affects every election of directors and is not triggered by the
occurrence of a particular event such as a hostile takeover. Thus a staggered
Board of Directors makes it more difficult for stockholders to change the
majority of directors even when the reason for the change would be unrelated
to a takeover.
The Company's Certificate of Incorporation provides that a director
may not be removed except for cause by the affirmative vote of the holders of
75% of the outstanding Shares of capital stock entitled to vote at an
election of directors. This provision may, under certain circumstances,
impede the removal of a director and thus preclude the acquisition of control
of the Company through the removal of existing directors and the election of
nominees to fill in the newly created vacancies. The supermajority vote
requirement would make it difficult for the stockholders of the Company to
remove directors, even if the stockholders believe such removal would be
beneficial.
25
<PAGE>
RESTRICTION OF MAXIMUM NUMBER OF DIRECTORS AND FILLING VACANCIES ON
THE BOARD OF DIRECTORS. Delaware law requires that the board of directors of
a corporation consist of one or more members and that the number of directors
shall be set by the corporation's By-Laws, unless it is set by the
corporation's certificate of incorporation. The Company's Certificate of
Incorporation provides that the number of directors (exclusive of directors,
if any, to be elected by the holders of preferred stock) shall not be less
than one or more than 15, as shall be provided from time to time in
accordance with the Company By-Laws. The power to determine the number of
directors within these numerical limitations and the power to fill vacancies,
whether occurring by reason of an increase in the number of directors or by
resignation, is vested in the Company's Board of Directors. The overall
effect of such provisions may be to prevent a person or entity from quickly
acquiring control of the Company through an increase in the number of the
Company's directors and election of nominees to fill the newly created
vacancies and thus allow existing management to continue in office.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH
RELATED PERSONS. To approve business combinations involving a "related
person", the Company's Certificate of Incorporation requires (i) the approval
of the holders of 75% of the Company's outstanding voting stock (and any
class or series entitled to vote separately) and (ii) a majority of the
outstanding stock not beneficially owned by the related person. The exception
to the foregoing is where the business combination has been approved in
advance by two-thirds of those members of the Company's Board of Directors
who were directors prior to the time the related person became a related
person. As defined in the Certificate of Incorporation, "related person"
generally includes any person who owns 10% or more of the Company's
outstanding voting stock.
Section 203 of the DGCL prohibits, with certain exceptions, a
Delaware corporation from engaging in any of a broad range of business
combinations with an "interested stockholder" for a period of three years
following the date such stockholder became an interested stockholder. An
"interested stockholder" is defined in Section 203 as any person that is (i)
the owner of 15% or more of the outstanding voting stock of a corporation or
(ii) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within
the three-year period immediately prior to the date on which it is sought to
be determined whether such person is an interested stockholder. However,
Section 203 does not apply to a corporation unless its voting stock is either
(A) listed on a national securities exchange, (B) authorized for quotation on
the NASDAQ Stock Market or (C) held of record by more than 2,000
stockholders. The Company does not currently satisfy any of these conditions
and, therefore, is not currently subject to Section 203. Unless the Company
amends its certificate of incorporation to elect not to be governed by
section 203, the Company will be subject to Section 203 upon satisfaction
upon the satisfactory of any of the foregoing conditions (A), (B), or (C).
The exceptions in Section 203 under which a corporation may engage
in a business combination with an interested stockholder are: (i) approval of
the acquisition by the board of directors prior to the date the stockholder
became an interested stockholder, (ii) the interested stockholder acquiring
at least 85% of the outstanding voting stock (excluding shares owned by
directors, officers and certain employee stock plans) as a result of the
transaction in which it became an interested stockholder or (iii) approval of
the transaction by the board of directors and the affirmative vote at an
appropriate meeting (and not by written consent) of two-thirds of the
outstanding voting stock not owned by the interested stockholder on or after
the date on which the interest stockholder became and interested stockholder.
Under Delaware law, business combinations resulting in the sale of
substantially all of the assets of the Company or merger of the Company with
another business organization must be approved by vote of the majority of the
Company's outstanding voting stock entitled to vote at a duly called meeting.
The supermajority provisions in the Certificate of Incorporation and Section
203 of the DGCL, if applicable, may have the effect of foreclosing mergers
and other business combinations which the holders of a majority of the
Company's stock deem desirable and place the power to prevent such a
transaction in the hands of a minority of the Company's stockholders.
Under Delaware law, there is no cumulative voting by stockholders
for the election of directors unless authorized in the corporation's
certificate of incorporation. MediQuik's Certificate of Incorporation does
not authorize cumulative voting. The absence of cumulative voting rights
effectively means that the holders of a majority of the stock voted at a
stockholder meeting may, if they so choose, elect all directors of the
Company, thus precluding representation of minority stockholders on the
Company's Board of Directors.
26
<PAGE>
ADVANCE NOTICE REQUIREMENTS FOR NOMINATION OF DIRECTORS AND PROPOSAL
OF NEW BUSINESS AT ANNUAL STOCKHOLDER MEETINGS. The Company's Certificate of
Incorporation generally provides that any stockholder desiring to make a
nomination for the election of directors or a proposal for new business at a
stockholder meeting must submit written notice not less than 30 or more than
60 days in advance of the meeting. This advance notice requirement may give
management time to solicit its own proxies in an attempt to defeat any
dissident slate of nominations, should management determine that doing so is
in the best interests of stockholders generally. Similarly, adequate advance
notice of stockholder proposals will give management time to study such
proposals and to determine whether to recommend to the stockholders that such
proposals be adopted. In certain instances, such provisions could make it
more difficult to oppose management's nominees or proposals, even if the
stockholders believe such nominees or proposals are in their interests. The
Company's Certificate of Incorporation provides that the period for
stockholders to nominate directors and introduce new business may be as short
as 10 days (when less than 40 days' notice of the stockholders meeting is
given). This may tend to discourage persons from bringing up matters
disclosed in the proxy materials furnished by the Company and could inhibit
the ability of stockholders to bring up new business in response to recent
developments.
LIMITATIONS ON ACQUISITIONS OF CAPITAL STOCK. The Company's
Certificate of Incorporation generally provides that if any person were to
acquire beneficial ownership of more than 20% of any class of the Company's
outstanding Common Stock, each vote in excess of 20% would be reduced to
one-hundredth of a vote, with the reduction allocated proportionately among
the record holders of the stock beneficially owned by the acquiring person.
The limitation on voting rights of Shares beneficially owned in excess of 20%
of the Company's outstanding Common Stock, would discourage stockholders from
acquiring a substantial percentage of the Company's stock in the open market,
without disclosing their intentions, prior to approaching management to
negotiate an acquisition of the Company's remaining stock. The effect of
these provisions is to require amendment of the Certificate of Incorporation,
which requires Board approval, before a stockholder can acquire a large block
of the Company's Common Stock. As a result, these provisions may deter
takeovers by potential acquirors who would have acquired a large holding
before making an offer for the remaining stock, even though the eventual
takeover offer might have been on terms favorable to the remaining
stockholders.
SUPERMAJORITY VOTING REQUIREMENT FOR AMENDMENT OF CERTAIN PROVISIONS
OF THE CERTIFICATE OF INCORPORATION. The Company's Certificate of
Incorporation provides that specified provisions contained in the Certificate
of Incorporation may not be repealed or amended except upon the affirmative
vote of the holders of not less than 75% of the outstanding stock entitled to
vote. This requirement exceeds the majority vote that would otherwise be
required by Delaware law for the repeal or amendment of the Certificate of
Incorporation. Specific provisions subject to the supermajority vote
requirement are (i) Article VIII, governing the calling of stockholder
meetings and the requirement that stockholder action be taken only at annual
or special meetings, (ii) Article IX, requiring written notice to the Company
of nominations for the election of directors and new business proposals,
(iii) Article X, governing the number and terms of the Company's directors,
(iv) Article XI, governing the removal of directors, (v) Article XII,
limiting acquisitions of 20% or more of the Company's stock, (vi) Article
XIII, governing approval of business combinations involving related persons,
(vii) Article XIV, relating to the consideration of various factors in the
evaluation of business combinations, (viii) Article XV, providing for
indemnification of directors, officers, employees and agents, (ix) Article
XVI, limiting directors' liability, and (x) Articles XVII and XVIII,
governing the required stockholder vote for amending the By-Laws and
Certificate of Incorporation, respectively. Article XIV is intended to
prevent the holders of less than 75% of the Company's outstanding voting
stock from circumventing any of the foregoing provisions by amending the
Certificate of Incorporation to delete or modify one of such provisions. This
provision would enable the holders of more than 25% of the Company's voting
stock to prevent amendments to the Certificate of Incorporation or By-Laws
even if they were favored by the holders of a majority of the voting stock.
TRANSFER AGENT AND REGISTRAR
Atlas Stock Transfer Corporation, 5899 South State Street, Salt Lake
City, Utah 84107, telephone number (801) 266-7151, serves as the transfer
agent, registrar and warrant agent of the Company.
27
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Currently the Company has 25,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock authorized by its Certificate of
Incorporation, with 5,944,803 shares of Common Stock and no Preferred Stock
outstanding. Under Delaware law and the Company's Certificate of
Incorporation, the Board of Directors is authorized to issue all of the
remaining authorized but unissued shares of Common Stock and Preferred Stock
from time to time without approval of the stockholders (except as required by
the rules of a national securities exchange, if applicable) for such value
(not less than par value) as they determine.
Pursuant to a Consulting and Financial Advisory Services Agreement
dated February 1, 1999, the Company issued to R.F. Bearden, Associates, Inc.
("Bearden") warrants for the purchase of 250,000 shares of Common Stock at an
exercise price ranging from $3.00 to $4.00 per share (the "Bearden
Warrants"). All of the Bearden Warrants expire by April 30, 2000. Pursuant to
the agreement, Bearden has the right to include shares of Common Stock
issuable upon the exercise of the Bearden Warrants in certain registration
statements filed by MediQuik under the Securities Act, other than a
registration statement filed in connection with the Company's first
underwritten public offering. MediQuik is generally required to pay the costs
associated with such registration. The number of shares of Common Stock that
must be registered on behalf of Bearden is subject to limitation, however, if
the Company's managing underwriter determines that market conditions so
require.
Pursuant to a Letter Agreement dated June 18, 1999, the Company
engaged Scardello Marketing Group, L.L.C. ("SMG") to assist in the
acquisition and purchase of a diabetic pharmaceutical supply company ("DPS,
Co.") by the Company. Under the terms of the Letter Agreement, in the event
that the Company acquires DPS, Co., SMG shall receive 200,000 shares of
Common Stock or options to acquire such MediQuik Common Stock. Further, if
the Company acquires DPS, Co. and if SMG provides a financing service and a
firm commitment from said financing source at terms as set forth in the
Agreement, SMG shall receive 100,000 shares of Common Stock or options to
acquire such MediQuik Common Stock whether or not MediQuik uses the financing
source.
The Company recently entered into Memorandum of Understanding to
acquire all of the outstanding capital stock of RespiNET, Inc., a development
stage company that has acquired certain proprietary technologies for the
development of an Internet-based medical information system. If the Company
successfully concludes the RespiNET acquisition, MediQuik will issue
1,000,000 shares of Common Stock and Warrants to purchase an additional
2,000,000 shares of Common Stock. The Company is conducting a private
offering to finance the acquisition. Upon the successful completion of such
offering, the Company will issue up to 3,000,000 shares of Common Stock and
warrants to purchase an additional 6,000,000 shares of Common Stock. In
addition, as consideration for services to be provided pursuant to a
Consulting and Financial Advisory Services Agreement dated November 17, 1999,
the Company will issue Warrants to purchase up to 850,000 shares of Common
Stock.
Of the Common Stock currently outstanding, 5,091,055 shares are
"restricted securities," as that term is defined, under Rule 144 promulgated
under the Securities Act in that such shares were issued and sold by the
Company without registration, in private transactions not involving a public
offering, and/or are securities held be affiliates. All such shares may be
resold publicly only following their effective registration under the
Securities Act or pursuant to an exemption from the registration requirements
of the act, such as Rule 144 thereunder. Although such restricted securities
are not presently tradeable in any public market which may develop for the
Common Stock, such securities may in the future be publicly sold in to any
such market in accordance with the provisions of Rule 144.
In general, Rule 144 was adopted by Securities and Exchange
Commission under the Securities Act to provide an exemption for public
resales of restricted securities through brokers' transaction effected
without purchaser solicitation. Securities sold in compliance with Rule 144
lose their status as restricted securities in the hands of the purchaser and
thereafter trade free of restrictions in the same manner as securities sold
by the issuer in a transaction registered under the Securities Act.
Restricted securities may be resold pursuant to Rule 144 only if (i) the
securities are held for at least one year from the date of acquisition,
provided that (A) the shares are sold in ordinary brokers' transactions or
transactions directly with a market maker without public solicitation, (B)
adequate current information about the Company is publicly available and (C)
the amount of securities sold by or for the account of the holder during any
three-month period does not exceed the greater of 1% of the issuer's
outstanding shares or the average weekly trading volume for the four-week
period prior to the notice required by Rule 144(h), or (ii) the securities
are held for at least two years from the date of acquisition. Future sales by
current shareholders, especially of substantial amounts, could depress the
market price of the Common Stock in any market that may develop.
28
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
From January 1999 through October 7, 1999, the Company's Common
Stock was listed on the NASD Over-The- Counter Bulletin Board ("OTCBB"). On
October 8, 1999, the Common Stock began trading on the National Quotation
Bureau's Pink Sheets. The Company has been advised by the NASD
representatives that listing will resume on the OCTBB upon the satisfactory
completion of this amended registration statement.
As yet the Company's Common Stock has experienced limited trading
activity. A public trading market having the characteristics of depth,
liquidity and orderliness depends upon the existence of market makers as well
as the presence of willing buyers and sellers, which are circumstances over
which the Company does not have control. The following table sets forth the
high and low sale prices for the Common Stock (as reported by OTCBB) for the
periods indicated since the inception of trading in January 1999. The
quotations below reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1999:
First Quarter (from January 26, 1999 through March 31, 1999)........... $4.625 $ 1.75
Second Quarter ........................................................ $7.875 $3.125
Third Quarter.......................................................... $4.50 $1.125
Fourth Quarter (from October 1, 1999 through October 8, 1999). . . $2.00 $ 1.50
</TABLE>
On December 6, 1999 the last reported sales of the Common Stock on
the OTCBB was $2.50. As of December 6, 1999, there were 111 holders of record
of the Common Stock, as shown on the records of the Transfer Agent and
Registrar of the Common Stock. Since many shares may be held by investors in
nominee names, such as the name of their broker or their broker's nominee,
the number of record holders often bears little relationship to the number of
beneficial owners of the Common Stock.
The Company has reserved the trading symbol "MDQK."
The Company has never paid any cash dividends on its stock and
anticipates that for the foreseeable future it will retain earnings, if any,
for use in the operation of its business. Payment of cash dividends in the
future will depend upon the Company's earnings, financial condition, any
contractual restrictions, restrictions imposed by applicable law, capital
requirements and other factors believed relevant by the Company's Board of
Directors.
ITEM 2. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is involved in any
legal proceedings which the Company believes could have a material adverse
effect on the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of
securities by Cash Flow, Old MediQuik and the Company that were not
registered under the Securities Act.
29
<PAGE>
In connection with its organization on July 10, 1997, Cash Flow
issued and sold an aggregate of 1,700,000 shares of its common stock to R.
David Preston, Chairman of the Board, President and Chief Executive Officer
of Cash Flow Colorado, Tracy Moore, Secretary and member of the board of
directors of Cash Flow Colorado, and Gaylene Granquist Preston, member of the
board of directors of Cash Flow Colorado, for $.001 per share or an aggregate
consideration of $1,700.
From July 15, 1997 to December 15, 1997, pursuant to Rule 504 of
Regulation D, Cash Flow issued and sold 283,047 shares of its Common Stock to
12 accredited investors and 19 non-accredited investors for an aggregate
consideration of $356,809.
In connection with the organization of Old MediQuik, on April 7,
1998, Old MediQuik issued and sold an aggregate of 110,000 shares of its
common stock to Grant M. Gables, President and Chief Executive of Old
MediQuik, and Howard B. Butler, Jr., Secretary and Treasurer of Old MediQuik,
for $.001 per share or an aggregate consideration of $110. On April 7, 1998,
Old MediQuik issued an aggregate of 2,750,000 shares of its common stock to
the designees of MediQuik Services, LLC in consideration of the transfer of
the initial operating assets of Old MediQuik from MediQuik Services, LLC.
On April 7, 1998, Old MediQuik also issued to R. F. Bearden Associates,
Inc. ("Bearden") warrants for the purchase of 1,540,000 shares of Old MediQuik
common stock at an exercise price ranging from $.01 to $5.00 per share in
consideration of $11,000 and consulting services pursuant to the exemption
provided by Section4(2) of the Securities Act. From July through September
1998, Bearden acquired 134,047 shares of Old MediQuik common stock, pursuant
to Rule 504 of Regulation D, through exercise of such warrants for $2.00 per
share. On November 18, 1998, Old MediQuik issued 117,961 shares of Common
Stock to Bearden for $.01 per share upon exercise of the warrants pursuant to
the exemption provided by Section 4(2) of the Securities Act. On February 1,
1999, the consulting services agreement was amended and all remaining warrants
issued April 7, 1998 were canceled without exercise. In connection with
execution of the amended consulting agreement, pursuant to the exemption
provided by Section 4(2) of the Securities Act, the Company issued 16,142
shares of Common Stock on March 9, 1999 for reimbursement of expenses and
settlement of Company obligations to Bearden, including 8,508 shares of
Common Stock due to Bearden in connection with the merger of Old MediQuik
into Cash Flow as described below.
From February to April 1999 the Company issued 150,000 shares of Common
Stock to Bearden pursuant to the amended consulting agreement and issued
additional warrants to purchase 250,000 shares of Common Stock at an exercise
price ranging from $3.00 to $4.00 per share in consideration of services
provided. The amended consulting agreement was terminated April 30, 1999.
On April 15, Old MediQuik granted an aggregate of 1,000,000 shares of its
restricted stock to its officers and directors pursuant to the MediQuik
Services, Inc. Stock Incentive Plan; such shares were issued on November 18,
1998. The restricted stock is common stock of Old MediQuik which was subject
to an option to repurchase by the issuer which expired, unexercised, on June
17, 1999.
From April 20, 1998 through April 22, 1998, Old MediQuik issued to
three accredited investors Series I NonNegotiable 9% Convertible Promissory
Notes in the aggregate principal amount of $153,000 pursuant to the exemption
provided by Section 4(2) of the Securities Act. Each note provided that
$1,000 of the outstanding principal was convertible, at the holders' option,
into 25 shares of Old MediQuik common stock for each $1.00 of debt converted.
In August 1998, the holders of the notes each exercised their option to
convert $1,000 of outstanding principal, which resulted in the issuance of
25,000 shares of Old MediQuik common stock to each holder, or an aggregate of
75,000 shares. The notes were fully paid by the Company and cancelled.
In connection with a merger effective December 31, 1998, pursuant to
which Old MediQuik was merged with and into Cash Flow, the Company issued an
aggregate of 4,849,000 shares of Common Stock to the stockholders of Old
MediQuik and the stockholders of Cash Flow pursuant to Rule 506 of Regulation
D.
From February 1, 1999 to February 19, 1999, pursuant to Rule 504 of
Regulation D, the Company issued and sold 350,000 shares of Common Stock to
30 accredited investors for the consideration of $2.00 per share.
Under terms of consulting and advisory agreements executed by the
Company during the period April 1998 to May 1999, the Company issued pursuant
to Rule 701 of the Securities Act an aggregate of 110,000 shares of Common
Stock on April 21, 1999 (of which, 72,000 shares are held in escrow by the
Company and will be distributed under the terms of the agreement through
March 2000), 20,000 shares on June 3, 1999 and 5,000 shares on June 22, 1999
to the following consultants and advisors: William J. Flato, Dale Toney, SSP
Management Corp., Albert McMullin, Robert Sonfeld and Ben Scardello.
30
<PAGE>
On June 9, 1999, pursuant to Regulation S, the Company issued and
sold 75,000 shares of Common Stock to one accredited investor in an offshore
transaction for $2.00 per share.
On July 1, 1999, the Company issued 330,000 shares of Common Stock
to Scardello Marketing Group, LLC in consideration of the transfer of assets
by Scardello Marketing Group, LLC to the Company.
In July 1999, pursuant to Rule 506 of Regulation D, the Company
issued and sold 38,000 shares of Common Stock to 4 accredited investors for
the consideration of $2.70 per share.
On October 29, 1999, the Company issued 10,000 shares of Common
Stock to Lawrence J. Wedekind, Chief Executive Officer of the Company, in
consideration of his execution of an employment agreement, effective
September 7, 1999, with the Company.
Except as otherwise indicated, the Company believes that the
transactions described above were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof as transactions not involving
any public offering because such securities were sold to a limited group of
persons, each of which was believed to have been a sophisticated investor or
had a pre-existing business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution. The Company took steps to ensure that the purchaser was
acquiring securities for purposes of investment and not with a view to
distribution, including execution of agreements concerning such purchaser's
investment intent. Except as otherwise indicated, all sales of the Company's
securities were made by officers of the Company who received no commission or
other remuneration for the solicitation of any person in connection with the
respective sales of securities described above. Restrictive legends were
placed on stock certificates evidencing the shares and/or agreements relating
to the right to purchase such shares.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and By-laws provide, in
effect, that, to the fullest extent and under the circumstances permitted by
Section 145 of the Delaware General Corporation Law (the "DGCL"), the Company
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he or she is a director, officer, incorporator, employee, or agent
of the Company or is or was serving at the Company's request as a director,
officer, incorporator, employee, partner, trustee or agent of another
corporation or enterprise. The Certificate of Incorporation also relieves
directors of the Company from monetary damages to the Corporation or its
stockholders for breach of such director's fiduciary duty as a director to
the fullest extent permitted by the DGCL. Under Section 102(b)(7) of the
DGCL, a corporation may relieve its directors from personal liability to such
corporation or its stockholders for monetary damages for any breach of their
fiduciary duty as directors except (i) for a breach of the duty of loyalty,
(ii) for failure to act in good faith, (iii) for intentional misconduct or
knowing violation of law, (iv) for willful or negligent violation of specific
provisions in the DGCL imposing requirements with respect to stock
repurchases, redemption and dividends, or (v) for any transactions from which
the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if in the
case of other than derivative suits such person has acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation (and, in the case of a criminal proceeding,
had no reasonable cause to believe that such person's conduct was unlawful).
In the case of a derivative suit, an officer, employee or agent of the
corporation which is not protected by the Certificate of Incorporation may be
indemnified by the corporation for reasonable expenses, including attorneys'
fees, if such person has acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to which an officer, employee or
agent has been adjudged to be liable to the corporation unless that person is
determined to be fairly and reasonably entitled to indemnity for proper
expenses by the court in which such action or suit is brought.
Indemnification is mandatory in the case of a director, officer, employee, or
agent who is successful on the merits in defense of a suit against such
person.
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MediQuik Services, Inc.
Houston, Texas
We have audited the accompanying balance sheet of MediQuik Services, Inc.
(the "Company") as of December 31, 1998, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
period from April 7, 1998 (date of incorporation) to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998, and
the results of its operations and its cash flows for the period from April 7,
1998 (date of incorporation) to December 31, 1998 in conformity with
generally accepted accounting principles.
As discussed in Note 11, the accompanying financial statements for the period
from April 7, 1998 (date of incorporation) to December 31, 1998 have been
restated.
DELOITTE & TOUCHE LLP
Houston, Texas
July 16, 1999 (November 23, 1999
as to the effects of the matters
discussed in Note 11)
33
<PAGE>
MEDIQUIK SERVICES, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------
JUNE 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
-----------------------------------
(AS RESTATED, SEE NOTE 11)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 58,243 $ 7,578
Accounts receivable - trade 75,786 43,824
Accounts receivable - other 19,454 6,961
Advances 16,000 16,000
Inventory 1,442 79,093
----------- -----------
Total current assets 170,925 153,456
PROPERTY AND EQUIPMENT:
Office equipment 37,669 249
Less accumulated depreciation (836) (29)
----------- -----------
Total property and equipment 36,833 220
INVESTMENT - MP Total Care 250,001
OTHER ASSETS 54,525 61,651
----------- -----------
TOTAL $ 512,284 $ 215,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 159,382 $ 153,656
Accrued expenses 107,758 100,908
Notes payable - shareholders 130,000 280,000
----------- -----------
Total current liabilities 397,140 534,564
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $.001 par value 25,000,000 shares authorized;
5,566,807 shares issued and 5,494,807 shares outstanding at
June 30, 1999 and 4,849,173 shares issued and outstanding at
December 31, 1998 5,495 4,849
Additional paid-in capital 2,695,846 505,768
Accumulated deficit (2,586,197) (829,854)
----------- -----------
Total stockholders' equity (deficit) 115,144 (319,237)
----------- -----------
TOTAL $ 512,284 $ 215,327
=========== ===========
</TABLE>
See accompanying notes to financial statements
34
<PAGE>
<TABLE>
<CAPTION>
MEDIQUIK SERVICES, INC.
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED APRIL 7, 1998 TO PERIOD FROM
JUNE 30, JUNE 30, APRIL 7, 1998 TO
1999 1998 DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1998
-------------------------------------------------------------
(AS RESTATED, SEE NOTE 11)
<S> <C> <C> <C>
REVENUE:
Sales - strips $ 715,773 $ 368,513
Sales - lancets 579 795
Other revenues 4,502 2,918
------------ -------------- ---------------
Total revenue 720,854 372,226
------------ -------------- ---------------
COST OF SALES:
Purchase - strips 604,922 316,831
Purchases - lancets 437 617
Other cost of sales 105
------------ -------------- ---------------
Total cost of sales 605,359 317,553
------------ -------------- ---------------
GROSS PROFIT 115,495 54,673
OPERATING EXPENSES:
Salaries - officer 77,923 138,000
Consulting fees 1,505,422 $ 34,000 433,712
Other 306,984 30,419 284,820
------------ -------------- ---------------
Total operating expenses 1,890,329 64,419 856,532
------------ -------------- ---------------
LOSS FROM OPERATIONS (1,774,834) (64,419) (801,859)
OTHER INCOME (EXPENSE):
Interest income 2,795 315
Other income 41,204
Interest expense (25,508) (4,375) (28,310)
------------ -------------- ---------------
Total other income (expense) 18,491 (4,375) (27,995)
------------ -------------- ---------------
NET LOSS $ (1,756,343) $ (68,794) $ (829,854)
============ ============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.34) $ (0.02) $ (0.21)
============ ============== ===============
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 5,157,350 4,036,455 3,934,409
============ ============== ===============
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
<TABLE>
<CAPTION>
MEDIQUIK SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM APRIL 7, 1998 (DATE OF INCORPORATION)
TO DECEMBER 31, 1998 AND THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
-------------------------------------------------------------------------------
(AS RESTATED, SEE NOTE 11)
<S> <C> <C> <C> <C> <C>
BALANCE APRIL 7 1998 (Date of Incorporation)
Proceeds from issuance of Founders' shares 110,000 $ 110 $ 110
Acquisition of MediQuik Services LLC assets 2,750,000 2,750 2,750
Proceeds from issuance of warrants $ 11,000 11,000
Issuance of warrants for consulting services 117,961 118 235,922 236,040
Issuance of restricted stock 1,000,000 1,000 1,000
Conversion of Convertible Debt 75,000 75 2,925 3,000
Acquisition of Cash Flow Management Inc. 662,165 662 662
Proceeds from exercise of warrants and
issuance of common stock 134,047 134 255,921 256,055
Net loss $ (829,854) (829,854)
----------- ---------- ---------- ----------- ----------
BALANCE DECEMBER 31, 1998 4,849,173 4,849 505,768 (829,854) (319,237)
Repurchase of unexercised warrants (12,880) (12,880)
Proceeds from issuance of common stock 425,000 425 849,575 850,000
Issuance of common stock under consulting
agreements 220,634 221 890,283 890,504
Issuance of warrants for consulting services 463,100 463,100
Net loss (1,756,343) (1,756,343)
----------- ---------- ---------- ----------- ----------
BALANCE JUNE 30, 1999 (UNAUDITED) 5,494,807 $ 5,495 $2,695,846 $(2,586,197) $ 115,144
=========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
<TABLE>
<CAPTION>
MEDIQUIK SERVICES, INC.
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS PERIOD FROM PERIOD FROM
ENDED APRIL 7, 1998 TO APRIL 7, 1998 TO
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1998
-------------------------------------------------------
AS RESTATED, SEE NOTE 11
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,756,343) $ (68,794) $ (829,854)
Adjustment for noncash transactions:
Common stock and warrants issued for services 1,340,724 240,040
Depreciation and amortization 7,641 2,278 9,141
Net changes in assets and liabilities:
Accounts receivable (44,453) (50,715)
Advances (82,506) (16,000)
Inventory 77,651 (79,093)
Accounts payable 5,726 153,656
Accrued expenses 6,850 100,908
Other assets 292 (70,763)
----------- ----------- -----------
Net cash used in operating activities (361,912) (149,022) (542,750)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (37,422) (249)
Investment in MP Total Care (250,001)
----------- ----------- -----------
Net cash used in investing activities (287,423) (249)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance 150,000 280,000
Repayment of indebtedness (150,000)
Proceeds from sale of common stock 850,000 2,860 270,577
----------- ----------- -----------
Net cash provided by financing activities 700,000 152,860 550,577
----------- ----------- -----------
NET INCREASE IN CASH 50,665 3,838 7,578
CASH, Beginning of period 7,578
----------- ----------- -----------
CASH, End of period $ 58,243 $ 3,838 $ 7,578
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES -
Interest paid $ 16,362
NONCASH TRANSACTIONS:
Debt converted to stock $ 3,000
Stock issued in MediQuick Services LLC acquisition $ 2,750 2,750
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
MEDIQUIK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 7, 1998 (DATE OF INCORPORATION)
TO DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE PERIOD FROM APRIL 7, 1998 TO JUNE 30,1998 (UNAUDITED)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY - MediQuik Services, Inc. ("MediQuik")
was organized in Delaware on April 7, 1998. On April 7, 1998, MediQuik
issued an aggregate of 2,750,000 shares of its common stock to designees
of MediQuik Services, LLC in consideration of the transfer of certain
assets of MediQuik from MediQuik Services, LLC. Effective December 31,
1998, MediQuik was merged with and into Cash Flow Marketing, Inc., a
Delaware corporation ("Cash Flow"), which, as the surviving corporation,
subsequently changed its name to MediQuik Services, Inc. (the "Company").
This transaction has been treated as a capital transaction in substance,
rather than a business combination; thus the accounting is similar to a
reverse acquisition but no goodwill and/or intangible has been recorded.
As a result, MediQuik is considered the acquiring entity for financial
statement purposes, and the financial statements for the period prior to
January 1, 1999 are those of MediQuik Services, Inc, not Cash Flow, the
legal acquirer.
In connection with the merger, the Company issued an aggregate of
4,849,000 shares of common stock to the stockholders of MediQuik and
Cash Flow. At the time of the merger, Cash Flow was a "Shell"
corporation with substantially no assets, business or operations.
USE OF ESTIMATES - The preparation of the accompanying financial
statements in conformity with generally accepted accounting principles
requires management to make certain estimates and assumptions that
directly affect the results of reported amounts of assets, liabilities,
revenues, and expenses. Actual results may differ from these estimates.
REVENUE AND COST RECOGNITION - The Company generates revenue from provider
agreements by delivering medical supplies directly to patients covered by
these provider agreements. The Company recognizes revenues from sales
contracts when products are shipped. The Company has not experienced any
product returns or allowances to date.
INVENTORY - Inventory consists of chronic disease management products and
is reflected in the financial statements at the lower of cost (first in
first out) or market.
CASH EQUIVALENTS - Cash equivalents for purposes of these financial
statements are considered to be all highly liquid debt instruments with an
original maturity of three months or less.
BAD DEBTS - Management has determined that no allowance is necessary at
December 31, 1998.
38
<PAGE>
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost. The
cost of betterments are added to the property accounts. Maintenance and
repair costs are charged to expenses as incurred. Upon disposal of an
asset, the difference between the sales proceeds and the net book value is
charged or credited to income. Depreciation of property is provided using
primarily the straight-line method over the following estimated useful
lives:
CLASSIFICATION YEARS
Office equipment 5
Depreciation expense was $807 and $29 for the six months ended June 30,
1999 and the period from April 7, 1998 to December 31, 1998, respectively.
IDENTIFIED INTANGIBLE - As a result of the purchase of assets from
MediQuik Services, LLC, the Company has recorded an identified intangible
in other assets related to certain contracts acquired. This intangible is
being amortized over the life of the contracts. As of December 31, 1998,
a the accumulated amortization is $9,112. The Company reviews intangible
assets on a quarterly basis to determine if such intangibles have been
impaired. Any impairment would be recognized in the statement of
operations.
INTERIM FINANCIAL INFORMATION - The financial statements as of and for the
six months ended June 30, 1999 and as of and for the period from April 7,
1998 (date of incorporation) to June 30, 1998 included herein have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments which are, in the opinion of management, necessary to present
a fair statement of the results for the interim periods on a basis
consistent with the annual audited financial statements. All such
adjustments are of a normal recurring nature. The results of operations
for the interim periods are not necessarily indicative of the results to
be expected for an entire year. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading.
SIGNIFICANT CUSTOMER - The Company had sales to a significant customer of
approximately 86% for the period ended December 31, 1998. Such customer
represented 80% of the accounts receivable balance at December 31, 1998.
COMPREHENSIVE INCOME - In June 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130,
"Reporting of Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and displaying comprehensive income and its
components. SFAS 130 is effective for periods beginning after December 31,
1997. The purpose of reporting comprehensive income is to report a measure
of all changes in equity of an enterprise that results from recognized
transactions and other economic events of the period other than
transactions with owners in their capacity of owners. As of December 31,
1998, there are no adjustments ("Other Comprehensive Income") to net loss
in deriving comprehensive income.
SEGMENT DISCLOSURES - In June 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments. SFAS 131
is effective for periods beginning after December 31, 1997. The Company
currently operates under one segment.
DERIVATIVES - In June 1998 the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which establishes accounting and reporting standards for derivative
instruments and hedging activities. In June 1999 FASB issued SFAS No. 137,
which delays the
39
<PAGE>
effective date for implementation of SFAS 133 to fiscal years beginning
after June 15, 2000. The Company held no derivatives in 1999 or 1998 and
believes that SFAS No. 133, when adopted effective January 1, 2001, will
not materially impact its financial position or results of operations.
EQUITY INVESTMENT - The Company records its equity investments at cost
where management does not have significant ability to exercise significant
control over the investee's operating and financial policies.
Such investments represent common stock in a privately held company.
FAIR VALUES OF FINANCIAL INSTRUMENTS - At December 31, 1998, the carrying
amounts of the Company's cash, receivables and payables approximated their
fair values.
2. EARNINGS PER SHARE
The Company has adopted SFAS 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share ("EPS"). SFAS
128 requires the presentation of "basic" and "diluted" EPS on the face of
the income statement. Basic EPS amounts are calculated using the average
number of common shares outstanding during each period. Diluted earnings
per share assumes the exercise of all stock options and warrants having
exercise prices less than the average market price of the common stock
using the treasury stock method. No dilutive securities of the Company
were outstanding at December 31, 1998; however, warrants to purchase
250,000 shares of common stock at exercise prices ranging from $3.00 -
$4.00 per share were issued from February to April 1999. Since the Company
incurred a loss for all periods presented, these securities have been
excluded, as they would be anti-dilutive to basic EPS.
3. INCOME TAXES
The Company has a net operating loss carryforward of approximately
$734,000 as of December 31, 1998 that may be applied against future
federal taxable income. This loss gives rise to a deferred tax asset at
December 31, 1998 of approximately $249,000. Management has established a
valuation allowance equal to the amount of the deferred tax asset, as it
is more likely than not that the Company will not be able to realize this
asset. The loss carryforward begins to expire on December 31, 2018.
4. NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
Three notes payable, $50,000 each to shareholders with interest
at 9%, payable February 20, 1999 $150,000
Note payable to shareholders with interest at 15%, payable in
two installments of $15,000 each, due on June 30, 1999 and
December 31, 1999 $ 30,000 30,000
Ten notes payable, $10,000 each to certain shareholders with
interest at 15%, payable in installments of $50,000 each, due
on June 30, 1999 and December 31, 1999 100,000 100,000
-------- --------
$130,000 $280,000
======== ========
</TABLE>
40
<PAGE>
Of the amounts due in June, $15,000 was paid in July 1999. The remaining
$50,000 payment due in June 1999 has been extended until December 31,
1999.
The three 9% notes payable had an original aggregate principal balance of
$153,000. Each of the notes provided for $1,000 of the outstanding
principal to be convertible into 25 shares of the Company's common stock
for $1.00 of debt converted. In August 1998 the three note holders each
converted $1,000 of principal into 25,000 shares of common stock, for a
total issuance of 75,000 shares.
5. LEASES
The Company leases office space on a month-to-month basis for $2,781 a
month. The lease requires a 60-day notice of termination. Rent expense
amounted to $29,096 and $29,369 for the six months ended June 30, 1999 and
the period ended December 31, 1998, respectively.
6. EQUITY TRANSACTIONS
WARRANTS - In April 1998 the Company issued warrants for the purchase of
1,100,000 shares of MediQuik common stock at an exercise price ranging
from $2.00 to $5.00 per share in consideration of $11,000. Additionally,
performance-based warrants for the purchase of 440,000 shares of common
stock were issued to a consultant at an exercise price of $.001 per share;
during November 1998, warrants for the purchase of 117,961 shares of
common stock were exercised based on the performance criteria. The Company
has recorded compensation expense of $235,922 based on the fair value of
the common stock issued in November 1998.
Following consummation of the Cash Flow merger, the consulting agreement
was amended and all unexercised warrants were repurchased.
From February to April 1999, the Company issued new warrants to purchase
250,000 shares of common stock at an exercise price ranging from $3.00 to
$4.00 per share in consideration for services provided. All warrants
expire by April 30, 2000; the Company has recorded an expense of
$463,100 based on the fair value of the warrants as of the issue date.
PRIVATE STOCK OFFERINGS - From July to September 1998, warrants for the
purchase of 134,047 shares of common stock were exercised for $256,055.
In February 1999 the Company issued 350,000 shares of common stock for
$700,000.
In June 1999 the Company issued 75,000 shares of common stock for
$150,000.
OTHER EQUITY TRANSACTIONS - On April 7, 1998, the Company issued 110,000
shares of common stock for $110.
On April 15, 1998, the Company granted 1,000,000 shares of common stock,
pursuant to the Company Stock Incentive Plan, to certain key executives at
a value of $.001 determined by the Board of Directors for issuance during
1998.
On April 15, 1998, the Company granted 300,000 non-vested shares of common
stock to a consultant for financial advisory and corporate consulting
services at a value of $.001 determined by the Board of Directors for
issuance by April 14, 1999. Such shares were canceled in connection with
the amended consulting agreement referred to above.
During February to June 1999, the Company issued 220,634 shares of common
stock to various consultants of the Company at a fair value of
approximately $890,504.
41
<PAGE>
7. RELATED PARTY TRANSACTIONS
As of December 31, 1998, the Company had certain outstanding receivable
and payable balances with related parties for $22,865 and $19,644,
respectively. The receivable amounts derive from sales in the ordinary
course of business and the payable amounts relate to certain consulting
services.
During the period ended 1998, the Company paid for business plan
development and investment banking services furnished by an affiliate and
certain consulting and legal services performed by other related parties.
During the period ended December 31, 1998, the Company incurred expenses
of $173,500 for these services, which are included in the statement of
operations.
8. STOCK INCENTIVE PLAN
The Company adopted a Stock Incentive Plan to provide stock incentives
to certain key employees and directors of the Company. An aggregate of
1,500,000 shares of common stock may be issued pursuant to the Stock
Incentive Plan. See Note 6 for information concerning shares issued in
connection with the stock incentive plan.
9. COMMITMENTS
The Company has entered into several provider agreements with various
corporations for terms ranging from one to five years. The Company
supplies diagnostic products to the patients under these provider
agreements. The Company has also entered into two consulting agreements
containing monthly fees.
LEASE - On May 7, 1999, the Company entered into a new five-year lease
agreement for office space. The minimum lease payments under such
agreement are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 31,515
2000 63,030
2001 63,030
2002 63,030
2003 63,030
Thereafter 31,515
--------
Total $315,150
========
</TABLE>
PURCHASE COMMITMENTS - The Company has entered into an agreement with a
supplier of diabetes management products to purchase certain minimum
quantities of product on an annual basis in order to receive specified
discounted prices.
10. SUBSEQUENT EVENTS
STOCK OFFERINGS AND FINANCING - In July 1999 the Company issued and sold
38,000 shares of common stock for $2.70 per share.
In July 1999 the Company obtained a $100,000 line of credit from a bank.
Repayment of such line of credit has been guaranteed by an officer of the
Company.
ACQUISITION OF ASSETS - The Company entered into an agreement to purchase
certain assets of Scardello Marketing Group, LLC ("SMG") on June 18, 1999;
this acquisition was effective and was closed July 1999. The Company
acquired the Exclusive Marketing Representative Agreement ("Marketing
Agreement") between SMG and the Company with a term of five years ending
in 2004, acquired certain
42
<PAGE>
computer equipment, and acquired all documents, materials, target lists,
customer lists, and receivables, if any, derived from the Marketing
Agreement. The Company also assumed a note payable of $25,000 due to a
bank but also received the proceeds of such note.
In connection with the acquisition of SMG's assets during July 1999,
330,000 shares of common stock were issued to SMG and the Company forgave
$15,396 in debt due from SMG. The Company acquired the assets of SMG
primarily to obtain rights to the Marketing Agreement and services of the
principal of SMG to further internally develop the Company's business. SMG
shareholders have represented that SMG had no significant operations and
that detailed SMG financial information is not available.
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Book value of net assets acquired at cost $ 3,000
Fair value adjustments -
Fair value of purchased Marketing Agreement and its related items 145,985
----------
Fair value of net assets acquired 148,985
----------
Purchase price:
Acquisition costs 4,000
Fair value of 330,000 shares issued 1,237,500
Debt forgiven 15,396
----------
Total 1,256,896
----------
Excess of purchase price over net assets acquired, allocated to goodwill
(amortized over five years) $1,107,911
==========
</TABLE>
11. RESTATEMENT
Subsequent to the issuance of the Company's financial statements,
management determined that certain issuances of common stock and
warrants to third parties in exchange for services provided were not
appropriately recorded; that the weighted average number of shares were
calculated incorrectly; that certain interest expense was
misclassified; the repurchase of certain unexercised equity instruments
had not been recorded; and that the inventory and related payable
balances originally reported were in error. As a result, the
accompanying financial statements have been restated to give effect to
the correction of these errors.
<TABLE>
<CAPTION>
A summary of the effects of the adjustments follows:
AS PREVIOUSLY AS
REPORTED RESTATED
<S> <C> <C>
As of December 31, 1998:
Additional paid-in capital $ 274,246 $ 505,768
Accumulated earnings (deficit) (598,332) (829,854)
For the period from April 7, 1998 to December 31, 1998:
Consulting fees 202,190 433,712
Other 313,130 284,820
Total operating expenses 653,320 856,532
Loss from operations (598,647) (801,859)
Interest expense (28,310)
Total other income (expense) 315 (27,995)
Net loss (598,332) (829,854)
Basic and diluted loss per share (0.24) (0.21)
Basic and diluted weighted-average number of common
shares outstanding 2,489,977 3,934,409
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
-------------------------------
As Previously As
Reported Restated
<S> <C> <C>
As of June 30, 1999:
Inventory $ 354,896 $ 1,442
Accounts payable 268,779 159,382
Accrued expenses 351,815 107,758
Common stock 5,572 5,495
Additional paid-in capital 1,416,689 2,695,846
Accumulated deficit (1,307,117) (2,586,197)
For the six months ended June 30, 1999:
Consulting fees 457,864 1,505,422
Total operating expenses 842,771 1,890,329
Loss from operations (727,276) (1,774,834)
Net loss (708,785) (1,756,343)
Basic and diluted loss per share (0.15) (0.34)
Basic and diluted weighted average number of common
shares outstanding 4,641,274 5,157,350
For the period from April 7, 1998 to June 30, 1998:
Other 34,794 30,419
Total operating expenses 68,794 64,419
Loss from operations (68,794) (64,419)
Interest expense (4,375)
Total other income (expense) (4,375)
Basic and diluted loss per share (0.08) (0.02)
Basic and diluted weighted average number of common
shares outstanding 907,404 4,036,455
</TABLE>
***********
44
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
+ 2.1 Certificate of Incorporation of MediQuik
+ 2.2 By-laws of MediQuik
+ 3.1 Specimen of Common Stock Certificate
+ 3.2 Specimen of Common Stock Purchase Warrant
+ 6.1 MediQuik Stock Incentive Plan
+* 6.2 Ancillary Services Participating Provider
Agreement, dated February 6, 1998, for PPO/EPO
Networks between MediQuik and National Healthcare
Alliance, Inc.
+* 6.3 Participating Facility Agreement, dated February
1, 1998, between MediQuik and Multiplan, Inc.
* 6.4 Health Care Service Ancillary Agreement, dated April 7, 1998, between MediQuik and USA
Managed Care Organization, Inc.
+ 6.5 Letter Agreement, dated May 25, 1999, between MediQuik and Cooperative Health Services
of Colorado
+* 6.6 1998 Mail Order and Mail Order Testing Compliance Agreement, dated October 2, 1998,
between MediQuik and Bayer Corporation
+* 6.7 1999 Nursing Home/Long Term Care/Home Health Care Distributor Agreement, dated
February 9, 1999, between MediQuik and Bayer Corporation
+ 6.8 Agreement for the Sale of Company Assets dated June 18, 1999 between the MediQuik and
Scardello Marketing Group, LLC ("SMG")
+ 6.9 Commercial Revolving or Draw Note, in the original
principal amount of $25,000 executed by SMG payable
to the order of First Bank Texas, N.A.
+ 6.10 Assumption Agreement by and among MediQuik, SMG,
Jacody Financial , Inc. and First Bank of Texas, N.A.
+ 6.11 Plan and Agreement of Merger dated, November 24,
1998, between Old MediQuik and Cash Flow Marketing,
Inc.
+ 6.12 Agreement for the Sale of Corporate Assets, dated
April 7, 1998, between Old MediQuik and MediQuik
Services, L.L.C.
+ 6.13 Lease Agreement, dated May 7, 1999, between Bancroft
Building Houston, LP and MediQuik
+ 6.14 Letter Agreement, dated June 18, 1999, between MediQuik and SMG regarding
acquisition of a diabetic pharmaceutical supply company.
+ *6.15 Provider Agreement, effective July 1, 1999, between
MediQuik and Advantage Care Network, Inc.
+ 6.16 Employment Agreement, effective September 7, 1999, between MediQuik and Lawrence J.
Wedekind
+ 6.17 Ancillary Provider Agreement dated February 27, 1998,
between MediQuik and Global Medical Solutions, Inc.
6.18 Agreement, dated August 6, 1999, between MediQuik
and Murray Hill Communications, Inc.
</TABLE>
* Certain information in this exhibit is subject to a request for
confidential treatment. In accordance with Rule 24b-2 of the Securities
Exchange Act of 1934, as amended, such information has been omitted and
filed separately with the Securities and Exchange Commission.
+ Previously filed.
45
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDIQUIK SERVICES, INC.
Date: March 10, 2000 By: /s/ GRANT M. GABLES
---------------------------- ---------------------------
Grant M. Gables
President
46
<PAGE>
This document will outline the business relationship between ChronicRx.com and
Murray Hill Communications, subject to both parties agreeing to the terms of a
binding contract by September 15, 1999.
ChronicRx.com and Murray Hill Communications both desire to enter into a
business relationship that includes, but is not limited to, ChronicRx.com
purchasing online content from Murray Hill Communications. ChronicRx.com desires
to leverage the content created by Murray Hill Communications to attract users,
customers, and business partners. ChronicRx.com will employ the Murray Hill
Communications content to create a foundation of health, wellness and fitness
content for its site. Currently, ChronicRx.com plans to develop and deploy a
website divided into three core segments:
- An online Pharmacy Center
- An online Disease Management Center
- An online Health, Wellness and Fitness Center
ChronicRx.com is a dynamic online pharmacy center focused on the chronic care
niche and specializing in prescription and non-prescription medications and
management products used to treat chronic diseases of all kinds. The website
enables ChronicRx.com to provide 24-hour access to pharmacists and leading edge
information about the diagnosis, symptoms and treatment of chronic illnesses.
ChronicRx.com's core competency is the marketing and distribution of online
pharmacy services and products. ChronicRx.com will develop and acquire market
share through aggressive branding, pricing designed for mass appeal, managed
care access, efficient billing, focused customer retention programs and
synergistic partnerships and acquisitions.
ChronicRx.com will continue to add complementary online offerings to attract
users and ultimately convert those users into long-term customers of
ChronicRx.com pharmacy products. To this end, ChronicRx.com agrees to the
following terms with Murray Hill Communications:
1. To purchase a license to the complete online version of the
"MyDailyHealth" content which includes the following:
A. A one year renewable term beginning the date the agreement is
signed
B. Content of MyDailyHealth sold to ChronicRx.com will be re-branded
as a ChronicRx.com product at the discretion of ChronicRx.com
C. MyDailyHealth content will be dynamically linked to Murray Hill
Communications such that upgrades and daily updates will be
reflected on the ChronicRx.com site
D. ChronicRx.com will run the MyDailyHealth content on Murray Hill
Communications servers until a posting plan is in place.
2. Purchase price for the MyDailyHealth content will be $125,000 payable
within 60 days of the signing of this agreement.
3. An initial deposit of $2,500 will be made by ChronicRx.com upon the
signing of this document.
<PAGE>
This document does not limit future opportunities for joint development of
content and/or additional business arrangements between ChronicRx.com and Murray
Hill Communications.
Signed this the 6th day of August, 1999.
/s/ DALE E. TONEY /s/ JOSEF WOODMAN
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Dale E. Toney Josef Woodman
CEO, ChronicRx.com Murray Hill Communications, Inc.
