UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB/A
4th 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
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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.
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
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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
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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:
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%
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
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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 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
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 developed and implemented an in-house enrollment and customer
service department and implemented an in-house billing and collection department
which was completed by the end of 1999. The Company intends to hire a chief
financial officer with experience in working for public companies by the end 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
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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 Company purchased the Genesis
Report, which was developed and made available to the general public by Genesis
Group Associates, Inc. for $750. There can be no assurance, however, that the
Company will necessarily participate in the above mentioned growth of the market
for diabetic control.
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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:
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.
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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.
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
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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.
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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:
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.
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
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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.
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
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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 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
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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
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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 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
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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.
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
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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
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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."
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."
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APPLICABILITY OF LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS. Based on
recent trading prices reported on the National Quotation Bureau's PinkSheets,
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.
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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. 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
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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.
MediQuik is seeking to rapidly expand through internal sales growth
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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
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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.
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."
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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
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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.
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
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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
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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.
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.
Name of Shares of Common Percent
Beneficial Owner Stock Owned(1) of Class(2)
---------------- -------------- -----------
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
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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)
----------
(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
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shares of such class outstanding as of such date 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.
Name Age(1) Position
---- ------ --------
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
----------
(1) As of December 8, 1999.
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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 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
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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
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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.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) ----------------
NAME AND PRINCIPAL ------------------------- RESTRICTED STOCK
POSITION SALARY (2) BONUS AWARDS (3)
-------- ---------- ----- ----------
Grant M. Gables, $56,000 -- $400
President and Chief
Executive Officer (4)
William J. Marciniak, $48,000 -- $100
Vice President of
Marketing
R. Craig Christopher, $34,000 -- $250
Chief Operating Officer
(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
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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.
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
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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.
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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 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,
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("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 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.
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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
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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.
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
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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
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Board of Directors, 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.
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
41
<PAGE>
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
42
<PAGE>
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.
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,
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<PAGE>
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.
SHARES ELIGIBLE FOR FUTURE SALES
Currently the Company has 25,000,000 shares of Common Stock and
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<PAGE>
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
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<PAGE>
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.
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
46
<PAGE>
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.
1999: High Low
---- ---
First Quarter (from January 26, 1999 $4.625 $1.75
through March 31, 1999)
Second Quarter $7.875 $3.125
Third Quarter $4.50 $1.125
Fourth Quarter (from October 1, 1999 $2.00 $1.50
through October 8, 1999)
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
47
<PAGE>
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.
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,
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<PAGE>
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
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<PAGE>
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.
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
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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.
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<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
52
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July 16, 1999 (November 23, 1999
as to the effects of the matters
discussed in Note 11)
53
<PAGE>
MEDIQUIK SERVICES, INC.
BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C>
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
55
<PAGE>
MEDIQUIK SERVICES, INC.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM PERIOD FROM
ENDED APRIL 7, 1998 TO APRIL 7, 1998 TO
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ---------- -----------
(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)
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
57
<PAGE>
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)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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 117,961 118 235,922 263,040
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)
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
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
59
<PAGE>
MEDIQUIK SERVICES, INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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,
(UNAUDITED) SEE NOTE 11) (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)
----------- ------------ -----------
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C> <C>
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.
61
<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
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<PAGE>
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.
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,
the accumulated amortization is $9,112. The Company reviews intangible
assets on a quarterly basis to determine if such intangibles have been
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<PAGE>
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
64
<PAGE>
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 effective date for implementation of SFAS 133 to fiscal
years beginningafter 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.
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<PAGE>
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:
JUNE 30, DECEMBER 31,
1999 1998
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
======== ========
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.
66
<PAGE>
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.
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<PAGE>
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.
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
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<PAGE>
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:
1999 $ 31,515
2000 63,030
2001 63,030
2002 63,030
2003 63,030
Thereafter 31,515
--------
Total $315,150
========
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.
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<PAGE>
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
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>
<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
----------
</TABLE>
70
<PAGE>
<TABLE>
<S> <C>
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.
A summary of the effects of the adjustments follows:
<TABLE>
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)
</TABLE>
71
<PAGE>
<TABLE>
<S> <C> <C>
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
(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>
***********
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<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
+ 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
73
<PAGE>
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.
10.1 Consent of Genesis Group
* 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.
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: June 8, 2000 By: /s/ GRANT M. GABLES
---------------------------- ---------------------------
Grant M. Gables
President
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<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.
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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.
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
------------------------------- ------------------------------------
Dale E. Toney Josef Woodman
CEO, ChronicRx.com Murray Hill Communications, Inc.
Exhibit 10.1
March 7, 2000
The Genesis Group grants MediQuik Services, Inc. permission to quote the
following from information provided by the 1996 report titled "The Diabetes
Dilemma Managing Markets and Technology":
"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 also indicates that on a worldwide basis,
Johnson & Johnson, Boehringer Mannheim, Bayer and Medisense, Inc. are the major
manufacturers in the field."
/s/ LARRY SCHLEGEL
-------------------
Larry Schlegel
The Genesis Group
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