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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-91619
PROSPECTUS
2,000,000 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
WARRANTS TO PURCHASE 4,000,000 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
MD2PATIENT, INC.
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MD2patient, Inc. d/b/a md2patient.com is offering up to 2,000,000 shares of
its Series A Convertible Preferred Stock and Warrants to purchase up to
4,000,000 shares of its Series A Convertible Preferred Stock. md2patient.com is
conducting this offering simultaneously with an offering of up to 34,000,000
shares of its Series B Convertible Preferred Stock.
This offering will terminate on the earlier to occur of (a) the sale of all
of the shares and Warrants offered hereby, (b) December 31, 2000 or (c) our
decision to terminate the offering. All payments for shares offered hereby will
be deposited into an escrow account at SunTrust Bank until we receive payments
for at least 5,000,000 shares of Series B Convertible Preferred Stock. If we do
not receive payments for at least 5,000,000 shares of Series B Convertible
Preferred Stock by December 31, 2000, we will terminate this offering and
promptly return all payments plus interest, if any.
Shares of our Series A and Series B Convertible Preferred Stock do not have
ordinary voting rights, except with respect to a proposed merger or sale of our
company. Shares of our Common Stock have ordinary voting rights. Heritage Group,
LLC and its affiliates own approximately 74% of our outstanding shares of Common
Stock. As a result, Heritage Group, LLC and its affiliates control our company
and will continue to control our company following the completion of this
offering.
This is the initial public offering of our Series A Convertible Preferred
Stock and Warrants. The securities offered by this prospectus may not be
transferred or re-sold without our prior written consent. No public market for
these securities currently exists and we do not expect a public market to
develop. Accordingly, we do not intend to list our Series A Convertible
Preferred Stock or Warrants on any securities exchange or on the Nasdaq Stock
Market.
We have engaged W.R. Hambrecht & Company, LLC to assist in the sale of the
shares and Warrants. W.R. Hambrecht will take and process purchase orders for
securities, arrange for the electronic delivery of prospectuses to purchasers,
accept money from purchasers and deliver securities to purchasers in this
offering. W.R. Hambrecht is not required to purchase any securities or to
undertake any affirmative selling efforts in this offering.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Price to public of Series A Convertible Preferred Stock..... $1.00 $2,000,000
Underwriting commissions.................................... $0.03* $ 60,000*
Proceeds, before expenses, to md2patient.com................ $0.97 $1,940,000
</TABLE>
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* W.R. Hambrecht will receive a fee equal to (i) $400,000 upon the closing of
the sale of 5,000,000 shares of Series B Convertible Preferred Stock, (ii)
eight cents ($.08) per share of any shares of Series A or Series B Convertible
Preferred Stock sold after the initial closing of the sale of 5,000,000
shares, until an aggregate of 6,250,000 shares have been sold, (iii) zero
cents ($.00) per share of any shares sold after an aggregate of 6,250,000
shares have been sold and until 16,666,666 shares have been sold, and (iv)
three cents ($.03) per share of any shares sold after an aggregate of
16,666,666 shares have been sold.
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INVESTING IN THE SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANTS INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(WR HAMBRECHT & CO. LOGO)
April 7, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 26
Management.................................................. 34
Certain Relationships and Related Transactions.............. 41
Principal Stockholders...................................... 42
Description of Capital Stock................................ 43
Shares Eligible for Future Sale............................. 47
Federal Income Tax Consequences............................. 48
Plan of Distribution........................................ 51
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find More Information......................... 54
Index to Financial Statements............................... F-1
</TABLE>
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in our stock.
MD2PATIENT.COM
We were incorporated in July 1999 to develop and operate a web site to
provide access to selected on-line healthcare content and services and to
develop customized web pages for our physician subscribers. Our web site became
operational during January 2000 for the limited purpose of accepting
subscriptions for our proposed Internet services. Based on our current
development schedule, we believe that during the second quarter of 2000, our web
site will include customized web pages for our physician subscribers, links to
other healthcare web sites or clinical information databases and other general
healthcare information. Our focus will be to enhance the relationship between
our physician subscribers and their patients by providing on our web site
content and services available on the Internet that will be useful in educating
patients, improving administrative efficiency and improving communications
between physicians, or their staff, and patients.
The selection of our content and services will be made by panels of
physicians, organized by specialty, that we will form to help us select content
and services. Although we have not yet formed any of these physician panels, we
believe that at least four will be formed during the first and second quarters
of 2000. Our staff will regularly survey the Internet to identify and recommend
to our physician panels new content and service offerings that may be of benefit
to our physician subscribers, their staff and their patients. Our physician
panels will be responsible for reviewing the content and services recommended by
our staff and selecting content and services for inclusion on or through our web
site. We will regularly upgrade our site as our physician panels select new
offerings.
We are a development stage company and, to date, we have not generated any
revenues. Since our inception we have incurred losses and negative cash flow
and, as of December 31, 1999, we had an accumulated deficit of $650,469. We
expect negative cash flow and operating losses to continue for the foreseeable
future, and we may never become profitable. We expect to incur costs of no more
than $1,000,000 associated with the initial development and launch of our web
site. Through December 31, 1999, we had incurred approximately $260,000 of such
costs.
The market for the Internet services and products we intend to offer is
intensely competitive. Since the commercialization of the Internet in the early
1990s, the number of web sites on the Internet competing for users' attention
has proliferated with no substantial barriers to entry, and we expect that
competition will continue to intensify. As of March 1, 2000, we had 1,015
subscribers to our web site, of which 139 received their subscriptions for free
in connection with their participation as investors in a November 1999 private
placement of our Series A Convertible Preferred Stock.
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THE OFFERING
Series B Convertible Preferred Stock. We are offering a minimum of
5,000,000 shares and a maximum of 34,000,000 shares of our Series B Convertible
Preferred Stock at a price of $1.00 per share. The shares of our Series B
Convertible Preferred Stock will only be offered and sold to physicians (or the
physician groups in which they practice) who have subscribed for our web
services. This is the initial public offering of our Series B Convertible
Preferred Stock. This offering will terminate on the earlier to occur of (a) the
sale of all of the shares offered hereby, (b) December 31, 2000 or (c) our
decision to terminate the offering. The offering price of $1.00 per share was
determined arbitrarily by us and does not necessarily reflect the value of a
share of Series B Convertible Preferred Stock.
Series A Convertible Preferred Stock. We are also offering up to 2,000,000
shares of our Series A Convertible Preferred Stock at a price of $1.00 per
share. The shares of our Series A Convertible Preferred Stock will only be
offered and sold to physicians who have subscribed to our web services and that
we determine have played or will play an important role in the development or
market acceptance of our web site, including members of our physician panels,
members of our Physician Advisory Board and physicians with whom we enter into
endorsement relationships. This is the initial public offering of our Series A
Convertible Preferred Stock. The offering of Series A Convertible Preferred
Stock will terminate at the same time the offering of Series B Convertible
Preferred Stock terminates. The offering price of $1.00 per share was determined
arbitrarily by us and does not necessarily reflect the value of a share of
Series A Convertible Preferred Stock.
Warrants to Purchase Series A Convertible Preferred Stock. We are also
offering Warrants to purchase up to 4,000,000 shares of our Series A Convertible
Preferred Stock. The Warrants will only be offered to (a) physicians who have
subscribed to our web services and that we determine have played an important
role in the development and market acceptance of our web site, including members
of our physician panels, members of our Physician Advisory Board and physicians
with whom we enter into endorsement relationships (b) physician subscribers who
refer other physicians who subscribe to our web services, and (c) employees and
independent contractors who assist us in marketing our web services. Each
Warrant will entitle the holder thereof to purchase the number of shares of
Series A Convertible Preferred Stock underlying the Warrant for $1.00 per share.
Offerees will not pay any consideration in connection with our grant or their
receipt of the Warrants. The Warrants are exercisable at any time beginning on
the date of issuance and ending on the third anniversary of their date of
issuance. Our Board of Directors will have the discretion to determine the
offerees of the Warrants and, if appropriate, adopt specific criteria for
determining the number of underlying shares for which each Warrant is
exercisable.
This is neither a solicitation of an offer to buy nor an offer to sell our
securities to persons in the following jurisdictions: Florida, Guam, Idaho,
Iowa, Minnesota, Montana, Nebraska, New Mexico, Puerto Rico, South Dakota,
Vermont, West Virginia, and Wyoming. Persons in these jurisdictions are not
authorized to purchase any of our securities under this prospectus.
Investing in this offering involves a high degree of risk. See "Risk
Factors" beginning on page 7.
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THE SHARES OFFERED
Shares of Series B Convertible Preferred Stock automatically convert into
shares of Series A Convertible Preferred Stock on a one-for-one basis at the
rate of one-third per year on each anniversary of their issuance. Shares of
Series A Convertible Preferred Stock are convertible at any time at the election
of the holder into shares of Common Stock on a one-for-one basis. If we complete
an underwritten public offering of our Common Stock in which at least
$10,000,000 worth of our Common Stock is sold at a price of not less than $1.00
per share, then:
(1) our Series B Convertible Preferred Stock will automatically become
convertible into shares of our Common Stock on the same terms that it is
presently convertible into shares of our Series A Convertible Preferred
Stock; and
(2) all outstanding shares of our Series A Convertible Preferred Stock
will automatically convert into shares of our Common Stock on a one-for-one
basis.
Shares of Series A and Series B Convertible Preferred Stock may not be
transferred or re-sold without our prior written consent.
Shares of Series A or Series B Convertible Preferred Stock do not have any
voting rights, except with respect to a proposed merger or sale of the company
and except as otherwise required by law.
Upon the liquidation, dissolution or winding up of md2patient.com, holders
of shares of Series A or Series B Convertible Preferred Stock sold in this
offering would be entitled to be paid, before any payment to holders of our
Common Stock, an amount equal to $1.00 per share.
These terms and all other material terms of the Series A and Series B
Convertible Preferred Stock are described in greater detail under the heading
"Description of Capital Stock" later in this prospectus.
CONDITIONS OF THIS OFFERING
This offering will terminate on the earlier to occur of the sale of all of
the shares offered hereby or December 31, 2000. All payments for shares offered
hereby will be deposited into an escrow account at SunTrust Bank until we
receive payments for at least 5,000,000 shares of Series B Convertible Preferred
Stock. If we do not receive payments for at least 5,000,000 shares of Series B
Convertible Preferred Stock by December 31, 2000, we will terminate this
offering and promptly return all payments together with interest, if any. Our
officers and directors will not be able to purchase shares of Series B
Convertible Preferred Stock in order to meet the minimum of 5,000,000 shares.
USE OF PROCEEDS
After deducting fees of WR Hambrecht and estimated offering expenses of
$450,000, we expect to receive a minimum of (1) $4,150,000 in net proceeds from
the offering of Series B Convertible Preferred Stock, (2) no proceeds from the
offering of Series A Convertible Preferred Stock and (3) no proceeds from the
offering of Warrants. We cannot assure you that we will receive any net proceeds
in excess of these estimated minimums. We plan to use the proceeds from this
offering for implementing and expanding the functionality of our web site and
associated databases, enhancing our marketing and sales organizations, pursuing
relationships with third party vendors of on-line content and services, and
expanding our customer support functions. The potential uses of proceeds and the
amounts allocated to each such use are subject to management's discretion.
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Our principal executive offices are located at 501 Corporate Centre Drive,
Suite 200, Franklin, Tennessee 37067. Our telephone number is (615) 383-8400.
Our Internet address is www.md2patient.com. We do not intend for information
contained on or linked to our web site to be incorporated into this prospectus.
In this prospectus, references to the "company," "md2patient.com," "we," "us,"
and "ours" refer to MD2patient, Inc.
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RISK FACTORS
You should carefully consider the risks and uncertainties described below
before buying shares in this offering. Our business could be adversely affected
by any of the following factors, in which event the value of our business could
decline, and you could lose part or all of your investment.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in July 1999 and have not yet launched our web site.
We have a limited operating history that you can use to evaluate our business or
our future prospects. You must consider the risks, expenses and problems
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as ours. Some of
the risks which we may face as an early stage company include our ability to:
- implement our business model and strategy and adapt them as needed;
- attract physicians, their staffs and patients to our web site; and
- develop third party relationships for our content and services.
If we fail to successfully manage these risks, expenses and problems, and
the other risks described below, current evaluations of our business and
prospects may prove to be inaccurate.
WE HAVE NO REVENUES, WE ARE NOT PROFITABLE AND WE EXPECT FUTURE LOSSES
Since our inception, we have incurred losses and negative cash flow, and,
as of December 31, 1999, we had an accumulated deficit of $650,469. We expect
negative cash flow and operating losses to continue for the foreseeable future,
and we may never become profitable. We expect our operating costs to increase,
but because we have no operating history, we have no historical financial data
to use as a basis for determining future operating expenses. The principal
minimum costs of expanding our business will include:
- substantial direct and indirect selling, marketing, advertising and
promotional costs, which we expect to be approximately $500,000;
- costs incurred in connection with hiring additional personnel to meet our
anticipated growth especially in the area of customer service, which we
expect to be approximately $1,000,000; and
- costs incurred to develop our web site and obtain services and content to
be offered on or through our web site, which we expect to be
approximately $2,500,000.
We cannot assure you that we will ever achieve or sustain profitability. For
more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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OUR BUSINESS MODEL IS NEW AND UNTESTED AND OUR WEB SITE MAY NOT ACHIEVE MARKET
ACCEPTANCE
Our success will depend upon our ability to attract physician subscribers
to our web site and to motivate those subscribers and their patients to utilize
our web site to obtain healthcare information, products and services over the
Internet. However, our business model is new and our web site is untested. We
cannot guarantee that physician subscribers and patients will utilize our web
site, or even the Internet, as a replacement for traditional sources of
healthcare information, products and services.
Acceptance of web sites by physicians and their patients will require a
broad acceptance of new methods of conducting business and exchanging
information. Our failure to achieve market acceptance and to develop and
maintain a large base of physician subscribers and patient users for our web
site would cause our business to fail.
WE DO NOT CURRENTLY HAVE ANY CONTENT OR SERVICES ON OUR WEB SITE
We do not currently have any content or services on our web site. All of
the web site content and services described in this prospectus will have to be
obtained from third party content and service providers or developed
independently by us. We currently do not have any agreements with content or
service providers to obtain content and services for our web site. We are
currently relying on outside firms to develop our web site and to assist us in
establishing relationships with third parties to obtain the content and services
to be offered on our web site. The market for such relationships is very
competitive and there can be no assurance that such content or services will be
available to us on commercially reasonable terms or at all. Therefore, there can
be no assurance that we will be successful in developing and launching a web
site with useful content and services. The failure to develop and launch a web
site with useful content and services will cause us to fail. For more
information, see "Business -- Third Party Business Relationships."
IF WE ARE UNABLE TO ESTABLISH REVENUE-GENERATING RELATIONSHIPS WITH THIRD
PARTIES SUCH AS HEALTHCARE VENDORS AND ADVERTISERS, OUR BUSINESS IS LIKELY TO
FAIL
In addition to creating a large base of physician subscribers and patient
users for our web site, we must establish business relationships with healthcare
vendors and advertisers in order to obtain revenue from commerce originating on
or through our web site. We do not currently have any business relationships of
this type and competition for these relationships from other web sites is
intense. Vendors and advertisers may be unwilling to enter into relationships
with us until our web site is fully operational and we have a significant number
of subscribers. If we fail to establish these relationships, our sources of
revenue will be very limited and our business is likely to fail. For more
information, see "Business -- Third Party Business Relationships."
WE INTEND FOR SOME OF OUR REVENUES TO COME FROM ADVERTISING AND SPONSORSHIPS,
AND THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING AND SPONSORSHIP IS
UNCERTAIN
While we are unable to determine how much revenue, if any, we will generate
from advertisers and sponsors, we will attempt to obtain some revenue from the
sale of advertisements and sponsorships on our web site. The Internet
advertising market is new and rapidly evolving. It cannot yet be compared with
the traditional advertising market to gauge its effectiveness. As a result,
there is significant uncertainty about the demand and market acceptance for
Internet advertising. For example, increased use of filter software
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programs that allow Internet users to limit or remove advertising from their
desktops or the adoption of this type of software by Internet access providers
could adversely affect the viability of advertising on the Internet. Many of our
potential advertising customers and sponsors may conclude that Internet
advertising and sponsorship are not effective relative to traditional
advertising and sponsorship opportunities. If the market for Internet
advertising and sponsorships fails to develop or develops more slowly than we
expect, our potential sources of revenue will be limited and our business may be
adversely affected. For more information, see "Business -- Third Party Business
Relationships."
WE FACE INTENSE COMPETITION
The market for Internet services and products is intensely competitive.
Since the Internet's commercialization in the early 1990's, the number of web
sites on the Internet competing for users' attention has proliferated with no
substantial barriers to entry, and we expect that competition will continue to
intensify. We will compete for physician subscribers, content and service
providers, advertisers and sponsors with the following categories of companies:
- on-line services or web sites targeted to the healthcare industry
generally;
- publishers and distributors of traditional offline media, including those
targeted to physicians, many of which have established or may establish
web sites;
- general purpose on-line services which provide access to healthcare
content and services;
- public sector and non-profit web sites that provide healthcare
information without advertising or commercial sponsorships; and
- web search and retrieval services and other high-traffic web sites.
Due to the rapidly evolving nature of our market, the limited barriers to
entry and the rapid proliferation of competitors, we are unable to quantify the
number of our competitors, but we believe they are numerous. Although we do not
believe anyone currently dominates our market, there are several well
capitalized companies such as Healtheon/WebMD, Medscape and drkoop.com that are
already pursuing business strategies that are similar to ours. These companies
are significantly further along than we are in the development of their
businesses and are already providing products similar to those that we are
seeking to develop. Competition from these companies will be intense. Some of
our competitors enjoy substantial competitive advantages over us, including:
- greater resources that can be devoted to the development, promotion and
sale of their content and services;
- longer operating histories;
- existing Internet products and services that may have already achieved
market acceptance;
- greater financial, technical and marketing resources;
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- existing relationships with key content or service providers;
- greater name recognition; and
- established subscriber bases.
For more information, see "Business -- Competition."
WE ARE A DEVELOPMENT STAGE COMPANY WITH VERY LIMITED CAPITAL RESOURCES
The proceeds of this offering, together with a limited amount of capital
previously raised by us in connection with sales of our Common Stock and our
Series A Convertible Preferred Stock and warrants will be the only capital
resources available to us. These capital resources may not be sufficient to
finance in full the implementation of our business strategy. Therefore, we may
have to raise additional capital, which could entail issuing additional equity
securities or incurring significant amounts of debt. Our issuance of additional
equity securities would cause dilution to investors in this offering. Our
incurrence of debt could result in substantial debt service obligations, which,
in turn, could cause cash flow problems. Additional capital may not be available
to us on commercially reasonable terms or at all. The failure to raise
additional needed capital could cause us to fail. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
We currently have two pending trademark applications filed with the United
States Patent and Trademark Office, one for md2patient(TM) and one for
md2patient.com(TM). At this point in time, we are unable to predict whether the
United States Patent and Trademark Office will allow these applications to
proceed to registration. For more information, see "Business -- Intellectual
Property."
Our business could be adversely affected if unauthorized parties infringe
upon or misappropriate our content, services or proprietary information, such as
our trade names, trademarks or trade secrets. Our efforts to protect our
intellectual property may not be adequate. In the future, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others, which could be time
consuming and costly.
WE MAY BE LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Intellectual property infringement claims could be made against us as the
number of our competitors grows or as we aggregate on-line content and services
from third parties. These claims could be expensive and divert our attention
from our operations. In addition, if we become liable to third parties for
infringing their intellectual property rights related to our content, services,
name or otherwise, we could be required to pay substantial damages, develop
comparable non-infringing intellectual property or obtain a license. We could
also be forced to cease providing the content or services or using the name(s)
that contain the infringing intellectual property. We may be unable to develop
non-infringing intellectual property or obtain a license on commercially
reasonable terms, or at all.
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WE MAY INCUR LIABILITY FOR CONTENT AND USER DATA CONTAINED ON OUR WEB SITE
As a content provider, we may face potential liability for intellectual
property infringement, defamation, indecency and other claims. In addition, we
may incur liability for unauthorized duplication or distribution of third-party
content or materials or for information collected from and about our subscribers
and users. Third parties or users may bring claims against us relating to
proprietary rights or use of personal information. We do not currently maintain
general liability insurance for potential claims of this type.
IF WE LOSE THE SERVICES OF JOHN BLOUNT OR ALBERT RODEWALD, OUR BUSINESS WOULD
SUFFER
We depend substantially on the continued services and performance of John
E. Blount, our President, and Albert Rodewald, our Executive Vice President and
Chief Technology Officer. Mr. Blount has been instrumental in the development of
our business model and marketing of our web site to physicians. In addition, Mr.
Rodewald has been instrumental in putting in place the technology that we
utilize, as well as the development of our web site and associated databases. If
we were to lose the services of either Mr. Blount or Mr. Rodewald before the
full implementation of our web site and completion of this offering, our
progress in implementing our web site and attracting physician subscribers could
be substantially interrupted which would hurt our business.
IF WE CANNOT ATTRACT ADDITIONAL PERSONNEL TO MANAGE AND OPERATE OUR BUSINESS, WE
MAY BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY, COMPETE SUCCESSFULLY OR GENERATE
REVENUE
Because our current management team does not have experience in managing
and operating an Internet-related company, we believe that our future success
depends on our ability to attract and retain additional personnel, particularly
management personnel with such experience, as well as experienced professionals
capable of marketing Internet-based services to physicians and their staffs. We
are currently seeking to hire up to five persons to assist in the administration
and management of our physician panels and the location and assembly of
potential content and service offerings that can be presented to our physician
panels for possible inclusion on our web site. We anticipate a need in the near
future to hire a web site manager, a marketing executive, up to two additional
sales professionals and additional administrative support staff. There is
intense competition for employees, at all levels, that possess knowledge of both
the Internet industry and the healthcare market. Our failure to attract and
retain highly qualified employees could limit our ability to execute our
business strategy, compete successfully or generate revenue.
OUR ON-LINE ACTIVITIES MAY EXPOSE US TO MALPRACTICE LIABILITY AND OTHER
LIABILITY INHERENT IN HEALTHCARE DELIVERY
We could be exposed to malpractice or other liability against which we are
not insured. Patients who file lawsuits against physicians often name as
defendants all persons or companies with any relationship to the physicians. As
a result, patients could file lawsuits against us based on treatment provided by
physicians who subscribe to our web site, have web pages on our web site or to
whom our web site provides a link. In addition, a plaintiff or government agency
could take the position that our delivery of healthcare information directly, or
information delivered by a third-party web site that a patient accesses through
our web site, exposes us to liability for wrongful delivery of healthcare
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services or erroneous healthcare information. The amount of insurance we may
maintain with insurance carriers in the future may not be sufficient to cover
all of the losses we might incur from these potential claims.
STATE RESTRICTIONS ON THE PRACTICE OF MEDICINE COULD NEGATIVELY AFFECT OUR
ACTIVITIES
Any finding in a state that we are not in compliance with its laws could
require us to restructure our services, which could be time consuming and
expensive and which could limit the marketability of our web site. The laws in
some states prohibit some business entities from practicing medicine. This is
commonly referred to as the prohibition against the "corporate practice of
medicine." In general, these laws prohibit us from employing physicians to
practice medicine or from directly furnishing medical care to patients. Each
state requires licensure for the practice of medicine within that state, and
some states consider the receipt of an electronic transmission of selected
healthcare information in that state to be the practice of medicine. These types
of laws could restrict our activities and the extent to which we can provide
healthcare information to patients, physicians and others. If our activities are
found to be not in compliance with these laws, we could be subjected to
penalties or forced to change our business operations in a manner that increases
our costs or reduces our revenue.
STATE AND FEDERAL LAWS THAT PROTECT THE PRIVACY OF HEALTHCARE INFORMATION MAY
LIMIT OUR ABILITY TO COLLECT, USE AND DISCLOSE THAT INFORMATION
Our business could be harmed if we fail to comply with current or future
laws or regulations governing the collection, dissemination, use and
confidentiality of patient healthcare information. Numerous federal and state
laws and regulations govern collection, dissemination, use and confidentiality
of patient-identifiable healthcare information, including:
- state privacy and confidentiality laws;
- state laws regulating healthcare professionals, such as physicians,
pharmacists and nurse practitioners;
- Medicaid laws;
- the Health Insurance Portability and Accountability Act of 1996 and
related rules proposed by the Health Care Financing Administration; and
- Health Care Financing Administration standards for Internet transmission
of healthcare data.
The U.S. Congress has been considering proposed legislation that would
establish a new federal standard for protection and use of healthcare
information. We may not be able to safeguard patient healthcare information from
unauthorized disclosure or use, which may subject us to claims for violations of
law. In addition, other third party web sites that consumers may access through
our web site may not maintain systems to safeguard this healthcare information.
Future laws or changes in current laws may necessitate costly adaptations to our
systems.
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IF WE ARE NOT ABLE TO PREVENT INTERNET SECURITY BREACHES, UTILIZATION OF OUR WEB
SITE COULD DECLINE OR NEVER DEVELOP AND WE COULD BE EXPOSED TO LIABILITY
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting electronic commerce and
engaging in sensitive communications over the Internet. It is anticipated that
we will rely on browser-level encryption, authentication and certificate
technologies, all of which will be licensed from third parties, to provide the
security and authentication necessary to effect secure transmission of
confidential information. However, we cannot guarantee that advances in computer
capabilities, new discoveries in the field of cryptography or other similar
developments will not result in a compromise or breach of our security measures.
A party who is able to circumvent our security measures could misappropriate
proprietary information or confidential communications or cause interruptions to
our operations. We may be required to spend significant capital and other
resources to protect against the threat of security breaches or to alleviate
problems caused by security breaches. Any well-publicized compromise of Internet
security could deter people from using the Internet or from conducting
transactions that involve transmitting confidential information, including
confidential healthcare information. To the extent that our activities or the
activities of third parties with whom we have business relationships involve the
storage and transmission of confidential information, such as patient records or
credit information, security breaches could expose us to claims, litigation or
other liabilities.
WE MAY EXPERIENCE SYSTEM FAILURES
To succeed, we must be able to operate our web site 24 hours a day, seven
days a week, without interruption. It is anticipated that almost all of our
communications and information services will be provided to us by third parties.
To operate without interruption, our third party providers must guard against:
- damage from fire, power loss and other natural disasters;
- communication failures;
- software and hardware errors, failures or crashes;
- security breaches, computer viruses and similar disruptive problems; and
- other potential interruptions.
System failures could delay the launch of our web site or adversely affect the
market acceptance of our web site.
THE INTERNET IS SUBJECT TO EXISTING AND POTENTIAL GOVERNMENT REGULATIONS THAT
MAY LIMIT UTILIZATION OF OUR WEB SITE, INCREASE OUR COST OF DOING BUSINESS OR
LIMIT OUR ABILITY TO GENERATE REVENUE
Currently, our business is not subject to substantial government regulation
at the federal or state level. However, the amount of government regulation is
expected to increase as a number of new laws and regulations affecting Internet
businesses are
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<PAGE> 14
currently under consideration by federal and state legislators. Laws and
regulations may be adopted with respect to the Internet and on-line businesses
covering issues such as:
- privacy of user information;
- pricing of Internet access or of on-line commerce;
- taxation of Internet access or of on-line commerce;
- quality and characteristics of on-line content and services;
- copyrights;
- on-line advertising of healthcare products and services; and
- confidentiality of patient information.
Increasing government regulation of these and other areas affecting Internet
activities could:
- slow the development of Internet commerce, which could limit or eliminate
some or all of our anticipated sources of revenue;
- increase regulatory compliance costs for us and the companies with whom
we intend to do business;
- slow the acceptance of the Internet as an advertising medium, which could
limit or eliminate advertising as a potential source of revenue for us;
and
- limit the scope of content and services made available on the Internet
generally, or on or through our web site in particular, which could limit
the market acceptance of our web site among users and/or advertisers and
vendors.
For more information, see "Business -- Government Regulation."
OUR BUSINESS COULD BE HARMED IF INTERNET SALES BECOME TAXABLE
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services over the Internet and certain other Internet activities. We cannot
predict the effect of current attempts at taxing or regulating commerce over the
Internet. Because our business will depend on revenues generated by e-commerce
activity associated with our web site, any legislation that impairs the growth
of e-commerce could have a material adverse effect on our business.
INVESTORS IN THIS OFFERING MAY HAVE TO HOLD THEIR SHARES FOR AN INDEFINITE
PERIOD OF TIME
Our Articles of Incorporation provide that no holder of shares of our
Series A or Series B Convertible Preferred Stock may sell, assign or transfer
any of such shares without our prior written consent. In addition, there is no
public market for our Series A
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<PAGE> 15
or Series B Convertible Preferred Stock and no such public market is expected to
develop in the future. We do not intend to apply for listing of any class or
series of our capital stock on any securities exchange or the Nasdaq Stock
Market unless and until we complete an underwritten public offering of our
Common Stock. After any such public offering, we would only list for trading our
Common Stock. We do not currently know whether or when we will attempt an
underwritten public offering of our Common Stock and there can be no assurance
that we will ever complete such a public offering or that a market for our
Common Stock will ever develop. Therefore, investors in this offering may have
to hold their shares for an indefinite period of time and may never have an
opportunity to resell them. The Warrants will not be publicly traded and are not
transferrable under any circumstances. For more information, see "Description of
Capital Stock."
PROCEEDS FROM THIS OFFERING MAY BE HELD IN ESCROW UNTIL DECEMBER 31, 2000
All payments for shares offered in this offering will initially be
deposited into an escrow account with SunTrust Bank. These payments will be
released to us by the escrow agent if we sell at least 5,000,000 shares of
Series B Convertible Preferred Stock by December 31, 2000. During this time,
investors will not be able to demand return of their investment. If we do not
receive payments for at least 5,000,000 shares of Series B Convertible Preferred
Stock by December 31, 2000, we will terminate the offering and promptly return
payments plus interest, if any. For more information see, "Plan of
Distribution."
INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE DILUTION IN THE BOOK VALUE OF
THEIR SHARES
Investors purchasing shares in this offering will incur immediate and
substantial dilution of up to $0.76 in the net tangible book value per share
from the public offering price of $1.00 per share, or 76%. In addition, our
Board of Directors has the authority to issue a significant number of additional
shares of our capital stock without obtaining shareholder approval to do so. Any
such issuances will dilute the ownership interest in md2patient.com obtained by
investors in this offering. For more information, see "Dilution."
WE MAY NEVER PAY A DIVIDEND
We have never declared or paid any cash dividends on our capital stock. In
addition, we do not anticipate paying cash dividends in the foreseeable future.
Our failure to pay a dividend could effect the value of our shares in the future
and the return on any investment made in our shares. The shares of Series A and
Series B Convertible Preferred Stock offered by us in this offering are not
entitled to any mandatory dividend payments. Accordingly, whether and to what
extent dividends will ever be declared and paid is subject to the sole
discretion of our Board of Directors.
OUR MANAGEMENT MAY FAIL TO ALLOCATE THE USE OF PROCEEDS FROM THIS OFFERING
EFFECTIVELY
Although the potential uses of proceeds from this offering and the amounts
allocated to each such use are subject to management's discretion, management
expects to use the proceeds for implementing and expanding the functionality of
our web site and associated databases, enhancing our marketing and sales
organization, pursuing relationships with third party vendors of on-line content
and services and for expanding our customer support capabilities. They may use
the net proceeds ineffectively or for purposes with which you
15
<PAGE> 16
disagree. Management's failure to apply the proceeds effectively could impede
our ability to grow our business.
HERITAGE GROUP, LLC AND ITS AFFILIATES CONTROL APPROXIMATELY 74% OF OUR COMMON
STOCK
Holders of our Series A and Series B Convertible Preferred Stock only have
the right to vote on a proposed merger or sale of the company, and not on other
matters submitted to a vote of shareholders, such as the election of directors.
Holders of our Common Stock have the right to vote on all matters submitted to a
vote of shareholders. Heritage Group, LLC and its affiliates own 18,000,000
shares of our Common Stock, which constitutes approximately 74% of the
outstanding shares of our Common Stock. As a result, Heritage Group, LLC and its
affiliates currently control our company and have the ability to determine the
outcome of all matters requiring shareholder approval. Following the completion
of this offering, Heritage Group, LLC will continue to have this ability, with
the possible exception of a proposed merger or sale of the company, which will
depend on how many shares are sold in this offering. For more information, see
"Certain Relationships and Related Transactions."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." They include statements concerning:
- plans for developing and launching our web site;
- anticipated sources of revenue;
- our business and operating strategy;
- anticipated sources of capital and the ability to meet future liquidity
and capital requirements;
- plans for hiring additional personnel;
- use of proceeds of this offering; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
When used in this prospectus, the words "expect," "believe," "goal,"
"plan," "intend," "estimate," "may," "will" and similar expressions are
generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus. Except as required by federal
securities laws, we assume no obligation to update any forward-looking
statements.
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<PAGE> 17
USE OF PROCEEDS
After deducting fees of WR Hambrecht and estimated offering expenses of
$450,000, we expect to receive a minimum of (1) no proceeds from the offering of
Series A Convertible Preferred Stock, (2) $4,150,000 in net proceeds from the
offering of Series B Convertible Preferred Stock and (3) no proceeds from the
offering of Warrants. If all of the shares of Series A and Series B Convertible
Preferred Stock offered hereby are sold, we would expect to receive a maximum of
$34,470,000 in net proceeds, after deducting fees of WR Hambrecht and estimated
offering expenses. However, we cannot assure you that we will receive any net
proceeds in excess of the estimated minimum of $4,150,000.
We expect to use the net proceeds from this offering for implementing and
expanding the functionality of our web site and associated databases, enhancing
our marketing and sales organizations, pursuing relationships with third-party
vendors of on-line content and services, and expanding our customer support
functions. Although the potential uses of the proceeds and the amounts allocated
to each such use are subject to management's discretion and may be reallocated
at any time, the following chart summarizes how md2patient.com currently expects
to use the estimated net proceeds from the offering and the order of priority
for the uses stated:
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
5,000,000 SHARES 36,000,000 SHARES
------------------------ ------------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Estimated Cash Proceeds............ $4,150,000 100.0% $34,470,000 100.0%
Uses of Proceeds:
Technology....................... 1,500,000 36.1 10,500,000 30.5
Content Development.............. 1,000,000 24.1 4,000,000 11.6
Sales/Marketing.................. 500,000 12.1 10,500,000 30.5
Customer Service................. 1,000,000 24.1 8,000,000 23.2
Working Capital.................. 150,000 3.6 1,470,000 4.2
</TABLE>
The factors that could cause a change in how we allocate the proceeds among
the uses stated above include our success in developing strategic alliances, our
pursuit of acquisitions and our expansion of the breadth of content we offer on
our web site. Pending the uses set forth above, the net proceeds of this
offering will be invested in short-term, investment grade, interest-bearing
investments or accounts.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends on any class or series of our capital stock for the foreseeable
future.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of md2patient.com as of
December 31, 1999:
- on an actual basis; and
- as adjusted to reflect the sale by md2patient.com of the minimum
5,000,000 shares of Series B Convertible Preferred Stock offered hereby
at a public offering price of $1.00 per share and the receipt of the
estimated net proceeds therefrom, after deducting fees of WR Hambrecht
and estimated offering expenses.
The information below is qualified by and should be read in conjunction
with "Management's Discussion and Analysis and Results of Operations" and our
financial statements and the notes to those statements appearing at the end of
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Shareholders' equity:
Preferred Stock, $.01 par value; 300,000,000 shares
authorized:
Series A Convertible; 50,000,000 shares designated;
5,000,000 shares issued and outstanding, actual;
5,000,000 shares issued and outstanding, as
adjusted.............................................. $ 50,000 $ 50,000
Series B Convertible; 50,000,000 shares designated; no
shares issued and outstanding, actual; 5,000,000
shares issued and outstanding, as adjusted............ -- 50,000
Common Stock, $.01 par value; 300,000,000 shares
authorized; 10,000,000 shares issued and outstanding,
actual and as adjusted.................................. 100,000 100,000
Additional paid-in capital................................ 4,686,087 8,786,087
Deficit accumulated during the development stage.......... (650,469) (650,469)
---------- ----------
Total shareholders' equity............................ $4,185,618 $8,335,618
========== ==========
</TABLE>
The capitalization information set forth in the table above:
- does not reflect the fact that shares of Series B Convertible Preferred
Stock automatically convert into shares of Series A Convertible Preferred
Stock on a one-for-one basis at a rate of one-third per year on each
anniversary of their issuance;
- does not reflect the fact that holders of Series A Convertible Preferred
Stock may at any time elect to convert all or any portion of those shares
into Common Stock on a one-for-one basis;
- excludes 5,000,000 shares of Series A Convertible Preferred Stock
reserved for issuance upon the exercise of outstanding warrants and the
Warrants offered hereby with an exercise price of $1.00 per share;
- excludes 14,347,500 shares of Common Stock issued subsequent to December
31, 1999; and
- excludes 10,000,000 shares of Common Stock reserved for future issuance
under our stock option plan.
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<PAGE> 19
DILUTION
Our pro forma net tangible book value at December 31, 1999, after giving
effect to the conversion of all outstanding shares of Series A Convertible
Preferred Stock into Common Stock on a one-for-one basis and after giving effect
to the issuance of 14,347,500 shares of Common Stock subsequent to December 31,
1999, was $4,185,618, or $0.14 per share. Pro forma net tangible book value per
share is equal to our total tangible assets less our total liabilities, divided
by the number of shares of Common Stock outstanding on a pro forma basis.
Dilution per share represents the difference between the price per share
paid by investors in this offering and the as adjusted pro forma net tangible
book value per share immediately after this offering. After giving effect to the
sale of the maximum 34,000,000 shares of Series B Convertible Preferred Stock
and 2,000,000 shares of Series A Convertible Preferred Stock in this offering at
$1.00 per share, and after deducting fees of the placement agent and estimated
offering expenses, our as adjusted pro forma net tangible book value at December
31, 1999 would have been approximately $38,655,618, or $0.59 per share. This
represents an immediate decrease in pro forma net tangible book value of $0.41
per share to new investors, or 41%. Similarly, after giving effect to the sale
of the minimum 5,000,000 shares of Series B Convertible Preferred Stock in this
offering at $1.00 per share, and after deducting fees of WR Hambrecht and
estimated offering expenses, our as adjusted pro forma net tangible book value
at December 31, 1999 would have been approximately $8,335,618, or $0.24 per
share. This represents an immediate decrease in pro forma net tangible book
value of $0.76 per share to new investors, or 76%. The following tables
illustrate this dilution:
MAXIMUM SHARES SOLD (34,000,000 SERIES B AND 2,000,000 SERIES A)
<TABLE>
<S> <C> <C>
Public offering price per share............................. $1.00
Pro forma net tangible book value per share at December
31, 1999............................................... $0.14
Increase per share attributable to new investors.......... 0.45
As adjusted pro forma net tangible book value per share
after this offering....................................... 0.59
-----
Dilution per share to new investors......................... $0.41
=====
Dilution per share to new investors (percentage)............ 41%
=====
</TABLE>
MINIMUM SHARES SOLD (5,000,000 SERIES B)
<TABLE>
<S> <C> <C>
Public offering price per share............................. $1.00
Pro forma net tangible book value per share at December
31, 1999............................................... $0.14
Increase per share attributable to new investors.......... 0.10
As adjusted pro forma net tangible book value per share
after this offering....................................... 0.24
-----
Dilution per share to new investors......................... $0.76
=====
Dilution per share to new investors (percentage)............ 76%
=====
</TABLE>
The following table summarizes, on a pro forma basis after giving effect to
this offering, the difference between the number of shares of capital stock
purchased from us, the total consideration paid and the average price per share
paid by existing shareholders and by new investors purchasing shares of Series B
Convertible Preferred Stock and
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<PAGE> 20
Series A Convertible Preferred Stock in this offering. We have not deducted fees
of the placement agent or estimated offering expenses in our calculations.
MAXIMUM SHARES SOLD (34,000,000 SERIES B AND 2,000,000 SERIES A)
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders:
Common....................... 24,347,500 37.2 $ 100,000 0.2% $0.01
Series A Convertible 5,000,000 7.7 5,000,000 12.2 $1.00
Preferred.................
New investors.................. 36,000,000 55.1 36,000,000 87.6 $1.00
---------- ----- ----------- -----
Total..................... 65,347,500 100.0% $41,100,000 100.0% $0.63
========== ===== =========== =====
</TABLE>
MINIMUM SHARES SOLD (5,000,000 SERIES B)
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders:
Common....................... 24,347,500 70.8% $ 100,000 1.0% $0.01
Series A Convertible 5,000,000 14.6 5,000,000 49.5 $1.00
Preferred.................
New investors.................. 5,000,000 14.6 5,000,000 49.5 $1.00
---------- ----- ----------- -----
Total..................... 34,347,500 100.0% $10,100,000 100.0% $0.29
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables do not reflect that, upon the
liquidation dissolution or winding up md2patient.com, holders of shares of
Series A and Series B Convertible Preferred Stock sold in this offering are
entitled to be paid out of our assets, before any payment to holders of our
Common Stock, an amount equal to $1.00 per share, as described in more detail
later in this prospectus under the heading "Description of Capital Stock." In
addition, the foregoing discussion and tables assume no exercise of outstanding
warrants and Warrants offered hereby to purchase 5,000,000 shares of Series A
Convertible Preferred Stock at an exercise price of $1.00 per share. See
"Description of Capital Stock -- Warrants."
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<PAGE> 21
SELECTED FINANCIAL DATA
In the table below, we provide you with selected financial data of
md2patient.com. We have prepared this information using our historical financial
statements as of December 31, 1999 and for the period from July 30, 1999 (date
of inception) through December 31, 1999.
When you read this selected financial data, it is important that you read
along with it the historical financial statements and related notes included in
this prospectus, as well as the section of this prospectus entitled,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
PERIOD FROM JULY 30, 1999
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1999
-------------------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Interest Income........................................ $ 25,610
Costs and expenses:
Selling, general and administrative.................... 676,079
----------
Net loss................................................. $ (650,469)
==========
Basic and diluted net loss per share..................... $ (0.07)
==========
Weighted average shares used in calculating basic and
diluted net loss per share(1).......................... 10,000,000
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
<S> <C>
BALANCE SHEET DATA
Cash..................................................... $4,025,058
Working capital.......................................... 3,794,601
Total assets............................................. 4,667,910
Stockholders' equity..................................... 4,185,618
</TABLE>
- -------------------------
(1) See Note 4 of Notes to Financial Statements.
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a development stage company recently formed to develop and operate a
web site to provide access to selected on-line healthcare content and services
to our physician subscribers and their patients. We have not yet completed the
development of our web site, begun to offer Internet services, or entered into
any agreements with third party vendors, suppliers or advertisers to provide
content or services on or through our site.
ANTICIPATED SOURCES OF REVENUE
We anticipate that our web site will be operational by the end of the
second quarter of 2000. Once operational, we will seek to generate revenue
primarily from the following sources:
- Fees paid by physician subscribers;
- Fees paid by web vendors in connection with installing and managing
content and services on or through our site;
- Advertising revenue from businesses desiring to access our physician
subscribers and their patients;
- Fees paid by vendors in connection with business-to-business e-commerce
transactions generated through our site;
- Fees paid by vendors in connection with business-to-consumer e-commerce
transactions generated through our site; and
- Fees paid by pharmaceutical research and drug manufacturing companies in
connection with medical research and/or participation in on-line clinical
drug trials.
Physician Subscriptions. We plan to build and to retain a physician
subscriber base by offering an evolving array of content and services selected
by our physician specialty panels. Subscriptions will be sold for three years of
service to be paid in a single lump sum of $1,000 or three annual installments
of $400. As of March 1, 2000, we had 1,015 physician subscribers, of which 139
received free subscriptions in connection with their purchase of shares of
Series A Convertible Preferred Stock in our November 1999 private placement.
Web Vendors. For an ongoing fee plus participation in revenues generated
from traffic originating from our site, we anticipate entering into agreements
with vendors to install and manage selected healthcare content and services on
or through our site with links to their site. Such content and services will
have been reviewed and selected by our physician specialty panels for inclusion
on or through our site. As of the date of this prospectus, we have not entered
into any agreements with vendors to provide content or services for our site.
Advertising. The key factors in attracting advertising revenue is the size
of our physician subscriber base, our ability to capture demographic information
valuable to advertisers, and the frequency with which our web site is accessed.
In connection with the
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<PAGE> 23
development of our web site, we are also developing the databases necessary to
capture and present the information that we believe will be particularly
valuable to advertisers. As of the date of this prospectus, we have not entered
into any relationships or agreements with vendors or advertisers.
Business-to-Business e-commerce Transactions. In connection with the
development of our web site, we plan to offer our physician subscribers and
their practice staffs content and services that will assist them in the
day-to-day management and operation of their practices. We believe this category
of services will allow us to generate additional revenues from
business-to-business e-commerce transactions originating from our site and
enhance our ability to improve the efficiency of our physician subscribers'
practices. Some of the services offered through our site will be targeted to all
physicians, while other services will be targeted to specific medical
specialties.
Business-to-Consumer e-Commerce Transactions. We believe our physician
subscribers will include a large number of affluent consumers with significant
disposable income which will be attractive to vendors. We will attempt to secure
relationships with selected vendors that desire to offer consumer products and
services to our physician subscribers through our site. We believe we will be
able to structure these relationships in a manner that will allow us to charge
access fees and otherwise participate in the revenues generated from such
transactions.
We also believe that the patients of our physician subscribers will
represent a consumer base that will be attractive to vendors of consumer
healthcare products and services. Accordingly, we will seek to generate
additional revenue by charging access fees and/or a percentage of the revenues
generated by transactions between vendors and patients that occur through our
site.
Medical Research and Clinical Drug Trials. We plan to promote our
physician subscriber base to pharmaceutical research and drug manufacturing
companies interested in enrolling physicians in on-line surveys and clinical
drug trials. If we are successful in these efforts, we believe participating
companies will pay us a fee for information generated from our database, access
to our subscribing physicians and advertisements of their surveys and drug
trials on our web site. As of the date of this prospectus, we have not entered
into any agreements with pharmaceutical research or drug manufacturing
companies.
CURRENT AND ANTICIPATED FINANCIAL COMMITMENTS
We have entered into an agreement with Arthur Andersen LLP to assist us in
developing our technical infrastructure and web site. Arthur Andersen will work
closely with our technology staff to develop and launch our web site. We
anticipate leasing the servers and the related computer hardware and equipment
that will support our web site. These costs are expected to be expensed as
incurred. Our agreement with Arthur Andersen LLP provides that Arthur Andersen
LLP's services will be completed in two phases. The fee for the first phase will
be approximately $250,000, plus expenses. The fee for the second phase is
expected to be between $250,000 and $450,000, plus expenses. The terms of the
agreement provide that the design and implementation of our web site prototype
will be completed prior to the end of the first quarter of 2000.
We are seeking to hire up to five persons to assist in the administration
and management of our physician panels and the location and assembly of
potential content and service offerings that can be presented to our physician
panels for possible inclusion on
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<PAGE> 24
our web site. We anticipate a need in the near future to hire a web site
manager, up to two additional sales professionals and additional administrative
support staff.
As a result of these activities, prior to the completion of this offering
we anticipate incurring substantial additional costs and expenses related to the
continued development of our web site and the hiring of qualified personnel.
Future costs and expenses will include sales and marketing expenses incurred to
attract physician subscribers to our web services, as well as ongoing technology
costs to enhance the content and services available to our physician subscribers
and their patients.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the commencement of this offering, we raised $5,000,000 through a
private placement of 5,000,000 shares of our Series A Convertible Preferred
Stock and warrants. We also raised $100,000 through the private placement of
Common Stock to Heritage Group, LLC. As of December 31, 1999, our principal
commitments consisted of our agreements with Arthur Andersen, our web site
consultants, and the costs and expenses incurred in connection with the private
placements and this offering. Given the proceeds raised in these private
placements, we believe that we have sufficient existing capital resources to
complete the development of our web site, formally launch our web site and
maintain our web site for the next 12 months. When formally launched, our web
site will include physician web pages, which will allow patient access to
information relating to individual physician practices. The web site will also
make limited content and services available to our physician subscribers,
including the development of customized web pages and links to medical societies
and various clinical information databases. If we are successful in selling at
least the minimum number of shares of Series B Convertible Preferred Stock
available in this offering, we believe we will have sufficient capital to
implement our business plan and meet our anticipated long-term working capital
needs.
While the minimum net proceeds of this offering are expected to be
sufficient to meet our anticipated long-term working capital needs, additional
capital could be required if unexpected costs arise or if we seek to enhance the
content or services to be provided through our web site or accelerate the
implementation of our business plan through the acquisition of complementary
businesses. If additional capital requirements arise, we may need to raise
additional funds sooner than expected. If we raise additional funds through the
issuance of equity or convertible debt securities, these securities may have
rights, preferences or privileges that are superior to those of the shares
available in this offering and may result in substantial dilution to existing
shareholders. If additional funding is needed, there is no assurance that such
funding will be available on terms acceptable to md2patient.com, if at all.
Our losses from inception to December 31, 1999 total $650,469, consisting
principally of costs incurred in the form of direct expenses primarily
consisting of payroll, legal and consulting fees. These costs relate to the
development of our web site, our initial organization and our capital-raising
activities to date.
YEAR 2000
Many existing computer programs use only two digits to identify a year.
These programs were developed without addressing the impact of the recent change
in the century. If not corrected, many computer software applications could fail
or create erroneous results as a result of the change to the year 2000. We will
use software,
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<PAGE> 25
computer technology and other services provided by third-party vendors. We are
also dependent on telecommunications vendors to maintain our communications
network.
We believe that our third-party supplied software and computer technology
is and will be year 2000 compliant. All of our software and computer technology
supplied by third-party vendors has been purchased recently or will be purchased
in the near future. In connection with these purchases, we generally request our
vendors to represent in writing that each of their technology products is year
2000 compliant. However, to date we have not actually received any such written
representations. The failure of any software or systems upon which we rely to be
year 2000 compliant could have a material adverse impact on the development or
operation of our web site.
To date, we have not experienced any problems associated with the change to
the year 2000, nor have we incurred any costs in connection with the change to
the year 2000. Based upon our assessment of our software and computer
technology, we do not believe that we need to develop a year 2000 contingency
plan and we have not developed any such plan. However, the failure of any of our
third-party service providers to be year 2000 compliant could delay the launch
of our web site.
The year 2000 compliance of the general system necessary to support our
operations is difficult to assess. For instance, we will depend on the integrity
and stability of the Internet to provide our services. We will also depend on
the year 2000 compliance of the computer systems used by our subscribers. Thus,
the system necessary to support our operations will consist of a network of
computers and telecommunications systems located throughout the world and
operated by numerous unrelated entities and individuals, none of which has the
ability to control or manage the potential year 2000 issues that may impact the
entire system. It is not possible to predict potential negative impact of year
2000 issues of these systems.
Our worst-case year 2000 scenario would involve a major disruption in
access to the Internet, a failure of our systems and a failure in the systems of
our third-party content and service providers. This would result in the delay of
the launch of our web site and would delay the implementation of our business
strategy.
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<PAGE> 26
BUSINESS
OUR BUSINESS
We were incorporated in July 1999 to develop and operate a web site to
provide access to selected on-line healthcare content and services and to
develop customized web pages for our physician subscribers. We have not yet
completed the development of our web site or begun to offer Internet services to
our physician subscribers. Since incorporation, our founders have been
developing the business concept for md2patient.com and have engaged outside
consultants to assist us in the development of our technical infrastructure and
web site. Our operations to date have focused primarily on the development and
design of our web site, the acquisition and configuration of necessary software
and hardware, building a sales and marketing organization, recruiting key
management and raising capital.
Our web site became operational during January 2000 for the limited purpose
of accepting subscriptions for our Internet services. As such, our web site
currently consists of a homepage, containing general information about
md2patient.com, and procedures for physicians to register and subscribe for our
Internet services. We are continuing the development of the other functions to
be made available on or through our web site and have commenced the process of
identifying third party content and services to be added to our site. Based on
our current development schedule, we believe that by the end of the second
quarter of 2000, our web site will also include customized web pages for our
physician subscribers, links to various other healthcare content sites or
clinical information databases, as well as the following general information:
- Directory of our physician subscribers;
- Physician search engine;
- General women's health issues;
- General men's health issues;
- Drug interaction assessment tool;
- On-line physician's desk reference (PDR);
- List or links to disease specific discussion groups;
- List or links to disease specific on-line support groups;
- First aid/CPR instructional information and diagrams;
- Nutritional information; and
- Access to on-line shopping.
OUR INDUSTRY
The U.S. healthcare system is plagued with information-related problems. Of
the roughly $1.2 trillion projected to be spent on healthcare in the U.S. in
1999, an estimated $400 billion relates to avoidable or inappropriate treatment.
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<PAGE> 27
In addition to these inefficiencies, there are significant intangible costs
that result from poor information flow. We believe that the Internet will
dramatically change how information flows and how people and organizations
interact in healthcare. As an inexpensive and flexible technology, we believe
the Internet will be used to streamline current processes, enhance the quality
of care and create entirely new ways of conducting business relating to
healthcare. We believe that both physicians and their patients will benefit from
the Internet's strength as an information source and a communications medium.
Growth of the Internet
The Internet is the fastest growing medium in history and has rapidly
become a significant global medium for information, communications, news and
commerce. The Internet is distinct from traditional media because it offers
immediate access to dynamic and interactive content and enables virtually
instantaneous communication among users. The Internet enables users to quickly
retrieve and transfer information, share their experiences in on-line
communities and purchase a variety of products and services.
Internet Use by Patients and Healthcare Consumers
Health and medical information is one of the fastest growing areas of
interest on the Internet. According to the Harris Poll, up to an estimated 74%
of all Internet users in the United States seek healthcare information on-line.
We believe that pharmaceutical and other healthcare companies will have an
increasing interest in using on-line advertising to reach target groups with
appealing and compatible demographics.
Internet Use by Physicians
The rapid overall adoption of on-line health and medical information stands
in contrast to the slow rate at which physicians are developing physician-driven
web sites. There are more than 16,000 healthcare-related web sites available on
the Internet, and the number is growing. We believe that the massive number of
sites has served to frustrate both patients and physicians from a standpoint of
reliability, accuracy and trust. We believe there are opportunities for
physicians to help improve the quality of information their patients access
on-line.
Convergence of the Internet and Physician Practices
We believe that over the long term the focus of the convergence of the
Internet and healthcare will trend towards the physician's office because the
delivery of healthcare is increasingly moving to the outpatient setting and
physicians control the majority of healthcare expenditures. We believe a
uniquely attractive opportunity exists to assist physicians in using the
Internet to increase the efficiency of their practices and improve patient
satisfaction through the aggregation of reliable healthcare content and
services.
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THE MD2PATIENT.COM STRATEGY
Our goal is to aggregate reliable healthcare content and services from
existing on-line sources for the benefit of our physician subscribers, their
staff and their patients. Our focus will be to assist our physician subscribers
in utilizing the Internet to enhance their practices and increase patient
satisfaction. A central element of this focus will be our development of
customized physician web pages for our physician subscribers that will give each
subscriber the ability to select and place on his or her web page the content
and services available through our site that he or she determines will best
serve his or her patients.
The selection of our content and services will be made by our physician
specialty panels. To date, no physician panels have been formed; however, we are
in the process of doing so and believe that at least four physician panels will
be formed during the second quarter of 2000. Once formed, our staff will
regularly survey the Internet to identify and recommend to our physician panels
new content and service offerings that may be of benefit to our physician
subscribers, their staff and their patients. The physician panels will be
responsible for reviewing the content and services recommended by our staff and
selecting the content and services for inclusion on or through our web site. We
will regularly upgrade our site as our physician panels select new offerings.
To implement our strategy, we will:
- Focus on the Physician/Patient Relationship. We believe that the
relationship between the physician and his or her patient is unique. Our
focus will be to improve this relationship by offering customized web
pages to our physician subscribers that may be accessed by their patients
and the general public. We believe that our physician subscribers and
their staff will encourage their patients to visit the physician web page
given the practice-specific information that it will contain and the fact
that the content on the web page will have been reviewed by our specialty
panels and selected by the physician.
- Focus on Physician Needs. The physician functions in the following
capacities: (1) clinician; (2) business owner; and (3) consumer. We
intend to assist our physician subscribers in each of these capacities
through the content and services to be made available on or through our
web site. As clinician, our focus will include identifying, by specialty,
helpful and informative content to assist in educating patients with
respect to their medical condition and treatment. As business owner, our
focus will include improving the administrative efficiency of our
subscriber's practice through such services as on-line appointment
scheduling, insurance verification and, where necessary, preauthorization
of healthcare services. As consumer, our focus will include providing our
subscribers and their patients with personal services, such as access to
on-line shopping.
- Capitalize on the Purchasing Power of our Physician Subscribers and their
Patients. We believe that our physician subscribers and their patients
represent an attractive consumer group. If we are successful in
developing a large physician subscriber base, we believe we will be able
to offer e-commerce opportunities to our subscribers and their patients
and develop revenue generating relationships with third parties that
offer on-line commerce.
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<PAGE> 29
PHYSICIAN WEB PAGES
We intend to offer each physician subscriber a customized web page that can
be accessed by his or her patients and the general public. Each physician
subscriber will have the ability to select the content to be included on his or
her web page from the content reviewed by our physician panels and made
available on or through our web site. Each physician subscriber may include some
or all of the following information on his or her web page:
- Picture of physician and/or staff;
- Physician demographic information;
- Practice office hours and policies;
- After hours assistance and emergency phone numbers;
- Location of offices and parking information;
- Directions to office;
- Patient comment area via anonymous e-mail to physician's office;
- Physician comment area to provide any special information to patients;
- Links to content sites selected by the physician; and
- Links to md2patient.com disease-specific pages.
Each web page is intended to function as an extension of the physician's
practice. Specifically, a physician web page could allow his or her patients to
find answers to frequently asked questions about issues such as treatment
options and drug interactions. We believe that the web pages will assist our
physician subscribers in utilizing the Internet to enhance their practices and
increase patient satisfaction.
PHYSICIAN PANELS AND PHYSICIAN ADVISORY BOARD
We intend to form physician panels, organized by specialty, and a Physician
Advisory Board to assist us in selecting the content and services to be made
available on or through our web site. While these have not been formed to date,
we believe that our Physician Advisory Board and at least four physician panels
will be formed during the second quarter of 2000. We have not yet determined
whether or to what extent we may compensate members of our physician panels or
the advisory board.
Physician Panels
Each of our physician specialty panels will typically consist of 7 to 10
physician subscribers from the same or similar medical specialties. The criteria
for selection will include recognized leadership in the area of specialty and
demographic diversity. Once formed, the physician panels will review the content
and services recommended by our staff and select the content and services for
inclusion on or through our web site. We will regularly update our site as our
physician panels select new offerings.
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Physician Advisory Board
Our Physician Advisory Board will typically consist of 8 to 12 physician
subscribers from various medical specialties. Its primary focus will be to
assist in the prioritization and manner of presentation of the content and
services to be offered on our web site. This board will also serve in an
advisory capacity to management in identifying potential members of the
physician specialty panels and establishing the criteria for selection of the
content and services to be made available on or through our site. Similar to our
physician panels, the criteria for selection to our Physician Advisory Board
will include recognized leadership in one's area of specialty and demographic
diversity.
THE MD2PATIENT.COM WEB SITE
In connection with the implementation of our web site, we intend to
organize our healthcare content by medical specialty and topic. We intend to add
medical specialties and topic areas as our physician panels or Physician
Advisory Board members deem appropriate. As of the date of this prospectus, we
have not completed the development of our site and no healthcare content or
services are available to our physician subscribers or their patients.
We also plan to offer to our physician subscribers content and services
that will assist them in the day-to-day management and operation of their
practices. These content and service offerings, if any, will be reviewed by our
Physician Advisory Board and/or physician panels before they are made available
on or through our web site.
THIRD PARTY BUSINESS RELATIONSHIPS
We will seek to enter into business relationships with third parties for
most of the healthcare content and services to be included on or through our web
site. We believe these relationships will benefit both our organization and
these third parties by providing the third parties with direct access to our
physician subscribers and their patients. As of the date of this prospectus, we
do not presently have any such business relationships; however, we have
commenced the process of identifying potential third parties for this purpose.
PHYSICIAN SUBSCRIPTIONS TO OUR WEB SITE
To utilize all of the features of our web site, a physician user must
become a subscriber to our web services. We will require each subscriber to
provide his or her name, practice information and physician license number. The
information provided by the physicians will be secured on our web site through
transfer encryption technology and a firewall server.
Subscriptions will be sold for three years of service. Physicians will have
the option of paying a lump sum of $1,000 for all three years or an annual fee
paid in three (3) installments of $400. In either case, the subscription fees
must be paid in advance. As of March 1, 2000, we had 1,015 physician subscribers
to our web site, of which 139 received their subscriptions for free in
connection with their participation as investors in our private placement of
Series A Convertible Preferred Stock.
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COMPETITION
Due to the rapid expansion of the Internet, the market for Internet
services and products is intensely competitive and rapidly changing. There are
no substantial barriers to entry in the Internet market, and we expect that
competition will continue to intensify. We will compete, directly and
indirectly, for subscribers, users and advertisers with other on-line services
or web sites targeted to the healthcare industry generally, including WebMD.com,
Medscape.com and drkoop.com.
We believe the principal competitive factors in attracting and retaining
physician subscribers and their patients are the depth, reliability and
trustworthiness of our healthcare content and services, as well as the value
derived from our web site's content and services, such as saving time, improving
the quality of outcomes and services and contributing financial benefit to a
physician's practice. We believe that the principal competitive factors that
will attract and retain advertisers, third party vendors, and other potential
sources of revenue include:
- Long-term commitment by physicians;
- The amount of success that physicians and their staffs have in directing
patients to use their web pages on our web site;
- Depth and penetration of our base of physician subscribers in certain
markets;
- Continued growth of our base of physician subscribers and patient users;
and
- Generating repeat visits to our web site from physicians, their staffs
and their patients.
SALES AND MARKETING
We have a direct sales organization consisting of nine sales professionals.
The healthcare experience of these professionals ranges from 4 to 21 years, and
the sales experience of these professionals ranges from 0 to 20 years. We
anticipate that as we expand our operations we will hire additional sales
professionals with a focus on selling Internet subscriptions to physicians. We
generally seek to hire individuals with significant experience selling to
physicians and working with physicians' staffs.
We are engaged in a sales campaign focused on attracting new physician
subscribers and increasing awareness of the md2patient.com brand. We will use a
combination of direct sales efforts, including direct mail and telemarketing,
and indirect media based activities, including on-line activities. We will also
participate in tradeshows, conferences and speaking engagements focused on
physician associations and trade groups. We plan to allocate significant
resources to market the md2patient.com brand to the physician's office, their
staff and their patients.
We have identified our top 50 target markets and are in the process of
arranging and making presentations to physicians in those markets regarding the
development of our web site and the opportunity to subscribe for our Internet
services. Each presentation is made in-person by one or more of our sales
professionals. Physicians are invited to the presentations through the direct
marketing efforts of our sales professionals or by physicians, most of whom are
existing subscribers for our Internet services. To date we have not engaged in
any local or national advertising campaigns. We have spent less than $50,000 to
date on marketing activities, but we intend to spend significantly more on such
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activities as we expand our operations over the next 12 months. We expect to
spend approximately $2,500,000 on sales and marketing over the next 12 months.
GOVERNMENT REGULATION
Currently, we are not subject to substantial government regulation at the
federal or state level. Although there are currently relatively few laws or
regulations directly applicable to communications or commerce over the Internet,
several proposals by federal, state and foreign governments may lead to laws or
regulations concerning various aspects of the Internet, including privacy and
the collection and use of personal information on-line. If these governments
adopt legislation protecting user privacy or the collection of personal
information, our ability to collect or use personal information could become
limited, which could make our web site less attractive to advertisers and
sponsors. In addition, several proposals have been made at the federal, state
and local level and by some foreign governments that could impose taxes on the
sale of goods and services and other Internet activities. We cannot predict the
effect of current attempts at taxing or regulating commerce over the Internet.
Any legislation that substantially impairs the growth of e-commerce could have a
material adverse effect on our business or delay the implementation of our
business strategy.
The applicability to the Internet of existing laws is uncertain. If new
laws are adopted or existing laws or applied in an unforeseen manner, use of the
Internet may decrease, which could decrease the demand for our services and
increase our cost of doing business.
INTELLECTUAL PROPERTY
We currently have two pending trademark applications filed with the United
States Patent and Trademark Office, one for md2patient(TM) and one for
md2patient.com(TM). At this point in time, we are unable to predict whether the
United States Patent and Trademark Office will allow these applications to
proceed to registration.
We expect that we will obtain most of our content and service offerings
under licenses or other agreements with third parties. We expect to enter into
confidentiality agreements with our employees, consultants, vendors and
customers. We will generally seek to control access to and distribution of our
technology, documentation and other proprietary information. We currently hold
the domain name md2patient.com, however, the legal status of intellectual
property on the Internet is currently subject to various uncertainties. The
current system for registering, allocating and managing domain names has been
the subject of litigation and proposed regulatory reform. Accordingly, the
extent of our ability to protect the domain name md2patient.com is uncertain.
We will rely on a variety of technology that we license from third parties,
including our Internet servers and server software, which will be used in our
web site to perform key functions. We cannot assure you that these third party
technology licenses will be available to us on commercially reasonable terms.
The loss of or our inability to maintain or obtain upgrades to any of these
technology licenses could materially adversely affect our business or delay the
implementation of our business strategy. In addition, because we expect to
license most of our content from third parties, our exposure to copyright
infringement actions may increase because we must rely upon these third parties
for information as to the origin and ownership of our licensed content.
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EMPLOYEES
As of March 1, 2000, we had 26 full-time employees, none of whom is
represented by a labor union or covered by a collective bargaining arrangement.
We believe that our employee relations are good.
FACILITIES
Our principal executive offices are currently located at 501 Corporate
Centre Drive, Suite 200, Franklin, Tennessee. The office space occupies
approximately 10,000 square feet and is leased pursuant to a lease that has a
three year term commencing in the first quarter of 2000 with an option to renew
for an additional five years. We believe that this space will meet our current
needs and will also allow for our future growth.
LEGAL PROCEEDINGS
There are no claims or proceedings pending or threatened against us.
However, from time to time, we may be involved in litigation relating to claims
arising out of our operations or regulatory proceedings. We may also be subject
to third-party claims for defamation, negligence, copyright or trademark
infringement or other claims based on the nature and content of information
supplied on or through our web site.
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MANAGEMENT
The following table sets forth information with respect to our executive
officers and directors as of April 5, 2000.
OUR DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rock A. Morphis............................ 41 Chairman of the Board
Joseph B. Crace............................ 45 Chief Executive Officer
John E. Blount............................. 48 President and Director
Thomas A. Gallagher........................ 42 Executive Vice President of
Business Development and
Director
James G. Petway, Jr........................ 42 Executive Vice President and
Chief Financial Officer
Albert Rodewald............................ 50 Executive Vice President, Chief
Technology Officer and Director
W. Curtis Wise............................. 59 Director
John W. McClellan.......................... 44 Director
</TABLE>
Rock A. Morphis has served as a Director of md2patient.com since its
incorporation in July 1999 and as Chairman of the Board since January 1, 2000.
In addition, Mr. Morphis is a founder and Director of Heritage Group, LLC, a
company that develops and manages physician-owned healthcare projects. He is the
current Chairman, President and Chief Executive Officer of Heritage Health
Systems, Inc., a company that operates physician-owned independent practice
associations (IPAs) and manages capitated reimbursement risk, which he
co-founded in August 1992, and has served as its CEO since September 1995. From
January 1994 until June 1995, Mr. Morphis served as Chairman of the Board, Chief
Executive Officer and President of Surgical Health Corporation, a company that
developed, owned and operated outpatient surgery centers. From 1991 until 1994,
Mr. Morphis served as President, Chief Executive Officer and Chairman of
Heritage Surgical Corporation, also a company that developed, owned and operated
outpatient surgery centers. From 1986 until 1991, Mr. Morphis was co-founder and
Managing Director of Heritage Group, Inc., a firm that specialized in partnering
with physicians to own and operate imaging centers, surgery centers, and
lithotripsy units. A graduate of the University of Tennessee, Mr. Morphis holds
a B.S. in accounting. Mr. Morphis has 16 years of health industry experience.
Joseph B. Crace joined md2patient.com on January 24, 2000 as Chief
Executive Officer. From February 1998 to December 1999, Mr. Crace served as
Chief Operating Officer and Chief Financial Officer for Gaylord Entertainment
Company, a public diversified entertainment business with numerous broadcasting,
interactive, hospitality, and music interests. From 1996 to 1998, Mr. Crace
served as the Chief Executive Officer of The Blue Sky Group, Inc., a venture
capital and outsourcing firm he founded. From 1992 to 1996, Mr. Crace served as
President of the Specialty Products Division and Group Vice President Corporate
Development for Bob Evans Farms, Inc., a family restaurant and retail foods
company. Mr. Crace holds a B.S. in Microbiology from the University of South
Florida, an M.B.A. from Vanderbilt University's Owen Graduate School of
Management,
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and a J.D. from Stetson University College of Law in Florida. Mr. Crace serves
on the Board of Directors of Bass Pro Shops, Inc., a retail and on-line outdoor
products company.
John E. Blount has served as President and Director of md2patient.com since
its incorporation in July 1999. In addition, Mr. Blount is a founder and
Director of Heritage Group, LLC, a company that develops and manages
physician-owned healthcare projects. Mr. Blount is currently serving as a
Director of Heritage Health Systems, Inc., a company that operates
physician-owned independent practice associations (IPAs) and manages capitated
reimbursement risk, and has served as such since co-founding that company in
August 1992. Mr. Blount served as Executive Vice President and Secretary of
Heritage Health Systems, Inc. from May 1995 to December 1998. From January 1994
until December 1995, Mr. Blount served as Executive Vice President of
Development of Surgical Health Corporation, a company that developed, owned and
operated outpatient surgery centers. Mr. Blount served as a Director of Heritage
Surgical Corporation, also a company that developed, owned and operated
outpatient surgery centers, since its founding in 1991 and as Executive Vice
President of such company from 1991 to 1994. From 1986 until 1991, Mr. Blount
was co-founder and Managing Director of Heritage Group, Inc. a firm that
specialized in partnering with physicians to own and operate imaging centers,
surgery centers, and lithotripsy units. A graduate of Duke University, Mr.
Blount also holds an M.B.A. from the University of North Dakota and a Masters
Degree in Health Administration from the Medical College of Virginia. Mr. Blount
has 22 years of health industry experience.
Thomas A. Gallagher has served as a Director of md2patient.com since its
incorporation in July 1999 and as Executive Vice President of Business
Development since January 1, 2000. In addition, Mr. Gallagher is a founder and
Director of Heritage Group, LLC, a company that develops and manages
physician-owned healthcare projects. He served as Executive Vice President,
Chief Development Officer and a Director of Heritage Health Systems, Inc., a
company that operates physician-owned independent practice associations (IPAs)
and manages capitated reimbursement risk, which he co-founded in August 1992,
from September 1995 through December 1999. Mr. Gallagher served as Chief
Executive Officer and President of Heritage Health Systems, Inc. from January
1994 to September 1995. Between April 1992 and January 1994, Mr. Gallagher
served as Executive Vice President and Chief Financial Officer of Heritage
Surgical Corporation, a company that developed, owned and operated outpatient
surgery centers. Prior to joining Heritage Surgical Corporation, Mr. Gallagher
was a General Partner in two venture funds: Lawrence Tyrrell Ortale and Smith I
& II. Mr. Gallagher holds an M.B.A. from Vanderbilt University's Owen Graduate
School of Business and a B.S. in accounting from the University of Tennessee.
Mr. Gallagher has 15 years of health industry experience.
James G. Petway, Jr. has served as Executive Vice President and Chief
Financial Officer of md2patient.com since January 1, 2000. Prior to joining
md2patient.com, Mr. Petway was a partner with Arthur Andersen, LLP and had been
with the firm since 1979. A graduate of the University of Tennessee, Mr. Petway
holds a B.S. in Accounting and is a certified public accountant. Mr. Petway has
20 years of public accounting experience, during which time he served numerous
clients in the healthcare, technology and software industries.
Albert Rodewald has served as Executive Vice President, Chief Technology
Officer and a Director of md2patient.com since its incorporation in July 1999.
In addition, Mr. Rodewald is a founder and Director of Heritage Group, LLC, a
company that develops and manages physician-owned healthcare projects. Mr.
Rodewald is also currently
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serving as Chairman of the Board and Director of Interlogics, Inc., a developer
of software for the workers' compensation industry. From co-founding ProSeed,
LLC, a developer of prostate cancer treatment centers, in 1996 until its sale in
1998, Mr. Rodewald served as its Director and Vice President of Development. As
a co-founder of Heritage Health Systems, Inc., a company that operates
physician-owned independent practice associations (IPAs) and manages capitated
reimbursement risk, Mr. Rodewald served as a Director of that company from
1992-1995. Mr. Rodewald is a co-founder of Heritage Surgical Corporation, a
company that developed, owned and operated outpatient surgery centers, and
served as its director and Vice President of Facility Development from
1991-1994. From 1986 to 1991, he was a co-founder and Managing Director of
Heritage Group, Inc. a firm that specialized in partnering with physicians to
own and operate imaging centers, surgery centers, and lithotripsy units. A
graduate of the University of Wisconsin, Mr. Rodewald holds an MS from City
University of New York. Mr. Rodewald has 28 years of health industry experience.
W. Curtis Wise, Ph.D., has served as a member of the Board of Directors
since April 5, 2000. Dr. Wise has been at the Medical University of South
Carolina since 1968 and presently holds the academic position of Professor of
Physiology. In 1985 he assumed the position of Assistant to the Academic Vice
President for Academic Information Management and in this role was involved in
the planning, selection and implementation of the hospital information system
for the Medical Center Hospital. During 1987 and 1988, he also served as the
Chief Information Officer for the Medical University Hospital. In 1991, Dr. Wise
returned to teaching and research, but has continued to serve the University as
the University's Academic and Research Computers Specialist. Dr. Wise received
an A.B. degree in Chemistry from Transylvania University, Lexington, Kentucky,
and a Ph.D. in Physiology and Biophysics from the University of Kentucky.
John W. McClellan has served as a member of the Board of Directors since
April 5, 2000. Since 1996, Mr. McClellan has been employed by the Greenfield
Group and currently manages its Nashville, Tennessee office. The Greenfield
Group is a developer of medical real estate properties throughout the country,
and provides development support for the real estate needs of healthcare
professionals. Prior to joining the Greenfield Group, Mr. McClellan owned and
operated a restaurant in Nashville, Tennessee. Mr. McClellan is a graduate of
Vanderbilt University with a B.S. degree in Engineering.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer during the year ended December
31, 1999 and the compensation paid to our other executive officers to whom we
paid more than $100,000 during the year ended December 31, 1999.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
------------------------
RESTRICTED SECURITIES ALL 2000
NAME AND PRINCIPAL STOCK UNDERLYING OTHER ANNUAL
POSITION SALARY BONUS AWARD(S) OPTIONS COMPENSATION SALARY
- ------------------ -------- -------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Joseph B. Crace...... -- -- 3,500,000(1) -- -- $250,000
Chief Executive
Officer
John E. Blount....... $102,083 -- 2,000,000(2) -- -- $175,000
President
Albert Rodewald...... $102,083 -- 2,000,000(2) -- -- $175,000
Executive Vice
President
</TABLE>
- ---------------
(1) Granted February 11, 2000.
(2) Granted January 14, 2000.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Crace, Blount,
Gallagher, Petway and Rodewald. The terms of these employment agreements expire
on January 1, 2002, except for Mr. Crace, whose agreement expires on January 24,
2002. Each employment agreement may be automatically renewed for one-year terms.
md2patient.com may terminate these employment agreements at any time. Each
employment agreement provides that in the event md2patient.com terminates the
executive's employment without "cause," as defined therein, the executive shall
continue to receive his then current salary as a severance payment for a period
of one year following such termination. "Cause" includes fraud,
misappropriation, embezzlement by the executive officer, engaging in competition
with md2patient.com and disclosing proprietary information of md2patient.com.
The employment agreements entitle Mr. Crace to an annual base salary of
$250,000 and entitle Messrs. Blount, Gallagher, Petway and Rodewald to annual
base salaries of $175,000. The agreements also provide that our Board of
Directors may grant a bonus from time to time to each executive. In addition,
the employment agreements provide that each executive will be granted a
restricted stock award of our Common Stock, which vests ratably over a
three-year period. Mr. Crace received a restricted stock award of 3,500,000
shares and each of Messrs. Blount, Gallagher, Petway and Rodewald received a
restricted stock award of 2,000,000 shares. Pursuant to this requirement, we
entered into restricted stock award agreements with each of these five executive
officers. The vesting periods under the restricted stock awards began as of July
1, 1999 for Messrs. Blount and Rodewald and as of January 1, 2000 for Messrs.
Gallagher and Petway. The vesting period for Mr. Crace began on January 24,
2000.
Each of the employment agreements prohibits the executive's disclosure and
use of confidential information and restricts, for a period of 12 months
following termination of employment, the executive's competition with us or
disclosure of our proprietary information.
We have not obtained any key-man life insurance.
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2000 LONG-TERM INCENTIVE PLAN
On January 13, 2000, our Board of Directors adopted the 2000 Long-Term
Incentive Plan, which was approved by our shareholders on January 13, 2000. A
summary of the Incentive Plan is set forth below and is qualified in its
entirety by reference to the full text of the Incentive Plan, a copy of which is
included as an exhibit to the registration statement of which this prospectus is
a part.
The purpose of the Incentive Plan is to promote the success, and enhance
the value, of md2patient.com by linking the personal interests of employees,
officers, consultants and directors to those of the shareholders, and by
providing such persons with an incentive for outstanding performance.
The Incentive Plan authorizes the granting of awards to our employees,
officers, consultants and directors in the following forms:
- Incentive Stock Options (ISOs) to purchase shares of our Common Stock;
- Non-Qualified Stock Options (NQSOs) to purchase shares of our Common
Stock;
- Stock Appreciation Rights (SARs);
- Performance Units;
- Restricted Stock;
- Dividend Equivalent Rights; and
- Other stock-based awards.
Subject to adjustment as provided in the Incentive Plan, the aggregate
number of shares of Common Stock reserved and available for Awards or which may
be used to provide a basis of measurement for or to determine the value of an
Award, such as with a SAR or Performance Share, is 10,000,000. The maximum
number of shares of Common Stock with respect to one or more Options and/or SARs
that may be granted during any one calendar year under the Incentive Plan to any
one participant is 2,000,000. The maximum fair market value of any Awards other
than Options and SARs that may be received by a participant, less any
consideration paid by the participant for such Award, during any one calendar
year under the Incentive Plan is $100,000. Pursuant to the terms of the
Incentive Plan, ISOs may not be granted at an exercise price of less than one-
hundred percent (100%) of the fair market value of our Common Stock on the date
of grant. Further, we will not grant NQSOs at an exercise price of less than
eighty-five percent (85%) of the fair market value of our Common Stock on the
date of grant.
The Incentive Plan is administered by our Board of Directors, or the
Compensation Committee of the Board of Directors, when appointed, which has the
power, authority and discretion to: designate participants; determine the type
or types of Awards to be granted to each participant and the terms and
conditions thereof; establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Incentive Plan; and make all
other decisions and determinations that may be required under, or as it deems
necessary or advisable to administer, the Incentive Plan. The Board or the
Compensation Committee of the Board may, at any time and from time to time,
terminate, amend or modify the Incentive Plan without shareholder approval. No
termination, amendment, or modification of the Incentive Plan may adversely
affect any Award previously granted under the Incentive Plan, without the
consent of the participant.
Upon the participant's death or disability during his or her employment or
his or her service as a director, all outstanding Options, SARs, and other
Awards in the nature of rights that may be exercised will become fully vested
and exercisable and all restrictions on
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<PAGE> 39
outstanding Awards will lapse. In addition, in the event of a Change in Control
of md2patient.com (as defined in the Incentive Plan), all outstanding Options,
SARs, and other Awards in the nature of rights that may be exercised will become
fully vested and exercisable and all restrictions on all outstanding Awards will
lapse. Unexercised or restricted Awards generally will not be assignable or
transferable by a participant other than by will or the laws of descent and
distribution or, except in the case of an ISO, pursuant to a qualifying domestic
relations order.
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended, we may not deduct compensation in excess of $1.0 million paid to our
principal executive officer and the four next most highly compensated executive
officers. The Incentive Plan is designed to comply with Section 162(m) of the
Internal Revenue Code so that the grant of Options and SARs under the Incentive
Plan, and other Awards, such as Performance Shares, that are conditioned on the
performance goals described in the Incentive Plan, will be excluded from the
calculation of annual compensation for purposes of Section 162(m) and will be
fully deductible.
BOARD OF DIRECTORS AND COMMITTEES
On April 5, 2000 our Board of Directors was expanded to include two
independent non-physician directors. Messrs. Wise and McClallan have been
elected to initially fill these seats. We will maintain at least two independent
directors on our Board and intend to further expand the size of our Board to
include no less than two of our physician subscribers.
We also intend to establish an Audit Committee of our Board of Directors.
The Audit Committee will be responsible for reviewing our external audit
procedures and internal accounting controls and recommending the engagement of
our independent auditors.
DIRECTOR COMPENSATION
Our directors do not currently receive any compensation for serving as
directors. However, we anticipate implementing a stock-based compensation
program for non-employee directors prior to completion of this offering.
Additionally, we reimburse directors for out-of-pocket expenses they incur in
attending Board meetings or Board committee meetings in their capacities as
directors.
We have entered into a restricted stock award agreement with our Chairman
of the Board, Rock A. Morphis, pursuant to which Mr. Morphis has been granted a
restricted stock award of 2,000,000 shares of our Common Stock, which vests
ratably over a three-year period commencing January 1, 2000.
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<PAGE> 40
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
As permitted under Georgia law, our Articles of Incorporation provide that
a director shall not be personally liable to md2patient.com or its shareholders
for monetary damages for breach of the duty of care or any other duty owed to
the corporation as a director, except liability for any of the following:
- any appropriation, in violation of his duties, of any business
opportunity of the corporation,
- for acts or omissions which involve intentional misconduct or a knowing
violation of law,
- for unlawful corporate distributions, or
- for any transaction from which the director received an improper personal
benefit.
Under our Bylaws, we are required to indemnify our directors to the full
extent permitted by Georgia law. Georgia law provides that a corporation may
indemnify its directors, officers, employees and agents against judgments,
fines, penalties, amounts paid in settlement, and reasonable expenses, including
attorney's fees, resulting from various types of legal actions or proceedings,
including, but not limited to any threatened, pending, or completed action, suit
or proceeding whether civil, criminal, administrative, arbitrative or
investigative and whether formal or informal, if the actions of the party being
indemnified meet the standards of conduct specified therein. Determination
concerning whether or not the applicable standard of conduct has been met can be
made by the following:
- the Board of Directors by a majority vote of all the disinterested
directors, if there are at least two disinterested directors;
- a majority vote of a committee of two or more disinterested directors;
- special legal counsel; or
- an affirmative vote of a majority of shares held by disinterested
shareholders.
No indemnification shall be made in connection with a proceeding by or in
the right of md2patient.com, except for reasonable expenses incurred in
connection with the proceeding if it is determined that the indemnitee has met
the relevant standard of conduct. In addition, indemnification shall not be made
in connection with any other proceeding in which such person was adjudged liable
on the basis that personal benefit was improperly received by him.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 30, 1999, we were formed as a wholly owned subsidiary of Heritage
Group, LLC and we issued 50,000,000 shares of our Common Stock to Heritage
Group, LLC for a purchase price of $100,000. Messrs. Blount, Gallagher, Morphis
and Rodewald are the members of Heritage Group, LLC. Terms of this initial
issuance of our Common Stock were more favorable to us than those generally
available to unaffiliated third parties. This initial issuance was not approved
by any disinterested independent directors on our Board because at that time we
did not have any such independent directors on our Board to ratify the issuance.
At the time of such initial issuance, Heritage Group, LLC believed it could
attract additional management employees and enter into strategic alliances with
third parties through the limited liability company on a tax efficient basis.
Heritage Group, LLC subsequently determined that it would be preferable to
attract future employees through incentive plans to be adopted by md2patient.com
and to enter into strategic alliances directly through md2patient.com.
Accordingly, on November 23, 1999, Heritage Group, LLC effected a
recapitalization pursuant to which 40,000,000 shares of Common Stock were
returned to md2patient.com to be available for reissuance at the discretion of
our Board of Directors.
All future material transactions and loans with our founders and affiliates
will be made or entered into on terms that are no less favorable to
md2patient.com than those that can be obtained from unaffiliated third parties.
Further, all future material transactions and loans with our founders and
affiliates, and any forgiveness of loans, will not be engaged in until at least
two independent non-physician directors are elected to our Board and must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who have access, at our expense, to independent legal
counsel.
Each of Messrs. Blount, Crace, Gallagher, Morphis, Petway and Rodewald and
Heritage Group LLC has entered into a Lock-In Agreement with md2patient.com with
respect to the 22,495,588 shares of our Common Stock that they own. Under the
agreement, those stockholders have agreed, with limited exceptions, not to sale,
pledge, assign or otherwise dispose of any of those 22,495,588 shares. Two and
one-half percent (2 1/2%) of those shares will be released from the restrictions
set forth in the agreement pro rata among the security holders each quarter
beginning on the second anniversary of the date of the completion of this
offering. The agreement terminates on the earlier of (a) the fourth anniversary
of the completion of this offering, (b) the termination of this offering if no
shares of Series B Convertible Preferred Stock are sold, (c) if the minimum
number of shares are not sold, the date that the escrow agent returns the
proceeds to investors in this offering, (d) a consolidation, merger or share
exchange involving a change of control of md2patient.com or the sale of all or
substantially all of our assets, or (e) on the date the shares of Series A and
Series B Convertible Preferred Stock become "Covered Securities" as defined
under the National Securities Market Improvement Act of 1996.
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<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our capital stock as of April 5, 2000 by each person or entity who
beneficially owns more than 5% of any class or series of our capital stock, each
of our directors and executive officers, and all of our directors and executive
officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------------
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON PREFERRED PREFERRED
NAME STOCK %(1) STOCK % STOCK %
- ---- ---------- ---- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Heritage Group, LLC(2)........ 10,000,000 34.1 -- -- -- --
John E. Blount(3)............. 12,000,000 40.9 25,000 * -- --
Joseph B. Crace(4)............ 3,500,000 11.9 -- -- -- --
Thomas A. Gallagher(5)........ 12,000,000 40.9 -- -- --
Rock A. Morphis(6)............ 12,000,000 40.9 -- -- -- --
James G. Petway, Jr.(7)....... 2,000,000 6.8 -- -- -- --
Albert Rodewald(8)............ 12,000,000 40.9 -- -- -- --
W. Curtis Wise................ 30,000 * -- -- -- --
John W. McClellan............. -- -- -- -- -- --
All directors and executive
officers as a group (6
persons).................... 23,530,000 80.1 25,000 * -- --
</TABLE>
- -------------------------
* less than 1%
(1) Percentage calculations give effect to the issuance of 5,000,000 shares of
Common Stock issuable upon conversion of currently outstanding shares of
Series A Convertible Preferred Stock.
(2) Heritage Group, LLC's business address is 1913 21st Avenue South, Nashville,
Tennessee 37212.
(3) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr. Blount
is a member. Mr. Blount disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in Heritage Group, LLC.
Includes 2,000,000 restricted shares issued pursuant to a restricted stock
award agreement.
(4) Represents restricted shares issued pursuant to a restricted stock award
agreement.
(5) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr.
Gallagher is a member. Mr. Gallagher disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Heritage Group,
LLC. Includes 2,000,000 restricted shares issued pursuant to a restricted
stock award agreement.
(6) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr.
Morphis is a member. Mr. Morphis disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Heritage Group,
LLC. Includes 2,000,000 restricted shares issued pursuant to a restricted
stock award agreement.
(7) Represents restricted shares issued pursuant to a restricted stock award
agreement.
(8) Includes 10,000,000 shares owned by Heritage Group, LLC, of which Mr.
Rodewald is a member. Mr. Rodewald disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Heritage Group,
LLC. Includes 2,000,000 restricted shares issued pursuant to a restricted
stock award agreement.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is a summary of the material
terms of our Common Stock and our Series A and Series B Convertible Preferred
Stock and is qualified in its entirety by reference to the full text of our
Articles of Incorporation which are included as an exhibit to the registration
statement of which this prospectus is a part.
The total number of shares of stock of all classes that we have authority
to issue is 600,000,000 shares, consisting of:
- 300,000,000 shares of Common Stock, par value $.01 per share; and
- 300,000,000 shares of Preferred Stock, of which 50,000,000 shares are
designated as Series A Convertible Preferred Stock, par value $.01 per
share, and 50,000,000 shares are designated as Series B Convertible
Preferred Stock, par value $.01 per share.
As of April 5, 2000, there were outstanding 24,347,500 shares of our Common
Stock, 5,000,000 shares of our Series A Convertible Preferred Stock and no
shares of our Series B Convertible Preferred Stock. In addition, as of April 5,
2000, there were outstanding warrants to purchase 1,000,000 shares of our Series
A Convertible Preferred Stock.
COMMON STOCK
Our Common Stock is subject to all of the rights, privileges, preferences
and priorities of the Preferred Stock set forth in our Articles of
Incorporation.
Dividends may be paid on the Common Stock, and on any other class or series
of stock entitled to participate with Common Stock as to dividends, when and as
declared by our Board of Directors.
In the event of any dissolution, liquidation, or winding up of
md2patient.com, the holders of Common Stock, Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock are entitled to participate
equally in the distribution of any assets remaining after we have paid all of
our debts and liabilities and after we have paid the preferential amounts
summarized below in the description of our Series A and Series B Convertible
Preferred Stock.
Each holder of Common Stock is entitled to cast one vote for each share of
Common Stock held upon any matter submitted to a vote of our stockholders,
including the election of directors.
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During the 180-day period following our first underwritten public offering
in which at least $10,000,000 of our Common Stock is sold at a price of not less
than $1.00 per share, shares of Common Stock other than those sold in such
underwritten public offering may not be transferred or re-sold without our prior
written consent. However, this restriction does not prohibit the following
transfers:
- as a bona fide gift, provided the person receiving the gift agrees to the
same transfer restriction,
- as a distribution to the partners, members or shareholders of a Common
Stock holder, provided that the persons receiving the distribution agree
to the same transfer restriction, or
- to members of the immediate family of a holder of Common Stock, provided
that the family members agree to the same transfer restriction.
SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK
Except as required by law and except for any merger, consolidation or share
exchange resulting in a change of control or the sale of substantially all of
our assets submitted to a vote of our shareholders, holders of shares of Series
A and Series B Convertible Preferred Stock do not have any voting rights
whatsoever. With respect to any corporate transaction submitted to a vote of our
shareholders:
- each holder of shares of Series A or Series B Convertible Preferred Stock
is entitled to cast one vote for each share of Series A or Series B
Convertible Preferred Stock held; and
- the holders of shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Common Stock vote together and not as
separate classes or series.
The holders of shares of Series A or Series B Convertible Preferred Stock
are entitled to participate equally in all dividends paid on Common Stock,
except that if dividends on Common Stock are payable in shares of Common Stock,
(1) the corresponding dividends to be paid on Series A Convertible Preferred
Stock must be paid in shares of Series A Convertible Preferred Stock and (2) the
corresponding dividends to be paid on Series B Convertible Preferred Stock must
be paid in shares of Series B Convertible Preferred Stock.
In the event of any liquidation, dissolution or winding up of
md2patient.com, each holder of shares of Series A or Series B Convertible
Preferred Stock then outstanding is entitled to be paid, before any payment is
made to holders of Common Stock, an amount equal to the price paid to
md2patient.com for the initial issuance of such shares of Series A or Series B
Convertible Preferred Stock Convertible Preferred Stock.
If the assets to be distributed are insufficient to permit the payment in
full of such liquidation preference, then all of the assets available for
distribution will be distributed to holders of Series A and Series B Convertible
Preferred Stock pro rata in proportion to the full liquidation preference each
holder would otherwise be entitled to receive.
After the payment in full of the liquidation preference, the holders of
Common Stock then outstanding are entitled to be paid an amount per share of
Common Stock equal to the liquidation preference of the Series A and Series B
Convertible Preferred Stock
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divided by the total number of then outstanding shares of Series A and Series B
Convertible Preferred Stock. If the assets available for distribution are
insufficient to permit the payment in full of the amount referred to in the
immediately preceding sentence, then all assets will be paid to the holders of
Common Stock pro rata based on the number of shares of Common Stock they hold.
After payment in full of this amount to the holders of Common Stock, all
remaining assets will be distributed to the holders of shares of Common Stock
and to the holders of shares of Series A and Series B Convertible Preferred
Stock pro rata based on the number of shares of Common Stock and/or Series A and
Series B Convertible Preferred Stock they hold.
If the foregoing manner of distribution would result in a payment per share
to holders of Series A and Series B Convertible Preferred Stock of less than the
amount payable per share to holders of Common Stock, then the aggregate amount
that would have been payable with respect to shares of Series A and Series B
Convertible Preferred Stock plus the aggregate amount that would have been
payable with respect to all shares of Common Stock will instead be paid to the
holders of such Series A and Series B Convertible Preferred Stock Common Stock
pro rata based on the number of shares of Series A or Series B Convertible
Preferred Stock and/or shares of Common Stock they hold.
In the case of any merger, consolidation or share exchange resulting in a
change of control or the sale of substantially all of our assets, each holder of
shares of Series A or Series B Convertible Preferred Stock will have the right
to receive the same consideration that a holder of an equal number of shares of
Common Stock would be entitled to receive pursuant to such transaction. However,
if the consideration so payable to any holder of Series A or Series B
Convertible Preferred Stock is not at least equal in value to the Convertible
Preferred Stock Liquidation Preference of his or her shares of Series A or
Series B Convertible Preferred Stock, then the transaction shall instead be
treated as a liquidation and payments will be made in accordance with the
procedure described in the preceding two paragraphs. In addition, any
consideration payable with respect to shares of Series B Convertible Preferred
Stock pursuant to such a transaction may be made payable on a delayed basis over
the same period of time as is described below with respect to the automatic
conversion of shares of Series B Convertible Preferred Stock.
Any holder of shares of Series A Convertible Preferred Stock may at any
time convert all or any number of his or her shares into shares of Common Stock
on a one-for-one basis. In addition, all shares of Series A Convertible
Preferred Stock automatically convert into shares of Common Stock on a
one-for-one basis upon the closing of an underwritten public in which at least
$10,000,000 of our Common Stock is sold at a price of not less than $1.00 per
share.
Outstanding shares of Series B Convertible Preferred Stock automatically
convert into shares of Series A Convertible Preferred Stock, on a one-for-one
basis, at the rate of one-third per year on each anniversary of their date of
issuance. Each one-third calculation is applied per holder of applicable shares
with respect to the aggregate number of applicable shares held, rounding up to
the nearest whole share. If we complete an underwritten public in which at least
$10,000,000 of our Common Stock is sold at a price of not less than $1.00 per
share, shares of our Series B Convertible Preferred Stock will automatically
become convertible into shares of our Common Stock on the same terms that they
are presently convertible into shares of our Series A Convertible Preferred
Stock.
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A holder of Series A or Series B Convertible Preferred Stock may not
transfer or otherwise re-sell any shares of Series A or Series B Convertible
Preferred Stock without our prior written consent.
UNDESIGNATED PREFERRED STOCK
There are 200,000,000 shares of undesignated (or "blank check") Preferred
Stock authorized by our Articles of Incorporation. Our Board of Directors has
the authority, without obtaining prior shareholder approval, to issue shares of
undesignated Preferred Stock in one or more classes or series and to determine
the dividend rights, conversion rights, liquidation preferences, voting rights,
redemption rights, number of shares constituting any class or series and other
rights, terms and designations of such classes or series. We will not issue any
such blank check Preferred Stock to our founders unless such issuance is on the
same terms offered to all other existing stockholders or to new stockholders.
Such issuances may dilute or otherwise adversely affect the economic, ownership
and other rights and interests of the holders of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Common Stock.
WARRANTS
Terms of Exercise; Expiration. The Warrants will be exercisable for the
number of shares of Series A Convertible Preferred Stock underlying the Warrant.
If we complete an underwritten public offering in which at least $10,000,000
worth of our Common Stock is sold at a price of not less than $1.00 per share,
then the Warrants will automatically become exercisable for shares of our Common
Stock on the same terms that they are exercisable for shares of our Series A
Convertible Preferred Stock. The exercise price for the Warrants is $1.00 per
share for each share to be issued upon exercise. Warrant holders are not
entitled to any rights as stockholders of md2patient.com until they exercise
their Warrants.
The Warrants will only be offered by us through WR Hambrecht to (a)
physicians who have subscribed to our web services and that we determine have
played an important role in the development and market acceptance of our web
site, including members of our physician panels, members of our Physician
Advisory Board, and those physicians with whom we enter into endorsement
relationships, (b) physician subscribers who refer other physicians who
subscribe to our web services, and (c) employees and independent contractors who
assist us in marketing our web services. Our Board of Directors will have the
discretion to determine the offerees of the Warrants and, if appropriate, adopt
specific criteria for determining the number of underlying shares for which each
Warrant is exercisable.
Each Warrant will be exercisable for all, but not less than all, of the
underlying shares on any one occasion. The Warrants are exercisable at any time
during the three-year period following their date of issuance. Upon exercise of
a Warrant, in lieu of paying the exercise price in cash, the holder of the
Warrant may elect to receive a lesser number of shares issued upon exercise that
have a value equal to the difference between the fair market value of the shares
issued upon exercise and the aggregate exercise price.
Transfer. Our Warrants will not be publicly traded and can not be sold,
transferred, assigned, hypothecated or otherwise disposed of without our prior
written consent.
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Outstanding Warrants. As of April 5, 2000, there were outstanding warrants
to purchase 1,000,000 shares of our Series A Convertible Preferred Stock, which
were issued in connection with our private placement of 5,000,000 shares of
Series A Convertible Preferred Stock that closed on November 18, 1999. The
warrants that were issued in the private placement have the same terms as the
Warrants in this offering, except that the warrants issued in the private
placement are exercisable during the period from November 18, 2000 to November
18, 2004.
TRANSFER AGENT
The transfer agent for our Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock is SunTrust Bank, Atlanta.
SHARES ELIGIBLE FOR FUTURE SALE
COMMON STOCK
As of April 5, 2000, there were outstanding an aggregate of 24,347,500
shares of Common Stock that were issued in private transactions in reliance on
exemptions from the registration requirements of the federal securities laws.
These shares of Common Stock are considered restricted securities under Rule 144
promulgated under the Securities Act of 1933. Accordingly, absent registration
for re-sale, these shares may only be re-sold publicly in reliance on and
subject to the limitations set forth in Rule 144, which are described below.
Under the terms of our Articles of Incorporation, during the 180-day period
following an underwritten public offering in which at least $10,000,000 worth of
our Common Stock is sold at a price of not less than $1.00 per share, no holder
of shares of our Common Stock may sell, assign or transfer any of such shares
without our prior written consent.
SERIES A CONVERTIBLE PREFERRED STOCK
We have issued and sold an aggregate of 5,000,000 shares of our Series A
Convertible Preferred Stock in private transactions in reliance on exemptions
from the registration requirements of the federal securities laws. These shares
are also considered restricted securities under Rule 144. Although Rule 144
would permit public re-sales of these shares subject to the limitations of Rule
144 described below, our Articles of Incorporation provide that no holder of
shares of our Series A Convertible Preferred Stock may sell, assign or transfer
any of such shares without our prior written consent.
The Series A Convertible Preferred Stock distributed in this offering will
be unrestricted for purposes of the federal securities laws and will not be
subject to Rule 144. However, our Articles of Incorporation provide that no
holder of shares of Series A Convertible Preferred Stock may sell, assign or
transfer any of such shares without our prior written consent.
SERIES B CONVERTIBLE PREFERRED STOCK
The Series B Convertible Preferred Stock distributed in this offering will
be unrestricted for purposes of the federal securities laws and will not be
subject to Rule 144.
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However, our Articles of Incorporation provide that no holder of shares of
Series B Convertible Preferred Stock may sell, assign or transfer any of such
shares without our prior written consent.
SALES FOLLOWING CONVERSION OF SERIES A OR SERIES B CONVERTIBLE PREFERRED STOCK
Shares of our Series A Convertible Preferred Stock are convertible at any
time at the option of the holder into shares of Common Stock and automatically
convert to Common Stock upon the closing of an underwritten public offering in
which at lease $10,000,000 worth of our Common Stock is sold at a price of not
less than $1.00 per share. Furthermore, shares of our Series B Convertible
Preferred Stock automatically convert at the rate of one-third per year into
shares of Series A Convertible Preferred Stock, if the conversion date occurs
prior to an underwritten public offering in which at least $10,000,000 worth of
our Common Stock is sold at a price of not less than $1.00 per share, or Common
Stock, if the conversion date occurs after such an underwritten public offering.
Under the federal securities laws, shares issued upon any such conversion
will retain the status of the shares converted for purposes of determining
whether or not the shares issued upon conversion are restricted. Accordingly,
shares issued upon conversion of shares that are considered restricted under
Rule 144 will also be restricted under Rule 144. Similarly, shares issued upon
conversion of unrestricted securities will also be unrestricted under Rule 144.
Furthermore, if the shares issued upon conversion are shares of Common
Stock, such shares will be subject to the 180-day lock-up period following an
underwritten public offering as discussed above. If the shares issued upon
conversion are shares of Series A Convertible Preferred Stock, such shares will
be subject to the restriction against transfer provided in our Articles of
Incorporation, as discussed above.
SALES UNDER RULE 144
Rule 144 provides that a person holding restricted securities for a period
of at least one year may sell such securities in brokerage transactions in an
amount not to exceed in any three-month period 1% of the total outstanding
number of shares of that class of securities. Because there is no public market
for any of our securities, it will be impossible to sell restricted securities
through brokerage transactions. However, Rule 144(k) provides that a person who
is a "non-affiliate" of md2patient.com and who has held restricted securities
for over two years is not subject to these manner of sale and volume limitations
as long as the other conditions of Rule 144 are met. Therefore, until we
complete an underwritten public offering in which at lease $10,000,000 worth of
our Common Stock is sold at a price of not less than $1.00 per share, Rule
144(k) is the only alternative provided for in Rule 144 pursuant to which a
shareholder could publicly sell restricted securities.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of material U.S. federal income tax
considerations applicable to holders of Warrants offered hereby and those who
acquire Series A Convertible Preferred Stock upon exercise of Warrants. No
ruling has been requested of the Internal Revenue Service and no opinion has
been requested of counsel
48
<PAGE> 49
regarding any of the tax considerations discussed below. This summary is based
on provisions of the Internal Revenue Code of 1986, Treasury Regulations,
including temporary and proposed Regulations, rulings and decisions currently in
effect, all of which may be changed with possible retroactive effect. This
discussion does not encompass all of the aspects of federal taxation that may be
relevant to investors in light of their personal investment circumstances. In
addition, this discussion does not consider the effect of any foreign, state,
local, gift, estate or other tax laws that may be applicable to a particular
investor. Our discussion assumes that investors will hold our Warrants and
Series A Convertible Preferred Stock as capital assets within the meaning of
Section 1221 of the Code. Prospective investors in the Warrants are strongly
urged to consult their tax advisors regarding the particular tax consequences
that may apply to them as a result of purchasing, holding and disposing of our
Warrants and Series A Convertible Preferred Stock.
We will only offer and issue our warrants to individuals that are U.S.
Holders. A "U.S. Holder" means a citizen or resident of the United States or
individuals otherwise subject to U.S. federal income taxation on a net income
basis with respect to our Warrants. This discussion does not consider the tax
consequences applicable to non-U.S. Holders. Holders may not sell our Warrants
and the Warrants are not transferable. In addition, our Warrants are not
redeemable by us.
TAX TREATMENT OF WARRANTS; CHARACTERIZATION OF OUR WARRANTS.
We expect the Warrants to be characterized as warrants or options, and not
as equity, for federal income tax purposes. The following discussion assumes
that the Warrants we are offering will be properly characterized as warrants.
Issuance and Exercise. We will only offer Warrants to (a) physicians who
have subscribed to our web services and that we determine have played an
important role in the development and market acceptance of our web site, (b)
physician subscribers who refer other physicians who subscribe to our web
services, and (c) employees and independent contractors who assist us in
marketing our web services. We will issue the Warrants to these individuals in
exchange for the services they are providing to us, specifically, assisting us
in developing or marketing our web services and/or referring other physicians
who subscribe to our web services. No taxable income will be recognized by a
Warrant holder upon the issuance of the Warrant. The Warrant holder, will, in
general, recognize ordinary income in the year in which the Warrant is
exercised, equal to the excess of the fair market value of the acquired shares
on the exercise date over the exercise price paid for the shares. When the
Warrant holders are treated as receiving ordinary income as a result of exercise
of the Warrant, we will be required to withhold and pay the withholding tax due
with regard to that ordinary income. We may do this by withholding from the
number of shares issued on exercise of the option, or by requiring payment of
the amount required to be withheld before we will issue shares upon exercise of
the option.
Tax Basis in Our Series A Convertible Preferred Stock. When a Warrant is
exercised, a holder will acquire basis in our Series A Convertible Preferred
Stock equal to the amount of income the holder is required to recognize upon
exercise of the Warrant.
Disposition of Shares Received Upon Exercise of Warrants. Upon a sale or
other taxable disposition of the Series A Convertible Preferred Stock, the
holder thereof will have gain or loss equal to the excess of (a) the amount
realized upon such sale or taxable disposition over (b) the holder's tax basis
in the shares of stock. This gain or loss will be capital gain, and will be
long-term gain if the shares have been held for more than one
49
<PAGE> 50
year. In the case of individuals, long-term capital gains are generally subject
to a maximum tax rate of 20%.
Lapse. If a Warrant received is not exercised and is allowed to expire,
the holder will not recognize any gain or loss in connection with the expiration
of the Warrant.
Tax Treatment to md2patient.com of Warrant Issuance and Exercise. We will
be entitled to an income tax deduction equal to the amount of ordinary income
recognized by the Warrant holder with respect to the exercised Warrant. The
deduction will generally be allowed for our taxable year in which such ordinary
income is recognized by the Warrant holder.
Other Tax Considerations. There may be other federal, state, local or
foreign tax considerations applicable to a particular holder or prospective
purchaser of our Warrants, Series B Convertible Preferred Stock or Series A
Convertible Preferred Stock. ACCORDINGLY, EACH HOLDER OR PROSPECTIVE PURCHASER
OF OUR WARRANTS, SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES A CONVERTIBLE
PREFERRED STOCK SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO THE HOLDER OR PROSPECTIVE PURCHASER OF PURCHASING, HOLDING
AND DISPOSING OF OUR WARRANTS AND PREFERRED STOCK.
50
<PAGE> 51
PLAN OF DISTRIBUTION
We are offering a minimum of 5,000,000 and a maximum of 34,000,000 shares
of our Series B Convertible Preferred Stock and up to 2,000,000 shares of our
Series A Convertible Preferred Stock. We are also offering Warrants to purchase
up to 4,000,000 shares of our Series A Convertible Preferred Stock. We have
entered into an underwriting agreement with W.R. Hambrecht & Company, LLC,
pursuant to which WR Hambrecht has agreed to assist in the sale of up to
34,000,000 shares of our Series B Convertible Preferred Stock, up to 2,000,000
shares of our Series A Convertible Preferred Stock, and Warrants to purchase up
to 4,000,000 shares of our Series A Convertible Stock. WR Hambrecht is not
required to sell, as our agent, a specific number or dollar amount of shares or
Warrants in the offering, or to purchase any of the shares or Warrants in the
offering for its own account or for the accounts of others.
We intend to sell the shares of Series A and Series B Convertible Preferred
Stock offered hereby to investors who have subscribed for our web services.
After the Commission declares the registration statement relating to this
offering effective, each physician who registers with or subscribes to our web
site will be given access to the prospectus filed with the Commission relating
to the Series B Convertible Preferred Stock in a password-protected, segregated
area of the web site of WR Hambrecht. In addition, certain of the physicians who
subscribe to our web site will also be given access through the WR Hambrecht
site to the prospectus filed with the Commission relating to both the Series A
and Series B Convertible Preferred Stock. We intend to offer the shares of
Series A Convertible Preferred Stock through WR Hambrecht as our agent to those
physicians who have subscribed to our web services and that we determine have
played or will play an important role in the development or market acceptance of
our web site.
We intend to grant the Warrants through WR Hambrecht only to (a) physicians
who have subscribed to our web services and that we determine have played an
important role in the development and market acceptance of our web site,
including members of our physician panels, members of our Physician Advisory
Board and physicians with whom we enter into endorsement relationships, (b)
physician subscribers who refer other physicians who subscribe to our web
services, and (c) employees and independent contractors who assist us in
marketing our web services. Offerees will not pay any consideration in
connection with our grant or their receipt of the Warrants. Our Board of
Directors will have the discretion to determine the offerees of the Warrants
and, if appropriate, adopt specific criteria for determining the number of
underlying shares for which each Warrant is exercisable. Because we do not
intend to grant any Warrants until we have completed the initial closing for at
least 5,000,000 shares of Series B Convertible Preferred Stock, we have not yet
determined the specific criteria for the selection of offerees or the number of
underlying shares to be made available to any such offeree.
To participate in the offering of either the Series A or Series B shares,
investors will be required to open a brokerage account with WR Hambrecht with an
initial minimum deposit of $3,000. After opening an account with WR Hambrecht, a
prospective investor will be permitted to purchase the shares offered hereby in
the appropriate password-protected, segregated area of WR Hambrecht's web site
provided that he or she has subscribed to our web site. WR Hambrecht will
deposit all payments it accepts as our agent into an interest bearing escrow
account at SunTrust Bank by noon of the next business day. Once we receive
payments for at least 5,000,000 shares of Series B Convertible Preferred Stock,
we will conduct an initial closing. Our officers and directors will not be able
to purchase shares of Series B Convertible Preferred Stock in order to meet the
minimum of 5,000,000 shares. At the initial closing, all payments for shares of
51
<PAGE> 52
Series A and Series B Convertible Preferred Stock received in the escrow account
up to that point, minus the amount of any sales commissions owed to WR
Hambrecht, will be disbursed to us. If we have not received payments for at
least 5,000,000 shares of Series B Convertible Preferred Stock by December 31,
2000, all payments will be promptly refunded in full with interest and without
deducting any expenses. Until such time as the escrow agent has released their
payments to us, investors will not be deemed shareholders. The escrow agent will
hold the payments in escrow for the benefit of the investors and the funds will
not be subject to our creditors. During the period of escrow, investors will not
be entitled to a refund of their payments. Following the initial closing, we
will hold additional interim closings at such times as we agree upon with WR
Hambrecht until (a) all of the shares in this offering have been purchased, (b)
December 31, 2000 or (c) we decide to terminate the offering, whichever occurs
first. At such interim closings, all payments for shares of Series A and Series
B Convertible Preferred Stock received in the escrow account since the
immediately preceding closing, minus the amount of any sales commissions owed to
WR Hambrecht, will be disbursed to us.
To participate in the offering of the Warrants, offerees will be required
to open a brokerage account with WR Hambrecht with an initial minimum deposit of
$3,000. After opening an account with WR Hambrecht, offerees will have the right
to receive the Warrants offered hereby through a password-protected, segregated
area of WR Hambrecht's web site. No Warrants will be issued unless the Company
has conducted an initial closing for at least 5,000,000 shares of Series B
Convertible Preferred Stock.
To participate in the offering of Series B Convertible Preferred Stock,
investors must purchase a minimum of 3,000 shares of Series B Convertible
Preferred Stock. In addition, investors must purchase the Series B Convertible
Preferred Stock in increments of 1,000 shares. We will divide the number of
shares of Series B Convertible Preferred Stock offered hereby into three
tranches and will limit the number of shares that may be purchased by investors
in each tranche as follows:
- no more than 5,000 shares per investor until the first 10,000,000 shares
have been sold;
- no more than 4,000 shares per investor until the next 16,000,000 shares
have been sold; and
- no more than 3,000 shares per investor thereafter.
The following table illustrates these per investor purchase limits and the
maximum number of investors that could participate in each tranche assuming each
investor purchases the maximum number of shares allowed per investor:
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES OFFERED PER
TRANCHE INVESTOR
- ------- ---------------------------
<S> <C>
First 10,000,000 shares................................. 5,000
Next 16,000,000 shares.................................. 4,000
Last 8,000,000 shares................................... 3,000
</TABLE>
As to the shares of Series A Convertible Preferred Stock to be sold in this
offering, there is a minimum investment of $3,000 but no maximum investment.
However, we do not expect that any investor will be offered more than 100,000
shares of Series A Convertible Preferred Stock.
52
<PAGE> 53
We intend to effect offers and sales of the shares and Warrants in the
offering through the delivery of this prospectus by WR Hambrecht. The offering
will be limited to those prospective investors who consent to receive a
prospectus through electronic delivery in accordance with the procedures set
forth in the segregated area of the web site of WR Hambrecht.
In connection with its assistance with the sale of the Series A and Series
B Convertible Preferred Stock and Warrants offered hereby, WR Hambrecht will
receive a fee equal to (i) $400,000 upon the closing of the sale of 5,000,000
shares of Series B Convertible Preferred Stock, (ii) eight cents ($.08) per
share of any shares of Series A or Series B Convertible Preferred Stock sold
after the initial closing of the sale of 5,000,000 shares, until an aggregate of
6,250,000 shares have been sold, (iii) zero cents ($.00) per share of any shares
sold after an aggregate of 6,250,000 shares have been sold and until 16,666,666
shares have been sold, and (iv) three cents ($.03) per share of any shares sold
after an aggregate of 16,666,666 shares have been sold. WR Hambrecht will not
receive any fee in connection with the offer or exercise of the Warrants. We
have agreed to indemnify WR Hambrecht against specified liabilities, including
liabilities under the Securities Act, or to contribute to payments that WR
Hambrecht may be required to make in respect thereof.
The expenses of the offering, exclusive of any underwriting commissions
payable to WR Hambrecht include the Commission registration fee, the NASD filing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
blue sky fees and expenses, transfer agent and registrar fees, and other
miscellaneous fees. We estimate that these fees and expenses will be an
aggregate of approximately $450,000. These fees and expenses are payable
entirely by us.
WR Hambrecht does not intend to act as a market maker for the Series B
Convertible Preferred Stock, for the Series A Convertible Preferred Stock or for
the Warrants following this offering.
We have not determined the offering price of the Series A or Series B
Convertible Preferred Stock or the exercise price of the Warrants by negotiation
with WR Hambrecht, as is customary in many initial public offerings. Instead,
the offering price has been determined arbitrarily by our Board of Directors.
WR Hambrecht is an investment banking firm formed as a limited liability
company in February 1998. In addition to this offering, WR Hambrecht has engaged
in the business of public and private equity investing and financial advisory
services since its inception. The manager of WR Hambrecht, William R. Hambrecht,
has 40 years of experience in the securities industry.
This is neither a solicitation of an offer to buy nor an offer to sell our
securities to persons in the following jurisdictions: Florida, Guam, Idaho,
Iowa, Minnesota, Montana, Nebraska, New Mexico, Puerto Rico, South Dakota,
Vermont, West Virginia, and Wyoming. Persons in these jurisdictions are not
authorized to purchase any of our securities under this prospectus.
53
<PAGE> 54
LEGAL MATTERS
The validity of the securities offered in this offering will be passed upon
by Alston & Bird LLP, Atlanta, Georgia. Certain legal matters will be passed
upon for WR Hambrecht by Bass, Berry & Sims PLC, Nashville, Tennessee.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999, and for the period from July 30, 1999 (date of
inception) to December 31, 1999, as set forth in their report. We've included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission in Washington,
D.C. a Registration Statement on Form S-1 under the Securities Act with respect
to the securities offered in this prospectus. This prospectus, filed as part of
the registration statement, does not contain all of the information set forth in
the registration statement and its exhibits and schedules, portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information about us and the securities offered by this prospectus,
we refer you to the registration statement and to its exhibits and schedules.
Statements in this prospectus about the contents of any contract, agreement or
other document are not necessarily complete and, in each instance, we refer you
to the copy of such contract, agreement or document filed as an exhibit to the
registration statement. Each such statement is qualified in all respects by
reference to the document to which it refers. Anyone may inspect the
registration statement and its exhibits and schedules without charge at the
public reference facilities the Commission maintains at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661. You may obtain copies of all or
any part of these materials from the Commission upon payment to the Commission
of prescribed fees. You may also inspect these reports and other information
without charge at a web site maintained by the Commission. The address of this
site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, file reports and other information with the Commission.
Although we do not anticipate that we will send any of these reports to our
stockholders, you will be able to inspect and copy these reports and other
information at the public reference facilities maintained by the Commission and
at the Commission's regional offices at the addresses noted above. You also will
be able to obtain copies of this material from the Public Reference Section of
the Commission as described above, or inspect them without charge at the
Commission's web site.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering for sale, and seeking offers to
buy, shares of our Preferred Stock only in jurisdictions where offers and sales
are permitted.
54
<PAGE> 55
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity........................... F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
MD2patient, Inc., formerly MDpathways, Inc.
We have audited the accompanying balance sheet of MD2patient, Inc.,
formerly MDpathways, Inc. (a Company in the development stage) as of December
31, 1999, and the related statements of operations, stockholders' equity, and
cash flows for the period from July 30, 1999 (date of inception) to December 31,
1999. 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 auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of MD2patient, Inc. at December
31, 1999, and the results of its operations and its cash flows for the period
from July 30, 1999 (date of inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
January 14, 2000,
except for the third paragraph of
Note 8, as to which the date is
March 3, 2000
Nashville, Tennessee
F-2
<PAGE> 57
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $4,025,058
Prepaid and other........................................... 107,168
----------
Total current assets................................... 4,132,226
Deferred offering costs..................................... 184,328
Computer software costs..................................... 259,283
Equipment and furniture..................................... 92,073
----------
Total assets........................................... $4,667,910
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................... $ 257,292
Deferred subscription fees.................................. 80,333
----------
Total current liabilities.............................. 337,625
Deferred subscription fees.................................. 144,667
----------
Total liabilities...................................... 482,292
----------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value, 300,000,000
shares authorized;
-- Series A Convertible; 50,000,000 shares designated;
5,000,000 shares issued and outstanding (liquidation
preference of $5,000,000 at December 31, 1999)............ 50,000
-- Series B Convertible; 50,000,000 shares designated;
no shares issued and outstanding....................... --
Common stock, $.01 par value, 300,000,000 shares authorized;
10,000,000 shares issued and outstanding.................. 100,000
Additional paid-in capital.................................. 4,686,087
Deficit accumulated during development stage................ (650,469)
----------
4,185,618
----------
$4,667,910
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 58
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 30, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUES:
Interest income............................................. $ 25,610
COSTS AND EXPENSES:
Selling, general and administrative......................... 676,079
-----------
Net loss.................................................. $ (650,469)
===========
Basic and diluted net loss per share........................ $ (0.07)
===========
Basic and diluted weighted average shares outstanding....... 10,000,000
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 59
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 30, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
SERIES A CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
--------------------- ---------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
---------- -------- ----------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Inception, July 30,
1999............... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock.............. -- -- 10,000,000 100,000 -- -- 100,000
Issuance of Series A
Convertible
Preferred Stock,
net of expenses of
$124,913 and
subscription fees
of $139,000........ 5,000,000 50,000 -- -- 4,526,087 -- 4,576,087
Issuance of warrants
on Series A
Convertible
Preferred Stock.... -- -- -- -- 160,000 -- 160,000
Net loss........... -- -- -- -- -- (650,469) (650,469)
--------- ------- ----------- -------- ---------- --------- ----------
Balance, December 31,
1999............... 5,000,000 $50,000 10,000,000 $100,000 $4,686,087 $(650,469) $4,185,618
========= ======= =========== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 60
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 30, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (650,469)
Adjustments to reconcile net loss to net cash used from
operating activities:
Change in assets and liabilities:
Prepaid and other...................................... (107,168)
Accounts payable and accrued expenses.................. 257,292
Deferred subscription fees............................. 225,000
----------
Net cash used in operating activities................ (275,345)
----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures........................................ (351,356)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... 100,000
Issuance of Series A Convertible Preferred Stock............ 4,576,087
Issuance of warrants on Series A Convertible Preferred
Stock..................................................... 160,000
Deferred offering costs..................................... (184,328)
----------
Net cash provided by financing activities............ 4,651,759
----------
Net increase in cash................................. 4,025,058
Cash, beginning of period................................... --
----------
Cash, end of period......................................... $4,025,058
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 61
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND NATURE OF BUSINESS
MD2patient, Inc. ("the Company") is a Georgia corporation which was
incorporated and capitalized by Heritage Group LLC ("Heritage") in July 1999
under the name of MDpathways, Inc. The Company changed its name to MD2patient,
Inc. in December 1999. The Company is developing a web site to provide access to
selected on-line healthcare content and services and to develop web pages for
its physician subscribers.
MD2patient, Inc. is in the development stage as its operations principally
involve the building of its web site infrastructure, market analysis, capital
raising and other business planning activities. No revenue has been generated.
Since MD2patient, Inc. is in the development stage, the accompanying financial
statements should not be regarded as typical for normal operating periods.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash. The Company
maintains cash with one financial institution located in Tennessee, which
may at times exceed federally insured limits.
The carrying amounts reported in the balance sheets for cash and accounts
payable approximate their fair values due to the short-term nature of these
financial instruments.
b. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
c. Computer hardware and software
Property and equipment are stated at cost and will be amortized over the
expected useful lives of the assets ranging from three to seven years.
d. Advertising
MD2patient, Inc. expenses advertising costs when incurred. There were no
advertising expenses incurred for the period ended December 31, 1999. At
December 31, 1999, the Company had prepaid $100,000 related to an
advertising retainer for fiscal 2000.
F-7
<PAGE> 62
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
e. Start-up Costs
MD2patient, Inc. has adopted Statement of Position No. 98-5 requiring
companies to expense all start-up related expenses when incurred. Start-up
expenses incurred for the period ended December 31, 1999, were $3,582.
f. Revenue Recognition
The Company had no revenue during 1999. The Company anticipates generating
revenue from several sources. Revenue from user subscriptions will be
recognized over the related subscription period. Revenue from our web
vendors for website hosting and content syndication will be recognized
ratably over the terms of the underlying agreements. Advertising revenue
will be recognized in the period in which the advertisement is displayed,
either on a straight-line method or based on minimum guaranteed impressions.
Revenue from our e-commerce transactions will be recognized as the
underlying sales transaction is completed over the underlying service
period. Revenue from participation in medical research and participation in
clinical drug trials will be recognized over the term of the underlying
agreement or contract period.
The Company anticipates entering into advertising barter transactions and
will account for such transactions in accordance with EITF Issue No. 99-17,
Advertising Barter Transactions. Revenues and expenses will be recognized at
fair value from advertising barter transactions only if the fair value of
the advertising surrendered in the transaction is determinable based on our
historical practice, not to exceed six months prior to the date of the
barter transaction, of receiving cash for similar advertising from unrelated
parties to the barter transaction.
g. Website Development and Maintenance Costs
The Company accounts for costs incurred to develop and implement its website
in accordance with Statement of Position ("SOP") 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. The
Company is currently in its application development stage of its website
development, with activities predominantly related to installation of
hardware and coding of the website. Prior to this stage, the Company
expensed all costs associated with its website development. Once the
application development stage is completed, costs associated with
post-implementation/operation will be expensed as incurred, including costs
to populate content and maintenance of the website. Through December 31,
1999, the Company has capitalized approximately $259,000 related to its
website development.
h. Net Loss Per Share
The Company computes net loss per share following Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" and SEC Staff
Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128
and SAB 98, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net loss per
share is computed by
F-8
<PAGE> 63
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dividing the net loss for the period by the weighted average number of
common and potentially dilutive shares outstanding during the period.
Potentially dilutive shares, composed of incremental common shares issuable
upon the exercise of stock options and warrants, and common shares issuable
on assumed conversion of the Convertible Preferred Stock, are included in
diluted net loss per share to the extent these shares are dilutive.
Potentially dilutive shares consisting of 1,000,000 warrants to purchase
Series A Convertible Preferred stock and 5,000,000 shares of Series A
Convertible Preferred Stock were excluded from basic and diluted net loss
per share because of their anti-dilutive effect.
i. Income Taxes
Income taxes are computed based on the liability method of accounting
whereby deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
j. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," effective July 30, 1999. This
statement requires a full set of general purpose financial statements to be
expanded to include the reporting of "comprehensive income." Comprehensive
income is comprised of two components, net income and other comprehensive
income. During the period ended December 31, 1999, the Company had no items
qualifying as other comprehensive income; accordingly, the adoption of SFAS
No. 130 had no impact on the Company's financial statements.
k. Segment Reporting
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." This statement changes the way public
business enterprises report segment information, including financial and
descriptive information about their selected information in interim and
annual financial statements. Under SFAS No. 131, operating segments are
defined as revenue producing components of the enterprise which are
generally used internally for evaluating segment performance. As the Company
has a limited operating history, the effects of SFAS No. 131 on the
Company's financial position or results of operations for the period ended
December 31, 1999 could not yet be determined.
F-9
<PAGE> 64
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
l. Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company believes SFAS No. 133 will have no material effect on its financial
position or results of operations.
3. DEFERRED OFFERING COSTS
Deferred offering costs represent costs incurred as of the balance sheet
date as they relate to MD2patient, Inc.'s proposed initial public offering.
4. SHAREHOLDERS' EQUITY
CAPITAL STOCK
The authorized shares of the Company total 600,000,000 shares, consisting
of: (a) 300,000,000 shares of Common Stock, $0.01 par value per share ("Common
Stock"); and (b) 300,000,000 shares of Preferred Stock, $0.01 par value per
share ("Preferred Stock"), of which 50,000,000 shares have been designated as
Series A Convertible Preferred Stock ("Series A Preferred") and 50,000,000
shares have been designated as Series B Convertible Preferred Stock ("Series B
Preferred"), these preferred shares together are referred to as the "Convertible
Preferred Stock."
COMMON STOCK
On July 30, 1999, the Company was formed as a wholly-owned subsidiary of
Heritage Group, LLC ("Heritage") and in connection with such formation,
50,000,000 shares of Common Stock were issued to Heritage for $100,000. For
certain business and tax planning purposes, Heritage elected to return
40,000,000 shares of Common Stock to the Company effective November 23, 1999,
which is available for reissuance at the discretion of the Board of Directors.
This has been accounted for as a reverse stock split and all amounts have been
adjusted accordingly.
The Common Stock is subject to all of the rights, privileges, preferences
and priorities of the Preferred Stock as set forth in the Company's Articles of
Incorporation. Dividends may be paid on the Common Stock, but only when and as
declared by the Board of Directors. Upon any dissolution, liquidation or winding
up of the Company, the holders of the Common Stock, and any holders of any class
or series of stock entitled to participate therewith will become entitled to
participate in the distribution of any assets of the Company after payment of
all debt and liabilities, and after the Company has paid or set aside for
payment, amounts due to holders of any class of stock having preference over the
Common Stock.
F-10
<PAGE> 65
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Each holder of Common Stock is entitled to cast one vote for each
outstanding share of Common Stock held upon any matter or thing submitted to a
vote of the stockholders of the Company.
CONVERTIBLE PREFERRED STOCK
Effective November 18, 1999, the Company closed a private placement of
Series A Convertible Preferred Stock whereby 5,000,000 shares were sold for
$1.00 per share. Included with this purchase, investors received warrants to
purchase 1,000,000 shares of Series A Convertible Preferred Stock for $1.00 per
share and are exercisable beginning one year after the date of issuance. The
estimated fair value of those warrants totaled $160,000 at November 18, 1999 and
has been allocated to warrants from additional paid in capital on the statement
of stockholders' equity. The fair value of each warrant was estimated using a
minimal value model with the following assumptions: expected life of three
years; 0% dividend; and a risk-free interest rate of 5.77%. Additionally,
investors in this Series A placement received free three year subscriptions to
the website. Deferred subscription fees have been recorded and additional
paid-in-capital has been reduced by $139,000 which represents the price of a
three year subscription.
VOTING RIGHTS. Except as required by law and except for any "Corporate
Transaction" submitted to a vote of the stockholders of the Company, holders of
shares of Convertible Preferred Stock do not have any voting rights whatsoever.
A Corporate Transaction is defined as (a) any consolidation or merger of the
Company, other than any merger, consolidation or share exchange resulting in the
holders of the capital stock of the Company entitled to vote for the election of
directors holding a majority of the capital stock of the surviving or resulting
entity entitled to vote for the election of directors, or (b) any sale or other
disposition by the Company of all or substantially all of its assets to a third
party. With respect to any Corporate Transaction submitted to a vote of the
stockholders of the Company, (i) each holder of shares of Convertible Preferred
Stock is entitled to cast one vote for each outstanding share of Convertible
Preferred Stock so held and (ii) the holders of shares of Convertible Preferred
Stock and Common Stock will vote together and not as separate classes or series.
DIVIDEND RIGHTS. Holders of Convertible Preferred Stock are entitled to
participate on a share for share basis in all dividends declared and paid on
Common Stock, provided, however, that in case of dividends on Common Stock that
are payable in Common Stock, or in options, warrants or rights to acquire Common
Stock, or in securities convertible into or exchangeable for Common Stock, (i)
the corresponding dividends to be paid to holders of Series A Preferred Stock
will be paid in shares of, or options, warrants or rights to acquire, or
securities convertible or exchangeable for, as the case may be, Series A
Preferred Stock, and (ii) the corresponding dividends to be paid to holders of
Series B Preferred Stock will be paid in shares of, or options, warrants or
rights to acquire, or securities convertible into or exchangeable for, as the
case may be, Series B preferred Stock.
LIQUIDATION. Upon any dissolution, liquidation or winding up of the
Company, the holders of the Convertible Preferred Stock will be entitled to be
paid out of the assets of
F-11
<PAGE> 66
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company legally available for distribution to its stockholders, before any
payment or declaration and setting apart for payment of any amount is made in
respect to Common Stock, an amount equal in value to the consideration received
by the Company for the initial issuance of such shares of Convertible Preferred
Stock, as adjusted. If upon liquidation, the assets to be distributed to the
Convertible Preferred Stock are insufficient to permit the payment in full of
the Convertible Preferred Stock Liquidation Preference, then all of the assets
legally available for distribution to the holders of Convertible Preferred Stock
will be distributed to such holders ratably in proportion the amount otherwise
entitled.
CONVERSION OF SERIES A PREFERRED STOCK
OPTIONAL CONVERSION. Any holder of shares of Series A Preferred Stock may
at any time convert all or any number of the shares held into shares of Common
Stock on a one-for-one basis by surrendering the certificate. At the time
conversion has been effected, the shares surrendered for conversion will no
longer be deemed to be outstanding, all rights of a converting holder with
respect to the shares surrendered for will immediately terminate and the holder
will be deemed to have become the holder of record of the shares of Common Stock
issuable upon conversion.
AUTOMATIC CONVERSION. All shares of Series A Preferred Stock will
automatically be converted into shares of Common Stock on a one-for-one basis
upon the closing of a "Qualified Public Offering," defined as a firm commitment
underwritten public offering of Common Stock pursuant to a registration
statement declared effective under the Securities Act of 1933, as amended, in
which (i) the gross aggregate proceeds, before fees and expenses, received by
the Company (and any selling shareholders) equals or exceeds $10,000,000 and
(ii) the price per share to the public equals or exceeds $1.00; provided,
however, that the term "Qualified Public Offering" will not include an offering
made in connection with a business acquisition or combination or an employee
benefit plan.
The Company will at all times reserve out of its authorized but unissued
capital stock or out of its capital stock held in treasury sufficient shares of
Common Stock to permit the conversion of all outstanding Series A Preferred
Stock.
CONVERSION OF SERIES B PREFERRED STOCK
Outstanding shares of Series B Preferred Stock will automatically be
converted into shares of Series A Preferred Stock (if converted prior to a
Qualified Public Offering) or Common Stock (if converted after a Qualified
Public Offering), on a one-for-one basis, at the rate of one-third per year on
the anniversary of their date of issuance.
The Company will at all times reserve out of its authorized but unissued
capital stock or out of its capital stock held in treasury sufficient shares of
Series A Preferred Stock or Common Stock, as applicable, to permit the
conversion of all outstanding Series B Preferred Stock.
F-12
<PAGE> 67
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTIONS ON TRANSFERS
Holders of Convertible Preferred Stock will not transfer record or
beneficial ownership of, and the Company will not recognize or register the
transfer of, any shares of Convertible Preferred Stock unless the Company gives
its prior written consent.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Deferred tax assets:
Start-up costs.................................... $ 88,664
Deferred subscription fees........................ 85,500
Net operating loss carryforward................... 122,985
---------
Total deferred tax assets........................... 297,149
Valuation allowance............................... (297,149)
---------
Total deferred tax assets, net of valuation
allowance......................................... $ --
=========
</TABLE>
The effective income tax rate differed from the federal statutory rate for
the period from July 30, 1999 (date of inception) to December 31, 1999 as
follows:
<TABLE>
<CAPTION>
1999
-----
<S> <C>
U.S. federal income tax rate............................ 34.0%
State income tax, net of federal income tax benefit..... 4.0
Increase in valuation allowance......................... (38.0)
-----
0.0%
=====
</TABLE>
The Company has established a valuation allowance for deferred tax assets
at December 31, 1999 due to the uncertainty of realizing these assets in the
future. The valuation allowance increased $297,149 during 1999. As of December
31, 1999, the Company had future net operating loss carryforwards of $323,644
expiring 2019.
6. COMMITMENTS AND CONTINGENCIES
The Company is obligated under an agreement for the development and
implementation of an Information Technology Infrastructure, which principally
relates to its web site. The agreement allows for termination at any time (i) by
the Company upon thirty days written notice to the vendor; (ii) by the vendor in
the event of a professional conflict upon ten days written notice to the
Company; or (iii) by either party upon written notice for failure to comply with
the terms of the agreement for a thirty-day period following receipt of notice.
Fees associated with this agreement total approximately $200,000 for 1999 and
have been capitalized as computer software costs.
F-13
<PAGE> 68
MD2PATIENT, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rental commitments under operating leases having an initial or
remaining non-cancelable term of more than one year are as follows:
2000................................................$165,776
2001.................................................165,776
2002.................................................165,776
--------
$497,328
========
7. INITIAL PUBLIC OFFERING
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission for a proposed initial public offering
("IPO") of its Series A and B Convertible Preferred Stock. In its IPO, the
Company plans to issue a maximum of 2,000,000 shares of its Series A Convertible
Preferred Stock and 34,000,000 shares of its Series B Convertible Preferred
Stock. Offering costs are estimated to be approximately $450,000, not including
placement agency fees.
8. SUBSEQUENT EVENTS
EMPLOYMENT AGREEMENTS
During January 2000, the Company entered into employment agreements with
five executive officers. The agreements generally continue until terminated with
notice by the Company or the executive, and provide for severance payments under
certain circumstances. The agreements include a covenant against competition
with the Company, which extends for a period of one year after termination. As
of January 1, 2000 if all employees under contract were to be terminated without
good cause (as defined) under these contracts, the Company's liability would be
approximately $950,000.
2000 LONG-TERM INCENTIVE PLAN
Effective January 13, 2000, the Board of Directors and shareholders
approved the 2000 Long-term Incentive Plan which provides for the grant of
nonqualified and incentive stock options, stock appreciation rights, performance
shares, restricted stock and other stock-based awards. There are 10,000,000
shares available under this plan for future grants at January 14, 2000. Under
the provisions of the 2000 plan, nonqualified stock options and other stock
awards are to be granted to officers and employees at prices not less than fair
market value at the date of grant.
RESTRICTED STOCK GRANTS
During January, February and March 2000, the Company granted 13,750,000
restricted shares of common stock to certain of its employees and directors.
Shares were awarded in the name of the employee, who has all rights of a
shareholder, subject to certain restrictions on transferability and a risk of
forfeiture. The forfeiture provisions expire monthly, over a period not to
exceed five years. Restricted shares subject to forfeiture provisions have been
recorded as unearned stock grant compensation totalling $137,500.
F-14
<PAGE> 69
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WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY
ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY:
- EXCEPT THE STOCK OFFERED BY THIS PROSPECTUS;
- IN ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED;
- IN ANY JURISDICTION WHERE THE DEALER OR OTHER SALESPERSON IS NOT
QUALIFIED TO MAKE THE OFFER OR SOLICITATION;
- TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION;
OR
- TO ANY PERSON WHO IS NOT A UNITED STATES RESIDENT OR WHO IS OUTSIDE THE
JURISDICTION OF THE UNITED STATES.
THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING SALE DOES NOT IMPLY
THAT:
- THERE HAVE BEEN NO CHANGES IN THE AFFAIRS OF MD2PATIENT.COM AFTER THE
DATE OF THIS PROSPECTUS; OR
- THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS.
UNTIL JULY 25, 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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2,000,000 SHARES OF
SERIES A CONVERTIBLE
PREFERRED STOCK
WARRANTS TO PURCHASE
4,000,000 SHARES OF
SERIES A
CONVERTIBLE
PREFERRED STOCK
MD2PATIENT, INC.
PROSPECTUS
(WR HAMBRECHT & CO. LOGO)
April 7, 2000
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