NATURAL HEALTH TRENDS CORP.
1,681,482 Shares of Common Stock*
All of the shares of Common Stock, $ .001 par value (the "Common
Stock"), of Natural Health Trends Corp., a Florida corporation (the "Company"),
offered hereby (the "Shares") are being offered by certain selling security
holders (the "Selling Stockholders") as more fully described herein. Pursuant to
a registration rights agreement, the Company has agreed to bear all expenses
(other than underwriting discounts and selling commissions of any underwriters,
brokers, dealers or agents retained by the Selling Stockholders) in connection
with the registration and sale of the Shares being offered by the Selling
Stockholders. In addition, the Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Company will
receive none of the proceeds from any sale of the Shares by or for the account
of the Selling Stockholders. See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION."
The Shares may be sold from time to time by the Selling
Stockholders. Such sales may be made on The NASDAQ SmallCap Market ("NASDAQ"),
in negotiated transactions or otherwise at prices and at terms then prevailing;
at prices related to the then current market price; or at negotiated prices. The
Shares may be sold by any one or more of the following methods: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) privately negotiated transactions. In addition, any Shares that qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act and any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Common Stock is traded on NASDAQ under the symbol "NHTC." On
June 9, 1997, the closing bid price per share, as reported by NASDAQ was $1.00.
*The shares of Common Stock offered hereby include the resale of
such presently indeterminate number of shares of Common Stock as shall be issued
in respect of all shares of Common Stock issuable upon (i) conversion of
$1,000,000 of the Company's 6% convertible debentures (the "Debentures"), and
the accrued interest thereon, issued in a private placement in April 1997 and
(ii) 200,000 shares of Common Stock underlying the Warrants to purchase up to
200,000 shares of Common Stock issued in connection with the sale of the
Debentures in April 1997. The number of shares of Common Stock indicated to be
issuable in connection with such transactions and offered for resale hereby is
an estimate determined in accordance with a formula
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based on the market prices of the Common Stock, as described in this Prospectus,
and is subject to adjustment and could be materially less or more than such
estimated amount depending upon factors which cannot be predicated by Company at
this time. If, however, the Debentures in the principal amount of $1,000,000 and
the accrued interest thereon were converted on June 10, 1997, the Company would
be obligated to issue a total of approximately 1,481,482 shares of Common Stock.
This presentation is not intended to constitute a prediction as to the future
market price of the Common Stock or as to the number of shares of Common Stock
into which Debentures will be converted. See "RISK FACTORS - Effect of
Conversion of Debentures."
THIS OFFERING INVOLVES SUBSTANTIAL INVESTMENT RISKS, AND
SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON
PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 30, 1997.
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AVAILABLE INFORMATION
A Registration Statement on Form S-3 (the "Registration
Statement"), under the Securities Act, relating to the securities offered hereby
has been filed by the Company with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain financial and other information relating to the
Company is contained in the documents indicated below under "Incorporation of
Certain Documents by Reference" which are not presented herein or delivered
herewith. For further information with respect to the Company and the securities
offered hereby, reference is made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as exhibits to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge or may be obtained from the Commission upon the payment
of certain fees prescribed by the Commission at the public reference facilities
maintained by the Commission in Washington, D.C. at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in
New York at 7 World Trade Center , 13th Floor, New York, New York 10048 and in
Chicago at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information concerning
the Company may be inspected or copied at the public reference facilities at the
Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the Commission's Regional Offices in New York, 7 World Trade Center, 13th
Floor, New York, New York 10048, and in Chicago, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
documents can be obtained at the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or by
reference to the Company on the Commission's Worldwide Web page
(http:www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company
with the Commission, are incorporated herein by reference:
1. The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
2. The Company's Current Report on Form 8-K dated January 7,
1997.
3. The Company's Current Report on Form 8-K dated January 31,
1997.
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4. The Company's Current Report on Form 8-K dated February 19,
1997.
5. The Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1997.
6. The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A filed on
June 20, 1995, pursuant to Section 12(g) of the Exchange Act.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in and to be a part of
this Prospectus from the date of filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in the
Registration Statement containing this Prospectus or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom
this Prospectus is delivered, upon the request of such person, a copy of any or
all of the foregoing documents referred to above which have been or may be
incorporated herein by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests for such documents should be
directed to: National Health Trends Corp. 2001 West Sample Road, Pompano Beach,
Florida 33064.
The Company
The Company develops and operates businesses to promote human
wellness. Doing business as the Florida Institute, the Company owns and operates
three vocational schools as a junior college in Oviedo, Pompano Beach and Miami,
Florida (individually, the "Oviedo School," the "Pompano Beach School" and the
"Miami School" and collectively the "Schools") that offer training and
preparation for licensing in therapeutic massage and for registration in
holistic skin care. Through its wholly owned subsidiary, Health Wellness
Nationwide Corp. ("HWNC"), the Company owns two natural health care centers, one
in Boca Raton, Florida and the other in Pompano Beach, Florida (the "Natural
Health Care Centers"), both of which provide multi-disciplinary complementary
health care in the areas of alternative and nutritional medicine.
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The Schools seek to fulfill the educational needs of adults
seeking augmented career skills or whose educational needs have not been met in
traditional educational environments. These individuals are primarily high
school graduates and underemployed adults seeking specific career skills and
training. As of December 31, 1996, 650 students were enrolled in the Schools.
The Schools are licensed under Florida law and approved by the United States
Department of Education (the "USDOE") to provide financial aid to qualified
applicants. For the year ended December 31, 1996, the Schools derived
approximately 61% of their revenues from financial aid provided under Federal or
state assistance programs.
The Company plans to expand its business operations by increasing
the enrollment of the Schools, opening additional Natural Health Care Centers,
as well as acquiring, developing and marketing proprietary lines of health care
products. However, there can be no assurance that the Company will be able to
successfully expand its operations.
On March 19, 1997, the Company, GHA Holdings, Inc. ("Holdings"),
a wholly-owned subsidiary of the Company, and Global Health Alternatives, Inc.
("Global") entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement"). The Reorganization Agreement provides for the
purchase by Holdings of substantially all of the assets of Global in exchange
for 5,800,000 shares of the Company's Common Stock. Global is a company which
acquires, develops and markets health care products. In addition, additional
shares are issuable based upon the earnings of Global following the consummation
of the acquisition. The closing of the transactions contemplated by the
Reorganization Agreement are contingent upon the happening of certain
conditions. There can be no assurance that the Company will consummate such
acquisition.
The Company was incorporated under the name Florida Institute of
Massage Therapy, Inc. in Florida in December 1988 and changed its name to
Natural Health Trends Corp. in June 1993. The Company's principal offices are
located at 2001 West Sample Road, Pompano Beach, Florida 33064 and its telephone
number is (954) 969-9771.
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RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES SUBSTANTIAL INVESTMENT
RISKS AND SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT. IN EVALUATING AN INVESTMENT IN THE
COMPANY AND ITS BUSINESS PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS AMONG OTHERS.
Historical Losses
For the three months ended March 31, 1997 and 1996, the Company
had an unaudited net loss of $677,340 (on revenues of $2,073,833) and $88,354
(on revenues of $1,781,238), respectively. The Company had a net loss of
$889,539 (on revenues of $7,218,841) for the year ended December 31, 1996. For
the year ended December 31, 1995, the Company had a net loss of $1,838,548 (on
revenues of $3,941,259). There is no assurance that the Company can generate net
income, increase revenues or successfully expand its operations in the future.
The Company is subject to all of the problems, expenses, delays and other risks
inherent in a business with a relatively short history of operations and in a
business seeking to expand its operations, including the Company's lack of
experience in connection with operating a business offering products and
services to the public and the establishment of new businesses in undeveloped
and evolving industries. Therefore, the Company cannot predict with certainty
the success or failure of its future operations.
Dependence Upon Proposed Expansion Program
The Company's expansion plans are based upon the Company's
acquisition of Global and additional alternative health care product companies,
the acquisition of additional alternative heath care clinics and increasing
student enrollment at the Schools.
The Company through its acquisition of Global and the acquisition
of additional alternative health care product companies, of which there can be
no assurance, intends to develop and market a proprietary line of alternative
health care products. The Company's growth will be dependent, in part, upon the
development of an alternative health care product line which will be dependent
upon a number of factors, including: (i) the Company's ability to identify and
acquire suitable alternative health care product companies; (ii) achieving
market acceptance of the Company's products; (iii) regulatory constraints; (iv)
the ability of the Company to market and produce the alternative health care
products on a cost-effective basis; and (v) whether anticipated performance
levels of new alternative health care products will be achieved.
The Company owns and operates two Natural Health Care Centers and
plans to acquire others. The Company's success in increasing revenues from its
Natural Health Care Centers will depend upon a number of factors, including: (i)
the Company's ability to identify and acquire suitable alternative health care
practices, the availability of suitable markets, and the
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Company's ability to obtain good locations within those markets; (ii) whether
new Natural Health Care Centers will be opened in accordance with the Company's
plans; (iii) regulatory constraints; (iv) the ability of the Company to operate
the Natural Health Care Centers effectively; and (v) whether anticipated
performance levels at new Natural Health Care Centers will be achieved. Any
significant delay in the opening of new Natural Health Care Centers or the
failure of new Natural Health Care Centers to achieve anticipated performance
levels could adversely affect the Company. In pursuing its expansion strategy,
the Company intends to expand its presence into new geographic markets. In
entering a new geographic market, the Company will be required to comply with
laws and regulations of jurisdictions that differ from those applicable to the
Company's current operations, as well as face competitors with greater knowledge
of such markets than the Company. There can be no assurance that the Company
will be able to effectively establish a presence in any new market.
The success of the Company's plans to increase revenue from the
Schools will be dependent upon the ability of the Schools to enroll students, as
well as, the ability of the Schools' students to qualify for financial aid, the
ability of the Schools to maintain its accreditation and to comply with
government regulations, the development of additional programs of study and the
transferability of credits from the Schools to four year colleges and
universities. There can be no assurance that the Company will be able to
maintain or increase the enrollment of the Schools and increase revenue.
Many of the factors required for the various new operations to
succeed will be beyond the Company's control. These include, but are not limited
to, the effectiveness of the Company's marketing efforts in the sale of the
Company's products, in attracting students for the Schools and clients for the
alternative health care practices.
The Company's growth depends to a significant degree on its
ability to carry out its proposed expansion program, including identifying and
acquiring acquisition candidates. There can be no assurance that the Company
will be able to hire, train and integrate employees, and adapt its management,
information and other operating systems, to the extent necessary to grow in a
profitable manner. In addition, the costs associated with the Company's planned
expansion may be significantly greater than anticipated and may have a
materially adverse impact upon the Company's results and prospects. In the event
that the Company's plans for expansion are not successful, there could be a
materially adverse effect on the Company's business.
Uncertainty of Market Acceptance
The Company's expansion plans are based on offering alternative
health care products and services. The Company does not believe that the market
for products and services related to alternative health care, subject to certain
limited exceptions, is either well-developed or has an established history.
Management believes that, as is typical in an undeveloped industry, demand and
market acceptance for the services and products that the Company intends to
market will be subject to a high level of uncertainty. The Company does not
intend to conduct any formal marketing or other concept feasibility studies to
predict the commercial viability of its
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concepts. The Company has limited financial, personnel and other resources to
undertake marketing activities. The Company's success will be dependent on,
among other things, its ability to identify and acquire potential acquisition
candidates in connection with the Company's Natural Health Care Centers and
products business; to maintain the necessary licenses and accreditation to
operate as a degree-granting junior college; to achieve a sufficient level of
enrollment in the Schools; and to qualify for, receive and maintain any licenses
necessary to operate, and to obtain a sufficient level of acceptance of the
services of the Natural Health Care Centers. In light of the relatively
undeveloped markets for the Company's services and products and the lack of
significant funds for marketing, there can be no assurance that substantial
markets will develop and, if so, whether the Company can exploit them
profitably.
Need for Additional Financing
The Company will require additional financing to pursue its
expansion plans. If the Company secures such financing, there can be no
assurance that such financing will be sufficient. If the Company's revenues are
not adequate to fund its operations, or to enable the Company to implement its
present plans for expansion, then the Company will have to seek further
financing. In addition, the Company intends to seek to acquire and open
additional Natural Health Care Centers and acquire additional alternative health
care product companies, of which there can be no assurance. As it is likely that
revenues from the Company's operations at such time will not be sufficient, the
Company will be required to raise additional capital to make such acquisitions
and finance the operations of such new businesses. Such additional financing may
be in the form of indebtedness from institutional lenders or other third parties
or as equity financing. There can be no assurance that such financing will be
available and, if so, on acceptable terms. Any such financing may result in
significant dilution to the Company's shareholders or cause the Company to
become overly leveraged.
Competition
The Schools compete with (i) regional vocational schools and
national vocational schools which offer occupational training programs in
massage therapy, holistic skin care and in related and unrelated fields, (ii)
two and four year universities and colleges, and (iii) on-the-job training
offered by private and government employers. Many current and future competitors
have greater financial, recruiting and job placement resources than the Company,
have longer operating histories and are more established than the Company, and
have more extensive facilities and more personnel than the Company has now or
will have in the foreseeable future.
The Company's Natural Health Care Centers compete and will
compete with doctors, hospitals and medical clinics offering traditional forms
of health care and other practicing therapists offering traditional forms of
health care, as well as with other providers of holistic forms of health care
and health maintenance. Many of these competitors will have established
practices and greater financial resources than the Company. In addition, the
services offered by the Company's competitors may be covered by medical
insurance or other third party reimbursement.
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The sales of vitamin, minerals and other alternative health care
related products which the Company intends to offer are highly competitive, and
the Company expects competitive pressures to continue in the future. In the
vitamin and mineral supplement line, the Company will compete on a regional
basis directly with specialty health retailers and also with mass merchandisers
such as drug stores and supermarkets. Many of the Company's competitors are
larger and have greater resources than the Company. The Company's future
performance will be subject to a number of factors beyond its control, including
any future economic downturns and any cyclical variations in the retail market
for vitamin, mineral and other alternative health care related products, as well
as the publication of positive or negative product safety and efficacy studies
by the U.S. Department of Health and Human Services and other health and medical
authorities.
Government Regulation of Alternative Health Care Products
The processing, formulation, packaging, labeling and advertising
of the Company's alternative health care products will be subject to regulation
by one or more federal agencies, including the Food and Drug Administration (the
"FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety
Commission and the United States Department of Agriculture and the Environmental
Protection Agency. These activities are also regulated by various agencies of
the states and localities. The FDA, in particular, regulates the advertising,
labeling and sales of vitamin and mineral supplements if the FDA believes they
are unapproved drugs or food additives rather than food supplements. Compliance
with the rules and regulations of such agencies is complex and entails continued
diligence.
The Company cannot determine what effect additional legislation,
rule-making, or other governmental regulations or administrative orders, when
and if promulgated, would have on its business in the future. They could,
however, require the reformulation of certain products to meet new standards,
require the recall or discontinuance of certain products not capable of
reformation, or impose additional recordkeeping, expanded documentation of the
properties of certain products, expanded or different labeling, and scientific
substantiation. Any or all of such requirements could adversely affect the
Company's operations and its financial condition.
Regulation of Natural Health Care Centers
The specialists whose services are offered at the Natural Health
Care Centers and other proposed Natural Health Care Centers, such as
acupuncturists, chiropractors, physicians, nutritionists, skin care
professionals and estheticians, are subject to ongoing professional licensing
requirements. The failure of such persons to practice in accordance with
professional licensing requirements could have a material adverse effect on the
Company.
Moreover, the Natural Health Care Centers may be subject to
scrutiny by state or federal health care enforcement officials. Although the
Company believes its Natural Health Care Centers do not violate applicable
federal or state health care regulatory requirements, there can be no assurance
that health care enforcement officials will not take a contrary view.
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Investigations or prosecutions by such enforcement officials could have a
material adverse effect on the Company, even if the operation of the Company's
Natural Health Care Centers were subsequently determined lawful.
Reliance on Alternative Health Care Practitioners
The Company's revenue is dependent, in part, on revenue generated
by the Natural Health Care Centers which are operated on a daily basis by
alternative health care practitioners. There can be no assurance that any such
Health Care Center will result in a successful practice. The profitability of
the Natural Health Care Centers will be dependent on the abilities of the
alternative health care practitioners to operate the clinics effectively.
Health Care Reform
Although Congress failed to pass comprehensive health care reform
legislation in 1996, the Company anticipates that Congress and state
legislatures will continue to review and assess health care delivery and payment
systems and may in the future propose and adopt legislation effecting
fundamental changes in the health care delivery system, which may affect the
Company's Natural Health Care Centers. Also, Congress is expected to consider
major reductions in the rate of increase of Medicare and Medicaid spending as
part of efforts to balance the budget of the United States. The Company cannot
predict the ultimate timing, scope or effect of any legislation concerning
health care reform, including legislation affecting the Medicare and Medicaid
programs. Any proposed federal legislation, if adopted, could result in
significant changes in the availability, delivery, pricing and payment for
health care services and products. Various state agencies also have undertaken
or are considering significant health care reform initiatives. Although it is
not possible to predict whether any health care reform legislation will be
adopted or, if adopted, the exact manner and the extent to which the Company
will be affected, it is likely that the Company will be affected in some
fashion, and there can be no assurance that any health care reform legislation,
if and when adopted, will not have a material adverse effect on the Company.
State Laws Regarding Prohibition of Corporate Practice of Medicine
The Company's Natural Health Care Centers are wholly-owned by the
Company. Corporations such as the Company are not permitted under certain state
laws to practice medicine or exercise control over the medical judgments or
decisions of practitioners. Corporate practice of medicine laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. The Company believes that it
performs only non-medical services, does not represent to the public or its
clients that it offers medical services, but instead offers non-medical
alternative health care services. Expansion of the operations of the Company to
certain jurisdictions may require structural and organizational modifications of
the Company's form of relationship with alternative health care practitioners in
order to comply with corporate practice of medicine laws, which could have an
adverse effect on the Company. Although the Company believes its operations as
currently conducted are in material compliance
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with existing applicable laws, there can be no assurance that the Company's
structure will not be challenged as constituting the unlicensed practice of
medicine. If such a challenge were made successfully in any state, the Company
could be subject to civil and criminal penalties under such state's law. Such
results could have a material adverse effect upon the Company.
Lack of Third Party Reimbursable Insurance Coverage
The Company anticipates that medical insurance coverage and other
third party reimbursement will not be available for most of the services offered
by the Company's Natural Health Care Centers and to the extent that such
services are covered, coverage may be limited. The lack of medical insurance
coverage or other third party reimbursement for all of the services performed at
the Natural Health Care Centers may affect the ability to attract and retain
patients.
Ability to Increase Enrollment at the Schools
In January 1997, the Company was granted a license to operate its
Schools as a degree-granting junior college. However, the success of the
Company's plans to operate the Schools as a degree-granting junior college will
be dependent upon, among other things, the ability of the Schools to enroll
students, the development of additional programs of study and the
transferability of credits from the Schools to four year colleges and
universities.
The transferability of credits from one educational institution
to another, absent an articulation agreement between the two schools, is
generally at the discretion of the receiving institution. The factors that
receiving institutions typically consider include, but are not limited to, the
similarity of accrediting commissions, the licensing status of the two
institutions and the similarity of program content, curriculum and textbooks. In
addition, many institutions enter into articulation agreements which establish
specific guidelines for the transfer of credits from one institution to another.
However, these agreements are not required by law, and the content may vary
dramatically depending on whether the institution is a public, private, academic
or vocational/technical school. Absent articulation agreements between the two
schools, consideration for the acceptance of transfer of credits is more
subjective than the transfer of credits between otherwise similar public or
private institutions. There can be no assurance that credits from the Schools'
courses will be transferable. If the ability of the Schools' students to
transfer credits to four year colleges and universities is limited, then the
Schools' ability to recruit new students may be impaired.
Dependence on Accreditation and Student Financial Aid Programs
The Company and its Schools must comply with a variety of Federal
and state regulations in order for eligible students to qualify for government
financial aid for tuition and related expenses. These include requirements that
the Schools offer a mandated minimum tuition refund to students who leave the
Schools before completing their programs of study and that the percentage of
students enrolled without a high school or general equivalency diploma be below
specified levels. In addition, under U.S. Department of Education ("USDOE")
regulations,
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educational institutions with annual student loan default rates in excess of 25%
(30% prior to 1994) for three consecutive years may lose their eligibility for
student loans. The Schools' student loan default rates for 1993 and 1994 were
determined to be 10% and 9.9%, respectively. The default rates for 1995 and 1996
will not be available from the USDOE until the third quarters of 1997 and 1998,
respectively. Moreover, under Federal regulations, a student drop-out rate in
excess of 33% may impair an institution's ability to administer financial aid
programs and is one factor in determining whether to deny an institution's
certification to participate in Federal student aid programs. A student drop-out
rate exceeding 33%, however, is not alone sufficient to disqualify an
institution from such participation, but must be viewed in conjunction with
other factors such as loss of state licensing, loss of accreditation, poor
periodic reviews or high student loan default rates. The Schools' dropout rate
in 1996 was approximately 12%. The Schools may also be deemed ineligible to
participate in financial aid programs if the USDOE determines that 85% or more
of the Schools' operating revenue is derived from Title IV financial aid
programs (the "85-15 Rule"). According to the Company's preliminary
calculations, the Schools derived approximately 66% of their revenues for 1995
from Title IV Federal financial aid programs. The official determination of the
Company's compliance for the year ended December 31, 1995 with the 85-15 Rule
will likely be made in the second quarter of 1997. There can be no assurance
that the Schools will be able to meet the standards set by USDOE regulations or
otherwise remain eligible to participate in Federal financial aid programs.
Federal regulations require the accreditation of a school by a
private commission recognized by the USDOE. The accreditation commission, in
turn, sets additional standards relating to curricula, teacher qualifications
and other matters. When a school wishes to participate in student aid programs,
the school applies for accreditation from an accrediting body and a designation
from the USDOE that it is an approved educational institution where eligible
students may participate in government-sponsored student financial aid programs.
The Company's Schools are accredited by the Accrediting Commission of the Career
Schools and Colleges of Technology and the Schools' Therapeutic Massage Training
Program is accredited by the Commission on Massage Training
Approval/Accreditation of the American Massage Therapy Association. There can be
no assurance that the Company's Schools will be able to maintain their
accreditation.
The loss of accreditation would result in the loss of the
Company's ability to offer Federal financial aid under Title IV of the Higher
Education Act of 1965, as amended ("Title IV") (Federal Pell Grants and/or
Federal Family Educational Loan Programs), and would severely restrict the
Company's ability to attract substantial numbers of students. During the year
ended December 31, 1996 the Company' Schools depended on government funding
under Federal student financial aid programs for approximately 61% of its
revenues, respectively. Numerous Federal projects, including Title IV financial
aid programs, that provide funds for student loans and grants, are currently
under scrutiny by the U.S. Congress. There can be no assurance that these
Federal programs, or other state programs, will not be reduced or eliminated.
The loss of accreditation or a reduction of Federal student financial aid
programs would have a material adverse effect on the Company.
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Possible Loss of Student Financial Aid, License and Accreditation in the Event
of a Change of Control of the Company
Under current USDOE regulations, a change in control of the
Schools could result in a temporary or a permanent loss of Federal financial aid
funds to the Schools' students. In addition, under the regulations of the State
Board of Independent Postsecondary, Vocational, Technical, Trade and Business
Schools of the Florida Department of Education (the "Florida State Board") a
change of ownership resulting in a change of control may result in the
termination of the Schools' licenses. The Schools will also require the approval
of the Schools' accrediting commission upon a change of control. Pursuant to the
USDOE regulations, a determination of a change of control would involve a review
of which persons or entities have the power to direct or cause the direction of
management and policies of the Schools. Under the Florida State Board's
regulations, a change of control constitutes a change in the authority to
establish or modify school policies, standards and procedures or the authority
to make the effective decisions regarding the implementation or enforcement of
school policies, standards and procedures. In such event, the prior approval of
the Florida State Board is required. Under the rules of the Schools' accrediting
commission, a change of control occurs when a person or a corporation obtains
authority to control the actions of the institution, including a change of
control which occurs as a result of a transfer in voting interest. The Company
believes, although there can be no assurance, that as a result of the issuance
of Common Stock in connection with the acquisition of Global Health
Alternatives, Inc., that there has not been or would be a change of control that
would result in a loss of its eligibility for Federal financial aid funds, a
review of its licenses, or the requirement of prior approval by its accrediting
commission. Should the percentage ownership of the Company's Common Stock by the
Company's present shareholders, officers and directors decrease further through
the issuance of additional shares of Common Stock, the issue of whether there
was a change of control, if raised by the USDOE, the Florida State Board or the
accrediting commission, would be determined pursuant to the standards set forth
above, on the basis of the facts then existing, including the percentage
ownership of the present shareholders, officers and directors, as compared with
the holdings of others and other factors relating to the actual control of the
Company. Should there be a determination that a change of control had occurred
by the USDOE, the Florida State Board or the Schools' accrediting commission and
there was disruption or termination of the availability of Federal financial aid
to the Schools' students or a termination or interruption of the licenses or
accreditation of the Schools, there would be a material adverse effect on the
Company, its business and its prospects.
Dependence on State Licensing of the Schools
The Company is dependent on state licensing from the Florida
State Board to operate its Schools and to recruit students. Extensive and
complex regulations govern these matters. Moreover, many other states require
post-secondary educational institutions operated with private investment capital
to post surety bonds as a precondition to licensing. Although the Company is not
required to post surety bonds with state regulatory authorities at this time,
there is no assurance that the Company will not be required to do so in the
future. Moreover, if certain financial tests recently adopted by the California
legislature and similar regulations adopted or
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proposed by other state regulators are adopted in Florida, or if the Company
expands into jurisdictions in which such regulations are in effect, the Company
may be unable to satisfy the applicable requirements. The Company might be
unable to operate its Schools or otherwise be materially and adversely affected
if it is unable to comply with current or future rules and regulations.
The present state licenses for the Company's Schools in Miami,
Pompano Beach and Oviedo expire on September 30, 1997, March 31, 1998 and
November 30, 1997, respectively, and are subject to renewal at such times. The
license for the Miami School and the Oviedo School must be renewed on an annual
basis. The license for the Pompano Beach School must be renewed on a biennial
basis since it has been licensed and in good standing for more than five years.
There can be no assurance that the Florida State Board will renew the licenses
of each of the Schools. The failure of the Florida State Board to renew each of
the Schools' licenses would have a material adverse effect on the Company.
Potential Liability; Insurance
The operation of the Natural Health Care Centers and the offering
of alternative health care products exposes the Company to the possibility of
personal injury, products or other liability claims. The Company maintains a
general liability insurance policy which is subject to a $1,000,000 per
occurrence limit with a $2,000,000 aggregate limit. The Company also maintains a
professional liability insurance policy which is subject to a $1,000,000 per
occurrence limit with a $3,000,000 aggregate limit. The Company carries
$1,000,000 of malpractice insurance with respect to the Natural Health Care
Centers. The Company anticipates procuring additional insurance in connection
with the Company's proposed expansion plans. There can be no assurance, however,
that the Company's insurance will be sufficient to cover potential claims or
that an adequate level of coverage will be available in the future at reasonable
cost, if at all. A successful claim against the Company which exceeds, or is not
covered by, its insurance policies could have a material adverse effect on the
Company. In addition, the Company may be required to expend significant
resources and energy in defending against any claims.
Dependence on Key Personnel
The Company believes that its success depends to a significant
extent on the efforts and abilities of Neal R. Heller, President and a director
of the Company, and on Elizabeth S. Heller, Secretary, Treasurer and a director
of the Company. Mr. and Mrs. Heller have each entered into employment agreements
with the Company that expire in December 1997. The success of the Company's
Natural Health Care Centers depends upon Kaye Lenzi, their administrator, and
other alternative care practitioners. The loss or curtailment of the services of
any of such employees would have a materially adverse effect on the Company. The
ability of the Company to realize its business strategy might be jeopardized if
any of such individuals becomes incapable of fulfilling his or her obligations
to the Company and a qualified successor is not found promptly. The Company's
success also depends upon its ability to attract and retain qualified personnel,
including both instructors and practitioners of other holistic health care
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services. While the Company believes there are numerous qualified holistic
health care practitioners currently available, competition for such personnel
may increase. If the Company acquires existing Natural Health Care Centers to be
operated, the Company will be dependent on the key employees of such clinics.
Risk of Foreclosure of Mortgaged Property
The Company's property in Pompano Beach, Florida, (the "Pompano
Property") is encumbered by mortgages securing repayment of loans. In the event
that the Company defaults on its obligations under such mortgage loans, the
mortgagee could foreclose on the mortgages encumbering the Pompano Property. A
foreclosure of the mortgage loans on the Pompano Property would have a material
adverse effect on the Company.
Indemnification of Officers and Directors
The Articles of Incorporation of the Company provide that the
Company shall indemnify to the fullest extent permitted by Florida law any
person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Company. Such indemnification (other than as ordered
by a court) shall be made by the Company only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. In addition, the Articles of Incorporation provide
for the elimination, to the extent permitted by Florida law, of personal
liability of directors to the Company and its shareholders for monetary damages
for breach of fiduciary duty as directors. The foregoing may reduce the
likelihood of derivative litigation against directors and officers of the
Company and may discourage or deter shareholders or management from suing
directors or officers for breaches of their duty of care, even though such an
action, if successful, might otherwise benefit the Company and its shareholders.
Control by Current Shareholders, Officers and Directors
The current officers and directors of the Company beneficially
own an aggregate of approximately 41% of the Company's Common Stock and are in a
position to influence the election of the Company's directors and otherwise
essentially control the outcome of all matters requiring shareholder approval
including election of the Company's directors.
No Dividends
The Company has not paid any cash dividends on its Common Stock
to date and does not anticipate declaring or paying any cash dividends in the
foreseeable future. In addition, future financing arrangements, if any, may
preclude or otherwise restrict the payment of dividends.
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Shares Eligible for Future Sale
Of the 12,811,261 shares of Common Stock currently outstanding
6,156,802 are "restricted securities" as that term is defined in Rule 144 under
the Securities Act and may only be sold pursuant to a registration statement
filed under the Securities Act or in compliance with Rule 144 or another
exemption from the registration requirements of the Securities Act. In general,
under Rule 144, subject to the satisfaction of certain other conditions, a
person, including an affiliate of the Company, who has beneficially owned
restricted shares of Common Stock for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class, or if
the Common Stock is quoted on NASDAQ or a stock exchange, the average weekly
trading volume during the four calendar weeks immediately preceding the sale. A
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least three years is entitled to sell
such shares under Rule 144 without regard to any of the volume limitations
described above.
In addition, 666,666 shares of Common Stock are reserved for
issuance upon the exercise of options which have been granted or may be granted
under the Company's 1994 Stock Option Plan and 6,143,344 shares of Common Stock
are issuable upon the exercise of outstanding options, warrants and conversion
rights excluding the Convertible Series A Preferred Stock with a face amount of
$2,200,000. To the extent that options are exercised, dilution to the interests
of the Company's shareholders may occur. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected, since the holders of the outstanding options or warrants can be
expected to exercise them, to the extent they are able to, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the options or warrants.
Limited Prior Public Market; Potential Volatility of Stock Price
The Company's Common Stock has been traded on NASDAQ since June
21, 1995. There can be no assurance that an active public market will continue
for the Common Stock, or that the market price for the Common Stock will not
decline below its current price. Such price may be influenced by many factors,
including, but not limited to, investor perception of the Company and its
industry and general economic and market conditions. The trading price of the
Common Stock could be subject to wide fluctuations in response to announcements
of business developments by the Company or its competitors, quarterly variations
in operating results, and other events or factors. In addition, stock markets
have experienced extreme price volatility in recent years. This volatility has
had a substantial effect on the market prices of companies, at times for reasons
unrelated to their operating performance. Such broad market fluctuations may
adversely affect the price of the Common Stock.
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Possible Delisting of Common Stock for NASDAQ; Possible Adverse Effect on
Trading Market
The Common Stock is quoted on the NASDAQ SmallCap Market. There
are a number of continuing requirements that must be met in order for the Common
Stock to remain eligible for quotation on NASDAQ. In order to continue to be
quoted on NASDAQ, a company must maintain $2 million in total assets, a $200,000
market value of the public float and $1 million in total capital and surplus. In
addition, continued quotation requires two marketmakers and a minimum bid price
of $1.00 per share; provided, however, that if a company falls below such a
minimum bid, it will remain eligible for continued quotation on NASDAQ if the
market value of the public float is at least $1 million and the company has $2
million in capital and surplus. The failure to meet these maintenance criteria
in the future could result in the delisting of the Company's Common Stock from
NASDAQ. In such event, trading, if any, in the Common Stock may then continue to
be conducted in the non-NASDAQ over-the-counter market. As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Common Stock. In November 1996, NASDAQ approved changes
to its quantitative and qualitative standards for issuers listing on NASDAQ,
subject to public comment and approval by the Commission. Among the proposed
changes are the elimination of the alternative test for issuers failing to meet
the minimum bid price of $1.00, an increase in the quantitative standards for
both the NASDAQ National Market and the NASDAQ SmallCap Market, and the
corporate governance requirements applicable to the NASDAQ National Market would
be applicable to the NASDAQ SmallCap Market.
In addition, if the Common Stock were delisted from trading on
NASDAQ and the trading price of the Common Stock were less than $5.00 per share,
trading in the Common Stock would also be subject to the requirements of certain
rules promulgated under the Securities Exchange Act of 1934, which require
additional disclosure by broker dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-NASDAQ equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers may discourage
broker-dealers from effecting transactions in penny stocks, which could reduce
the liquidity of the shares of Common Stock and thereby have a material adverse
effect on the trading market for the securities.
Anti-Takeover Effect of Issuance of Preferred Stock
The Company's Articles of Incorporation authorizes the issuance
of 1,500,000 shares of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is
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empowered, without shareholder approval, to issue preferred stock with
dividends, liquidation, conversion, voting or other rights which could decrease
the amount of earnings and assets available for distribution to holders of
Common Stock and adversely affect the relative voting power or other rights of
the holders of the Company's Common Stock. In the event of issuance, the
preferred stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Risks Associated with Forward-Looking Statements
This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations,
including plans and objectives relating to the development of Natural Health
Care Centers, the operation of the Schools and the acquisition of companies that
offer alternative health care products. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. The Company's plans and objectives are based on a successful
execution of the Company's expansion strategy and assumptions that Company's
operations will be profitable, that the alternative health care industry will
not change materially or adversely, and that there will be no unanticipated
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that its assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward-looking statements included herein will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, particularly in view of the
Company's early stage operations in various new businesses, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
Effect Of Conversion Of The Debentures
The exact number of shares of Common Stock issuable upon
conversion of the Debentures offered hereby will vary inversely with the market
price of the Common Stock. The holders of Common Stock may be materially diluted
by conversion of the Debentures depending on the future market price of the
Common Stock. The Debentures are convertible into Common Stock based upon the
average of the closing bid price on NASDAQ for the five days preceding notice of
conversion, discounted by 25%. On June 9, 1997, the five day average of the
closing bid price of the Common Stock on NASDAQ was $.90 per share. If such
price were used to determine the number of shares of Common Stock issuable upon
conversion of the Debentures including interest thereon, the Company would issue
a total of approximately 1,481,482 shares of Common Stock, if all of the
Debentures were converted on such date. To the extent the average closing bid
price is lower or higher than $.90 on any date on which the Debentures are
converted, the Company would issue more or fewer shares of Common Stock than
reflected in such estimate, and such difference could be material.
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USE OF PROCEEDS
Since this Prospectus relates to the offering of Shares by the
Selling Stockholders, the Company will not receive any proceeds from the sale of
the Shares offered hereby. See "SELLING STOCKHOLDERS."
SELLING STOCKHOLDERS
The following table sets forth the name and the number of shares
of Common Stock beneficially owned by each Selling Stockholder as of June 9,
1997, the number of the shares to be offered by each Selling Stockholder
pursuant to this Prospectus and the number of shares to be beneficially owned by
each Selling Stockholder after the offering if all of the shares offered hereby
by such Selling Stockholder are sold as described herein. Except as noted below,
the Selling Stockholders have not held any position or office with, been
employed by, or otherwise had a material relationship with, the Company, other
than as stockholders of the Company subsequent to their respective acquisition
of shares of Common Stock. The Shares are being registered to permit public
secondary trading of the Shares, and the Selling Stockholders may offer the
Shares for resale from time to time. See "PLAN OF DISTRIBUTION."
Certain Shares being offered hereby by the Selling Stockholders
may be acquired, from time to time, upon (i) conversion of $1,000,000 of the
Debentures and the accrued interest thereon issued in a private placement in
April 1997 and (ii) 200,000 shares of Common Stock underlying the Warrants to
purchase up to 200,000 shares of Common Stock issued in connection with the sale
of the Debentures in April 1997. Once the Commission has declared effective the
Registration Statement of which this Prospectus forms a part, the Debentures are
convertible into Common Stock at a conversion price equal to 75% of the average
closing bid price of the Common Stock as reported on the NASDAQ for the five
consecutive trading days immediately preceding the date of conversion. Pursuant
to the terms of the Debentures, no holder can convert any portion of such
holder's Debentures if such conversion would increase such holder's beneficial
ownership of the Common Stock (other than shares so owned through ownership of
the Debentures) to in excess of 4.9%.
In recognition of the fact that Selling Stockholders may wish to
be legally permitted to sell their Shares when they deem appropriate, the
Company has filed with the Commission, under the Securities Act, a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares from time to time on NASDAQ or in privately-negotiated
transactions and has agreed to prepare and file such amendments and supplements
to the Registration Statement as may be necessary to keep the Registration
Statement effective until the Shares are no longer required to be registered for
the sale thereof by the Selling Stockholders.
The Company has agreed to pay for all costs and expenses incident
to the issuance, offer, sale and delivery of the Shares, including, but not
limited to, all expenses and fees of preparing, filing and printing the
Registration Statement and Prospectus and related exhibits,
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amendments and supplements thereto and mailing of such items. The Company will
not pay selling commissions and expenses associated with any such sales by the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against civil liabilities including liabilities under the
Securities Act.
Except as otherwise indicated, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their securities. The information in the table concerning the Selling
Stockholders who may offer Shares hereunder from time to time is based on
information provided to the Company by such securityholders, except for the
assumed conversion price of the Debentures into shares of Common Stock, which is
based solely on the assumptions discussed or referenced in footnote (1) to the
table. Information concerning such Selling Stockholders may change from time to
time and any changes of which the Company is advised will be set forth in a
Prospectus Supplement to the extent required. See "PLAN OF DISTRIBUTION."
<TABLE>
Number of Shares of Number of Shares Number of Shares
Name of Selling Common Stock of Common Stock Beneficially Owned
Stockholder Beneficially Owned Offered Hereby After Offering
<S> <C> <C> <C>
The Endeavor Capital 1,481,482(1)(2) 1,481,482 0
Fund S.A.
Windward Island Ltd. 100,000(3) 100,000 0
J.W. Charles Securities, Inc. 100,000(3) 100,000 0
--------- --------- -
Total 1,681,482 1,681,482 0
</TABLE>
(1) Such beneficial ownership represents the aggregate of (a) the number of
shares of Common Stock beneficially owned by each such person and (b) an
estimate of the number of the shares of Common Stock issuable upon the
conversion of Debentures beneficially owned by such person, assuming an average
closing bid price for the five trading days preceding June 9, 1997, the price
which would be utilized if the Debentures were converted on June 10, 1997. The
actual number of shares of Common Stock offered hereby is subject to adjustment
based on the market price of the Common Stock and could be materially less or
more than the estimated amount indicated depending upon factors which cannot be
predicted by the Company at this time. This presentation is not intended to
constitute a prediction as to the future market price of Common Stock. The
number of shares of Common Stock beneficially owned prior to the offering
assumes conversion of all of the Debentures described in this footnote (1). See
"RISK FACTORS -- Effect On Conversion Debentures" and "DESCRIPTION OF
SECURITIES."
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(2) Represents the estimate of the number of shares of Common Stock issuable
upon conversion of the Debentures beneficially owned by such person as described
in Footnote (1) above.
(3) Represents the number shares of Common Stock issuable upon the exercise of
the Warrants.
The Selling Stockholders are offering the Shares for their own
account, and not for the account of the Company. The Company will not receive
any proceeds from the sale of the Shares by the Selling Stockholders.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling
Stockholders. Such sales may be made through ordinary brokerage transactions,
the over-the-counter market, or otherwise at prices and at terms then
prevailing, at prices related to the then current market price or at negotiated
prices. The Shares may be sold by any one or more of the following methods: (a)
a block trade in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker as principal
and resale by such broker or dealer for its account, (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
privately negotiated transactions. In addition, any Shares that qualify for sale
pursuant to Rule 144 may be sole under Rule 144 rather than pursuant to this
Prospectus.
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholder in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act and any commissions received by such broker-dealer, agent or
underwriter and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the Shares offered by this Prospectus may
simultaneously engage in market making activities with respect to the Common
Stock during any applicable "Cooling off" periods prior to the commencement of
such distribution. In addition, and without limiting the foregoing, the Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder including, without limitation, Rules 10b-6 and
10b-7, which provisions may limit the timing of purchases and sales of Common
Stock by the Selling Stockholders.
The Company has agreed to indemnify the Selling Stockholders
against liabilities incurred by the Selling Stockholders by reason of
misstatements or omissions to state material facts in connection with the
statements made in this Prospectus and the Registration Statement of which it
forms a part. The Selling Stockholders, in turn, have agreed to indemnify the
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Company against liabilities incurred by the Company by reason of misstatements
or omissions to state material facts in connection with statements made in the
Registration Statement and prospectus based on information furnished in writing
by the Selling Stockholders. To the extent that such section of the Registration
Rights Agreement may purport to provide exculpation from possible liabilities
arising under the Federal securities laws, it is the opinion of the Commission
that such indemnification is contrary to public policy and unenforceable.
DESCRIPTION OF SECURITIES
General
The total authorized capital stock of the Company is 40,000,000
shares of Common Stock, $.001 par value per share, and 1,500,000 shares of
Preferred Stock, $.001 par value per share. As of March 31, 1997, the Company
had 12,811,261 shares of Common Stock issued and outstanding, which were held by
approximately 1,000 shareholders, and an aggregate of 6,143,344 shares of Common
Stock issuable upon exercise of outstanding options, warrants and conversion
rights, excluding the shares of Common Stock issuable upon the conversion of the
Debentures and the Series A Preferred Stock.
Common Stock
Each share of Common Stock entitles the holder thereof to one
vote on all matters submitted to a vote of the shareholders. Since the holders
of Common Stock do not have cumulative voting rights, holders of more than 50%
of the outstanding shares can elect all of the directors of the Company then
being elected and holders of the remaining shares by themselves cannot elect any
directors. The holders of Common Stock do not have preemptive rights or rights
to convert their Common Stock into other securities. Holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock have the right to a ratable portion of the assets remaining after payment
of liabilities subject to any superior claims of any shares of Preferred Stock
hereafter issued. See "- Preferred Stock." All shares of Common Stock
outstanding and to be outstanding upon completion of the Offering are and will
be fully paid and nonassessable.
Preferred Stock
The Company is authorized by its Articles of Incorporation to
issue a maximum of 1,500,000 shares of preferred stock, in one or more series
and containing such rights, privileges and limitations, including voting rights,
dividend rates, conversion privileges, redemption rights and terms, redemption
prices and liquidation preferences, as the Board of Directors of the Company
may, from time to time, determine. Except for the 2,200 shares of Series A
Preferred Stock, no shares of Preferred Stock have ever been issued.
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The issuance of shares of preferred stock pursuant to the Board's
authority could decrease the amount of earnings and assets available for
distribution to holders of Common Stock, and otherwise adversely affect the
rights and powers, including voting rights, of such holders and may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company is not required by current Florida Law to seek shareholder approval
prior to any issuance of authorized but unissued stock and the Board of
Directors does not currently intend to seek shareholder approval prior to any
issuance of authorized but unissued shares of preferred stock or Common Stock,
unless otherwise required by law.
Series A Preferred Stock
The Company has 2,200 shares of Series A Preferred Stock
outstanding with a face amount of $2,200,000. The shares of Series A Preferred
Stock were issued to five investors in a private placement in June 1997.
For a full description of the relative rights, preferences,
privileges and restrictions, including among other things, dividend rights,
conversion rights, liquidation preferences and terms of redemption, reference is
made to the articles of amendment of articles of incorporation, filed in the
office of the Secretary of State of Florida, a copy of which is available from
the Company upon request.
Conversion
Commencing on August 4, 1997 and provided that there is an
effective registration statement covering the resale of the shares of Common
Stock issuable upon the conversion of the shares of Series A Preferred Stock,
each share of Series A Preferred Stock is convertible into shares of Common
Stock at a conversion price equal to 80% (the "Applicable Percentage") of the
average closing bid price of the Common Stock as reported by NASDAQ, during the
five trading days immediately preceding the date notice of conversion is given
to the Company. In the event that a registration statement covering the resale
of the shares of Common Stock issuable upon the conversion of the shares of
Series A Preferred Stock is not effective by August 4, 1997, then the Applicable
Percentage is reduced to 75% and the holder of each share of Series A Preferred
Stock is entitled to a payment of 2.5% per month until a registration statement
is effective, payable in cash or shares of Common Stock at the option of the
holder. Shares of Series A Preferred Stock are converted automatically into
shares of Common Stock on June 4, 2000.
Except in the case of the automatic conversion of the shares of
Series A Preferred Stock, the holder can convert any portion of such holder's
shares of Series A Preferred Stock if such conversion would not increase such
holder's beneficial ownership of Common Stock (other than shares of Common Stock
owned through ownership of the Series A Preferred Stock) to in excess of 4.9%.
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Redemption
The Company has the right through January 31, 1998, in its
discretion, to redeem any or all of the shares of Series A Preferred Stock on a
pro rata basis from time to time upon not less than two business days prior
written notice at a price of $1,250 per share through august 4, 1997 and at a
price of $1,300 per share from August 5, 1997 through January 31, 1998.
Ranking
The Series A Preferred Stock ranks, with respect to dividend
rights and with respect to rights of liquidation, dissolution and winding up,
senior to the Common Stock.
Dividends
8% of the face amount of $1,000 per share of Series A Preferred
Stock, payable upon the conversion of the shares in Common Stock or cash. If
dividends are paid in shares of Common Stock, the number of shares of Common
Stock payable as dividends will be determined by dividing the amount of the
accrued dividends by the applicable conversion price.
Liquidation
In the event of any liquidation, dissolution or winding up of the
Company, then out of the assets of the Company before any distribution or
payment to the holders of Common Stock, the holders of the Series A Preferred
Stock will be entitled to be paid $10,000 per share. In the event of any
liquidation, dissolution or winding up of the Company, the Company by resolution
of the Board of Directors will, to the extent of any legally available funds
therefor, declare a dividend payable only in cash on the Series A Preferred
Stock, in an amount equal to the accrued and unpaid dividends, calculated at the
dividend rate on the Series A Preferred Stock up to and including the date of
such liquidation, dissolution or winding up and, if accrued, an amount payable
in cash only equal to any remaining accrued and unpaid dividends, calculated at
the dividend rate, will be added to the amount to be received by the holders of
the Series A Preferred Stock upon such liquidation, dissolution or winding up.
Voting Rights
Shares of Series A Preferred Stock have no voting rights.
Debentures
The Debentures are in the principal amount of $1,000,000, bear
interest at the rate of 6% per annum and mature on March 31, 2000.
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<PAGE>
The Debentures are convertible into shares of Common Stock
commencing on the earlier of July 3, 1997 with respect to $500,000 of principal
amount and August 3, 1997 with respect to $500,000 of the principal amount or
the effective date of the registration statement covering the resale of the
shares of Common Stock issuable upon the conversion of the Debentures. The
Debentures are convertible into shares of Common Stock at a conversion price
equal to the lesser of $1.4375 or 75% of the average closing bid price of the
Common Stock as reported by NASDAQ, during the five trading days immediately
preceding the date notice of conversion is given to the Company.
The Company has the right to redeem the Debentures for a
redemption price equal to 125% of the principal amount of the Debentures. In the
event that the resale of the shares of Common Stock issuable upon the conversion
of the Debentures is not registered by July 3, 1997, then the Company shall pay
to holder 3% of the principal amount of the Debentures for each month thereafter
until the effective date of the registration statement covering the resale of
the shares of Common Stock.
The holder of the Debentures shall not be entitled to convert any
portion of the Debentures to the extent that after such conversion, the number
of shares of Common Stock (other than shares of Common Stock owned through
ownership of the Debentures which may be deemed to be beneficially owned by the
holder would be in excess of 4.9%.
Warrants
The shares of Common Stock offered hereby include up to 200,000
shares of Common Stock issuable upon the exercise of the Warrants issued in
April 1997 in connection with the sale of the Debentures. The Warrants are
exercisable at a price of $2.4375 with respect to 100,000 shares of Common Stock
and at a price of $3.25 per share with respect 100,000 shares of Common Stock.
The Warrants expire on April 3, 2002. The exercise price of Warrants and the
number of shares of Common Stock issuable upon exercise are subject to
adjustments to protect against dilution in the event of stock dividends, stock
splits combinations, subdivisions or reclassifications.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the
securities offered hereby will be passed upon for the Company by Lane &
Mittendorf LLP, 320 Park Avenue, New York, New York 10022. Martin C. Licht, Esq.
a member of Lane & Mittendorf LLP, counsel to the Company, owns 50,000 shares of
Common Stock and options to purchase 9,000 shares of Common Stock and is a
member of the Board of Directors of the Company.
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<PAGE>
EXPERTS
The financial statements of the Company incorporated herein by
reference to the Company's Annual Report on Form 10-KSB have been audited by
Feldman Radin & Co., P.C., independent auditors. The financial statements
referred to above are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE>
No dealer, salesperson or any other person is authorized to give any
information or to make any representations in connection with this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the securities offered by this Prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by anyone in
any jurisdiction in which such offer or solicitation is not authorized or is
unlawful. The delivery of this Prospectus shall not, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date of the Prospectus.
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TABLE OF CONTENTS
Page
AVAILABLE INFORMATION......................................-3-
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.................................-3-
RISK FACTORS...............................................-6-
USE OF PROCEEDS...........................................-19-
SELLING STOCKHOLDERS.....................................-19-
PLAN OF DISTRIBUTION......................................-21-
DESCRIPTION OF SECURITIES.................................-22-
LEGAL MATTERS.............................................-25-
EXPERTS...................................................-26-
Until July 25, 1997 (25 days after the date of this Prospectus),
all dealers effecting transactions in the securities, whether or not
participating in the distribution, may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
