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PROSPECTUS
4,520,667 SHARES
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
COMMON STOCK
This Prospectus relates to 4,520,667 shares of common stock, par value
$.01 per share ("Common Stock") of National Medical Financial Services
Corporation, a Nevada corporation (the "Company"), which may be offered for sale
from time to time by certain of the Company's stockholders (the "Selling
Stockholders,") or by their pledgees, donees, transferees or other successors in
interest, to or through underwriters or directly to other purchasers or through
agents in one or more transactions at varying prices determined at the time of
sale or at negotiated prices. See "Plan of Distribution". The Company will not
receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders.
The Common Stock is quoted on the Nasdaq National Market under the
symbol "NMFS". On September 5, 1996, the last reported sale price of the Common
Stock as reported by Nasdaq was $9.50 per share.
_________________
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE DISCUSSION
CAPTIONED "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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 SEPTEMBER 9, 1996
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AVAILABLE INFORMATION
The Company is a reporting company subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information concerning the Company filed
with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at its office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission at Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Common Stock is quoted on the Nasdaq National
Market System. Such reports, proxy and information statements and other
information can also be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits thereto, the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered pursuant to this Prospectus. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits filed as a part thereof. Statements contained herein
concerning any document filed as an exhibit are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company, are hereby incorporated
herein by reference:
(a) The Company's annual report for the fiscal year ended December
31, 1995 filed on Form 10-KSB, as amended by Form 10-KSB/A;
(b) The Company's quarterly reports for the period ended March 31,
1996, and June 30, 1996, each filed on Form 10-QSB;
(c) The Company's current report dated February 13, 1996 on Form 8-K;
and
(d) The description of the Company's Common Stock which is contained
in the Company's Registration Statement on Form 8-A filed under
the Exchange Act, including any amendment or reports filed for
the purpose of updating such description.
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All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which indicates
that all securities offered hereby have been sold or which deregisters all
securities remaining unsold shall be deemed to be incorporated by reference and
to be a part of this Prospectus from the date of filing of such 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 any
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 a copy
of this Prospectus is delivered, upon oral or written request of any such
person, a copy of any or all of the documents incorporated herein by reference,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written and oral requests should
be directed to Robert W. Horner, Jr., Secretary, National Medical Financial
Services Corporation, 1315 Greg Street, Suite 103, Sparks, Nevada 89431, (702)
356-2315.
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THE COMPANY
National Medical Financial Services Corporation (the "Company") markets
billing, collection and accounts receivable management services, as well as
certain accounting services, to medical providers such as hospital-based and
office-based physicians, free-standing medical providers and hospital-affiliated
entities (collectively, "Medical Service Providers"). The Company also acquires
from other entities contracts to provide such services to Medical Service
Providers and may in the future acquire entities which provide such services.
The Company subcontracts for the performance of these services with an entity
which is owned and controlled by the Company's Chairman and principal
stockholder. The Company plans to expand its client base through its marketing
program and through the acquisition of contracts to provide billing, collection
and accounts receivable management services, as well as certain accounting
services, to Medical Service Providers. The Company was formed initially as a
vehicle for the outsourcing of billing, collection and accounts receivable
management services, as well as certain accounting services, which were
performed internally by over 40 Medical Service Providers which are owned,
controlled by, or affiliated with the Company's Chairman and principal
stockholder. These providers rendered services generating approximately $50
million in collections for the providers during the year prior to the Company's
formation.
The Company believes that there is a substantial and growing demand for the
types of services it markets and the types of services provided by its target
acquisitions. Continued cost pressures in the healthcare industry and the
increasing level of sophistication necessary to provide such services make it
significantly more difficult for Medical Service Providers to perform these
services for themselves in an accurate, efficient and cost-effective manner.
The Company currently provides, through a subcontractor, services to over 110
Medical Service Providers specializing in providing out-patient radiation
oncology and medical oncology services, as well as to nursing homes, emergency
room and out-patient surgery centers located in twelve states, a substantial
percentage of which are owned or controlled by, or affiliated with, the
Company's Chairman and principal stockholder. See "RISK FACTORS -- Dependence
on Related Parties; Risk of Cancellation." The Company intends to use
substantially all of the proceeds of its initial public offering to expand its
client base to include unaffiliated entities. In pursuing this goal, the
Company expects to draw upon the extensive healthcare and acquisition experience
of its management to identify and develop new business opportunities, including
the expansion of its client base through the acquisition of client contracts
from other businesses that provide services similar to those marketed by the
Company and the acquisition of entities which provide such services.
The Company's goal is to become a leader in its industry by marketing
value-added services to Medical Service Providers and by acquiring contracts to
provide such services. The Company's services allow its clients to concentrate
on providing medical care, while at the same time maintaining revenue and cash
flows and reducing administrative costs. The Company believes that many
acquisition opportunities are available at reasonable prices, as many of these
companies lack the expertise, personnel and technological resources necessary to
compete in an increasingly complex and regulated environment. The Company also
believes that, because of certain economies and efficiencies it creates through
acquisitions, it is able to offer attractive prices to such candidates while
maintaining attractive valuations for the Company.
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Services are provided to the Company's clients through subcontracting
arrangements with Russell Data Services, Inc., a Nevada corporation ("Russell
Data"), which is owned by the Company's Chairman and principal stockholder.
Russell Data has subcontracted with other foreign and domestic entities, some
of which are owned or controlled by the Company's Chairman and principal
stockholder. The Company has entered into a non-exclusive ten-year contract
with Russell Data to provide all such billing, collection and accounts
receivable management services, as well as certain accounting services, for a
fee of 70 percent of net revenues received by the Company for services
provided by Russell Data. See "RISK FACTORS -- Dependence on Related
Subcontractor." In August 1996, the contract with Russell Data was amended
to modify the payment structure with respect to new contracts entered into
between the Company and entities not affiliated with principals of Russell
Data. The Company believes that the terms of its contract with Russell
Data will permit it to generate a consistent and stable level of net revenues
and profitability. Furthermore, the Company's practice of subcontracting the
performance of these services will allow it to focus on acquiring,
implementing, managing and pursuing the creative development of new clients.
The Company was incorporated in Nevada in August 1994. The executive
offices of the Company are located at 1315 Greg Street, Suite 103, Sparks,
Nevada 89431. The telephone number of the Company is (702) 356-2315.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Some of the information presented in this report constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results of the
Company's marketing and acquisition activities and its results of operations
will not differ materially from its expectations. Factors which could cause
actual results to differ from expectations include, among others, uncertainty
of whether the Company's marketing activities will result in an expansion of
its client base or lead to additional acquisitions of contracts and entities,
uncertainties related to the demand for the services provided by the Company,
uncertainties related to state and federal governmental regulation of the
Company's business, and the uncertainty of whether the combination of
operating cash flows and the proceeds of the Company's initial public
offering (the "IPO") will be sufficient to fund its growth and operations
over the next twelve months. Specific reference is made to the risks and
uncertainties described in "RISK FACTORS" herein.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONCERNING THE COMPANY AND ITS BUSINESS
CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
CONFLICTS OF INTEREST
A substantial percentage of the Company's net revenues are currently
generated by contracts with entities which are owned or controlled by the
Company's Chairman and principal stockholder. In addition, all of the services
performed by the Company have been subcontracted to an entity which is owned and
controlled by the Company's Chairman and principal stockholder. The terms of
these contracts and subcontracts have not been negotiated on an arm's length
basis and may not be on terms as favorable to the Company as those which could
have been obtained from third parties. It is expected that the terms of
contracts into which the Company will enter into with related parties in the
future also will not be negotiated on an arm's length basis and may not be on
terms as favorable to the Company as those which could have been obtained from
third parties.
LIMITED OPERATING HISTORY
The Company was organized in August 1994 and has had only limited
operations to date. Accordingly, the Company is subject to the risks inherent
in the operation of a new enterprise such as the complications, delays and
resulting expenses encountered in establishing a new business and the
uncertainties of developing and marketing new services.
DEPENDENCE ON RELATED SUBCONTRACTOR
The Company intends to provide substantially all of its services to
Medical Service Providers through a contractual arrangement with Russell
Data, a company which is owned and controlled by the Company's Chairman and
principal stockholder. The Company's current contracts with Medical Service
Providers and those contracts into which it intends to enter in the future
will be performed by Russell Data or other contractors or subcontractors.
Accordingly, the Company's success is largely dependent upon the ability of
Russell Data to continue to operate in accordance with its contractual
relationship with the Company. The Company has contracted with Russell Data
to provide to the Company, on a non-exclusive basis, certain specified
accounting, billing and collection services for a fee of 70 percent of net
revenues received by the Company for services billed by Russell Data. In
August 1996, the contract with Russell Data was amended to modify the payment
structure with respect to new contracts entered into between the Company and
entities not affiliated with principals of Russell Data. The contract is for
a term of ten years and expires on September 30, 2004. Under the terms of the
contract, the Company is permitted to contract with providers of services
other than Russell Data and Russell Data is permitted to provide its services
to companies other than the Company. Russell Data subcontracts some of these
services to other foreign and domestic corporations, some of which are owned
or controlled by the Company's Chairman and principal stockholder. There can
be no assurance that Russell Data will be able to continue to operate in
accordance with its contractual relationship with the Company, or that
Russell Data will have the resources to be able to accommodate the Company's
intended growth. In addition, in the event that Russell Data were to cease
operating, there can be no assurance that the Company would be able to obtain
the services provided by Russell Data from other parties, or that such
services if obtained will
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be on terms and conditions similar to those with Russell Data. The inability to
obtain such services on similar terms would have a material adverse effect on
the Company's financial condition and results of operations.
DEPENDENCE ON RELATED PARTIES; RISK OF CANCELLATION
A substantial percentage of the Company's net revenues are currently
generated by contracts with entities which are owned or controlled by the
Company's Chairman and principal stockholder and, accordingly, the Company's
success is dependent upon the continued existence and profitability of such
entities. While the contracts with these entities contain certain provisions
which require the entity to pay to the Company a transition consulting fee in
the event that the contract is cancelled, the inability of the Company to
replace the revenue generated from these contracts would have a material adverse
effect on the Company's financial condition and results of operations.
The Company's success is also dependent upon its ability to obtain new
clients, which the Company expects to achieve through the marketing efforts of
its management team and through the acquisition of contracts from other entities
currently providing services similar to those marketed by the Company. There
can be no assurance that the Company will be able to obtain new contracts or
that such contracts, if obtained, will be on terms favorable to the Company.
DEPENDENCE ON ACQUISITIONS
The Company's success is largely dependent upon its ability to identify and
consummate acquisitions of contracts. The Company has completed several
acquisitions of contracts since its inception. There can be no assurance that
the Company will be able to identify additional acquisitions or that such
acquisitions, if identified, will be consummated on terms favorable to the
Company and in a timely manner to the extent necessary to fulfill its expansion
plans, if at all. Even if such acquisitions are completed, there can be no
assurance that the contracts are freely assignable to the Company or, if the
contracts are assignable to the Company only upon consent of the client, whether
such consent will be obtained. A substantial portion of the Company's capital
resources could be used for these acquisitions. Consequently, the Company may
require additional debt or equity financing for future acquisitions, which
additional financing may not be available on terms favorable to the Company, if
at all. The failure to complete acquisitions and continue its expansion could
have a material adverse effect on the Company's financial performance. As the
Company proceeds with its acquisition strategy, the Company will continue to
encounter the risks associated with the integration of acquisitions described
below.
INTEGRATION OF ACQUISITIONS
An important part of the Company's planned expansion is to integrate its
acquisitions into the Company's operations. There can be no assurance that the
Company will be able to integrate such acquisitions in a timely manner without
substantial costs, delays or other problems. Once integrated, these
acquisitions may not achieve sales, profitability and productivity commensurate
with the Company's existing operations or the historical performance of the
acquisition target. In addition, acquisitions involve a number of special
risks, including adverse short-term effects on the Company's reported operating
results, the diversion of management's attention, the dependence on retention,
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hiring and training of key personnel and risks associated with unanticipated
problems or legal liabilities, some or all of which could have a material
adverse effect on the Company's operations and financial performance.
UNCERTAINTY OF FUTURE ACQUISITIONS; BROAD DISCRETION IN USE OF PROCEEDS FROM
INITIAL PUBLIC OFFERING
The Company has allocated substantially all of the net proceeds from the
IPO for the purpose of unspecified acquisitions of contracts and businesses,
which acquisitions are expected to be completed using a combination of cash and
Common Stock of the Company and may involve the issuance of promissory notes of
the Company. The Company has completed several acquisitions of contacts since
its inception. There can be no assurance that any such transactions will
occur or, if consummated, that such transactions will prove to be beneficial
to the Company. Furthermore, under Nevada law, transactions of this nature do
not require stockholder approval except when accomplished through a merger or
consolidation involving the Company. Accordingly, stockholders of the Company
will not have the opportunity to review potential acquisitions and must rely
to a large degree upon the judgments of the management of the Company in the
use of the proceeds from the IPO for acquisitions of businesses and the rights
to revenues under contracts.
HEALTHCARE REFORM; CERTAIN INDUSTRY INITIATIVES
In late 1993, President Clinton submitted to Congress proposed
comprehensive healthcare reform legislation. Several other comprehensive reform
proposals have been and are expected to be introduced in Congress. Healthcare
reform legislation also is pending in several states, and certain states have
adopted healthcare reform legislation. Among the proposals being considered by
Congress are cost controls on healthcare providers, insurance market reform to
increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. Key elements in the President's proposal include
various insurance market reforms, the requirement that businesses provide health
insurance coverage for their full-time and part-time employees, significant
reductions in future Medicare and Medicaid payments to providers, certain
standardized claims processing forms and procedures and stringent government
cost controls that would directly control insurance premiums and may indirectly
affect the fees of healthcare providers. Certain aspects of the President's
proposal, such as improved and standardized claims processing forms and
limitations on fee-for-service health plans, if successfully developed and
adopted, could adversely affect prices paid by Medical Service Providers for the
billing and collection services provided by the Company. Further, the increased
trend toward capitated contracts could have an adverse impact on the demand for
the services marketed by the Company. It is not possible at this time to
predict what, if any, reforms will be adopted by the federal government or
various states, or when such reforms will be adopted and implemented.
Furthermore, to the extent that legislative or market driven healthcare reform
initiatives result in an increase in capitated payment systems, demand for the
Company's billing and collection services may decrease. No assurance can be
given that any such reforms will not have a material adverse effect upon the
Company's net revenues or earnings or upon demand for the Company's services.
Additionally, certain reforms are occurring in the healthcare market which may
continue regardless of whether comprehensive federal
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or state healthcare reform legislation is adopted and implemented. These market
reforms include certain employer initiatives such as creating purchasing
cooperatives and contracting for health care services for employees through
managed care companies (including health maintenance organizations), and certain
provider initiatives such as risk-sharing among healthcare providers and managed
care companies through capitated contracts and integration among hospitals and
physicians into comprehensive delivery systems. Consolidation of management and
billing services by integrated delivery systems may result in a decrease in
demand for the Company's billing and collection services for particular
physician practices.
EXISTING GOVERNMENT REGULATION
Substantially all of the Company's revenue is derived from fees which are
based upon a percentage of its clients' net collections of healthcare
receivables. Existing government regulation can adversely affect the Company's
business through, among other things, its potential to reduce the amount of
reimbursement received by the Company's clients for healthcare services. During
the past decade, federal and state governments have implemented legislation
designed to stimulate a reduction in the increase in healthcare costs and it is
anticipated that such legislative initiatives will continue. Additionally, the
requirements and procedures for Medicaid reimbursement, from which the Company
anticipates it will derive a significant portion of its revenues, as implemented
by state Medicaid program administrators, differ from state to state. The
Company may also be subject to applicable federal and state billing and credit
collection agency laws and regulations. Specifically, the laws and regulations
pertaining to Medicare and Medicaid reimbursement impose substantial criminal
and civil penalties for the submission of inaccurate or false claims for
billing, for which the Company could be held liable. There can be no assurance
that current or future government regulations or healthcare reform measures will
not have a material adverse effect upon the Company's business.
DEPENDENCE UPON REIMBURSEMENT BY THIRD PARTY PAYORS
The Company's net revenues are substantially dependent upon commercial
insurance and government reimbursement programs, including Medicare and
Medicaid, by which its clients are reimbursed. Both commercial insurers and
governmental payors have undertaken cost containment measures designed to limit
payments made to healthcare providers. There can be no assurance that continued
cost containment efforts by commercial and government insurers will not have a
material adverse effect on the Company. The federal government recently
implemented, through the Medicare program, a resource-based relative value scale
("RBRVS") payment methodology. The implementation of RBRVS reduced
reimbursement rates for procedures performed by the Company's clients.
Policymakers have advocated that an RBRVS type of reimbursement system be
imposed on private-sector third-party payors. Implementation of such a program
would reduce reimbursements by private third-party payors, and would adversely
affect the Company's net revenues and operating margins.
DEPENDENCE ON PERSONNEL
The Company's success depends, to a significant extent, upon its limited
number of personnel and consultants, particularly those engaged in contract
acquisition and marketing functions. The loss of the services of the Company's
Chairman, President and Chief Executive Officer or Chief Financial
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Officer could have a material adverse effect on the business of the Company.
The Company has entered into an employment agreement with its President and
Chief Executive Officer. The Company does not presently have key man insurance.
COMPETITION
The industry in which the Company operates is highly competitive.
Principal competitors include small physician billing, collection and accounts
receivable management service companies, large physician groups that provide
their own reimbursement management functions, and regional and national
companies that provide billing, collection and accounts receivable management
services to Medical Service Providers, such as Medaphis Corporation, a public
company. In addition, the Company competes with hospitals that offer billing,
collection and accounts receivable management services to their affiliated
physicians. To a lesser extent, the Company also competes with producers of
turnkey physician reimbursement systems, which generally are purchased by
physician practice groups that manage their own reimbursement functions and have
the resources necessary to purchase, maintain and operate such systems.
NEED FOR ADDITIONAL FUNDS
The Company anticipates that its existing capital resources including the
net proceeds from the IPO, will be adequate to satisfy its capital
requirements for at least the next twelve months. The Company's future
capital requirements will depend on many factors, including cash flow from
operations, continued progress in its acquisition program, competing market
developments, and the Company's ability to market its services successfully.
To the extent that the funds generated by the IPO are insufficient to fund
the Company's activities, it will be necessary to raise additional funds
through equity or debt financings. There can be no assurance that such
financings will be available at all or, if so, on terms acceptable to the
Company. Further, any equity financings could result in dilution to the
Company's then existing stockholders. If adequate funds are not available,
the Company would be required to curtail its activities significantly.
TECHNOLOGICAL OBSOLESCENCE
The technology on which the Company's subcontractor relies is constantly
undergoing development and change and, accordingly, it is likely that more
advanced methods and equipment will continue to develop in the future. New
technologies may be developed, or existing technologies refined, which could
render the methods and equipment utilized by the Company's subcontractors
technologically obsolete. Due to cost factors, competitive considerations or
capital and other constraints, there can be no assurance that the Company's
subcontractors will be able to acquire or have access to any new or improved
methods and equipment that may be required in order to offer the most advanced
services to the Company's clients.
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved 1,320,833 shares of Common Stock for issuance to
key employees, officers, directors and consultants pursuant to stock options.
In addition to such shares, the Chairman and principal stockholder of the
Company and the President and Chief Executive Officer of the Company hold
warrants to purchase
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an aggregate of 3,000,000 shares of Common Stock. Further, it is anticipated
that the Company will also issue shares of Common Stock for acquisitions.
The Company also issued to the representative of the underwriters for the IPO
(the "Representative"), in connection with the IPO, warrants to purchase
200,000 shares of Common Stock. The existence of these warrants and any other
options or warrants issued or to be issued by the Company could materially
adversely affect the Company's ability to obtain equity financing in the
future. Further, the holders of such warrants and options may exercise them
at a time when the Company otherwise would be able to obtain additional
equity capital from other sources on terms more favorable to the Company.
See "DESCRIPTION OF SECURITIES."
NO ANTICIPATED DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since
inception and intends to continue its policy of retaining any earnings to
finance the development and expansion of its business. Accordingly, the Company
does not expect to pay any dividends in the foreseeable future. Any future
payment of dividends will depend upon the financial condition, capital
requirements and earnings of the Company, as well as upon other factors that the
Board of Directors of the Company may deem relevant.
ANTI-TAKEOVER PROVISIONS
The Restated Articles of Incorporation and Bylaws, as amended, of the
Company contain several provisions that may be deemed "anti-takeover" in
nature, including the Board's ability to issue shares of Common Stock and
Preferred Stock without further approval of stockholders (unless otherwise
required by statute) and to consider a variety of factors in determining what
action to take with respect to a takeover offer. In addition, the Restated
Articles of Incorporation and Bylaws, as amended, do not provide for
cumulative voting rights in the election of directors or preemptive rights to
subscribe for additional shares of Common Stock on a pro rata basis, the
absence of which could have an anti-takeover effect. See "DESCRIPTION OF
SECURITIES."
POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Preferred Stock
may be issued in one or more series, the terms of which may be determined at
the time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions. No shares of
Preferred Stock are currently outstanding and the Company has no present
plans for the issuance thereof. The prior consent of the Representative is
required for any issuance of Preferred Stock by the Company for a period of
36 months after the date of the IPO. The issuance of any Preferred Stock
could affect the rights of the holders of Common Stock and reduce the value
of the Common Stock and make it less likely that holders of Common Stock
would receive a premium for the sale of their shares of Common Stock. In
particular, specific rights granted to future holders of Preferred Stock
could be issued to restrict the Company's ability to merge with or sell its
assets to a third party, thereby preserving control of the Company by present
owners. See "DESCRIPTION OF SECURITIES -- Preferred Stock."
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CONTROL OF THE COMPANY BY DIRECTORS AND OFFICERS
The Company's directors and officers beneficially own 60.0% of the
outstanding shares of Common Stock, excluding options and warrants to
purchase shares of Common Stock. Since there are no cumulative voting rights
provided for in the Company's Restated Articles of Incorporation, these
persons are likely to be in a position effectively to control the election of
the members of the Board of Directors and thus control most corporate
actions, as well as any actions requiring the approval of stockholders, such
as mergers and acquisitions.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the shares offered hereby, as of the date of this Prospectus
361,547 of Common Stock outstanding are "restricted securities" within the
meaning of Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act"). The Company believes that it is likely that these
holders of restricted securities will sell some or all of these shares as soon
as they are permitted to do so. Ordinarily, under Rule 144, a person holding
restricted securities for a period of two years may, every three months, sell in
ordinary brokerage transactions or in transactions directly with a market maker,
an amount of shares equal to the greater of one percent of the Company's then
outstanding Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. There can be no assurance that future sales
of such shares and sales of shares purchased by holders of options and warrants
will not have an adverse effect on the market price of the Common Stock. See
"DESCRIPTION OF SECURITIES."
POSSIBLE VOLATILITY OF SHARE PRICE
The Common Stock is traded on The Nasdaq National Market under the symbol
"NMFS" and the Representative and other market makers have made a market in the
Company's securities. The Representative and the other market makers are not
required to make such a market and there can be no assurance that an active
public trading market for such securities will be sustained. Accordingly,
purchasers of the Common Stock may experience substantial difficulty selling
such securities. If the Representative and the other market makers cease making
a market, the market and market prices for such securities may be adversely
affected and holders thereof may be unable to sell such securities.
USE OF PROCEEDS
The net proceeds from the sale of shares of Common Stock will be
received by the Selling Stockholders or their pledgees, donees, transferees or
other successors in interest. The Company will not receive any proceeds from
any sale of shares of Common Stock by the Selling Stockholders.
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SELLING STOCKHOLDERS
The shares of Common Stock covered hereby may be offered for sale
from time to time by the Selling Stockholders, or by their pledgees, donees,
transferees or other successors in interest. All of the shares offered
pursuant to this Prospectus are subject to a lock-up agreement, pursuant to
which the Selling Stockholders have agreed that, without the prior written
consent of the underwriter, they would not sell, offer to sell, contract to
sell or otherwise dispose of or transfer any shares of Common Stock owned by
such Selling Stockholder until August 3, 1997. The underwriter has consented
to the filing of the registration statement of which this Prospectus forms a
part and has orally consented to release the Selling Stockholders from such
lock-up agreement with respect to 50% of the shares of Common Stock, or
options or warrants to purchase shares of Common Stock, owned by such Selling
Stockholders.
The table below sets forth certain information regarding ownership of
the Company's Common Stock by the Selling Stockholders as of the date hereof,
the number of shares to be sold by them under this Prospectus and the percentage
ownership before and after the offering.
Percentage of Total
Name of Number of Shares ----------------------
Beneficial Owner Offered Before Offering After Offering(1)
- ----------------- -------------- --------------- ---------------
Douglas R. Colkitt, M.D. 3,670,833(2) 49.1% 0.0%
Alan H.L. Carr-Locke 750,000(3) 10.0 0.0
Robert W. Horner, Jr. 13,334(4) * 0.0
Jude J. Spak 13,000 * 0.0
Richard L. Flickenger 31,000 * 0.0
Donald Conover 20,000 * 0.0
James Matthews 7,500 * 0.0
William Lupinacci 5,000 * 0.0
GFL Advantage Fund Limited 600,000(5) 8.0% 0.0%
* Less than 1.0%.
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(1) Assumes the sale by the Selling Stockholders or by their pledgees, donees,
transferees or other successors in interest of all of the shares of Common
Stock offered hereby. Excludes options and warrants to purchase shares
of Common Stock.
(2) Excludes currently exercisable options to purchase 50,000 shares of
Common Stock; excludes warrants to purchase 2,250,000 shares and options
to purchase 25,000 shares. Dr. Colkitt has executed an exchangeable note
(the "Note") in the principal amount of $3,000,000 bearing interest at
the rate of 7% per annum to be repaid to GFL Advantage Fund Limited
("Advantage") on May 24, 1998. Interest on the Note may be paid in whole
or in part, at the option of Dr. Colkitt, in shares of the Company's
Common Stock owned by Dr. Colkitt. Dr. Colkitt has pledged 600,000
shares of the Company's Common Stock owned by Dr. Colkitt to Advantage to
secure his obligations relating to the Note. Advantage has the right to
exchange the unpaid principal amount of the Note for shares of the
Company's Common Stock owned by Dr. Colkitt in amounts determined in
accordance with a formula set forth in the Note. However, the Note
provides that Advantage may not exchange the Note at any time to acquire
a number of shares of Common Stock in excess of that number which would
result in beneficial ownership of more than 4.9% of the Company's
outstanding Common Stock at any time. If the Note were exchanged on
August 30, 1996, Advantage would be entitled to acquire approximately
364,000 shares, or 4.9%, of the Common Stock of the Company outstanding
as of such date.
(3) Excludes currently exercisable options to purchase 570,833 shares of Common
Stock; excludes warrants to purchase 750,000 shares.
(4) Excludes currently exercisable options to purchase 10,000 shares of
Common Stock.
(5) The amount shown is also included in the shares of Common Stock shown as
beneficially owned by Dr. Colkitt. The shares of Common Stock which may be
offered by Advantage may be acquired upon exchange of principal on the Note
or in payment of interest on the Note or may be offered in connection with
execution on the pledge of shares of Common Stock to Advantage. See Note
(2) above.
RELATIONSHIP BETWEEN THE COMPANY AND THE SELLING STOCKHOLDERS
Upon the sale of all of the shares of Common Stock covered by this
Prospectus, Dr. Colkitt would not own any shares of Common Stock but would
continue to have warrants to purchase 2,250,000 shares and options to purchase
25,000 shares. Dr. Colkitt would continue to be in a position to significantly
effect the operations of the Company, including the election of the Company's
Board of Directors. In addition, the Company has had and would continue to have
certain business relationships with Dr. Colkitt and entities affiliated with Dr.
Colkitt. In addition, certain of the Selling Stockholders are directors or
officers of the Company.
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DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.01 per share. Holders of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted in the election of
Directors can elect all of the Directors. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors of the Company out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company after
payment of all debts and liabilities. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights.
As of the date of this Prospectus, there are 7,478,214 shares of Common
Stock outstanding held by approximately 1,200 stockholders of record.
PREFERRED STOCK
The Board of Directors has the authority, without further action by
stockholders, to issue from time to time up to 1,000,000 shares of Preferred
Stock, par value $.01 per share, in one or more series, and to fix the
designations, preferences, powers, and relative, participating, optional or
special rights and the qualifications, limitations or restrictions thereof,
including dividend rights, conversion rights, voting, rights and terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. Preferred Stock could thus be issued quickly
with terms calculated to delay or prevent a change in control of the Company
without any further action by the stockholders. Under certain circumstances,
this could have the effect of decreasing the market price of the Common Stock.
No shares of Preferred Stock have been issued and the Company has no present
plan to issue any such shares, nor is management aware of any threatened
transaction to obtain control of the Company.
CERTAIN MARKET INFORMATION
The Company's Common Stock is listed on The Nasdaq National Market under
the symbol "NMFS."
There can be no assurance that a public trading market will be maintained.
Although they have no legal obligation to do so, the Representative and other
market makers have become market-makers and otherwise effect transactions in the
Company's securities. The Representative and the other market makers, if they
participates in the market, may be a dominating influence in any market for the
Company's securities. The price and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Representative's and the
other market Maker's participation in the market. Such activities, may be
discontinued at any time or from time to time.
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"ANTI-TAKEOVER" PROVISIONS
Although the Board of Directors is not presently aware of any takeover
attempts, the Restated Articles of Incorporation and Bylaws, as amended, of
the Company and Nevada law contain certain provisions which may be deemed to
be "anti-takeover" in nature in that such provisions may deter, discourage or
make more difficult the assumption of control of the Company by another
corporation or person through a tender offer, merger, proxy contest or
similar transaction or series of transactions. These provisions were adopted
unanimously by the Board of Directors and approved by the stockholders.
AUTHORIZED BUT UNISSUED SHARES: The authorized capital stock of the
Company is 20,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. These shares of capital stock were authorized for the purpose of
providing the Board of Directors of the Company with as much flexibility as
possible to issue additional shares for proper corporate purposes, including
equity financing, acquisitions, stock dividends, stock splits, employee stock
option plans and other similar purposes which could include public offerings or
private placements. Except for the Representative's Warrants, the Chairman's
Warrants, and certain stock options the Company has no agreements, commitments,
or plans at this time for the sale or issuance of the additional shares of
Common Stock or of any Preferred Stock. However, shares of Preferred Stock
could be issued quickly with terms calculated to delay or prevent a change in
control of the Company without any further action by the stockholders. Under
certain circumstances this could have the effect of decreasing the market price
of the Common Stock. No shares of Preferred Stock have been issued and the
Company has no present plan to issue any such shares, nor is management aware of
any threatened transaction to obtain control of the Company. See "Preferred
Stock."
Stockholders of the Company do not have preemptive rights with respect to
the purchase of these shares. Therefore, such issuance could result in a
dilution of voting rights and book value per share of the Common Stock of the
Company.
NO CUMULATIVE VOTING: Neither the Company's Restated Articles of
Incorporation nor its Bylaws, as amended, contain provisions for cumulative
voting. Cumulative voting entitles each stockholder to as many votes as
equal the number of shares owned by him multiplied by the number of directors
to be elected. With cumulative voting, a stockholder may cast all these
votes for one candidate or distribute them among any two or more candidates.
Thus, cumulative voting for the election of directors allows a stockholder or
group of stockholders who hold less than 50% of the outstanding shares voting
to elect one or more members of a board of directors. Without cumulative
voting for the election of directors, the vote of holders of a plurality of
the shares voting is required to elect any member of a board of directors and
would be sufficient to elect all the members of the board being elected.
Accordingly, the Company's present stockholders would be able to elect all of
the members of the Board of Directors. The Company's founders did not
provide for cumulative voting in the Articles of Incorporation of the Company
because of a belief that each director should represent and act in the
interest of all stockholders and not any special group of stockholders.
The Company's Restated Articles of Incorporation and Bylaws, as amended,
also contain provisions providing for the limitation of liability of
directors and for the indemnification of directors and officers to the
fullest extent permitted under the Nevada General Corporation Law.
15
<PAGE>
CLASSIFIED BOARD OF DIRECTORS: The Company's Board of Directors is divided
into two classes, with the members of each class serving for staggered two-year
terms. Accordingly, it may be more difficult and take a longer amount of time
for stockholders to remove the entire Board of Directors.
AMENDMENT OF CERTIFICATE OF INCORPORATION: The Nevada General Corporation
Law provides that the articles of incorporation of a Nevada corporation may be
amended by the affirmative vote of a majority of the outstanding voting stock of
such corporation, except as otherwise provided by such corporation's Articles of
Incorporation.
GENERAL EFFECT OF ANTI-TAKEOVER PROVISIONS: The overall effect of these
provisions may be to deter a future tender offer or other takeover attempt that
some stockholders might view to be in their best interests as the offer might
include a premium over the market price of the Company's Common Stock at that
time. In addition, these provisions may have the effect of assisting the
Company's current management in retaining its position and place it in a better
position to resist changes which some stockholders may want to make if
dissatisfied with the conduct of the Company's business.
TRANSFER AGENT AND REGISTRAR
The Company has appointed American Stock Transfer Company as the transfer
agent and registrar for its Common Stock.
16
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PLAN OF DISTRIBUTION
Any distribution of the shares of Common Stock by the Selling
Stockholders, or by pledgee, donee, transferee or other successors in interest,
may be effected from time to time in one or more of the following transactions:
(a) to underwriters who will acquire shares of Common Stock for their own
account and resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale (any public offering price and any discount or concessions
allowed or reallowed or paid to dealers may be changed from time to time); (b)
through brokers, acting as principal or agent, in transactions (which may
involve block transactions) on the Nasdaq National Market, or on one or more
exchanges on which the Common Stock is then listed, in special offerings,
exchange distributions pursuant to the rules of the applicable exchanges or in
the over-the-counter market, or otherwise, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices; or (c) directly or through brokers or agents in
private sales at negotiated prices, or by any other legally available means.
The Selling Stockholders and such underwriters, brokers, dealers or
agents, upon effecting a sale of shares of Common Stock, may be considered
"underwriters" as that term is defined by the Securities Act.
Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating in
such transaction may receive brokerage or agent's commissions or fees.
At the time a particular offering of shares of Common Stock is made,
to the extent required, a Prospectus Supplement will be distributed which will
set forth the amount of shares of Common Stock being offered and the terms of
the offering, including the purchase price or public offering price, the name or
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for shares of Common Stock purchased from the Selling Stockholders,
any discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the shares of Common Stock will be sold in such jurisdictions, if
required, only through registered or licensed brokers or dealers. In addition,
in certain states the shares of Common Stock may not be sold unless the shares
of Common Stock have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied.
The Company has agreed that all costs, expenses and fees in connection
with the registration of the shares of Common Stock will be borne by the
Company. Commissions and discounts, if any, attributable to the sale of the
shares of Common Stock will be borne by the Selling Stockholders. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares of Common Stock
against certain liabilities, including liabilities arising under the Securities
Act.
17
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon
for the Company by Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania.
EXPERTS
The balance sheets as of December 31, 1994 and 1995 and the
statements of income, changes in stockholders' equity and cash flows for the
year ended December 31, 1995 and the period August 3, 1994 (date of
inception) to December 31, 1994, included in the Company's annual report on
Form 10-KSB and incorporated by reference in this prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company,
the Selling Stockholder or any underwriter. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such an offer in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since such
date.
TABLE OF CONTENTS
Page
----
Available Information. . . . . . . . . . . . . . . . . . . . . . . .1
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Securities. . . . . . . . . . . . . . . . . . . . . 14
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 17
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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NATIONAL MEDICAL FINANCIAL
SERVICES CORPORATION
4,520,667 Shares
Common Stock
P R O S P E C T U S
__________________
September 9, 1996
