<PAGE>
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
National Medical Financial Services Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee:
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing party:
4) Date Filed:
<PAGE>
Preliminary Copy
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
1315 Greg Street, Suite 103
Sparks, Nevada 89431
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 20, 1998
------------------------------
The 1998 Annual Meeting of Stockholders (the "Meeting") of National
Medical Financial Services Corporation, a Nevada corporation (the "Company"),
will be held on Monday, July 20, 1998, at 10:30 a.m. local time, at 2171 Sandy
Drive, State College, Pennsylvania 16803 for the following purposes:
1. To elect one Class II Director to hold office until the Annual
Meeting of Stockholders in 2000 and until his respective successor is duly
elected and qualified;
2. To approve and authorize the issuance of additional shares of the
Company's Common Stock related to certain business acquisitions; and
3. To transact such other business as may properly come before the
Meeting and any and all adjournments or postponements thereof.
The Board of Directors has fixed the close of business on Thursday,
June 11, 1998 as the record date for determining the stockholders entitled to
notice of, and to vote at, the Meeting. A complete list of stockholders entitled
to vote at the Meeting will be available for examination during normal business
hours by any stockholder of the Company, for any purpose germane to the Meeting,
for a period of ten (10) days prior to the Meeting, at the Company's offices
located at the address set forth above. Only stockholders of record at that time
are entitled to notice of and to vote at the Meeting and any and all
adjournments or postponements thereof.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1997, a Proxy Statement and a proxy accompany this
notice. These materials are first being sent to stockholders on or about June
18, 1998.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the accompanying Proxy Statement for further
information with respect to the business to be transacted at the Meeting.
The Board of Directors urges you to date, sign and return the enclosed
proxy as soon as possible. You are invited to attend the Meeting in person.
Stockholders will be admitted to the Meeting only upon presentation of proof of
stock ownership, which may include a current brokerage statement or a letter
from their bank or broker. The return of the enclosed proxy will not affect your
right to vote in person if you do attend the Meeting.
By Order of the Board of Directors,
ROBERT W. HORNER, JR.
Secretary
Sparks, Nevada
June 18, 1998
<PAGE>
Preliminary Copy
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
1315 Greg Street, Suite 103
Sparks, Nevada 89431
-------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
-------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of National Medical Financial Services
Corporation, a Nevada corporation (the "Company"), for use at the Company's 1998
Annual Meeting of Stockholders (together with any and all adjournments or
postponements thereof, the "Meeting") which is scheduled to be held on Monday,
July 20, 1998, at 10:30 a.m. local time, at 2171 Sandy Drive, State College,
Pennsylvania 16803, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. This Proxy Statement, the foregoing notice, the
Annual Report to Stockholders for the fiscal year ended December 31, 1997 and
the enclosed proxy are first being sent to stockholders on or about June 18,
1998. The Annual Report to Stockholders is not to be considered part of the
Company's proxy solicitation materials.
At the Meeting, stockholders will be asked to: (i) elect one Class II
Director of the Company to serve until the Annual Meeting of Stockholders in
2000 and until his successor is duly elected and qualified; (ii) approve and
authorize the issuance of additional shares of the Company's Common Stock
related to certain business acquisitions, as more fully described in this Proxy
Statement; and (iii) transact such other business as may properly come before
the Meeting. The Company's Board of Directors recommends a vote "FOR" the
election of the nominee for director of the Company listed below and a vote
"FOR" the approval and authorization of issuance of additional shares of the
Company's Common Stock related to certain business acquisitions.
The Board of Directors knows of no other matters which are likely to be
brought before the Meeting. If any other matters properly come before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters.
Any proxy may be revoked at any time prior to its exercise by notifying
the Secretary of the Company in writing, by delivering a duly executed proxy
bearing a later date, or by attending the Meeting and voting in person.
1
<PAGE>
VOTING SECURITIES, VOTING RIGHTS AND SECURITY OWNERSHIP
Voting Securities and Voting Rights
The presence, in person or by proxy, of the holders of a majority of
the outstanding Common Stock is necessary to constitute a quorum at the Meeting.
Only stockholders of record at the close of business on June 11, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting. As of
the Record Date, there were 1,703,336 shares of Common Stock outstanding and
entitled to vote. Holders of Common Stock as of the Record Date are entitled to
one vote for each share held. Holders of Common Stock do not have cumulative
voting rights.
All shares of Common Stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted in favor of election of the nominee for
director of the Company listed below and in favor of the approval and
authorization of issuance of additional shares of the Company's Common Stock
related to certain business acquisitions and in the discretion of the persons
named in the enclosed proxy with respect to any other matter that may properly
come before the Meeting. Abstentions will be counted as shares present for
quorum purposes. Broker non-votes will not be counted for determining a quorum
or in determining whether a matter has been approved. Any stockholder executing
a proxy has the power to revoke such proxy at any time prior to its exercise. A
proxy may be revoked by (i) filing with the Company a written revocation of the
proxy, (ii) appearing at the Meeting and casting a vote contrary to that
indicated on the proxy, or (iii) submitting a duly executed proxy bearing a
later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, officers, directors and regular
employees of the Company may solicit proxies by written communication, by
telephone, telegraph or personal call. Such persons will receive no special
compensation for any solicitation activities. The Company will reimburse banks,
brokers and other persons holding Common Stock in their names, or those of their
nominees, for their expenses in forwarding proxy solicitation materials to the
beneficial owners of Common Stock.
Security Ownership of Management and Principal Stockholders
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of May 31, 1998 by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each executive officer named in the table under the caption "Executive
Compensation" and (iv) all directors and executive officers as a group.
2
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of Shares
Beneficial Owner (1) Beneficially Owned (2) Percent
- -------------------- ---------------------- -------
<S> <C> <C>
Douglas R. Colkitt, M.D. 965,629 (3) 44.5%
Eric D. Robinson 10,000 (4) *
Robert W. Horner, Jr. 5,012 (5) *
Jude J. Spak 24,400 (6) 1.4
Richard L. Flickinger 31,800 (6) 1.9
Robert M. Colkitt 20,000 (6) 1.2
Morris Maybruch
1 Danielle Court
Suffern, New York 10901 163,405 9.6
Alan H.L. Carr-Locke
7-57 Wells Avenue
Newton, Massachusetts 02159 363,989 (7) 18.5
All directors and executive officers
as a group (6 persons) 1,056,931 47.1%
</TABLE>
- --------------------
* Less than 1.0%
(1) Except as otherwise set forth, the address of all such beneficial
owners is in care of the Company at 1315 Greg Street, Suite 103,
Sparks, Nevada 89431.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
beneficial ownership of such individual or group, but are not deemed to
be outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.
(3) Includes 40,000 shares currently held in escrow and are subject to
release in 1998. Includes currently exercisable options to purchase
15,000 shares at $1.63 per share. Includes currently exercisable
Chairman's Warrants to purchase 450,000 shares, including 150,000
shares at $75.00 per share expiring August 2, 1998, 150,000 shares of
Common Stock at $100.00 per share expiring on August 2, 2000 and
150,000 shares of Common Stock at $125.00 per share expiring on August
2, 2002.
(4) Includes currently exercisable options to purchase 10,000 shares at
$1.63 per share.
(5) Includes currently exercisable options to purchase 4,500 shares at
$1.63 per share.
(6) Includes currently exercisable options to purchase 20,000 shares at
$1.63 per share.
3
<PAGE>
(7) Based upon the latest information available to the Company. Includes
currently exercisable incentive stock options to purchase 4,638 shares
at $47.44 per share and non-qualified stock options to purchase 5,363
shares at $43.13 per share. Includes currently exercisable options to
purchase 104,167 shares of Common Stock at an exercise price of $22.50
per share. Includes currently exercisable Chairman's Warrants to
purchase 150,000 shares, including 50,000 shares at $75.00 per share
expiring August 2, 1998, 50,000 shares of Common Stock at $100.00 per
share expiring on August 2, 2000 and 50,000 shares of Common Stock at
$125.00 per share expiring on August 2, 2002.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, together with
their ages and business backgrounds, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------ ----- ----------
<S> <C> <C>
Douglas R. Colkitt, M.D. 44 Chairman of the Board of Directors and
Chief Executive Officer
Eric D. Robinson 39 President
Robert W. Horner, Jr. 44 Vice President, Chief Financial Officer,
Treasurer and Secretary
Jude J. Spak (1) (2) 50 Director
Richard L. Flickinger (1) (2) 64 Director
Robert M. Colkitt (1) (2) 69 Director
</TABLE>
- --------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
The following sets forth certain information with respect to the members of the
Board of Directors and executive officers of the Company.
Douglas R. Colkitt, M.D. has been the Chairman of the Board of Directors and
Chief Executive Officer of the Company since March 14, 1997. Prior thereto, Dr.
Colkitt served as the Chairman of the Board of Directors of the Company since
its inception. Dr. Colkitt is also the Chairman, Chief Executive Officer and
principal stockholder of EquiMed, Inc., a publicly traded company focusing
primarily on physician practice management, information technology and
outsourcing services primarily to the health care industry. See "CERTAIN
TRANSACTIONS." Dr. Colkitt also owns a number of entities through his venture
capital operations which conduct business in the medical field as well as such
areas as document management, telemarketing, and software development. Dr.
Colkitt is a graduate of Washington and Jefferson College in Washington,
Pennsylvania, where he received his B.A. in Chemistry and Economics in 1975. Dr.
Colkitt received his M.D.
4
<PAGE>
from the University of Pennsylvania and his M.B.A.
from the Wharton School of the University of Pennsylvania, both in 1979.
Eric D. Robinson, has been the Company's President since November 1997. Prior
thereto, Mr. Robinson served as President and Chief Executive Officer of Astute
Systems, Inc. from July 1994 until November 1997. From 1989 until 1994, Mr.
Robinson held various positions with Quixote Corporation, including Vice
President/General Manager . Mr. Robinson received his B.S. in Forensic Science
from the California State University Sacramento in 1983.
Robert W. Horner, Jr., C.P.A., has been the Company's Chief Financial Officer,
Secretary and Treasurer since its inception and, in addition, became Vice
President of the Company in February 1997. Prior thereto, Mr. Horner served as
Director, Corporate Finance for Oncology Services Corporation from June 1993
until December 1994. From 1988 until 1993, Mr. Horner held various positions
with Unico Corporation, including Vice President, Finance and Controller. Mr.
Horner received his B.S. in Accounting from the Pennsylvania State University in
1975.
Jude J. Spak, C.P.A., has been a director of the Company since its inception.
Mr. Spak is currently employed by Colkitt Associates. Mr. Spak served as Chief
Financial Officer of Oncology Services Corporation from August 1990 until
December 1995. Prior thereto, he was the Assistant Vice President of Federated
Research Corporation since 1987, where he conducted investment research and
fixed income mutual fund portfolio management. From 1980 to 1987, Mr. Spak was
Assistant Treasurer of Joy Manufacturing Company, a producer of capital goods,
and from 1977 to 1980, Mr. Spak was Director of Finance of Allegheny General
Hospital. From 1970 to 1977, Mr. Spak was an audit manager with Price
Waterhouse. He received his M.B.A. from the University of Pittsburgh and is a
Chartered Financial Analyst.
Richard L. Flickinger has been a director of the Company since its inception.
Since 1957, Mr. Flickinger has been the owner and operator of Flickinger's
Nursery, a tree nursery company located in Sycamore, Pennsylvania.
Robert M. Colkitt has been a director of the Company since December 1995. Prior
to his retirement in December 1995, Mr. Colkitt operated a multi-line insurance
agency for 38 years. Mr. Colkitt is a chartered life underwriter. He is a
principal in Home Gas and Oil Co., Inc., a wholesale producer of natural gas and
oil. Mr. Colkitt is the father of Douglas R. Colkitt, M.D., the Company's
Chairman and Chief Executive Officer.
Classes of Directors
The Board of Directors currently has four members and is divided into
two classes. Dr. Colkitt, Mr. Flickinger and Mr. Colkitt are Class I Directors
and will serve until the annual meeting of stockholders in 1999 and thereafter
for two years or until their successors has been elected and qualified. Mr. Spak
is a Class II Director and, if elected, will serve until the annual meeting of
stockholders in 2000 and thereafter for a term of two years or until his
successor has been elected and qualified.
Meetings and Committees of the Board of Directors
The Company has an Audit Committee and a Compensation Committee, but
does not have a Nominating Committee.
5
<PAGE>
The Audit Committee consists of Messrs. Spak, Flickinger and Colkitt.
The functions of the Audit Committee generally include reviewing with the
Company's independent auditors the scope and results of their engagement and
reviewing the adequacy of the Company's systems of internal accounting controls.
The Audit Committee held one meeting and acted by written consent one time in
1997.
The Compensation Committee consists of Messrs. Spak, Flickinger, and
Colkitt. The functions of the Compensation Committee are to review and evaluate
the compensation of the Company's executive officers, administer the Company's
Stock Option Plan and establish guidelines for compensation of other personnel.
The Compensation Committee held one meeting and acted by written consent one
time in 1997.
The Board of Directors held two meetings and acted by written consent
four times in 1997. Each director attended at least 75% of the aggregate number
of meetings of the Board of Directors and committees on which he served while a
member of the board.
Compensation of Directors
No cash compensation is currently paid by the Company to its outside
directors, but such directors are eligible to participate in the Company's Stock
Option Plan for Non-Employee Directors. The directors are reimbursed for their
expenses of attending meetings of the Board of Directors and committees.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid by the Company for the fiscal year ended December 31, 1997 to
the Company's former President and Chief Executive Officer and other executive
officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
Securities
Name & Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($) (1)
-------- ---- ---------- --------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Douglas R. Colkitt, M.D., 1997 $ -- -- -- $ --
Chairman and Chief
Executive Officer (1)
Alan H.L. Carr-Locke, 1997 $ 18,750 -- -- $1,500
former President and
Chief Executive
Officer (2) 1996 $150,000 -- -- $9,000
</TABLE>
(1) Dr. Colkitt has been the Company's Chairman since its inception. On
February 1, 1997, he assumed the additional responsibilities and titles
of President and Chief Executive Officer. On November 17, 1997, the
Company hired a new President and Dr. Colkitt resigned as President. He
continues to serve
6
<PAGE>
as the Company' Chairman and Chief Executive Officer. Since its
inception, Dr. Colkitt has not received a salary for his services from
the Company.
(2) Mr. Carr-Locke commenced employment with the Company on June 1, 1995
at an annual salary of $150,000. Mr. Carr-Locke resigned as an
executive officer effective February 1, 1997.
For the fiscal years ended December 31, 1997 and 1996, only the
Company's former President and Chief Executive Officer received cash
compensation in excess of $100,000. Only the Company's new President will
receive cash compensation in excess of $100,000 during 1998.
The following tables set forth information concerning the number of
stock options granted during 1997 and 1996 and the value of unexercised options
to purchase Common Stock held by the persons listed at December 31, 1997. None
of the named executive officers exercised any stock options during 1997.
Stock Options Granted in 1997
<TABLE>
<CAPTION>
% of Total
# of Securities Options
Underlying Granted to
Options Employees ($/sh) Expiration
Name Granted During 1997 Exercise Price Date
---- ------- ----------- -------------- ----
<S> <C> <C> <C> <C>
Douglas R. Colkitt, M.D. 10,000 (1) 40.8% $27.188 12/19/2005
Eric D. Robinson 10,000 (2) 40.8% $ 6.406 11/17/2002
Robert W. Horner, Jr. 2,500 (3) 18.4% $27.188 06/30/2007
2,000 (1) $27.188 12/19/2005
</TABLE>
(1) These options were originally granted on December 20, 1995, but were
repriced on July 1, 1997 at the current fair market value on that
date. These replacement options vested on July 1, 1997.
(2) These options vested on November 17, 1997.
(3) These options vested on July 1, 1997.
In order to maintain a competitive compensation package to retain the
current officers and directors of the Company, the Company repriced the stock
options previously granted to those individual at an exercise price of $27.19
per share, the fair market value on that July 1, 1997.
7
<PAGE>
Aggregated Stock Option Exercises in 1997
and Stock Option Values at December 31, 1997
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Acquired on Unexercised Options In-the-Money
Name Value at FY-End Options at FY-End ($)
------ Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas R. Colkitt, M.D. -- -- 10,000 -- -- --
Eric D. Robinson -- -- 10,000 -- -- --
Robert W. Horner, Jr. -- -- 2,500 -- -- --
-- -- 2,000 -- -- --
</TABLE>
Employment Agreements
On September 1, 1997, with an effective date of November 1, 1997, the
Company entered into an employment agreement with Eric D. Robinson, pursuant to
which Mr. Robinson will serve as President of the Company for the initial term
through August 31, 2002 unless earlier terminated by Mr. Robinson or the Board
of Directors. The agreement provides for an annual salary of not less than
$150,000 per year plus bonuses, subject to the approval of the Board of
Directors, benefits and reimbursement of expenses. Mr. Robinson was also granted
non-qualified stock options under the Company's Stock Option Plan. He was
granted options to purchase 10,000 shares of the Company's Common Stock at a
fair market value of $6.41 per share under the Company's Stock Option Plan. In
addition, Mr. Robinson is entitled to severance and other payments following the
termination of his employment in certain circumstances, including a breach by
the Company of the agreement or a change in control of the Company. Under such
circumstances, Mr. Robinson is entitled to receive a payment from the Company
equal to six months of his annual salary then in effect for any reason other
than a change in control. If the termination is due to a change in control, Mr.
Robinson is entitled to receive cash severance payments equal to twelve months
of his annual salary then in effect. The agreement requires Mr. Robinson to
devote his best efforts to the interests and business of the Company.
ELECTION OF CLASS II DIRECTORS
Nominees for Election
At the Meeting, the stockholders will elect one Class II Director to
hold office until the Annual Meeting of Stockholders in 2000 and until his
respective successor is duly elected and qualified. The nominee of the Board of
Directors for election as Class II Director is Jude J. Spak. Unless contrary
instructions are given, the shares represented by the enclosed proxy will be
voted "FOR" the election of the nominee. The Board of Directors believes that
the nominee is willing to serve as director. If any nominee at the time of
election is unable or unwilling to serve or is otherwise unavailable for
election and, as a result, another nominee is designated, the person named in
the enclosed proxy or other substitutes will have discretion and authority to
vote for or to refrain from voting for the other nominee in accordance with
their judgment. The nominee who
8
<PAGE>
receives the most votes at the Meeting will be elected director. The nominee for
election as director, together with certain information about him, is as
follows:
<TABLE>
<CAPTION>
Name Age Director Since Term Expires
---- --- -------------- ------------
<S> <C> <C> <C>
Jude J. Spak 50 1994 1998
</TABLE>
Principal Occupation and Directorship Held by the Nominee
Biography of the nominee for election is contained under "EXECUTIVE
OFFICERS AND DIRECTORS" beginning on page 4.
THE BOARD RECOMMENDS A VOTE "FOR" THE ABOVE NOMINEE.
9
<PAGE>
APPROVAL AND AUTHORIZATION TO ISSUE ADDITIONAL SHARES OF THE
COMPANY'S COMMON STOCK RELATED TO CERTAIN BUSINESS
ACQUISITIONS
At the Meeting, the stockholders will vote to approve and authorize the
issuance of additional shares of the Company's Common Stock in connection with
acquisitions of Shoreline Medical Billing Systems, Inc. ("Shoreline") and
Maybruch & Co. ("Maybruch"), which were completed effective January 1, 1998
(collectively, the "Shoreline/Maybruch acquisitions"). Unless contrary
instructions are given, the shares represented by the enclosed proxy will be
voted "FOR" the approval and authorization of the issuance of additional shares
of the Company's Common Stock related to the Shoreline/Maybruch acquisitions as
follows:
Effective January 1, 1998 (the "Acquisition Date"), the Company
acquired the assets and business operations of Shoreline and Maybruch, two
privately owned companies which perform physician billing and collection and
various practice management and accounting services in Suffern, New York. The
total consideration paid was $1,313,700, consisting of $913,700 in cash and
163,405 shares of Common Stock valued at $2.45 per share. The total
consideration paid to the seller in the form of unregistered Common Stock of the
Company was $400,000 and the number of shares which were issued was calculated
by dividing the $400,000 by the average closing price of the Company's Common
Stock for the ten-day trading period immediately preceding and including January
1, 1998 (the "Acquisition Date Price"). In accordance with the purchase
agreements, the Company may be required to issue additional shares of Common
Stock if (1) the average price of the Common Stock for a ten-day trading period
immediately preceding and including January 1, 1999 (the "Average Closing
Price") is less than the Acquisition Date Price and if (2) the operation's net
income during the preceding twelve (12) months is at least $800,000, then
additional shares of the Company's Common Stock are required to be given to the
seller on or before January 15, 1999. The additional number of shares required
to be given as consideration paid to the seller is not determinable at this time
but will be the difference between (a) the number of shares derived by dividing
$400,000 by the Average Closing Price, and (b) the number of shares which were
issued on the acquisition date, i.e. 163,405 shares.
In accordance with Nasdaq Marketplace Rule 4460(i)(1)(d)(ii), the
Company is required to obtain stockholder approval if the Company is required to
issue 20% or more of the Company's Common Stock or voting power as consideration
for the above transaction or for any other purpose. Thus, the Company is seeking
stockholder approval and authorization of the potential issuance of additional
shares, in the event that the number of shares required to be issued relating to
above described transaction exceeds 20% or more of the Company's outstanding
Common Stock or voting power on the Acquisition Date. The total number of shares
outstanding on the Acquisition Date was 1,539,931 and, accordingly, stockholder
approval is required if the Company is required to issued a total of more than
307,986 shares of its Common Stock. This requirement may be triggered if (1) the
Company is required to issue more than 144,581 additional shares under the
calculation defined above, and if (2) the Company's Common Stock's declines such
that the Average Closing Price is $1.30 or lower. It is not currently known what
the price of the Company's Common Stock will be when the Acquisition Closing
Price is calculated and, accordingly, the specific number of additional shares
to be issued pursuant to the Shoreline/Maybruch acquisitions can not be
determined. However, Nasdaq has required that the Company seek shareholder
approval for these additional shares.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL AND AUTHORIZATION OF THE
ISSUANCE OF ADDITIONAL SHARES OF THE COMPANY'S COMMON STOCK RELATED TO
THE SHORELINE/MAYBRUCH ACQUISITIONS.
10
<PAGE>
CERTAIN TRANSACTIONS
Douglas R. Colkitt, M.D., the Chairman, Chief Executive Officer and
principal stockholder of the Company, owns, controls or is affiliated with a
significant portion of the entities that were clients of the Company. The
contracts with these entities expired on September 30, 1997 and were not
renewed. No further revenues and related subcontract expenses (except some
incidental income) related to these contracts were recognized after their
expiration.
The Company has contracted with Russell Data Services, Inc. ("Russell
Data"), an entity which is owned by EquiMed, Inc., a publicly traded company
which is controlled by Dr. Colkitt, to provide for services to be performed for
clients of the Company. The contract is for a term of ten years and expires on
September 20, 2004. The contract provides for the Company to pay Russell Data a
fee of 70 percent of all net revenues to be received by the Company for services
provided by Russell Data. 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. However, Russell Data is obligated to accept from the Company all
contracts which are priced at not less than 80% of the industry norm. The
contract contains an arbitration procedure to be followed in the event a dispute
arises between the parties under the contract. In addition, Russell Data may
contract with other companies owned by, controlled by or affiliated with Dr.
Colkitt for the subcontracting of services that Russell Data may render under
its contracting arrangement with the Company.
The Company may also contract for administrative services, such as
payroll and accounting services, with companies owned by, controlled by or
affiliated with Dr. Colkitt. Prices for any such services have not been
established and the need for such services may vary from time to time. Any such
services shall be performed on terms which may be less favorable than could be
obtained from a third party.
At December 31, 1997, the Company recognized a net write-off of
$129,800 from entities owned by, controlled by or affiliated with Dr. Colkitt.
The remaining receivables balance at December 31, 1997 of $3,008,500 was
outstanding and, in the opinion of management, this amount is collectible.
From January 1, 1998 until March 31, 1998, the Company has received $1,000,000
that has been applied against this balance, leaving an unpaid balance of
$2,008,500.
The Company has entered into a month-to-month operating lease for
office space in Sparks, Nevada from an entity that is owned and controlled by
Dr. Colkitt. The monthly rental of $300 includes utilities. The Company believes
that the terms of this lease are fair and reasonable to the Company.
In January 1995, the Company purchased an unlimited site software
license, which was installed in December 1996. The license with the software
company, Astute Systems, Inc. ("Astute"), which is owned and controlled by Dr.
Colkitt, was not negotiated on an arm's length basis. Effective December 1996,
the terms of the license were amended to include a ten year licensing period and
would include all updates and software changes during the term of the license.
In addition, Eric D. Robinson, the Company's President, served as the President
and Chief Executive Officer of Astute from 1994 until November 1997, when he
became President of the Company.
On May 1, 1996, the Company entered into a transaction with First
United Equities Corporation ("First United"), a broker-dealer registered with
the Securities and Exchange Commission. First United is the principal market
maker in the Company's Common Stock. Pursuant to the transaction, the Company
loaned $5,200,000 through a series of advances evidenced by a promissory note
bearing interest at 10%. Such note
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was due on demand with seven days notice. The note was collateralized by the
guarantees of the principals of First United. On May 29, 1996, First United
repaid $2,000,000 to the Company. Effective October 1, 1996, the remaining
balance under the note and accrued interest was satisfied through the
establishment of an unsecured note from Russell Data, in the amount of
$3,344,174. The note bears interest at 10% and establishes a payment schedule of
$1,000,000 each at January 15, April 15 and July 15, 1997, plus accrued interest
thereon, with the remaining balance and interest thereon due on September 15,
1997. On February 10, 1997, the Company received $1,104,786 in principal and
accrued interest from Russell Data in accordance with the payment schedule. The
balance of the scheduled payments were due on September 30, 1997. The Company
did not receive any additional payments during this period of time. On January
6, 1998 and March 4, 1998, the Company received additional principal payments
for $915,000 and $80,000, respectively, leaving an outstanding principal balance
of $1,349,200. In the opinion of management, this amount is collectible.
At the Company's inception on August 3, 1994, the Company sold a total
of 933,334 shares of its Common Stock to certain individuals, including 906,834
shares to the Company's directors and officers. See "PRINCIPAL STOCKHOLDERS".
The consideration for such shares of Common Stock was approximately $1.10 per
share, substantially all of which consideration consisted of demand notes
executed by the purchasers, which notes have all been repaid.
On December 8, 1994, the Company granted to Dr. Colkitt warrants to
purchase an aggregate of 600,000 shares exercisable one year from the date of
its initial public offering, including 200,000 shares of Common Stock at $75.00
per share expiring after three years, 200,000 shares of Common Stock at $100.00
per share expiring after five years, and 200,000 shares of Common Stock at
$125.00 per share expiring after seven years. In August 1996, Dr. Colkitt
transferred 150,000 of these warrants to Mr. Carr-Locke. The terms of the
Chairman's Warrants are substantially similar to those of the Representative's
Warrants issued in connection with the Company's initial public offering,
including certain registration rights.
Effective June 1, 1995, Mr. Carr-Locke was granted options to purchase
104,167 shares at an exercise price of $22.50 per share, which options became
exercisable on August 3, 1996.
The Company has retained MBS as a marketing and acquisition consultant
for the time period from February 1, 1997 until May 31, 1998. The agreement
provides for a $14,227 monthly payment. The Company's former President and Chief
Executive Officer is an officer of MBS. In addition, the Company is in the
process of assigning its non-cancelable operating leases for the Massachusetts
office to Rapier Investments, Ltd. ("Rapier"). Rapier owns and controls MBS.
Since December 1995, the Company has purchased one contract from MBS
and nine contracts from Rapier to provide billing, collection and accounts
receivable management services to Medical Services Providers. In addition, the
Company is in the process of negotiating contracts with both MBS and Rapier,
under which MBS and Rapier would subcontract with the Company to provide the
services to be performed for certain clients of the Company.
On March 1, 1997, the Company delegated its obligation to provide
billing, collection and accounts receivable management services to MBS and
Rapier pursuant to the contracts it had acquired from these companies on March
1, 1997. In addition, the Company agreed on terms and conditions authorizing
Rapier to subdelegate such obligations and assign its rights to such fees to
MBS. The terms of these contracts provided for the Company to pay MBS and Rapier
a fee of 70% of all net revenues to be received by the Company for services
provided by MBS and Rapier for these clients.
On August 1, 1997, the Company acquired twelve contracts from MBS of
Arizona to provide billing and collection services to certain Medical Service
Providers in Arizona. MBS of Arizona is an entity which is owned by, controlled
by or affiliated with Mr. Carr-Locke. In addition, the Company executed an
Exclusive
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Service Provider Contract with MBS of Arizona to provide exclusive billing,
collection and accounts receivable management services to the Company for the
clients covered under these contracts. The terms of the contract provided for
the Company to pay MBS of Arizona a fee of 70% of all net revenues to be
received by the Company for services provided by MBS of Arizona.
Effective December 31, 1997, the Company terminated all of the
contracts that were purchased in 1995 through 1997, because they were not
providing sufficient cash flows to support the Company's operations. All of the
contracts were either purchased from or were serviced directly or indirectly by
entities owned by, controlled by or affiliated with Mr. Carr-Locke. These
contracts had a book value of $8,000,400, net of amortization. At December 31,
1997, 77,276 shares of the Company's Common Stock were being held in escrow
pending achievement of targeted revenue levels on these contracts. Since the
revenue levels on certain of these contracts were not sufficient to require full
release of shares maintained in escrow, 58,400 shares valued at $1,000,000 will
not be released and will be returned to the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the directors, certain officers of the Company and beneficial owners of
more than ten percent of the Company's Common Stock to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission. Based solely upon a review of the copies of such forms
furnished to the Company by reporting persons and the representations made by
such persons to the Company, the Company believes that, during the last fiscal
year, its directors, officers and ten-percent beneficial owners complied with
all filing requirements under Section 16(a) of the Securities Exchange Act of
1934, as amended, except as follows: Douglas R. Colkitt, M.D. had one late
filing of a Form 4; Richard L. Flickinger had one late filing of a Form 4; and
Eric D. Robinson had one late filing of a Form 3.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Company has selected the firm of Medwig, Labriola & Co. to serve as
its independent auditors for the current fiscal year. A representative of
Medwig, Labriola & Co. is expected to be present at the Meeting, will have the
opportunity to make a statement if he so desires and is expected to be available
to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Annual
Meeting of Stockholders in 1999 must be received by the Secretary of the Company
at the Company's principal office in Sparks, Nevada prior to December 31, 1998
in order to be considered for inclusion in the Company's proxy statement and
form of proxy relating to that meeting. Proposals must be in writing and sent
via registered, certified or express mail. Facsimile or other forms of
electronic submissions will not be accepted.
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SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the
Board of Directors of the Company. The expense of solicitation of proxies for
the Meeting will be paid by the Company. In addition to the mailing of the proxy
materials, such solicitation may be made in person or by telephone or telegraph
by directors, officers or regular employees of the Company or its subsidiaries.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY WILL PROVIDE, WITHOUT CHARGE TO EACH PERSON SOLICITED BY
THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB (INCLUDING THE FINANCIAL STATEMENTS, BUT
EXCLUDING EXHIBITS) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR ITS
MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO THE
CORPORATE SECRETARY AT THE ADDRESS OF THE COMPANY APPEARING ON THE FIRST PAGE OF
THIS PROXY STATEMENT.
By Order of the Board of Directors,
ROBERT W. HORNER, JR.
Secretary
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO
COMPLETE, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING
ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY
EVEN THOUGH THEY HAVE SENT THEIR PROXIES.
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NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
July 20, 1998
The undersigned stockholder(s) of National Medical Financial Services
Corporation, a Nevada corporation (the "Company"), revoking all previous
proxies, hereby appoints Eric D. Robinson and Robert W. Horner, Jr., and each of
them acting individually, as the attorneys and proxies of the undersigned, with
full power of substitution, to cast all votes for all shares of common stock of
the Company which the undersigned would be entitled to cast if personally
present at the Annual Meeting of Stockholders of the Company to be held at 2171
Sandy Drive, State College, Pennsylvania 16803, on Monday, July 20, 1998 at
10:30 a.m. local time, and any and all adjournments or postponements thereof.
Said proxies are authorized and directed to vote as indicated with respect to
the following matters:
1. ELECTION OF CLASS II DIRECTOR FOR |_| WITHHOLD AUTHORITY |_|
Jude J. Spak
2. ISSUANCE OF ADDITIONAL STOCK IN CONNECTION
WITH THE SHORELINE/MAYBRUCH ACQUISITIONS FOR |_|
AGAINST |_|
ABSTAIN |_|
3. TO VOTE ON SUCH OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE
THE 1998 ANNUAL MEETING OF STOCKHOLDERS AND ANY AND ALL
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
(Please date and sign on reverse side)
-------------------------------------------------
(continued from reverse side)
<PAGE>
This Proxy is solicited on behalf of the Company's Board of Directors.
Unless otherwise specified, the shares will be voted "FOR" the election of the
nominee for director and will be voted "FOR" the approval of the issuance of
additional stock in connection with the Shoreline/Maybruch acquisitions. This
Proxy also delegates discretionary authority to vote with respect to any other
business which may properly come before the 1998 Annual Meeting of Stockholders
and any and all adjournments or postponements thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF NATIONAL MEDICAL FINANCIAL SERVICES
CORPORATION.
NOTE: Please sign this Proxy Dated: ____________________________, 1998
exactly as the name(s) appear
hereon. When signing as
attorney-in-fact, executor, _________________________________________
administrator, trustee or guardian, Signature of Stockholder
please add your title as such.
Proxies executed in the name of a
corporation should be signed on _________________________________________
behalf of the corporation by a duly Signature of Stockholder
authorized officer. Where shares
are owned in the name of two or
more persons, all such persons
should sign.
PLEASE SIGN, DATE AND RETURN IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
