AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON February 12, 2002.
Registration No. 333 - 73942
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 3 to FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CYBERCARE, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0158479
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
CyberCare, Inc.
2500 Quantum Lakes Drive, Suite 1000
Boynton Beach, Florida 33426
(561) 742-5000
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Steven M. Cohen
Chief Financial Officer
CYBERCARE, INC.
2500 Quantum Lakes Drive, Suite 1000
Boynton Beach, Florida 33426
(561) 742-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Joel D. Mayersohn, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
(954) 763-1200
Approximate date of commencement of proposed sale to public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
-------------------- -------------- ----------------- ----------------- -------------------
Common Stock, $0.0025 par value (1) 3,618,421 $ .57 $2,062,500 $ 189.75
Common Stock, $0.0025 par value (2) 10,000,000 .57 5,700,000 524.40
Common Stock, $0.0025 par value (3) 590,826 .57 336,771 30.98
Common Stock, $0.0025 par value (4) 1,676,470 .57 955,588 87.91
Common Stock, $0.0025 par value (5) 200,000 1.00 200,000 18.40
---------- ---------- ----------
Total Registration Fee 16,085,717 $9,254,859 $ 851.44*
========== ========== ==========
* previously paid
=================
(1) Shares issuable as interest payments pursuant to the terms of
convertible Subordinated Debentures. Estimated solely for purposes
of calculating the registration fee pursuant to Rule 457(c) under
the Securities Act based on the average of the closing bid and asked
price of the Common Stock as reported on the Nasdaq National Market
on February 5, 2002.
(2) Shares issuable pursuant to a Private Equity Line Agreement.
Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act based on the
average of the bid and asked price of the Common Stock as reported
on the Nasdaq National Market on February 5, 2002.
(3) Shares issued pursuant to various contractual arrangements.
Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act based on the
average of the closing bid and asked price of the Common Stock as
reported on the Nasdaq National Market on February 5, 2002.
(4) Shares issued pursuant to the exercise of Common Stock Purchase
Warrants. Estimated solely for purposes of calculating the
registration fee pursuant to Rule 457(c) under the Securities Act
based on the average of the closing bid and asked price of the
Common Stock as reported on the Nasdaq National Market on February
5, 2002.
(5) Shares issuable upon exercise of Common Stock Purchase Warrants.
Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(g) under the Securities Act based upon the
exercise price of the shares of Common Stock which is higher than
the average of the closing bid and asked price of the Common Stock
as reported on the Nasdaq National Market on February 5, 2002.
There is being registered hereunder an indeterminate number of
shares of our common stock as may be issued from time to time to certain
selling stockholders that may become issuable as a result of any stock
splits, stock dividends or other similar events.
------------------------
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
SUBJECT TO COMPLETION, DATED February 12, 2002
CYBERCARE, INC.
16,085,717 shares of common stock
This prospectus relates to 16,085,717 shares of our common stock which may
be offered by certain selling security holders, of which 3,618,421 shares are
issuable as interest payments under convertible subordinated debentures,
1,676,470 shares were issued upon the exercise of warrants and 200,000 shares
are issuable upon the exercise of warrants, 10,000,000 shares are issuable
pursuant to a private equity line agreement, and 590,826 shares have been issued
pursuant to various contractual arrangements and are currently outstanding.
Our Common Stock, par value $0.0025 per share is traded on the Nasdaq
National Market under the trading symbol "CYBR". On February 11, 2002, the last
reported sale price for our common stock was $0.56 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
STRATEGIC INVESTMENT MANAGEMENT, S.A. IS AN UNDERWRITER WITH RESPECT TO
ALL OF ITS SHARES OF COMMON STOCK PURCHASED PURSUANT TO THE PRIVATE EQUITY LINE
AGREEMENT AND OFFERED FOR SALE UNDER THIS PROSPECTUS.
The date of this Prospectus is February , 2002
TABLE OF CONTENTS
Page
Page
Summary Information, Risk Factors and Ratio of Earnings to Fixed Changes
Business....................................................... 3
Risk Factors................................................... 6
Cautionary Statement about Forward-Looking Information............... 14
Use of Proceeds...................................................... 15
Description of Securities to be Registered........................... 16
Selling Security Holders............................................. 16
Plan of Distribution................................................. 26
Where You Can Find More Information.................................. 27
Interests of Named Experts and Counsel
Legal Matters.................................................. 27
Experts........................................................ 27
Incorporation of Certain Information by Reference....................II-1
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
2
BUSINESS
The Company consists of three separate and distinct businesses:
Institutional pharmacy whose operations support assisted living and
similar long-term care facilities;
Physical therapy and rehabilitation group focusing on occupational,
physical and speech therapy; and
Technology focused on the development and introduction of patented
products and services used in remote monitoring, care and
communication between patients, caregivers and other people included
in the healthcare continuum.
We have disclosed our intention to sell all non-technology entities and focus
exclusively on the technology division moving forward.
Our technology division is a tele-health solutions company improving the
delivery of care through its products and services. Tele-health is the remote
monitoring and delivery of care via specially designed hardware and software,
through standard telephone lines and/or broadband connectivity, either directly
or in a network-based environment over the Internet. Product offerings focus on
tools that enable health plans, home health, disease management agencies,
employers, hospital systems, HMO's, insurers and other risk bearing
organizations to better manage the cost of care through wellness and disease
management programs.
We create an online interactive community that incorporates all members of the
care team in the healthcare delivery process, resulting in cost reductions and
the improvement in the quality of patient care. Utilizing patented technology
for the remote monitoring and real-time interactive communication between
patients and caregivers, the CyberCare System(TM) allows for effective and
efficient electronic disease management, including automatic data collection,
case management, and personal interaction. The CyberCare System, which consists
of the Electronic HouseCall(TM) family of products ("EHC"), the CyberCare 24
Network(TM), and the CyberHealth Manager(TM), provides a complete package of
tele-health products and services for patients, caregivers and payors. We are
committed to quality and our solutions are global in nature. We intend to market
our products and services in foreign markets via a series of joint venture
partnerships with local organizations that understand local health care delivery
issues and which have a strong local presence, appropriate infrastructure and
relationships with industry and government.
Our proprietary software application is the Electronic HouseCall application
that is running on the EHC patient and provider line of products that include
videoconferencing and medical measurement capabilities. This software
application was originally developed at Georgia Tech and further modified by us.
The software application implements the patented technology that was licensed to
us from Georgia Tech and the Medical College of Georgia. The patent (US Patent
No. 5987519 titled "Telemedicine system using voice video and data encapsulation
and de-encapsulation for communicating medical information between central
monitoring stations and remote patient monitoring stations") secures all
telemedicine applications that use packet-based technology to simultaneously
exchange voice, video, and medical data. Also incorporated in the software
application is the technology secured by US Patent No. 6112224 titled "Patient
monitoring station using a single interrupt resource to support multiple
measurement devices" as well as technology secured by multiple patents pending.
3
Our CyberCare System is comprised of monitoring devices (units) and peripheral
medical devices designed for use by patients and units designed for use by care
providers. Units and peripherals determined to be medical devices have received
marketing approval by the United States Food and Drug Administration (FDA) as
described below. Other units are not subject to FDA regulatory approval or,
because they have been determined to be line extensions of a "cleared" unit, do
not require additional regulatory approval.
PATIENT UNITS
EHC100: This unit is a general-purpose telecommunications device for use by
patients and is not regulated by the FDA. It uses standard telephone lines and
is intended for use by an unassisted patient in his or her residence. The unit
allows the patient to use certain peripheral medical devices and take their own
vital signs measurements, such as blood pressure, blood glucose level and body
weight. The unit then transmits the measurements to a database that resides on
the CyberCare 24 Network(TM) for review, analysis and appropriate action by a
care provider.
EHC1500: The EHC1500 is a variation of the EHC100 that uses a pocket PC
platform, thereby allowing greater portability and flexibility of use. It can be
configured to handle up to three peripheral medical devices, including a blood
pressure cuff, weight scale and blood glucose meter. It communicates and
transmits the vital signs data through the CyberCare 24 Network using a standard
telephone line or by wireless connection.
EHC400: This patient unit has received FDA marketing clearance and uses
broadband telecommunication services to connect to the CyberCare 24 Network. It
allows the patient to interact with care providers (such as a physician, nurse,
physician assistant, care manager, etc.) situated in another location in a
"virtual housecall" through an audio-visual videoconference, and allows the
patient, using various peripheral medical devices, to collect and transmit his
or her own medical measurements (such as blood pressure, using a
sphygmomanometer; temperature, using an electronic oral thermometer; blood
oxygen saturation and pulse, using a pulse oximeter; blood glucose (sugar)
level, using a glucometer; body weight, using an electronic weight scale; and/or
heart, lung and bowel sounds, using an electronic stethoscope) through the
CyberCare 24 Network for immediate or later review by care providers.
EHC300: This patient unit is similar to the EHC400, but only permits
audio-visual videoconferencing without the addition of peripheral medical
devices or vital sign data collection. It communicates with care provider units
via the CyberCare 24 Network using standard telephone lines and has the
capability to engage in multipoint conferences with other units through the
CyberCare 24 Network.
EHC350: Similar to the EHC400, this patient unit combines the audio-visual
videoconferencing capabilities of the EHC300 with peripheral medical device
availability and patient vital signs data collection through a special module to
accommodate the peripheral devices. The Model 350 is equipped with a module for
accommodating the connection of peripheral devices and communicates and
transmits data through the CyberCare 24 Network using standard telephone lines.
EHC2000: This is a more advanced, compact and lightweight version of the EHC400
which supports the use of peripheral medical devices including "plug and play"
USB ports. It also features a magnetic card reader and can use either standard
analog telephone lines or broadband telecommunications service to communicate
and transmit data via the CyberCare 24 Network.
EHC2050: This patient unit is a variation of the EHC 2000 and uses standard
telephone lines to communicate and transmit data either using the routed
architecture of the CyberCare 24 Network or directly (in a "point-to-point"
manner) to a care provider using either an EHC650 or EHC1650 care provider unit.
4
CARE PROVIDER UNITS
EHC600: The EHC600 care provider workstation unit has received FDA marketing
clearance and uses broadband telecommunications service to allow care providers
to conduct a "virtual housecall" and interact with a remotely situated patient
in an audio-visual videoconference. Incorporating the Cyber HealthManager
software, this unit also allows care providers to initiate collection of certain
patient vital signs measurements during a "virtual housecall" as well as review
patient vital sign measurements and snapshot images (such as for wound care
treatment) transmitted by a patient unit through the CyberCare 24 Network. This
unit enables the care provider to assess patient status, analyze patient data
and develop reports through its various software capabilities.
EHC650: This unit has the same features as the EHC600, except that it
communicates directly with an EHC2050 patient unit (in a "point-to-point"
manner) rather than through the routed architecture of the CyberCare 24 Network.
EHC1600: This care provider unit is a laptop version of the EHC600 workstation,
but uses either standard analog telephone lines or broadband telecommunications
service to communicate via the CyberCare 24 Network.
EHC1650: This model is similar to the EHC1600 except that it utilizes standard
analog telephone lines to communicate directly (in a "point-to-point" manner)
with patient units having videoconferencing capabilities. The EHC1650 uses a
stand alone database and can be connected with the CyberCare 24 Network as
needed for periodic software and database updates.
EHC1625: This care provider unit is a scaled-down, hand-held version of the
EHC600 and uses pocket PC platform. It is a care management device that enables
the care provider to remotely monitor patient vital sign data transmitted from a
patient unit. It does not permit direct interaction or video conferencing with a
patient. It is web-enabled and operates either in a wireless environment or
using standard analog telephone lines to communicate via the CyberCare 24
Network.
EHC3000 CARE MANAGEMENT SOFTWARE: This is a web-enabled software platform that
allows the care provider access, via the internet and a secure home page, to the
data on the CyberCare 24 Network database transmitted from patient units. It
operates on any computer with internet access that utilizes an industry standard
browser and can provide electronic mail notifications to care providers
regarding a patient's condition based on programmable ranges and/or thresholds
determined by the care provider.
PERIPHERAL MEDICAL DEVICES AND SOFTWARE APPLICATIONS
A number of peripheral medical devices are used in connection with certain EHC
patient units, some of which we obtain commercially from medical device
suppliers and others which we have developed ourselves. We have developed
certain medical devices and software applications as principle components of the
CyberCare System and have received FDA marketing clearance on such items as
follows:
Weight Scale - FDA marketing clearance obtained.
Blood Glucose Meter - FDA marketing clearance obtained.
Electronic Stethoscope - FDA marketing clearance obtained.
Blood Pressure Cuff (Sphygmomanometer) - FDA marketing clearance obtained.
Pulse Oximeter - FDA marketing clearance obtained.
Electronic Oral Thermometer - FDA marketing clearance obtained
Spirometer - Application for FDA marketing clearance in progress.
Medication Compliance Option - Application for FDA marketing clearance in
progress.
5
The CyberCare System has a very flexible configuration and system design,
allowing the EHC products to meet various application requirements and
conditions for different market segments. The products and services may be
combined in a fully network-based- system or in a point-to-point configuration.
In addition to workstation type units, the CyberCare System includes web-based,
mobile and hand-held EHC units for both the caregiver and the patient so they
are not constrained by the boundaries of home, office or expensive stand alone
equipment. All the EHC products conform to industry standards and may be
integrated into customer workflow and data management operating systems.
Significant attention in the design process has been devoted to security,
confidentiality and privacy, as well as to intended target markets. The
CyberCare System helps the caregiver to track clinical outcomes and improvements
in medication and treatment compliance.
The CyberCare System has been designed to be implemented in fee-for-service,
case rate, episodic rate or capitation environments.
OUR OTHER BUSINESSES
We provide physical, occupational, speech therapy and pain rehabilitation
services in clinics currently owned and/or operated. We rely upon community
reputation, customer referrals, medical resource referrals and payor sources. We
identify market areas to expand in and open new clinics based on our experience
and market demographics. We currently employ approximately 128 people in this
segment. On average, each physical therapy clinic typically has a staff of
three, including a fully licensed therapist, a licensed therapy assistant and an
administrative secretary/rehabilitation aide. We develop rehabilitation clinics
with specific geographic locations throughout Florida that we believe will
create synergies and operating efficiencies and satisfy the cost containment
requirements of significant payor sources. Our rehabilitation services include
specialty programs, like pain management, coupled with traditional services,
such as primary care, orthopedic and neurological physician services and
comprehensive rehabilitation.
Our Pharmacy is a closed system institutional pharmacy employing
approximately 60 individuals with its principal place of business in Lakeland,
Florida. Through this segment, we provide unit-dosed medications to over 4,000
residents in 64 assisted-living facilities across central and west Florida by
delivering directly to the facilities serviced.
Recent Development
On February 6, 2002, Michael Morrell, Chairman and Chief Executive Officer
resigned for personal reasons. Jack Hight was named to the Board of Directors
and agreed to serve as interim Chairman of the Board and Joseph Forte has
assumed the additional title of Chief Executive Officer.
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks. Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely affect our
business and operations. You should carefully consider these risk factors,
together with all of the other information included in or incorporated by
reference into this prospectus before you decide to purchase our securities. If
any of the following risks develop into actual events, our business, financial
condition or results of operations could be materially adversely affected.
6
RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF LOSSES AND A SUBSTANTIAL
ACCUMULATED DEFICIT AND WE MAY NEVER REACH PROFITABILITY
To date, we have been unable to generate revenue sufficient to be
profitable on a consistent basis. Consequently, we have sustained substantial
losses. Net loss for the nine months ended September 30, 2001 was $21,228,000.
Net losses for the years ended December 31, 2000 and 1999 were $28,698,000 and
$10,808,000, respectively. Our accumulated deficits as of September 30, 2001,
December 31, 2000 and December 31, 1999 were $88,378,000, $67,150,000, and
$38,452,000, respectively. Our products and services may never achieve the
commercial acceptance necessary to achieve the level of revenues needed to be
profitable in the future or, if profitability is achieved, that it will be
sustained. WE MAY NEED TO OBTAIN ADDITIONAL FINANCING AND WE CANNOT BE CERTAIN
THAT ADDITIONAL FINANCING WILL BE AVAILABLE WHEN NEEDED OR ON TERMS FAVORABLE TO
US OR OUR STOCKHOLDERS
Our future capital requirements will depend on many factors, including but
not limited to:
* the market acceptance of the CyberCare System;
* the levels of promotion and marketing required to attain a
competitive position in the marketplace;
* the extent to which we invest in new technology and improvements of
existing technology; and
* the response of competitors to our introduction of the CyberCare
System and other new products and services.
To the extent that funds generated by certain Securities described in this
Registration Statement, together with existing resources, are insufficient to
fund our activities over the long-term, we will need to raise additional funds
through equity or debt financing or from other sources. Our available funds,
coupled with the funds from our equity line of credit will be sufficient to meet
our cash needs through December 31, 2002. The sale of additional equity or
convertible debt may result in additional dilution to our stockholders. To the
extent that we rely upon debt financing, we will incur the obligation to repay
the funds borrowed with interest and may become subject to covenants and
restrictions that restrict operating flexibility. Failure to obtain necessary
financing could have a material adverse effect on our business, financial
condition or results of operations.
WE MAY NOT BE ABLE TO PROTECT PATENTS AND PROPRIETARY TECHNOLOGY, WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our ability to compete effectively in the tele-health industry will depend
on our success in developing and marketing our products and services and/or
acquiring other suitable businesses and protecting our proprietary technology
both in the United States and abroad. We currently have a license for certain
patents and have several patents pending. We intend to file additional patent
applications that we deem to be economically beneficial. If we are not
successful in obtaining and defending patents or demonstrating that our
technology is proprietary under trade secret laws, we will have limited
protection against those who might copy our technology. We may incur substantial
costs in defending any patent or license infringement suits or in asserting any
patent or license rights, including those granted by third parties. The
expenditure involved in asserting, obtaining or defending these intellectual
property rights may be more than we can afford.
Although we have and will continue to enter into confidentiality, covenant
not to compete and invention agreements with our employees, consultants,
partners and acquisition targets, such agreements may not be honored or they may
not be able to adequately protect our rights to our non-patented trade secrets
and know-how.
7
THIRD PARTIES MAY CLAIM THAT WE HAVE BREACHED THEIR INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD RESULT IN SIGNIFICANT ADDITIONAL COSTS OR PREVENT US FROM
PROVIDING ALL OF OUR SERVICES
Certain products, which are components of the CyberCare System, were the
subject of a patent infringement complaint filed March 2, 2001 by the Cybernet
Systems Corporation ("Cybernet") in the United States District Court for the
Eastern District of Michigan. The complaint alleged that at least our EHC 600
Provider Stations, EHC 500 and EHC 400 Patient Stations, and EHC 200
Videoconferencing Station infringed Cybernet's U.S. Patent No. 6,050,940, issued
April 18, 2000, for "General-Purpose Medical Instrumentation". The complaint was
never served on us and the lawsuit was dismissed by court order on July 5, 2001
based on the plaintiff's failure to prosecute the case. Had the lawsuit been
pursued, we strongly believe we have good and valid defenses to Cybernet's
charges of infringement, including, but not limited to, that each of the accused
products do not infringe any of the Cybernet patent claims. We are not aware of
other claims or threats of claims regarding patent infringement or alleged
infringement.
Third parties may bring claims of copyright or trademark infringement,
patent infringement or misappropriation of creative ideas or formats against us
with respect to content that we distribute or our technology or marketing
techniques and terminology. Claims of this kind, even if without merit, could be
time-consuming to defend, result in costly litigation, divert management
attention, require us to enter into costly royalty or licensing arrangements or
prevent us from distributing certain content or utilizing important
technologies, ideas or formats.
Defending and prosecuting intellectual property suits, interference
proceedings and related legal and administrative proceedings are costly,
time-consuming and divert the attention of technical and management personnel.
Litigation may be necessary to enforce our patents or defend our patent rights,
to protect our trade secrets or know-how or to determine the enforceability,
scope and validity of the proprietary rights of others. If the outcome of any
such litigation or interference proceedings is adverse to us, it could subject
us to significant liabilities to third parties or require us to license disputed
rights from third parties or cease using such technology, which would have a
material adverse effect on our business, financial condition, results of
operations and future growth prospects. Patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, which can include ongoing royalties. We may not obtain the
necessary licenses on satisfactory terms, if at all.
CHANGES IN PAYMENT FOR MEDICAL SERVICES COULD HARM OUR BUSINESS
We believe that trends in cost containment in the health care industry
will continue to result in a reduction in per-patient revenues which may impact
our health services segments. The federal government has implemented, through
the Medicare program, a payment methodology for physician services. This
methodology is a fee schedule that, except for certain geographical and other
adjustments, pays similarly situated physicians the same amount for the same
services. The schedule is adjusted each year and is subject to increases or
decreases at the discretion of Congress. Reduced operating margins may not be
recouped by us through cost reductions, increased volume, introduction of
additional procedures or otherwise. Rates paid by non-governmental insurers,
including those that provide Medicare supplemental insurance, are based on
established physician, ambulatory surgery center and hospital charges, and are
generally higher than Medicare payment rates. A change in the makeup of the
patient mix of our practices and those that we manage that results in a decrease
in patients covered by private insurance or a shift in private pay payment
structures could adversely affect our business, financial condition or results
of operations.
8
CERTAIN PAYMENTS TO OUR PT&R SUBSIDIARY HAVE BEEN SUSPENDED BY MEDICARE
Our Physical Therapy and Rehabilitation ("PT&R") subsidiary received a
letter from the Health Care Financing Administration (now known as the Centers
for Medicare and Medicaid Services ("CMS")), through its intermediary, notifying
it of the suspension of Medicare payments to PT&R pending resolution of certain
complaints from patients regarding services rendered during the year 2000. The
complaining patients constituted less than 1% of PT&R's Medicare patients.
During the suspension, the Medicare program continued to process PT&R's claims
but withheld a total of $1,465,000 of amounts due PT&R. In August 2001 the
suspension was lifted, although a portion of the reimbursement amounts for
processed claims remains in escrow totaling $1,114,000, pending further review.
We are working cooperatively with CMS to resolve any outstanding issues and to
effectuate release of the amount held in escrow.
WE ARE THE SUBJECT OF SECURITIES CLASS ACTION LITIGATION
We are currently the subject of a consolidated class action lawsuit
against us and certain of our executive officers alleging violations of federal
securities laws. The action seeks unspecified damages and costs. Securities
litigation could result in substantial costs to us and could divert management's
attention and resources away from our operations and development. Although we
have insurance coverage for this consolidated action which we believe will be
adequate to cover defense costs, an exception or exclusion to coverage may apply
or such coverage may not in fact cover all defense costs. We believe that we
have meritorious defenses to these suits, but we may not prevail in this
litigation. Since this consolidated action is in the early stages, we cannot
predict the outcome of this litigation or determine the full potential impact it
may have on our liquidity or financial condition. We and our executives believe
the claims made by the complaint lack merit.
WE HAVE LIMITED EXPERIENCE CONDUCTING OPERATIONS INTERNATIONALLY, WHICH MAY MAKE
OVERSEAS EXPANSION MORE DIFFICULT AND COSTLY
We have begun the process of initiating business network operations in
several foreign countries. We are subject to differing laws, regulations and
business cultures which may adversely impact our business. We may also be
exposed to economic and political instability and international unrest. Although
we have and will continue to enter into agreements with our partners and
customers that attempt to minimize these risks, such agreements may not be
honored or we may not be able to adequately protect our interests.
We plan to expand our international operations in the future. There are
many barriers and risks to competing successfully in the international
marketplace, including:
* Costs of customizing products for foreign countries;
* Foreign currency risks;
* Dependence on local vendors;
* Compliance with multiple, conflicting and changing laws, and
regulations and policies;
* Longer sales cycles;
* Import and export restrictions and tariffs.
As a result of these competitive barriers to entry and risks, we may not
be able to successfully market, sell and deliver our products and services in
international markets.
We may engage in hedging transactions in the future to manage or reduce
our foreign exchange risk. However, our attempts to manage our foreign currency
exchange risk may not be successful and, as a result, our net earnings could be
negatively affected by any unfavorable fluctuations in foreign currency exchange
rates.
9
Our foreign operations could also be subject to unexpected changes in
regulatory requirements, tariffs, and other market barriers and political and
economic instability in the countries where we operate. Due to our foreign
operations, we could be subject to such factors in the future and the impact of
any such events that may occur in the future could subject us to additional
costs or loss of sales, which could negatively affect our operating results.
THE NATURE OF OUR BUSINESS EXPOSES US TO PROFESSIONAL AND PRODUCT LIABILITY
CLAIMS, WHICH COULD MATERIALLY ADVERSELY IMPACT OUR OPERATIONS
Our business and technology exposes us to potential professional and
product liability risks which are inherent to such business and products,
including the risks associated with providing tele-health and disease management
products and services through a virtual private network which is reliant upon
telecommunications pipelines and connects provided by third parties which may,
from time to time, experience interruption of service. We carry reasonably
adequate insurance to protect against professional and product liability,
including errors and omissions in our technology and software design,
unauthorized access to our network and loss or interruption of service or system
functions, could materially adversely impact our business and operations.
WE MAY LOSE REVENUE OR INCUR ADDITIONAL COSTS BECAUSE OF SYSTEM FAILURE
Any system failure that causes interruptions in our operations may have an
adverse effect on our business, financial condition or results of operations.
Our services are dependent on our own and other companies' abilities to
successfully integrate technologies and equipment. In connecting with other
companies' equipment we take the risk of not being able to provide service due
to telecommunications failure. There is also the risk that our equipment may
malfunction or that we could make an error, which may negatively affect our
customers' service. Our hardware and other equipment may also suffer damage from
natural disasters and other catastrophic events, such as loss of power and
telecommunications failures. We have taken a number of steps to prevent our
service from being affected by natural disasters, including development of
redundant systems. Nevertheless, such steps and redundancies may not prevent our
system from becoming disabled in the event of a hurricane, power outage or
otherwise. The failure of our system resulting from the effects of a natural or
man-made disaster could have an adverse effect on our relationship with our
customers and our business, financial condition and results of operation.
THE LOSS OF CERTAIN MEMBERS OF OUR MANAGEMENT TEAM COULD MATERIALLY ADVERSELY
AFFECT US.
We are dependent, to a significant extent, on the continued efforts
and abilities of members of our management team and the majority of which
have employment contracts. The Company is the owner of one million dollar key
man life insurance policies insuring the lives of the former Chairman, the
current Chief Executive Officer and the Executive Vice President. We have had
a high degree of success of attracting and retaining key personnel.
Currently, we are not aware, other than our Chief Executive Officer and
Secretary, of any key personnel plans to retire or leave the Company in the
near future. If we were to lose the services of any of these individuals or
other key employees without obtaining a qualified replacement, our business
could be materially adversely affected.
We believe that our success will also depend upon our ability to hire,
train and retain other highly skilled personnel. We compete in a new market and
there are a limited number of people with skills necessary to provide the
services our clients demand. Competition for quality personnel is intense. We
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cannot be sure that we will be successful in hiring, assimilating or retaining
the necessary personnel, and our failure to do so could affect our business,
financial condition and results of operation.
WE COMPETE WITH A NUMBER OF ESTABLISHED COMPANIES, SOME OF WHICH HAVE
SIGNIFICANTLY GREATER FINANCIAL, TECHNOLOGICAL AND MARKETING RESOURCES THAN WE
DO, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH THESE COMPANIES.
The networkbased telehealth solutions business is relatively new and
evolving. We compete with companies in the telehealth and monitoring business
and from other industries. The health care industry in general and the market
for medical ancillary services specifically are highly competitive. We compete
with ancillary services companies that are larger and have greater financial
resources than we do. We face competition from companies that provide
networkbased telehealth solutions, most of which are in the early stages of
development.
We believe that we compete effectively by providing superior technology
and networkbased tele-health solutions and more personalized care to the
patients and customers we serve. We believe the primary competitors for EHC
products are small, privately-held companies, none of which have established a
major market position as of this time. Some larger companies, such as Panasonic
and Agilent, have also recently announced initiatives in this market. Key
differentiating factors between us and our competitors in this segment lie
primarily in our network-based telehealth solutions architecture which utilizes
our patented technology and our developed software applications.
RISKS RELATED TO OUR INDUSTRY
WE CANNOT GUARANTEE YOU THAT OUR PRODUCTS WILL BE FULLY DEVELOPED OR ACCEPTED BY
THE HEALTH CARE INDUSTRY
Payors, physicians, medical providers or the medical community in general
may not accept and utilize our products and services. The extent that and the
rate at which our products achieve market acceptance and penetration will depend
on many variables, including the establishment and demonstration in the medical
insurance and payor communities of the clinical safety, efficacy and
cost-effectiveness of our products and services, the advantage of these products
over existing technology, third-party reimbursement practices and our
manufacturing, quality control, marketing and sales efforts. There can be no
assurance that similar risks will confront any other products and services we
develop in the future. Failure of our products and services to gain market
acceptance would have a material adverse effect on our business, financial
condition, and results of operations.
WE ARE SUBJECT TO A SIGNIFICANT NUMBER OF HEALTH CARE INDUSTRY REGULATIONS AND
RELATED REGULATIONS, THE FAILURE TO COMPLY WITH COULD MATERIALLY ADVERSELY
AFFECT OUR OPERATIONS
We are subject to substantial potential liability resulting from a variety
of possible causes, including violation of numerous health care laws,
malpractice and product liability. Many of the health care laws to which we are
subject are broad in scope and difficult to interpret. If any actions or
lawsuits are brought against us in the future, such actions or lawsuits could
have a materially adverse effect on us. Violations of the state and federal
anti-kick-back laws and regulations could result in substantial civil and/or
criminal penalties and/or administrative sanctions for the individuals or
entities, including exclusion from participation in the Medicare and Medicaid
programs, as well as the suspension or revocation of professional licensure.
Such sanctions, if applied to us or any of our employees, could result in
significant loss of reimbursement and could have a material adverse effect on
us.
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We attempt to minimize our potential liability through implementation of
and adherence to compliance policies and procedures, effective supervision and
personnel recruitment procedures. We also carry a variety of insurance policies
including policies insuring against certain negligent acts. Insurance policies
may not adequately cover our losses resulting from such potential liability and
we may be unable to continue to qualify for, or be able to afford or obtain such
insurance in the future.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
among other things, mandates administrative simplification of electronic data
interchanges of health information, including standardizing transactions,
establishing uniform health care provider, payer and employer identifiers and
seeking protections for confidentiality and security of patient data. Final
regulations governing health care transaction security were published in the
August 17, 2000 FEDERAL REGISTER, and will become effective for most entities in
or after October 2002. Final regulations governing privacy and confidentiality
of individually identifiable health information were published in the December
20, 2000 FEDERAL REGISTER, and will become effective for most entities in or
after February 2003. Many of the provisions of HIPAA do not directly apply to us
since we are not included in the types of entities to which HIPAA applies.
However, because we may be considered a business associate of a covered entity,
and because the implementation of our CyberCare System for our customers
necessitates that we have interaction with patient users of the system, we will
nonetheless have to comply with certain aspects of the HIPAA regulations. We are
proceeding to assess where our current systems diverge from HIPAA's privacy and
security requirements and to implement protocols and procedures that will bring
such systems and areas into compliance before the deadlines identified in the
final regulations. We are unable at this time to assess the cost of
implementation of the administrative simplification requirements of HIPAA that
are applicable to our business.
RISK FACTORS ASSOCIATED WITH CONTRACTS AND SUB-CONTRACTS WITH THE U.S.
GOVERNMENT
It is our goal to introduce the CyberCare System for use by agencies or
authorities of the federal and state governments (such as the U.S. Veterans
Administration, Medicare, Medicaid, TRICARE, or other federally or state funded
health care programs) and we are currently engaged in the administration of
pilot programs for our CyberCare System with certain of these agencies and
authorities. Accordingly, a portion of our revenue may be derived from contracts
or subcontracts funded by the U.S. government or other state or local
governments. Therefore, our financial performance may be adversely affected by
changing government (federal, state or local) procurement practices and policies
as well as declines in government spending and funding. The factors that could
have a material adverse effect on our ability to win new contracts with the
federal, state or local governments, or retain existing contracts, include the
following: budgetary constraints; changes in government funding levels,
programs, policies or requirements; technological developments; the adoption of
new laws or regulations; and general economic conditions.
NEW LEGISLATIVE DEVELOPMENTS COULD RESULT IN FINANCIAL HARDSHIP
Legislation regarding health care reform may be introduced in the future
by Congress or state legislatures. Any such reforms at the federal or state
level could significantly alter patient-provider relationships. State and
federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect on
us. Any federal or state legislation prohibiting investment interests in, or
contracting with, us by physicians or health care providers for which there is
no statutory exception or safe harbor would have a material adverse effect on
our business, financial condition and results of operations.
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RISKS RELATED TO OUR STOCK
SUBSTANTIALLY ALL OF OUR SHARES ARE ELIGIBLE FOR RESALE, WHICH MAY HAVE A
DEPRESSIVE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK
As of December 31, 2001, we had 67,827,992 shares of our Common Stock
outstanding, of which substantially all can be sold under an effective
registration statement or under Rule 144. Under Rule 144, a person who has held
restricted securities for a period of one year may sell a limited number of
shares to the public in ordinary brokerage transactions. Sales under Rule 144
may have a depressive effect on the market price of our Common Stock due to the
potential increased number of publicly held securities. The timing and amount of
sales of Common Stock that are currently eligible to be resold pursuant to Rule
144 could have a depressive effect on the future market price of our Common
Stock.
THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THE PRIVATE EQUITY LINE AGREEMENT
WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS
Pursuant to the terms of the Private Equity Line Agreement, we may issue
up to $15,000,000 of shares of our Common Stock to Strategic Investment
Management, S.A. at a price equal to approximately 85% of the market price of
the Common Stock, pursuant to the terms of the Private Equity Line Agreement. By
raising additional funds and issuing additional common shares under the private
equity line, our stockholders may experience dilution and various investors
engaging in short selling activities might also affect the market price of our
common shares. As a result of a decrease in our common stock price, we could
face de-listing, a damaged capital structure and the availability of additional
financing.
THE EXERCISE OF OPTIONS AND WARRANTS WILL BE DILUTIVE TO OUR EXISTING
STOCKHOLDERS
As of December 31, 2001, we had outstanding warrants and options to
purchase a total of 23,602,370 shares of our Common Stock at prices ranging from
between $0.50 and $31.50 per share, 16,708,369 shares of which are fully vested.
Included in the total warrants and options outstanding are stock options to
purchase up to 2,555,000 of the Company's' Common Stock. These options will only
vest in three equal installments and vesting will not begin until the Company
deploys and installs at least 4,000 Electronic tele-health Workstation units
("units") or when the Company recognizes revenue from the deployment of the
units of not less than $7.5 million one year from date of the grant or whichever
is later. All options will immediately vest no later than the fourth anniversary
of the grant date. We are also authorized to issue up to an additional 6,668,159
options without shareholder approval under our Company stock option and stock
purchase plans.
THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF OUR
SUBORDINATED DEBENTURES COULD NEGATIVELY EFFECT THE MARKET PRICE FOR OUR COMMON
STOCK
We have outstanding subordinated debentures which are convertible into
Common Stock at the holder's option at a conversion price equal to 90% of the
average closing price for the 20 days trading prior to the date of the
conversion notice, but no less than $3.25 per share.
Because the conversion price is not fixed the ultimate number of shares of
Common Stock issuable if the holders elect to convert the $10 million principal
amount of the Subordinated Debentures is unknown at this time. Based upon an
average market price of $3.25 per share (which is minimum conversion price and
above the 20 day trading price), we would be obligated to issue 3,076,923 shares
on conversion if all $10 million of the Subordinated Debentures were converted.
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WE MAY ISSUE ADDITIONAL SHARES AND DILUTE YOUR OWNERSHIP PERCENTAGE
Some events over which you have no control could result in the issuance of
additional shares of our Common Stock or Preferred Stock, which would dilute
your ownership percentage in CyberCare. We may issue additional shares of Common
Stock or Preferred Stock:
* to raise additional capital or finance acquisitions;
* upon the exercise or conversion of outstanding options and warrants
* upon the sale of shares of Common Stock pursuant to the Private
Equity Line Agreement;
* as interest payments for and/or upon conversion of certain
Subordinated Debentures that have been issued; and/or
* in lieu of cash payment of dividends or for services rendered.
YOUR PERCENTAGE OF OWNERSHIP AND VOTING POWER AND THE PRICE OF OUR COMMON STOCK
MAY DECREASE BECAUSE WE HAVE ISSUED, AND IN THE FUTURE MAY ISSUE, A SUBSTANTIAL
NUMBER OF SHARES OF COMMON STOCK OR SECURITIES CONVERTIBLE INTO OR EXERCISABLE
FOR OUR COMMON STOCK
We have the authority to issue up to 200 million shares of our Common
Stock and 20 million shares of our Preferred Stock without stockholder approval.
We may also issue options and warrants to purchase shares of our Common Stock.
Future issuances could be at values substantially below the price paid for our
Common Stock by current stockholders. We may conduct additional future offerings
of our Common Stock, Preferred Stock, or other securities with rights to convert
the securities into shares of our Common Stock which may result in a decrease in
the value or market price of our Common Stock. Further, the issuance of
Preferred Stock could have the effect of delaying, deferring or preventing a
change of ownership without further vote or action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock.
WE ANTICIPATE VOLATILITY IN OUR STOCK PRICE
The market price for securities in our industry historically has been
highly volatile. From January 1, 2000 through February 5, 2002, the price of our
Common Stock has fluctuated between $39.75 and $0.42 per share. The price of
our Common Stock may be subject to fluctuations in response to:
* quarter to quarter variations in operating results;
* vendor additions or cancellations;
* creation or elimination of funding opportunities;
* favorable or unfavorable coverage by securities analysts;
* the availability of products, technology and services; and
* other events or factors, many of which are beyond our control.
These broad market and industry factors may cause the price of our Common
Stock to decline, regardless of our actual operating performance.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION
This prospectus and other materials we have filed or may file with the
Securities and Exchange Commission, as well as information included in oral
statements or other written statements made, or to be made, by us, contain, or
may contain disclosures which are "forward-looking statements".
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This Registration Statement on Form S-3 contains forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "could," "may," "will," "believes,"
"anticipates," "plans," "expects," "projects," "estimates," "intends,"
"continues," "seeks," "predicts," "expectations," variations of such words and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions ("Future Factors") that are
difficult to predict. As a result, because these statements are based on
expectations as to future performance and events and are not statements of fact,
actual events or results may differ materially from those expressed or forecast
in such forward-looking statements. Factors that might cause the Company's
actual results to differ materially from those indicated by such forward-looking
statements include, without limitation, those discussed in our filings with the
Securities and Exchange Commission, including but not limited to our most recent
proxy statement and "Risk Factors" in our most recent Form 10-KSB as well as
Future Factors that may have the effect of reducing our available operating
income and cash balances.
Future Factors include risks associated with the uncertainty of future
financial results; government approval processes; changes in the regulation of
the healthcare and technology industries at either the federal or state levels;
changes in reimbursement for services by government or private payors;
competitive pressures in the healthcare and technology industries and the
Company's response thereto; delays or inefficiencies in the introduction,
acceptance or effectiveness of new products; the impact of competitive products
or pricing; the Company's relationships with customers and partners; cash
expenditures related to possible future acquisitions and expansions; on-going
capital expenditures; the Company's ability to obtain capital in favorable terms
and conditions; increasing price, products and services; U.S. and non-U.S.
competitors, including new entrants; rapid technological developments and
changes and the Company's ability to continue to introduce competitive new
products and services on a timely, cost-effective basis; the mix of products and
services; the availability of manufacturing capacity, components and materials;
the ability to recruit and retain talent; the achievement of lower costs and
expenses; credit concerns in the emerging service provider market; customer
demand for the Company's products and services; U.S. and non-U.S. government and
public policy changes that may affect the level of new investments and purchases
made by customers; changes in U.S. and non-U.S. governmental regulations;
protection and validity of patent and other intellectual property rights;
reliance on large customers and significant suppliers; the ability to supply
customer financing; technological implementation; and cost/financial risks in
the use of large, multiyear contracts; the Company's credit ratings; the outcome
of pending and future litigation; continued availability of financing, financial
instruments and financial resources in the amounts, at the times and on the
terms required to support the Company's future business; general industry and
market conditions and growth rates; and general U.S. and non-U.S. economic
conditions, including interest rate and currency exchange rate fluctuations.
You are cautioned not to unduly rely on such forward-looking statements
when evaluating the information presented herein. These statements should be
considered only after carefully reading this entire Form S-3 and the documents
incorporated herein by reference.
USE OF PROCEEDS
We will receive up to $200,000 in gross proceeds from the exercise of
warrant shares included in this Registration Statement, and up to $15,000,000
from the sale of common stock pursuant to the Private Equity Line Agreement with
Strategic Investment Management, S.A., a British Virgin Islands Corporation
("SIM"). We presently intend to use these proceeds for general working capital.
15
There can be no assurances that any of the outstanding warrants will be
exercised or that any Common Stock in excess of the minimum $1 million in Common
Stock will be sold to SIM pursuant to the terms of the Private Equity Line
Agreement. Pending utilization of the proceeds as described above, the net
proceeds will be deposited in interest bearing accounts or invested in money
market instruments, government obligations, certificates of deposits or similar
short-term investment grade interest bearing investments.
SECURITIES TO BE REGISTERED
GENERAL
Our authorized capital stock consists of 200,000,000 shares of Common
Stock and 20,000,000 shares of Preferred Stock. As ofDecember 31, 2001, there
were 67,827,992 shares of Common Stock issued and outstanding. This number of
shares of Common Stock does not include shares that could be issued upon
conversion or exercise of stock options, debentures and other derivative
securities.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned
of record on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event of our
liquidation, dissolution or winding-up, the holders of shares of Common Stock
are entitled to share equally and ratably in our assets, if any, remaining after
the payment of all our debts and liabilities. Shares of Common Stock have no
preemptive rights, no cumulative voting rights and no redemption, sinking fund
or conversion provision. Holders of shares of Common Stock are entitled to
receive dividends if, as and when declared by our Board of Directors out of
funds legally available, therefore, subject to any dividend restrictions imposed
by our creditors. No dividend or other distribution (including redemptions or
repurchases of shares of capital stock) may be made if, after giving effect to
such distribution, we would not be able to pay our debts as they become due in
the normal course of business, or our total assets would be less than the
minimum of our total liabilities. If we realize net profits in the future, our
policy will likely be to retain such earnings for the operation and expansion of
our business.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Inc., of Denver, Colorado is the transfer agent
and registrar of our Common Stock.
SELLING SECURITY HOLDERS
OVERVIEW
This prospectus relates to periodic offers and sales of up to 16,085,717
shares of Common Stock by the selling security holders listed and described
below and their pledgees, donees and other successors in interest. The number of
shares we are registering is based on the sum of:
* our good faith estimate of the maximum number of shares we may issue
to C.C. Fortune Venture, LLC, Manford Investments, LLC, and View Far
Management Limited under the Subordinated Debentures, as interest;
* our good faith estimate of the maximum number of shares we may issue
to SIM under the Private Equity Line Agreement;
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* the maximum number of shares of Common Stock issuable under common
stock purchase warrants;
* Common Shares issued in lieu of cash for professional and consulting
services, purchase of domain names, and other contractual
arrangements.
Accordingly, the number of shares we are registering for issuance may be
higher than the number we actually issue under those agreements. On the other
hand, if our estimate is too low, we may need to file a new registration
statement with the SEC, which will need to become effective before we can issue
the shares in question or request additional draw downs on the Private Equity
Line Agreement.
PRIVATE PLACEMENT
Pursuant to fully executed subscription agreements, we sold a combination
of $10,000,000 of Subordinated Debentures and Common Stock Purchase Warrants to
three accredited investors in May 2001. The securities were sold in a private
transaction exempt from registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder (the "Private Placement"). The purchasers were C.C.
Fortune Venture, LLC, Manford Investments, LLC, and View Far Management Limited.
CONVERTIBLE SUBORDINATED DEBENTURES
GENERAL TERMS. The Convertible Subordinated Debentures ("Subordinated
Debentures") in the aggregate principal amount of $10,000,000 were issued in May
2001 and have a three year term. Interest payments are to be made quarterly, on
August 1, November 1, February 1, and March 1 during the term. The Subordinated
Debentures initially bear interest at the rate of 13.75%, payable 50% in shares
of our Common Stock and 50% in cash. At any time beginning 1 year after the
issuance date, the holder may elect to receive all interest payments in cash
only, upon which election the interest payable on the Subordinated Debentures
shall be reduced to 12.75%. Such election is permanent. At such times as
interest is payable in part in shares of our Common Stock, the number of shares
of Common Stock we may issue as interest payments is determined by dividing the
amount of the applicable interest payment by the average closing sale price for
our Common Stock for the quarterly trading period prior to the date the interest
shall be due and payable. The value of such interest shares shall be capped at
$15 per share.
INTEREST PAYMENTS IN COMMON STOCK. Assuming that:
* none of the Subordinated Debenture holders elects to have interest
paid in cash only;
* that we make all interest payments on time; and
* that there are no events of default,
the maximum amount of interest payments during the term of the Subordinated
Debentures will be $4,125,000, one half of which ($2,062,500) would be payable
in shares of our Common Stock. It is impossible at this time to determine the
exact number of shares of our Common Stock that would have to be issued to make
such interest payments because the price per share of Common Stock utilized in
the calculation is determined each quarter during the term based upon the
average closing sale price for our Common Stock during each respective quarter.
Based upon the closing sale price for our Common Stock on the NASDAQ
National Market on February 5, 2002 ($0.57), the total number of shares issuable
as interest payments through the term of the Subordinated Debentures would be
3,618,421 shares of Common Stock. In the event:
17
* the average actual share price computed during the quarters
throughout the term is higher or lower than the share price based
on February 5, 2002;
* one or more Subordinated Debenture holders elects to receive
interest payments in cash only;
* we prepay the principal and interest under the Subordinated
Debentures;
* there is an event of default resulting in the increase in the
interest rate to 18%; or
* one or more of the Subordinated Debenture holders converts the
principal and interest due under the Subordinated Debentures to
shares of Common Stock during the term,
then the number of shares of Common Stock to be issued as interest payments
under the Subordinated Debentures may be higher or lower than the number that
has been estimated above. Not all of the 3,618,421 shares of Common Stock
estimated to be issuable as interest payments under the Subordinated Debentures
are included in this prospectus.
ISSUANCE OF COMMON STOCK UPON CONVERSION. In addition to interest
payments, shares of Common Stock may be issued to the Subordinated Debentures
holders in the event they elect to convert the principal and/or interest due
under the Subordinated Debentures to shares of Common Stock. The Subordinated
Debentures holders have the right to convert commencing 6 months after the
issuance date and continuing for the remainder of the term. The per share
conversion price of Common Stock shall be 90% of the average closing sale price
for a share of Common Stock for the 20 trading days immediately prior to the
date of the conversion notice. The conversion price shall in no event be less
than $3.25. Based upon the minimum conversion price of $3.25 per share, and
assuming that all interest payments are timely made and that all holders of the
Debentures elect to convert as soon as possible, the total number of shares
issuable upon the conversion would be 3,076,923 shares of Common Stock. In the
event:
* one or more of the Debentures holders does not elect to convert;
* we prepay the principal and interest under the Debentures prior to
conversion;
* interest payments are not timely made;
* one or more events of default occur; or
* the actual conversion price of a share of Common Stock is higher
than the minimum conversion price,
then the number of shares of Common Stock to be issued on conversion of the
Subordinated Debentures may be higher or lower than the number that has been
estimated above. None of the 3,076,923 shares of Common Stock estimated to be
issuable upon conversion of the Subordinated Debentures are included in this
prospectus.
COMMON STOCK PURCHASE WARRANTS.
GENERAL TERMS. The three accredited investors in the Private Placement
received, in addition to the Subordinated Debentures, Common Stock Purchase
Warrants entitling them to purchase in the aggregate:
* 1,500,000 shares of Common Stock at $3.00 per share;
* 500,000 shares of Common Stock at $4.00 per share; and
* 500,000 shares of Common Stock at $5.00 per share.
The Common Stock Purchase Warrants are exercisable immediately and expire
24 months after the effective date of the registration statement covering the
underlying shares. The number of shares the holders of the Common Stock Purchase
Warrants are entitled to received upon their execution of the Common Stock
Purchase Warrants is subject to adjustment in the event of a stock split, stock
dividend, recapitalization or reclassification of our Common Stock. In the event
of a capital reorganization or reclassification of the Common Stock or any
consolidation or merger of the Company with or into another corporation, or
18
transfer of all or substantially all of our assets, or the payment of a
liquidating distribution, then lawful provision shall be made so that the
holders of the Common Stock Purchase Warrants shall have the right thereafter to
receive upon the exercise of the Common Stock Purchase Warrants the kind and
amount of shares of stock or other securities or property the holders would have
been entitled to receive if, immediately prior to such action the holder had
held the number of shares of Common Stock which were then purchasable upon the
exercise of the Common Stock Purchase Warrants. The Common Stock Purchase
Warrants may only be exercised in increments of 100 shares of Common Stock.
ISSUANCE OF COMMON STOCK UPON EXERCISE. Assuming that no "adjustment
event" (as described above) occurs, the holders of the Common Stock Purchase
Warrants are entitled to receive a total of 2,500,000 shares of Common Stock
upon the exercise of the Common Stock Purchase Warrants. All 2,500,000 shares of
Common Stock underlying the Common Stock Purchase Warrants are not included in
this prospectus.
PRIVATE EQUITY LINE AGREEMENT
In September 2001, we entered into a Private Equity Agreement with SIM in
order to establish a possible source of funding for the development of our
business. The Private Equity Agreement establishes what is sometimes also
referred to as an equity draw down facility, through which SIM has committed to
provide us up to $15,000,000 over a 24 month period, upon our request, in return
for Common Stock we issue to SIM.
THE PUT PROCEDURE AND THE STOCK PURCHASES
We may request a draw down once every 7 days by serving SIM with a put
notice, stating the amount of the draw down that we wish to exercise.
AMOUNT OF THE DRAW DOWN. No draw down can be less than 10,000 shares of
Common Stock, or more than 17.5% of the "average daily trading volume"
multiplied by a factor 5 and divided by the stock price, which is the average of
the lower of the closing bid price or last trade pricefor each day of the 5 day
period consisting of the 2 trading days prior to the trading day the put notice
is deemed to be delivered, the 2 trading days after the trading day the put
notice is deemed to be delivered, and the trading day the put notice is deemed
to be delivered less a 15% discount (provided, however, that if during that 5
trading day period we:
* make a dividend or distribution of our Common Stock;
* subdivide or combine the Common Stock;
* issue additional shares of our Common Stock at a price per share
less than the closing bid price of the Common Stock on the primary
market on which our Common Stock is listed (currently the NASDAQ
National Market) immediately prior to such issuance;
* make a distribution of our assets or evidence of indebtedness to the
holders of our Common Stock as a dividend in liquidation or by way
of return of capital or other than as a dividend payable out of
earnings or surplus or any distribution to such holders made in
respect of the sale of all or substantially all of our assets; or
* take any other action affecting the number of our outstanding shares
of Common Stock, which, in SIM's opinion, would have a materially
adverse effect upon the rights of SIM at the time of the put;
then, a new 5 trading day period shall begin on the trading day immediately
after the public announcement of such event and end on the fifth trading day
thereafter). The "average daily trading volume" means the average of the daily
trading volumes for the Common Stock on the primary market on which the Common
19
Stock is then listed (currently the NASDAQ National Market) for 8 of the 10
trading days immediately preceding such date, after removing the trading day
with the highest trading volume and the trading day with the lowest trading
volume.
NUMBER OF SHARES. The number of put shares of Common Stock that SIM must
purchase pursuant to a put notice is determined by dividing the investment
amount stated in the put notice by the "purchase price" of the Common Stock on
the trading day on which the put notice is delivered. The "purchase price" means
85% of the lesser of:
* the closing bid price (as reported by Bloomberg L.P.) of the Common
Stock on the principal market on which it is then listed on the day
the put notice is deemed served; and
* the lowest trade price of the Common Stock (as reported by Bloomberg
L.P.) during such trading day.
MINIMUM DOLLAR AMOUNT OF ALL PUTS. We must issue put notices and sell
shares of our Common Stock to SIM, pursuant to the Private Equity Line
Agreement, totaling at least $1,000,000.
MAXIMUM PUT. We can put $15,000,000 of our Common Stock to SIM, but no
more than19.9% of our outstanding shares of Common Stock.
SAMPLE CALCULATION OF STOCK PURCHASES.
The following is an example of the calculation of the draw down amount and
the number of shares of Common Stock we would issue to SIM in connection with
that draw down based on the assumptions noted in the discussion below.
For purposes of this example, suppose that we serve a put notice on SIM in
the amount of $50,000 onFebruary 28, 2002. Suppose further that the average
daily trading volume for 8 of the 10 trading days immediately preceding February
28, 2002 is 350,000 shares. Suppose further that the closing bid price for the
Common Stock on the NASDAQ National Market on February 28th was $0.75 per share,
and that the lowest trade price of the Common stock on the NASDAQ National
Market on February 28th was $0.74per share (as reported by Bloomberg L.P.).
Based on the foregoing, the amount of the draw down is $50,000, and the
number of shares of Common Stock to be put to SIM is $50,000 (the draw down
amount) divided by $0.629 (85% of the lesser of the closing bid price and the
lowest trade price for the Common Stock on the NASDAQ National Market on
February 28th), which equals 79,491 shares of Common Stock (after rounding).
That amount is both greater than the minimum put amount of 10,000 shares of
Common Stock, and less than the maximum put amount of 306,250 shares of Common
Stock (17.5% of 350,000 the average daily trading volume times 5)). Assuming the
79,491shares of Common Stock is both less than 19.9% of the then outstanding
Common Stock, and would not increase SIM's position in Common Stock above 19.9%
of the then outstanding Common Stock, and that all other conditions set forth in
the Private Equity Line Agreement have been satisfied, we would be obligated to
deposit a certificate representing 79,491shares of Common Stock with the escrow
agent, and SIM would be obligated to wire $50,000 to the escrow agent, in each
case within 5 trading days of February 28th. Distribution of the draw down
amount to us and the 79,491shares of Common Stock to SIM would then occur
pursuant to the terms of the escrow agreement.
20
NECESSARY CONDITIONS BEFORE SIM IS OBLIGATED TO PURCHASE SHARES OF COMMON STOCK
The following principle conditions must be satisfied before SIM is
obligated to purchase any shares of Common Stock that we may "put" from time to
time:
* a registration statement for the resale of the Common Stock to be
purchased by SIM must have been filed and declared effective by the
SEC and must remain effective and available as of the condition
satisfaction date and (1) neither SIM nor we shall have received
notice that the SEC has issued or intends to issue a stop order with
respect to the registration statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the registration
statement, either temporarily or permanently, or intends or has
threatened to do so, and (2) no other suspension of the use or
withdrawal of the effectiveness of the registration statement or
related prospectus shall exist;
* we shall have performed, satisfied and complied in all material
respect with all covenants, agreements and conditions required by
the Private Equity Line Agreement and our representations and
warranties in the Private Equity Line Agreement shall be true and
correct;
* no statute, rule, regulation, executive order, decree, ruling or
injunction shall be in effect that prohibits the transactions
contemplated by the Private Equity Line Agreement or that otherwise
has a material adverse effect, and no actions, suits or proceedings
shall be in progress, pending or threatened by any person, that seek
to enjoin or prohibit the transactions contemplated by the Private
Equity Line Agreement or otherwise could reasonably be expected to
have a material adverse effect;
* trading in our Common Shares must not have been suspended by the
SEC, the principal market on which the Common Stock is then listed
or the NASD and the Common Stock shall have been approved for
listing or quotation on and shall be then trading on the NASDAQ
National Market, the American Stock Exchange, the New York Stock
Exchange or the OTC Bulletin Board, and the issuance of the shares
of Common Stock in question shall not violate the shareholder
approval requirements of the principal exchange on which the Common
Stock is then listed;
* we shall have delivered to SIM, within 5 days of the effective date
of the registration statement covering the Common Stock, an opinion
of our counsel;
* no dispute between us and SIM shall exist regarding the adequacy of
the disclosure contained in the registration statement covering the
Common Stock to be issued;
* SIM shall not be obligated to purchase and pay for any shares of
Common Stock pursuant to a put notice if the number of shares then
to be purchased, together with all shares of Common Stock then owned
by SIM, would result in SIM owning greater than 9.9% of all of the
Common Stock that would be outstanding after said purchase;
* the minimum average of the daily trading volumes for the Common
Stock on the principal market on which it is then listed for 8 of
the 10 trading days immediately preceding such date (after removing
the trading day with the highest trading volume and the trading day
with the lowest trading volume) equals or exceeds 1,000 shares per
trading day; and
* at least 7 days shall have elapsed since the immediately prior put
date.
CLOSINGS OF COMMON STOCK PURCHASES.
On the 5th trading day following the date a put notice is deemed to have
been served, (1) we must deliver into escrow, pursuant to the terms of an escrow
agreement between SIM and us, one or more certificates evidencing that number of
shares of Common Stock to be purchased by SIM pursuant to a duly served put
notice, (2) SIM shall deliver into escrow the investment amount specified in the
duly served put notice, by wire transfer or immediately available funds, and (3)
both parties shall provide each other with all other documents required by the
Private Equity Line Agreement. Payment of the investment amount to us and the
delivery of the certificates to SIM shall occur in accordance with the terms of
the escrow agreement. We are responsible for all expenses of the escrow agent.
21
ADDITIONAL OBLIGATIONS.
Pursuant to the terms of the Private Equity Line Agreement, we are
obligated to:
* cause the registration statement covering the shares of Common Stock
to be sold under the Private Equity Line Agreement to remain in full
force and effect and to comply in all respects with the terms
thereof;
* reserve that number of shares of Common Stock necessary to meet our
obligations under the Private Equity Line Agreement;
* maintain the listing of our Common Stock;
* cause our Common Stock to continue to be registered under Section 12
of the Securities Act;
* preserve our corporate existence;
* provide SIM with copies of all documents that we file with the SEC;
* notify SIM upon the occurrence of certain events relating to the
registration statement covering the shares of Common Stock to be
sold pursuant to the Private Equity Line Agreement;
* within 10 days after the commencement of each calendar quarter
during the term of the Private Equity Line Agreement, notify SIM as
to our reasonable expectations as to the dollar amount we intend to
raise during such calendar quarter, if any, through the issuance of
put notices to SIM;
* refrain from effecting any merger or consolidation with or into, or
a transfer of all or substantially all of our assets, to another
entity unless the resulting successor or acquiring entity (if not
us) assumes by written instrument the obligation to deliver to SIM
such shares of stock and/or securities as SIM is entitled to receive
pursuant to the Private Equity Line Agreement; and
* refrain from entering into any other agreements, arrangements or
understandings granting us the right to put shares of our securities
to one or more investors in private placements.
TERMINATION OF PRIVATE EQUITY LINE AGREEMENT
The Private Equity Line Agreement will terminate on the earlier of:
* 24 months after the earlier of (1) the effective date of the
registration statement registering for resale the shares of Common
Stock to be sold to SIM under the Private Equity Line Agreement and
(2) such earlier date as SIM and us agree in writing; and
* the date on which we have made puts of Common Stock in an aggregate
amount greater than or equal to $15,000,000, or 19.9% of then
outstanding Common Stock.
SIM has the right to terminate the Private Equity Line Agreement in the
event that:
* the registration statement covering the shares of Common Stock to be
issued under the Private Equity Line Agreement is not effective
within 120 days after the date of the Private Equity Line Agreement;
* there shall occur any stop order or suspension of trading of the
Common Stock or any of our other securities;
* we fail to amend the registration statement covering the shares of
Common Stock to be issued under the Private Equity Line Agreement as
required in order to maintain its compliance with the disclosure
requirements of the Securities Act;
* an event happens that has a material adverse effect on us;
* we experience a change in control;
22
* we fail to comply with the provisions of the Private Equity Line
Agreement regarding (1) maintaining the listing of our Common Stock;
(2) maintaining the registration of our Common Stock under Section
12 of the Securities Act; (3) keeping the certificates evidencing
the shares of Common Stock to be issued under the Private Equity
Line Agreement free from legends, except our standard restrictive
legend; and (4) maintaining our corporate existence.
MISCELLANEOUS
COSTS AND EXPENSES. We have agreed to pay the reasonable fees, expenses
and disbursements of SIM's continuing due diligence with respect to the Private
Equity Line Agreement, including fees of counsel in connection with SIM's
counsels' participation in our filing of a registration statement relating to
the Common Stock put to SIM pursuant to the terms of the agreement. In no event
shall such expenses aggregate more than 1% of our net proceeds in excess of
$1,000,000 from puts of our Common Stock to SIM.
COMPLIANCE WITH SECURITIES LAWS AND PROHIBITION ON SHORT SALES. The
Private Equity Line Agreement provides that SIM's purchase and resale of shares
of Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of the
principal market on which our Common Stock is then listed, and that SIM shall
not engage in any short sale or hedging transaction prohibited by Rule 10(b)(6)
promulgated under the Securities Act or any other provisions, rule or regulation
of the federal securities laws.
COMMON STOCK TO BE ISSUED PURSUANT TO PRIVATE EQUITY LINE AGREEMENT.
Pursuant to the terms of the Private Equity Line Agreement, we may put up
to a maximum of $15,000,000 of Common Stock to SIM during the two year term of
the agreement, subject to certain restrictions. The number of shares of Common
Stock issuable upon the serving of a put notice is determined by dividing the
investment amount stated in the put notice by the "purchase price" of the Common
Stock on the trading day on which the put notice is delivered. The "purchase
price" shall mean 85% of the lesser of (1) the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the principal market on which it is then
listed on the day the put notice is deemed served and (2) the lowest trade price
of the Common Stock (as reported by Bloomberg L.P.) during such trading day.
Assuming that we elect to put the maximum amount allowable ($15,000,000), and
based upon a per share price of Common Stock equal to $1.00, the maximum number
of shares issuable to SIM under the Private Equity Line Agreement is 15,000,000
shares of Common Stock. Of that amount, 10,000,000 shares of Common Stock
estimated to be issuable pursuant to the Private Equity Line Agreement are
included in this registration statement.
SALES OF COMMON STOCK BY SELLING SECURITY HOLDERS
This registration statement relates to periodic offers and sales of up to
8,691,498 shares of common stock by the selling security holders and their
pledgees, donees and other successors in interest. The following table sets
forth:
* the name of each selling security holder,
* the number of shares owned and
* the number of shares being registered for resale by each selling
security holder.
All of the shares being registered for resale under this registration
statement for the selling security holders may be offered hereby. Because the
selling security holders may sell some or all of the shares owned by them which
are included in this registration statement, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the shares, no estimate can be given as to the number of shares being offered
hereby that will be held by the selling security holders upon termination of any
offering made hereby. We have, therefore, for the purposes of the following
table assumed that:
23
* we will elect to draw down $10,000,000, pursuant to the terms of the
Private Equity Line Agreement;
* that the selling security holders will exercise the warrants
described below; * that the selling security holders will elect to
receive interest payments under the Subordinated Debentures partly
in shares of Common Stock and partly in cash; and
* that the selling security holders will elect to sell all of the
shares owned by them which are being offered hereby.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities and
includes any securities which the person has the right to acquire within 60 days
through the conversion or exercise of any security or other right. The
information as to the number of shares of Common Stock owned by each selling
security holder is based upon the information contained in a record list of our
shareholders at November 13, 2001. For purposes of this filing, the Company has
made the assumption that all of the shares included in this Registration
Statement will be sold, however there is no contractual or other arrangements
requiring any of these shares to be sold.
NUMBER OF SHARES TO SHARES TO BE OWNED
NAME OF SELLING SECURITY HOLDER SHARES OWNED BE OFFERED AFTER OFFERING
------------------------------- -------------- --------------- --------------------
C. C. Fortune Venture, LLC (1) 5,517,207 2,171,053 3,346,154
Manford Investments, LLC (2) 2,427,304 1,311,919 1,115,385
View Far Management Limited (3) 4,076,842 723,684 3,353,158
Strategic Investment Management, S.A. (4) 10,000,000 10,000,000 0
Syzex Corporation (5) 181,818 181,818 0
Angela Sabella (6) 848,235 588,235 260,000
Jeff Spetalnick (7) 3,120 3,120 0
Park Joonegun (8) 6,763 3,120 3,643
Integrated Management Group, Inc. (9) 15,000 15,000 0
Business Management Partners (10) 200,000 200,000 0
Thomas, Kayden, Horstemeyer & Risley, LLP (11) 69,768 69,768 0
Raymond James & Associates, Inc. (12) 25,000 25,000 0
Cardio Command (13) 125,000 125,000 0
Vernon International Limited (14) 1,050,000 250,000 800,000
New Master Investments Limited (15) 339,286 150,000 189,286
Top Merit Limited (16) 100,000 100,000 0
Atlas Pearlman, P.A. (17) 168,000 168,000 0
Totals 25,153,343 16,085,717 9,067,626
========== ========== ==========
(1) Includes (1) 42,231 shares of our Common stock presently issued and
outstanding (2) 2,128,822 shares of our Common Stock issuable pursuant to
the terms of a Subordinated Debenture as payment of 50% of the total
interest payments (3) Common shares issuable upon the exercise of a
warrant expiring 24 months after the effective date of the registration
statement covering the shares: 900,000 shares of our Common Stock at $3.00
per share, 300,000 shares of our Common Stock at $4.00 per share, and
300,000 shares of our Common Stock at $5.00 per share and (4) 1,846,154
shares of our Common Stock upon the election to convert the principal and
interest under the Subordinated Debenture into shares of our Common Stock;
Ms. Angela Sabella is the control person of C.C. Fortune Venture, LLC and
is subject to a 13D filing.
(2) Includes (1) 601,717 shares of our Common stock presently issued and
outstanding; (2) 710,202 shares of our Common Stock issuable pursuant to
the terms of a Subordinated Debenture as payment of 50% of the total
interest payments (3) Common shares issuable upon the exercise of a
warrant expiring 24 months after the effective date of the registration
statement covering the shares: 300,000 shares of our Common Stock at $3.00
per share, 100,000 shares of our Common Stock at $4.00 per share, and
100,000 shares of our Common Stock at $5.00 per share and (4) 615,385
shares of our Common Stock upon the election to convert the principal and
interest under the Subordinated Debenture into shares of our Common Stock.
Mr. Anthony Tang is the control person of Manford Investments, LLC.
24
(3) Includes (1) 1,303,238 shares of the our Common stock presently issued and
outstanding; (2) 708,219 shares of our Common Stock issuable pursuant to
the terms of a Subordinated Debenture as payment of 50% of the total
interest payments, and (3) warrants entitling to purchase up to 950,000
shares of the Company's common stock at exercise prices ranging from $1.25
to $18.44 per share (4) Common shares issuable upon the exercise of a
warrant expiring 24 months after the effective date of the registration
statement covering the shares: 300,000 shares of our Common Stock at $3.00
per share, 100,000 shares of our Common Stock at $4.00 per share, and
100,000 shares of our Common Stock at $5.00 per share and (5) 615,385
shares of our Common Stock upon the election to convert the principal and
interest under the Subordinated Debenture into shares of our Common Stock.
Mr. K.L. Wong is the control person of View Far Management Limited and is
subject to a 13D filing.
(4) Includes 10,000,000 shares of our Common Stock issuable, at our option,
pursuant to the terms of a Private Equity Line Agreement. Mr. Richard
Pritchard is the control person of Strategic Investment Management, S.A.
(5) Shares issued as consideration under an agreement for marketing and sales
services. Mr. Patrick Thompson is the control person for Syzex Corporation
(6) Includes (1) 698,235 shares of our Common Stock which are presently issued
and outstanding, and (2) warrants to purchase up to150,000 shares of our
Common Stock at an exercise price of $1.25 per share
(7) Shares issued as consideration for the purchase of a domain name.
(8) Includes (1) 3,120 shares of our Common Stock are presently issued and
outstanding which were issued as consideration for the purchase of a
domain name; and (2) warrants to purchase up to 3,643 shares of our common
stock at an exercise price of $3.50 per share.
(9) Shares issued as consideration for the purchase of a domain name. Mr. Eric
Nathanson is the control person for Integrated Management.
(10) Includes warrants to purchase up to 200,000 shares of our Common Stock at
an exercise price of $1.00 per share. Mr. Richard Harris is the control
person for Business Management Partners.
(11) Shares issued as consideration for payment of legal fees. Mr. Scott
Horstemeyer is a partner with Thomas, Kayden, Horstemeyer & Risley, LLP
(12) Shares issued as consideration under a contractual arrangement. Mr. Frank
Hancock is a partner with Raymond James & Associates, Inc.
(13) Shares issued in settlement of a contractual arrangement. Mr. Maynard
Ramsey III is the control person of CardioCommand, Inc.
(14) Includes (1) 750,000 shares of our Common Stock are presently issued and
outstanding; (2) warrants to purchase up to 200,000 shares of our Common
Stock at an exercise price of $1.50 per share and up to 100,000 shares of
our Common Stock at an exercise price of $31.50 per share. Mr. Joseph W.
K. Levy is the control person of Vernon International Limited.
(15) Includes (1) 250,000 shares of our Common Stock are presently issued and
outstanding; (2) warrants to purchase up to 89,286 shares of our Common
Stock at an exercise price of $4.20 per share. Mr. Anthony Cheung is the
control person of New Master Investments Limited.
(16) Includes (1) 100,000 shares of our Common Stock are presently issued and
outstanding. Mr. Anthony Cheung is the control person of Top Merit
Limited.
(17) Shares issued for services rendered to us. Mr. Charles Pearlman is the
control person of Atlas Pearlman, P.A.
None of the selling security holders have, or within the past three years
have had, any position, office or other material relationship with us or any of
our predecessors or affiliates, except for Mr. Richard Harris, who is an officer
and director of CyberEurocare, Ltd. and CyberEurocare, AB and other than as
described previously in this section. Raymond James & Associates is a registered
broker-dealer that received its shares in the ordinary course of business in the
transaction described in footnote 12 above. To our knowledge Raymond James &
Associates does not have any arrangement with any person to participate in the
distribution of such securities.
25
We have agreed to pay the full costs and expenses in connection with the
issuance, offer, sale and delivery of the shares, including all fees and
expenses in preparing, filing and printing the registration statement and
prospectus and related exhibits, amendments and supplements thereto and mailing
of those items. We will not pay selling commissions and expenses associated with
any sale by the selling security holders.
PLAN OF DISTRIBUTION
GENERAL
The shares of Common Stock owned, or which may be acquired, by the selling
security holders may be offered and sold by means of this registration statement
from time to time as market conditions permit in the principal market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. These shares may be
sold by one or more of the following methods, without limitation:
* a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
* purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this registration
statement;
* ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
* face-to-face transactions between sellers and purchasers without a
broker/dealer.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. Such brokers or
dealers may receive commissions or discounts from selling security holders in
amounts to be negotiated.
Other than SIM, the selling shareholders and any broker/dealers who act in
connection with the sale of the shares hereunder may be deemed to be
"underwriters" within the meaning of the Securities Act and the 1934 Act, and
any commissions received by them and profit on any resale of the shares as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act. SIM is an "underwriter" in connection with the resale of its
share of Common Stock. We have been informed by SIM that there are no existing
arrangements between it and any other stockholder, broker, dealer or underwriter
in relation to the distribution of this registration statement. We have agreed
to indemnify the selling security holders, SIM and any securities broker/dealers
who may be deemed to be an underwriter against certain liabilities, including
liabilities under the Securities Act.
We have advised the selling security holders that they and any securities
broker/dealers or others who may be deemed to be statutory underwriters will be
subject to the registration statement delivery requirements under the Securities
Act. We have also advised each selling security holder that in the event of a
"distribution" of the shares owned by the selling security holder, such selling
security holder, any "affiliated purchasers" and any broker/dealer or other
person who participates in such distribution, and SIM at all times, may be
subject to Rule 102 under the Securities Exchange Act of 1934 (the "1934 Act")
until their participation in that distribution is completed. Rule 102 makes it
unlawful for any person who is participating in a distribution to bid for or
purchase stock of the same class as is the subject of the distribution. A
"distribution" is defined in Rule 102 as an offering of securities "that is
distinguished from ordinary trading transactions by the magnitude of the
offering and the presence of special selling efforts and selling methods." We
have also advised the selling security holders and SIM that Rule 101 under the
1934 Act prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of the common stock in
connection with this registration statement.
The selling security holders do not intend to distribute or deliver the
prospectus by means other than by hand or mail.
26
UNDERWRITING COMPENSATION
The underwriting compensation for SIM will depend on the amount of
financing that we obtain under the Private Equity Line Agreement. SIM will
purchase shares under the Private Equity Line Agreement for a purchase price
equal to 85% of the lesser of (1) the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the principal market on which it is then
listed (currently the NASDAQ National Market) on the day the put notice in
question is deemed served, and (2) the lowest trade price of the Common Stock
(as reported by Bloomberg L.P.) during such trading day. Assuming that we draw
down the maximum amount allowable under the Private Equity Line Agreement, SIM's
underwriting compensation would total $2,250,000.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C., and at its offices in New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the
operation of the public reference rooms. Copies of our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below, any of such documents filed since the date this
registration statement was filed and any future filings with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act until the offering is
completed:
* our annual report on Form 10-KSB for the fiscal year ended December
31, 2000,
* our proxy statement filed on May 9, 2001, for our annual meeting of
shareholders,
* our quarterly reports on Forms 10-Q for the periods ended March 31,
2001, June 30, 2001, and September 30, 2001,
* our current reports on Form 8-K filed on June 1, 2001, June 28,
2001, September 17, 2001, October 15, 2001, October 31, 2001,
January 15, 2002, January 16, 2002, and February 11, 2002.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address and telephone number:
Corporate Secretary
CyberCare, Inc.
2500 Quantum Lakes Drive, Suite 1000
Boynton Beach, Florida 33426-8308
Telephone (561) 742-5000
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for us by Atlas Pearlman, P.A., Fort Lauderdale, Florida. Atlas
Pearlman, P.A. owns 168,000 shares of the Company's Common Stock.
EXPERTS
Ernst & Young LLP, Certified Public Accountants, have audited our
consolidated financial statements included in our Annual Report on Form 10-KSB
for the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
27
==============================================================
16,085,717 SHARES
CYBERCARE, INC.
COMMON STOCK
FEBRUARY , 2002
==============================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
Registration Fees - Securities and Exchange Commission $ 1,000*
Listing of Additional Shares - The Nasdaq Stock Market 35,000*
Cost of Printing 15,000*
Legal Fees and Expenses 15,000*
Accounting Fees and Expenses 5,000*
Blue Sky Fees and Expenses --*
Miscellaneous --*
-------
Total $71,000*
=======
*Estimated
Item 15. Indemnification of Directors and Officers.
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of a Florida corporation. Our
articles of incorporation and bylaws provide that we shall indemnify to
the fullest extent permitted by the Florida Business Corporation Act any
person whom we may indemnify under the act.
The provisions of Florida law that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies including injunctive or other forms of non-monetary
relief will remain available. In addition, each director will continue to
be subject to liability for:
* violations of criminal laws, unless the director has
reasonable cause to believe that his or her conduct was lawful
or had no reasonable cause to believe his conduct was
unlawful,
* deriving an improper personal benefit from a transaction,
* voting for or assenting to an unlawful distribution, and
* willful misconduct or conscious disregard for our best
interests in a proceeding by or in our right to procure a
judgment in its favor or in a proceeding by or in the right of
a shareholder.
The statute does not affect a director's responsibilities under any
other law, including federal securities laws.
The effect of Florida law, our articles of incorporation, as
amended, and our bylaws, as amended, is to require us to indemnify our
officers and directors for any claim arising against those persons in
their official capacities if the person acted in good faith and in a
manner that he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
To the extent indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers or control
persons, we have been informed that in the opinion of the SEC, this
indemnification is against public policy as expressed in the Securities
Act and is unenforceable.
Item 16. Exhibits and Consolidated Financial Statement Schedules.
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Exhibit No. Description
4.1 Form of Subordinated Debenture (1)
5.1 Opinion of Atlas Pearlman, P.A. *
10.1 Form of Private Equity Line Agreement (1)
10.2 Letter of Agreement between Business Management Partners, Inc.
and CyberCare, Inc. dated August 15, 2001 (1)
10.3 Settlement Agreement by and among CyberCare Technologies,
Inc., CyberCare, Inc., CardioCommand, Inc., and Maynard Ramsey
III dated November 13, 2001(1)
10.4 Letter Agreement between Raymond James & Associates, Inc.,
CyberCare, Inc. and CyberCare Technologies, Inc. dated October
12, 2001 (1)
10.5 Letter of Agreement between Syzex Corporation and CyberCare
Technologies, Inc. dated September 25, 2001.(1)
10.6 Letter Agreement between Thomas, Kayden, Horstemeyer and
Risley, L.L.P. and CyberCare, Inc. dated September 11,
2001.(1)
10.7 Assignment Agreement between Jeff Spetalnick and CyberCare,
Inc. dated April 28. 2001 (1)
10.8 Assignment Agreement between Integrated Management Group, Inc.
and CyberCare, Inc. dated August 9, 2000.(1)
10.9 Assignment Agreement between Joongeun Park and CyberCare,Inc.
dated May 15, 2001 (1)
10.10 Letter agreement between Tri Cap Securities Inc, Anthony Chung
and CyberCare, Inc. dated September 21, 2001 (1)
10.11 Letter Agreement between Atlas Pearlman, P.A. and CyberCare,
Inc. dated February 11, 2002 *
23.1 Consent of Independent Certified Public Accountants*
23.2 Consent of Atlas Pearlman, P.A. (contained in Exhibit 5) *
24 Power of Attorney. Reference is made to signature page.
-----------------------
* Filed herewith
(1) Previously filed
Item 17. Undertakings.
CyberCare will:
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
i. Include any prospectus required by section 10(a)(3) of the
Securities Act;
ii. Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
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iii. Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
4. For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) of
Section 15(d) of the 1934 Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 159d) of the 1934 Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
5. Deliver or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or rule 14c-3 under the
1934 Act; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, we
certify that we have reasonable grounds to believe that we meet all of the
requirements for filing on Form S-3 and have duly caused this Amendment No. 1
Registration Statement to be signed on our behalf by the undersigned, thereunto
duly authorized, in the City of Boynton Beach and the State of Florida, on the
February 12, 2002_.
CYBERCARE, INC.
By: /s/ STEVEN M. COHEN
---------------------------------
Steven M. Cohen
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven M. Cohen as his or her
attorney-in-fact, with the power of substitution, for him or her in any and all
capacities, to sign any amendment or post-effective amendment to this
Registration Statement on Form S-3 or abbreviated registration statement
(including, without limitation, any additional registration filed pursuant to
Rule 462 under the Securities Act of 1933) with respect hereto and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his or her substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
----------- ------- ------
/s/ JACK HIGHT Chairman of the Board February 12, 2002
-------------------------------
Jack Hight
/s/ JOSEPH FORTE Chief Executive Officer, President, February 12, 2002
------------------------------- and Director
Joseph Forte
/s/ STEVEN M. COHEN Chief Financial Officer February 12, 2002
-------------------------------
Steven M. Cohen
/s/ DANA J. PUSATERI Executive Vice President February 12, 2002
------------------------------- and Director
Dana J. Pusateri
/s/ DANIEL BIVINS Senior Vice President February 12, 2002
------------------------------- and Director
Daniel Bivins
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/s/ THEODORE J. ORLANDO* Director February 12, 2002
-------------------------------
Theodore J. Orlando
/s/ TERRY LAZAR* Director February 12, 2002
-------------------------------
Terry Lazar
/s/ ALAN ADELSON* Corporate Secretary and Director February 12,, 2002
-------------------------------
Alan Adelson
/s/ PETER MURPHY* Director February 12, 2002
-------------------------------
Peter Murphy
/s/ ZACHARIAH P. ZACHARIAH* Director February 12, 2002
-------------------------------
Zachariah P. Zachariah
* By Attorney In Fact
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