PROSPECTUS Filed pursuant to Rule 424(b)(1)
under the Securities Act of 1933,
as amended (Registration Statement
No. 333-95609)
12,145,151 SHARES
ECHOCATH, INC.
P.O. BOX 7224
PRINCETON, NEW JERSEY 08543
(609) 987-8400
CLASS A COMMON STOCK
The shareholders of EchoCath, Inc. as described under the caption "SELLING
SHAREHOLDERS" on page 13 of this prospectus are offering and selling up to
12,145,151 shares of EchoCath Class A Common Stock (the "Shares") under this
prospectus. The shares of Class A Common Stock being offered include: (i)
7,206,500 shares which may be issued upon the conversion of $2,525,000 principal
amount convertible promissory notes, plus accrued interest through November 1,
2000 and (ii) 4,938,651 shares which may be issued upon the exercise of certain
outstanding warrants (the "Warrants"). The Convertible Notes and the Warrants
were previously issued by us in private placement transactions. See "SELLING
SHAREHOLDERS." We will not receive any part of the proceeds from the sale of the
Shares.
YOU SHOULD CAREFULLY REVIEW "RISK FACTORS" BEGINNING ON PAGE 3 FOR A
DISCUSSION OF THINGS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR CLASS A
COMMON STOCK.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Our Class A Common Stock is included on the NASD OTC Bulletin Board under
the symbol "ECHTA."
The date of this Prospectus is February 29, 2000
<PAGE>
ECHOCATH, INC.
TABLE OF CONTENTS
-----------------
Page
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Risk Factors.............................................................. 3
Where You Can Find More Information....................................... 11
Use of Proceeds........................................................... 13
Selling Shareholders...................................................... 13
Plan of Distribution...................................................... 17
Legal Matters............................................................. 18
Experts................................................................... 18
Indemnification of Directors and Officers................................. 19
<PAGE>
RISK FACTORS
SOME INFORMATION CONTAINED IN THIS PROSPECTUS MAY CONTAIN "FORWARD-LOOKING
STATEMENTS." SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF WORDS SUCH AS
"BELIEVE," "ANTICIPATE," AND "EXPECT." THESE STATEMENTS DISCUSS FUTURE
EXPECTATIONS, CONTAIN PROJECTIONS OR STATE OTHER "FORWARD-LOOKING INFORMATION."
THE FACTORS DISCUSSED BELOW COULD CAUSE ACTUAL RESULTS AND DEVELOPMENTS TO BE
MATERIALLY DIFFERENT FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH STATEMENTS. YOU
SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE
YOU DECIDE TO PURCHASE SHARES OF OUR CLASS A COMMON STOCK.
WE HAVE A LIMITED COMMERCIAL OPERATING HISTORY
We have a limited operating history. You should consider our business and
prospects in light of the risks and uncertainties encountered by technology
companies in evaluating whether to invest in our Class A Common Stock. There are
many reasons why we may not be successful in implementing our strategy,
including:
o any inability to complete the design and manufacture of our products;
o any inability to achieve market acceptance of our products;
o our reliance on third party manufacturing for certain components of
our products;
o our need to expand distribution networks;
o any inability to respond effectively to competitive pressures;
o any loss of key personnel; and
o any failure to comply with governmental regulations.
WE HAVE INCURRED LOSSES AND EXPECT FUTURE LOSSES
We have incurred net losses since we started operations. As of November 30,
1999, we had incurred a cumulative net loss of approximately $18.9 million. In
addition, at November 30, 1999, we had a working capital deficit of
approximately $701,000 and a shareholders' deficit of approximately $2.2
million. We expect to conduct significant additional research, development and
testing activities and to incur substantial additional expenses in establishing
a marketing and distribution presence and other general administrative expenses.
As a result, we expect to continue to experience operating losses for the
foreseeable future.
We will need to generate significant revenues in the future before we will
be able to achieve and maintain profitability. Our business strategies may not
be successful and we may not be profitable in any future period. If we do become
profitable, we cannot be certain that we can sustain or increase profitability
on a quarterly or annual basis.
<PAGE>
WE WILL REQUIRE ADDITIONAL FUNDING TO SATISFY OUR FUTURE CAPITAL EXPENDITURE
NEEDS
Our future revenues may not be sufficient to support the expenses of our
operations and the expansion of our business. We may therefore need additional
equity or debt capital to finance our operations as we develop our products and
expand our sales capabilities. We will need to continue to obtain external
sources of financing, including public equity or debt offerings, private
placements of equity or debt and collaborative or other arrangements with
corporate partners. However, we have no binding commitments from any third
parties to provide funds to us and, as a result, financing may not be available
when needed or may not be available on acceptable terms. If we are unable to
obtain financing, we may be required to delay, reduce or eliminate some or all
of our research and development and/or sales and marketing efforts.
ABILITY TO FUNCTION AS A GOING CONCERN
The report of our auditors covering the August 31, 1999 financial
statements contains an explanatory paragraph that states that our recurring
losses from operations, net capital deficiency and negative working capital
raise substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
PHYSICIANS AND OTHER HEALTHCARE PROVIDERS MAY NOT PURCHASE OUR PRODUCTS
We have not sold a significant quantity of our products commercially. The
market for our products is new and untested and we do not know if physicians or
other healthcare providers will accept our products or purchase them when
available. The commercial success of our products will depend upon the
acceptance of our products by the medical community as safe, useful and
cost-effective. Use of our products will require training for physicians who
currently do not use ultrasound measuring instruments. The time required to
complete such training may be substantial and could result in a delay or a
decrease in market acceptance.
Physicians and other healthcare providers will not purchase our products
unless they determine that it is preferable to other means of obtaining certain
blood flow information and that the benefits to the patient and physician
outweigh the costs of purchasing our products. As a result, we may be required
to expend substantial additional funds and time in order to demonstrate the
safety, efficacy and reliability of our products to potential customers.
RELIANCE ON EXCLUSIVE MARKETING AND DISTRIBUTION ARRANGEMENTS
We have given certain companies exclusive marketing and distribution rights
for some of our technologies in certain territories. These agreements restrict
us from distributing the technologies and products covered by the agreements.
These restrictions may limit our ability to collaborate with other parties on
terms more favorable to us. In addition, the amount of resources and the time
that any of these companies devote toward marketing our products is not within
our control. We cannot be certain that future marketing partners will devote
sufficient resources to our products and technologies or that they will not
pursue competitive products on their own or in collaboration with others. To
date, we have not received any royalty payments from any licensing agreement.
<PAGE>
THE MARKET FOR FLOW EVALUATION PRODUCTS IS HIGHLY COMPETITIVE
The existing market for flow evaluation products is intensely competitive
and such competition is expected to increase. Some of our proposed products are
expected to compete against other types of ultrasound systems (such as duplex
Doppler, transit-time, or Doppler-wire systems) as well as non-ultrasound
systems, for example using contrast agents with X-ray or MRI imaging products.
New manufacturers of innovative devices could also enter the market with
competitive products. In addition, many of our competitors are engaged in
research and development of new devices that may address the same clinical
applications as our products. Academic institutions, hospitals, governmental
agencies and other public and private research organizations are also conducting
research and development and seeking patent protection for competing products or
technologies. We expect competition to increase as potential and existing
competitors begin to enter the market and/or modify their existing products to
compete directly with our products. Our primary competitors may have better name
recognition, significantly greater financial and technological resources and
existing relationships with some of our potential customers. Our competitors may
be able to use their existing relationships to discourage customers from
purchasing our products. In addition, our competitors may be able to devote
greater resources to the development, promotion and sale of new or existing
products, thereby allowing them to respond more quickly to new or emerging
technologies and changes in customer requirements. Our success will depend, in
part, on the degree of clinical acceptance of our new technique as opposed to
competing technologies and on the acceptance of our products for flow evaluation
applications.
WE HAVE LIMITED MANUFACTURING AND ASSEMBLY EXPERIENCE
We have limited manufacturing and assembly experience and have not yet
manufactured any of our products in significant quantity. We cannot be certain
that we will be able to establish commercial scale manufacturing operations. If
we are unable to establish sufficient manufacturing operations, we will need to
retain third parties for the manufacturing and assembly of our products. We
cannot be certain that such third parties will deliver our products in a timely
manner and on a competitive basis. In addition, we are dependent upon
third-party subcontractors to manufacture and deliver certain components of our
products. We may not be able to compete effectively if there is any interruption
in the supply of such components.
WE HAVE LIMITED MARKETING AND SALES EXPERIENCE
We are in the process of developing a sales and distribution network to
sell our products domestically and internationally. Our future revenue growth
will depend in large part on our success in maintaining and expanding this
network. We will depend on these distributors to help promote market acceptance
and demand for our products. However, some of these distributors may be in the
business of distributing competing medical products. As a result, our products
may not receive the resources and support required within this network to meet
our sales objectives.
We intend to manage our third-party distribution network with an in-house
marketing staff. This staff will need a high level of technical expertise and
knowledge regarding the capabilities and use of our products and ultrasound
imaging products in general. We face intense competition for qualified marketing
personnel and may be unable to attract and retain such personnel, which would
adversely affect our ability to expand and maintain our third-party
<PAGE>
distribution network.
If we fail to maintain or expand our third-party distribution network, we
will need to develop our own distribution capabilities, which would be expensive
and time-consuming. We may be unable to develop our own distribution
capabilities in a timely manner, if at all, which would have an adverse effect
on our ability to sell our products.
WE FACE RISKS FROM ESTABLISHMENT OF OUR INTERNATIONAL OPERATIONS
Our current business strategy depends on our ability to establish
international markets for our products. We will need to devote significant
management attention and financial resources to obtain any necessary foreign
governmental approvals. International sales are subject to inherent risks,
including:
o the imposition of governmental controls;
o fluctuations in foreign currency exchange rates;
o the burdens of complying with a wide variety of foreign laws and
regulations;
o export license requirements;
o political and economic instability;
o tariffs and other trade barriers; and
o potential foreign tax consequences, including restrictions on the
repatriation of earnings.
OUR PRODUCTS MAY BECOME OBSOLETE
Our competitors may develop and market products that render our products
obsolete or non-competitive. In addition, although our products may have price
and/or performance advantages over competing medical equipment, such as Doppler
and transit-time ultrasound, any price or performance advantages may not
continue. For example, our products could become obsolete or unmarketable if
other products utilizing new technologies are introduced or new industry
standards emerge. As a result, the life cycles of our products are difficult to
estimate. To be successful, we will need to continually enhance our products and
to design, develop and market new products that successfully respond to any
competitive developments.
WE DEPEND ON KEY EMPLOYEES
Our future performance will depend largely on a limited number of key
personnel, particularly Frank A. DeBernardis, our Chief Executive Officer and
President, and David Vilkomerson, Ph.D., our Executive Vice President. The loss
of any of these individuals or a reduction in the time devoted by them to our
business could adversely effect our business. Our future success will also
depend in part upon our ability to attract and retain highly qualified
personnel. We face competition from other companies, academic institutions,
government entities and other organizations, many of which have significantly
greater resources than we do. We may not be able to attract and retain the
necessary personnel on acceptable terms, if at all.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
We consider patent protection of our technologies to be critical to our
business prospects. We have received twelve patents in the United States and
have filed corresponding patent
<PAGE>
applications in Europe and Japan. We intend to file other patent applications on
inventions developed in the course of research and development efforts and we
are in the process of applying for foreign patent approvals for all of our
current technologies.
We cannot be sure that our pending patent applications will be issued. In
addition, our issued patents or pending applications may be challenged or
circumvented by our competitors. Policing unauthorized use of our intellectual
property will be difficult, and we cannot be certain that we will be able to
prevent misappropriation of our technology, particularly in countries where the
laws may not protect our proprietary rights as fully as in the United States.
Our success and ability to compete depend on our internally developed
technology. We protect our proprietary technology through a combination of
patent, copyright, trade secret and trademark law. We also enter into
confidentiality or license agreements with our employees, consultants and
corporate partners and generally control access to, and the distribution of, our
product designs, documentation and other proprietary information, as well as the
designs, documentation and other information we may license. Despite our efforts
to protect these proprietary rights, unauthorized parties may copy, develop
independently or otherwise obtain and use our products or technology.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Many of our competitors have filed, or may file, patent applications. Our
competitors may claim our technology or products infringe upon the technology
covered by these applications. Any such claims, with or without merit, could:
o be time-consuming to defend;
o result in costly litigation;
o divert management's attention and resources;
o cause product shipment delays; or
o require us to enter into royalty or licensing agreements.
Any required royalty or licensing agreements may not be available to us on
acceptable terms, if at all. If a third party makes a successful claim of patent
infringement against us, we may be unable to license the infringed or similar
technology on acceptable terms, if at all. In addition, we could be prevented
from manufacturing or selling some or all of our products and/or be liable to a
third-party patent holder.
WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENTAL REGULATION
All of our planned products and manufacturing activities are subject to
extensive regulation by a number of governmental agencies, including the U.S.
Food and Drug Administration and comparable international agencies. In the
United States and certain other countries, the process of obtaining and
maintaining regulatory approvals is lengthy, expensive and uncertain. These
agencies regulate, among other things, the research and development, testing,
labeling, manufacturing, registration, notification, clearance or approval,
marketing, distribution, record keeping and reporting requirements for our
products. Although we have received clearance to market certain of our products,
we cannot be certain that any of our other products will obtain the required
regulatory clearance or approval or that we will be able to comply with any
additional
<PAGE>
regulatory requirements. We are also subject to other federal, state and local
laws, regulations and recommendations relating to laboratory and manufacturing
practices as well as Medicare, Medicaid and anti-kickback laws. Failure to
comply with the applicable regulatory requirements can result in:
o civil penalties;
o the recall, injunction or seizure of products;
o an inability to import products into the United States;
o the refusal by the government to approve or clear product approval
applications or to allow us to enter into government supply
contracts;
o the withdrawal of previously approved product applications; and
o criminal prosecution.
THERE MAY BE LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
In the United States, we believe that our products will be purchased
primarily by medical institutions and physicians that will then bill various
third-party payers for the health care services provided to their patients.
These third party payers include Medicare, Medicaid and private insurance plans.
These payers may deny reimbursement if they determine that the device used in a
treatment was unnecessary, inappropriate, experimental, used for a non-approved
indication or not cost-effective. In addition, these payers are increasing their
level of scrutiny on reimbursement for new medical technologies. Furthermore,
Congress is considering several health care reform proposals that could
significantly affect the availability of reimbursement for medical products and
services. A change in the reimbursement policies of these third-party payers may
adversely affect our ability to sell our products on a profitable basis.
OUR BUSINESS PRACTICE COULD BE AFFECTED BY ANTI-KICKBACK LAW
The Medicare and Medicaid laws contain anti-kickback provisions which
prohibit financial relationships designed to induce the purchase of reimbursable
items or services, or patient referrals. Some states have similar laws.
Sanctions under these laws include:
o civil money penalties;
o license suspension or revocation;
o exclusion of certain providers (but not manufacturers); and
o criminal fines or imprisonment.
The wide scope of these laws could lead to the challenge of some of the
Company's business practices.
WE MAY FACE PRODUCT LIABILITY AND WARRANTY CLAIMS
We face the risk of product liability or warranty claims because we sell
medical devices. For example, a patient may claim that the failure of our
product resulted in a misdiagnosis. The medical instrument industry in general
has been subject to significant medical malpractice litigation. We may incur
significant expense and liability in the event of such litigation.
<PAGE>
Although we maintain product liability insurance, we cannot be sure that this
coverage is adequate or that it will continue to be available on acceptable
terms, if at all. In addition, such insurance coverage is expensive and is
subject to various exclusions. We cannot be certain that our business partners
will agree to or be able to obtain or maintain adequate insurance to cover our
liability for any product liability claims. A product liability claim or
judgment in excess of our insurance coverage could adversely affect our
business.
We also may face warranty exposure, which could adversely affect our
operating results. We anticipate that our products will carry a ninety-day
warranty against defects in materials and workmanship. We will be responsible
for all claims, actions, damages, liens, liabilities, costs and expenses for all
product recalls, returns and defects attributable to manufacturing. We intend to
establish reserves for the liability associated with product warranties.
However, any unforeseen warranty exposure could adversely affect our business.
OUR RESEARCH AND DEVELOPMENT MAY INVOLVE THE CONTROLLED USE OF HAZARDOUS
MATERIALS
Our research and development may involve the controlled use of hazardous
materials and chemicals. Although we believe that our safety procedures for
handling and disposing of such materials comply with applicable federal, state
and local regulations, we are unable to completely eliminate the risk of
accidental contamination or injury from these materials. We could be held liable
for damages that exceed our resources if such an accident occurs. In addition,
we may incur substantial costs to comply with environmental regulations if we
develop a manufacturing capacity. We cannot be certain that current or future
environmental laws will not adversely affect our operating results.
CHARGE TO INCOME IN THE EVENT OF RELEASE OF RESTRICTIONS ON SHARES
We issued certain shares in our initial public offering which are subject
to forfeiture if certain financial targets are not met by us. If the forfeiture
restrictions are released, we will recognize compensation expense on our
financial statements in an amount equal to the value of the shares at the time
such restrictions lapse. These charges to earnings could be substantial and
could increase our loss or reduce or eliminate our earnings, if any, at such
time. In addition, these charges might have a depressive effect on the market
price of our stock.
OUR RESTATED CERTIFICATE OF INCORPORATION, OUR BYLAWS AND NEW JERSEY LAW CONTAIN
PROVISIONS THAT COULD DISCOURAGE A TAKEOVER
There are provisions in our Restated Certificate of Incorporation, our
By-Laws and New Jersey's Business Corporation Act that make it more difficult
for a third party to acquire control of EchoCath, even if doing so would be
beneficial to our shareholders. Our Restated Certificate of Incorporation allows
us to issue up to 5,000,000 shares of preferred stock without shareholder
approval. The terms of any series of preferred stock could adversely affect the
rights of holders of Class A Common Stock. In February 1997, we sold 280,000
shares of Series B Cumulative Convertible Preferred Stock to EP MedSystems that
contains certain priority claims to assets and dividends and special voting
rights.
<PAGE>
NO DIVIDENDS ANTICIPATED
We have never paid dividends on our Common Stock and we do not anticipate
paying dividends on our Common Stock in the foreseeable future. If a dividend on
our Common Stock is declared by our Board of Directors, the Board of Directors
must simultaneously declare a dividend on the Series B Cumulative Convertible
Preferred Stock. In addition, holders of Series B Cumulative Convertible
Preferred Stock are entitled to dividends equal to $0.0675 per share per quarter
to the extent we have earnings and funds legally available to pay such
dividends. To the extent we do not have earnings or if funds are not legally
available to pay such dividends, such funds will be accrued as a liability on
our financial statements and be cumulative for the benefit of such shareholders.
DELISTING FROM THE NASDAQ SMALLCAP MARKETSM
Effective November 16, 1998, our securities were delisted from The Nasdaq
SmallCap MarketSM (the "Nasdaq-SCM") and are now listed on the NASD OTC Bulletin
Board. Because we have been delisted from the Nasdaq-SCM, trading in our
securities must be conducted in the over-the-counter market. As a result, you
will find it more difficult to dispose of, and to obtain accurate price
quotations on our securities.
In addition, trading in the Class A Common Stock is now subject to certain
securities law restrictions requiring broker/dealers who recommend low-priced
securities to persons (with certain exceptions) to satisfy special sales
practice requirements, including making an individualized written suitability
determination for the purchaser and receive the purchaser's written consent
prior to the transaction. The securities laws also require additional disclosure
in connection with any trades involving low-priced stocks (subject to certain
exceptions), including the delivery, prior to any transaction, of a disclosure
schedule explaining the market for such stocks and the associated risks. These
requirements could severely limit the market liquidity of our securities and
your ability to sell the securities in the secondary market.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
EchoCath files annual, quarterly and special reports, as well as proxy
statements and other information with the SEC. You may read and copy any
document EchoCath files with the SEC at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549 or at its Regional Offices in New
York, New York or Chicago, Illinois. You may obtain further information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
EchoCath's SEC filings are also available to the public over the Internet at the
SEC's website at http://www.sec.gov which contains reports, proxy statements and
other information regarding registrants like EchoCath that file electronically
with the SEC.
This prospectus is part of a registration statement on Form S-3 filed by
EchoCath with the SEC under the Securities Act. As permitted by SEC rules, this
prospectus does not contain all of the information included in the registration
statement and the accompanying exhibits filed with the SEC. You may refer to the
registration statement and its exhibits for more information.
The SEC allows EchoCath to "incorporate by reference" into this prospectus
the information it files with the SEC. This means that EchoCath 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. If EchoCath subsequently files updating or superseding information
in a document that is incorporated by reference into this prospectus, the
subsequent information will also become part of this prospectus and will
supersede the earlier information.
EchoCath is incorporating by reference the following documents that it has
filed with the SEC:
o our Annual Report on Form 10-KSB for the fiscal year ended August 31,
1999;
o our Quarterly Report on Form 10-QSB for the quarter ended November 30,
1999; and
o the description of our Class A Common Stock contained in our
registration statement on Form S-B/2 declared effective by the SEC
under Section 12 of the Exchange Act on January 17, 1996 and
subsequent amendments and reports filed to update such description.
EchoCath is also incorporating by reference into this prospectus all of its
future filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until this offering has been completed.
<PAGE>
We will provide, without charge, to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the information incorporated
herein by reference. Exhibits to any of such documents, however, will not be
provided unless such exhibits are specifically incorporated by reference into
such documents. The request should be made to:
David Vilkomerson, Executive Vice President
EchoCath, Inc.
P.O. Box 7224
Princeton, New Jersey 08543
Telephone: (609) 987-8400
You should rely only on the information provided in this prospectus or
incorporated by reference. We have not authorized anyone to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the first page of
the prospectus. EchoCath is not making this offer of securities in any state or
country in which the offer or sale is not permitted.
<PAGE>
USE OF PROCEEDS
All net proceeds from the sale of the Shares will go to the shareholders
who offer and sell them. We will not receive any proceeds from the sale of
shares by the selling shareholders.
SELLING SHAREHOLDERS
On October 29, 1999, we completed a private placement offering of
convertible promissory notes and warrants to certain accredited investors. The
offering resulted in gross cash proceeds of $2,000,000 and an additional
$525,000 in the form of cancellation of indebtedness. The notes and warrants
were offered in the form of units, each unit consisting of a 6.5% convertible
three-year promissory note in the principal amount of $25,000 and a three-year
warrant to purchase 33,333 shares of Class A Common Stock at $0.75 per share.
The principal and accrued interest on certain of the notes (in the aggregate,
$750,000) are convertible into shares of Class A Common Stock at any time
beginning 90 days after October 29, 1999 at the lesser of $0.75 per share or the
market price, but not less than $0.25 per share at the option of the holder or,
beginning on May 15, 2000, by us at the lesser of $0.75 per share or the market
price, but not less than $0.25 per share. The principal and accrued interest on
an additional $525,000 of the notes are convertible into shares of Class A
Common Stock at any time beginning 90 days after October 29, 1999 at the lesser
of $0.75 per share or the market price, but not less than $0.25 per share at the
option of the holder or, beginning on October 30, 2000, by us at the lesser of
$0.75 per share or the market price, but not less than $0.25 per share. The
principal and accrued interest on the remainder of the notes (in the aggregate,
$1,250,000) are convertible into shares of Class A Common Stock at $0.75 per
share at any time beginning 90 days after October 29, 1999 at the option of the
holder or, beginning on October 30, 2000, by us at the lesser of $0.75 per share
or the market price, but not less than $0.25 per share.
As a condition to the private placement offering, holders of a minimum of
900,000 shares of our Class B Common Stock were required to convert their shares
into Class A Common Stock at a ratio of 1 to 1. Additionally, each Class B
Common shareholder converting their shares received a five-year warrant to
purchase shares of Class A Common Stock for an equal number of shares,
exercisable at $0.75 per share. A total of 1,172,018 warrants were issued. As of
November 30, 1999, all shares of Class B Common Stock have been converted into
Class A Common Stock.
Investment Partners Group, Inc. ("IPI") and Weatherly Securities Corp.
("Weatherly") acted as placement agents for the offering and received cash
compensation of $200,000 and 5-year warrants to purchase up to 400,000 shares of
Class A Common Stock at $0.75 per share. IPI purchased a convertible note for
cancellation of $525,000 of indebtedness owed to it by us and received 48,426
shares of Class A Common Stock as interest on that indebtedness. If the Selling
Shareholders (including IPI and Weatherly) choose to exercise their warrants and
conversion rights in full with respect to the entire amount of the warrants and
convertible notes, they may acquire and resell with this prospectus up to
12,145,151 shares of Class A Common Stock.
<PAGE>
At our next Annual Meeting of Shareholders, we intend to request that our
shareholders approve an amendment to our certificate of incorporation to
increase the number of our authorized shares of Class A Common Stock. Assuming
approval of such amendment, we intend to register up to an additional 3,333,333
shares of our Class A Common Stock issuable upon conversion of the securities
issued in connection with the private placement offering.
<PAGE>
The following table sets forth, as of January 24, 2000, certain
information with respect to the Selling Shareholders.
<TABLE>
<CAPTION>
Beneficial Number Beneficial
Ownership of of Ownership of
Selling Shares Shares
Name of Shareholders Prior Offered After
Selling Shareholders to Offering(1) Hereby(2) Offering(1)(2)
- ---------------------------------------- -------------------- ---------- -------------------
Number Percent(%) Number Percent(%)
------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Frank J. Abella, Jr.(5) .................. 53,333 1.5 53,333 -- --
Kamrooz Abir(3) .......................... 7,876 * 3,938 3,938 *
Gus Allen(4) ............................. 66,666 1.9 66,666 -- --
James L. Bosworth(5) ..................... 133,333 3.6 133,333 -- --
Bradley Resources(3) ..................... 191,620 5.3 95,810 95,810 2.6
A. Bruce Breckenridge(3)(5) .............. 143,179 3.9 138,256 4,923 *
Harrel R. Breeze(5) ...................... 66,666 1.9 66,666 -- --
Dorothy Brennan(5) ....................... 80,000 2.2 80,000 -- --
Cathtech Corp.(3)(6) ..................... 623,906 16.3 311,953 311,953 8.1
Lawrence J. Colorito, Jr.(5) ............. 133,333 3.6 133,333 -- --
Jack Davis, Jr.(5) ....................... 80,000 2.2 80,000 -- --
Fairview Development Fund(5) ............. 1,333,330 27.4 1,333,330 -- --
Fairview Maintenance & Preservation Fund.. 879,998 20.0 879,998 -- --
Frank DeBernardis(3)(7) .................. 550,684 13.6 40,342 510,342 12.6
F. Andrew DeBernardis Trust(3)(8) ........ 10,006 * 5,003 5,003 *
Jennifer DeBernardis Trust(3)(8) ......... 10,006 * 5,003 5,003 *
James de Peyster, as trustee of the
Todd trusts(5) ......................... 266,666 7.0 266,666 -- --
Anthony Dimun(3)(9) ...................... 158,732 4.3 4,366 154,366 4.2
Robert Giggey(3) ......................... 49,408 1.4 24,704 24,704 *
Paul F. Glenn, as trustee of the
Paul F. Glenn Revocable Trust(3) ....... 53,334 1.5 26,667 26,667 *
Roy K. Golden(5) ......................... 266,666 7.0 266,666 -- --
Guidant Corporation(3) ................... 190,800 5.3 95,400 95,400 2.6
Herbert B. Hirsch(5) ..................... 266,666 7.0 266,666 -- --
Carlynne L. Holmes(5) .................... 266,666 7.0 266,666 -- --
Investment Partners Group, Inc.(10) ...... 248,426 6.6 248,426 -- --
George Karfunkel(3) ...................... 61,760 1.7 30,880 30,880 *
Kevin James Koons(5) ..................... 266,666 7.0 266,666 -- --
William G. Kuhns(4) ...................... 66,666 1.9 66,666 -- --
George T. Kupfrian, Jr.(5) ............... 66,666 1.9 66,666 -- --
Hope Lee(5) .............................. 53,333 1.5 53,333 -- --
Marilyn Moskowitz(3)(11) ................. 115,020 3.2 57,510 57,510 1.6
Murray Nelson(3) ......................... 20,210 * 10,105 10,105 *
Joseph J. Prischak(4)(12) ................ 3,066,651 46.5 3,066,651 -- --
Byron Rosenstein(5) ...................... 266,666 7.0 266,666 -- --
Irwin Rosenthal(3)(13) ................... 332,958 8.8 74,812 258,146 6.8
Cajetan Salemi(5) ........................ 53,333 1.5 53,333 -- --
Linda Slater (JLM Industries)(5) ......... 1,333,330 27.4 1,333,330 -- --
David Stack(5) ........................... 346,666 9.0 346,666 -- --
Merrill Staton(5) ........................ 133,333 3.6 133,333 -- --
<PAGE>
Beneficial Number Beneficial
Ownership of of Ownership of
Selling Shares Shares
Name of Shareholders Prior Offered After
Selling Shareholders to Offering(1) Hereby(2) Offering(1)(2)
- ---------------------------------------- -------------------- ---------- -------------------
Number Percent(%) Number Percent(%)
------- ---------- ------ ----------
Eric Turinsky(5) ......................... 186,666 5.0 186,666 -- --
Ultramed Inc.(3)(14) ..................... 468,906 12.5 234,453 234,453 6.2
David Vilkomerson(3)(15) ................. 512,492 12.7 6,542 505,950 12.6
Terence Wall(3)(17) ...................... 329,214 8.9 139,607 139,607 3.8
Weatherly Securities Corp.(10) ........... 200,000 5.4 200,000 -- --
John D. Winter(4) ........................ 133,333 3.6 133,333 -- --
John A. Wood, M.D.(5) .................... 133,333 3.6 133,333 -- --
</TABLE>
- ----------
*Less than one percent
(1) Applicable percentage of ownership is based on 3,524,036 shares of Class A
Common Stock outstanding, plus any Class A Common Stock equivalents held by
such holders.
(2) Assumes that all Shares are sold pursuant to this offering and that no
other shares of Class A Common Stock are acquired or disposed of by the
Selling Shareholders prior to the termination of this offering. Because the
Selling Shareholders may sell all, some or none of their Shares or may
acquire or dispose of other shares of Class A Common Stock, no reliable
estimate can be made of the aggregate number of Shares that will be sold
pursuant to this offering or the number or percentage of shares of Class A
Common Stock that each Selling Shareholder will own upon completion of this
offering. Does not include shares of Class A Common Stock payable to such
shareholders for accrued interest.
(3) Includes shares of Class A Common Stock issuable upon exercise of warrants
received by such shareholder upon conversion of such shareholder's shares
of Class B Common Stock.
(4) Includes shares of Class A Common Stock issuable upon the conversion of
notes and the exercise of warrants received by such shareholder in the
private placement offering. Such shareholders have the option to convert
their respective notes into shares of Class A Common Stock at $0.75 per
share at any time prior to the maturity date. Beginning on May 15, 2000, we
have the option to convert such notes into shares of Class A Common Stock
at the lesser of $0.75 per share or the market price, but not less than
$0.25 per share, at any time prior to the maturity date.
(5) Includes shares of Class A Common Stock issuable upon the conversion of
notes and the exercise of warrants received by such shareholder in the
private placement offering. Such shareholders have the option to convert
their respective notes into shares of Class A Common Stock at the lesser of
$0.75 per share or the market price, but not less than $0.25 per share, at
any time prior to the maturity date.
(6) Cathtech is the beneficial owner of approximately 9% of our Class A
Common Stock and is the beneficial owner of approximately 13% of Ultramed,
a holder of more than 5% of our Class A Common Stock.
(7) Mr. DeBernardis is the President, Chief Executive Officer and a director of
our company. Includes options to purchase 470,000 shares of our Class A
Common Stock. Excludes 10,006 shares of our Class A Common Stock held in
trust for the benefit of Mr. DeBernardis' children, as to which Mr.
DeBernardis disclaims beneficial ownership.
(8) Such shares are held in trust for such shareholder, a child of Mr.
DeBernardis.
(9) Mr. Dimun is a director of our company. Mr. Dimun is also an officer and
director of Cathtech. Includes options to purchase 150,000 shares of our
Class A Common Stock. Excludes 311,953 shares of our Class A Common Stock
and warrants to purchase 311,953 shares of our Class A Common Stock held by
Cathtech, as to which Mr. Dimun disclaims beneficial ownership.
<PAGE>
(10) Includes warrants to purchase 200,000 shares of our Class A Common Stock
issued as partial compensation for placement agent services provided in
connection with the private placement offering. Also includes 48,426 shares
of our Class A Common Stock issued as interest payable on prior
indebtedness owed to such shareholder by us.
(11) Such shareholder is the wife of a former director of our company, Herb
Moskowitz.
(12) Mr. Prischak is a director of our company.
(13) Mr. Rosenthal is the Secretary and a director of our company. Includes
options to purchase 150,000 shares of our Class A Common stock and warrants
to purchase 50,636 shares of our Class A Common Stock. Includes 17,302
shares of Class A Common Stock and warrants to purchase 17,302 shares of
our Class A Common Stock, which have been pledged to Israel Discount Bank
as collateral for loans made to Mr. Rosenthal.
(14) Dr. Vilkomerson is the founder and is an officer and director of such
shareholder. In addition, Dr. Vilkomerson owns approximately 18% of the
capital stock of such shareholder.
(15) Dr. Vilkomerson is the Executive Vice President, Vice President Research
and Development, Assistant Secretary and a director of our company.
Includes options to purchase 490,000 shares of our Class A Common Stock.
Excludes 234,453 shares of our Class A Common Stock and warrants to
purchase 234,453 shares of our Class A Common Stock held by Ultramed, as to
which Dr. Vilkomerson disclaims beneficial ownership.
(16) Mr. Wall is a former director of our company and is currently an officer
and director of Cathtech. Excludes 311,953 shares of our Class A Common
Stock and warrants to purchase 311,953 shares of our Class A Common Stock
held by Cathtech, as to which Mr. Wall disclaims beneficial ownership.
<PAGE>
PLAN OF DISTRIBUTION
EchoCath is registering the shares on behalf of the Selling Shareholders.
References in this section to Selling Shareholders also include any pledgees,
donees, transferees or other successors in interest. The Selling Shareholders
have not advised us of any specific plan for distribution of the Shares offered
hereby The Selling Shareholders may offer their Shares at various times in one
or more of the following transactions:
o in transactions, which may involve block transactions, on any national
securities exchange or quotation service on which the shares may be
listed or quoted at the time of sale;
o in the over-the-counter market;
o in private transactions other than in the over-the-counter market or on
an exchange;
o in connection with short sales of shares;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options; or
o in a combination of any of the above transactions.
The Selling Shareholders may sell their shares at market prices at the time
of sale, at prices related to market prices, at negotiated prices or at fixed
prices.
The Selling Shareholders may use broker-dealers to sell their shares. If
this happens, broker-dealers will either receive discounts or commissions from
the Selling Shareholders, or they will receive commissions from purchasers of
shares for whom they acted as agents. The Selling Shareholders, any brokers,
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with these
sales, and any profits realized or commissions received may be deemed
underwriting compensation.
The Selling Shareholders may also enter into hedging transactions with
broker-dealers or other financial institutions. In connection with these
transactions, broker-dealers or other financial institutions may engage in short
sales of our Class A Common Stock in the course of hedging the positions they
assume with selling shareholders. The Selling Shareholders may also enter into
options or other transactions with broker-dealers or other financial
institutions which require the delivery, to that broker-dealer or other
financial institution, the shares offered under this prospectus. The shares that
broker-dealer or other financial institution receives in those types of
transactions may be resold under this prospectus.
Selling Shareholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of that Rule.
<PAGE>
To comply with the securities law in some jurisdictions, the Shares will be
offered or sold in particular jurisdictions only through registered or licensed
brokers or dealers. In addition, in some jurisdictions the shares may not be
offered or sold unless they have been registered or qualified for sale in that
jurisdictions or an exemption from registration or qualification is available
and is complied with.
To comply with rules and regulations under the Exchange Act, persons
engaged in a distribution of the Shares may be limited in their ability to
engage in market activities with respect to such Shares. In addition and without
limiting the foregoing, each Selling Shareholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Shareholders. All of these things may affect the marketability of
the Shares.
All expenses of the registration of the shares will be paid by EchoCath,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that the Selling
Shareholders will pay all underwriting discounts and selling commissions, if
any. Subject to some limitations, the Selling Shareholders will be indemnified
by EchoCath against civil liabilities, including liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
Subject to some limitations, EchoCath will be indemnified by the Selling
Shareholders against civil liabilities, including liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
The validity of the shares of Class A Common Stock will be passed upon for
the Company by Buchanan Ingersoll Professional Corporation, 650 College Road
East, Princeton, New Jersey.
EXPERTS
The financial statements of our company as of August 31, 1999 and 1998, and
for each of the years in the two-year period ended August 31, 1999, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of KPMG LLP as experts
in accounting and auditing.
The report of KPMG LLP covering the August 31, 1999 financial statements
contains an explanatory paragraph that states that our recurring losses from
operations, our net capital deficiency and negative working capital raise
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14A:3-5 of the New Jersey Business Corporation Act permits each New
Jersey business corporation to indemnify its directors, officers, employees and
agents against expenses and liabilities in connection with:
o any proceeding involving such persons by reason of his or her serving or
having served in such capacities; or
o each such person's acts taken in such capacity if such actions were
taken in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation.
With respect to any criminal proceeding, indemnity is permitted if such
person had no reasonable cause to believe his or her conduct was unlawful,
provided that any such proceeding is not by or in the right of the corporation.
Section 14A:2-7(3) of the New Jersey Business Corporation Act enables a
corporation in its certificate of incorporation to limit the liability of
directors and officers of the corporation to the corporation or its
shareholders. Specifically, the certificate of incorporation may provide that
directors and officers of the corporation will not be personally liable for
money damages for breach of a duty as a director or an officer, except for
liability for:
o any breach of the director's or officer's duty of loyalty to the
corporation or its shareholders;
o acts or omissions not in good faith or which involve a knowing violation
of law; or
o as to directors only, under Section 14A:6-12(1) of the New Jersey
Business Corporation Act, which relates to unlawful declarations of
dividends or other distributions of assets to shareholders or the
unlawful purchase of shares of the corporation; or
o any transaction from which the director or officer derived an
improper personal benefit.
Our certificate of incorporation limits the liability of our directors and
officers as authorized by Section 14A:2-7(3). In addition, we have executed
indemnification agreements with each of our directors and executive officers.
Such agreements require us to indemnify such parties to the full extent
permitted by law, subject to certain exceptions, if such party becomes subject
to an action because such party is a director, officer, employee, agent or
fiduciary.
We have liability insurance for the benefit of our directors and officers.
The insurance covers claims against such persons due to any breach of duty,
neglect, error, misstatement, misleading statement, omission or act done. The
insurance covers such claims, except as prohibited by law, or otherwise excluded
by such insurance policy.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of EchoCath
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
