As filed with the Securities & Exchange Commission on January 8, 1997
Registration No. ________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
HEALTHWATCH, INC.
(Exact name of issuer as specified in its charter)
Minnesota 84-0916792
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2445 CADES WAY
VISTA, CALIFORNIA 92083
(619) 598-4333
(Address and telephone number of principal executive offices)
-------------------------
Lindley S. Branson
HealthWatch, Inc.
2445 Cades Way
Vista, California 92083
(619) 598-4333
(Name, address and telephone number of agent for service)
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Approximate date of commencement of proposed sale to the public: January 15,
1997.
If the only securities being registered on this form are being offered pursuant
to dividend or 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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Amount Proposed maximum Proposed maximum Amount of
securities to to be offering price aggregate offering registration
be registered registered per share (1) price (1) fee (1)
<S> <C> <C> <C> <C>
Common Stock, 600,000 $2.125 $1,275,000 $386.36
$.07 par value Shares
- -------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (h) of Regulation C as of the close of the
market on January 2, 1997.
-------------------------------
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated January 8, 1997
HEALTHWATCH, INC.
The shares offered hereby are 600,000 shares (the "Shares") of Common
Stock, $.07 par value ("Common Stock"), of HealthWatch, Inc. ("HealthWatch" or
the "Company"), issued upon conversion of an aggregate of 200,000 shares of the
Company's Series B Convertible Preferred Stock ("Series B Stock"), which may be
sold from time to time by various selling shareholders (the "Selling
Shareholders") for their own accounts. The Company has been advised that the
Selling Shareholders may from time to time sell the Shares to or through brokers
or dealers in one or more transactions, on the Nasdaq Small Cap Market or
otherwise, at market prices prevailing at the time of sale, at prices relating
to such prevailing market prices, or at negotiated prices.
The Company's Common Stock is listed on the Nasdaq Small Cap Market
under the symbol HEAL. On January 2, 1997, the last reported sale price of
Common Stock, as reported on the Nasdaq Small Cap Market, was $2.125 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD
BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Since the Common Stock registered hereunder is being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Act"), the Company cannot include herein information
about the price to the public of the Common Stock or the proceeds to the Selling
Shareholders. The Company will receive no proceeds from any sales of Common
Stock by the Selling Shareholders, and the Company is obligated to pay the
expenses of this offering, which are estimated at $4,000. The Selling
Shareholders will pay their own expenses in connection with sales of the Common
Stock. The Selling Shareholders and any brokers or dealers executing selling
orders on their behalf may be deemed "underwriters" within the meaning of the
Act, in which event the usual and customary selling commissions which may be
paid to the brokers or dealers may be deemed to be underwriting commissions
under the Act. There can be no assurance that any or all of the Shares
registered hereunder will be sold. See "PLAN OF DISTRIBUTION."
The date of this Prospectus is __________, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and inspected at the
Commission's regional offices at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street N.W., Washington, D.C.
20549, at prescribed rates. In additon, the Commission maintains a web site
(address http://www.sec.gov) on the Internet that contains reports, proxy
statements and other information for companies like HealthWatch which file
electronically.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Act"), with respect
to the securities offered hereby. This Prospectus omits certain information
included in such Registration Statement. For further information about the
Company and its securities, reference is made to such Registration Statement and
to the exhibits filed as part thereof or otherwise incorporated therein. Each
summary in this Prospectus of information included in the Registration Statement
or any exhibit thereto is qualified in its entirety by this reference to such
information or exhibit.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
following documents, which have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 0-11476), are incorporated by reference
in this registration statement:
(a) The Company's Annual Report on Form 10-KSB for the year
ended June 30, 1996.
(b) The Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1996.
(c) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A filed under the
Exchange Act.
All documents subsequently filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment that indicates that all securities
offered have been sold or that deregisters all securities then remaining unsold,
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
document. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, upon written
or oral request of such person, a copy of any and all of the information that
has been incorporated by reference in this Prospectus. Requests may be directed
to Lindley S. Branson, President, HealthWatch, Inc., 2445 Cades Way, Vista,
California 92083, (619) 598-4333.
THE COMPANY AND RECENT DEVELOPMENTS
HealthWatch develops, manufactures and markets medical products,
including the PACER, a new infusion therapy ("IV") device, Cambridge
electrocardiograph stress test systems and Life Sciences vascular diagnostic
systems. The Company's primary focus since 1993 has been on the development of
the PACER. The PACER, which is less expensive, smaller and lighter and easier to
use than most competing infusion therapy devices, was introduced to the
marketplace during fiscal 1996.
Prior to the introduction late in the 1980's of diagnostic-related
groups ("DRGs"), health-care providers were generally compensated for their
services on a cost-plus basis. In this environment, product features and
technology drove product purchase decisions, even if the benefits derived from
the added features and higher technology did not justify the higher cost. With
the advent of DRGs and managed care, third-party payors shifted their payment
policies toward fixed fees for services rendered or capitated payment
arrangements whereby providers were reimbursed a fixed amount for patients
serviced by their organizations. In today's health-care environment, providers
are required to focus on cost, to carefully match patient benefits with the cost
of the services provided.
HealthWatch's strategy is to develop and market medical products
designed to improve the cost-effective delivery of high-quality health care. The
PACER, the Company's first infusion therapy product, enables hospitals,
long-term care facilities, home-care agencies and others to maintain the quality
of the IV therapy they provide while also reducing significantly the cost of
such services. These cost savings are achieved both due to the PACER'S
substantially lower price than the price of most competing IV systems and
because the PACER can be used with generic IV tubing which usually is
substantially less expensive than proprietary dedicated IV tubing required to be
used with most competing systems.
Markets for the Company's Cambridge and Life Services diagnostic
products have been adversely affected by efforts to contain health-care costs as
well as by the efforts of many hospitals and other health-care institutions to
reduce their costs by consolidating operations with the operations of other
institutions. This consolidation has resulted in fewer customers for these
diagnostic products and for delays in obtaining purchase orders from
institutions which are evaluating possible consolidations. In contrast, the
Company believes that its IV products will benefit from the health-care
industry's focus on reducing costs, as these products are less expensive and
easier to use than most competing products.
On November 14, 1996, the Company agreed to issue 200,000 Units of its
securities, for a purchase price of $2.25 per Unit ($450,000 in the aggregate).
Each Unit consisted of one share of Series B Convertible Preferred Stock and
three Warrants, each Warrant representing the right to acquire one share of the
Company's Common Stock at $2.00 per share. Each share of Preferred Stock is
convertible into three shares of the Company's Common Stock. The agreement for
the issuance of the Units contemplates that 150,000 additional Units ($337,500
aggregate purchase price) will be purchased on the same terms as those
subscribed for effective November 14, 1996, on each of January 15 and March 15,
1997.
References herein to "HealthWatch" or the "Company" include HealthWatch
and its consolidated subsidiaries and their predecessors unless the context
indicates otherwise. HealthWatch was incorporated in the state of Minnesota in
1983. Except as otherwise noted, all information in this report has been
adjusted to reflect a seven-for-one reverse split of the Company's Common Stock
effective as of May 13, 1996.
HealthWatch's executive offices are located at 2445 Cades Way, Vista,
California 92083, telephone number (619) 598-4333.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating the Company and its business before purchasing the Shares of Common
Stock offered hereby.
DECLINE IN REVENUES; RECENT OPERATING LOSSES. The Company's product
sales have declined in each of the past three fiscal years, compared to the
prior fiscal year, primarily due, the Company believes, to the uncertainty in
the medical community regarding the effects of various proposals for health-care
reforms, consolidations and mergers of health-care institutions, continued
increased price competition and the Company's lack of sufficient working capital
to adequately fund marketing and product enhancement efforts. In view of the
Company's belief that there is substantially more potential for its IV products
than for its diagnostic products, HealthWatch intends to concentrate its efforts
on the marketing of the PACER, its first IV product. While marketing of the
PACER has begun, the Company does not expect to be able to produce and ship
significant quantities of the PACER until the first six months of calendar 1997.
The Company's sales may, therefore, continue to decrease for the next six or
more months.
The Company has incurred losses from operations in each of its last
three fiscal years. The Company expects to continue to incur losses from
operations until it is able to generate significant sales of the PACER. The
PACER is in the initial marketing stage and there can be no assurance that the
Company will be able to realize significant revenues from the sale of the PACER.
There can be no assurance that the Company will be able to operate at a profit
in the future.
NEED FOR ADDITIONAL FINANCING. The Company will need additional debt or
equity capital to sustain its operations during the next twelve months. In the
event that the Company is unable to raise additional capital, it will be
required to defer producing IV or other products, to sell certain assets or
enter into joint ventures with or grant licenses to other companies with respect
to one or more of its products and/or further reduce its operations in order to
sustain operations. There can be no assurance that the Company could, if it were
required to do so to sustain operations, sell any such assets or enter into any
such joint venture or grant any such license, if at all, on terms acceptable to
the Company.
NEW BUSINESS VENTURE; UNPROVEN PRODUCTS. In September 1993, the Company
completed the acquisition of Metamed, Inc., a development-stage company. The
Metamed acquisition represented a significant new business venture for
HealthWatch, and the Company's ability to successfully develop this business is
subject to all of the risks inherent in the establishment of a new business.
HealthWatch had not previously been engaged in the infusion therapy business and
Metamed had only a limited history of operations and had not generated any
revenues.
HealthWatch believes that the Metamed acquisition is of strategic
importance because it offers the Company the opportunity to expand its product
offerings to include medical products which it believes will be less sensitive
than its existing diagnostic products to current market pressures and
uncertainties, as the Company's infusion therapy products are expected to be not
only easier to use but also less costly than existing competing products. While
the first IV product, the PACER, an IV controller, has recently been introduced,
there can be no assurance that it will achieve wide acceptance in the
marketplace. Efforts to obtain required governmental approvals for additional
products based on the proprietary technology may be costly and require
significant time and additional effort on behalf of the Company which could
further deplete the Company's limited resources and delay the introduction of
additional IV products. There can be no assurance that the Company will be able
to obtain necessary governmental approvals for additional IV products or that
any products based on the proprietary technology can be successfully introduced
to the marketplace.
DEPENDENCE ON SUPPLIERS; WORKING CAPITAL REQUIREMENTS. Certain raw
materials for the Company's products, particularly its new IV product, are
available from only one or a limited number of suppliers, require that orders be
placed 60 days or more in advance of the desired delivery date and may be
available to the Company only if it places significant orders which represent
several months or more of the Company's projected needs for such materials. The
need to purchase significant quantities of these materials in advance of their
use substantially increases the Company's working capital requirements.
There can be no assurance that the Company's current suppliers for
these products will continue to supply them to the Company. While alternative
sources for such items are generally available, the Company could be required to
redesign its products in order to be able to use the alternative materials
provided by these additional suppliers. Any such redesign of the Company's
products could be expensive and time consuming and could require six or more
months to complete.
DEPENDENCE ON NEW OR IMPROVED PRODUCTS; TECHNOLOGICAL CHANGES. In
general, the medical products industry is subject to rapid and significant
technological changes and frequent introduction of new competitive products. To
respond to these expected changes and to improve or sustain the marketability of
its products, the Company will be required to commit substantial investments in
product improvement and development in order to periodically enhance its
existing products and successfully introduce new products. There can be no
assurance that the Company will either have the resources required to make such
investments or, assuming it has the required resources, be able to respond
adequately to changes in technology or changes in the markets for its products.
The development of new products or technologies by other firms could have a
material adverse effect on the Company's business. In addition, to the extent
that the Company seeks to develop new products, there can be no assurance that
such products will be successfully developed or, if developed, that such
products will be successfully introduced to the marketplace.
LENGTH OF SALES CYCLE; LIMITED SALES AND MARKETING EXPERIENCE. The
decision to purchase IV equipment is often an enterprise-wide decision by
prospective hospitals or other health-care customers and may require the Company
to engage in a lengthy evaluation/purchase-sales cycle. The sales cycle for IV
instruments can range from three to nine months or more. The sales cycle may
also be subject to a prospective customer's budgetary constraints and internal
acceptance reviews, over which the Company has little or no control.
Consequently, if sales forecasted from a specific customer for a particular
quarter are not realized in that quarter, the Company is unlikely to be able to
generate revenue from alternate sources in time to compensate for the shortfall.
If a larger order is delayed or lost to a competitor, the Company's revenues for
that quarter could be materially diminished.
The Company has limited experience in the areas of sales, marketing and
distribution. The Company's sales and marketing staff will require additional
personnel in the future. There can be no assurance that the Company will be able
to build an adequate sales and marketing staff, that establishing such a sales
and marketing staff will be cost-effective, or that the Company's sales and
marketing efforts will be successful.
LIMITED AVAILABILITY OF PROPRIETARY PROTECTION. The Company
historically has relied upon a combination of copyright, trade secret and
nondisclosure and other contractual provisions to protect its proprietary
rights. While the Company's licensed IV technology includes a U.S. patent, this
patent may not provide significant protection with respect to the development of
a competing product with capabilities similar to the Company's initial IV
product. Notwithstanding the Company's efforts to protect its proprietary
rights, it may be possible for competitors of the Company to imitate the
Company's products or develop independently competing products.
Disputes regarding the Company's intellectual property could force the
Company into expensive and protracted litigation or costly agreements with third
parties. An adverse determination in a judicial or administrative proceeding or
failure to reach an agreement with a third party regarding intellectual property
rights could prevent the Company from manufacturing and selling certain of its
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION. There are many companies that produce equipment which
competes with the Company's products, particularly its cardiology and current
and proposed infusion therapy products. Most of the Company's competitors have
substantially greater financial and marketing resources than the Company. Three
companies account for a substantial portion of the market for ECG products
similar to those sold by HealthWatch, and a few companies account for over 80%
of the U.S. market for infusion therapy systems. All of such companies are
substantially larger than HealthWatch. The Company expects that these
competitors will continue to compete aggressively with tactics such as offering
volume discounts based on "bundled" purchases of a broader-range of medical
equipment and supplies, a tactic that the Company is unable to pursue except on
a joint venture basis. There can be no assurance that such competition will not
adversely affect the Company's results of operations or its ability to maintain
or increase sales and market share. Competition could require that the Company
commit significantly greater resources to the introduction of its IV products
than would otherwise be required.
The market for infusion therapy products is affected by continuing
improvements and enhancements in technology. There can be no assurance that the
Company's competitors or potential competitors will not succeed in developing or
marketing products that provide more desirable characteristics, or are more
effective or less expensive than those developed or marketed by the Company. In
addition, technological advances in drug delivery systems, the development of
therapies that can be administered by methods other than infusion therapy, and
the development of new medical treatments that cure certain complex diseases or
reduce the need for infusion therapy could adversely impact the Company's
business.
LIMITED ASSEMBLY EXPERIENCE. The Company's products are currently
assembled by the Company at its facility. To be successful, the Company must
assemble its products in compliance with regulatory requirements, in sufficient
quantities and on a timely basis, while maintaining product quality and
acceptable assembly costs. The Company has limited experience assembling its
products in large commercial quantities. There can be no assurance that the
Company will be able to assemble products in large commercial quantities on a
timely basis and at an acceptable cost. If the Company becomes unable to
assemble the PACER at its facility in a timely and efficient manner, the
Company's ability to supply product to its customers may be adversely affected
until such time as the Company is able to establish alternative assembly
arrangements.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT. The Company's products are
generally purchased by health-care providers, which then seek reimbursement from
various public and private third-party payors, such as Medicare, Medicaid and
indemnity insurers, for health-care services provided to patients. Government
and private third-party payors are increasingly attempting to contain health
care costs by limiting both the extent of coverage and the reimbursement rate
for new diagnostic and therapeutic products and services. The Health Care
Financing Administration of the United States Department of Health and Human
Services ("HCFA"), which administers Medicare, and most private insurance
companies do not provide reimbursement for services that they determine to be
experimental in nature or that are not considered "reasonable and necessary" for
diagnosis or treatment. Many private insurers are influenced by HCFA actions in
making their own coverage decisions on new products or services. There can be no
assurance that third-party reimbursement for the services provided using the
Company's products will continue to be available to its customers or that any
such reimbursement will be adequate. Disapproval of, or limitations in, coverage
by HCFA or other third-party payors could materially and adversely affect market
acceptance of the Company's products which could, in turn, have a material
adverse affect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION. The medical devices manufactured and marketed by
the Company are subject to regulation by the FDA and, in some instances, by
state and foreign authorities. Pursuant to the Federal Food, Drug, and Cosmetic
Act (the "FFDCA") and the regulations promulgated thereunder, the FDA regulates
the clinical testing, manufacture, packaging, labeling, distribution and
promotion of medical devices.
Pursuant to the FFDCA, medical devices intended for human use are
classified into three categories, Classes I, II and III, on the basis of the
controls deemed necessary by the FDA to reasonably assure their safety and
effectiveness. Class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to good manufacturing practice
("GMP") regulations) and Class II devices are subject to general and special
controls (for example, performance standards, postmarket surveillance, patient
registries, and FDA guidelines). Generally, Class III devices are those which
must receive premarket approval ("PMA") from the FDA to ensure their safety and
effectiveness (for example, life-sustaining, life-supporting and implantable
devices, or new devices which have not been found substantially equivalent to
legally marketed devices). Electronic infusion devices are classified by the FDA
as Class II medical devices.
If a new Class II medical device is substantially equivalent in terms
of safety and effectiveness to a medical device already legally marketed in the
United States, the FDA requirements may be satisfied through a procedure known
as a "510(k) Submission," in which the applicant provides product information
supporting its claim of substantial equivalency.
The Company received 510(k) clearance to begin marketing the PACER in
the United States in April 1994.
The FFDCA requires the filing of a new 510(k) Submission when, among
other things, there is a major change or modification in the intended use of the
device or a change or modification, including product enhancements, to a legally
marketed device that could significantly affect its safety or effectiveness. A
device manufacturer is responsible for making the initial determination as to
whether a proposed change to a cleared device or to its intended use
necessitates the filing of a new 510(k) Submission. The Company does not believe
that changes made to the PACER since the original 510(k) Submission require a
new 510(k) Submission for the Pacer. However, there can be no assurance that the
FDA would agree with the Company's determination.
The Company has recently filed a new 510(k) Submission for the PACER in
order to incorporate two new features, an automatic flow stop and an increased
rate range for infusions. Additional product modifications, including new
software features, that the Company may develop in the future will likely
require 510(k) clearance if the modifications could affect the safety or
efficacy of the Company's products. There can be no assurance that the Company
will obtain 510(k) clearance on a timely basis, if at all, for any device
modification for which it files a future 510(k) Submission. If 510(k) clearance
is granted, there can be no assurance that it will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to conditions of use.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Device manufacturers are required to register their establishments and
list their devices with the FDA, and are subject to periodic inspections by the
FDA and certain state agencies. The FFDCA requires devices to be manufactured in
accordance with GMP regulations which impose certain process, procedure and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. The FDA has proposed changes to the GMP
regulations which, if finalized, would likely increase the cost of complying
with GMP requirements. The Company believes that its manufacturing and quality
control procedures substantially conform to the requirements of FDA regulations.
In addition, the Medical Device Reporting ("MDR") regulation obligates
the Company to inform the FDA whenever there is reasonable evidence to suggest
that one of its devices may have caused or contributed to death or serious
injury, or where one of its devices malfunctions and, if the malfunction were to
recur, the device would be likely to cause or contribute to a death or serious
injury.
Labeling and promotion activities are also subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses.
If, as a result of FDA inspections, MDR reports or information derived
from any other source, the FDA believes the Company is not in compliance with
the law, the FDA can refuse to clear pending 510(k) Submissions; withdraw
previously cleared 510(k) Submissions; require notification to users regarding
newly found unreasonable risks; request repair, refund or replacement of faulty
devices; request corrective advertisements, formal recalls or temporary
marketing suspension; impose civil penalties; or institute legal proceedings to
detain or seize products, enjoin future violations, or seek criminal penalties
against the Company, its officers or employees. Civil penalties for FFDCA
violations may be assessed by the FDA in lieu of or in addition to instituting
legal action. Civil penalties may range up to $15,000 per violation for
violations of the FFDCA, and a maximum of $1,000,000 per proceeding. Civil
penalties may not be imposed for GMP violations, unless the violations involve a
significant or knowing departure from the requirements of the FFDCA or a risk to
public health. The FDA provides manufacturers with an opportunity to be heard
prior to the assessment of civil penalties. If civil penalties are assessed,
judicial review is available.
The Company intends to export, its products to Europe, Japan and other
foreign countries. Exports of products that have market clearance from the FDA
in the United States do not require FDA authorization for export. However,
foreign countries often require, among other things, an FDA certificate for
products for export (a "CPE"). To obtain a CPE the device manufacturer must
certify to the FDA that the product has been granted clearance in the United
States and that the manufacturing facilities appeared to be in compliance with
GMPs at the time of the last FDA inspection. The FDA will refuse to issue a CPE
if significant outstanding GMP violations exist.
International sales of medical devices are subject to the regulatory
requirements of each country. The regulatory review process varies from country
to country. Many countries also impose product standards, packaging and labeling
requirements, and import restrictions on devices. In addition, each country has
its own tariff regulations, duties and tax requirements. The Company plans to
use distributors to assist in obtaining any necessary foreign governmental and
regulatory approvals. The Company does not currently have its products
registered or approved in any countries requiring an extensive registration or
approval process and has, therefore, not sold any products in such countries.
The Company has recently received Underwriters Laboratory, Inc. product
recognition under UL 544, Standard for Medical and Dental Equipment for the
PACER. To maintain "UL" status, the Company will be subject to quarterly
inspections by Underwriters Laboratory, Inc.
The Company and its products are also subject to a variety of state and
local laws and regulations in those states or localities where its products are
or will be marketed. Use of the Company's products is subject to inspection,
quality control, quality assurance, proficiency testing, documentation and
safety reporting standards promulgated by JCAHO. Various states and
municipalities may also have similar regulations.
Manufacturers are also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant costs to comply with such
laws and regulations.
PRODUCT LIABILITY EXPOSURE. Manufacturers of medical devices face the
possibility of substantial liability for damages in the event that the use of
their products is alleged to have resulted in adverse effects to a patient. The
Company maintains product liability insurance with coverage limits of $1.0
million per occurrence with an annual aggregate policy limit of $1.0 million.
The Company's product liability insurance provides coverage only for products
currently manufactured and distributed. There can be no assurance that liability
claims will not exceed the limits of such coverage or that such insurance will
continue to be available on commercially reasonable terms or at all.
Furthermore, the Company does not maintain insurance that would provide coverage
for any costs or losses resulting from any required recall of its products due
to alleged defects, whether instituted by the Company or a regulatory agency.
CHANGES IN HEALTH-CARE INDUSTRY. The health-care industry is
experiencing significant pressure to reduce costs. While the Company cannot
predict what effect any proposals to contain health-care costs may have on its
business, such proposals, if enacted, could have a material adverse effect on
portions of its business, particularly its diagnostic instruments business. In
order to reduce costs and to improve utilization of facilities, many health-care
organizations have consolidated or merged or are considering consolidating or
merging their operations or portions of their operations with the operations of
other health-care organizations. The consolidation and merging of health-care
organizations has reduced and can be expected to continue to reduce the number
of potential purchasers for the Company's products, particularly its diagnostic
instruments.
LIMITATIONS ON BROKER-DEALER SALES OF COMPANY COMMON STOCK;
APPLICABILITY OF "PENNY STOCK RULES". Federal regulations under the Securities
and Exchange Act of 1934, as amended, (the "Exchange Act") regulate the trading
of so-called "penny stocks" (the "Penny Stock Rules"), which are generally
defined as any security not listed on a national securities exchange or Nasdaq,
priced at less than $5.00 per share and offered by an issuer with limited net
tangible assets and revenues. In addition, equity securities listed on Nasdaq
which are priced at less than $5.00 are deemed penny stocks for the limited
purpose of Section 15(b)(6) of the Exchange Act. Therefore, during the time in
which the Common Stock is quoted on the Nasdaq SmallCap Market and is priced
below $5.00 per share, trading of the Common Stock is subject to the provisions
of Section 15(b)(6) of the Exchange Act which make it unlawful for any
broker-dealer to participate in a distribution of any penny stock without the
consent of the Securities and Exchange Commission if, in the exercise of
reasonable care, the broker-dealer is aware of or should have been aware of the
participation of a previously sanctioned person. In such event, it may be more
difficult for broker-dealers to sell the Company's Common Stock and purchasers
of the shares of Common Stock may have difficulty in selling their shares in the
future in the secondary trading market.
In the event that the Company's Common Stock is delisted from the
Nasdaq SmallCap Market and the Company fails other relevant criteria, trading of
the Common Stock would be subject to the full range of the Penny Stock Rules.
Under these rules, broker-dealers must take certain steps prior to selling a
"penny stock," which steps include: (i) obtaining financial and investment
information from the investor; (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; and (iii) providing
the investor a written identification of the shares being offered and in what
quantity. If the Penny Stock Rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, delisting from
the Nasdaq SmallCap Market and the application of the comprehensive Penny Stock
Rules may make it more difficult for broker-dealers to sell the Company's Common
Stock and purchasers of the shares of Common Stock may have difficulty in
selling their shares in the future in the secondary trading market.
POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND
CONVERTIBLE DEBENTURES. As of January 2, 1997, there were 3,149,842 shares of
Common Stock reserved for issuance upon the exercise of stock purchase warrants
or options or the conversion of Debentures. To the extent the trading price of
the Company's Common Stock at the time of exercise or conversion of any such
warrants, options or Debentures exceeds the exercise or conversion prices, any
such exercise or conversion will have a dilutive effect on the Company's
shareholders.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
offering and the ownership of Common Stock by the Selling Shareholders as of
January 7, 1997.
<TABLE>
<CAPTION>
- ----------------------- -------------------- --------------- -------------------- ------------------------------------
Shares of Common Shares of Common Percentage of
Stock Owned Stock Owned Common Stock
Name of Selling Beneficially Shares Beneficially After Owned Beneficially(1)
Shareholder Before Offering Offered Hereby Offering Before Offering After Offering
<S> <C> <C> <C> <C>
Roseann Wexler 100,000 100,000 0 3.9% --
RTM Group Invest-
ments, L.T.D. 100,000 100,000 0 3.9% --
Michael Friess 100,000 100,000 0 3.9% --
Dean Pitconis 50,000 50,000 0 2.0% --
Jaminville Corpora-
ation N.V. 40,004 40,004 0 1.6% --
Wellington Corpora-
tion N.V. 39,999 39,999 0 1.6% --
Richgrove N.V. 39,999 39,999 0 1.6% --
Lanter Investment
Corporation N.V. 39,999 39,999 0 1.6% --
Swifton Capital
Corporation N.V. 39,999 39,999 0 1.6% --
Varooge Yerganian 25,000 25,000 0 1.0% --
Alan Brutman 25,000 25,000 0 1.0% --
</TABLE>
PLAN OF DISTRIBUTION
The Company has been advised that the Shares may be sold from time to
time by the Selling Shareholders or by pledgees, donees, transferees, or other
successors in interest. Such sales may be made in the over-the-counter market or
otherwise at prices and at terms then prevailing or at prices related to the
then current market price or in negotiated transactions. The Shares may be sold
by one or more of the following: (a) a block trade in which the broker or dealer
so engaged will attempt to sell Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) in privately
negotiated transactions not involving a broker or dealer. In effecting sales,
brokers or dealers engaged to sell Shares may arrange for other brokers or
dealers to participate. Brokers or dealers engaged to sell Shares will receive
compensation in the form of commissions or discounts in amounts to be negotiated
immediately prior to each sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, in connection with such
sales. The Company will receive no proceeds from any sales of Common Stock by
the Selling Shareholders, and it is anticipated that the brokers or dealers, if
any, participating in the sales of such securities will receive the usual and
customary selling commissions.
LEGAL MATTERS
The legality of the Common Stock will be passed upon for the Company by
the firm of Gray, Plant, Mooty, Mooty & Bennett, P.A. A member of such firm owns
58,571 shares of Common Stock and warrants and stock options representing the
right to acquire an aggregate of 368,571 shares of Common Stock.
EXPERTS
The audited financial statements of the Company for the years June 30,
1996 and 1995, which are incorporated by reference herein have been examined and
reported on by Silverman Olson Thorvilson & Kaufmann, Ltd., as indicated in
their reports with respect thereto, and are incorporated by reference, in
reliance upon the authority of said firm as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses of the Company in
connection with the sale and distribution of the Common Stock being registered.
All of the amounts shown are estimates, except for the Securities and Exchange
Commission registration fee.
Securities and Exchange Commission fee $ 386.36
Accounting fees and expenses 500.00
Legal fees and expenses 500.00
Transfer Agent fees 500.00
Miscellaneous 2,113.64
--------
TOTAL $4,000.00
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Minnesota Statutes Section 302A.521 provides that a Minnesota business
corporation shall indemnify any director, officer or employee of the corporation
made or threatened to be made a party to a proceeding, by reason of the former
or present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms regarding
such right of indemnification and reference is made thereto for a complete
statement of such indemnification rights. The Company's Articles and Bylaws
provide for indemnification of the Company's officers, directors, employees and
agents to the fullest extent permitted by law.
In addition, the Company's Articles of Incorporation eliminate certain
personal liability of the directors of the Company for monetary damages for
certain breaches of directors' fiduciary duties as permitted by Minnesota
Statutes Section 302A.251.
ITEM 16. EXHIBITS
4.1 Specimen form of the Company's Common Stock certificate
(1).
4.2 HealthWatch, Inc. Stock Option Plan of 1989 (2).
4.3 Form of Incentive Stock Option Agreement (2).
4.4 Form of Nonstatutory Stock Option Agreement (2).
4.5 HealthWatch, Inc. Stock Option Plan of 1993 (3).
4.6 HealthWatch, Inc. Stock Option Plan of 1995 (4).
4.7 HealthWatch, Inc. 1995 Stock Bonus and Salary Deferral Plan
(4).
4.8 Subscription and Purchase Agreement dated as of the 14th
day of August 1992 between the Company and the Purchasers
of the Company's 10% convertible senior debentures due 1997
(including as an appendix thereto the form of the debenture
certificate) (5).
4.9 Warrant Agreement dated May 19, 1995 between the Company
and Corporate Stock Transfer, Inc. (6).
4.10 Form of Loan and Standby Purchase Agreement (6).
4.11 Exchange Agreement for Preferred Stock and Stock Purchase
Warrant (6).
4.12 Form of Subscription and Purchase Agreement, including form
of Warrant (7)
4.13 Form of Preferred Stock Subscription and Purchase Agreement
dated November 13, 1996, including exhibits thereto (8).
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A. -
filed herewith.
23.1 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A. (see
Exhibit 5.1).
23.2 Consent of Silverman Olson Thorvilson & Kaufmann,
Ltd.--filed herewith.
- ----------------
(1) Incorporated herein by reference to Registration Statement, Form S-18
(File No. 2-85688D).
(2) Incorporated herein by reference to Registration Statement, Form S-2
(File No. 33-42831).
(3) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1994 (File No. 0-11476).
(4) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1996 (File No. 0-11476).
(5) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-73462).
(6) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-88126).
(7) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 333-09107).
(8) Incorporated herein by reference to Quarterly Report, Form 10-QSB, for
the quarter ended September 30, 1996 (File No. 0-11476).
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 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.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant as discussed above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Vista, State of California, on January
7, 1997.
HEALTHWATCH, INC.
By /s/ Lindley S. Branson
Lindley S. Branson
President and Chief Executive Officer
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Lindley S. Branson and Annette D. Agner,
and each of them, his/her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for him/her and in his/her name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full powers and authority to do
and perform each and every act and things requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their or his/her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below on the 7th day of
January, 1997, by the following persons in the capacities indicated:
/s/ Lindley S. Branson President, Chief Executive Officer and Chief
Lindley S. Branson Financial Officer (Principal Executive and
Financial Officer)
/s/ Annette D. Agner Controller (Principal Accounting Officer)
Annette D. Agner
/s/ Sanford L. Schwartz Director
Sanford L. Schwartz
/s/ Kenneth A. Selzer, M.D. Director
Kenneth A. Selzer, M.D.
HEALTHWATCH, INC.
AMENDMENT NO. 1 TO
FORM S-3
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
4.1 Specimen form of the Company's Common Stock certificate (1). --
4.2 HealthWatch, Inc. Stock Option Plan of 1989 (3). --
4.3 Form of Incentive Stock Option Agreement (3). --
4.4 Form of Nonstatutory Stock Option Agreement (3). --
4.5 HealthWatch, Inc. Stock Option Plan of 1993 (4). --
4.6 HealthWatch, Inc. Stock Option Plan of 1995 - filed herewith. --
4.7 HealthWatch, Inc. 1995 Stock Bonus and Salary Deferral Plan - --
filed herewith.
4.8 Subscription and Purchase Agreement dated as of the 14th day of --
August 1992 between the Company and the Purchasers of the
Company's 10% convertible senior debentures due 1997 (including
as an appendix thereto the form of the debenture certificate) (5).
4.9 Warrant Agreement dated May 19, 1995 between the Company and --
Corporate Stock Transfer, Inc. (6).
4.10 Form of Loan and Standby Purchase Agreement (6). --
4.11 Exchange Agreement for Preferred Stock and Stock Purchase Warrant --
(6).
4.12 Form of Subscription and Purchase Agreement, including form of --
Warrant (7).
4.13 Form of Preferred Stock Subscription and Purchase Agreement dated --
November 13, 1996, including exhibits thereto. (8)
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.-filed
herewith.
23.1 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A. (see Exhibit
5.1).
23.2 Consent of Silverman Olson Thorvilson & Kaufman, Ltd.-filed
herewith.
</TABLE>
- --------------------
(1) Incorporated herein by reference to Registration Statement, Form S-18
(File No. 285688D).
(2) Incorporated herein by reference to Registration Statement, Form S-2
(File No. 33-42831).
(3) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1994 (File No. 0-11476).
(4) Incorporated herein by reference to Registration Statement, Form
10-KSB, for the year ended June 30, 1996 (File No. 0-11476).
(5) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-73462).
(6) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-88126).
(7) Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 333-09107).
(8) Incorporated herein by reference to Quarterly Report, Form 10-QSB for
the quarter ended September 30, 1996.
EXHIBIT 5.1
LINDLEY S. BRANSON
612 343-2827
January 6, 1997
HealthWatch, Inc.
2445 Cades Way
Vista, California 92083
RE: Registration Statement on Form S-3
No. 33-88032
Ladies/Gentlemen:
This opinion is furnished in connection with the registration, pursuant
to the Securities Act of 1933, as amended, of an aggregate of 600,000 shares of
common stock (the "Shares") of HealthWatch, Inc. (the "Company") which are to be
issued upon conversion of certain of the Company's Series B Convertible
Preferred Stock.
We have acted as counsel to the Company in connection with the
preparation of Exhibit 5.1 to the Registration Statement on Form S-3
("Registration Statement"). We have examined the Articles of Incorporation, as
amended, and the Bylaws of the Company, such records of proceedings of the
Company as we deemed material and such other certificates, records and documents
as we considered necessary for the purposes of this opinion.
Based on the foregoing, we are of the opinion that the Shares will be
when the Registration Statement is declared effective by the Securities and
Exchange Commission legally issued, fully paid and non-assessable securities of
the Company. We understand that this opinion is to be issued in connection with
the Registration Statement. We consent to a filing of a copy of this opinion
with the Registration Statement.
Very truly yours,
GRAY, PLANT, MOOTY,
MOOTY & BENNETT, P.A.
By /s/ Lindley S. Branson
Lindley S. Branson
LSB/pbs
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference of our report dated August
16, 1996, accompanying the consolidated financial statements of HealthWatch,
Inc. as of June 30, 1996 and 1995, included in the Company's Annual Report on
Form 10-KSB and to the reference made to our firm under the caption "Experts" in
the Registration Statement on Form S-3 to be filed by HealthWatch on or about
January 7, 1997.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD.
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
January 7, 1997
