PROSPECTUS RULE 424(B)(3) PROSPECTUS FOR
---------- REG. NO. 333-39476
HENLEY HEALTHCARE, INC.
8,459,346 SHARES
COMMON STOCK
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The selling shareholders identified in this prospectus are offering:
o shares of our common stock which are currently issued and outstanding,
o shares of our common stock issuable upon the exercise of outstanding
warrants to purchase shares of all common stock, and
o shares of our common stock issuable upon conversion of our Series D
Convertible Preferred Stock.
The selling stockholders may sell shares of our common stock from time to
time in privately-negotiated transactions, in underwritten offerings, or by a
combination of such methods of sale. Sales of shares of common stock may be made
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. We will file a supplemental prospectus if required to do so by
applicable securities laws to describe specific sales of shares or to identify
any selling shareholders not listed in this prospectus.
We are not offering any shares of our common stock for sale under this
prospectus and we will not receive any of the proceeds from the sale of shares
by selling stockholders under this prospectus. However, we will receive
approximately $881,250 if the warrants representing shares of our common stock
in this offering are exercised.
Our common stock is traded on the Nasdaq Small Cap Market under the symbol
"HENL."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 IN THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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This prospectus is dated July 28, 2000.
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TABLE OF CONTENTS
SECTION PAGE
Where You Can Find More Information..........................................3
Risk Factors.................................................................4
About Us....................................................................13
Use of Proceeds.............................................................13
Selling Shareholders........................................................14
Plan of Distribution........................................................16
Legal Matters...............................................................17
Experts.....................................................................17
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of a registration statement on Form S-3
that we filed with the SEC under the Securities Act. This prospectus, which
forms a part of the registration statement, does not contain all the information
set forth in the registration statement. You should refer to the registration
statement and its related exhibits and schedules for further information with
respect to our company and the shares offered in this prospectus. Statements
contained in this prospectus concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
that document filed as an exhibit to the registration statement or otherwise
filed with the SEC and each such statement is qualified by this reference. The
registration statement and its exhibits and schedules are on file at the offices
of the SEC and may be inspected without charge.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file, including
the registration statement, at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at l-800-SEC-0330 for
further information on the operation of the Public Reference Room. Our public
filings are also available from commercial document retrieval services and at
the Internet World Wide Web site maintained by the SEC at "http://www.sec.gov."
SEC rules allow us to include some of the information required to be in the
registration statement by incorporating that information by reference to other
documents we file with them. That means we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus, and information that we file
later with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of
1934 until all of the securities covered by this prospectus are sold:
o Annual Report on Form 10-K for the year ended December 31, 1999, as
amended;
o Quarterly Report on Form 10-Q for the period ended March 31, 2000;
o Current Reports on Form 8-K filed on June 7, 2000;
o The description of our common stock contained in the Form 8-A,
effective June 26, 1996 (Commission File No. 000-28566), including any
amendments or reports filed to update description.
You may request a copy of these filings, which we will provide to you at
no cost, by writing or telephoning us at the following address:
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
(281) 276-7000
Attention: Chief Accounting Officer
You should rely only on the information incorporated by reference or
contained in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. The selling stockholders
are not making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus is accurate as of the date on the front cover of this
prospectus only. Our business, financial condition, results of operations and
prospects may have changed since that date.
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RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO BUY ANY SHARES OF COMMON STOCK.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL IN ORDER TO FUND OUR CURRENT
OPERATIONS AND TO CONTINUE OUR FUTURE OPERATIONS AND THERE IS SUBSTANTIAL DOUBT
AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We recorded a net less of $5,831,000 and $5,350,000 for 1998 and 1999,
respectively. Additionally, we recorded a net loss of $1,087,000 or $.14 per
share for the quarter ended March 31, 2000 on net sales of $13,689,178 and there
can be no assurance that we will be able to achieve profitability for the long
term. At March 31, 2000, we had a working capital deficit of $11,065,000, which
has since improved because of recent financing transactions. In addition, our
ability to produce, sell and deliver products has been materially adversely
impacted under our credit agreement with Comerica Bank-Texas due to the
restrictions on the use of collections of operating revenues. Due to these
issues, our independent public accountants have modified their opinion issued
with respect to our December 31, 1999 audited financial statements, by
indicating that there is substantial doubt as to our ability to continue as a
going concern. Because of these problems, we recently
o renegotiated our line of credit with Comerica,
o renegotiated our convertible note with Maxxim Medical, Inc.,
o sold shares of Series D Preferred Stock for $2,500,000, and
o paid some of our vendor claims with shares of our common stock.
Under the terms of the credit agreement with Comerica, as long as we are
within the prescribed borrowing base and in compliance with the agreement, we no
longer have any restrictions on the use of the collections of our operating
revenues. While the steps indicated above have improved our ability to purchase
supplies and raw materials to manufacture and deliver products, we can make no
assurances that we have improved our working capital position enough to
successfully continue our operations. In addition, we still need additional
capital to satisfy outstanding vendor obligations, overdue royalty obligations,
our note with Maxxim and outstanding debt obligations under the line of credit
with Comerica. As of May 31, 2000, our working capital deficit was approximately
$1,286,000. If we are not successful in eliminating our working capital deficit
and satisfying our outstanding debt obligations by obtaining sufficient
financing or generating sufficient cash flow from operations, we may not be able
to continue our current operations. While we have negotiated an additional sale
of shares of Series D Convertible Preferred Stock for $1,000,000, there can be
no assurance that the funding will be sufficient to continue our current
operations.
DUE TO OUR LIMITED NATURE, YOU SHOULD NOT RELY ON OUR COMBINED OPERATING HISTORY
AS AN INDICATOR OF OUR FUTURE PERFORMANCE.
We were incorporated in November 1990 to develop a portable hand-held,
battery-operated, low-energy laser device to be used to treat soft tissue. Since
that time, we have completed eleven acquisitions related to the non-invasive
pain management and rehabilitation industry. As a result of this rapid growth in
our operations, we have a limited combined operating history. Although we
experienced significant revenue growth from fiscal 1998 to fiscal 1999, we
incurred net losses of $5,831,000 and $5,350,000 for the years ended December
31, 1998 and 1999, respectively. We may not be able to successfully operate the
acquired businesses and become profitable in the future. Our inability to
successfully operate the recently acquired businesses would have a material
adverse effect on our business, financial condition and results of operations.
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OUR SUCCESS WILL DEPEND ON OUR ABILITY TO EFFECTIVELY MANAGE OUR GROWTH.
Rapid growth over the past four years continues to place a significant
strain on our managerial, operational and financial resources. To manage our
growth, we must continue to implement and improve our operational and financial
systems and to expand, train and manage our employee base. We may not have
adequately evaluated the costs and risks associated with this expansion, and our
systems, procedures and controls may not be adequate to support our operations.
In addition, our management may not be able to achieve the rapid execution
necessary to successfully offer our products and services and implement our
business plan on a profitable basis. Our future operating results will also
depend on our ability to expand our support organization commensurate with the
growth of our business. Any failure by our management to effectively anticipate,
implement and manage the changes required to sustain our growth would have a
material adverse effect on our business, financial condition and results of
operations. There can be no assurance that we will be able to successfully
operate the acquired businesses and become profitable in the future and we may
not be able to effectively manage such change. Our inability to successfully
integrate or operate the recently acquired businesses would have a material
adverse effect on our business, financial condition and results of operations.
THE MARKETS FOR OUR PRODUCTS ARE VOLATILE AND WE MAY NOT BE ABLE TO ACHIEVE OR
MAINTAIN SUFFICIENT MARKET SHARE.
The pain management market is a relatively mature and competitive market,
subject to significant fluctuations in profitability caused by foreign
competition, questions of therapeutic efficacy and governmental regulation. The
rehabilitation market is an evolving and fragmented market with a number of
different companies offering competing treatments without any clear indication
of preference among treating clinicians. We may never be able to capture a
significant portion of the pain management market or establish a significant
position in the rehabilitation market.
WE ARE IN AN EXTREMELY COMPETITIVE INDUSTRY THAT IS DOMINATED BY SEVERAL
COMPANIES WHICH HAVE SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, AND MARKETING
RESOURCES THAN WE HAVE.
Competition in the industry from other pain management and rehabilitation
device companies, as well as from pharmaceutical companies and biotechnology
companies, is intense. Some of the companies with which we compete have
significantly greater resources, established direct sales organizations and
greater experience in the marketing and sales of products through direct
distribution. Although we believe that the broad range of rehabilitation
products we sell distinguishes us from such competitors, there can be no
assurance that we will be able to compete effectively.
WE MAY BE LIABLE FOR SUBSTANTIAL MONETARY DAMAGES SHOULD OUR PRODUCTS INJURE
SOMEONE.
Like most producers of medical products, we face the risk of product
liability claims and unfavorable publicity in the event that the use of our
products causes injury or has other adverse effects. Although we have product
liability insurance for risks of up to $2,000,000 and has not been subject to
any material claims for product liability, such insurance may be inadequate to
cover all potential product claims. In addition, we may not be able to maintain
such insurance indefinitely or be able to avoid product liability exposure.
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PRODUCT RECALLS COULD MATERIALLY AFFECT OUR RESULTS OF OPERATIONS.
If a device that we designed or manufactured is found to be defective,
whether due to design or manufacturing defects, improper use of the product, or
other reasons, the device may need to be recalled, possibly at our expense.
Furthermore, the adverse effect of a product recall on we might not be limited
to the cost of a recall. For example, a product recall could cause a general
investigation of our products and operations by applicable regulatory
authorities as well as cause other customers to review and potentially terminate
their relationships with us. Recalls, especially if accompanied by unfavorable
publicity or termination of customer relationships, could result in substantial
costs, loss of revenues, and a diminution of our reputation, any of which could
have a material adverse effect on our business, results of operations and
financial condition.
VARIOUS MARKET AND ECONOMIC FACTORS MAY CAUSE OUR FUTURE QUARTERLY OPERATING
RESULTS TO VARY.
Our operating results may fluctuate significantly in the future as a
result of a variety of factors, some of which are outside of our control. These
factors include general economic conditions, specific economic conditions in the
pain management and rehabilitation industries, seasonal trends in sales, capital
expenditures, new acquisitions and other costs relating to the expansion of
operations, the introduction of new products or services by us or our
competitors, the mix of the products and services sold and the channels through
which they are sold and pricing changes. As a strategic response to a changing
competitive environment, we may elect from time to time to make certain pricing,
service or marketing decisions or acquisitions that could have a material
adverse effect on our business, results of operations and financial condition.
Due to the foregoing factors, it is likely that in some future quarter, our
operating results may be below the expectations of public market analysts and
investors. In such event, the price of our common stock may be materially
adversely affected.
OUR SUCCESS IS HEAVILY DEPENDENT UPON THE RETENTION OF CERTAIN KEY EMPLOYEES.
Our performance is substantially dependent on the performance of our
executive officers and key employees all of whom have worked together for a
relatively short period of time. In particular, the services of Michael M.
Barbour and James L. Sturgeon would be difficult to replace. We currently have
no employment agreements with Mr. Barbour or Mr. Sturgeon. We have a $3,000,000
key person life insurance policy on the life of Mr. Barbour; however, the
proceeds of that policy may not be sufficient to compensate us for the loss of
Mr. Barbour's services. We do not have such policies in place on any of our
other employees. The loss of the services of any of our executive officers or
other key employees could have a material adverse effect on our business,
results of operations or financial condition. Further, the loss of Mr. Barbour
or Mr. Sturgeon triggers an event of default under the terms of the renegotiated
credit agreement with Comerica. In addition, we are heavily dependent upon our
ability to attract, retain and motivate skilled technical and managerial
personnel. Our future success also depends on our continuing ability to
identify, hire, train and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and we may not be able to
attract, assimilate or retain other highly qualified technical and managerial
personnel in the future. The inability to attract, hire or retain the necessary
technical and managerial personnel could have a material adverse effect upon our
business, results of operations or financial condition.
OUR BUSINESS IS SUBJECT TO STRICT REGULATION BY THE U.S. FOOD AND DRUG
ADMINISTRATION
The development of our MicroLight 830(TM) product and certain of our other
products are subject to extensive and rigorous regulation by the FDA pursuant to
the Federal Food, Drug, and Cosmetic Act, by comparable agencies in foreign
countries, and by state regulatory agencies. Under the Food and Drug Act,
medical devices must receive FDA clearance before they can be commercially
marketed in the United States. The process of obtaining marketing clearance from
the FDA for new products can take a number of years and require the expenditure
of substantial resources, and may involve rigorous pre-clinical and clinical
testing. The time required for completing such testing and obtaining FDA
clearance is uncertain, and we may not obtain sufficient resources to
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complete the required testing and regulatory review process. In addition, we
may not obtain such FDA clearances, or may encounter delays that will adversely
affect our ability to commercialize additional products. Delays or rejections
may be encountered based upon changes in FDA policy during the period of product
development and FDA review of each submitted application. Similar delays may
also be encountered in other countries. Even if regulatory approvals to market a
product are obtained from the FDA, these approvals may entail limitations on the
indicated uses of the product. In addition, as can be expected with any
investigational device, modifications will be made to our products to
incorporate and enhance their functionality and performance based upon new data
and design review. The FDA may request additional information relating to
product improvements, and could require further regulatory review thereby
delaying the testing, approval and commercialization of our development
products, and could withhold approval of any such improvement. The FDA can
withdraw product approvals due to failure to comply with regulatory standards or
the occurrence of unforseen problems following initial approval. Later discovery
of previously unknown problems with a product, manufacturer, or facility may
result in restrictions on such product or manufacturer, including fines, delays
or suspensions of regulatory clearances, seizures or recalls of products,
operating restrictions and criminal prosecution, and could have a material
adverse effect on us. FDA regulations depend heavily on administrative
interpretation, and future interpretations made by the FDA or other regulatory
bodies, with possible retroactive effect, could adversely affect us.
The MicroLight 830(TM), a Class III medical device, has been defined by
the FDA as a "non-significant risk" device. We are allowed to conduct clinical
trials under an approved Investigational Device Exemption using the MicroLight
830(TM). In August 1997, the FDA accepted our Pre-Investigational Device
Exemption Clinical Investigation Plan for a multi-center, double-blind,
randomized, clinical study to evaluate the efficacy of the MicroLight 830(TM) in
the treatment of carpal tunnel syndrome. These clinical trials are subject to
Investigational Device Exemption regulations, including record keeping, adverse
event reporting and other clinical study requirements. Pursuant to
Investigational Device Exemption regulations our clinical researchers are
required to be reviewed and approved by an Institutional Review Board to treat
human patients for research purposes. The objective of these clinical trials is
to evaluate the therapeutic effects of low-level laser energy in pain
management, soft tissue trauma and dental applications. We have recently
concluded independent research studies of the MicroLight 830(TM) at various
clinical sites in the U.S. We cannot predict whether:
o the results of the various research studies that are being or have been
conducted using the MicroLight 830(TM), will demonstrate to the FDA's
satisfaction the safety and effectiveness of the MicroLight 830(TM) in
treating carpal tunnel syndrome;
o the FDA will agree that the design of the studies is satisfactory;
o the FDA will not require additional clinical studies; or
o we will be able to obtain the necessary FDA marketing clearance for the
MicroLight 830(TM) on a timely basis, if at all.
FDA's rejection of the clinical design or the data generated could lead to
rejection of the application for commercial marketing of the MicroLight 830(TM)
and/or the need to conduct additional clinical trials. Until we obtain FDA
market clearance, we are unable to sell the product in commercial quantities for
human application in the U.S. market.
OUR REVENUES MAY BE AFFECTED BY GOVERNMENT AND THIRD-PARTY REIMBURSEMENT REFORMS
Governmental and other efforts to reduce healthcare spending have
affected, and will continue to affect, our operating results. The cost of a
significant portion of health care in the United States is funded by government
and private insurance programs, such as Medicare, Medicaid, health maintenance
organizations, and private insurers, including Blue Cross/Blue Shield plans.
Government imposed limits on reimbursement of hospitals and other health care
providers have significantly curtailed their spending budgets. Under certain
government insurance
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programs, a healthcare provider is reimbursed a fixed sum for services rendered
in treating a patient, regardless of the actual charge for such treatment.
Private and third-party reimbursement plans are also developing increasingly
sophisticated methods of controlling healthcare costs through redesign of
benefits and exploration of more cost-effective methods of delivering
healthcare. In general, these government and private cost-containment measures
have caused healthcare providers to be more selective in the purchase of medical
products.
Under most third-party reimbursement plans, the coverage of an item or
service and the amount of payment that will be made are separate decisions.
Efforts to reduce or control healthcare spending are likely to limit both the
coverage of certain medical and therapeutic devices, especially newly approved
products, and the amount of payment that will be allowed. Restrictions on
coverage and payment of our products by third-party payors could have an adverse
impact on us.
In the third quarter of fiscal 1998, the Health Care Financing
Administration implemented salary equivalency reimbursement guidelines for
occupational therapy and speech language pathology services and revised
guidelines for physical therapy services. The net effect of these guidelines was
to reduce the long-term care reimbursement rates and gross profit percentage
from previous levels. Additionally, the Balanced Budget Act of 1997 requires a
change from these salary equivalency guidelines for therapy services to a
prospective payment system referred to as a PPS, for Medicare Part A services
and a fee schedule with annual maximum payments per patient for Medicare Part B
services. Management does not believe the PPS section of the Balanced Budget Act
of 1997 will have a significant impact on our revenues because the guidelines
primarily cover reimbursement for therapy services rather than therapy devices.
In addition, several states and the federal government are investigating a
variety of alternatives to reform the health care delivery system and further
reduce and control health care spending. These reform efforts include proposals
to limit spending on health care items and services, limit coverage for new
technology, and limit or control directly the prices health care providers and
drug and device manufacturers may charge for their services and products.
Although the scope and timing of such reforms cannot be predicted at this time,
it is a continuing trend in U.S. health care for such payments to be under
continual scrutiny and downward pressure. We believe that reimbursement in the
future will be subject to increased restrictions, both in the United States and
in foreign markets and that the overall escalating cost of medical products and
services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products which we offer. If adopted and implemented, any
such cost reduction reforms could have a material adverse effect on us.
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INTERNATIONAL TRANSACTIONS AND TRANSACTIONS IN FOREIGN CURRENCIES PRESENT RISKS
THAT COULD MATERIALLY AFFECT OUR BUSINESS AND FINANCIAL PERFORMANCE.
We have arrangements with several foreign distributors to distribute
products in Europe, Southeast Asia, the Far East, Central America and South
America. In addition, we obtain certain supplies from foreign suppliers. The
acquisition of Enraf-Nonius significantly expanded our foreign operations.
International transactions subject us to several potential risks, including:
o fluctuating exchange rates (to the extent our transactions are not in
U.S. dollars);
o varying economic and political conditions;
o cultures and business practices in different countries or regions;
o regulation of fund transfers by foreign governments;
o overlapping or differing tax structures; and
o United States and foreign export and import duties and tariffs.
Fluctuations in the exchange rates between the U.S. dollar and the
currencies of the other countries in which we operate will affect the results of
our international operations reported in U.S. dollars. It is anticipated that
approximately one-half of our total sales for 1999 will be in currencies other
than U.S. dollars. In addition, we may make loans to and/or receive dividends
and loans from certain of our foreign subsidiaries and may suffer a loss as a
result of adverse exchange rate movements between the relevant currencies. Any
of the foregoing could have a material adverse effect upon our business.
On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the Euro as their common legal currency. Following the
introduction of the Euro, the local currencies remain legal tender in the
participating countries until January 1, 2002. During this transition period,
goods and services may be paid for using either the Euro or the participating
country's local currency. Thereafter, the local currencies will be canceled and
the Euro currency will be used for all transactions between the eleven
participating members of the European Union. The Euro conversion raises
strategic as well as operational issues. The conversion is expected to result in
a number of changes, including the stimulation of cross-border competition by
creating cross-border price transparency. We are assessing Euro issues related
to our product pricing, contract, treasury operations and accounting systems.
Although the evaluation of these items is still in process, we believe that the
hardware and software systems it uses internally will accommodate this
transition and any required policy or operating changes will not have a material
adverse effect on future results.
Sales of our medical products outside the United States are subject to
regulatory requirements that vary widely from country to country. The time
required to obtain clearance for sales in foreign countries may be longer or
shorter than that required for FDA clearance, and the requirements may differ.
The FDA also regulates the sale of exported medical devices, although to a
lesser extent than devices sold in the United States. For medical products
exported to countries in Europe, we anticipate that our customers will want
their products to qualify for distribution under the "CE Mark." The CE Mark is a
designation given to products which comply with certain European Economic Area
policy directives and therefore may be freely traded in almost every European
country. Commencing in 1998, medical product manufacturers are required to
obtain certifications necessary to enable the CE Mark to be affixed to medical
products they manufacture for sale throughout the European Community. In
addition, our distributors and customers must comply with other laws generally
applicable to foreign trade, including technology export restrictions, tariffs,
and other regulatory barriers. Our distributors and customers may not be able to
obtain all required clearances or approvals for exported products on a timely
basis, if at all. Failure or
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delay by our customers in obtaining the requisite regulatory approvals for
exported instruments it manufactures may have a material adverse effect on our
business, results of operations, and financial condition.
OUR SUCCESS IS HEAVILY DEPENDENT UPON A VARIETY OF PROPRIETARY INTELLECTUAL
PROPERTY RIGHTS. OUR CURRENT PROTECTIONS MAY NOT BE SUFFICIENT TO PROTECT THESE
TECHNOLOGIES.
We actively seek patent protection for our proprietary technology, both in
the U.S. and abroad. We own several U.S. issued patents and various foreign
counterparts. Our success will depend, in part, on our ability to obtain patents
and to operate without infringing on the proprietary rights of others. There can
be no assurance that patents issued to or licensed by us will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to us. Our pending patent applications or patent
applications in preparation presently or in the future, if and when issued, may
not be valid and enforceable and withstand litigation. In addition, others may
independently develop substantially equivalent or superseding proprietary
technology and equivalent products may be marketed in competition with our
products, thereby substantially reducing the value of our proprietary rights. We
currently have one patent application pending in the U.S. There is a substantial
backlog of patent applications at the U.S. Patent and Trademark Office. Because
patent applications in the U.S. are maintained in secrecy until patents issue,
and because publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months, we may not obtain
patent protection for our inventions. In addition, patent protection, even if
obtained, is effective only for a limited period of time. Furthermore, patent
positions are highly uncertain and involve complex legal and factual questions.
Therefore, the scope or enforceability of claims allowed in the patents on which
we will rely cannot be predicted with any certainty.
We also rely on trade secrets, know-how and continuing technological
advancement to maintain our competitive position. Although we have entered into
confidentiality agreements with our employees and consultants, which contain
assignment of invention provisions, we cannot be certain that others will not
gain access to these trade secrets, that such agreements will be honored or that
we will be able to effectively protect our rights to our unpatented trade
secrets. Moreover, others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets.
In addition to protecting our proprietary technology and trade secrets, we
may be required to obtain licenses to patents or other proprietary rights from
third parties. We cannot be certain that any licenses required under any patents
or proprietary rights would be made available on acceptable terms, if at all. If
we do not obtain required licenses, we could encounter delays in product
introductions while it attempts to design around blocking patents, or it could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.
Although we have conducted searches to discover any patents on which our
products or their use might infringe and are not aware of any such patents, we
cannot be certain that no such infringement has or will occur. We could incur
substantial costs in defending any patent infringement suits or in asserting any
patent rights, including those granted by third parties, in a suit with another
party. The U.S. Patent and Trademark Office could institute interference
proceedings with us in connection with one or more of our patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The U.S. Patent and Trademark Office or a comparable
agency of a foreign jurisdiction could also institute reexamination or
opposition proceedings against us in connection with one or more of our patents
or patent applications and such proceedings could result in an adverse decision
as to the validity or scope of the patents.
THE CURRENT PUBLIC MARKET FOR OUR COMMON STOCK IS LIMITED AND HIGHLY VOLATILE.
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In particular, the market price of our securities is
highly volatile. The following factors may have a significant effect on the
market price of our securities:
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o announcements by us or our competitors concerning acquisitions;
o technological innovations;
o new commercial products or procedures by us or our competitors;
o proposed governmental regulations and developments in both the U.S. and
foreign countries;
o disputes relating to patents or proprietary rights;
o publicity regarding actual or potential medical results relating to
products sold by us or our competitors;
o public concern as to the safety of these products;
o economic and other external factors;
o period-to-period fluctuations; and
o financial results.
From time to time, there has been limited trading volume with respect to
our common stock. In addition, there can be no assurance that there will
continue to be a trading market or that any analysts will continue to provide
research coverage with respect to our common stock. Accordingly, such factors
may affect the market for our common stock.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
RESTRICTED AND OTHER SECURITIES.
As of June 1, 2000, there were approximately 7,257,570 shares of our
common stock issued and outstanding. Approximately 1,450,000 shares of common
stock are issuable upon exercise of employee and director stock options under
our incentive stock plans and will become eligible for sale in the public
markets at prescribed times in the future. Our issuance of such 1,450,000 shares
is registered on a Form S-8 Registration Statement. As of June 1, 2000, other
outstanding options and warrants were exercisable to purchase approximately
1,536,000 shares of common stock. In addition, 1,500,000 shares of common stock
are issuable upon conversion of the remaining $3,000,000 principal balance of a
convertible promissory note issued to Maxxim Medical, Inc. Lastly, each series
of preferred stock is convertible into additional shares of our common stock.
The maximum number of shares issuable upon the conversion of the
outstanding shares of our Series B, Series C and Series D Preferred Stock cannot
be estimated since the Series B, Series C and Series D Preferred Stock have no
minimum on the conversion price. Since all of the preferred shares have floating
conversion rates, the number of shares issuable upon conversion will vary
inversely to the market price of our common stock.
The issuance and sale of a significant number of shares of common stock
upon the exercise of stock options and warrants, the conversion of our
outstanding preferred stock, or the sales of a substantial number of shares of
common stock pursuant to Rule 144 or otherwise, could adversely affect the
market price of the common stock.
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THE ISSUANCE OF ADDITIONAL COMMON STOCK UPON THE CONVERSION OR EXERCISE OF
OUTSTANDING DERIVATIVE SECURITIES COULD RESULT IN DILUTION TO EACH SHAREHOLDER'S
PERCENTAGE OWNERSHIP INTEREST AND COULD MATERIALLY AFFECT THE MARKET PRICE OF
THE COMMON STOCK.
A substantial number of shares of common stock are issuable by us upon the
conversion of the outstanding principal balance of the Maxxim Note, the
outstanding shares of our convertible preferred stock and upon the exercise of
warrants and options which we have issued. Such issuances could result in
dilution to a shareholder's percentage ownership interest and could adversely
affect the market price of the common stock. Under the applicable conversion
formulas of our preferred stock, the number of shares of common stock issuable
upon conversion is inversely proportional to the market price of the common
stock at the time of conversion (i.e., the number of shares increases as the
market price of the common stock decreases). The maximum number of shares of
common stock which may be issuable upon conversion of the Series A Preferred
Stock is limited by provision which prohibits the applicable conversion price
from going below $2.90. However, the Series B, Series C and Series D Preferred
Stock does not have any such conversion price limitation and there is no maximum
to the number of shares which could issue upon conversion of the Series B,
Series C and Series D Preferred Stock. Therefore, any drop in the market price
will increase the potential dilution which could occur upon conversion of the
Series B or Series C or Series D Preferred Stock, which could, in turn, cause
the market price to go lower, and have the effect of creating a declining market
price. In addition, the existence of the floating conversion rate preferred
stock and, in particular, the absence of a floor price with respect to the
Series B, Series C and Series D Preferred Stock, could increase our
vulnerability to short-selling strategies.
As a result, a total of 5,961,431 shares of common stock are currently
issuable upon the exercise or conversion of such preferred stock, options,
warrants, and the Maxxim Note, which, if issued, would represent 45% of the then
outstanding shares of common stock. The number of shares issuable upon the
exercise or conversion of each of our common stock equivalents is subject to
adjustment upon the occurrence of certain dilutive events.
CERTAIN PROVISIONS CONTAINED IN OUR ARTICLES OF INCORPORATION AND TEXAS LAW MAY
PREVENT OR DELAY A THIRD-PARTY ATTEMPT TO ACQUIRE CONTROL OF THE COMPANY.
Our Articles of Incorporation and the Texas Business Corporation Act
contain certain provisions that may delay or prevent an attempt by a third-party
to acquire control of us. For instance, our board of directors may authorize the
issuance of additional shares of preferred stock without shareholder approval.
In addition, the severance provisions of employment agreements with certain
members of management could impede an attempted change of control of us.
THE COMPANY DOES NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK IN THE
NEAR FUTURE, BUT WE ARE REQUIRED TO PAY DIVIDENDS ON OUR SERIES A PREFERRED
STOCK AND SERIES D PREFERRED STOCK.
Our proposed operations may not result in sufficient revenues to enable us
to operate at a profitable level. We have not paid any dividends on our common
stock to date, and have no plans to pay any dividends on our common stock for
the foreseeable future. However, our Series A Preferred Stock accrues a dividend
of 4% per year, payable at our discretion in cash or in shares of common stock
based on a share price equal to the closing price of our common stock on The
Nasdaq SmallCap Market on the particular dividend date. In addition, our Series
D Preferred Stock accrues a dividend of 6% per year, payable at our discretion
in cash or shares of common stock based on a share price equal to the closing
price of our common stock on The Nasdaq Small Cap Market on the particular
dividend date.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The statements made in this prospectus or in the documents we have
incorporated by reference that are not statements of historical fact, are
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements generally can be
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identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate" or "believe," or similar
terminology.
The forward-looking statements include discussions about business strategy
and expectations concerning market position, future operations, margins,
profitability, liquidity and capital resources, and statements concerning the
integration into our business of the operations we have acquired. Although we
believe that the expectations in such statements are reasonable, we can not give
any assurance that those expectations will be correct. We caution you not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this prospectus.
Our operations are subject to several uncertainties, risks and other
influences, many of which are outside our control and any of which could
materially affect our results of operations and ultimately prove the statements
we make to be inaccurate. Important factors that could cause actual results to
differ materially from our expectations are discussed under this "Risk Factors"
section and in documents incorporated in this prospectus by reference.
ABOUT US
We develop, manufacture and distribute products and related accessories
used in the control of acute or chronic pain. Our diversified line of
non-invasive physical medicine and rehabilitation products are used in the
treatment of disabilities or injuries with therapeutic exercise and the
application of various heat, fluidotherapy, traction, ultrasound or other
modalities. We are also seeking approval from the United States Food and Drug
Administration for the MicroLight 830(TM), a hand-held, low-energy
(non-surgical) laser for the treatment of repetitive stress injuries such as
carpal tunnel syndrome. Our principal executive offices are located at 120
Industrial Boulevard, Sugar Land, Texas 77478, and our telephone number is (281)
276-7000.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock by the
selling stockholders pursuant to this prospectus. However, we may receive up to
approximately $881,250 if all of the warrants held by the selling shareholders
are exercised for cash. The net proceeds from the exercise of any warrants is
anticipated to be used to repay indebtedness and/or general corporate purposes.
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SELLING SHAREHOLDERS
The following table sets forth certain information concerning each of the
selling shareholders. Assuming that the selling shareholders offer all of their
shares of common stock, the selling shareholders will not have any beneficial
ownership. The shares are being registered to permit the selling stockholders
and certain of their respective pledgees, donees, transferors or other
successors in interest to offer the shares from time to time. See "Plan of
Distribution."
<TABLE>
<CAPTION>
NUMBER OF SHARES
OWNED AND TO BE NUMBER OF NUMBER OF PERCENTAGE OF
OWNED PRIOR TO SHARES BEING SHARES OWNED SHARES OWNED
SELLING SHAREHOLDERS OFFERING (1)(2) OFFERED (2) AFTER OFFERING (3) AFTER OFFERING (3)
---------------------------------------------- -------------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
The Endeavour Capital Fund S.A. (4) (5)....... 4,850,603 4,663,518 187,085 *
Esquire Trade & Invest Inc. (4)(6)............ 997,518 997,518 0 *
Celeste Trust Reg (4)(7)...................... 623,448 623,448 0 *
Endeavour Management Inc. (4)................. 120,690 120,690 0 *
Union Atlantic Capital LC (4)(8).............. 574,482 574,482 0 *
Union Atlantic LC (4)(9)...................... 143,620 143,620 0 *
QAD, Inc. .................................... 283,000 283,000 0 *
Alpha Circuits Inc............................ 4,437 4,437 0 *
Chas. P. Young Company, Inc................... 77,074 77,074 0 *
A-1 Freeman Relocation, Inc................... 50,834 50,834 0 *
Lakeview Enterprises of FLTWP, Inc............ 14,195 14,195 0 *
Elgin Exercise................................ 4,500 4,500 0 *
Charles Dale.................................. 712 712 0 *
Leland Dale Levey............................. 1,780 1,780 0 *
Arthur Jansen................................. 11,746 11,746 0 *
Porter & Hedges, L.L.P. (10)................. 84,000 84,000 0 *
</TABLE>
-----------------
* Less than 1%.
(1) The selling shareholders have sole voting and sole investment power with
respect to all shares owned.
(2) Ownership is determined in accordance with Rule 13d-3 under the Exchange
Act. The actual number of shares beneficially owned and offered for sale
hereunder is subject to adjustment and could be materially less or more
than the estimated account indicated depending upon factors which we
cannot predict at this time. Pursuant to the terms of the Series B and
Series C Preferred Stock and associated warrants, no holder thereof can
convert such shares of preferred stock and warrants if such conversion
would increase such holders' beneficial ownership of common stock to in
excess of 4.99%. Pursuant to the terms of the Series D Preferred Stock and
associated warrants, no holder thereof can convert such shares of
preferred stock and warrants if such conversion would increase such
holders' beneficial ownership of common stock in excess of 9.99%.
(3) Assumes the sale of all of the shares offered hereby to persons who are
not affiliates of the selling shareholders.
(4) Represents shares of common stock issuable upon conversion of the Series D
Preferred Stock. The Series D Preferred Stock has a floating conversion
price calculated by dividing the $1,000 stated value of the shares being
converted (plus any accrued, but unpaid premium) by an amount equal to the
lesser of (i) 105% of the average closing bid price for the Company's
Common Stock as reported by Bloomberg L.P. for the 10 consecutive trading
days immediately proceeding the initial issuance of the Series D Preferred
Stock (May 23, 2000), or (ii) the amount obtained by multiplying .8 by the
average closing bid price for the
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Company's Common Stock as reported by Bloomberg L.P. for the lowest three
trading days during the period beginning on the fifteenth day prior to the
conversion date for such conversion and ending on such conversion date.
For the purpose of estimating the number of shares of common stock to be
included in the registration statement of which this prospectus is a part,
we calculated the number of shares of common stock issuable in connection
with the conversion of our Series D Preferred Stock on June 7, 2000
(3,349,138) and multiplied that number by 200%. The Series D Preferred
Stock pays an annual dividend of 6%, payable upon conversion in cash or
shares of common stock at our option. For the purposes of estimating the
number of shares of common stock that are issuable, at our option, for
payment of dividends on the Series D Preferred Stock, we estimated the
number of shares of common stock that would be sufficient to allow us to
meet our obligation to pay dividends for two years (401,896) and
multiplied that number by 200%. If 803,792 dividend shares were issued to
the holders of the Series D Preferred Stock, the number for each of the
selling shareholders in the table would also include the following number
of dividend shares: The Endeavour Capital Fund - 536,130; Esquire -
115,746; Celeste - 72,342; Endeavour Management - 14,468; Union Atlantic
Capital - 52,246; and Union Atlantic - 12,860.
(5) The number also includes warrants to purchase 198,000 shares of common
stock, consisting of (i) a warrant to purchase 148,000 shares of common
stock with an exercise price of $1.99 per share that expire in May 2005
and (ii) a warrant to purchase 50,000 shares of common stock at an
exercise price of $2.00 per share that expire in May 2005. Also represents
shares of common stock issued or issuable upon conversion of our Series A
Preferred Stock. The Series A Preferred Stock is convertible into our
common stock at the lesser of (i) 75% of the average closing bid price for
the common stock as reported on The Nasdaq SmallCap Market for the 5
trading days prior to conversion, or (ii) $6.50 per share. For so long as
the common stock is listed on The Nasdaq SmallCap or National Markets or
any national securities exchange, the conversion price shall not be lower
than $2.90. As of June 1, 2000, the 395 currently outstanding shares of
Series A Preferred Stock would have been convertible into the maximum of
136,206 shares of common stock based upon the five-day average closing bid
price of $1.439 resulting in the use of the $2.90 minimum conversion
price. Also includes warrants to purchase 42,000 shares of common stock at
an exercise price of $7.49 which expires April, 2003.
(6) The number also includes warrants to purchase 32,000 shares of common
stock. These warrants are exercisable at a price of $1.99 and expire in
May 2005.
(7) The number also includes warrants to purchase 20,000 shares of common
stock. These warrants are exercisable at a price of $1.99 and expire in
May 2005.
(8) These shares are issuable upon exercise of placement agent warrants to
purchase 140,000 shares of common stock. The warrants are exercisable at a
price of $2.19 per share and expire in May 2004.
(9) These shares are issuable upon exercise of placement agent warrants to
purchase 35,000 shares of common stock. The warrants are exercisable at a
price of $2.19 per share and expire in May 2004.
(10) Represents shares of common stock received by Porter & Hedges, L.L.P. in
consideration for legal services rendered. Porter & Hedges, L.L.P. has
opined to certain legal matters relating to the validity of the common
stock.
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PLAN OF DISTRIBUTION
The selling stockholders may sell shares of our common stock in
transactions on exchanges or markets as our common stock may be then listed for
trading. Shares may be sold in privately-negotiated transactions, in
underwritten offerings, or by a combination of such methods of sale. Sales of
shares of common stock may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. As used in this prospectus,
"selling stockholders" includes pledgees, donees, transferees and other
successors in interest to the selling stockholders selling shares received from
a selling stockholder after the date of this prospectus. The selling
stockholders may effect such transactions by selling the shares of common stock
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders or the purchasers of the shares for whom such broker-dealers may
act as agent or to whom they sell as principal, or both (which compensation to a
particular broker-dealer might be in excess of customary commissions).
Other methods by which selling stockholders may sell shares of our common
stock include, without limitation:
o "at the market" to or through market makers or into an existing market
for our common stock,
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents,
o through transactions in options or swaps or other derivatives, whether
exchange-listed or otherwise,
o through block trades,
o through short sales, or
o any combination of any such methods of sale.
The selling stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to those broker dealers of the common
stock offered by this prospectus, which common stock such broker- dealers may
resell under this prospectus. The selling stockholders may also make sales under
Rule 144 of the Securities Act if an exemption from registration is available.
The selling stockholders and any broker-dealers who act in connection with
the sale of shares of our common stock under this prospectus may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any
commissions received by them and profit on any resale of the shares of our
common stock as principal might be deemed to be underwriting discounts and
commissions under the Securities Act.
Under certain registration rights agreements with certain of the selling
stockholders, we have agreed to indemnify certain of the selling stockholders
and each underwriter, if any, against certain liabilities, including certain
liabilities under the Securities Act as amended, or will contribute to payments
such selling stockholders or underwriters may be required to make in respect of
certain losses, claims, damages or liabilities.
After we are notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
o the name of each such selling stockholder and of the participating
broker-dealer(s),
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<PAGE>
o the type and number of securities involved,
o the price at which such securities were sold,
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,
o that such broker-dealer(s) did not conduct any investigations to verify
the information set out or incorporated by reference in this
prospectus, and
o other facts material to the transaction.
LEGAL MATTERS
Certain legal matters relating to the validity of the common stock will be
passed upon by Porter & Hedges, L.L.P., Houston, Texas. Porter & Hedges, L.L.P.
owns 84,000 shares of our common stock and is identified as a selling
shareholder herein.
EXPERTS
The consolidated financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report, which includes an explanatory paragraph with respect to the
uncertainty regarding our ability to continue as a going concern as discussed in
Note 1 to the consolidated financial statements.
17
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-------------------------------------------- -----------------------------------
------------- HENLEY HEALTHCARE, INC.
WE HAVE NOT AUTHORIZED ANY DEALER, 8,459,346 SHARES
SALESPERSON OR ANY OTHER PERSON TO GIVE ANY OF
INFORMATION OR TO REPRESENT ANYTHING NOT COMMON STOCK
CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION.
THIS PROSPECTUS DOES NOT OFFER TO SELL OR ------------
BUY ANY SHARES IN ANY JURISDICTION WHERE IT
IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF THE DATE BELOW. PROSPECTUS
------------ ------------
July 28, 2000
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