PROSPECTUS
This prospectus is not an offer to sell or a solicitation of an offer to buy
these securities in any state where the offer or sale is not permitted.
VASOMEDICAL, INC.
up to 10,787,871 Shares of Common Stock
This is an offering of shares of common stock of Vasomedical, Inc. Certain
of our stockholders, referred to as selling securityholders throughout this
document, are offering to sell up to 10,787,871 shares of common stock. We will
not receive any proceeds from the sale of shares by the selling securityholders,
which include:
Up to 8,533,333 shares issuable in connection with conversion of our Series
D Convertible Preferred Stock
Up to 2,254,538 shares issuable upon the exercise of our common stock
purchase warrants
All of the shares being offered by this prospectus are being offered by the
selling securityholders named in this prospectus. This offering is not being
underwritten. We will not receive any of the proceeds from the sale of the
shares of our common stock in this offering. If the warrants are exercised so
that the underlying shares may be sold, we will receive the exercise price of
the warrants, which currently is $0.6936 per share. The selling securityholders
identified in this prospectus, or their pledges, donees, transferees or other
successors-in-interest, may offer the common stock or interests therein from
time to time through public or private transactions at prevailing market prices,
at prices related to prevailing market prices, or at privately negotiated
prices. We will pay all expenses of registering this offering of securities.
The common stock is traded on the Nasdaq SmallCap Market System under the
symbol VASO. On August 16, 2005, the last reported sale price of the common
stock as reported by the Nasdaq SmallCap Market System was $0.58 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE 'RISK FACTORS' BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATIONS MADE TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 1, 2005
TABLE OF CONTENTS
Page
RISK FACTORS 4
Risks Related to Our Business 4
Risks Related to Our Industry 7
Risks Related to Stock Exchange and SEC Regulation 8
FORWARD-LOOKING STATEMENTS 10
USE OF PROCEEDS 10
RECENT SALES OF UNREGISTERED SECURITIES 11
SELLING SECURITYHOLDERS 12
PLAN OF DISTRIBUTION 14
DESCRIPTION OF OUR SECURITIES 16
Capital Stock 16
Common Stock 16
Undesignated Preferred Stock 16
Series D Convertible Preferred Stock 17
LEGAL MATTERS 17
EXPERTS 17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 18
WHERE YOU CAN FIND MORE INFORMATION 18
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 18
2
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You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
As used in this prospectus, the terms "we," "us," "our," and "Vasomedical" mean
Vasomedical, Inc. and its subsidiaries, unless we specify otherwise.
We are incorporated under the laws of the state of Delaware. Our executive
offices are located at 180 Linden Avenue, Westbury, New York 11590 and our
telephone number is (516) 997-4600.
EECP(R) is our registered trademark. All other trademarks mentioned in this
prospectus are the property of their respective owners.
3
RISK FACTORS
You should carefully consider the factors described below and other
information contained in this prospectus before making a decision to buy our
common stock. The risks and uncertainties described below are not the only ones
we face. Additional risks and uncertainties not presently known to us, which we
currently deem immaterial or which are similar to those faced by other companies
in our industry or business in general, may also impair our business operations.
If any of the following risks actually occurs, our business, financial condition
or results of future operations could be materially and adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment. This prospectus also contains forward-looking
statements that involve risks and uncertainties. Please refer to
"Forward-Looking Statements" on page 10.
Risks Related to Our Business
We are materially dependent on medical reimbursement for treatment procedures
using EECP therapy on patients with congestive heart failure in order to achieve
continued growth.
We are currently dependent on a single product platform which, based on
current medical reimbursement policies, provides coverage for a restricted class
of heart patients. While we have been engaged in discussions with the Centers
for Medicare and Medicaid Services to expand the class of heart patients for
medical coverage, we are uncertain as to the outcome of these meetings. We also
have been engaged in certain clinical trials for the purpose of expanding this
coverage, most notable being our PEECH clinical trial. Our business plan
projects that the results could substantially expand the number of patients
available for medical reimbursement. However Medicare, Medicaid and other
third-party payers may deny expansion of reimbursement coverage if they feel the
data from the PEECH clinical trial and other clinical studies is not sufficient
to support a positive coverage decision. On May 31, 2005 we submitted an
application to CMS to expand the national coverage policy for EECP treatment to
include, among other patients, patients with congestive heart failure (CHF). If
we do not receive medical coverage for treatment procedures using EECP therapy
on patients with CHF, it will adversely affect our future business prospects.
Material changes in the availability of Medicare, Medicaid or third-party
reimbursement at adequate price levels could adversely affect our business.
Health care providers, such as hospitals and physician private practices,
that purchase or lease medical devices such as the EECP therapy system for use
on their patients generally rely on third-party payers, principally Medicare,
Medicaid and private health insurance plans, to reimburse all or part of the
costs and fees associated with the procedures performed with these devices. If
there were any material change in the availability of Medicare, Medicaid or
other third-party coverage or the adequacy of the reimbursement level for
treatment procedures using the EECP therapy system, it would adversely affect
our business, financial condition and results of operations. Moreover, we are
unable to forecast what additional legislation or regulation, if any, relating
to the health care industry or Medicare or Medicaid coverage and payment level
may be enacted in the future or what effect such legislation or regulation would
have on our business. Even if a device has FDA clearance, Medicare, Medicaid and
other third- party payers may deny reimbursement if they conclude that the
device is not cost-effective, is experimental or is used for an unapproved
indication. In addition, reimbursement may not be at or remain at price levels
adequate to allow medical professionals and hospitals to realize an appropriate
return on the purchase of our products.
4
Increased acceptance by the medical community is important for continued growth.
While many abstracts and publications are presented each year at major
scientific meetings worldwide with respect to EECP treatment efficacy, there is
continued skepticism concerning EECP therapy methodology. The American Heart
Association and the American College of Cardiology Practice Guidelines currently
list EECP as a therapy currently under investigation for treatment of heart
failure and have a classification rating of IIb as a treatment for patients who
are refractory to medical therapy and are not candidates for percutaneous
intervention or revascularization. A classification rating of IIb indicates the
usefulness/efficacy of EECP therapy is less well established by
evidence/opinion. The medical community utilizes these guidelines when
considering the various treatment options for their patients. Certain
cardiologists, in cases where the EECP therapy is a viable alternative, still
appear to prefer percutaneous coronary interventions (e.g. balloon angioplasty
and stenting) and cardiac bypass surgery for their patients. Additional evidence
regarding the efficacy of EECP therapy continues to evolve, however the evidence
may not be sufficient to warrant a modification of these guidelines to a more
favorable recommendation and increased acceptance by the medical community. We
are dependent on consistency of favorable research findings about EECP therapy
and increasing acceptance of EECP therapy as a safe, effective and cost
effective alternative to other available products by the medical community for
continued growth.
We face competition from other companies and technologies.
We compete with at least three other companies that are marketing external
counterpulsation devices. We do not know whether these companies or other
potential competitors who may be developing external counterpulsation devices,
may succeed in developing technologies or products that are more efficient than
those offered by us, and that would render our technology and existing products
obsolete or non-competitive. Potential new competitors may also have
substantially greater financial manufacturing and marketing resources than those
possessed by us. In addition, other technologies or products may be developed
that have an entirely different approach or means of accomplishing the intended
purpose of our products. Accordingly, the life cycles of our products are
difficult to estimate. To compete successfully, we must keep pace with
technological advancements, respond to evolving consumer requirements and
achieve market acceptance.
We may not continue to receive necessary FDA clearances or approvals, which
could hinder our ability to market and sell our products.
If we modify our external counterpulsation devices and the modifications
significantly affect safety or effectiveness, or if we make a change to the
intended use, we will be required to submit a new premarket notification or
510(k) to FDA. We would be unable to market the modified device until FDA issues
a clearance for the 510(k).
Additionally, if FDA publishes a regulation requiring a premarket approval
application or PMA for external counterpulsation devices, we would then need to
submit a PMA, and have it filed by the agency, by the date specified by FDA in
its regulation. A PMA requires us to prove the safety and effectiveness of a
device to the FDA. The process of obtaining PMA approval is expensive, time-
consuming, and uncertain. If FDA were to require a PMA application, we likely
would be required to undertake a clinical study, which likely will be expensive
and require lengthy follow-up, to demonstrate the effectiveness of the device.
If we did obtain PMA approval, any change after approval affecting the safety or
effectiveness of the device will require approval of a PMA supplement.
If we offer new products that require 510(k) clearance or PMA approval, we
will not be able to commercially distribute those products until we receive such
clearance or approval. Regulatory agency approval or clearance for a product may
5
not be received or may entail limitations on the device's indications for use
that could limit the potential market for any such product. Delays in receipt
of, or failure to obtain or maintain, regulatory clearances and approvals, could
delay or prevent our ability to market or distribute our products. Such delays
could have a material adverse effect on our business.
If we are unable to comply with applicable governmental regulation, we may not
be able to continue our operations.
We also must comply with Current Good Manufacturing Practices (CGMP)
requirements as set forth in the Quality System Regulations (QSR) to receive FDA
approval to market new products and to continue to market current products. The
QSR imposes certain procedural and documentation requirements on us with respect
to manufacturing and quality assurance activities, including packaging, storage,
and recordkeeping. Our products and activities are subject to extensive, ongoing
regulation, including regulation of labeling and promotion activities and
adverse event reporting. Also, our FDA registered facilities are subject to
inspection by the FDA and other governmental authorities. Any failure to comply
with regulatory requirements could delay or prevent our ability to market or
distribute our products. Violation of FDA statutory or regulatory requirements
could result in enforcement actions, such as voluntary or mandatory recalls,
suspension or withdrawal of marketing clearances or approvals, seizures,
injunctions, fines, civil penalties, and criminal prosecutions, all of which
could have a material adverse effect on our business. Most states also have
similar postmarket regulatory and enforcement authority for devices.
We cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can we predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on our business in the future. We may be slow to adapt, or we may
never adapt to changes in existing requirements or adoption of new requirements
or policies. We may incur significant costs to comply with laws and regulations
in the future or compliance with laws or regulations may create an unsustainable
burden on our business.
We may not receive approvals by foreign regulators that are necessary for
international sales.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary from country to country. Premarket approval or
clearance in the United States does not ensure regulatory approval by other
jurisdictions. If we, or any international distributor, fail to obtain or
maintain required pre-market approvals or fail to comply with foreign
regulations, foreign regulatory authorities may require us to file revised
governmental notifications, cease commercial sales of our products in the
applicable countries or otherwise cure the problem. Such enforcement action by
regulatory authorities may be costly.
In order to sell our products within the European Union, we must comply
with the European Union's Medical Device Directive. The CE marking on our
products attests to this compliance. Future regulatory changes may limit our
ability to use the CE mark, and any new products we develop may not qualify for
the CE mark. If we lose this authorization or fail to obtain authorization on
future products, we will not be able to sell our products in the European Union.
We may not be able to manage growth.
If our short and long-term plans are successful, including our clinical
trials, we will experience a period of growth that could place a significant
strain upon our managerial, financial and operational resources. Our
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infrastructure, procedures, controls and information systems may not be adequate
to support our operations and to achieve the rapid execution necessary to
successfully market our products. Our future operating results will also depend
on our ability to successfully upgrade our information systems, expand our
direct sales force and our internal sales, marketing and support staff. If we
are unable to manage future expansion effectively, our business, results of
operations and financial condition will suffer, our senior management will be
less effective, and our revenues and product development efforts may decrease.
We depend on management and other key personnel.
We are dependent on a limited number of key management and technical
personnel. The loss of one or more of our key employees may hurt our business if
we are unable to identify other individuals to provide us with similar services.
We do not maintain "key person" insurance on any of our employees. In addition,
our success depends upon our ability to attract and retain additional highly
qualified sales, management, manufacturing and research and development
personnel. We face competition in our recruiting activities and may not be able
to attract or retain qualified personnel.
We may not have adequate intellectual property protection.
Our patents and proprietary technology may not be able to prevent
competition by others. The validity and breadth of claims in medical technology
patents involve complex legal and factual questions. Future patent applications
may not be issued, the scope of any patent protection may not exclude
competitors, and our patents may not provide competitive advantages to us. Our
patents may be found to be invalid and other companies may claim rights in or
ownership of the patents and other proprietary rights held or licensed by us.
Also, our existing patents may not cover products that we develop in the future.
Moreover, when our patents expire, the inventions will enter the public domain.
There can be no assurance that our patents will not be violated or that any
issued patents will provide protection that has commercial significance.
Litigation may be necessary to protect our patent position. Such litigation may
be costly and time-consuming, and there can be no assurance that we will be
successful in such litigation.
The loss or violation of certain of our patents and trademarks could have a
material adverse effect upon our business.
Since patent applications in the United States are maintained in secrecy
until patents are issued, our patent applications may infringe patents that may
be issued to others. If our products were found to infringe patents held by
competitors, we may have to modify our products to avoid infringement, and it is
possible that our modified products would not be commercially successful.
We do not intend to pay dividends in the foreseeable future.
We do not intend to pay any cash dividends on our common stock in the
foreseeable future.
Risks Related to Our Industry
Technological change is difficult to predict and to manage.
We face the challenges that are typically faced by companies in the medical
device field. Our product line has required, and any future products will
require, substantial development efforts and compliance with governmental
clearance or approval requirements. We may encounter unforeseen technological or
scientific problems that force abandonment or substantial change in the
development of a specific product or process.
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We are subject to product liability claims and product recalls that may not be
covered by insurance.
The nature of our business exposes us to risks of product liability claims
and product recalls. Medical devices as complex as ours frequently experience
errors or failures, especially when first introduced or when new versions are
released.
We currently maintain product liability insurance at $7,000,000 per
occurrence and $7,000,000 in the aggregate. Our product liability insurance may
not be adequate. In the future, insurance coverage may not be available on
commercially reasonable terms, or at all. In addition, product liability claims
or product recalls could damage our reputation even if we have adequate
insurance coverage.
We do not know the effects of healthcare reform proposals.
The healthcare industry is undergoing fundamental changes resulting from
political economic and regulatory influences. In the United States,
comprehensive programs have been suggested seeking to increase access to
healthcare for the uninsured, control the escalation of healthcare expenditures
within the economy and use healthcare reimbursement policies to balance the
federal budget.
We expect that the United States Congress and state legislatures will
continue to review and assess various healthcare reform proposals, and public
debate of these issues will likely continue. There have been, and we expect that
there will continue to be, a number of federal and state proposals to constrain
expenditures for medical products and services, which may affect payments for
products such as ours. We cannot predict which, if any of such reform proposals
will be adopted and when they might be effective, or the effect these proposals
may have on our business. Other countries also are considering health reform.
Significant changes in healthcare systems could have a substantial impact on the
manner in which we conduct our business and could require us to revise our
strategies.
Risks Related to Stock Exchange and SEC Regulation
A continued stock price below $1 could result in our being de-listed from the
Nasdaq and subject us to regulations that could reduce our ability to raise
funds.
By letter dated May 2, 2005, we received written notification from Nasdaq
that the bid price of our common stock for the last 30 consecutive business days
had closed below the minimum $1.00 per share required for continued inclusion
under Marketplace Rule 4310(c) (4) (the Rule). In accordance with Marketplace
Rule 4310 (c) (d), we have been provided an initial period of 180 calendar days
of until October 31, 2005, to regain compliance. If at any time before that date
the bid price of our common stock closes at $1.00 per share or more for a
minimum of 10 consecutive business days, we will be provided written
notification that it is in compliance with the Rule.
Further, if we are not in compliance with the Rule by October 31, 2005, and
we meet the Nasdaq SmallCap initial listing criteria except for the bid price
requirement, we will be granted an additional 180 calendar days to April 29,
2006 to comply. In this regard, we currently meet all of the initial listing
criteria except for the bid price requirement.
Nasdaq's notification further provides that in the event we were to receive
written notification that our securities will be delisted, we maintain our right
to appeal such determination to a Listing Qualifications Panel.
Ultimately, non-compliance could result in Nasdaq delisting our common
stock. Such delisting could have an adverse effect on the liquidity of our
8
common stock and could also impact our ability to raise additional equity
capital, if necessary.
In the event that our common stock was de-listed from the Nasdaq SmallCap
Market due to low stock price, we may become subject to special rules, called
penny stock rules that impose additional sales practice requirements on
broker-dealers who sell our common stock. The rules require, among other things,
the delivery, prior to the transaction, of a disclosure schedule required by the
Securities and Exchange Commission relating to the market for penny stocks. The
broker-dealer also must disclose the commissions payable both to the
broker-dealer and the registered representative and current quotations for the
securities, and monthly statements must be sent disclosing recent price
information.
In the event that our common stock becomes characterized as a penny stock,
our market liquidity could be severely affected. The regulations relating to
penny stocks could limit the ability of broker- dealers to sell our common stock
and thus the ability of purchasers of our common stock to sell their common
stock in the secondary market.
We are subject to stock exchange and SEC regulation.
Recent Sarbanes-Oxley legislation and stock exchange regulations have
increased disclosure control, financial reporting, corporate governance and
internal control requirements that will increase the administrative costs of
documenting and auditing internal processes, gathering data, and reporting
information. Our inability to comply with the requirements would significantly
impact our market valuation.
Our common stock is subject to price volatility.
The market price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could be subject to wide fluctuations in
response to various factors beyond our control, including:
-- quarterly variations in operating results;
-- announcements of technological innovations, new products or pricing by
our competitors;
-- the rate of adoption by physicians of our technology and products in
targeted markets;
-- the timing of patent and regulatory approvals;
-- medical reimbursement;
-- the timing and extent of technological advancements;
-- results of clinical studies;
-- the sales of our common stock by affiliates or other shareholders with
large holdings; and
-- general market conditions.
Our future operating results may fall below the expectations of securities
industry analysts or investors. Any such shortfall could result in a significant
decline in the market price of our common stock. In addition, the stock market
has experienced significant price and volume fluctuations that have affected the
market price of the stock of many medical device companies and that often have
been unrelated to the operating performance of such companies. These broad
market fluctuations may directly influence the market price of our common stock.
Recent corporate scandals involving alleged accounting irregularities have
resulted in unavailability of, or significantly higher premiums for, director
and officer liability insurance.
As a result of recent well-publicized corporate business failures alleged
to have involved improper acts by executives and accounting irregularities,
director and officer liability insurance has become more difficult to obtain and
9
the premiums for such insurance have increased significantly. If we are unable
to obtain director and officer liability insurance at rates that are reasonable
or at all, we may not be able to retain our current officers and directors or
attract qualified directors and officers in the future.
Additional Information
We are subject to the reporting requirements under the Securities Exchange
Act of 1934 and are required to file reports and information with the Securities
and Exchange Commission (SEC), including reports on the following forms: annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports files or furnished pursuant to Section
13(a) or 15(d) of the Securities Act of 1934.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents we have filed with the Securities and
Exchange Commission which we have referenced under "Where You Can Find More
Information " on page [ ] contains forward- looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements represent our judgment regarding future events.
Although we would not make forward-looking statements unless we believe we have
a reasonable basis for doing so, we cannot guarantee their accuracy and actual
results may differ materially from those we anticipated due to a number of
uncertainties, many of which we are not aware. We urge you to consider the risks
and uncertainties discussed under "Risk Factors" and elsewhere in this
prospectus and in the other documents filed with the Commission in evaluating
our forward-looking statements. We have no plans to update our forward-looking
statements to reflect events or circumstances after the date of this prospectus.
We generally identify forward-looking statements with the words "believe",
"intend," "plan," "expect," "anticipate," "estimate," "will," "should" and
similar expressions.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling securityholders. We will not receive
any of the proceeds from the sale of shares of common stock in this offering. If
the selling securityholders exercise their warrants, we will receive the
exercise price of the warrants, which is currently $0.6936 per share. We intend
to use the net proceeds from the exercise of the warrants for our general
working capital needs. There can be no assurance that all, or any, of the
warrants will be exercised.
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RECENT SALES OF UNREGISTERED SECURITIES
We sold the following unregistered restricted securities in reliance on the
exemptions provided by Section 4(2) and Rule 506 of Regulation D of the
Securities Act as transactions not involving public offerings.
On July 19, 2005, we entered into a Securities Purchase Agreement that will
provide us with gross proceeds of $2.5 million through a private placement of
preferred stock with M.A.G. Capital, LLC through its designated funds: Monarch
Pointe Fund, Ltd; Mercator Momentum Fund, III, LP; and Mercator Momentum Fund,
LP; (the "Investors"). The stock purchase agreement provided for a private
placement of 25,000 shares of our Series D Preferred Stock at $100 per share.
The preferred stock is convertible into shares of our common stock at 85 percent
of the volume weighted average price per share for the five trading days
preceding any conversion, but not at more than $0.6606 or less than $0.40 per
share. After registering the shares of common stock that could be acquired
through conversion of the preferred shares, we may, at our option, require the
Investors to convert all their preferred stock into common stock if the market
price for the common stock for the preceding 20 trading days has been $1.30 or
more per share. Such a conversion by us is not allowed if it would make the
stock held by the Investors through this transaction and the conversion exceed
9.99% of the common stock outstanding. The Investors also acquired warrants for
the purchase of 1,892,219 shares of common stock. The warrants may be exercised
at a price currently of $0.6936 per share for a term of five years, ending July
18, 2010. Under the terms of a registration rights agreement with the Investors,
we are required to file a registration statement with the Securities and
Exchange Commission by September 2, 2005, for the shares of common stock
underlying the preferred stock and the warrants.
By the placement of the preferred stock described above, we became
obligated to pay a cash dividend monthly on the outstanding shares of preferred
stock. The dividend rate is the higher of (i) the prime rate as reported by the
Wall Street Journal on the first day of the month, plus three percent or, (ii)
8.5% times $100 per share, but in no event greater than 10% annually.
An event of default occurs if we fail to timely pay the dividend, fail to
timely file a registration statement for the shares of common stock underlying
the preferred shares and the warrants, or have not obtained effectiveness of the
registration statement within 90 days after its filing, among other specified
occurrences. Upon an event of default, the price at which the preferred stock
may be converted into common stock is reduced from 85 percent to 75 percent of
the then current volume weighted average market price per share, but not more
than $0.6606 or less than $0.30 per share. In addition, the Investors have the
right to be paid first from our assets upon any dissolution or liquidation of
the company. If the registration statement is not timely filed or declared
effective by the Securities and Exchange Commission, we are required to pay the
Investors $1,467 in cash for each day of delay.
These securities were offered and sold to the Investors in a private
placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) of the Securities Act of 1933. The Investors are
accredited investors as defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933.
SELLING SECURITYHOLDERS
This prospectus relates to the offering and sale, from time to time, of up
to 10,787,871 shares of common stock issuable upon conversion of Series D
Convertible Preferred Stock and the exercise of warrants held by selling
securityholders named in the table below. The selling securityholders may
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convert their shares of Series D Convertible Preferred Stock into shares of
common stock and exercise their warrants at any time in their sole discretion.
All of the selling securityholders named below acquired their shares of our
Series D Convertible Preferred Stock and warrants directly from us in private
transactions.
The Series D Convertible Preferred Stock is initially convertible into
shares of common stock at 85 percent of the volume weighted average price per
share for the five trading days preceding any conversion, but not at more than
$0.6606 or less than $0.40 per share. At any time after the registration
statement for these shares of common stock has been declared effective, we may
require the holders of the Series D Convertible Preferred Stock to convert all
their preferred stock into common stock if the closing price for the common
stock for the preceding 20 trading days has been greater than $1.30 per share.
The exercise price for the warrants to purchase shares of our common stock is
$0.6936. The conversion of preferred stock and exercise of the warrants is
limited such that the beneficial ownership of the selling securityholders and
their affiliates cannot exceed 9.99% of the common stock outstanding.
The following table sets forth certain information known to us as of the
date of this prospectus and as adjusted to reflect the sale of the shares
offered hereby, with respect to the beneficial ownership of common stock by the
selling securityholders. The number of shares of common stock set forth in the
table below assumes that each share of Series D Convertible Preferred Stock is
converted into shares of our common stock at the minimum conversion price of
$0.40 per share. If the selling securityholders convert at a higher conversion
price, the number of shares of common stock sold pursuant to this prospectus
will decrease. The selling securityholders may sell all or some of the shares of
common stock they are offering, and may sell shares of our common stock
otherwise than pursuant to this prospectus. The table assumes that each selling
securityholder exercises all of its warrants and sells all of the shares issued
upon exercise thereof, and that each selling securityholder sells all of the
shares offered by it in offerings pursuant to this prospectus, and neither
dispose of nor acquire any additional shares. We are unable to determine the
exact number of shares that will actually be sold or when or if these sales will
occur. None of the selling securityholders is an affiliate of a registered
broker-dealer.
Shares beneficially Shares beneficially
owned before the owned after the
offering offering
-------- Number of shares --------
Name of beneficial owner Number Percentage being offered Number Percentage
------------------------ ------ ---------- ----------------- ------ ----------
M.A.G. Capital, LLC (1) 8,142,219(2) 13.9% 8,142,219 0 0
Mercator Momentum Fund, LP (1) 1,940,944(3) 3.3% 1,940,944 0 0
Mercator Momentum Fund III, LP (1) 1,195,621(4) 2.0% 1,195,621 0 0
Monarch Pointe Fund, Ltd. (1)(5) 4,627,210(6) 7.9% 4,627,210 0 0
Wharton Capital Partners (7) 281,159(10) * 281,159 0 0
Condor Partners (8) 140,580(11) * 140,580 0 0
First Equity Trust (9) 140,580(12) * 140,580 0 0
----------------------------------------------------------------------------------------------------------------
The number of shares of common stock set forth in the table above assumes that
each share of Series D Convertible Preferred Stock is converted into shares of
our common stock at the minimum conversion price of $0.40 per share. The total
number of shares registered are based on a conversion price of $.30 per share
which would only have affect on an event of default by Vasomedical of its
obligation to holders of the Series D Convertible Preferred Stock. In such event
the number of shares beneficially owned before the offering would increase,
without having any effect on the number of shares beneficially owned after the
offering.
(*) Represents less than 1%
(1) As they are affiliates, all of the shares set forth for Mercator Momentum
Fund, LP, Mercator Momentum Fund III, LP and Monarch Pointe Fund, Ltd. are
also included in the number of shares reflected for M.A.G. Capital, LLC.
David Firestone is the Managing Member of M.A.G. Capital, LLC, which is the
General Partner of Mercator Momentum Fund, LP and Mercator Momentum Fund
III, LP and is the Manager of Monarch Pointe Fund, Ltd. M.A.G. Capital, LLC
holds voting and investment power over the shares held by Mercator Momentum
Fund, LP, Mercator Momentum Fund III, LP and Monarch Pointe Fund, Ltd.
(2) Represents 378,444 shares issuable upon exercise of a warrant to purchase
common stock as well as shares beneficially owned by Mercator Momentum
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Fund, LP, Mercator Momentum Fund III, LP and Monarch Pointe Fund, Ltd The
shares of Series D preferred stock and warrants issued to Mercator Momentum
Fund, LP, Mercator Momentum Fund III, LP, Monarch Pointe Fund, Ltd., and
M.A.G. Capital, LLC, contain provisions prohibiting any conversion of the
preferred stock or exercise of the warrants that would result in these
entities or their affiliates beneficially owning more than 9.99% of our
outstanding common shares as determined under Section 13(d) of the exchange
Act. As a result of these provisions, such entities disclaim beneficial
ownership in excess of 9.99% of our outstanding common shares.
(3) Includes 378,444 shares issuable upon exercise of a warrant to purchase
common stock and 1,562,500 shares of common stock being the maximum number
of shares of common stock issuable upon conversion of the Series D
preferred stock.
(4) Includes 233,121 shares issuable upon exercise of a warrant to purchase
common stock and 962,500 shares of common stock being the maximum number of
shares of common stock issuable upon conversion of the Series D preferred
stock.
(5) David Firestone is the President of Monarch Pointe Fund, Ltd and holds
voting and investment power over the shares held by Monarch Pointe.
(6) Includes 902,210 shares issuable upon exercise of a warrant to purchase
common stock and 3,725,000 shares of common stock being the maximum number
of shares of common stock issuable upon conversion of the Series D
preferred stock.
(7) Wharton Capital Partners acquired its shares of common stock and warrants
as a finder's fee in connection with the Securities Purchase Agreement with
the investors. Barry Minsky is the Chief Executive Officer of Wharton
Capital Partners and holds voting and investment control over the shares
held by Wharton
(8) Condor Partners acquired its shares of common stock and warrants as a
finder's fee in connection with the Securities Purchase Agreement with the
investors. Vincent Franzone is the President of Condor Partners and holds
voting and investment control over the shares held by Condor Partners.
(9) First Equity Trust acquired its shares of common stock and warrants as a
finder's fee in connection with the Securities Purchase Agreement with the
investors. Robert Rover is the President of First Equity Trust and holds
voting and investment control over the shares held by First Equity Trust.
(10) Includes 181,159 shares issuable upon exercise of a warrant to purchase
common stock.
(11) Includes 90,580 shares issuable upon exercise of a warrant to purchase
common stock.
(12) Includes 90,580 shares issuable upon exercise of a warrant to purchase
common stock.
PLAN OF DISTRIBUTION
Our shares are traded on the Nasdaq SmallCap Market under the symbol VASO.
The selling securityholders and any of their assignees, pledgees, donees and
other successors in interest may, from time to time, sell any or all of their
shares on the Nasdaq SmallCap Market or in private transactions. These sales may
be at fixed or negotiated prices. The selling securityholders may use any one or
more of the following methods when selling shares:
-- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchases;
-- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
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-- privately negotiated transactions;
-- broker-dealers may agree with the selling securityholders to sell a
specified number of the shares at a stipulated price per share;
-- a combination of any of the methods of sale listed above; and
-- any other method permitted pursuant to applicable law.
The selling securityholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling securityholders or their successors in interest may also enter
into option or other transactions with broker-dealers that require the delivery
by the broker-dealers of the shares, and these shares may be resold thereafter
pursuant to this prospectus.
Broker-dealers engaged by the selling securityholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling securityholders, or, if a broker-dealer acts as
agent for the purchaser of shares, from the purchaser, in amounts to be
negotiated. The selling securityholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling securityholders may from time to time pledge or grant a
security interest in some or all of the shares offered hereby and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of selling
securityholders to include the pledgee, transferee or other successors in
interest as selling securityholders under this prospectus.
The selling securityholders may also transfer the shares under other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares as agents may receive compensation in the form of commissions,
discounts or concessions from the selling securityholders and/or purchasers of
the shares for whom such broker-dealers may act as agent, or to whom they may
sell as principal, or both, which compensation as to a particular broker-dealer
may be less than or in excess of customary commissions.
The selling securityholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
Each of the selling securityholders has informed us that it does not have
any agreement or understanding, directly or indirectly, with any person to
distribute the shares. If any selling shareholder notifies us that a material
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arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, secondary distribution or a purchase by
a broker or dealer, we will file a prospectus supplement, if required pursuant
to Rule 424(c) under the Securities Act, setting forth:
-- the name of each of the participating broker-dealers;
-- the number of shares involved;
-- the price at which the shares were sold;
-- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable;
-- a statement to the effect that the broker-dealers did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus; and
-- any other facts material to the transaction.
We are required to pay all fees and expenses incident to the registration
of the shares being offered by the selling securityholders pursuant to this
prospectus. We have agreed to indemnify the selling securityholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
We have advised the selling securityholders that during the time they may
be engaged in a distribution of the shares offered by this prospectus, they are
required to comply with Regulation M promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). With certain exceptions,
Regulation M precludes any selling securityholders, any affiliated purchasers
and any broker- dealer or other person who participates in the distribution from
bidding for or purchasing, or attempting to induce any person to bid for or
purchase any security which is the subject of the distribution until the entire
distribution is complete. Regulation M also prohibits any bids or purchases made
in order to stabilize the price of a security in connection with an at the
market offering such as this offering. All of the foregoing may affect the
marketability of the shares.
DESCRIPTION OF OUR SECURITIES
Capital Stock
Our authorized capital stock consists of 110,000,000 shares of common
stock, par value $.001 per share and 1,000,000 shares of Preferred Stock, par
value $.01 per share.
Common Stock
General. We have 110,000,000 authorized shares of common stock. All of our
shares of common stock outstanding are validly issued, fully paid and
non-assessable.
Voting Rights. Each share of common stock entitles its holder to one vote,
either in person or by proxy, at meetings of stockholders. Our board of
directors consists of three classes each of which serves for a term of three
years. At each annual meeting of the stockholders, the directors in only one
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class will be elected. The holders are not permitted to vote their shares
cumulatively. Accordingly, the holders of more than fifty percent (50%) of the
issued and outstanding shares of common stock can elect all of our directors.
Dividend Policy. All shares of common stock are entitled to participate
ratably in dividends when and as declared by our board of directors out of the
funds legally available for payment of dividends. Any dividends may be paid in
cash, property or additional shares of common stock. We presently expect that
any earnings will be used to develop our business and that no cash dividends on
the shares of common stock will be declared in the foreseeable future.
Miscellaneous Rights and Provisions. Holders of common stock do not have:
-- preemptive or other subscription rights;
-- conversion rights;
-- redemption; or
-- sinking fund provisions.
In the event of our liquidation or dissolution, whether voluntary or
involuntary, each share of common stock is entitled to share ratably in any
assets available for distribution to our holders of common stock after
satisfaction of all liabilities, including payments to holders of our preferred
stock.
Undesignated Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock of which
25,000 shares have been designated at Series D Convertible Preferred Stock and
are currently issued and outstanding. Our board of directors is authorized to
issue from time to time, without stockholder authorization, in one or more
designated series or classes, any or all of the authorized but unissued shares
of preferred stock with such dividend redemption, conversion and exchange
provisions as may be provided in the particular series. Any series of preferred
stock may possess voting, dividend, liquidation and redemption rights superior
to that of the common stock. The rights of the holders of common stock will be
subject to and may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future. Issuance of a new series of
preferred stock, while providing desirable flexibility in connection with
possible acquisition and other corporate purposes, could make it more difficult
for a third party to acquire or discourage a third party from acquiring, a
majority of the outstanding voting power of Vasomedical.
Series D Convertible Preferred Stock
There are 25,000 shares of Series D Convertible Preferred Stock currently
issued and outstanding.
Conversion
The Series D Convertible Preferred Stock is convertible into shares of
common stock at 85 percent of the volume weighted average price per share for
the five trading days preceding any conversion, but not at more than $0.6606 or
less than $0.40 per share. After the shares have been registered, we may require
the holders to convert all of their preferred stock for shares of common stock
if the price for the common stock for the preceding 20 trading days has been
$1.30 or more per share.
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Dividends
Dividends are payable monthly in cash on the outstanding shares of
preferred stock. The dividend rate is the higher of (i) the prime rate as
reported by the Wall Street Journal on the first day of the month, plus three
percent, or (ii) 8.5% times $100 per share, but in no event greater than 10%.
Events of Default
An event of default occurs if Vasomedical fails to timely pay the dividend,
fails to timely file a registration statement for the shares of common stock
underlying the preferred shares and the warrants, or has not obtained
effectiveness of the registration statement by December 1, 2005, among other
specified occurrences. Upon an event of default, the price at which the
preferred stock may be converted into common stock is reduced from 85 percent to
75 percent of the then current volume weighted average market price per share,
but not more than $0.6606 or less than $0.30 per share.
Liquidation Preference
The holders of the preferred stock have the right to be paid first from the
assets of Vasomedical upon any dissolution or liquidation of Vasomedical.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for the Company by Beckman, Lieberman & Barandes,LLP, Jericho, New York 11753.
EXPERTS
The financial statements incorporated by reference in this prospectus and
elsewhere in the registration statement have been audited by Grant Thornton LLP,
independent registered public accounting firm, as set forth in their report. The
financial statements referred to above have been included herein in reliance
upon the authority incorporated by reference of those forms as experts in giving
said report.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our By-Laws provide our directors with protection for breaches of their
fiduciary duties to us and our stockholders. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers or persons controlling us, we have been advised that it is the SEC's
opinion that such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the Public Reference Rooms. Our SEC filings are also available
to the public on the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933, as amended, with respect to the shares to be sold in
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this offering. This prospectus does not contain all of the information set forth
in the registration statement. We have omitted certain parts of the registration
statement in accordance with the rules and regulations of the SEC. For further
information about us and the shares, you should refer to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
you should refer to the copy of such contract or document filed as an exhibit to
or incorporated by reference in the registration statement. Each statement as to
the contents of such contract or document is qualified in all respects by such
reference. You may obtain a copy of the registration statement, or any of our
other filings with the SEC, from the SEC's principal office in Washington, D.C.
upon payment of the fees prescribed by the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and 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 we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934. The documents we are incorporating by reference
are:
-- Our annual report on Form 10-K for our fiscal year ended May 31, 2005;
-- Our current report on Form 8-K filed July 22, 2005.
You may request a copy of these filings at no cost, by writing or
telephoning our secretary at the following address:
Vasomedical, Inc.
180 Linden Avenue
Westbury, New York 11590
(516) 997-4600
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