SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K/A-1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 23, 1997
MEDICAL DYNAMICS, INC.
--------------------------------------------------
(Exact name of Registrant as specified in its charter)
Commission file number: 0-8632
Colorado 84-0631765
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
99 Inverness Drive East
Englewood, Colorado 80112
------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 790-2990
not applicable
former name or former address, if applicable
<PAGE>
Item 2: Acquisition or Disposition of Assets
On October 23, 1997, effective as of October 1, 1997, Medical Dynamics,
Inc. ("MEDY") acquired all of the outstanding capital stock of Computer Age
Dentist, Inc. ("CADI"), a California corporation, which is based in Los Angeles,
California and is engaged in the business of development and sales of dental
practice management software and related electronic services.
The acquisition was accomplished pursuant to a reverse triangular merger by
which MEDY paid to the two former shareholders of CADI: 1,295,520 shares of its
restricted common stock, promissory notes aggregating $300,000, and $254,697 in
cash. In addition, MEDY assumed certain existing obligations of CADI to a former
shareholder and satisfied such obligations by paying the former shareholder
304,480 shares of restricted MEDY common stock, $45,303 in cash, and a $100,000
promissory note. The promissory notes are due, in full, no later than October
23, 1998. MEDY used its working capital to pay the cash portion of the
acquisition price. There was no prior relationship between MEDY and either CADI
or its shareholders. As a result of the acquisition, the two former CADI
shareholders, Daniel L. Richmond and Chae U. Kim, were named to the MEDY Board
of Directors. MEDY's president and Chief Executive Officer, Van Horsley, became
a director and vice president of CADI. MEDY agreed to use its best efforts to
register for resale 240,000 shares of the stock issued in the transaction at
some time during the first year following the completion of the transaction.
MEDY has not yet commenced this registration.
In acquiring CADI, MEDY also acquired cash, trade receivables, inventories,
and personal property and equipment owned by CADI. CADI employs approximately 40
people, including its two principals, Daniel L. Richmond and Chae U. Kim. In the
opinion of MEDY's management, the fundamental source of value obtained was
CADI's software technology which includes source code, development costs, and
the potential for future sales of the dental practice management software, as
well as CADI's current technical support contracts with its customers. CADI has
a base of more than 2,200 customer installations throughout the United States,
serving in excess of 3,500 dental professionals.
Daniel L. Richmond, one of the two principals of CADI and Chief Executive
Officer of CADI since its inception in June 1987, holds a Bachelor of Science
degree in mathematics and computer science from the University of California at
Los Angeles. Chae U. Kim, the other principal of CADI, has been president of
CADI since its inception in June 1987 and holds a Bachelor of Science degree in
biology from the University of California at Los Angeles. Messrs. Richmond and
Kim also continued as employees of CADI under five year employment contracts. As
partial consideration for their continuing employment, they each accepted
options to acquire a total of 600,000 shares of MEDY common stock. These options
vest on the occurrence of certain revenue and profit goals. If not vested
earlier, the options will all vest on March 31, 2004, and they expire unless
exercised by September 30, 2004.
<PAGE>
Item 5. Other Events.
On October 31, 1997, MEDY sold a convertible debenture in the amount of
$1,100,000 to Tail Wind Fund, Ltd. pursuant to Regulation D. The following
provides the information required by Item 701 of Regulation S-B.
(A) The title of the securities sold is: 8% convertible debenture,
convertible into shares of MEDY common stock at the rate equal to the
Market Price (as defined in the debenture) but not greater than $3.45
per share. Interest on the principal amount is payable quarterly, and
the principal amount of the debenture is payable in full on October
31, 2000. MEDY is entitled to make payment of interest in shares of
its common stock valued at the Market Price (as defined).
(B) Rochon Capital Ltd., San Rafael, California, acted as placement agent
for the transaction.
(C) The total offering price was $1,100,000. A commission of 8.75% was
paid to the placement agent, and legal fees and expenses of $17,500
were reimbursed to the placement agent and the purchaser.
(D) The transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended, and Rule 506 thereunder.
(E) The debenture is convertible into shares of MEDY common stock as
described in paragraph (A), above. In addition, MEDY issued a
five-year warrant to the purchaser to acquire 84,615 shares of MEDY
common stock, exercisable at 120% of Market Price (as defined) at the
time of the Closing of the private placement, but not greater than
$3.375. One-third of the principal amount of the debenture is
convertible from and after January 29, 1998, an additional one-third
from and after February 28, 1998; and the entire debenture from and
after March 30, 1998.
(F) MEDY undertook to file a registration on Form S-3 and (subject to
certain conditions) obtain its effectiveness within 90 days of the
completion of the transaction. The registration statement will allow
resale of the MEDY shares only after conversion, if the investor
actually elects to convert. If the registration statement is not
effective as required under the Registration Rights Agreement, MEDY
will be obligated to pay liquidated damages to the investor equal to
2% of the aggregate principal amount of the debenture for each month
during which the Registration Statement is not effective.
<PAGE>
Item 7. Financial Statements and Exhibits
(A) Financial statements of Computer Age Dentist, Inc.
Independent Auditors' Report
Balance sheets - June 30, 1997 and September 30, 1996
Statements of Income - For the nine months ended June 30, 1997 and for
the year ended September 30, 1996
Statement of Stockholder's Deficit for the period from October 1, 1995
through June 30, 1997
Statement of Cash Flows - for the nine months ended June 30, 1997 and
the year ended September 30, 1996
Notes to Financial Statements
(B) Pro Forma financial statements of Medical Dynamics, Inc.
Pro Forma Combined Financial Information
Pro Forma Combined Balance sheet - June 30, 1997 (unaudited)
Pro Forma Statement of Operations - nine months ended June 30, 1997
(unaudited)
Pro Forma Combined Statement of Operations - year ended September 30,
1996 (unaudited)
Notes to Pro Forma Combined Financial Statements
(C) Exhibits (incorporated by reference from original filing)
1. Agreement and Plan of Merger by and between Medical Dynamics,
Inc., CADI Acquisition Corp., and Computer Age Dentist, Inc.,
dated as of October 1, 1997.
2. Form of Registration Rights Agreement between Medical Dynamics,
Inc., Daniel L. Richmond, Chae U. Kim and James DeVico, Jr.
3. Purchase Agreement between Medical Dynamics, Inc and The Tail
Wind Fund, Ltd.
4. Form of Convertible Debenture
5. Registration Rights Agreement between Medical Dynamics, Inc. and
The Tail Wind Fund, Ltd.
6. Common Stock Purchase Warrant issued to The Tail Wind Fund, Ltd.
<PAGE>
Computer Age Dentist, Inc.
Financial Statements
June 30, 1997 and September 30, 1996
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report..................................................2
Balance Sheets - June 30, 1997 and September 30, 1996.........................3
Statements of Income - For the Nine Months Ended June 30, 1997
and for the Year Ended September 30, 1996 ................................4
Statement of Stockholders' Deficit - For the Period from
October 1, 1995 through June 30, 1997.....................................5
Statements of Cash Flows - For the Nine Months Ended
June 30, 1997 and the Year Ended September 30, 1996.......................6
Notes to Financial Statements.................................................7
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Computer Age Dentist, Inc.
Santa Monica, California
We have audited the accompanying balance sheets of Computer Age Dentist, Inc. as
of June 30, 1997 and September 30, 1996, and the related statements of income,
changes in stockholders' deficit and cash flows for the nine months ended June
30, 1997 and the year ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Computer Age Dentist, Inc. as
of June 30, 1997 and September 30, 1996, and the results of its operations and
its cash flows for the nine months ended June 30, 1997 and the year ended
September 30, 1996, in conformity with generally accepted accounting principles.
/s/ Hein & Associates LLP
- ---------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
October 13, 1997
-2-
<PAGE>
COMPUTER AGE DENTIST, INC.
BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
1997 1996
--------- ---------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 51,100 $ 68,300
Receivables:
Trade, less allowance for doubtful
accounts of $75,100 and $36,800 227,900 178,800
Other 31,200 30,900
Inventory 20,600 15,500
--------- ---------
Total current assets 330,800 293,500
--------- ---------
PROPERTY AND EQUIPMENT:
Computer equipment 80,500 61,500
Office furniture and equipment 67,800 65,800
--------- ---------
148,300 127,300
Less accumulated depreciation (113,200) (102,300)
--------- ---------
Property and equipment, net 35,100 25,000
--------- ---------
SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization
of $86,500 and $52,900 165,600 117,400
OTHER ASSETS 229,600 292,400
--------- ---------
TOTAL ASSETS $ 761,100 $ 728,300
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Current portion of notes payable $ 64,000 $ 56,100
Accounts payable 89,200 43,200
Accrued income taxes 109,000 160,000
Accrued liabilities and other 80,900 38,300
Unearned revenue 395,600 338,300
--------- ---------
Total current liabilities 738,700 635,900
--------- ---------
NOTES PAYABLE 104,000 168,000
COMMITMENTS (Note 3)
STOCKHOLDERS' DEFICIT:
Common stock, no par value; 100,000
shares authorized; 30,000
shares issued and outstanding 20,400 20,400
Accumulated deficit (102,000) (96,000)
--------- ---------
Total stockholders' deficit (81,600) (75,600)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 761,100 $ 728,300
========= =========
See accompanying notes to these financial statements.
-3-
<PAGE>
COMPUTER AGE DENTIST, INC.
STATEMENTS OF INCOME
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, SEPTEMBER 30,
1997 1996
----------- -----------
NET REVENUES:
Software and related services $ 1,983,200 $ 2,332,000
Hardware 152,500 405,300
----------- -----------
Total revenues 2,135,700 2,737,300
COST OF SALES 782,900 948,400
----------- -----------
GROSS PROFIT 1,352,800 1,788,900
OPERATING EXPENSES:
Selling, general and administrative 1,196,400 1,384,700
Depreciation and amortization 70,900 29,400
----------- -----------
Total operating expenses 1,267,300 1,414,100
----------- -----------
OPERATING INCOME 85,500 374,800
INTEREST EXPENSE (6,800) (21,200)
----------- -----------
INCOME BEFORE INCOME TAXES 78,700 353,600
PROVISION FOR INCOME TAXES (29,000) (143,000)
----------- -----------
NET INCOME $ 49,700 $ 210,600
=========== ===========
See accompanying notes to these financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
COMPUTER AGE DENTIST, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH JUNE 30, 1997
TOTAL
COMMON STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCES, October 1, 1995 30,000 $ 20,400 $(293,300) $(272,900)
Distributions to stockholders -- -- (13,300) (13,300)
Net income -- -- 210,600 210,600
--------- --------- --------- ---------
BALANCES, September 30, 1996 30,000 20,400 (96,000) (75,600)
Distributions to stockholders -- -- (55,700) (55,700)
Net income -- -- 49,700 49,700
--------- --------- --------- ---------
BALANCES, June 30, 1997 30,000 $ 20,400 $(102,000) $ (81,600)
========= ========= ========= =========
See accompanying notes to these financial statements.
-5-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPUTER AGE DENTIST, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, SEPTEMBER 30,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 49,700 $ 210,600
Adjustments to reconcile net income to net cash from
operating activities:
Bad debts 38,400 44,300
Depreciation and amortization 104,500 63,700
Changes in operating assets and liabilities:
Receivables (87,800) (127,800)
Inventories (5,100) (100)
Other assets 2,800 3,200
Accounts payable 46,000 (147,700)
Accrued income taxes (51,000) 160,000
Accrued liabilities 42,600 (43,800)
Unearned revenue 57,300 54,600
--------- ---------
Net cash provided by operating activities 197,400 217,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,000) (11,200)
Capitalized software development costs (81,800) (51,300)
--------- ---------
Net cash used in investing activities (102,800) (62,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (56,100) (72,900)
Stockholder distributions (55,700) (13,300)
--------- ---------
Net cash used in financing activities (111,800) (86,200)
NET INCREASE (DECREASE) IN CASH (17,200) 68,300
--------- ---------
CASH AND CASH EQUIVALENTS, at beginning of period 68,300 --
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 51,100 $ 68,300
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 6,800 $ 28,600
========= =========
Cash paid for income taxes $ 80,000 $ 1,000
========= =========
See accompanying notes to these financial statements.
-6-
</TABLE>
<PAGE>
COMPUTER AGE DENTIST, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -----------------------------------------------------------------------
Nature of Business Operations - Computer Age Dentist, Inc. (the "Company") is
engaged primarily in the design, sale, and support of practice management
software for dental practices. The Company markets its product throughout the
United States through many resellers and sales representatives. After the
initial sale of the software product, the Company often provides additional
employee training and technical support to the dental practices. These services
are often contracted for usually one year. After the initial service period is
completed, the Company markets its software upgrade and support package to its
existing clientele.
The Company operates in one industry segment: sales of practice management
software for dental practices, and related support services. The end users of
the Company's products are dental practices located throughout the United
States. The Company's trade accounts receivable at June 30, 1997 and September
30, 1996, are due primarily from dental practices.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Non-Cash Investing and Financing Activities - During the year ended September
30, 1996, the Company issued a note payable totaling $150,000 to a former
stockholder as consideration for him signing a non-compete agreement. Also,
during the year ended September 30, 1996, the Company purchased the assets of
another company for total consideration totaling $150,000, consisting of a note
payable for $97,000, elimination of a $112,000 receivable from the purchased
company, and elimination of accrued commissions of $59,000 payable to the
acquired company.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market, and consist primarily of computer hardware held for resale.
Property and Equipment - Property and equipment is stated at cost. Depreciation
is computed using the straight-line method over the following estimated useful
lives:
Years
-----
Computer equipment 5
Office furniture and equipment 7
The cost of normal maintenance and repairs is charged to operating expenses as
incurred. Material expenditures which increase the life of an asset are
capitalized and depreciated over the estimated remaining useful life of the
asset. The cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation are removed from the accounts, and any gains or losses
are reflected in current operations.
-7-
<PAGE>
COMPUTER AGE DENTIST, INC.
NOTES TO FINANCIAL STATEMENTS
Software Development Costs - The Company capitalizes costs of producing software
to be sold, leased, or otherwise marketed, incurred subsequent to establishing
technological feasibility in accordance with Financial Accounting Standards
Statement No. 86.
Amortization of capitalized software development costs is computed on a
product-by-product basis. The annual amortization is the greater of the amount
computed using the ratio of current gross revenue for a product to the total of
current and anticipated future gross revenue for that product or the
straight-line method, not to exceed 4 years. In addition, management
periodically compares the unamortized capitalized costs for each product to the
net realizable value of that product. The amount by which the unamortized
capitalized costs exceed the net realizable value is charged to operations.
The total amount charged to expense in the statements of operations for
amortization of capitalized software costs was $33,600 and $36,300 for the nine
months ended June 30, 1997 and the year ended September 30, 1996, respectively,
and is included in cost of sales.
Costs incurred in researching, designing and planning for the development of new
software are classified as research and development expenses and are charged to
operations as incurred. Such amounts have been immaterial for the periods
presented.
Other Assets - In April 1996, the Company acquired all of the assets of another
entity, and recorded goodwill of $150,000 for the excess of the purchase price
over the net assets of the acquired entity. Goodwill is being amortized on a
straight-line basis over its estimated life of three years.
In September 1996, the Company paid a stockholder $150,000 as consideration for
signing a non-compete agreement. This non-compete agreement is being amortized
using the straight-line method over the term of the agreement (which is
estimated to be equal to the useful life) of three years. As part of this
agreement, this stockholder also agreed to sell all of his common stock in the
Company to the two other stockholders.
Following is a summary of other assets at June 30, 1997 and September 30, 1996:
June 30, September 30,
1997 1996
-------- ---------
Goodwill $150,000 $150,000
Less accumulated amortization (35,000) (12,500)
Non-compete covenant 150,000 150,000
Less accumulated amortization (45,800) (8,300)
Other 10,400 13,200
-------- --------
$229,600 $292,400
======== ========
-8-
<PAGE>
COMPUTER AGE DENTIST, INC.
NOTES TO FINANCIAL STATEMENTS
Revenue Recognition - Revenue from the sale of the Company's proprietary
software is recognized when the software is delivered and the Company has
substantially performed all material obligations relating to the sale agreement
and collectibility is deemed probable by management. Revenue from software
services is recognized ratably over its contractual period or as the services
are performed.
Unearned Revenue - Unearned revenue primarily represents payments received on
deferred maintenance contracts that has not been earned. The amounts are
amortized into revenue on a monthly basis using the straight-line method over
the life of the contract.
Costs for maintenance and customer support are charged to expense when the
related revenue is recognized or when those costs are incurred, whichever occurs
first.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The actual results could differ
from those estimates.
The Company's financial statements are based on a number of estimates, including
the realizability of software development costs and other long-lived assets, and
realizability of deferred tax assets. It is reasonably possible that these
estimates will change in the forthcoming year and such revisions could be
material.
Income Taxes - The Company accounts for income taxes under the liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates.
Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of property and equipment or other long-lived assets may
be impaired, an evaluation of recoverability of net carrying costs will be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset will be compared to the asset's carrying amount
to determine if a write-down to estimated fair value is required.
Research and Development - Research and development costs are charged to
operations in the period incurred.
-9-
<PAGE>
COMPUTER AGE DENTIST, INC.
NOTES TO FINANCIAL STATEMENTS
2. NOTES PAYABLE:
June 30, September 30,
1997 1996
-------- ---------
Note payable, due in monthly installments
of $2,333 plus interest at 8.25%, due August
2001, collateralized by key-man life insurance
policies and personally guaranteed by the two
stockholders of the Company $116,600 $145,700
Note payable, due in monthly installments of
$3,000, including interest at 8%, due December
1998, uncollateralized 51,400 78,400
-------- --------
$168,000 $224,100
======== ========
Aggregate maturities on notes payable at June 30, 1997 are as follows:
Three months ended September 30, 1997 $ 16,000
Years ended September 30,
1998 64,000
1999 34,400
2000 28,000
2001 25,600
--------
$168,000
========
The Company has a $50,000 line-of-credit (and overdraft protection) with a
financial institution. The line-of-credit bears interest at prime plus 3.75%
(total of 13.25% at June 30, 1997) and is uncollateralized. There was no
outstanding balance on this line-of-credit at June 30, 1997 or September 30,
1996.
3. COMMITMENTS:
- ---------------
The Company leases office space and various equipment under the terms of
non-cancelable operating leases. Total rent expense was $55,600 and $72,700 for
the nine months ended June 30, 1997 and the year end September 30, 1996. Future
minimum lease payments at June 30, 1997 are as follows:
Three months ended September 30, 1997 $ 8,600
Years ended September 30,
1998 112,800
1999 116,900
2000 113,800
2001 108,000
2002 108,000
Thereafter 9,000
--------
$577,100
========
-10-
<PAGE>
4. INCOME TAXES:
- ----------------
The amounts which give rise to the net deferred tax asset and (liability) at
June 30, 1997 and September 30, 1996, are as follows:
June 30, September 30,
1997 1996
-------- --------
Allowance for doubtful accounts $ 30,100 $ 14,700
Deferred revenue 158,600 135,600
Accrued compensation 16,300 16,700
Property and equipment (8,000) (10,000)
Software development costs (66,000) (47,000)
-------- --------
Net tax asset 131,000 110,000
Valuation allowance (131,000) (110,000)
-------- --------
$ - $ -
======== ========
The provisions for income taxes for the nine months ended June 30, 1997, and the
year ended September 30, 1996, differed from the amounts computed by applying
U.S. Federal statutory tax rates to pre-tax income as follows:
June 30, September 30,
1997 1996
--------- ---------
Provision computed by applying the
U.S. statutory rate (34%) $ 26,600 126,000
Permanent differences 4,700 15,700
Net change in the valuation allowance
due to changes in temporary differences 10,000 (23,000)
State income tax, net of Federal benefit 6,000 22,300
Effect of graduated tax rates (14,000) --
Other (4,300) 2,000
--------- ---------
$ 29,000 $ 143,000
========= =========
The provision for income taxes of $29,000 and $143,000 for the nine months ended
June 30, 1997 and the year ended September 30, 1996 consists entirely of current
tax expense. The Company did not record deferred income tax assets at June 30,
1997 or September 30, 1996, because these assets are not expected to be
realizable when the Company starts filing a consolidated income tax return with
its parent (see Note 5). The net decrease in the valuation allowance from
September 30, 1995 to September 30, 1996 of $23,300 and the net increase from
September 30, 1996 to June 30, 1997 of $21,000 were entirely due to the change
in the net deferred tax assets. The entire net deferred tax assets had a 100%
valuation allowance at each of those dates.
-11-
<PAGE>
COMPUTER AGE DENTIST, INC.
NOTES TO FINANCIAL STATEMENTS
5. SUBSEQUENT EVENTS:
- ---------------------
On October 23, 1997, Medical Dynamics, Inc. (MEDY) acquired all of the
outstanding capital stock of CADI and satisfied an obligation to a former
stockholder of CADI for total consideration of $4,700,000. The transaction was
effective as of October 1, 1997, at which time CADI began operating as a
subsidiary of MEDY.
-12-
<PAGE>
MEDICAL DYNAMICS, INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
Effective October 1, 1997, Medical Dynamics, Inc. (the "Company") acquired all
of the outstanding capital stock of Computer Age Dentist, Inc. (CADI) through a
newly formed subsidiary. CADI, located in Santa Monica, California, is engaged
in the design, sale, and support of practice management software for dental
practices. The Company acquired all of the outstanding capital stock of CADI and
satisfied an obligation to a former stockholder of CADI for total consideration
of $4,700,000 which consisted of 1,600,000 restricted shares of the Company's
common stock, $300,000 in cash, and three promissory notes totaling $400,000.
The accompanying unaudited pro forma combined balance sheet combines the June
30, 1997 balances sheets of the Company and CADI as if the acquisition had
occurred on that date.
The accompanying unaudited pro forma combined statements of operations combine
the operations of the Company and CADI for the year ended September 30, 1996,
and the nine months ended June 30, 1997, as if the acquisition was completed as
of the beginning of the periods presented under the purchase method of
accounting based upon the assumptions as included in the notes to the pro forma
statements.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the merger been consummated at the
beginning of the periods indicated.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto, included
elsewhere in this document.
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
Computer
Medical Age
Dynamics, Dentist,
Inc. Inc. Pro Pro
June 30, June 30, Forma Forma
1997 1997 Adjustments Combined
----------- ----------- ----------- -----------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and equivalents $ 1,028,900 $ 51,100 (a) $ (300,000) $ 780,000
Certificates of deposit 50,000 - - 50,000
Receivables:
Trade, less allowance for doubtful accounts 129,500 227,900 - 357,400
Other - 31,200 - 31,200
Inventories 406,000 20,600 - 426,600
Prepaid expenses 24,400 - - 24,400
----------- ----------- ----------- -----------
Total current assets 1,638,800 330,800 (300,000) 1,669,600
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Loaner equipment 337,700 - - 337,700
Machinery and equipment 288,000 80,500 - 368,500
Furniture and fixtures 267,700 67,800 - 335,500
Leasehold improvements 54,500 - - 54,500
----------- ----------- ----------- -----------
947,900 148,300 - 1,096,200
Less accumulated depreciation (665,300) (113,200) - (778,500)
----------- ----------- ----------- -----------
Property and equipment, net 282,600 35,100 - 317,700
----------- ----------- ----------- -----------
SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization - 165,600 (a) 2,809,400 2,975,000
OTHER ASSETS:
Inventories 450,000 - - 450,000
Patents, net of accumulated amortization 66,400 - - 66,400
Technical support contracts - - (a) 1,484,500 1,484,500
Goodwill - 115,000 (a) 487,700 602,700
Other, net of accumulated amortization 11,600 114,600 - 126,200
----------- ----------- ----------- -----------
Total other assets 528,000 229,600 1,972,200 2,729,800
----------- ----------- ----------- -----------
TOTAL ASSETS $ 2,449,400 $ 761,100 $ 4,481,600 $ 7,692,100
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of notes payable $ - $ 64,000 (a) $ 400,000 $ 464,000
Accounts payable 196,700 89,200 - 285,900
Accrued income taxes - 109,000 - 109,000
Accrued expenses 36,100 80,900 - 117,000
Accrued royalties 90,000 - - 90,000
Unearned revenue - 395,600 - 395,600
Warranty reserve 15,000 - - 15,000
----------- ----------- ----------- -----------
Total current liabilities 337,800 738,700 400,000 1,476,500
----------- ----------- ----------- -----------
NOTES PAYABLE - 104,000 - 104,000
STOCKHOLDERS' EQUITY:
Preferred stock - - - -
Common stock 7,700 20,400 (a) (18,900) 9,200
Additional paid-in capital 18,742,500 - (a) 3,998,500 22,741,000
Accumulated deficit (16,638,600) (102,000) 102,000 (16,638,600)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) 2,111,600 (81,600) 4,081,600 6,111,600
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,449,400 $ 761,100 $ 4,481,600 $ 7,692,100
=========== =========== =========== ===========
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Computer
Medical Age
Dynamics, Dentist,
Inc. Inc. Pro Pro
June 30, June 30, Forma Forma
1997 1997 Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES $ 713,900 $ 2,135,700 $ -- $ 2,849,600
Cost of goods sold 582,600 782,900 (b) 301,000 1,666,500
----------- ----------- ----------- -----------
GROSS PROFIT 131,300 1,352,800 (301,000) 1,183,100
OTHER OPERATING REVENUE 17,600 -- -- 17,600
OPERATING EXPENSES:
Selling, general and administrative 807,700 1,196,400 -- 2,004,100
Depreciation and amortization 116,300 70,900 (c) 222,700 430,200
-- -- (d) 20,300 --
Royalties 90,600 -- -- 90,600
Research and development 132,700 -- -- 132,700
----------- ----------- ----------- -----------
Total operating expenses 1,147,300 1,267,300 243,000 2,657,600
INCOME (LOSS) FROM OPERATIONS (998,400) 85,500 (544,000) (1,456,900)
OTHER INCOME (EXPENSE):
Other income 41,500 -- -- 41,500
Interest income 42,400 -- (e) (11,300) 31,100
Interest expense (600) (6,800) (f) (24,000) (31,400)
----------- ----------- ----------- -----------
Total other income (expense) 83,300 (6,800) (35,300) 41,200
INCOME (LOSS) BEFORE INCOME TAXES (915,100) 78,700 (579,300) (1,415,700)
PROVISION FOR INCOME TAXES -- (29,000) (g) 29,000 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (915,100) $ 49,700 $ (550,300) $(1,415,700)
=========== =========== =========== ===========
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
Computer
Medical Age
Dynamics, Dentist,
Inc. Inc. Pro Pro
September 30, September 30, Forma Forma
1996 1996 Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES $ 667,800 $ 2,737,300 $ -- $ 3,405,100
Cost of goods sold 652,300 948,400 (b) 401,300 2,002,000
----------- ----------- ----------- -----------
GROSS PROFIT 15,500 1,788,900 (401,300) 1,403,100
OTHER OPERATING REVENUE 102,800 -- -- 102,800
OPERATING EXPENSES:
Selling, general and administrative 878,300 1,384,700 -- 2,263,000
Fair value of stock options 405,000 -- -- 405,000
Research and development 206,900 -- -- 206,900
Depreciation and amortization 207,600 29,400 (c) 296,900 560,900
-- -- (d) 27,000 --
Royalties - related party 120,000 -- -- 120,000
Provision for obsolete inventory 87,300 -- -- 87,300
----------- ----------- ----------- -----------
Total operating expenses 1,905,100 1,414,100 323,900 3,643,100
INCOME (LOSS) FROM OPERATIONS (1,786,800) 374,800 (725,200) (2,137,200)
OTHER INCOME (EXPENSE):
Gain on sale of equipment 7,400 -- -- 7,400
Interest income 39,000 -- (e) (15,000) 24,000
Interest expense (1,400) (21,200) (f) (32,000) (54,600)
----------- ----------- ----------- -----------
Total other income (expense) 45,000 (21,200) (47,000) (23,200)
INCOME (LOSS) BEFORE INCOME TAXES (1,741,800) 353,600 (772,200) (2,160,400)
PROVISION FOR INCOME TAXES -- (143,000) (g) 143,000 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,741,800) $ 210,600 $ (629,200) $(2,160,400)
=========== =========== =========== ===========
4
</TABLE>
<PAGE>
MEDICAL DYNAMICS, INC. AND
COMPUTER AGE DENTIST, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) To reflect the acquisition of CADI in a purchase transaction where the
Company acquired 100% of the capital stock of CADI and satisfied an
obligation to a former stockholder of CADI for total consideration of
$4,700,000, which consisted of $300,000 in cash, notes payable totaling
$400,000, and 1,600,000 shares of the Company's common stock, valued at
$4,000,000. $2,809,400 of the purchase price was allocated to software
development costs, $1,484,500 was allocated to support contracts, and
$406,100 was allocated to goodwill pursuant to an independent valuation
report prepared in conjunction with this acquisition.
(b) To reflect the amortization of software development costs over an estimated
useful life of 7 years.
(c) To reflect the amortization of technical support contracts over an
estimated useful life of 5 years.
(d) To reflect the amortization of goodwill over an estimated useful life of 15
years.
(e) To reflect a decrease in interest income as a result of a $300,000 lower
cash balance. Assumed interest rate was 5%.
(f) To reflect interest expense on the $400,000 of notes payable. The interest
rate on the notes is 8%.
(g) To reduce CADI's provision for income taxes because the Company had
sufficient net operating losses to offset CADI's taxable income.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MEDICAL DYNAMICS, INC.
November 13, 1997 By: /s/ VAN A. HORSLEY
---------------------------------
Van A. Horsley, President
