As filed with the Securities and Exchange Commission on November 9, 1998
File No. 333-63901
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MEDICAL DYNAMICS, INC.
----------------------
(Exact name of Registrant as specified in charter)
Colorado 84-0631765
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
99 Inverness Drive East
Englewood, Colorado 80112
(303) 790-2990
--------------
(Address, including zip code and telephone
number, including area
code, of registrant's principal executive
offices)
Van A. Horsley, President
99 Inverness Drive East
Englewood, Colorado 80112
(303) 790-2990
--------------
(Name, address, including zip code and
telephone number, including area
code, of agent for service)
It is requested that copies of all correspondence be sent to:
Herrick K. Lidstone, Jr., Esq.
Norton o Lidstone, LLC
5445 DTC Parkway, Suite 850
Englewood, Colorado 80111-3053
Telephone Number (303) 221-5552
Facsimile Number (303) 221-5553
--------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box:
_____
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [xx]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Page 1 of 33
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------
Title of Shares to Amount to be Proposed Proposed Amount of
be registered registered maximum maximum Registration
aggregate price aggregate Fee
per unit offering price
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common 1 1,125,000 $2.0625 $2,320,312 $684
- ---------------------------------------------------------------------------------------
Common 2 630,000 $2.0625 $1,299,375 $383
- ---------------------------------------------------------------------------------------
Common 3 150,000 $2.58 $387,000 $114
- ---------------------------------------------------------------------------------------
Total 1,905,000 $4,006,687 $1,181
- ---------------------------------------------------------------------------------------
</TABLE>
Pursuant to Rule 416 of the Securities Act of 1933 and as required by
Section 2(a) of the registration rights agreement between the Company and the
Selling Stockholder, this registration statement shall be deemed to cover such
additional shares as may be issued to the Selling Stockholder to prevent
dilution resulting from future dividends, stock distributions, stock splits or
similar transactions.
Pursuant to Rule 429, the prospectus included herein combines the
prospectus previously included in the registrant's Registration Statement on
Form S-3, Commission file number 333-42631. The prospectus included in this
registration statement carries forward 544,532 shares included within the prior
registration statement as follows: 58,667 shares issued prior to the date hereof
upon conversion of the 1997 Debentures which have not, at the date hereof, been
sold by the Selling Shareholder; up to 330,000 shares, representing 150% of the
Shares estimated to be issuable to the Selling Shareholder upon conversion of
its remaining 1997 Debentures (in a total principal amount of $440,000,
calculated at Market Price on September 10, 1998); up to 71,250 shares
representing 150% of the Shares estimated to be issuable to the Selling
Shareholder in payment of interest (in a total estimated amount of $95,000) on
its remaining 1997 Debentures (assuming such Debentures are held to maturity);
and 84,615 shares issuable upon exercise of the 1997 Warrants.
- --------
1 The amount to be registered includes 825,000 shares (150% of the
estimated number of shares) to be issued upon conversion of the 1998
Debentures (as defined under "Description of Securities" in the
prospectus included in this form) and 300,000 shares (150% of the
estimated number of shares) underlying the 1998 Debentures required to
be purchased in December 1998, assuming conversion at the "Market
Price" (as defined in the 1998 Debentures) at September10, 1998. The
maximum offering price is based on the last sale price quoted on the
Nasdaq SmallCap Market on September 10, 1998 pursuant to Rule 457(c).
2 The amount to be registered includes 462,000 shares (150% of the
estimated number of shares ) to be issued in payment of an estimated
$616,000 interest on the 1998 Debentures and 168,000 shares to be
issued in payment of an estimated $224,000 interest on the 1998
Debentures required to be purchased in December 1998, which could
accrue through the term of the 1998 Debentures assuming the
calculation is based on the "Market Price" at September 10, 1998. The
maximum offering price is based on the last sale price quoted on the
Nasdaq SmallCap Market on September 10, 1998 pursuant to Rule 457(c).
3 The amount to be registered includes 150,000 shares underlying the
1998 Warrants (as defined under "Description of Securities" in the
prospectus included in this form), including the 40,000 1998 Warrants
to be issued in connection with the purchase by the Selling
Shareholder of an additional $400,000 1998 Debentures in November
1998. Registration fee is based on the exercise price of the 1998
Warrants pursuant to Rules 457(a) and (g).
Page 2 of 33
<PAGE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
Page 3 of 33
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion, Dated_______________ , 1998
PROSPECTUS
- ----------
MEDICAL DYNAMICS, INC.
Up to 1,363,786 Shares of Common Stock
Offered for Resale by the Selling Shareholder
This Prospectus relates to up to 1,363,786 shares of common stock of
Medical Dynamics, Inc., a Colorado corporation (the "Company" or "MEDY") which
are being offered and sold by The Tail Wind Fund, Inc., referred to herein as
the "Selling Shareholder." The shares being offered by this Prospectus will be
received by the Selling Shareholder upon conversion of convertible securities
and the exercise of warrants which are defined in greater detail in the section
below entitled "Selling Shareholder," but which are summarized as follows:
up to 800,000 shares of MEDY's common stock (the "Common Stock") which are
issuable to the Selling Shareholder as a result of the conversion of
certain debentures referred to as the "1998 Debentures" in the aggregate
principal amount of $1,500,000 based on a conversion price equal to the
lesser of the "Ceiling Price" or of the Market Price (both as defined) on
the business day immediately preceding the conversion date (the "Conversion
Shares");
up to 311,467 shares of the Common Stock which are issuable to the Selling
Shareholder as interest on the 1998 Debentures to be calculated at Market
Price (as defined) (the "Interest Shares");
up to 150,000 shares issuable to the Selling Shareholder on exercise of a
warrant to purchase Common Stock referred to as the "1998 Warrant" at an
exercise price equal to $2.58 per share (the "Warrant Shares");
up to 17,704 shares of the Common Stock which are issuable to the Selling
Shareholder as interest on the 1997 Debentures to be calculated at Market
Price (as defined) (the "Interest Shares"); and
up to 84,615 shares issuable to the Selling Shareholder on exercise of a
warrant referred to as the "1997 Warrant" at an exercise price equal to
$3.375 per share (the "Warrant Shares").
For the purposes of the 1998 and 1997 Debentures, "Market Price" is defined
to mean the average of the two lowest closing bid prices of the Common Stock as
Page 4 of 33
<PAGE>
reported by The Nasdaq Stock Market over the 60 trading day period immediately
preceding the determination date. As of November 2, 1998, Market Price as
defined in the 1998 Debentures would be $1.875 per share. The 1998 Debentures
are currently convertible, and the 1997 and the 1998 Warrants are currently
exercisable, subject, however, to the "5% Limitation" which is explained in the
section entitled "Selling Shareholder," below.
For the purposes of the 1998 Debentures, "Ceiling Price" is defined to mean
105% of the average closing bid price of the Common Stock for the twenty trading
days prior to the effective date of this registration statement. The Ceiling
Price is to be adjusted on July 31, 2000, to 105% of the Market Price on that
date if the adjustment would result in a lower price, but in no event shall the
Ceiling Price be adjusted to an amount less than $2.25. The number of shares
available for sale by the Selling Shareholder has been estimated because the
conversion of the convertible securities will be based in part on the market
price of the Common Stock on the date of conversion.
MEDY's common stock is traded in the over-the-counter market and is quoted
on the Nasdaq SmallCap Market under the symbol "MEDY." On November 2, 1998,
Nasdaq reported that the last sale price of the Common Stock was $2.625 per
share.
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholder, but will receive the exercise prices payable upon
exercise of the 1997 Warrants and the 1998 Warrants (if exercised for cash).
There can be no assurance that all or any part of the Warrants will be exercised
or that they will be exercised for cash. All expenses incurred in connection
with this offering (not including, however, commissions or discounts paid or
allowed by the Selling Shareholder to underwriters, dealers, brokers or agents)
are being borne by the Company.
The Selling Shareholder has not advised the Company of any specific plans
for the distribution of the Shares, but it is anticipated that the Shares may be
sold from time to time in transactions (which may include block transactions) on
the Nasdaq SmallCap market at the market prices then prevailing. Sales of the
Shares also may be made through negotiated transactions or otherwise. The
Selling Shareholder and the brokers and dealers though which the sales of the
Shares may be made may be deemed to be "underwriters" within the meaning set
forth in the Securities Act of 1933, as amended, and their commissions and
discounts and other compensation may be regarded as underwriters' compensation.
See "Plan of Distribution" commencing at page 20, below.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND THEIR
PURCHASE SHOULD BE CONSIDERED ONLY BY PERSONS ABLE TO SUSTAIN A TOTAL LOSS OF
THEIR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
These Securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
This Prospectus does not constitute an offer or a solicitation by anyone to
any person in any state, territory, or possession of the United States in which
Page 5 of 33
<PAGE>
such offer or solicitation is not authorized by the laws thereof, or to any
person to whom it is unlawful to make such offer or solicitation.
The date of this prospectus is ______________
Page 6 of 33
<PAGE>
AVAILABLE INFORMATION
---------------------
Medical Dynamics, Inc. (referred to in this Prospectus as either the
"Company" or "MEDY") is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and in accordance therewith
files reports, proxy statements and other information with the Securities
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington
D.C. 20549, and at the Regional Offices of the Commission: The World Trade
Center, Suite 1300, New York, NY 10048; 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street N.W., Washington, D.C. 20549. In addition, MEDY files its information
with the Commission electronically through EDGAR and the Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "MEDY," and copies of reports and other information are also
available for inspection at The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
MEDY has filed with the Commission a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933 (the "1933 Act")
with respect to the Shares offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information and exhibits set forth in the Registration Statement, of which this
Prospectus is a part. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission. Copies of the Registration Statement and its exhibits
are on file at the offices of the Commission and may be obtained, upon payment
of the fee prescribed by the Commission, or may be examined without charge at
the public reference facilities maintained by the Commission described above.
For further information, reference is made to the Registration Statement and its
exhibits.
The Company furnishes Annual Reports to the holders of its securities which
contain financial information which have been examined and reported upon, with
an opinion expressed by, its independent certified public accountants.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The following documents filed with the Commission are incorporated into
this Prospectus by reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997.
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
December 31, 1997, March 31, 1998, and June 30, 1998.
Page 7 of 33
<PAGE>
(3) The Company's Current Report on Form 8-K reporting an event of October
9, 1998, describing a line of credit the Company obtained from Norwest
Business Credit, Inc.
(4) The Company's Current Report on Form 8-K reporting an event of July
31, 1998, describing the Company's sale of the 1998 Debentures and the
1998 Warrants to the Selling Shareholder.
(5) The Company's Current Report on Form 8-K reporting an event of April
9, 1998, describing the Company's acquisition of Command Dental
Systems of Farmington Hills, Michigan.
(6) The Company's Current Report on Form 8-K reporting an event of
February 6, 1998, describing the Company's acquisition of Information
Presentation Systems, Inc.
(7) The Company's Current Report on Form 8-K reporting an event of January
5, 1998, describing the Company's letter of intent to acquire
Information Presentation Systems, Inc.
(8) The Company's Current Report on Form 8-K reporting an event of October
23, 1997, describing the Company's acquisition of Computer Age
Dentist, Inc. and sale of the 1997 Debentures and the 1997 Warrants to
the Selling Shareholder, including the amendment to this report
incorporating the required financial statements.
(9) The Company's proxy statement used in connection with its annual
meeting of shareholders held June 11, 1998.
All documents filed by MEDY pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the 1934 Act after the date hereof and prior to the termination of the
offering covered by this Prospectus shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing such documents.
Any statement contained herein or in any documents incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that statements contained herein,
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain without charge,
upon written or oral request, a copy of any and all of the documents
incorporated by reference herein (not including exhibits to those documents,
unless such exhibits are specifically incorporated by reference into the
information that the Prospectus incorporates). Requests for such documents
should be directed to Medical Dynamics, Inc., 99 Inverness Drive East,
Englewood, Colorado 80112, attn: Van A. Horsley, President; telephone (303) 790-
2990, ext. 13.
Page 8 of 33
<PAGE>
No person has been authorized in connection with this offering to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by MEDY, the
Selling Shareholder or any other person. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to purchase, any securities other
than those to which it relates, nor does it constitute an offer to sell or a
solicitation of an offer to purchase by any person in any jurisdiction in which
it is unlawful for such person to make such an offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
CAUTIONARY STATEMENT
This Prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include,
but are not limited to, those statements relating to development of new
products, the financial condition of MEDY, the ability to increase distribution
of MEDY's products, integration of new businesses MEDY has acquired during the
1998 fiscal year, approval of MEDY's products as and when required by the Food
and Drug Administration ("FDA") in the United States and similar regulatory
bodies in other countries. The business and economic risks faced by MEDY and
MEDY's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors as described above and
including those set forth under "Risk Factors" below, and under "Item 1 -
Business" and "Item 6 Management's Discussion and Analysis" in MEDY's annual
report on Form 10- KSB for the fiscal year ended September 30, 1997, and in the
subsequent filings pursuant to the Securities Exchange Act of 1934.
Page 9 of 33
<PAGE>
PROSPECTUS SUMMARY
------------------
The following summary is qualified in its entirety by the information,
including the financial statements, referred to elsewhere in this Prospectus.
The Company
Medical Dynamics, Inc., a Colorado corporation incorporated in March 1971
("MEDY" or the "Company"), is engaged in the design, development, manufacture
and marketing of medical and dental video cameras and related disposable
products for a variety of professional specialties. MEDY's principal products
are small, color, medical and dental video camera systems for use in patient
diagnosis and various surgical procedures. MEDY has been manufacturing such
cameras since August of 1981. In October 1997 MEDY acquired Computer Age
Dentist, Inc. (CADI), a California corporation based in Los Angeles, California.
CADI operates as a wholly-owned subsidiary of the Company which develops and
sells practice management software and related electronic services to the dental
profession. In February 1998, through CADI the Company acquired Information
Presentation Systems, Inc. of Marietta, Georgia, one of the nation's largest
suppliers of customized multimedia systems for use in a variety of dental
operatory environments. In April 1998, through CADI the Company acquired Command
Dental Systems of Farmington Hills, Michigan, which develops and markets
turn-key computer systems for the efficient management of dental practices.
The Company's principal executive offices and manufacturing facilities are
at 99 Inverness Drive East, Englewood, Colorado, 80112. Its telephone number at
that address is (303) 790-2990.
The Securities
Currently the only class of securities of MEDY for which there is a public
market is its Common Stock. As of September 30, 1998, there were 9,991,739
shares of its Common Stock outstanding. See "Description of Securities"
commencing on page 21, of this Prospectus.
The Offering
Up to 1,363,786 shares of Common Stock (the "Shares") are being offered
hereby by the Selling Shareholder. These Shares will be received by the Selling
Shareholder upon conversion and exercise of convertible securities described in
"The 1997 Debentures and the 1997 Warrants" and "The 1998 Debentures and the
1998 Warrants" under the caption "Selling Shareholder" beginning on page 17 of
this Prospectus. The number of shares available for sale by the Selling
Shareholder has been estimated because the conversion of the convertible
securities will be based in part on the market price of the Common Stock on the
date of conversion. The Selling Shareholder will receive all of the proceeds
from the offer and sale of the Shares.
The Company will pay the costs related to the filing of the registration
statement in which this Prospectus is included. The Selling Shareholder will pay
Page 10 of 33
<PAGE>
its own expenses related to the offer and sale of the Shares, including any
underwriter discounts or commissions.
RISK FACTORS
------------
The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. Each
prospective investor should carefully consider the following risk factors
inherent in and affecting the business of MEDY and this offering before making
an investment decision.
1. Losses from Operations. MEDY has a history of net operating losses, which,
when accumulated, total $18,117,100 through June 30, 1998. This has
resulted in working capital shortages from time to time. MEDY can give no
assurance that it will be able to operate profitably in the future. The
likelihood of the success of MEDY must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the regulatory environments in which MEDY
operates, the problems related to research and development of new products
subject to Food and Drug Administration ("FDA") and other government
approvals and regulations, and substantial competition from other companies
as to those products. (See the Financial Statements and related notes
included in MEDY's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997, and subsequent reports identified above in "Documents
Incorporated by Reference", which reports are incorporated by reference.)
2. Working Capital Shortages and Dependence on Third Party Financing. As
discussed in MEDY's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997, and subsequent reports identified, above, in "Documents
Incorporated by Reference", MEDY has regularly incurred working capital
shortages and has sought to alleviate these shortages through debt and
equity financing provided by third party and affiliated investors and, most
recently, through a working capital line of credit from an unaffiliated
bank. There can be no assurance that such sources of capital will continue
to be available on terms which are acceptable to MEDY. Eventually MEDY will
be required to finance its operations with its cash flow, and MEDY is
attempting to increase its revenues in an effort to do so. There can be no
assurance, however, that the working capital shortages which MEDY has
incurred will not continue and may not adversely affect MEDY's ability to
raise additional debt or equity capital if necessary. (See the Financial
Statements and related notes included in MEDY's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1997, and subsequent reports
identified above in "Documents Incorporated by Reference", which reports
are incorporated by reference.)
3. Risk of Dilution from Conversion of Convertible Debentures. Assuming full
conversion of the 1997 and 1998 Debentures as of the date hereof at the
Market Price set forth on the cover page of this prospectus, 800,000 shares
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<PAGE>
of Common Stock would be issued to the Selling Shareholder. This would
represent approximately 8% of the Common Stock which would then be
outstanding. Although this would result in a conversion of a liability on
MEDY's balance sheet to equity, this would result in dilution to existing
MEDY shareholders, many of whom may have purchased Common Stock in the
over-the-counter market at a higher price than the price at which the
Selling Shareholder would convert its Debentures. MEDY has the right to pay
interest on the 1997 and 1998 Debentures in cash or shares of Common Stock
at Market Price, in its discretion. To date MEDY has paid interest in
shares of its Common Stock and intends to continue to do so in the future
to conserve MEDY's working capital. It appears to MEDY that the Selling
Shareholder has sold the shares underlying the 1997 Debentures and the
Interest Shares pursuant to the existing registration statement shortly
after converting the 1997 Debentures or receiving the Interest Shares. It
can be expected that these sales, and perhaps even the threat of these
sales, have had a negative impact on the market for the Common Stock.
4. Product Liability. MEDY could be subject to claims for personal injuries
resulting from the use of its products. Although MEDY carries product
liability insurance coverage in amounts it believes to be commercially
reasonable within its industry, there can be no assurance that the amount
of coverage would be sufficient to cover any proven claims. Claims proven
and damages awarded in excess of the coverage limits would have a material
adverse effect on MEDY. (See "Item 1 - Business" in MEDY's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1997, and subsequent
reports identified above in "Documents Incorporated by Reference", which
reports are incorporated by reference.)
5. Acquisition of New Businesses. During the fiscal year ended September 30,
1998, MEDY has acquired three new businesses. The Company is in the process
of integrating its accounting, financial management, personnel, and
business functions with those of its new businesses. There can be no
assurance that MEDY will be able to do so successfully, or that it will be
able to do so on a cost effective basis. Based on the experience of more
than one year since the acquisition of CADI, and more than six months since
the acquisition of IPS and CDS, MEDY does not foresee any difficulties in
completing the integration of these new businesses. (See "Item 1 -
Business" in MEDY's Annual Report on Form 10- KSB for the fiscal year ended
September 30, 1997, and subsequent reports identified, above, in "Documents
Incorporated by Reference", which reports are incorporated by reference.)
6. Need for Additional Financing and Risk of Dilution. The Company has not
generated earnings in the past several years and there can be no assurance
that MEDY will be able to do so in the future. Although management believes
that the capital available to MEDY is sufficient to fund its short-term
operations, it is unable to predict what additional expenses will be
incurred beyond those contemplated since research, development, and
marketing programs frequently involve unanticipated expenditures. To the
extent additional capital is needed, MEDY may seek financing through
Page 12 of 33
<PAGE>
additional offerings of equity or debt securities. Sales of additional
equity securities could dilute the ownership interest of existing
shareholders, including investors in this Offering. Sales of debt
securities would necessarily result in interest expense and would risk the
loss of the Company's assets if MEDY were to become unable to pay the
interest. Offerings of debt securities also could include conversion
features requiring the issuance of additional debt or equity securities
which, ultimately, also could dilute the ownership of prior shareholders,
including purchasers of the shares being offered by the Selling Shareholder
in this Offering. (See "Management's Discussion and Analysis" in MEDY's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1997,
and subsequent reports identified above in "Documents Incorporated by
Reference", which reports are incorporated by reference.)
7. Limitations on Ability to Obtain Additional Financing. The agreement
between MEDY and the Selling Shareholder contains limitations on MEDY's
ability to raise additional capital by issuing convertible debt or equity
securities at prices which fluctuate or pursuant to a registration
statement for selling security holders other than the Selling Shareholder.
Although these restrictions prohibit the Company from raising working
capital or other equity investment in a transaction similar to the
transactions with the Selling Shareholder until at least August 1999, the
Company believes that it will be able to work within these restrictions to
the extent it needs additional capital. As recently announced in a Form 8-K
reporting an event of October 9, 1998, the Company has entered into a line
of credit with an unaffiliated bank which does not conflict with the
capital raising limitations contained in the agreement with the Selling
Shareholder.
8. Technological Change and Risk of Technological Obsolescence. The medical
and dental camera industry and the dental practice management industry, the
Company's two principal lines of business, are subject to rapid and
significant technological change. Accordingly, MEDY's viability will be
dependent on its ability to introduce competitive products to the
marketplace in a timely manner and enhance and improve such products to its
customers' satisfaction. There can be no assurance that MEDY will be able
to keep pace with technological developments or that its products will not
become obsolete. (See "Item 1 Business" in MEDY's annual report on Form
10-KSB for the fiscal year ended September 30, 1997, and subsequent reports
identified above in "Documents Incorporated by Reference", which reports
are incorporated by reference.)
9. Competition -- MEDY and CADI. MEDY's operations and product lines are
subject to a high level of competition from foreign, as well as domestic,
manufacturers of color medical and dental video cameras and other medical
devices which are currently manufactured and sold by MEDY, or which MEDY
may develop in the future. Some competitors are affiliated with large
companies with substantial economic and personnel resources which greatly
exceed those of MEDY. There can be no assurance that MEDY will be able to
compete successfully with other companies.
Page 13 of 33
<PAGE>
In addition, there are a large number of competitors in the dental practice
management area. Most of these competitors are smaller businesses, and to
MEDY's knowledge CADI is the largest supplier of dental practice management
software in the United States. CADI's software is Y2K compliant, unlike the
software offered by some of CADI's competitors. There can be no assurance,
however, that competitors may not reduce CADI's market share by offering
their proprietary version of dental practice management software. CADI
plans to compete with these other businesses by continuing to upgrade its
software and by continuing to package the dental practice software it with
a complete office system of hardware and software.
(See "Item 1 - Business" in MEDY's annual report on Form 10-KSB for the
fiscal year ended September 30, 1997, and subsequent reports identified
above in "Documents Incorporated by Reference", which reports are
incorporated by reference.)
10. Potential Conflicts of Interest. There have been significant conflicts of
interest in the operation and management of MEDY, including the purchase by
MEDY of certain equipment and patents from its directors and executive
officers, granting of royalties, loans made available to MEDY through its
Chairman, and the employment by MEDY of sons of two of MEDY's directors.
These transactions were not negotiated at arms' length, although the Board
of Directors believes that all of these transactions were fair to and in
the best interests of MEDY. Although MEDY uses its best efforts to minimize
conflicts of interest, the existence of such conflicts may impact MEDY in
its business activities. (See "Item 1 - Business" and "Item 13 - Certain
Relationships and Related Transactions" in MEDY's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1997, and subsequent reports
identified above in "Documents Incorporated by Reference", which reports
are incorporated by reference.)
11. Dependence on Management. At present, the success of MEDY is dependent upon
the active participation of its management, MEDY's Chairman and principal
shareholder, Dr. Adair, and its Chief Executive Officer, Van Horsley, Dr.
Adair's step-son. CADI's operations are significantly dependent on the
continued availability of the services of Daniel L. Richmond and Chae U.
Kim. The loss of the services of any of these persons would have a material
adverse effect on the Company. In the event of such a loss, MEDY can give
no assurance that it could replace either person without incurring
substantial additional expense. MEDY does not have employment contracts
with either Mr. Horsley or Dr. Adair. Both Messrs. Richmond and Kim are
subject to five year employment agreements. (See "Item 1 - Business" in
MEDY's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1997, and subsequent reports identified above in "Documents Incorporated by
Reference", which reports are incorporated by reference.)
12. Government Regulation. Because certain of the products that MEDY
manufactures are used in surgery and other medical applications, the
products are subject to regulations of and close scrutiny by agencies of
Page 14 of 33
<PAGE>
the federal government, including the FDA. Although MEDY believes that its
facilities are in compliance with all applicable regulations, MEDY can give
no assurance that it will be able to comply fully with all of the
government regulations to which it is subject. Failure to comply strictly
with all FDA requirements (not all of which are written) may result in
sanctions as severe as the cessation of MEDY's manufacturing business which
would have a material adverse effect on MEDY. Although MEDY has had
difficulty in certain instances in the past in obtaining FDA approval on
new products, MEDY's current business in not materially dependent on this
issue and, therefore, this is not deemed to be a significant risk. (See
"Item 1 - Business" in MEDY's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997, and subsequent reports identified above in
"Documents Incorporated by Reference", which reports are incorporated by
reference.)
13. Protection of Technology. Although MEDY obtains secrecy agreements from its
employees and others having access to its trade secrets and holds patents
on certain of its technology, such agreements and patents do not afford
complete protection against the unauthorized use of such information by
others. Furthermore, the costs of prosecuting persons who may accidentally
or intentionally infringe on MEDY's patents or divulge its trade secrets
can be expensive and time consuming. The unauthorized use of MEDY's trade
secrets and the infringement of its patents could have a material adverse
effect on MEDY and its ability to compete. (See "Item 1 - Business" in
MEDY's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1997, and subsequent reports identified above in "Documents Incorporated by
Reference", which reports are incorporated by reference.)
14. Significant Investment in Intangible Assets. As a result of the
acquisitions of CADI, IPS and CDS, MEDY has a significant investment in
intangible assets, amounting to approximately $4,700,000 (59% of MEDY's
total assets). The expenses associated with the annual amortization of the
intangible assets will make it more difficult for MEDY to realize net
income. Because intangible assets are incapable of precise valuation, it
may be necessary for MEDY to reduce the balance sheet valuation of these
assets at some later point, although MEDY has no intention or basis to do
so at the present time. (See MEDY's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1997, and subsequent reports identified
above in "Documents Incorporated by Reference", which reports are
incorporated by reference.)
15. Limited Public Market; Price Volatility; and No Assurance of Liquidity.
There currently is a limited public market for MEDY's Common Stock. No
assurance can be given that a market for the Common Stock will continue
subsequent to this offering or that purchasers will be able to resell their
securities at the purchase prices paid in this Offering, or liquidate their
investment without considerable delay, if at all. If a market does
continue, the price may be highly volatile. Factors such as those discussed
in this "Risk Factors" section may have a significant impact on the market
price of the securities offered. Also, some brokerage firms may not effect
transactions in securities that trade below a stipulated price.
Page 15 of 33
<PAGE>
Further, most lending institutions will not permit the use of low-priced or
thinly traded securities as collateral for loans.
16. Dependence on Principal Customers. In the past, MEDY has been dependent on
a limited number of principal customers. During the 1997 fiscal year,
MEDY's principal customer which accounted for 61% of MEDY's revenues was
Information Presentation Systems, Inc., of Marietta, Georgia. IPS purchased
certain of MEDY's camera products and packaged the products with other
hardware and software, including CADI's software, for resale. As described
elsewhere in this Prospectus, MEDY, though CADI, acquired IPS in February
1998. (See MEDY's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997, "Item 1 - Business" and Item 6 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
therein, and subsequent reports identified above in "Documents Incorporated
by Reference", which reports are incorporated by reference.) which report
is incorporated by reference). As a result of the IPS acquisition during
the 1998 fiscal year, the Company does not expect that it will have any
single customer accounting for more than 10% of its sales during the 1998
or subsequent fiscal years, although it is possible that there may be
significant customers in future fiscal years.
17. No Dividends Paid or Contemplated. No dividends have been paid by MEDY in
the past and dividends are not contemplated in the foreseeable future.
Investors who anticipate the need of either immediate or future income by
way of dividends from their investment should refrain from the purchase of
Shares offered hereby.
18. Year 2000 Compliance. Although there can be no assurance, MEDY does not
anticipate that it will suffer any adverse impact as a result of Year 2000
(Y2K) computer software issues either as a result of third party
non-compliance or as a result of internal matters. None of the information
technology or other software and hardware systems utilized by MEDY and its
subsidiaries incorporates technology that is incapable of recognizing dates
beyond December 31, 1999. CADI, through its internal staff, has developed
its dental practice management software for the Windows platform and,
consequently, such software recognizes dates beyond December 31, 1999.
While CADI is still supporting some software which is DOS-based or
otherwise may not be Y2K compliant, the customers using this software have
been advised of their need to upgrade their office software in anticipation
of Y2K. Even if MEDY or CADI were to provide the necessary software upgrade
to these customers at no cost (which CADI does not have an obligation to
do), the total loss to MEDY would be less than $60,000 in revenues and is
not considered to be material. Because CADI's dental practice management
software is Y2K compliant, CADI and MEDY believe that this offers them a
marketing opportunity in that much of their competitors' software currently
being utilized by dental offices is not Y2K compliant and will need to be
replaced by those offices before December 31, 1999. There can be no
assurance, however, that these offices will all purchase dental practice
management systems from CADI.
Page 16 of 33
<PAGE>
USE OF PROCEEDS
---------------
The Selling Shareholder will receive all proceeds from the sale of the
Shares offered and sold under this Prospectus.
If, and to the extent, the 1997 and 1998 Warrants are exercised for cash,
the Company will receive proceeds equal to the aggregate exercise price of the
warrants, approximately $672,600 if all of the warrants are exercised for cash.
The 1997 and 1998 Warrants allow the holder to effect a "cashless" exercise of
the Warrants. These warrants are described under the captions "The 1997
Debentures and Warrants" and "The 1998 Debentures and Warrants" in this
Prospectus under "Selling Shareholder." Any proceeds the Company receives from
the exercise of these warrants will be used for working capital.
THE COMPANY
-----------
Medical Dynamics, Inc., a Colorado corporation incorporated in March 1971
(referred to herein as "MEDY" or the "Company"), is engaged in the design,
development, manufacture and marketing of medical and dental video cameras and
related disposable products for a variety of professional specialties. MEDY's
principal products are small, color, medical and dental video camera systems for
use in patient diagnosis and various surgical procedures. MEDY has been
manufacturing such cameras since August of 1981. In October 1997 MEDY acquired
100% of the outstanding capital stock of Computer Age Dentist, Inc. (CADI), a
California corporation based in Los Angeles, California. CADI is engaged in the
development and sale of Practice Management Software and related electronic
services to the dental profession. In February 1998 CADI acquired by merger
Information Presentation Systems, Inc. of Marietta, Georgia, a supplier of
customized multimedia systems for use in a variety of dental operatory
environments. In April 1998, CADI acquired by merger Command Dental Systems of
Farmington Hills, Michigan, which develops and markets turn-key computer systems
for the efficient management of dental practices. In reviewing MEDY's financial
statements which are incorporated herein by reference, it should be noted that a
substantial portion of the Company's revenues for fiscal 1998 derives from the
businesses acquired by MEDY during fiscal 1998 and not from MEDY's historical
businesses of medical and dental camera manufacturing.
MEDY's principal executive offices and manufacturing facilities are at 99
Inverness Drive East, Englewood, Colorado, 80112. Its telephone number at that
address is (303) 790-2990.
SELLING SHAREHOLDER
-------------------
The Tail Wind Fund, Ltd. ("Tail Wind" or the "Selling Shareholder") is not
an affiliate of MEDY, nor has the Selling Shareholder or any affiliate of the
Selling Shareholder had any position, office or other material relationship with
MEDY within the past three years, except as disclosed below. Tail Wind's
business address is Windermere House, P.O. Box SS-5539, Nassau, Bahamas.
Of the Shares offered hereby, _____________ have been issued upon the
conversion of certain of the 1997 Debentures but not yet sold by Tail Wind. The
Page 17 of 33
<PAGE>
balance are issuable upon the conversion of the outstanding 1998 Debentures (of
which $1,500,000 in face amount are outstanding), the payment of interest
related thereto and upon the exercise of the 1997 and 1998 Warrants. There are
no 1997 Debentures remaining to be converted as of November 5, 1998. The Selling
Shareholder does not own, directly or indirectly, any other shares of Common
Stock. Assuming that the Selling Shareholder sells all Shares offered hereby,
although there is no requirement that it do so, it will beneficially own no
shares of Common Stock at the conclusion of the Offering.
The exact number of shares to be offered and sold is not known at the date
of this Prospectus because the shares will be acquired upon conversion of
convertible securities at varying prices, most of which will be converted based
on the market price of the Common Stock on the date of conversion. Were the 1998
Debentures converted in full at the Market Price set forth on the cover page of
this Prospectus and the 1997 and 1998 Warrants exercised in full, the following
number of shares of Common Stock would be issued:
1997 Warrants 84,615 shares of Common Stock, exercisable
through October 31, 2000 at a price of $3.375 per
share
1998 Debentures 800,000 shares
1998 Warrants 150,000 shares of Common
Stock, exercisable through July 31,
2003 at a price of $2.58 per share,
The Selling Shareholder has agreed that it will at no time own more than 4.99%
of the Common Stock. This limitation prohibits the Selling Shareholder from
converting the convertible securities or exercising the 1997 or 1998 Warrants to
the extent that conversion or exercise would result in the Selling Shareholder
owning more than 4.99% of the issued and outstanding shares of Common Stock.
This limitation is referred to in this Prospectus as the "5% Limitation." As a
result of the 5% Limitation and pursuant to SEC Rule 13d-4, , the Selling
Shareholder disclaims beneficial ownership of all shares to the extent such
ownership would result in it exceeding the 5% Limitation. If all the Shares
being offered by the Selling Shareholder are sold, the Selling Shareholder will
own no shares of the Company's common stock following the completion of the
Offering.
The following is a description of the transaction in which the Selling
Shareholder acquired the convertible securities which, if converted or
exercised, will result in the issuance of the Shares offered for sale in this
Prospectus by the Selling Shareholder.
The 1997 Debentures and Warrants
On October 31, 1997, in a private placement offering under Regulation D,
the Selling Shareholder purchased debentures in an aggregate principal amount of
$1,100,000 (the "1997 Debentures"). All of the 1997 Debentures have been
converted as of the date hereof into a total of 520,349 shares of MEDY Common
Stock.
Page 18 of 33
<PAGE>
In connection with Tail Wind's purchase of the 1997 Debentures, the Company
issued to Tail Wind warrants to purchase up to 84,615 shares of Common Stock,
exercisable through October 31, 2000 at a price of $3.375 per share (the "1997
Warrants"). The 1997 Warrants contains standard anti-dilution provisions should
MEDY issue stock dividends or conduct a stock split or reorganization, or upon
occurrence of certain other events. Subject to the 5% Limitation, the 1997
Warrants are currently exercisable.
The 1998 Debentures and Warrants
On July 31, 1998, in a private placement offering under Regulation D, the
Selling Shareholder purchased debentures in an aggregate principal amount of
$1,100,000 and, on November ___, 1998, purchased an additional $400,000
principal amount (the "1998 Debentures"). The 1998 Debentures bear interest at
8% per annum, with interest payable semi-annually on January 5 and July 5 of
each year, commencing January 5, 1999. Principal and accrued but unpaid interest
is due in full on July 31, 2003. Events of default under the 1998 Debentures
which could result in acceleration of amounts due, among other things, include:
(i) failure to pay any amounts of principal or interest when due; (ii) failure
of the Common Stock to be listed on the Nasdaq SmallCap Market, the Nasdaq
National Market, the New York Stock Exchange, or the American Stock Exchange;
and/or (iii) events of bankruptcy and similar events.
The Company may, at its option, pay accrued interest on the 1998 Debentures
with shares of its Common Stock valued at Market Price. Based on the Market
Price set forth on the cover page of this Prospectus, assuming all accrued
interest on the 1998 Debentures is paid in shares of Common Stock and that the
1998 Debentures are held to maturity, the Company will pay Tail Wind
approximately 311,467 shares of Common Stock (the "1998 Interest Shares").
Tail Wind is entitled to convert the 1998 Debentures, in whole or in part,
into shares of Common Stock at the lesser of Market Price or the "Ceiling Price"
at any time from and after November 29, 1998 as to one-third of the1998
Debentures, on and after January 27, 1999 as to two-thirds of the 1998
Debentures, and on and after March 29, 1999 as to the full amount of the 1998
Debentures. For purposes of the 1998 Debentures, "Ceiling Price" means 105% of
the average closing bid price of the Common Stock for the 20 trading days
immediately preceding the effective date of this registration statement. If
conversion has not occurred by July 31, 2000, the Ceiling Price thereafter will
mean 105% of the Market Price on July 31, 2000 if the adjustment would result in
a lower price, except that the Ceiling Price will not be adjusted below $2.25
per share. Assuming that Tail Wind can and elects to convert the full amount of
the 1998 Debentures into shares of Common Stock, based on the Market Price set
forth on the cover page of this Prospectus, Tail Wind would receive 800,000
shares of Common Stock (the "1998 Conversion Shares").
In connection with Tail Wind's purchase of the 1998 Debentures in July and
November 1998, the Company issued to Tail Wind warrants to purchase up to a
total of 150,000 shares of Common Stock, exercisable through July 31, 2003 at a
price of $2.58 per share (the "1998 Warrants"). The 1998 Warrants contains
Page 19 of 33
<PAGE>
anti-dilution provisions should MEDY issue stock dividends or conduct a stock
split or reorganization, or upon occurrence of certain other events. Subject to
the 5% Limitation, the 1998 Warrants are currently exercisable.
If MEDY is unable to meet the effectiveness requirement for the shares
underlying the 1998 Debentures and Warrants, maintain effectiveness of this
registration statement, or maintain the listing of the Common Stock on the
Nasdaq SmallCap or the NMS Market (or senior stock exchange), MEDY will be
required to pay liquidated damages to the Selling Shareholder in an amount equal
to 2% of the aggregate principal amount of the 1998 Debentures for each month or
portion thereof following the required effectiveness date during which the
registration statement is not effective. In such event, MEDY shall bear all
reasonable fees or costs incurred by Tail Wind for legal counsel as a result of
the filing of any post-effective amendments to the Registration Statement. The
amounts payable as liquidated damages pursuant to this paragraph shall be
payable in cash (not Common Stock). The registration rights agreement contains
standard cross-indemnification provisions and requirements for contribution
should the indemnification provisions be found to be unavailable.
PLAN OF DISTRIBUTION
--------------------
The Selling Shareholder has advised MEDY that it may sell the Shares in one
or more transactions (which may involve one or more block transactions) on the
over-the-counter markets on Nasdaq and upon terms then prevailing or at prices
related to the then current market price, or in separately negotiated
transactions or in a combination of such transactions. The Shares offered hereby
may be sold by one or more of the following methods, without limitation: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; (d) privately negotiated transactions; and (e) face-to-face
transactions between sellers and purchasers without a broker-dealer. The Selling
Shareholder may also sell Shares in accordance with Rule 144 under the
Securities Act of 1933, as amended, if Rule 144 is then available. The Selling
Shareholder may be deemed to be an underwriter of the Shares offered hereby
within the meaning of the Securities Act of 1933, as amended.
In effecting sales, brokers or dealers engaged by the Selling Shareholder
may arrange for other brokers or dealers to participate. Such broker or dealers
may receive commissions or discounts from the Selling Shareholder in amounts to
be negotiated by the Selling Shareholder. The Selling Shareholder may enter into
hedging transactions with broker-dealers and the broker-dealers may engage in
short sales of the Common Stock in the course of hedging the positions they
assume with the Selling Shareholder (including, without limitation, in
connection with the distribution of the Common Stock by such broker-dealers).
The Selling Shareholder may also engage in short sales of the Common Stock and
may enter into option or other transactions with broker-dealers that involve the
delivery of the Common Stock to the broker-dealers, who may then resell or
otherwise transfter such Common Stock. Such broker-dealers and any other
Page 20 of 33
<PAGE>
participating broker-dealers may, in connection with such sales, be deemed to be
underwriters within the meaning of the Securities Act of 1933, as amended. Any
discounts or commissions received by any such broker-dealers may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed broke-dealers.
MEDY will pay all of the expenses incident to the filing of this
Registration Statement, estimated to be $25,000. These expenses include legal
and accounting fees in connection with the preparation of the Registration
Statement of which this Prospectus is a part, legal and other fees in connection
with the qualification of the sale of the Shares under the laws of certain
states (if any), registration and filing fees, printing expenses, and other
expenses. The Selling Shareholder will pay all other expenses incident to the
offering and sale of the Shares to the public, including commissions and
discounts of underwriters, brokers, dealers or agents, if any. MEDY has agreed
to use its best efforts to keep the registration of the Shares offered hereby
effective until the date upon which all of the Shares offered by the Selling
Shareholder have been sold.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock
Authorized. MEDY is authorized to issue 30,000,000 shares of $.01 par value
common stock (the "Common Stock"). No holder of any shares of Common Stock has
any preemptive right to subscribe to any of MEDY's securities. Upon dissolution,
liquidation or winding up of MEDY, the assets will be divided pro rata on a
share-for-share basis among holders of the shares of Common Stock and Preferred
Stock if any shares are outstanding. All shares of Common Stock outstanding are
fully paid and nonassessable and, when issued, the shares offered hereby will be
fully paid and nonassessable.
Issued and Outstanding. On August 31, 1998, MEDY had issued and outstanding
9,991,739 shares of Common Stock. This number does not include any of the
estimated 2,449,532 shares comprising the 1997 and 1998 Conversion Shares, the
1997 and 1998 Interest Shares and the 1997 and 1998 Warrant Shares which, if and
when issued, will be offered for sale pursuant to this Prospectus by the Selling
Shareholder. For information about these shares, see the description contained
under the caption "Selling Shareholder" above.
Dividends. Holders of Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor,
subject to the rights, if any, of holders of any outstanding shares of Preferred
Stock. MEDY has not declared or paid any dividends on its Common Stock and does
not anticipate the declaration or payment of dividends in the foreseeable
future.
No Cumulative Voting. Each holder of Common Stock is entitled to one vote
per share with respect to all matters that are required by law to be submitted
to stockholders.
Page 21 of 33
<PAGE>
The stockholders are not entitled to cumulative voting in the election of
directors. Accordingly, the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the directors if they choose to do
so; and, in such event, the holders of the remaining less than 50% of the shares
voting for the election of the directors will be unable to elect any person or
persons to the Board of Directors.
No Preemptive Rights. Holders of Common Stock are not entitled to
preemptive rights to purchase additional shares of Common Stock when offered for
sale by the Company.
Preferred Stock
MEDY is authorized to issue up to 5,000,000 shares of $.001 par value
Preferred Stock, in series to be designated by the Board of Directors (the
"Preferred Stock"). No shares of Preferred Stock have been issued and it is not
contemplated that any shares of Preferred Stock will be issued by MEDY in the
immediate future; however, the Board may use its ability to issue Preferred
Stock to effect the business purposes of MEDY.
Material provisions concerning the terms of any series of Preferred Stock
such as dividend rate, conversion features and voting rights, will be determined
by the Board of Directors of MEDY at the time of such issuance. The ability of
the Board to issue Preferred Stock also could be used by MEDY as a means of
resisting a change of control of MEDY and, therefore, could be considered an
"anti-takeover" device.
1997 and 1998 Debentures and Warrants
For a description of these securities, see "1997 Debentures and Warrants"
and "1998 Debentures and Warrants" under the caption "Selling Shareholder" in
this Prospectus.
Stock Options
Exclusive of the 1997 Warrants and the 1998 Warrants, on July 31, 1998,
MEDY had outstanding stock options to purchase 3,801,237 shares of Common Stock
exercisable at exercise prices ranging between $1.00 and $4.50 per share.
Certain of these options are only exercisable upon the Company achieving certain
performance goals.
Transfer and Warrant Agent
The transfer agent for MEDY's Common Stock and Warrant Agent for MEDY's
Common Stock is Continental Stock Transfer & Trust Co., 72 Reade Street, New
York, New York 10007.
LEGAL MATTERS
-------------
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<PAGE>
The firm of Norton * Lidstone, LLC, 5445 DTC Parkway, Suite 850, Englewood,
CO 80111, has acted as counsel for MEDY in connection with this offering and has
passed upon the validity of the securities offered hereby.
EXPERTS
-------
The financial statements of Medical Dynamics, Inc. for the years ended
September 30, 1997 and 1996 incorporated into the Registration Statement by
reference have been audited by Hein + Associates LLP, independent certified
public accountants, upon the authority of that firm as experts in accounting and
auditing.
Page 23 of 33
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPONAS HAVING BEEN AUTHORIZED
BY MEDY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
MEDICAL DYNAMICS, INC.
TABLE OF CONTENTS
- -----------------
AVAILABLE INFORMATION
DOCUMENTS INCORPORATED BY REFERENCE
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
THE COMPANY
SELLING SHAREHOLDER
PLAN OF DISTRIBUTION
DESCRIPTION OF SECURITIES
LEGAL MATTERS
EXPERTS
Page 24 of 33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
--------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee.
Registration and filing fee $1,181
Printing 1,000
Accounting fees and expenses 5,000
Legal fees and expenses 12,000
Blue sky filing fees and expenses 2,000
Transfer and Warrant Agent fees 500
Miscellaneous 3,319
--------
Total $ 25,000
========
Item 15. Indemnification of Directors and Officers.
------------------------------------------
Section 7-109-102 of the Colorado Revised Statutes and the Registrant's
Articles of Incorporation, under certain circumstances provide for the
indemnification of the Registrant's officers, directors and controlling persons
against liabilities which they may incur in such capacities. A summarization of
the circumstances in which such indemnification is provided for is contained
herein, but that description is qualified in its entirety by reference to the
Registrant's Articles of Incorporation and the relevant Section of the Colorado
Revised Statutes.
In general, the statute provides that any director may be indemnified
against liabilities (including the obligation to pay a judgment, settlement,
penalty, fine or expense), incurred in a proceeding (including any civil,
criminal or investigative proceeding) to which the director was a party by
reason of such status. Such indemnity may be provided if the director's actions
resulting in the liabilities: (i) were taken in good faith; (ii) were reasonably
believed to have been in the Registrant's best interest with respect to actions
taken in the director's official capacity; (iii) were reasonably believed not to
be opposed to the Registrant's best interest with respect to other actions; and
(iv) with respect to any criminal action, the director had no reasonable grounds
to believe the actions were unlawful. Unless the director is successful upon the
merits in such an action, indemnification may generally be awarded only after a
determination of independent members of the Board of Directors or a committee
thereof, by independent legal counsel or by vote of the shareholders that the
applicable standard of conduct was met by the director to be indemnified.
The statutory provisions further provide that unless limited by a
corporation's articles of incorporation, a director or officer who is wholly
successful, on the merits or otherwise, in defense of any proceeding to which he
as a party, is entitled to receive indemnification against reasonable expenses,
Page 25 of 33
<PAGE>
including attorneys' fees, incurred in connection with the proceeding. In
addition, a corporation may indemnify or advance expenses to an officer,
employee or agent who is not a director to a greater extent than permitted for
indemnification of directors, if consistent with law and if provided for by its
articles of incorporation, bylaws, resolution of its shareholders or directors
or in a contract. The provision of indemnification to persons other than
directors is subject to such limitations as may be imposed on general public
policy grounds.
In addition to the foregoing, unless hereafter limited by the Registrant's
articles of incorporation, a court, upon petition by an officer or director, may
order the Registrant to indemnify such officer or director against liabilities
arising in connection with any proceeding. A court may order the Registrant to
provide such indemnification, whether or not the applicable standard of conduct
described above was met by the officer or director. To order such
indemnification the court must determine that the petitioner is fairly and
reasonably entitled to such indemnification in light of the circumstances. With
respect to liabilities arising as a result of proceedings on behalf of the
Registrant, a court may only require that a petitioner be indemnified as to the
reasonable expenses incurred.
Indemnification in connection with a proceeding by or in the right of the
Registrant in which the director is successful is permitted only with respect to
reasonable expenses incurred in connection with the defense. In such actions,
the person to be indemnified must have acted in good faith, in a manner believed
to have been in the Registrant's best interest and must not have been adjudged
liable for negligence or misconduct. Indemnification is otherwise prohibited in
connection with a proceeding brought on behalf of the Registrant in which a
director is adjudged liable to the Registrant, or in connection with any
proceeding charging improper personal benefit to the director in which the
director is adjudged liable for receipt of an improper personal benefit.
Colorado law authorizes the Registrant to reimburse or pay reasonable
expenses incurred by a director, officer, employee or agent in connection with a
proceeding, in advance of a final disposition of the matter. Such advances of
expenses are permitted if the person furnishes to the Registrant a written
statement of his belief that he met the applicable standard of conduct required
to permit such indemnification. The person seeking such expense advances must
also provide the Registrant with a written agreement to repay such advances if
it is determined the applicable standard of conduct was not met. A determination
must also be made that the facts known to the Registrant would not preclude
indemnification.
The statutory section cited above further specifies that any provisions for
indemnification of or advances for expenses to directors which may be contained
in the Registrant's Articles of Incorporation, Bylaws, resolutions of its
shareholders or directors, or in a contract (except for insurance policies)
shall be valid only to the extent such provisions are consistent with the
Colorado statutes and any limitations upon indemnification set forth in the
Articles of Incorporation.
The statutory provision cited above also grants the power to the Registrant
to purchase and maintain insurance policies which protect any director, officer,
employee, fiduciary or agent against any liability asserted against or incurred
by them in such capacity arising out of his status as such. Such policies may
provide for indemnification whether or not the corporation would otherwise have
Page 26 of 33
<PAGE>
the power to provide for it. No such policies providing protection against
liabilities imposed under the securities laws have been obtained by the
Registrant. The registration rights agreements dated July 31, 1998, and October
31, 1997 between the Registrant and Tail Wind., provides for cross
indemnification by the Registrant and Tail Wind, in certain circumstances,
including for certain securities laws violations.
Item 16. Exhibits and Financial Statement Schedules.
-------------------------------------------
(a) Exhibits. The following is a complete list of exhibits filed as a part
of this Registration Statement, which Exhibits are incorporated herein.
Number Description
- ------ -----------
4.1* Form of Convertible Debenture, incorporated by reference to the
Registrant's Current Report on Form 8-K reporting an event of October
23, 1997 (Commission file no. 0-8632)
4.2* Common Stock Purchase Warrant issued to The Tail Wind Fund, Ltd.,
incorporated by reference to the Registrant's Current Report on Form
8-K reporting an event of October 23, 1997 (Commission file no.
0-8632)
4.3* Form of Convertible Debenture, incorporated by reference to the
Registrant's Current Report on Form 8-K reporting an event of July 31,
1998 (Commission file no. 0-8632)
4.4* Common Stock Purchase Warrant issued to The Tail Wind Fund, Ltd.,
incorporated by reference to the Registrant's Current Report on Form
8-K reporting an event of July 31, 1998 (Commission file no. 0-8632)
5.1+ Opinion and Consent of Norton * Lidstone, LLC.
10.1* Purchase Agreement between Medical Dynamics, Inc. and The Tail Wind
Fund, Ltd., incorporated by reference to the Registrant's Current
Report on Form 8-K reporting an event of October 23, 1997 (Commission
file no. 0- 8632)
10.2* Registration Rights Agreement between Medical Dynamics, Inc., and The
Tail Wind Fund, Ltd., incorporated by reference to the Registrant's
Current Report on form 8-K reporting an event of October 23, 1997
(Commission file no. 0-8632)
10.3* Purchase Agreement between Medical Dynamics, Inc. and The Tail Wind
Fund, Ltd., incorporated by reference to the Registrant's Current
Report on Form 8-K reporting an event of July 31, 1998 (Commission
file no. 0-8632)
10.4* Registration Rights Agreement between Medical Dynamics, Inc., and The
Tail Wind Fund, Ltd., incorporated by reference to the Registrant's
Current Report on form 8-K reporting an event of July 31, 1998
(Commission file no. 0-8632)
Page 27 of 33
<PAGE>
23.1+ Consent of Norton * Lidstone, LLC. (See Exhibit 5.1)
23.2+ Consent of Hein + Associates LLP.
* Previously filed.
+ Included herewith.
Item 17. Undertakings.
- ----------------------
The undersigned Registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
the Registration Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement, including (but not limited to) any addition or deletion of a managing
underwriter; (2) that for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered, to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Registrant's Articles of Incorporation, or otherwise,
Page 28 of 33
<PAGE>
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Page 29 of 33
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Englewood, Arapahoe County, State of Colorado, on November 6,
1998.
MEDICAL DYNAMICS, INC.
By: /s/ Van A. Horsley
---------------------------------
Van A. Horsley, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Edwin L. Adair Director November 6, 1998
- ------------------------
Edwin L. Adair, M.D.
/s/ Pat Horsley Adair Director November 6, 1998
- ------------------------
Pat Horsley Adair
/s/ I. Dean Bayne Director November 6, 1998
- ------------------------
I. Dean Bayne, M.D.
/s/ Van A. Horsley Director, November 6, 1998
- ------------------------ Principal Financial Officer,
Van A. Horsley Principal Accounting Officer
and Chief Executive Officer
/s/ Leroy Bilanich Director November 6, 1998
- ------------------------
Leroy Bilanich
/s/ Daniel L. Richmond Director November 6, 1998
- ------------------------
Daniel L. Richmond
/s/ Chae U. Kim Director November 6, 1998
- ------------------------
Chae U. Kim
Page 30 of 33
</TABLE>
NORTON * LIDSTONE, LLC
5445 DTC Parkway, Suite 850
Michael J. Norton Englewood, Colorado 80111
Herrick K. Lidstone, Jr. telephone: 303-221-5552
facsimile: 303-221-5553
November 5, 1998
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, Colorado 80112
Re: Medical Dynamics, Inc.
Registration Statement on Form S-3
Registration No. 333-63901
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement (the
"Registration Statement") filed by Medical Dynamics, Inc., a Colorado
corporation (the "Company"), with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder as amended through the date hereof, we have been
requested to render our opinion as to the legality of:
i) Up to 800,000 Shares of the Company's common stock (the "Common Stock")
which are issuable as a result of the conversion of convertible debentures
in the aggregate principal amount of $1,500,000 (the "Debentures") on the
terms and conditions stated in the Debentures (the "Conversion Shares");
ii) Up to 311,467 Shares of Common Stock which are issuable in payment of
interest on the Debentures to be calculated as provided therein (the
"Interest Shares"); and
iii) Up to 150,000 shares issuable on exercise of a warrant to purchase
Common Stock as provided therein (the "Warrant Shares").
The Conversion Shares, the Interest Shares and the Warrant Shares are
hereinafter collectively referred to as the "Securities".
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement (including all amendments thereto); (ii) the Articles of Incorporation
and the By-laws of the Company, each as amended to date; and (iii) records of
certain of the Company's proceedings relating to, among other things, the
issuance and sale of the Securities. In addition, we have made such other
examinations of law and facts as we considered necessary in order to form a
basis for the opinions hereunder expressed.
Page 31 of 33
<PAGE>
NORTON * LIDSTONE, LLC
Medical Dynamics, Inc.
November 5, 1998
Page 2
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the enforceability
of the documents against each party thereto other than the Company, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified,
photostatic, reproduced or conformed copies of validly existing agreements or
other documents, the authenticity of all such latter documents and the legal
capacity of all individuals who have executed any of the documents we have
reviewed.
In expressing the opinions set forth herein, we have relied upon
representations as to factual matters contained in certificates of officers of
the Company.
Based upon the foregoing, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that the Conversion
Shares, the Interest Shares, and the Warrant Shares have been duly authorized
and when the Conversion Shares and the Interest Shares are issued and delivered
in accordance with the terms of the Debenture, and the Warrant Shares are issued
and delivered in accordance with the terms of the Warrant, the Securities will
be legally issued, fully paid and nonassessable.
The foregoing opinions are limited to the laws of the State of Colorado.
Our opinion is rendered only with respect to the laws, and the rules,
regulations and orders thereunder, which are currently in effect.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
Norton * Lidstone, LLC
Page 32 of 33
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration statement
on Form S-3 of Medical Dynamics, Inc. of our report dated November 20, 1997, on
our audits of the consolidated financial statements of Medical Dynamics, Inc. as
of September 30, 1997, and for each of the two years in the period ended
September 30, 1997, which report is included in the Company's Annual Report on
Form 10-KSB.
HEIN + ASSOCIATES LLP
Denver, Colorado
November 3, 1998
Page 33 of 33
