As filed with the Securities and Exchange Commission on January 22, 1998
File No. 333-42631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
MEDICAL DYNAMICS, INC.
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(Exact name of Registrant as specified in charter)
Colorado 84-0631765
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.
Van A. Horsley, President
99 Inverness Drive East 99 Inverness Drive East
Englewood, Colorado 80112 Englewood, Colorado 80112
(303) 790-2990 (303) 790-2990
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(Address, including zip code (Name, address, including
and telephone number, including zip code and telephone
area code, of registrant's number, including area
principal executive offices) code, of agent for service)
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It is requested that copies of all correspondence be sent to:
Herrick K. Lidstone, Jr., Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place
Denver, Colorado 80202
Telephone Number (303) 571-1400
Facsimile Number (303) 595-3159
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
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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: X
-----
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. [ ]
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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. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of each Amount Maximum Maximum Amount of
class of to be to be offering aggregate registration
registered registered per unit offering price fee *
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Common Stock 812,288* 2.45* $1,990,104 $587
shares
Common Stock 213,948# 2.45# $524,172 155
shares
Common Stock 84,615 $3.375+ $285,576 84
shares
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$1,675,304 $826^
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^ $317 included herewith; $509 previously paid.
* The amount to be registered includes 812,288 shares (150% of the estimated
number of shares to be issued upon conversion of convertible debentures
were such conversion to take place based on the "Market Price" (as defined
in such debentures) at January 6, 1998.) The maximum offering price is
based on the price quoted on Nasdaq-SmallCap market on January 13, 1998
pursuant to Rule 457(c).
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# The amount to be registered includes 213,948 shares (150% of the estimated
number of shares to be issued in payment of $289,728 interest which might
accrue through the term of the convertible debentures were such conversion
to take place based on the "Market Price" (as defined in such debentures)
at January 6, 1998. The maximum offering price is based on the price quoted
on Nasdaq-SmallCap market on January 13, 1998 pursuant to Rule 457(c).
+ Registration fee is based on the maximum exercise price of the warrants
pursuant to Rules 457(a) and (g).
Pursuant to Rule 416 of the Securities Act of 1933, there are also being
registered hereunder such additional shares as may be issued to the Selling
Stockholder because of future dividends, stock distributions, stock splits or
similar capital adjustments.
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.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion, Dated January 22, 1998
PROSPECTUS
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MEDICAL DYNAMICS, INC.
Medical Dynamics, Inc. ("MEDY") is hereby registering for resale by The
Tail Wind Fund, Ltd. (the "Selling Shareholder"):
shares of MEDY's Common Stock (the "Common Stock") which are issuable to
the Selling Shareholder as a result of the conversion of convertible
debentures in the aggregate principal amount of $1,100,000 (the
"Debentures") based on a conversion price equal to the lesser of $3.45 per
share or 100% of the Market Price (as defined) on the business day
immediately preceding the conversion date (the "Conversion Shares");
shares of the Common Stock which are issuable to the Selling Shareholder as
interest on the Debenture 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 ( the "Tail Wind Warrant") to purchase Common Stock at an exercise
price equal to $3.375 per share (the "Warrant Shares").
"Market Price" is defined to mean the average of the two lowest closing bid
prices of the Common Stock as reported by The Nasdaq Stock Market over the 60
trading day period immediately preceding the determination date. As of January
6, 1998, Market Price would be $2.0313 per share, which would result in the
issuance of 541,525 shares of Common Stock were conversion of the Debentures to
occur as of such date and 7,220 Interest Shares for interest accrued through
December 31,1997.
The Conversion Shares, the Interest Shares, and the Warrant Shares (collectively
the "Shares") are being offered for the account of The Tail Wind Fund, Ltd., as
Selling Shareholder. The Selling Shareholder acquired the Shares in a private
placement conducted by MEDY. See "Selling Shareholder." Additional shares that
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may become issuable as a result of the anti-dilution provisions of the Tail Wind
Warrants are offered hereby pursuant to Rule 416 under the Securities Act of
1933, as amended (the "Securities Act"). MEDY will not receive any of the
proceeds from the sale of the Conversion Shares, Interest Shares, or Warrant
Shares being offered hereby (the "Offering"), but will receive the exercise
price payable upon the exercise of the Tail Wind Warrant. There can be no
assurance that all or any part of the Tail Wind Warrant will be exercised or
that it will be exercised for cash.
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 may also be made through negotiated transactions
or otherwise. The Selling Shareholder and the brokers and dealers through which
the sales of the Shares may be made may be deemed to be "underwriters" within
the meaning set forth in the Securities Act, and their commissions and discounts
and other compensation may be regarded as underwriters' compensation. See "Plan
of Distribution."
MEDY will pay all of the expenses incident to the filing of this
Registration Statement, estimated to be $20,000. Such 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,
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.
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").
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.
The Common Stock is traded in the over-the-counter market and is quoted on
the Nasdaq SmallCap Market under the symbol "MEDY." On January 6, 1998, the
closing bid and asked prices of the Common Stock, as reported by Nasdaq, were
$2.44 and $2.50 per share, respectively.
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
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 _____________, 1998
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AVAILABLE INFORMATION
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MEDY is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange 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 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.
MEDY 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) MEDY's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997.
(2) MEDY's Current Report on Form 8-K reporting an event of December 31,
1997.
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(3) MEDY's Current Report on Form 8-K, as amended, reporting an event of
October 23, 1997.
(4) MEDY's Current Report on Form 8-K reporting an event of January 5,
1998.
(5) All other 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 of the Shares.
Each of the foregoing documents 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.
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, as well as 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 a new business MEDY recently acquired,
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
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other countries, and other forward-looking statements included in the documents
incorporated herein by reference. These forward-looking statements are subject
to 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, under "Item 1 - Business" and "Item 6 - Management's
Discussion and Analysis" in MEDY's 1997 annual report on Form 10-KSB.
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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 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. 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.
During the fiscal year ended September 30, 1997, MEDY was not involved in
any bankruptcy, receivership or similar proceeding nor did it engage in any
material reclassification, or consolidation. During that period, MEDY did not
dispose of any material amounts of its assets other than in the ordinary course
of its business.
During the 1995 fiscal year MEDY entered into a distribution agreement with
Micro- Medical Devices, Inc. (MMD), of Castle Rock, Colorado. MMD is a
corporation formed by and wholly-owned by MEDY's Chairman. MMD manufactures and
sells minimal quantities of various medical products to MEDY. See Item 12 of
MEDY's Form 10-KSB for the year ended September 30, 1997 - "Certain
Relationships and Related Transactions, Distribution Agreement."
As discussed in Note 2 to the financial statements, the Company has
suffered recurring losses and negative cash flows from operations. Subsequent to
fiscal year end, MEDY sold the convertible debentures in the aggregate principal
amount of $1,100,000 to The Tail Wind Fund, Ltd., an unaffiliated entity,
pursuant to an exemption from registration under Regulation D. Despite the
recurring operating losses, with the proceeds from the Debenture offering,
management believes the Company has adequate capital resources to carry out
planned activities in fiscal 1998. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of MEDY's Form 10-KSB
for the year ended September 30, 1997.
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The Offering
The Securities ........................ shares issuable upon conversion of
convertible debentures (the "Tail Wind
Debentures") issued to The Tail Wind
Fund, Ltd., on October 31, 1997, bearing
interest at 8% per annum, payable
semi-annually. The Tail Wind Debentures
are convertible into Common Stock at the
lesser of $3.45 per share or 100% of the
Market Price (as defined) on the
business day immediately preceding the
conversion date (the "Conversion
Shares"). See note (1), below.
................................ shares of the Common Stock which are
issuable to the Selling Shareholder as
interest on the Tail Wind Debenture 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 (the "Tail Wind Warrant") to
purchase Common Stock at an exercise
price equal to $3.375 per share "Warrant
Shares").
(See "Description of Securities.")
Shares of Common Stock outstanding:
At December 31, 1997........... 9,255,736 shares
After exercise of the
Options and conversion of
debenture(1)(2)(3)........... 9,881,876 shares
Estimated net proceeds
to MEDY (1)(2)(3)............ $ 285,576
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(1) If the Tail Wind Debentures are converted in their entirety at a conversion
price of $2.0313 per share ("Market Price" as of January 6, 1998), 541,525
shares of Common Stock would be issued. In addition, 7,220 shares in
payment of accrued interest through December 31, 1997, would be payable
based on the January 6, 1998 Market Price. This assumes the issuance of no
additional Interest Shares. There can be no assurance that any of the Tail
Wind Debentures will be converted or that the price will not decrease below
the conversion price if the Tail Wind Debentures were converted at this
time. MEDY will receive no proceeds from the conversion of the Tail Wind
Debenture, if converted.
(2) Assumes the exercise of all of the Tail Wind Warrants at $3.375 per share.
There can be no assurance that any of the Tail Wind Warrants will be
exercised or that the market price of MEDY's Common Stock will not decrease
below the exercise price if the Tail Wind Warrants were exercised at this
time.
(3) Before deduction of the expenses of this offering, which are estimated at
$20,000.
Securities Being Offered
Securities are being offered hereby by the Selling Shareholder and include
the Conversion Shares, the Interest Shares, and the Warrant Shares as defined
above. MEDY will receive proceeds from the exercise of the Tail Wind Warrant (if
exercised), but will receive no proceeds from the sale of the Shares being
offered hereby.
Risk Factors
This offering involves substantial risks, and prospective investors should
understand that they may lose all or part of their investment. Specific risk
factors include, but are not limited to, continuing losses and negative cash
flows from operations, product liability, substantial industry competition,
reliance on significant customers, dependence on management, governmental
regulation by the Food and Drug Administration, and the recent acquisition of a
new business and the risks of integrating it into MEDY. (See "Risk Factors.")
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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, that
when accumulated total, $17,271,500 through September 30, 1997. 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, which report is
incorporated herein by this reference.)
2. Product Liability. MEDY could be subjected to claims for personal
injuries resulting from the use of its products. In the event any claims for
substantial amounts were successful, they could substantially adversely affect
MEDY's viability. Although MEDY does have product liability insurance, there can
be no assurance that the amount of coverage would be sufficient to cover any
potential claims. In the event coverage proves insufficient, MEDY's viability
would be materially adversely affected. (See "Item 1 - Business" in MEDY's
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1997, which
report is incorporated herein by this reference.)
3. Acquisition of New Business. As described elsewhere herein, MEDY
recently acquired 100% ownership of Computer Age Dentist, Inc., a California
corporation ("CADI"). MEDY has never previously been engaged in CADI's business,
and must integrate CADI's accounting, financial management, personnel, and
business functions into its own. There can be no assurance that MEDY will be
able to do so successfully, or that it will be able to do so at a reasonable
cost. (See "Recent Events" herein and "Item 1 - Business" in MEDY's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1997, which report
is incorporated herein by this reference.) In addition, MEDY recently entered
into a letter of intent to acquire Information Presentation Systems, Inc. of
Marietta, Georgia ("IPS"). (See Form 8-K reporting an event of January 5, 1998
and "Recent Events" herein. If the acquisition is completed (of which there can
be no assurance), MEDY will attempt to integrate IPS' operations with those of
CADI. There can be no assurance that MEDY will be able to do so or do so at a
reasonable cost. If MEDY is unable to integrate CADI's operations or IPS'
operations successfully, MEDY's operations may continue to generate losses and
negative cash flows.
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4. Need for Additional Financing. 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 impossible 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
will seek financing through (1) sale of additional equity securities, which
would dilute the ownership interest of prior shareholders, including investors
in this Offering or (2) debt financing, which would result in interest expense
and risks of loss of assets of MEDY in the event of default, and which may
involve convertible debt instruments which also would cause dilution.
5. Technological Change and Risk of Technological Obsolescence. The medical
and dental camera industry (MEDY's and IPS' principal line of business) and the
dental practice management industry (CADI's principal line of business) are both
subject to rapid and significant technological change. There can be no assurance
that MEDY's competitors will not succeed in developing technologies and products
relating to these industries prior to MEDY or that they will not develop
technologies, software, and products that are better than any which have been or
are being developed by MEDY. In addition, the medical products market is
characterized by changing technology and developing industry standards sometimes
resulting in product obsolescence or short product life cycles. Accordingly, the
ability of MEDY to compete will be dependent on its introducing products to the
marketplace in a timely manner and enhancing and improving such products. 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, which report is incorporated herein by reference.)
6. Competition. 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.
(See "Item 1 - Business" in MEDY's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997, which report is incorporated herein by
reference.)
7. 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 MEDY. (See "Item 1 - Business" and
"Item 13 - Certain Relationships and Related Transactions" in MEDY's Annual
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Report on Form 10-KSB for the fiscal year ended September 30, 1997, which report
is incorporated herein by reference.)
8. Dependence on Principal Customers. MEDY is largely dependent on a
limited number of principal customers, one of which contributed more than 60% of
the gross revenues of MEDY for fiscal year 1997. The loss of this customer would
have a material adverse effect on MEDY. (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, which report is incorporated herein by reference.)
9. 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. If the services of either person are lost for any reason,
MEDY's business operations would be severely disrupted. 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 of these persons, although it does carry key man life
insurance coverage of $100,000 on Dr. Adair.
The success of CADI is dependent upon the active participation of Daniel
Richmond, its Chief Executive Officer, and Chae Uk Kim, its President. If the
services of either person are lost for any reason, CADI's business operations
would be severely disrupted. In the event of such a loss, MEDY can give no
assurance that CADI could replace either person without incurring substantial
additional expense. Both Messrs. Richmond and Kim are subject to five year
employment agreements.
10. Government Regulation. Because the products that MEDY manufactures are
used in surgery and other medical applications, the products are subject to
close scrutiny by agencies of the federal government, including the FDA. 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. (See "Item 1 -
Business" in MEDY's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997, which report is incorporated herein by reference.)
11. 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
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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, which report is
incorporated herein by reference.)
12. Limited Public Market. 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. Further, most
lending institutions will not permit the use of low-priced or thinly traded
securities as collateral for loans.
13. Effect of Outstanding Options, Warrants, and Convertible Debentures. As
of December 31, 1997, MEDY had outstanding options and warrants to purchase
2,927,652 shares of Common Stock with an average exercise price of $2.98 per
share and convertible debentures to acquire approximately 541,525 shares (based
on an assumed conversion price as of January 6, 1998 of $2.0313). Of the total
number of shares of Common Stock underlying the outstanding options and
warrants, 1,593,837 shares have been registered for sale in connection with the
Company's employee benefit plans. The Company has also registered the Conversion
Shares and Interest Shares. Approximately 67% of the outstanding options are
owned by executive officers and directors of MEDY. To the extent that the
outstanding options, warrants, and debentures are exercised or converted, as the
case may be, the holders thereof are given an opportunity to profit from a rise
in the market price of the Common Stock with a resulting dilution in the
interest of the other stockholders. Further, the terms on which MEDY may obtain
additional financing during that period may be adversely affected since the
holders of such options, warrants, and debentures may exercise or convert them
at a time when MEDY would likely be able to obtain additional capital through a
new offering of securities on terms more favorable than those provided thereby.
14. 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.
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<PAGE>
RECENT EVENTS
-------------
Acquisition of CADI
- -------------------
In October 1997, MEDY acquired all of the outstanding capital stock of
Computer Age Dentist, Inc. ("CADI"), a California corporation, based in Los
Angeles, California. CADI 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 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 at $3.25 per
share. 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.
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<PAGE>
Letter of Intent to Acquire IPS
- -------------------------------
On January 5, 1998, Medical Dynamics, Inc. ("MEDY") entered into a letter
of intent to acquire Information Presentations Systems, Inc. ("IPS") of
Marietta, Georgia. In its eight year history, IPS has become one of the nation's
largest suppliers of customized multimedia systems for use in a variety of
dental operatory environments. IPS has been involved in the development and
marketing of several dental technology products, including intra-oral video
cameras, video and computer image storage systems, patient management systems,
and digital radiography and micro-abrasion instruments.
The letter of intent is non-binding, and is subject to the completion by
both MEDY and IPS of their due diligence investigations and compliance with
appropriate legal requirements, and is further subject to the approval of the
Board of Directors of MEDY. Thus, there can be no assurance that the acquisition
will be completed. The parties have begun the negotiation of the definitive
documents and terms. If completed, the acquisition will involve payment of
shares of MEDY's restricted common stock and cash to the IPS shareholders. The
parties have agreed to attempt to complete the acquisition by February 15, 1998.
If the acquisition is completed, MEDY intends to consolidate IPS's operations
with Computer Age Dentist, Inc. ("CADI"), MEDY's wholly-owned subsidiary
acquired in October 1997. As a result, CADI will handle the sale, installation,
training and follow-up support for the expanded line of dental products.
IPS's principals include R. Scott McLaughlin and Don C. Jackson. If the
acquisition is completed, Mr. McLaughlin will become Vice President/National
Sales Manager for CADI, and Mr. Jackson will become CADI's Vice
President/Harware Product Development and Technical Services. Mr. McLaughlin (51
years old) has been one of the two principals of IPS since its inception in
1990. Before that, Mr. McLaughlin was with Unisys Corporation and its
predecessor company, the Oakleaf Corporation, for 11 years in sales management,
and (previously) General Motors Corporation for 11 years in financial analysis.
Mr. McLaughlin attended the University of South Florida in 1966 through 1967.
Mr. Jackson (49 years old) has been the other principal of IPS since its
inception. Mr. Jackson was Southeast Vice president of the Auto Division of
Unisys and its predecessor, Oakleaf, for approximately 12 years before 1990.
While at Oakleaf before its purchase by Unisys, Mr. Jackson was the Executive
Vice President at a time when that corporation grew from six to approximately
400 employees. Mr. Jackson obtained a Bachelor of Science degree in Electrical
Engineering from Wayne State University in 1972.
IPS employs five people, including Messrs. McLaughlin and Jackson. IPS also
retains ten contract sales representatives and five contract installation
technicians. IPS has a base of more than 1,000 customer installations throughout
the United States. During the year ended December 31, 1997, IPS is estimated to
have achieved unaudited gross revenues of more than $3,000,000. If the
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<PAGE>
acquisition is completed, MEDY intends to leave the IPS operations in Marietta,
Georgia, although IPS will be administered out of CADI's offices in Los Angeles,
California.
As noted, the acquisition of IPS is dependent upon a number of factors, and
there can be no assurance that it will be completed.
Private Placement Financing
- ---------------------------
On October 31, 1997, MEDY sold the Tail Wind Debentures in the amount of
$1,100,000 to The Tail Wind Fund, Ltd. pursuant to Regulation D, as described
below in "Description of Securities". Rochon Capital Ltd., San Rafael,
California, acted as placement agent for the transaction. A cash 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. The transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and Rule 506 thereunder.
Renegotiation of License Agreement
- ----------------------------------
MEDY entered into an exclusive revocable license agreement with Dr. Edwin
Adair effective June 3, 1987, as amended, relating to use of certain technology
invented and developed by Dr. Adair relating to certain malleable endoscopes,
flexible optical catheters, the Adair/Veress(TM) needle and complementary
viewing systems for use in connection with detection, diagnosis and treatment of
disease or injury in humans and animals. Before an amendment negotiated in
September 1997, MEDY was obligated to pay Dr. Adair a minimum annual royalty of
$120,000. Additionally, Dr. Adair was obligated to give MEDY a right of first
refusal for his inventions. Actual royalties never exceeded the minimum annual
royalty. As a result of negotiations between the disinterested directors and Dr.
Adair, the parties agreed to amend the license agreement to waive the minimum
annual royalty due September 30, 1997 for the year then ended, and any future
minimum annual royalty, and to waive Dr. Adair's obligation to provide MEDY with
a right of first refusal on future technology.
USE OF PROCEEDS
---------------
All proceeds from the sale of the Shares will be for the benefit of the
Selling Shareholder; only proceeds from the exercise of the Tail Wind Warrant
(if exercised, of which there can be no assurance) will be paid to MEDY. Any
proceeds from the exercise of the Tail Wind Warrant will be used by MEDY for
working capital.
SELLING SHAREHOLDER
-------------------
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. The
following table sets forth information with respect to the Selling Shareholder,
based upon information provided to MEDY by the Selling Shareholder:
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<PAGE>
Shares Shares Shares After %Age After
NAME Owned Offered Offering Offering(1)
- ---- ----- ------- ------------ -----------
The Tail Wind Fund, Ltd. 640,580(3) 640,580 -0- 0%
Windermere House
P.O. Box SS-5539
Nassau, Bahamas
(1) Assumes that all Shares offered hereby are sold by the Seling Shareholder.
The Selling Shareholder may, but is not required to, sell all Shares
offered hereby. The Selling Shareholder has advised MEDY that neither it
nor its affiliates own MEDY common stock other than that being offered
hereby.
(2) At the present time, the Selling Shareholder owns no Shares, but has the
right to acquire the Conversion Shares (541,525 shares if determined as of
January 6, 1998), 7,220 Interest Shares (calculated for interest accrued
through December 31, 1997), an estimated additional 10,830 shares for
interest which will accrue through March 31, 1998, and the 84,615 Warrant
Shares at prices to be established in accordance with the terms of the Tail
Wind Debentures and the Tail Wind Warrant. The conversion price of the Tail
Wind Debentures is dependent on the Market Price of the Common Stock at the
time of conversion. Interest may be paid in cash or in Interest Shares, in
the discretion of MEDY. If issued, the Interest Shares would be valued at
Market Price for the purposes of issuance. If interest accrued through the
entire term of the Tail Wind Debentures and were paid in Common Stock based
on Market Price at January 6, 1998, an additional 142,632 shares would be
issued to Tail Wind. See "Description of Securities."
Based on the current Market Price, the Tail Wind Debenture would be
converted at, $2.0313 per share. The Tail Wind Warrant will be exercised,
if at all, at $3.375 per share.
(3) Includes 541,525 shares issuable were the Tail Wind Debenture converted as
described in Note (2), above, 14,440 shares issuable in payment of interest
through March 31, 1998 and 84,615 shares issuable upon exercise of the Tail
Wind Warrant.
The Tail Wind Debenture and the Tail Wind Warrant were issued to the
Selling Shareholder in a private placement transaction pursuant to Regulation D
in October 1997 as described above in "Recent Events - Private Placement
Financing."
MEDY entered into an agreement with the Selling Shareholder to file with
the Securities and Exchange Commission, under the 1933 Act, a registration
statement on Form S-3 of which this prospectus forms a part, with respect to the
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<PAGE>
resale of the Shares. MEDY agreed to prepare and file such amendments and
supplements to the registration statement from time-to-time as may be necessary
to keep the registration statement effective until the Shares are sold.
PLAN OF DISTRIBUTION
--------------------
Sale of Shares by Selling Shareholders
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.
MEDY has agreed to keep the registration of the Shares offered hereby
effective until the date upon which all of the Shares offered hereby have been
sold.
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. Such brokers and dealers and any other
participating brokers or dealers may, in connection with such sales, be deemed
to be underwriters within the meaning of the Securities Act. Any discounts or
commissions received by any such brokers or dealers may be deemed to be
underwriting discounts and commissions under the Securities Act.
MEDY is bearing all of the costs relating to registration of the Shares,
except commissions, discounts or other fees payable to a broker, dealer,
underwriter, agent or market maker in connection with the sale of any of the
Shares.
MEDY is unable to predict the effect which sales of the Shares by the
Selling Shareholder might have upon the market price of MEDY's Common Stock or
MEDY's ability to raise further capital.
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<PAGE>
In connection with this offering MEDY and the Selling Shareholder have
agreed to indemnify each other against certain civil liabilities, including
liabilities under the Securities Act.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock
Authorized. MEDY is authorized to issue 15,000,000 shares of $.001 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 or
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 December 31, 1997, MEDY had issued and
outstanding 9,255,736 shares of Common Stock. This does not include the
Conversion Shares or the Warrant Shares which have not been issued, or any
Interest Shares which have not yet been issued. See "Recent Events."
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. 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.
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.
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<PAGE>
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.
Stock Options
On December 31, 1997, MEDY had outstanding stock options to purchase
2,843,037 shares of Common Stock exercisable at exercise prices ranging between
$1.00 and $4.50 per share in addition to the Tail Wind Warrants included herein.
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.
The Tail Wind Debenture and the Tail Wind Warrants
MEDY issued the Tail Wind Debenture and the Tail Wind Warrants to the
Selling Shareholder in a private placement pursuant to Regulation D on October
31, 1997. The Selling Shareholder is not offering interests in the Tail Wind
Debenture or the Tail Wind Warrants pursuant to this Prospectus; only the
underlying shares (the Conversion Shares, the Interest Shares, and the Warrant
Shares, or, collectively, the "Shares") are being offered hereby.
The Tail Wind Debentures were issued in an aggregate principal amount of
$1,100,000. They bear interest at 8% per annum, with interest payable
semi-annually on April 5 and October 5 of each year, commencing April 5, 1998.
Principal and accrued but unpaid interest is due in full on October 31, 2000.
MEDY is entitled, at its option, to pay accrued interest with shares of its
Common Stock valued at "Market Price" (as defined below). The holder is entitled
to convert the Tail Wind Debenture, in whole or in part, into shares of Common
Stock at the lesser of $3.45 per share or Market Price (as defined below). The
Tail Wind Debenture may be converted at any time from and after January 29, 1998
as to one-third of the Tail Wind Debenture, on and after February 28, 1998 as to
two-thirds of the Tail Wind Debenture, and on and after March 30, 1998 as to the
entire Tail Wind Debenture. Market Price is defined to be the average of the two
lowest closing bid prices of the Common Stock as reported by the Nasdaq Stock
Market over the 60 trading day period ending on the date in question. Events of
default under the Tail Wind Debenture (resulting 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 (iii) events of bankruptcy and similar events.
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<PAGE>
The Tail Wind Warrant permits the holder to purchase up to 84,615 shares of
Common Stock through October 31, 2000 at a price of $3.375 per share. The Tail
Wind Warrant contains standard anti-dilution provisions should MEDY issue stock
dividends or conduct a stock split or reorganization, or upon occurrence of
certain other events.
In connection with the issuance of the Tail Wind Debenture and the Tail
Wind Warrant, MEDY entered into a registration rights agreement with The Tail
Wind Fund, Ltd. which provides that MEDY file a registration statement relating
to the Conversion Shares, the Interest Shares, and the Warrant Shares not later
than 30 days after October 31, 1997 and obtain effectiveness of such
registration statement within 90 days (110 days if the registration statement is
subject to review by the Commission). MEDY agreed to pay all expenses associated
with the registration, excluding discounts, commissions, fees of underwriters,
selling brokers, dealer managers or similar securities industry professionals
relating to the distribution of the Shares.
If MEDY is unable to meet the effectiveness requirement, maintain
effectiveness, 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 Tail Wind 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 the Selling Shareholder 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.
LEGAL MATTERS
-------------
The firm of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC, 1400
Glenarm Place, Denver, Colorado 80202, 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.
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<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
UPON AS 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............. 3
DOCUMENTS INCORPORATED BY
REFERENCE....................... 3
PROSPECTUS SUMMARY................ 6
RISK FACTORS...................... 9
RECENT EVENTS..................... 13 Shares of Common Stock
USE OF PROCEEDS................... 15
SELLING SHAREHOLDERS.............. 15
PLAN OF DISTRIBUTION.............. 17
DESCRIPTION OF SECURITIES......... 18 PROSPECTUS
LEGAL MATTERS..................... 20
EXPERTS........................... 20 January ___, 1998
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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 $ 494
Printing 1,000
Accounting fees and expenses 4,000
Legal fees and expenses 10,000
Blue sky filing fees and expenses 2,000
Transfer and Warrant Agent fees 500
Miscellaneous 2,006
-------
Total $ 20,000
=========
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
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<PAGE>
was a party, is entitled to receive indemnification against reasonable expenses,
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.
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<PAGE>
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
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 agreement dated October 31, 1997, between
the Registrant and The Tail Wind Fund, Inc., provides for cross indemnification
by the Registrant and The Tail Wind Fund, Ltd., 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)
5.1 Opinion and Consent of Friedlob Sanderson Raskin Paulson &
Tourtillott, 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)
23.1 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott,
LLC. (See Exhibit 5.1)
II-3
<PAGE>
23.2 Consent of Hein + Associates LLP.
- ----------
* Previously filed.
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
II-4
<PAGE>
Registrant pursuant to the Registrant's Articles of Incorporation, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and County of Denver, State of Colorado, on January 21,
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.
Signatures Title Date
- ---------- ----- ----
/s/ Edwin L. Adair Director January 21, 1998
- -------------------------
Edwin L. Adair, M.D.
/s/ Pat Horsley Adair Director January 21, 1998
- -------------------------
Pat Horsley Adair
/s/ I. Dean Bayne Director January 21, 1998
- -------------------------
I. Dean Bayne, M.D.
/s/ Van A. Horsley Director, January 21, 1998
- ------------------------- Principal Financial
Van A. Horsley Officer, Principal
Accounting
Officer and Chief
Executive Officer
II-5
<PAGE>
/s/ Leroy Bilanich Director January 21, 1998
- ----------------------
Leroy Bilanich
/s/ Daniel L. Richmond Director January 21, 1998
- ----------------------
Daniel L. Richmond
/s/ Chae U. Kim Director January 21, 1998
- ----------------------
Chae U. Kim
II-6
Friedlob Sanderson Raskin
Paulson & Tourtillott, LLC
--------------------------
1400 Glenarm Place Denver, Colorado 80202-5099
(303) 571-1400 FAX (303) 595-3159 FAX (303) 595-3970
E-mail: [email protected]
January 21, 1998
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, Colorado 80112
Re: Medical Dynamics, Inc.
Registration Statement on Form S-3
Registration No. 333-42631
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) 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 $1,100,000 (the "Debentures") on the terms
and conditions stated in the Debentures (the "Conversion Shares");
ii) 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 84,615 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".
<PAGE>
Medical Dynamics, Inc.
January 20, 1998
Page 2
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.
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,
Friedlob, Sanderson, Raskin, Paulson &
Tourtillot, LLC
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Amendment No. 1 to 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
January 16, 1998
