As filed with the Securities and Exchange Commission on February 16, 1999
File No. 333-63901
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 3 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.)
99 Inverness Drive East
Englewood, Colorado 80112
(303) 790-2990
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(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
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(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 * Lidstone, LLC
5445 DTC Parkway, Suite 850
Englewood, Colorado 80111-3053
Telephone Number (303) 221-5552
Facsimile Number (303) 221-5553
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Registration Statement - Medical Dynamics, Inc. Page 1
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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. [ ]
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
- --------------------------------------------------------------------------------
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
Common (4) 12,000 $2.10 $ 31,500 $ 11
Common (5) 25,000 $4.00 $100,000 $ 35
Common (5) 25,000 $4.50 $112,500 $ 39
Common (5) 25,000 $5.00 $125,000 $ 44
- ---------- ------- ----- -------- ----
Total 1,992,000 $4,375,687 $1,310*
===== ========= ========== ======
* Includes $1,181 previously paid, and $129 being paid with this filing.
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.
Registration Statement - Medical Dynamics, Inc. Page 2
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(1) The amount to be registered includes 1,125,000 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), assuming conversion at the "Market Price" (as
defined in the 1998 Debentures) 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).
(2) The amount to be registered includes 630,000 shares (150% of the estimated
number of shares ) to be issued in payment of an estimated $840,000
interest on the 1998 Debentures, 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). Registration fee is based on the exercise price of
the 1998 Warrants pursuant to Rules 457(a) and (g).
(4) The amount to be registered includes 12,000 shares issued to Merchant
Capital, Inc. at the rate of 3,000 shares per month for four months, for
services rendered pursuant to the terms of a "financial public
relations/consulting agreement" dated as of September 1, 1998. The
agreement has been terminated. The maximum offering price is based on the
last sale price quoted on the Nasdaq SmallCap Market on January 15, 1999
pursuant to Rule 457(c).
(5) The includes 75,000 shares underlying options which were granted to
Merchant Capital, Inc. which accrued on September 1, 1998, for services
rendered pursuant to the terms of a "financial public relations/consulting
agreement" dated as of September 1, 1998. The agreement has been
terminated. The options expire on August 31, 2000, unless exercised prior
to the expiration. Registration fee is based on the exercise price of the
options pursuant to Rules 457(a) and (g).
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 84,615 shares issuable upon exercise of
the 1997 Warrants.
Registration Statement - Medical Dynamics, Inc. Page 3
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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.
Registration Statement - Medical Dynamics, Inc. Page 4
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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 February 11, 1999
PROSPECTUS
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MEDICAL DYNAMICS, INC.
Up to 1,433,082 Shares of Common Stock
Offered for Resale by the Selling Shareholders
This Prospectus relates to up to 1,433,082 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. ("Tail Wind") and by
Merchant Capital, Inc. ("MCI"), collectively referred to herein as the "Selling
Shareholders." The shares being offered by this Prospectus will be received by
the Selling Shareholders are defined in greater detail in the section below
entitled "Selling Shareholders," but which are summarized as follows:
up to 800,000 shares of MEDY's common stock (the "Common Stock") which are
issuable to Tail Wind 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 Tail Wind as
interest on the 1998 Debentures to be calculated at Market Price (as
defined) (the "Interest Shares");
up to 150,000 shares issuable to Tail Wind 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 84,615 shares issuable to Tail Wind on exercise of a warrant referred
to as the "1997 Warrant" at an exercise price equal to $3.375 per share
(the "Warrant Shares");
Registration Statement - Medical Dynamics, Inc. Page 5
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up to 12,000 shares of Common Stock held by MCI; and
up to 75,000 shares of Common Stock issuable to MCI upon exercise of
options issued to MCI (the "MCI Options") at prices from $4.00 per share
(as to 25,000 shares), $4.50 per share (25,000 shares), and $5.00 per share
(25,000 shares).
For the purposes of the 1998 Debentures held by Tail Wind, "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 November 2, 1998,
Market Price as defined in the 1998 Debentures would be $1.875 per share. 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 Tail Wind 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 1998 Debentures held by Tail Wind are currently convertible, and the
1997 and the 1998 Warrants also held by Tail Wind are currently exercisable,
subject, however, to the "5% Limitation" which is explained in the section
entitled "Selling Shareholders," below. The MCI Options held by MCI are also
currently exercisable.
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
either of the Selling Shareholders, but will receive the exercise prices payable
upon exercise of the 1997 Warrants, the 1998 Warrants, or the MCI Options (if
exercised for cash). There can be no assurance that all or any part of the
Warrants or the MCI Options 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 Shareholders to
underwriters, dealers, brokers or agents) are being borne by the Company.
The Selling Shareholders have 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 Shareholders 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
Registration Statement - Medical Dynamics, Inc. Page 6
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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 21, 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
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 ______________ , 1999
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
Registration Statement - Medical Dynamics, Inc. Page 7
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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, 1998.
(2) The Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1998.
(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, as amended, reporting an
event of October 23, 1997, describing the Company's acquisiton of Computer Age
Dentist, Inc.
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.
Registration Statement - Medical Dynamics, Inc. Page 8
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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. Certain statements contained in this
Prospectus and the documents incorporated herein using the terms "may," "expects
to," and other terms denoting future possibilities are 'forward-looking
statements.' Forward-looking statements include, but are not limited to, those
statements relating to development of new products, the projected 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 accuracy of these statements cannot be guaranteed as they
are subject to a variety of risks which are beyond MEDY's ability to predict or
control and which may cause actual results to differ materially from the
projections or estimates contained herein or in the documents incorporated by
reference. 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, 1998, and in the subsequent filings
pursuant to the Securities Exchange Act of 1934.
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
Registration Statement - Medical Dynamics, Inc. Page 9
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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 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 10,034,500
shares of its Common Stock outstanding. See "Description of Securities"
commencing on page 22, of this Prospectus.
The Offering
The Selling Shareholders are offering up to 1,433,082 shares of Common
Stock (the "Shares"). Of these:
1,346,082 shares will be received by the Tail Wind 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 Shareholders" beginning on page 17 of this Prospectus.
The number of shares available for sale by the Tail Wind 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.
12,000 shares are held by MCI, and an additional 75,000 shares are issuable
upon exercise of the MCI Options described under the caption "Selling
Shareholders" beginning on page 17 of this Prospectus.
Registration Statement - Medical Dynamics, Inc. Page 10
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The Selling Shareholder will receive all of the proceeds from the offer and sale
of the Shares. The Company will receive proceeds to the extent either of the
Selling Shareholders exercise the Warrants or the MCI Options for cash.
The Company will pay the costs related to the filing of the registration
statement in which this Prospectus is included. The Selling Shareholders will
pay their 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 $19,793,000 through September 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
independent auditor's report on the Company's financial statements for the year
ended September 30, 1998, contains an explanatory paragraph as to the Company's
ability to continue as a going concern. 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.
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, 1998, 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.
3. Risk of Dilution from Conversion of Convertible Debentures. Assuming
full conversion of the 1998 Debentures as of the date hereof at the Market Price
set forth on the cover page of this prospectus, 800,000 shares of Common Stock
would be issued to the Selling Shareholder. This would represent approximately
Registration Statement - Medical Dynamics, Inc. Page 11
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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 Tail Wind would convert its Debentures. MEDY has the right to pay
interest on the 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 Tail Wind 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 the sales of the Common Stock by Tail Wind, and
perhaps even the possibility of these sales, have had and may continue to have
in the future a negative impact on the market for the Common Stock. In addition,
for so long as the 1998 Debentures remain outstanding, the conversion ratio
(which is based on the lowest prices over a sixty day period) may continue to
exert a downward pressure on the market price 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.
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.
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 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
Registration Statement - Medical Dynamics, Inc. Page 12
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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 Shareholders in this
Offering.
7. Limitations on Ability to Obtain Additional Financing. The agreement
between MEDY and Tail Wind 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 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 Tail Wind.
8. Technological Change and Risk of Technological Obsolescence. The medical
products segment and the dental products segment, 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.
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.
In addition, there are a large number of competitors in the dental practice
management area. Most of these competitors are smaller businesses. 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 and
diagnostic equipment.
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,
Registration Statement - Medical Dynamics, Inc. Page 13
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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.
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 any 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 which expire in
October 2002.
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 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.
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.
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 $6,089,000 (66% of MEDY's total
Registration Statement - Medical Dynamics, Inc. Page 14
<PAGE>
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.
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. 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, 1998, "Item 1
Business" and Item 6 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" therein) which report is incorporated by
reference). As a result of the IPS acquisition during the 1998 fiscal year, the
Company did not have any single customer accounting for more than 10% of its
sales during the 1998 fiscal year. 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. The Company's lending arrangements with Norwest Business Credit,
Inc., significantly restrict the Company's ability to pay dividends.
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
Registration Statement - Medical Dynamics, Inc. Page 15
<PAGE>
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 some 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.
In making the foregoing determination, MEDY and CADI have assessed embedded
systems contained in their office buildings, equipment, and other
infrastructures. As a result, MEDY and CADI have not established a contingency
plan to come into effect in the event of a Y2K catastrophe, and management does
not believe that such a plan is necessary. Of course, MEDY and CADI are both
dependent on facilities outside of their control, such as electrical power
supplies, banking facilities, transportation facilities (such as airlines), and
communications facilities. While MEDY and CADI believe, based on public reports
and some notifications they have received, that these outside facilities are or
will be Y2K compliant, neither MEDY nor CADI has any other basis for determining
their compliance. The operations of MEDY and CADI would be significantly and
adversely affected if any of these outside facilities are adversely affected by
the millenium change or by other issues related to Y2K.
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 or the MCI Options are
exercised for cash, the Company will receive proceeds equal to the aggregate
exercise price of the Warrants and Options, approximately $672,600 if all of the
1997 and 1998 Warrants and $637,500 if all of the MCI Options are exercised for
cash. The 1997 and 1998 Warrants (but not the MCI Options) allow the holder to
effect a "cashless" exercise of the Warrants. The Warrants and MCI Options are
described under the captions "The 1997 Warrants," "The 1998 Debentures and
Warrants" and "The MCI Options" in this Prospectus under "Selling Shareholders."
Any proceeds the Company receives from the exercise of the Warrants and MCI
Options will be used for working capital. There can be no assurance that any
Warrants or MCI Options will ever be exercised.
THE COMPANY
Registration Statement - Medical Dynamics, Inc. Page 16
<PAGE>
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 ("IPS"), 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 ("Command"), 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. For example, MEDY's revenues during fiscal year 1998
(ending September 30, 1998) totaled approximately $7,847,000; of that amount,
approximately $7,575,000 was attributable to the acquisitions of CADI, IPS and
Command.
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 SHAREHOLDERS
The Selling Shareholders under this prospectus are the Tail Wind Fund, Ltd.
("Tail Wind") and Merchant Capital, Inc. ("MCI"). Neither Tail Wind nor MCI is
an affiliate of MEDY; nor has either Selling Shareholder or any affiliate of
either Selling Shareholder had any position, office or other material
relationship with MEDY within more than the past three years, except as
disclosed below. Tail Wind's business address is Windermere House, P.O. Box
SS-5539, Nassau, Bahamas. The business address of MCI is 5300 West Sahara, Suite
101, Las Vegas, Nevada 89102.
The Shares being offered hereby by Tail Wind are issuable upon the
conversion of
Registration Statement - Medical Dynamics, Inc. Page 17
<PAGE>
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 shares underlying the 1997
Debentures remaining to be issued or sold; and
The Shares being offered hereby by MCI were issued to MCI for four months
services pursuant to a Financial Public Relations/Consulting Agreement
(12,000 shares), and are issuable upon exercise of options issued to MCI
pursuant to that agreement (75,000 shares underlying the MCI Options).
Neither Tail Wind nor MCI owns, directly or indirectly, any other shares of
Common Stock. Assuming that Tail Wind and MCI sell all Shares offered hereby
(although there is no requirement that either do so), they will beneficially own
no shares of Common Stock at the conclusion of the Offering.
Tail Wind
General. The exact number of shares to be offered and sold by Tail Wind is
not known at the date of this Prospectus because Tail Wind will acquire the
shares 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
Tail Wind has agreed by contract that it will at no time own more than 4.99% of
the Common Stock. This contractual limitation prohibits Tail Wind from
converting the 1998 Debentures or exercising the 1997 or 1998 Warrants to the
extent that conversion or exercise would result in Tail Wind 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, Tail Wind disclaims beneficial
ownership of all shares to the extent such ownership would result in it
exceeding the 5% Limitation. Since the 5% Limitation is the result of a
contractual agreement between MEDY and Tail Wind, the parties could, by
agreement, waive the restriction. If all the Shares being offered by Tail Wind
are sold, Tail Wind will own no shares of the Company's common stock following
the completion of the Offering.
Registration Statement - Medical Dynamics, Inc. Page 18
<PAGE>
The 1997 Warrants. On October 31, 1997, in a private placement offering
under Regulation D, Tail Wind 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, and the underlying shares have been sold.
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, in 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". As of January 31, 1999, 1998 Debentures totaling $1,233,333 are
convertible or will be convertible within sixty days; an additional $133,334
will be convertible after May 14, 1999, and all of the 1998 Debentures will be
convertible after July 12, 1999. 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
Registration Statement - Medical Dynamics, Inc. Page 19
<PAGE>
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
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 Shareholders 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). Because MEDY was unable to obtain
effectiveness of the registration statement within the time limits established
by contract, MEDY may be liable for up to $22,000 as a penalty through December
31, 1998. Additional amounts may continue to accrue at the rate of $22,000 per
month until this registration statement becomes effective. After March 16, 1999,
the contractual penalty will increase to $30,000 per month.
The registration rights agreement contains standard cross-indemnification
provisions and requirements for contribution should the indemnification
provisions be found to be unavailable.
Merchant Capital
On September 1, 1998, MEDY entered into a "financial public
relations/consulting agreement" with Merchant Capital, Inc. ("MCI"). MCI
warranted to MEDY that it is "experienced in the field of financial public
relationships and in complying with the requirements of federal and applicable
state securities laws with respect to [its] activities in the financial public
relations field." MEDY appointed MCI as a non-exclusive financial public
relations counsel to assist MEDY in dealing with the investment banking and
broker-dealer communities, and in organizing, writing, and distributing public
relations communications. The Agreement with MCI contained standard
indemnification provisions.
Registration Statement - Medical Dynamics, Inc. Page 20
<PAGE>
The Agreement with MCI does not require that MEDY pay any cash compensation
to MCI; the Agreement required that MEDY pay MCI shares of Common Stock and MCI
Options. MEDY terminated the Agreement with MCI on December 28, 1998. MCI earned
and has been paid 12,000 shares of MEDY's restricted Common Stock and MCI
Options to acquire 75,000 shares of Common Stock as follows:
25,000 exercisable at $4.00 per share; 25,000 exercisable at
$4.50 per share; and 25,000 exercisable at $5.00 per share.
In all cases, the MCI Options are exercisable for cash, and expire (unless
previously exercised) at the close of business on August 31, 2000.
PLAN OF DISTRIBUTION
The Selling Shareholders have advised MEDY that they 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 Shareholders 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 Shareholders 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 Shareholders
(or either of them) may arrange for other brokers or dealers to participate.
Such broker or dealers may receive commissions or discounts from the Selling
Shareholders in amounts to be negotiated by the Selling Shareholders. The
Selling Shareholders 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 Shareholders (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 transfer such Common Stock.
Registration Statement - Medical Dynamics, Inc. Page 21
<PAGE>
Such broker-dealers and any other 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 $45,000. 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
Shareholders 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 December 31, 1998, MEDY had issued and
outstanding 10,301,667 shares of Common Stock. This number does not include any
of the estimated 1,433,082 shares issuable upon exercise of the 1998 Debentures,
the 1998 Interest Shares, the 1997 and 1998 Warrant Shares, or the shares
underlying the MCI Options which, if and when issued, will be offered for sale
pursuant to this Prospectus by the Selling Shareholders. For information about
these shares, see the description contained under the caption "Selling
Shareholders" 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,
Registration Statement - Medical Dynamics, Inc. Page 22
<PAGE>
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.
MEDY's agreement with Norwest Business Credit, Inc. (entered into in
October 1998 for a $1,000,000 line of credit described in more detail in the
Company's Current Report on Form 8-K reporting an event of October 9, 1998 and
its Form 10-KSB for the year ended September 30, 1998, which report is
incorporated by reference herein.
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.
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 Shareholders" in
this Prospectus.
Stock Options
Exclusive of the 1997 Warrants, the 1998 Warrants, and the MCI Options, on
December 31, 1998, MEDY had outstanding stock options to purchase 3,801,237
Registration Statement - Medical Dynamics, Inc. Page 23
<PAGE>
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
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, 1998 and 1997 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.
Registration Statement - Medical Dynamics, Inc. Page 24
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANYINFORMATION 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
DOCUMENTS INCORPORATED BY REFERENCE
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
THE COMPANY
SELLING SHAREHOLDERS
PLAN OF DISTRIBUTION
DESCRIPTION OF SECURITIES
LEGAL MATTERS
EXPERTS
Registration Statement - Medical Dynamics, Inc. Page 25
<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 $ 1,344
Printing 1,000
Accounting fees and expenses 17,000
Legal fees and expenses 16,000
Blue sky filing fees and expenses 2,000
Transfer and Warrant Agent fees 500
Miscellaneous 7,156
-------
Total $45,000
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
Registration Statement - Medical Dynamics, Inc. Page 26
<PAGE>
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,
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.
Registration Statement - Medical Dynamics, Inc. Page 27
<PAGE>
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
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.
Registration Statement - Medical Dynamics, Inc. Page 28
<PAGE>
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)
10.5* Financial Public Relations/Consulting Agreement between Medical
Dynamics, Inc. and Merchant Capital, Inc., incorporated by reference
to the Registrant's Annual Report on Form 10-KSB for the year ended
September 30, 1998.
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
Registration Statement - Medical Dynamics, Inc. Page 29
<PAGE>
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,
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.
Registration Statement - Medical Dynamics, Inc. Page 30
<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 February 10,
1999.
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 February 10, 1999
- ------------------
Edwin L. Adair, M.D.
/s/ Pat Horsley Adair Director February 10, 1999
- ---------------------
Pat Horsley Adair
/s/ I. Dean Bayne Director February 10, 1999
- -----------------
I. Dean Bayne, M.D.
/s/ Van A. Horsley Director, February 10, 1999
- ------------------
Van A. Horsley Principal Financial Officer,
and Chief Executive Officer
/s/ Leroy Bilanich Director February 10, 1999
- ------------------
Leroy Bilanich
/s/ Daniel L. Richmond Director February 10, 1999
- ----------------------
Daniel L. Richmond
/s/ Chae U. Kim Director February 10, 1999
- ---------------
Chae U. Kim
Registration Statement - Medical Dynamics, Inc. Page 31
<PAGE>
/s/ Edward Boggs Controller February 10, 1999
- ----------------
Edward Boggs
Registration Statement - Medical Dynamics, Inc. Page 32
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
We consent to the incorporation by reference in the Registration Statement of
Medical Dynamics, Inc. on Form S-3 (SEC File No. 333-63901) of our report dated
December 29, 1998 on our audits of the consolidated financial statements of
Medical Dynamics, Inc. as of September 30, 1998, and for the years ended
September 1998 and 1997, which report is included in the Annual Report of
Medical Dynamics, Inc. on Form 10-KSB.
We also consent to the incorporation by reference of our report dated October
13, 1997 on our audits of the financial statements of Computer Age Dentist, Inc.
as of and for the periods ended June 30, 1997 and September 30, 1996, which
report is included in the Company's current report on Form 8-K/A-1 dated October
23, 1997.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 12, 1999
