As filed with the Securities and Exchange Commission on May 12,1998
Registration No. 333-22507 and 333-26761
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT ON FORM SB-2
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
Dental/Medical Diagnostic Systems, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3152648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 NORTH WESTLAKE BOULEVARD, SUITE 202, WESTLAKE VILLAGE, CALIFORNIA 91362
(805) 381-2700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------
RONALD E. WITTMAN
200 NORTH WESTLAKE BOULEVARD
SUITE 202
WESTLAKE VILLAGE
CALIFORNIA 91362
(805) 381-2700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Copies to
MURRAY MARKILES
TROOP MEISINGER STEUBER & PASICH, LLP
10940 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 824-7000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Post Effective Amendment No. 1
to Registration No. 333-22507 and 333-26761.
If the only securities 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 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 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. [ ]
By this Post Effective Amendment No. 1 to Registration Statement on Form SB-2,
Registrant amends its registration Statement on Form SB-2 (Registration No. 333-
22507 and 333-26761) pursuant to which Registrant registered its offering. Due
to the scope and nature of this amendment, the Registration Statement and
Prospectus have not been marked to show changes.
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, as amended (the "Securities Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED MAY 12, 1998
PROSPECTUS
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
4,030,000 SHARES OF COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
1,780,000 REDEEMABLE WARRANTS
--------------
This Prospectus relates to the issuance or sale of the following
securities of an aggregate of Dental/Medical Diagnostic Systems, Inc. (the
"Company" or the "Registrant"):
(i) issuance by the Company of up to 2,070,000 shares (the "Redeemable
Warrant Shares") of common stock, par value $.01 per share (the
"Common Stock") issuable upon exercise of the Company's outstanding
redeemable common stock purchase warrants (the "Redeemable Warrants")
originally issued by the Company as part of the Company's
underwritten offering completed on May 9, 1997 (the "Offering");
(ii) resale by certain selling security holders (the "Selling Security
Holders") of 1,600,000 Redeemable Warrants issued to them on May 9,
1997 in exchange for warrants that were issued to them in connection
with the Company's 1996 Bridge Financing (the "Selling Security
Holder Redeemable Warrants");
(iii) issuance by the Company of up to 1,600,000 shares of Common Stock
issuable upon exercise of the Selling Security Holder Redeemable
Warrants (the "Selling Security Holder Shares"); and
(iv) issuance by the Company of up to 180,000 Redeemable Warrants
(the "Underwriter Redeemable Warrants," and collectively with the
Redeemable Warrants and Selling Warrant Holder Redeemable Warrants,
the "Warrants") and/or up to 180,000 shares of Common Stock (the
"Underwriter Shares") issuable upon exercise of an underwriter's
purchase option (the "Underwriter's Purchase Option") originally
issued to the designees of M. H. Meyerson & Co., Inc., the
underwriter of the Offering (the "Underwriter"); and
(v) issuance by the Company of up to 180,000 shares of Common Stock
issuable upon exercise of the Underwriter Redeemable Warrants (the
"Underwriter Warrant Shares").
The Redeemable Warrant Shares, the Selling Security Holder Shares, the
Underwriter Shares and the Underwriter Warrant Shares, are collectively
referred to as the "Shares." Each Warrant entitles the holder to purchase
one share of Common Stock at a price of $5.00 commencing May 9, 1998 until
May 9, 2002, and are redeemable at the option of the Company at any time
after May 9, 1998 on 30 days' prior written notice, provided that (a) the
last sale price of the Common Stock has been at least $9.50 on each of the
ten consecutive trading days ending on the third day prior to the date on
which notice is given and (b) the Company has obtained the prior written
consent of the Underwriter. The Underwriter's Purchase Option is
exercisable initially at a price of $4.95 per share and $.55 per warrant
for a period of four years commencing May 9, 1998.
The Warrants registered for sale on behalf of the Selling Security Holders
under the Registration Statement of which this Prospectus forms a part may be
offered and sold from time to time in regular brokerage transactions (which may
include block transactions) on the Nasdaq SmallCap Market, in transactions
directly with market makers, in certain privately negotiated transactions, or
through a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. The Selling Security Holders may effect such transactions by selling
their Warrants directly to purchasers or to or through broker-dealers
(including the Underwriter), which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Security Holders and/or the purchasers of the
Warrants for whom such broker-dealers may act as agents or to whom they sell as
principal, or both. The Selling Security Holders and any broker-dealers that
act in connection with the sale of the Warrants may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act.
See "Selling Security Holders."
None of the proceeds from the sale by the Selling Security Holders of the
Selling Security Holder Redeemable Warrants offered hereby will be received by
the Company. The Company has agreed, among other things, to bear certain
expenses (other than underwriting discounts and commissions and brokerage
commissions and fees) in connection with the registration of the securities
being offered by the Selling Security Holders. See "Selling Security Holders."
All 4,030,000 of the shares of Common Stock and 1,780,000 Selling Security
Holder Redeemable Warrants and Underwriter Redeemable Warrants covered by this
prospectus were previously registered by the Company and were covered by a
prospectus dated May 9, 1997 and the Registration Statement to which it related.
Such Registration Statement and Prospectus have been superseded in their
entirety by this Prospectus and the new Registration Statement to which it
relates.
The Common Stock is quoted on the NASDAQ SmallCap Market ("NASDAQ SmallCap
Market") under the symbol "DMDS" and on the Boston Stock Exchange under the
symbol "DMD." On May 8, 1998, the high and low prices of the Common Stock on
the NASDAQ SmallCap Market were $4.625 and $4.25, respectively. The Redeemable
Warrants are quoted on the NASDAQ SmallCap Market ("NASDAQ SmallCap Market")
under the symbol "DMDSW" and on the Boston Stock Exchange under the symbol
"DMDW." On May 8, 1998, the high and low prices of the Redeemable Warrants on
the NASDAQ SmallCap Market were $1.50 and $1.50, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREOF FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF
THE SHARES.
===============================================================================
Proceeds to
the Company
Price to Warrant or Other
Public Solicitation Fee(1) Persons(2)
- -------------------------------------------------------------------------------
Per Share of Common Stock(4) $5.00 $0.20 $4.80(3)
===============================================================================
Total $19,250,000 $770,000 $18,480,000
===============================================================================
(1) The Company has agreed to indemnify the Underwriter in the original
offering against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. The Company has also agreed to pay the
Underwriter for bona fide services rendered a commission equal to 4% of
the exercise price for each Warrant exercised if the exercise was
solicited by the Underwriter. The Company's obligation is subject to
numerous conditions. See "Plan of Distribution" for certain information
concerning commissions payable upon exercise of the Warrants and the
underwriting of the original offering of the Warrants.
(2) Before deducting expenses payable by the Company estimated at $11,500.
(3) Assumes all of the Redeemable Warrants, Underwriter Redeemable Warrants
and Selling Warrant Holder Redeemable Warrants will be exercised. There
can be no assurance that any of the Redeemable Warrants, Underwriter
Redeemable Warrants or Selling Warrant Holder Redeemable Warrants will be
exercised.
(4) Consists of 2,070,000 shares underlying the Redeemable Warrants, 1,600,000
shares underlying the Selling Warrant Holder Redeemable Warrants and
180,000 shares underlying the Underwriter Redeemable Warrants all to be
issued by the Company upon exercise of the respective Warrants.
-------------------
The date of this Prospectus is May 11, 1998
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Managers. This Prospectus does
not relate to any securities other than those described herein or constitute an
offer to sell, or the solicitation of an offer to buy, securities in any
jurisdiction where, or to any person to whom, it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create an implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form SB-2, as amended by Post
Effective Amendment No. 1 on Form S-3 (the "Registration Statement") under the
Securities Act with respect to the Common Stock and Warrants offered hereby.
This Prospectus, which constitutes part of the Registration Statement does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock and Warrants offered hereby, reference is hereby
made to such Registration Statement, and the exhibits and schedules thereto
which may be obtained from the Commission's principal office in Washington,
D.C., upon payment of the fees prescribed by the Commission. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the material can be obtained at
prescribed rates by writing to the Securities and Exchange Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also 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 and
Warrants are traded on the NASDAQ SmallCap Market and the Company's reports,
proxy or information statements, and other information filed with the NASDAQ
SmallCap Market may be inspected at the offices of NASDAQ at 1735 K Street,
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are incorporated by reference into this
Prospectus:
(1) Registrant's Report on Form 10-KSB, as amended, for the
twelve-month period ended December 31, 1997;
(2) Registrant's Current Report on Form 8-K, filed on May 8, 1998;
(3) The description of the Company's Securities contained in its
Registration Statement on Form 8-A, filed on June 26, 1997, as
amended.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities covered by this Prospectus shall
be deemed to be incorporated by reference herein and to be part hereof from the
date of filing of such documents. Any statement contained herein or in a
document, all or a portion of which is 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 a statement 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
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the oral or written
request of any such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such
exhibits are expressly incorporated by reference into such documents). Written
requests for such copies should be directed to Ronald E. Wittman, Chief
Financial Officer, Dental/Medical Diagnostic Systems, Inc. 200 North Westlake
Boulevard, Suite 202, Westlake Village, California, 91362. Telephone inquiries
may be directed to Dental/Medical Diagnostic Systems, Inc., at (805) 381-2700.
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS
BEEN ADJUSTED TO REFLECT A ONE-FOR-2.197317574 REVERSE STOCK SPLIT OF THE
COMMON STOCK EFFECTED ON JANUARY 13, 1997, AND A ONE-FOR-1.333333333 REVERSE
STOCK SPLIT APPROVED BY THE COMPANY'S STOCKHOLDERS ON MARCH 24, 1997 ("REVERSE
STOCK SPLITS"). THIS PROSPECTUS AND OTHER INFORMATION INCORPORATED HEREIN,
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF, AMONG OTHER FACTORS, THE FACTORS SET FORTH UNDER THE CAPTION "RISK
FACTORS."
THE COMPANY
Dental/Medical Diagnostic Systems, Inc. ("DMD" or the "Company") designs,
develops, manufactures and sells high technology dental equipment. Currently,
the Company's primary existing product emphasis is on the manufacture and sale,
of an intraoral camera system, known as the "TeliCam II System," a multi-
operatory intraoral camera system, known as the InTELInet, for use in
connection with the TeliCam II System, and a tooth whitening and curing device
known as the Apollo 95E, which, with the exception of Canada, the Company
markets internationally. The Company is currently developing with others a
digital x-ray system. The Company is also developing an updated version of its
intraoral camera system, the "TeliCam Elite" and plans to introduce the updated
camera in the second quarter of fiscal year 1998.
The TeliCam II System displays close-up color video images of dental
patients' teeth and gums. These TeliCam images assist dentists in displaying
dental health and hygiene problems to patients and, as a result of such
display, promote patient acceptance of treatment plans. The TeliCam II System
offers dentists the ability to capture and display multiple video images
without an expensive external capture device such as a video cassette recorder
or color printer, thereby providing a low-cost alternative to the more
expensive traditional intraoral dental camera systems. The Company commenced
shipments of a predecessor of the TeliCam II System known as the "TeliCam I
System" to customers in February 1996, and shipped TeliCam II Systems
commencing in the second quarter of 1997. Through December 31, 1997, the
Company had sold 4,511 TeliCam I and TeliCam II Systems to dentists throughout
the United States, as well as to several dental schools, and 2,406 TeliCam I
and II Systems internationally. The Company believes that the market for
intraoral cameras such as the TeliCam II system is a market which has matured.
TeliCam System II sales have recently been below levels of prior comparable
periods, a trend which the Company expects to continue.
The Company recently introduced a curing and whitening device, the Apollo
95E, to markets outside of the US and Canada. The Apollo 95E was developed by
S.E.D. Gerant ("S.E.D."), a developer and manufacturer of medical and dental
devices organized under the laws of France which was acquired by the Company in
1997. The Company believes that the Apollo 95E produces faster results than
products currently available in that market place. This product is designed to
cure composite material in three seconds or less, and to produce teeth
whitening in a dental operatory in less than one hour. The Company will also
market the chemical composite and whitening materials to be used with both
these products. The Company had obtained distribution rights under an
agreement with Ion Laser Technology, Inc. ("ILT") for a composite curing and
whitening device under development by ILT. That device which was similar in
many respects to the Apollo 95E, was intended to be marketed by the Company as
the Apollo 9500 in the United States and Canada. On May 4, 1998, ILT announced
that it would not be able to perform its obligations under ILT's agreement with
the Company. The Company now intends to introduce the Apollo 95E into the
United States and Canada. Shipment of the 95E into the United States requires
regulatory approval from the Food and Drug Administration and, while no
assurance of receipt of the required approvals can be given, the Company
expects that a period of three to six months will be required to obtain
necessary approvals See "Cautionary Statements and Risk Factors -- Extensive
Government Regulation."
The Company has entered into an agreement with Suni Imaging Microsystems,
Inc. ("Suni") to develop digital x-ray technology for incorporation into
systems for the dental market. The Company has obtained exclusive rights to
market products to the dental market incorporating certain digital x-ray
technology developed by Suni. Suni will retain the rights to developed
microchip technology underlying the x-ray system it develops for the Company.
Digital x-ray systems, including those currently on the market, reduce
radiation exposure compared to conventional x-ray systems and allow dentists to
view x-ray images in real-time without the time-consuming process of film
development and eliminate the need to use and dispose of chemicals required to
develop conventional x-ray film. This technology, if successfully developed
for the Company by Suni, would provide an improved image quality digital x-ray
system at a price expected to be lower than competitive systems. Digital x-ray
systems, including those currently on the market, reduce radiation exposure
compared to conventional x-ray systems and allow dentists to view x-ray images
in real-time without the time-consuming process of film development and
eliminate the need to use and dispose of chemicals required to develop
conventional x-ray film. This technology also is designed to allow database
storage and recall of images for comparison purposes. The development
of the technology will be done by Suni and funded by the Company. No
assurance can be given that digital x-ray technology will be successfully
developed, or if the technology is developed, that the Company will be able
to commercially exploit it. Additionally, the Company believes that any
products it may develop incorporating the digital x-ray technology will
require FDA approval prior to marketing, and as a consequence, the timing
of the domestic introduction of such product is uncertain. The Company will
determine whether or not to proceed with the marketing of such product based
upon the results of the development. See "Cautionary Statements and Risk
Factors EXTENSIVE GOVERNMENT REGULATION."
In November 1996, the Company introduced its InTELInet Video Monitoring
System ("InTELInet") which generally includes two TeliCam systems, a printer, a
video-cassette monitor, cabling and installation. InTELInet creates a video-
electronic information link between the different operatories of the dental
office. InTELInet is different from most other intra-office networking systems
known to the Company in that it enables simultaneous use of two or more
intraoral cameras, which allows dentists and their staffs to conduct more than
one patient examination at a time using two or more intraoral cameras
simultaneously. InTELInet is thus designed to be a cost-effective solution to
the problems generally associated with standard networking of various intraoral
cameras in multiple operatories within a single dental practice. The Company
emphasizes the savings to dental practices and the ease of use of the InTELInet
in its marketing campaigns. The InTELInet is being marketed by the Company only
in the US due to the general absence of multiple operatory practices outside of
the United States. The InTELInet facilitates simple network expansion and is
only compatible with intraoral dental cameras marketed by the Company. While
there can be no assurance that digital x-ray technology will be developed, the
Company has designed the InTELInet system to be compatible with the digital
x-ray technology the Company is currently developing with Suni Imaging
Microsystems, Inc. From the time of its first introduction in late November
1996, through December 31, 1997, 385 InTELInet multiple operatory networking
systems have been sold by the Company.
The Company's principal executive offices are located at 200 North
Westlake Boulevard, Suite 202, Westlake Village, California 91362, and its
telephone number is (805) 381-2700.
RISK FACTORS
Several of the matters discussed in this document contain forward looking
statements that involve risks and uncertainties. Factors associated with the
forward looking statements which could cause actual results to differ
materially from those projected or forecast in the statements appear
below. In addition to other information contained in this document, readers
should carefully consider the following cautionary statements and risks
factors:
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND ACCUMULATED DEFICIT. While the
Company has been in existence since 1981, its operations between 1988 and its
acquisition of DMD and BDI in March 1996, were limited to the exploration of
acquisition opportunities. Dental/Medical Diagnostic Systems, the division of
the Company which designs and markets the Company's TeliCam II System, and BDI,
a subsidiary of the Company, have only been in operation since October 1995.
For the period from inception (October 23, 1995) to March 2, 1996, the Company
incurred a net loss of $1,625,213, and for the ten-month period ended December
31, 1996, the Company had net income of $137,151. For the twelve months ended
December 31, 1997 the Company had a net loss after extraordinary item of
$2,044,729. At December 31, 1997, the Company's accumulated deficit was
$3,532,791. The ability of the Company to obtain and sustain profitability will
depend, in part, upon the successful marketing of existing products and the
successful and timely introduction of new products. There can be no assurance
that the Company will be able to generate and sustain net sales or
profitability in the future.
DEPENDENCE UPON A SINGLE PRODUCT. The TeliCam II System, has been the
Company's primary product and, together with related products such as the
InTELInet system, accounted for a substantial portion of the Company's revenue.
See "-- Importance of New Product Development to Growth." The Company believes
that the market for intraoral cameras such as the TeliCam II system is a market
which has matured. TeliCam System II sales have recently been below levels of
prior comparable periods, a trend which the Company expects to continue. If
the Company is unable to successfully develop and introduce additional products
and product lines, it is likely that the Company's business operations would be
substantially and adversely impacted.
IMPORTANCE OF NEW PRODUCT DEVELOPMENT TO GROWTH. The Company's ability to
develop and successfully introduce new products, particularly, a tooth
whitening and curing device suitable for the United States market such as the
Apollo 95E, and the digital x-ray technology under development for the Company
by Suni, will be a significant factor in the Company's ability to grow and
remain competitive. See "Cautionary Statements and Risk Factors -- Substantial
Dependence on Third Parties -- SUPPLIERS." Development of new product lines is
risk intensive as evidenced by ILT's recent announcement that it will be unable
to perform its obligations under its agreement with the Company to develop and
supply the Apollo 9500 to the Company. New product development often requires
long-term forecasting of market trends, the development and implementation of
new designs, compliance with extensive governmental regulatory requirements and
a substantial capital commitment. There are a number of manufacturing and
design risks inherent in engineering high cost custom built prototypes upon
which development and contracting decisions are often made, into commercial
products able to be manufactured in large quantities at acceptable cost. Also,
the medical and dental device industry is characterized by rapid technological
change. As technological changes occur in the marketplace, the Company may have
to modify its products in order to keep pace with these changes and
developments. The introduction of products embodying new technologies, or the
emergence of new industry standards, may render existing products, or products
under development, obsolete or unmarketable. Any failure by the Company to
anticipate or respond in a cost-effective and timely manner to government
requirements, market trends or customer requirements, or any significant delays
in product development or introduction, could have a material adverse effect on
the Company's business, operating results and financial condition.
NEED FOR ADDITIONAL FINANCING. Based on its current operating plan, the
Company anticipates that unless a substantial portion of the Warrants are
exercised by the respective holders thereof, that in addition to the remaining
proceeds of the Offering, the credit facility and the proceeds of a debt
placement the Company entered into on March 3, 1998 for the private placement
(the "Debt Placement") of its 12% Senior Subordinated Notes due 1999 (the
"Notes") and 450,000 common stock purchase warrants, further capital will be
required during the next twelve months to satisfy the Company's expected
increased working capital and research and development requirements for its
planned new products. The Company is currently exploring alternatives to fulfill
these requirements. No assurance can be given that additional financing will be
available when needed or that, if available, it will be on terms favorable to
the Company or its stockholders. If needed funds are not available, the Company
may be required to curtail its operations, which could have a material adverse
effect on the Company's business, operating results and financial condition.
If additional funds are raised through the issuance of equity securities,
additional dilution to stockholders may occur. In addition, if sufficient funds
to repay the Notes are not available, the Notes may be converted to shares of
Common Stock and additional dilution to stockholders may occur.
EXPANSION THROUGH UNDETERMINED ACQUISITIONS AND JOINT VENTURES. The
Company intends to expand its product lines and domestic and international
markets, in part, through acquisitions. The Company's ability to expand
successfully through acquisitions will depend upon the availability of suitable
acquisition candidates at prices acceptable to the Company, the Company's
ability to consummate such transactions and the availability of financing on
terms acceptable to the Company. There can be no assurance that the Company
will be successful in completing acquisitions. Such transactions involve
numerous risks, including possible adverse short-term effects on the Company's
operating results or the market price of the Common Stock. These acquisitions
and joint ventures may not be subject to approval or review by the Company's
stockholders. The Company does not expect that it will obtain an appraisal
by any independent appraisers with respect to any such acquisition. Certain of
the Company's future acquisitions may also give rise to an obligation by the
Company to make contingent payments or to satisfy certain repurchase
obligations, which payments could have an adverse financial effect on the
Company. In addition, integrating acquired businesses may result in a loss of
customers or product lines of the acquired businesses and also requires
significant management attention and may place significant demands on the
Company's operations, information systems and financial resources. The failure
effectively to integrate acquired businesses with the Company's operations
could adversely affect the Company. In addition, the Company competes for
acquisition opportunities with companies which have significantly greater
financial and management resources than those of the Company. There can be no
assurance that suitable acquisition opportunities will be identified, that any
such transactions can be consummated, or that, if acquired, such new businesses
can be integrated successfully and profitably into the Company's operations.
Moreover, there can be no assurance that the Company's historic rate of growth
will continue, that the Company will continue to successfully expand, or that
growth or expansion will result in profitability.
The Company also intends to expand its product lines and domestic and
international markets through joint ventures. The Company's ability to expand
successfully through joint ventures will depend upon the availability of
suitable joint venture candidates whose terms are acceptable to the Company,
the Company's ability to consummate such transactions and the availability of
financing on terms acceptable to the Company. There can be no assurance that
the Company will be successful in completing joint ventures. Such transactions
involve numerous risks, including possible adverse short-term effects on the
Company's operating results or the market price of the Common Stock. The
failure effectively to integrate joint ventures with the Company's operations
could adversely affect the Company. In addition, the Company competes for
expansion opportunities with companies which have significantly greater
financial and management resources than those of the Company. There can be no
assurance that suitable investment opportunities will be identified, that any
such transactions can be consummated, or that such new businesses can be
integrated successfully and profitably into the Company's operations. Moreover,
there can be no assurance that the Company's historic rate of growth will
continue, that the Company will continue to successfully expand, or that growth
or expansion will result in profitability.
SUBSTANTIAL DEPENDENCE ON THIRD PARTIES
The Company substantially depends upon third parties for several critical
elements of its business including the development and licensing for
distribution of its products.
SUPPLIERS. With the exception of the TeliCam System's CCD processor unit,
the Company believes that there are multiple sources from which it may purchase
the components of the TeliCam System. The Company anticipates that it will
obtain certain of the components of the TeliCam System from a single source or
a limited number of sources of supply. Although the Company believes it will be
able to negotiate satisfactory supply arrangements and relationships, the
failure to do so may have a material adverse effect on the Company.
Furthermore, there can be no assurance that suppliers will dedicate sufficient
production capacity to satisfy the Company's requirements within scheduled
delivery times or at all. Failure or delay by the Company's suppliers in
fulfilling its anticipated needs may adversely affect the Company's ability to
market the TeliCam System. Pursuant to the Boston Marketing Distribution
Agreement, the Company has the exclusive right to market Teli Units to the
dental market. Boston Marketing is a licensed distributor of the Teli Units
under a separate agreement with their manufacturer. The agreement between
Boston Marketing and the Teli Units manufacturer obligates Boston Marketing to
meet minimum purchase obligations. If Boston Marketing fails to meet these
obligations, Boston Marketing will be terminated as a licensed distributor. In
the event of such termination, the Company, as a sublicensee subdistributor of
Boston Marketing, may lose its right to purchase the Teli Units. Moreover, in
the event the Company is unable to meet its minimum annual purchase obligations
under the Boston Marketing Distribution Agreement, and, as a consequence, such
agreement terminates, the Company may be required to find an alternative source
for the primary component of its TeliCam System. The Company believes that, in
the event the Company loses its right to sell the Teli Units, replacement
components could be developed by and obtained from third parties, but that this
may take more than six months. The potential delay associated with locating an
alternative source of supply would have a significant adverse effect on the
Company's operating results and financial condition. In addition, there is no
guarantee that an intraoral dental camera system utilizing the replacement
components will be accepted by the dental marketplace. The Company has an oral
agreement with S.E.D. to manufacture its Apollo 95E product for sale
internationally. Dr. Duret, president of S.E.D. will oversee manufacturing of
the Apollo 95E for the Company, and will render consulting services for the
Company. If S.E.D. is unable to meet the Company's requirements, the Company
would have to obtain an alternative manufacturing arrangement. The Company
believes that such manufacturing capability could be developed by the Company
or obtained from third parties, but that developing or obtaining alternative
capacities may take up to four months. The potential delay associated with
either developing or locating an alternative source of supply could have a
significant adverse effect on the Company's operating results and financial
condition.
Under the Company's licensing and development arrangements with Suni for
the development of digital x-ray technology for the dental market, the Company
has obtained exclusive marketing rights to products incorporating certain
digital x-ray technology developed by Suni. The Company has paid significant
advances to, and is dependent upon Suni to successfully develop the digital
x-ray technology and to commercialize the digital x-ray technology. There can
be no assurance that Suni will be successful in this endeavor. If Suni should
not develop a digital x-ray product acceptable to the Company or the
marketplace, this would have a material adverse effect on the Company's
operating results and financial condition. The agreement with Suni provides
that the Company is obligated to make minimum royalty payments if products
incorporating the developed technology are introduced to the market in order to
maintain exclusivity. There can be no assurance that the Company will be able
to meet the royalty payments required to maintain exclusivity. Suni would then
be able to license the developed technology to the Company's competitors, or
grant an exclusive license to a competitor, which could have a material adverse
effect on the Company's operating results and financial condition.
FLUCTUATIONS IN QUARTERLY RESULTS. The Company's business is subject to
certain quarterly influences. Management's prior experience in the industry
would indicate that net sales and operating profits are generally higher in the
fourth quarter due to the purchasing patterns of dentists and are generally
lower in the first quarter due primarily to increased purchases in the prior
quarter and during the summer months due to a reduced volume of trade shows and
increased unavailability of dentists due to summer vacations. The Company plans
to increase expenses to fund greater levels of research and development and to
fund investments in joint ventures and acquisitions. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, quarterly operating results and financial condition will be
adversely affected. Quarterly results may also be adversely affected by a
variety of other factors, including the timing of acquisitions and their
related costs, as well as the release of new products and promotions taking
place within the quarter. Other factors that may influence the Company's
quarterly operating results include the timing of introduction or enhancement
of products by the Company or its competitors, market acceptance of the TeliCam
II, the InTELInet System and other new products, development and promotional
expenses relating to the introduction of new products or enhancements of
existing products, reviews in the industry press concerning the products of the
Company or its competitors, changes or anticipated changes in pricing by the
Company or its competitors, mix of distribution channels through which products
are sold, mix of products sold, product returns, the timing of orders from
major distributors, order cancellations, delays in shipment and general
economic conditions. Due to all of the foregoing factors, it is also likely
that in some future periods the Company's operating results may be below the
expectations of analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
EXTENSIVE GOVERNMENT REGULATION. The Company's products and its
manufacturing practices are subject to regulation by the United States Food and
Drug Administration ("FDA") pursuant to the Federal Food, Drug and Cosmetic Act
("FDC Act"), and by other state and foreign regulatory agencies. Under the FDC
Act, medical and dental devices, including those under development by the
Company must receive FDA clearance or approval before they may be sold, or be
exempted from the need to obtain such clearance or approval. FDA regulations
also require the Company to adhere to certain "Good Manufacturing Practices"
("GMP") regulations, which include validation testing, quality control and
documentation procedures. The Company's compliance with applicable regulatory
requirements is subject to periodic inspections by the FDA.
The Company will need 510(k) approval for its Apollo 95E and for any new
products which are developed in the future using digital x-ray technology. The
process of obtaining required regulatory clearances or approvals can be
time-consuming and expensive, and compliance with the FDA's GMP regulations and
other regulatory requirements can be burdensome. Moreover, there can be no
assurance that the required regulatory clearances will be obtained, and those
obtained may include significant limitations on the uses of the product in
question. In addition, changes in existing regulations or the adoption of new
regulations could make regulatory compliance by the Company more difficult in
the future. Although the Company believes that its products and procedures are
currently in material compliance with all relevant FDA requirements, the
failure to obtain the required regulatory clearances or to comply with
applicable regulations could result in fines, delays or suspensions of
clearances, seizures or recalls of products, operating restrictions and
criminal prosecutions, and would have a material adverse effect on the Company.
COMPETITION. The manufacture and distribution of medical and dental
devices is intensely competitive. The Company competes with numerous other
companies, including several major manufacturers and distributors. With respect
to the intraoral camera market, the Company has at least twelve major
competitors. Some of the Company's competitors have greater financial and other
resources than the Company. Consequently, such entities may begin to develop,
manufacture, market and distribute systems which are substantially similar or
superior to the Company's products.
RAPID EXPANSION OF THE COMPANY'S BUSINESS. From inception (October 23,
1995) through December 31, 1997, the Company has experienced rapid and
substantial growth in revenues and geographic scope of operations. Any future
growth may place a significant strain on management and on the Company's
financial resources and information processing systems. The failure to recruit
additional staff and key personnel, to have sufficient financial resources, to
maintain or upgrade these financial reporting systems, or to respond
effectively to difficulties encountered during expansion could have a material
adverse effect on the Company's business, operating results and financial
condition.
RELIANCE ON INTERNATIONAL SALES AND DISTRIBUTORS AND GENERAL RISKS OF
INTERNATIONAL OPERATIONS. For the twelve-month period ended December 31, 1997,
international sales have accounted for approximately 24% of the Company's net
sales, and the Company expects that international sales may increase as a
percentage of sales in the future. Consequently, the Company is subject to the
risks of conducting business internationally, including unexpected changes in,
or impositions of, legislative or regulatory requirements; fluctuations in the
US dollar which could materially adversely affect US dollar revenues; tariffs
and other barriers and restrictions; potentially adverse taxes; and the burdens
of complying with a variety of international laws and communications standards.
The Company's international sales involve potentially longer payment cycles and
the Company may experience greater difficulty collecting accounts receivable.
The Company currently depends on third party distributors for substantially all
of its international sales. At December 31, 1997, nine of the Company's
international distributors accounted for 60% of the Company's accounts
receivable, and nine of these distributors accounted for approximately
$3,877,000 or 24%, of the Company's total sales for the twelve-month period
ended December 31, 1997. Certain of the Company's third party distributors may
also act as resellers for competitors of the Company and could devote greater
effort and resources to marketing competitive products. The loss of, or other
significant reduction in sales to, certain of these third party distributors
could have a material adverse effect on the Company's business and results of
operations. The Company is also subject to general geopolitical risks, such as
political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations. There can be no
assurance that these risks of conducting business internationally will not have
a material adverse effect on the Company's business. Further, any failure by
the Company to predict or plan for changes in the international arena could
have a material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance will depend
significantly upon its Chairman of the Board and Chief Executive Officer,
Robert H. Gurevitch, and upon certain other key employees of the Company. The
loss of service of one or more of these persons could have a material adverse
effect on the Company's business and operations. The Company has entered into
Employment Agreements with Robert H. Gurevitch and Dewey Perrigo, the Company's
Vice President of Sales, pursuant to which they each have agreed to render
services to the Company until October 1, 1999. The Company has obtained "key
person" life insurance on Mr. Gurevitch in the amount of $2,000,000, of which
the Company is the sole beneficiary, but there can be no assurance that the
proceeds of such insurance will be sufficient to offset the loss to the Company
in the event of his death. The Company does not maintain any insurance on the
lives of its other senior management. In addition, the Company's success will
be dependent upon its ability to recruit and retain qualified personnel. Any
failure by the Company to retain and attract key personnel could have a
material adverse effect on the Company's business, operating results, and
financial condition.
LIMITED PROPRIETARY PROTECTION. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company's
proprietary technology is not protected by any patents. Consequently, the
Company relies primarily on trademark, trade secret and copyright laws to
protect its technology. Also, the Company has implemented a policy that most
senior and technical employees and third-party developers sign nondisclosure
agreements. However, there can be no assurance that such precautions will
provide meaningful protection from competition or that competitors will not be
able to develop similar or superior technology independently. Also, the Company
has no license agreements with the end users of its products, so it may be
possible for unauthorized third parties to copy the Company's products or to
reverse engineer or otherwise obtain and use information that the Company
regards as proprietary. If litigation is necessary in the future, to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others, such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results and financial condition. Ultimately, the Company may be
unable, for financial or other reasons, to enforce its rights under
intellectual property laws. In addition, the laws of certain countries in which
the Company's products are or may be distributed may not protect the Company's
products and intellectual property rights to the same extent as the laws of the
United States.
The Company believes that its products do not infringe upon any valid
existing proprietary rights of third parties. Although the Company has received
no communication from third parties alleging the infringement of proprietary
rights of such parties, there can be no assurance that third parties will not
assert infringement claims in the future. Any such third party claims, whether
or not meritorious, could result in costly litigation or require the Company to
enter into royalty or licensing agreements. There can be no assurance that the
Company would prevail in any such litigation or that any such licenses would be
available on acceptable terms, if at all. If the Company were found to have
infringed upon the proprietary rights of third parties, it could be required to
pay damages, cease sales of the infringing products and redesign or discontinue
such products, any of which alternatives, individually or collectively could
have a material adverse effect on the Company's business, operating results and
financial condition.
CONFLICT OF INTERESTS. Robert Gurevitch, Chairman of the Company, has
loaned money to the Company ("Loan Obligations") and has guaranteed the
performance by the Company under its leases for its Irvine (Technology Drive)
and Westlake, California premises. The Company believes that all of these
transactions were on terms no less favorable than were available from
unaffiliated third parties. The Company intends to attempt to relieve Mr.
Gurevitch from his obligations under each of these guarantees and it is
possible that, in order to achieve the release of Mr. Gurevitch from these
guarantees, the Company will be required to post collateral or provide other
concessions to the recipients of the guarantees. The Company has, in the past,
entered into transactions with affiliates and there can be no assurance that
the Company will not enter into transactions with affiliated parties in the
future.
LIMITATION OF LIABILITY AND INDEMNIFICATION. The Company's Amended and
Restated Certificate of Incorporation limits, to the maximum extent permitted
by the Delaware General Corporation Law ("Delaware Law"), the personal
liability of directors for monetary damages for breach of their fiduciary
duties as a director, and provides that the Company shall indemnify its
officers and directors and may indemnify its employees and other agents to
the fullest extent permitted by law. The Company has entered into
indemnification agreements with its directors and executive officers which
may require the Company, among other things, to indemnify such directors
against liabilities that arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. The Company has
purchased director's and officer's liability insurance in the amount of $3.0
million. Section 145 of the Delaware Law provides that a corporation may
indemnify a director, officer, employee or agent made, or threatened to be,
a party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred in connection
with such action if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, if he had no reasonable cause
to believe his conduct was unlawful. Delaware Law does not permit a
corporation to eliminate a director's duty of care, and the provisions of the
Company's Amended and Restated Certificate of Incorporation have no effect on
the availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care.
ANTI-TAKEOVER PROVISIONS. The Company has an authorized class of 1,000,000
shares of preferred stock which may be issued by the Board of Directors on such
terms and with such rights, preferences and designations as the Board of
Directors may determine. Issuance of such preferred stock, depending upon the
rights, preferences and designations thereof, may have the effect of delaying,
deterring or preventing a change in control of the Company. In addition,
certain "anti-takeover" provisions of the Delaware Law, among other things,
restrict the ability of stockholders to effect a merger or business combination
or obtain control of the Company, and may be considered disadvantageous by a
stockholder.
PRODUCT LIABILITY. Although the Company has not experienced any product
liability claims to date, the sale and support of products by the Company may
entail the risk of such claims, and there can be no assurance that the Company
will not be subject to such claims in the future. A successful product
liability claim or claim arising as a result of use of the Company's products
brought against the Company, or negative publicity attendant to any such claim,
could have a material adverse effect upon the Company's business, operating
results and financial condition. The Company maintains product liability
insurance with coverage limits of $1,000,000 per occurrence and $1,000,000 per
year. While the Company believes that it maintains adequate insurance coverage,
there can be no assurance that the amount of insurance will be adequate to
satisfy claims made against the Company in the future, or that the Company will
be able to obtain insurance in the future at satisfactory rates or in adequate
amounts.
USE OF PROCEEDS
The Company anticipates that proceeds of the sale of Common Stock upon
the exercise of the Warrants and the Underwriter's Purchase Option will be
realized from time-to-time prior to their expiration if, as and when the market
price of the Common Stock significantly exceeds the exercise price of the
Warrants or at such earlier time as the Company is able to redeem the Warrants
pursuant to their terms. If the Underwriter Purchase Option and all of the
Warrants are exercised in their entirety, the Company will receive $20,240,000
in proceeds minus any underwriting commissions the Company is obligated to pay
in connection with the exercise of such Warrants. However, there can be no
assurance that any or all of the Warrants will be exercised or that the market
price of the Company's Common Stock will increase to a level sufficient to
permit the Company to Redeem the Warrants or to cause the exercise of the
outstanding Warrants prior to their expiration. Inasmuch as the holders of all
of the Warrants have no obligation to exercise such Warrants, the Company is not
in a position to evaluate if such derivative securities will ever be exercised.
Accordingly, the Company is not able to allocate specifically at this time the
proceeds that may be received from the exercise of the Warrants, and any
proceeds realized will be utilized for product development, acquisition, working
capital and general corporate purposes.
Pending their use for the foregoing purposes, the Company intends to
invest net proceeds from the sale of Common Stock upon exercise of the Warrants
in short term, interest-bearing, investment grade securities or other corporate
debt instruments or interest-bearing obligations.
The Company will not receive any proceeds from the resale of the
Selling Security Holder Redeemable Warrants.
SELLING SECURITY HOLDERS
An aggregate of 1,600,000 Selling Warrant Holder Redeemable Warrants
may be offered and sold by the Selling Security Holders pursuant to
this prospectus.
The following table sets forth the name of each Selling Security Holder
and the number of Warrants registered for resale on such party's behalf. All
of such Warrants offered hereby on behalf of the Selling Security Holders are
being registered for sale under the Registration Statement of which this
Prospectus forms a part, and the Company believes that all the Warrants being
offered hereby on behalf of the Selling Security Holders will be owned by the
respective holders thereof following the completion of this offering and prior
to resale. The Selling Security Holders have the sole investment power with
respect to the Selling Security Holder Redeemable Warrants owned,
subject to applicable community property laws. As of March 24, 1998, the
Company had outstanding 5,115,777 shares of Common Stock, par value $.01 per
share, the only outstanding voting security of the Company.
None of the Selling Security Holders has ever held any position or office
with the Company or had any other material relationship with the Company,
nor do any of the Selling Security Holders own any shares of Common Stock of
the Company at April 7, 1998.
<TABLE>
<CAPTION>
Common Stock Owned After the
Common Stock Owned Prior to the Offering Offering
---------------------------------------------------- ----------------------------
Number of Warrant Percent
and/or Shares of Percent of Number of Number of of
Common Stock (1) Class(2) Shares to be Sold Shares Class(1)
----------------- ---------- ------------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Bear Stearns Securities Corp.
as IRA Custodian FBO Paul Breslow 25,000 * 25,000 0 *
Bear Stearns Securities Corp. as
IRA Custodian FBO David J. Carr 50,000 1 50,000 0 *
Bear Stearns Securities Corp.
as IRA Custodian FBO Sharon Carr 25,000 * 25,000 0 *
Henry M. Cohn 50,000 1 50,000 0 *
William M. De Arman 50,000 1 50,000 0 *
Donehew Fund Limited Partnership 50,000 1 50,000 0 *
Bear Securities Corp.
as Custodian FBO Empire Medical 25,000 * 25,000 0 *
Ronald J. Frank 25,000 * 25,000 0 *
Louis Gigante 25,000 * 25,000 0 *
Stephen Goldman 25,000 * 25,000 0 *
Stanley D. Goodman 25,000 * 25,000 0 *
Janice Halle-Nesses 175,000 3.3 175,000 0 *
H&S Advisors, Inc. 20,000 * 20,000 0 *
IF Consulting Ltd. 50,000 1 50,000 0 *
Jo-Bar Enterprises, L.L.C. 50,000 1 50,000 0 *
KCID Industries, Bradley S. Cooper 25,000 * 25,000 0 *
Richard M. Kirshner 25,000 * 25,000 0 *
Jacqueline Knapp 187,500 3.5 187,500 0 *
Larry Kupferberg 152,500 2.9 152,000 0 *
Christina Litt 25,000 * 25,000 0 *
Private Trust Corp. Ltd
TTEE New Amsterdam Investment Trust 50,000 1 50,000 0 *
Joseph Reiss, M.D. 50,000 1 50,000 0 *
Marc Roberts 50,000 1 50,000 0 *
Claudia C. Rouhana 25,000 * 25,000 0 *
William J. Rouhana, Jr. 25,000 * 25,000 0 *
William J. Rouhana, Sr.
Trustee for Rouhana
1990 GRIT dtd 7/30/90 25,000 * 25,000 0 *
William J. Rouhana, Sr.
Trustee for Rouhana
1995 GRAT dtd 3/2/95 25,000 * 25,000 0 *
Richard Semble, M.D. 25,000 * 25,000 0 *
Dr. Larry Sheer 50,000 1 50,000 0 *
Stanley Snyder 140,000 2.7 140,000 0 *
Jeffrey M. Spiegel 25,000 * 25,000 0 *
Gibbs A. Williams
Keough Trust 25,000 * 25,000 0 *
<FN>
- ------------------------
* Less than one percent.
(1) This includes the Selling Security Holder Redeemable Warrants owned by the
particular Selling Security Holder.
(2) The Total outstanding number of shares used to calculate the percentage of
ownership of Common Stock assumes the exercise of the Selling Security
Holder Redeemable Warrants by the particular Selling Security Holder for
whom the percentage is being calculated.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
M. H. Meyerson & Co., Inc. served as the Underwriter of the Offering,
pursuant to which 2,070,000 shares of common stock and 2,070,000 Redeemable
Warrants were issued. The Company agreed to indemnify the Underwriters of the
Offering, against certain liabilities, including liabilities under the
Securities Act, and to reimburse the Underwriter for its direct out-of-pocket
expenses incurred in the Offering.
The Warrants covered by this Prospectus were issued in registered form
pursuant to the terms of a Warrant Agreement dated as of May 8, 1997 ("Warrant
Agreement") between the Company and American Stock Transfer and Trust Company,
New York, New York, as Warrant Agent. Reference is made to said Warrant
Agreement (which has been filed as an Exhibit to the Registration Statement on
form SB-2, dated March 30, 1997) for a complete description of the terms and
conditions thereof. The description herein is qualified in its entirety by
reference to the Warrant Agreement.
Unless previously redeemed, each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at any time during the four-year
period commencing on May 9, 1998, at a per share price equal to $5.00 subject
to adjustment in certain circumstances.
Unless extended by the Company at its discretion, the Warrants will expire
at 5:00 p.m., New York time, on May 9, 2002. In the event a holder of the
Warrants fails to exercise the Warrants prior to their expiration, the Warrants
will expire and the holder thereof will have no further rights with respect to
the Warrants.
The Company may, with the prior written consent of the Underwriter, redeem
the Warrants at any time once they become exercisable, for a redemption price of
$.01 per Warrant if notice of not less than 30 days is given and the last sale
price of the Common Stock has been at least 190% of the then current exercise
price of the Warrants on each of the ten consecutive trading days ending on the
third day prior to the day on which notice is given. The Warrants will be
exercisable until the close of business on the date fixed for redemption.
The Company will be able to issue shares of its Common Stock upon exercise
of the Warrants only if there is a current prospectus relating to such Common
Stock, and only is such Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of the Warrants reside. Although the Company has
undertaken and intends to qualify for sale the shares of Common Stock underlying
the Warrants in those states in which the Securities are to be offered until the
expiration of the Warrants, subject to the terms of the Warrant Agreement, there
can be no assurance that the Company will be able to do so.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are also subject to adjustment
in the event of a stock dividend, stock split, recapitalization, reorganization,
or merger or consolidation of the Company or other similar event.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price
(by certified check payable to the Company) to the Warrant Agent for the number
of warrants being exercised. The Company is required to keep available a
sufficient number of authorized shares of the Common Stock to permit exercise
of the Warrants. The Warrant holders do not have the rights or privileges of
the holders of the Common Stock prior to exercise of the Warrants.
In connection with the Offering, the Company sold to the Underwriter, for
nominal consideration, an option (the "Underwriter's Purchase Option"),
consisting of the right to purchase up to an aggregate of 180,000 shares of the
Common Stock and/or an aggregate of 180,000 warrants. The Underwriter's
Purchase Option is exercisable initially at a price of $4.95 per share and $.55
per warrant for a period of four years commencing May 9, 1998. The
Underwriter's Purchase Option grants to the holders thereof certain "piggyback"
and demand rights for periods of five and seven years, respectively, commencing
on May 9, 1997, with respect to the registration under the Securities Act of
the securities directly and indirectly issuable upon exercise of the
Underwriter's Purchase Option.
The Company has engaged the Underwriter, on a nonexclusive basis, as its
agent for the solicitation of the exercise of the Warrants. Additionally,
other NASD members may be engaged by the Underwriter in its solicitation
efforts. To the extent not inconsistent with the guidelines of the NASD and
the rules and regulations of the Commission, the Company has agreed to pay the
Underwriter for bona fide services rendered a commission equal to 4% of the
exercise price for each Warrant exercised if the exercise was solicited by the
Underwriter. In addition to soliciting, either orally or in writing, the
exercise of the Warrants, such services may also include disseminating
information, either orally or in writing, to warrant holders about the Company
or the market for the Company's securities, and assisting in the processing of
the exercise of the Warrants. No compensation will be paid to the Underwriter
in connection with the exercise of the Warrants if the market price of the
underlying shares of Common Stock is lower than the exercise price, the
Warrants are held in a discretionary account, the Warrants are exercised in an
unsolicited transaction, if the Underwriter Redeemable Warrants subject to the
Underwriter's Purchase Option are exercised, the warrant holder has not
confirmed in writing that the Underwriter solicited such exercise, or the
arrangement to pay the commission is not disclosed in the prospectus provided
to warrant holders at the time of exercise. In addition, unless granted an
exemption by the Commission from Regulation M under the Exchange Act, while it
is soliciting exercise of the Warrants, the Underwriter will be prohibited from
engaging in any market activities or solicited brokerage activities with regard
to the Company's securities unless the Underwriter has waived its right to
receive a fee for the exercise of the Warrants.
The Warrants registered for sale on behalf of the Selling Security Holders
under the Registration Statement of which this Prospectus forms a part may be
offered and sold from time to time in regular brokerage transactions (which may
include block transactions) on the Nasdaq SmallCap Market, in transactions
directly with market makers, in certain privately negotiated transactions, or
through a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. The Selling Security Holders may effect such transactions by selling
their Warrants directly to purchasers or to or through broker-dealers
(including the Underwriter), which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Security Holders and/or the purchasers of the
Warrants for whom such broker-dealers may act as agents or to whom they sell as
principal, or both. The Selling Security Holders and any broker-dealers that
act in connection with the sale of the Warrants may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the shares of Common Stock of the Company during the applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Security Holders will
need to comply with applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of Common
Stock or Warrants by the Selling Security Holders. Regulation M contains
certain limitations and prohibitions and is intended to prevent issuers and
Selling Security Holders and other participants in a distribution of securities
from conditioning the market through manipulative or deceptive devices to
facilitate the distribution.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and Underwriter's Purchase Option and does not purport to be
complete. Reference is made to a copy of the Underwriting Agreement and the
Form of Underwriter's Purchase Option granted to designees of M.H. Meyerson &
Co. which are on file as exhibits to the Registration Statement.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
EXPERTS
The consolidated balance sheets of Dental/Medical Diagnostic Systems, Inc.
as of December 31, 1996 and December 31, 1997 and the consolidated statements
of income, retained earnings and cash flows for the period from inception to
March 2, 1996, the ten months ended December 31, 1996 and for the twelve-month
period ended December 31, 1997, incorporated by reference in this registration
statement on Form S-3, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Future audited financial statements of the Company and the reports thereon
of the Company's independent public accountants will also be incorporated by
reference in this prospectus in reliance upon the authority of those
accountants as experts in giving those reports to the extent said firm has
audited those financial statements and consented to the use of their reports
thereon.
INDEMNIFICATION
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Amended and Restated Certificate of Incorporation limits the personal
liability of directors to the Company for monetary damages for certain breaches
of fiduciary duty. Liability is not eliminated for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payment of dividends or stock
purchases or redemptions pursuant to Section 174 of the DGCL, or (iv) any
transaction from which the director derived an improper personal benefit.
The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited circumstances,
including on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
The Company has purchased a directors and officers liability insurance
policy in the amount of $3,000,000.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the above statutory provisions or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
Amount
------
Registration Fee Under Securities Act of 1933 $*
NASD Filing Fee $*
Blue Sky Fees and Expenses $*
Printing and Engraving Certificates $*
Legal Fees and Expenses $7,500.00
Accounting Fees and Expenses $4,000.00
Registrar and Transfer Agent Fees $*
Miscellaneous Expenses $*
-----------
TOTAL $11,500.00
============
- -----------------
* Not applicable or none.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Amended and Restated Certificate of Incorporation limits the personal
liability of directors to the Company for monetary damages for certain breaches
of fiduciary duty. Liability is not eliminated for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payment of dividends or stock
purchases or redemptions pursuant to Section 174 of the DGCL, or (iv) any
transaction from which the director derived an improper personal benefit.
The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited circumstances,
including on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
The Company has purchased a directors and officers liability insurance
policy in the amount of $3,000,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index of this Registration Statement.
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 this Registration Statement 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;
(2) That, for the purpose of determining liability under the Securities
Act, 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, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) 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.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, 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
Securities 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 the appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the
Securities 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 Westlake Village, State of California, on May _, 1998.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
(Registrant)
By: /S/ Robert H. Gurevitch
-----------------------------------
Robert H. Gurevitch
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert H. Gurevitch and Ronald E.
Wittman or any one of them, his attorney-in-fact and agent, with full power
of substitution, for him in any and all capacities, to sign any amendments
to this Registration Statement on Form S-3, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorney-
in-fact, or their substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated.
<PAGE>
Signature Title Date
--------- ----- ----
Chairman of the Board and
/S/ Robert H. Gurevitch Chief Executive Officer April 30, 1998
- -------------------------
Robert H. Gurevitch
/S/ Ronald E. Wittman Chief Financial Officer and
- -------------------------- Chief Accounting Officer April 30, 1998
Ronald E. Wittman
/S/ Marvin H. Kleinberg Director April 29, 1998
- --------------------------
Marvin H. Kleinberg
/S/ Jack D. Preston Director April 29, 1998
- --------------------------
Jack D. Preston
<PAGE>
EXHIBIT INDEX
NO. ITEM
- --- ----
1.1 Form of Underwriting Agreement(1)
1.2 Form of Underwriter's Purchase Option granted to M.H.
Meyerson & Co., Inc.(1)
4.1 Specimen Stock Certificate of the Registrant*
4.2 Form of Warrant Agreement between American Stock Transfer & Trust
Company and the Registrant.(2)
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP (previously filed)
23.1 Consent of Coopers & Lybrand, LLP
23.2 Consent of Troop Meisinger Steuber & Pasich, LLP (included as part
of Exhibit 5.1) (previously filed)
24.1 Power of Attorney (included in signature page)
- ---------------------------
*Incorporated by reference from the Registrant's Registration Statement on Form
SB-2, dated February 28, 1997.
(1)Incorporated by reference from the Registrant's Registration Statement on
Amendment No. 1 on Form SB-2, dated March 7, 1997.
(2)Incorporated by reference from the Registrant's Registration Statement on
Amendment No. 2 of Form SB-2, dated March 30, 1997.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Dental/Medical Diagnostic Systems, Inc. on Form S-3 of our report dated
February 16, 1998 on our audits of the consolidated financial statements of
Dental/Medical Diagnostic Systems, Inc. as of December 31, 1997 and 1996 and
for the twelve month period ended December 31, 1997, the ten month period ended
December 31, 1996, and for the period from inception (October 23, 1995) to
March 2, 1996, which report is included in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997.
/s/ Coopers & Lybrand L.L.P.
Los Angeles, California
May 8, 1998
