As filed with the Securities and Exchange Commission on October 3, 2001
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3533362
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
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6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(858) 535-0202
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------------
Michael K. Perry
Chief Executive Officer
CardioDynamics International Corporation
6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(858) 535-0202
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
Copy to:
David R. Snyder, Esq.
Pillsbury Winthrop LLP
101 West Broadway, Suite 1800
San Diego, California 92101
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________________
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
Proposed Maximum Proposed Maximum
Title of Shares Amount To Be Offering Aggregate Amount of
To Be Registered Registered Price Per Unit(1) Offering Price(1) Registration Fee
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Common stock, no par value per share 500,000 shares $4.335 $2,167,500.00 $541.88
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933 based upon the
average of the high and low prices of the common stock on September 27,
2001.
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 Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
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PRELIMINARY PROSPECTUS Subject to completion, dated October 3, 2001
---------------------- --------------------------------------------
500,000 Shares
CARDIODYNAMICS INTERNATIONAL CORPORATION
Common Stock
-------------------------
These 500,000 shares are being sold by the selling shareholder who
purchased them from one of our shareholders, the Allen E. Paulson Living Trust,
on August 31, 2001 at a purchase price of $5.40 per share. We will not receive
any proceeds from the sale of shares by the selling shareholder. This offering
is not being underwritten. The last reported sale price of our common stock on
the Nasdaq National Market on October 2, 2001 was $4.65 per share.
Nasdaq National Market Symbol--CDIC
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 6.
The selling shareholder may offer and sell their shares in transactions on
the Nasdaq National Market, in negotiated transactions, or both. These sales may
occur at fixed prices that are subject to change, at prices that are determined
by prevailing market prices, or at negotiated prices.
The selling shareholder may sell shares to or through broker-dealers, who
may receive compensation in the form of discounts, concessions or commissions
from the selling shareholder, the purchasers of the shares, or both. We will not
receive any of the proceeds from the sale of the shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------
Prospectus dated October __, 2001
The information contained in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is declared effective. This
preliminary prospectus is not an offer to sell these securities, and it is not
soliciting an offer to buy these securities, in any state where the offer or
sale is not permitted. You should rely only on the information contained in this
preliminary prospectus.
TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US...................... 2
INFORMATION INCORPORATED BY REFERENCE................................... 2
ABOUT CARDIODYNAMICS INTERNATIONAL CORPORATION.......................... 4
RISK FACTORS............................................................ 6
FORWARD-LOOKING STATEMENTS.............................................. 14
USE OF PROCEEDS......................................................... 14
SELLING SHAREHOLDER..................................................... 14
PLAN OF DISTRIBUTION.................................................... 16
LEGAL MATTERS........................................................... 16
EXPERTS................................................................. 17
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3, including the exhibits and schedules thereto, under the
Securities Act of 1933 with respect to the offering and sale of the common stock
offered by this prospectus. This prospectus does not contain all the
information set forth in the registration statement. For further information
about us and the common stock to be sold in this offering, please refer to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete, and in each instance you should refer to the copy of the contract,
agreement or other document filed as an exhibit to the registration statement.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy all or any portion of the
registration statement or any reports, statements or other information that we
file with the SEC at the SEC's public reference room at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of
these documents upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference room. Our SEC filings, including the registration statement,
are also available to you on the SEC's web site. The address of this site is
http://www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
We incorporate by reference the documents listed below and any future
filings made by us with the SEC under sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 from the date of the registration statement of
which this prospectus is a part until the sale of all of the shares of common
stock that are part of this offering. The information incorporated by reference
is considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information from the
date of the filing of such information. The documents that we are incorporating
by reference are as follows:
. our annual report on Form 10-KSB for the year ended November 30, 2000;
. our quarterly report on Form 10-Q for the quarter ended February 28,
2001;
2
. our quarterly report on Form 10-Q for the quarter ended May 31, 2001; and
. the description of our common stock contained in our registration
statement on Form 8-A declared effective by the SEC on April 19, 1984,
including any amendments or reports filed for the purpose of updating
that description.
Any statement contained in a document that is incorporated by reference
will be modified or superseded for all purposes to the extent that a statement
contained in this prospectus (or in any other document that is subsequently
filed with the SEC and incorporated by reference) modifies or is contrary to
that previous statement. Any statement so modified or superseded will not be
deemed a part of this prospectus except as so modified or superseded.
You may request a copy of these filings (other than exhibits unless such
exhibits are specifically incorporated by reference therein) at no cost by
writing or telephoning Ms. Bonnie Dupuis in our investor relations department at
the following address and telephone number:
CardioDynamics International Corporation
6175 Nancy Ridge Drive, Suite 300
San Diego, California 92121
(858) 535-0202, extension 1005
3
ABOUT CARDIODYNAMICS INTERNATIONAL CORPORATION
CardioDynamics International Corporation is a medical technology and
information solutions company that develops, manufactures, and markets
noninvasive heart-monitoring devices using our proprietary impedance
cardiography (ICG) technology, DISQ(TM) technology, and Zmarc(TM) algorithm.
Our proprietary, patented technology noninvasively monitors the heart's
ability to deliver blood to the body. Our products measure 12 hemodynamic
(blood flow) parameters, the most significant of which is cardiac output, or the
amount of blood pumped by the heart each minute. Our lead stand-alone product,
the BioZ.com(R), has been cleared by the Federal Drug and Administration (FDA)
and carries the CE mark. We sell to US physicians through our own direct sales
force and distribute our products to domestic hospitals and targeted
international markets through a strategic alliance with GE Medical Systems
Information Technologies and a network of international distributors. In
November 1998, Health Care Finance Administration (HCFA) mandated Medicare
reimbursement for our BioZ(R) procedures and in January 2001, implemented
uniform reimbursement throughout the United States. To date, we have an
installed base of approximately 1,400 units in over 850 physician offices and
hospital sites throughout the world.
Our products help physicians assess, diagnose and treat cardiovascular
disease, which is the number one killer of adults in the United States.
According to the American Heart Association (AHA), approximately one in five
Americans has some form of cardiovascular disease. The AHA estimates that over
$300 billion was spent in the United States during 2000 as a result of
cardiovascular disease and stroke. This figure includes both the direct costs
associated with physicians and other professionals, hospital and nursing home
services and medication and the indirect costs associated with lost productivity
resulting from morbidity and mortality.
Electrocardiogram (EKG) is a widely used noninvasive assessment of the
heart that measures the electrical characteristics of the heart. Our ICG
technology makes it possible to noninvasively measure the mechanical functioning
of the heart. Conditions that can interfere with the proper mechanical
functioning of the heart include hypertension (high blood pressure), congestive
heart failure, pulmonary disease, high-risk pregnancy and kidney dysfunction.
Our technology complements the EKG and supplements information obtained through
the five vital signs - heart rate, respiration rate, body temperature, blood
pressure and oxygen saturation - immediately, safely and cost effectively. We
consider noninvasive cardiac output to be the "Sixth Vital Sign(TM)."
The primary method currently being used to measure hemodynamic parameters
is pulmonary artery catheterization (PAC). The invasive, costly and risky PAC
procedure requires hospitalization and involves an incision into the patient's
neck or groin region and the insertion of a catheter (plastic tube) through the
heart directly into the pulmonary artery. Complications associated with this
procedure occur in as many as one in four reported cases and include irregular
heartbeats, infection, pulmonary artery rupture and death.
Because of the high risk of complications, physicians generally prescribe
PAC only for critically ill patients. Because PAC is not available in the
physician's office or outpatient clinic, in the great majority of situations,
the physician seeking to diagnose cardiovascular disease must indirectly assess
the patient's hemodynamic status by measuring blood pressure, checking the
pulse, looking at neck veins and employing subjective examination techniques
that are prone to human error. A compelling need exists for objective, safe,
cost-effective, noninvasive measurement tools, such as our BioZ(R) systems, that
physicians can safely prescribe PAC more frequently and at an earlier stage in
treatment.
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During ICG monitoring using our BioZ(R) systems, an undetectable electrical
signal is transmitted through the chest via four proprietary sensors on the
patient's neck and chest. Our sophisticated Digital Impedance Signal Quantifier
(DISQ(TM)) technology and impedance modulating aortic compliance (ZMARC(TM))
algorithm analyze and record significant hemodynamic parameters. Based on this
data, a physician can assess the patient's condition, customize treatment,
monitor patient compliance and the effectiveness of prescribed medications and
more accurately identify potential complications.
Our objective is to establish the BioZ(R) product line as a standard of
care in cardiovascular medicine. Specifically, our strategy is to:
. accelerate market penetration through our direct sales force;
. broaden our distribution channels through strategic relationships;
. secure additional recurring revenue through enhanced proprietary sensors;
. maintain market leadership through product improvements and extensions;
. target new market opportunities through technology development; and
. develop ICG products for home healthcare.
We were incorporated as a California corporation in 1980 and changed our
name in 1993. Our principal executive offices are located at 6175 Nancy Ridge
Drive, Suite 300, San Diego, California 92121, and our telephone number is 858-
535-0202. Our common stock trades under the symbol CDIC on the Nasdaq-Amex
National Market System. Our website address is www.cdic.com.
Information contained in our web site should not be considered part of this
prospectus. In this prospectus, the terms "we," "us," "our" and
"CardioDynamics" mean CardioDynamics International Corporation (unless the
context indicates another meaning).
BioZ(R), BioZ.com(R), BioZ.sim(TM), BioZ.tel(TM), BioZ.pc(TM),
BioZ.net(TM), BioZtect(TM), BioZ.buy(TM), Sixth Vital Sign(TM), DISQ(TM),
ZMARC(TM), ZCare(R) and the CardioDynamics logo are our trademarks. All rights
reserved. All other trademarks, servicemarks or trade names referred to in this
prospectus are the property of their respective owners.
You should read this entire prospectus carefully, as well as the documents
incorporated by reference in this prospectus, before deciding to invest in
shares of our common stock.
5
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently believe are immaterial may also impair our
business operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In such a case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
We depend upon on our BioZ(R) product line, the market acceptance of which is in
its early stages.
Our future is dependent upon the success of the BioZ(R) product line and
similar products that are based on the same core technology. The market for
these products is in a relatively early stage of development and may never fully
develop as we expect. The long-term commercial success of the BioZ(R) product
line requires widespread acceptance of our products as safe, efficient and cost-
effective. Widespread acceptance would represent a significant change in
medical practice patterns. In the past, some medical professionals have
hesitated to use ICG products because of limitations experienced with older,
analog-based monitors. Invasive procedures, such as PAC, are generally accepted
in the medical community and have a long history of use.
We have sponsored and will continue to sponsor or conduct clinical trials.
We cannot be certain that clinical trials will be completed, that they will have
a positive outcome or that a positive outcome in these trials will be sufficient
to promote widespread acceptance of our products within the medical community.
Technological change is difficult to predict and to manage.
We face the challenges that are typically faced by companies emerging from
the development phase. Our product line has required, and any future products
will require, substantial development efforts and compliance with governmental
clearance or approval requirements. We may encounter unforeseen technological
or scientific problems that force abandonment or substantial change in the
development of a specific product or process.
We must maintain and develop strategic relationships with third parties to
increase market penetration of our product lines.
We distribute our products to domestic hospitals and targeted international
markets through our strategic alliance with GE Medical Systems Information
Technologies. We intend to enter into similar agreements with other major
patient monitoring companies and to establish technology partnerships with
pacemaker and other medical product and technology companies. Widespread
acceptance of our BioZ(R) products is dependent on our establishing and
maintaining these strategic relationships with third parties and on the
successful distribution efforts of third parties.
Many aspects of our relationships with third parties, and the success with
which third parties promote distribution of our products, are beyond our
control. We may be unsuccessful in maintaining our existing strategic
relationships and in identifying and entering into future development and
distribution agreements with third parties.
Our success depends in part upon the availability of third-party reimbursement
at adequate price levels.
Our success will depend in part on the availability of adequate
reimbursement from third-party healthcare payers, such as Medicare, private
health insurers and managed care organizations. Third-party
6
payers increasingly challenge the pricing of medical products and services.
Third-party payers may not cover the cost of a device and related services, or
they may place significant restrictions on the circumstances in which coverage
will be available. In addition, reimbursement may not be at or remain at price
levels adequate to allow medical professionals to realize an appropriate return
on the purchase of our products.
We depend on management and other key personnel.
We are dependent on a limited number of key management and technical
personnel. The loss of one or more of our key employees may hurt our business
if we are unable to identify other individuals to provide us with similar
services. We do not maintain "key person" insurance on any of our employees.
In addition, our success depends upon our ability to attract and retain
additional highly qualified sales, management, manufacturing and research and
development personnel. We face intense competition in our recruiting activities
and may not be able to attract or retain qualified personnel.
We depend on Rivertek Medical Systems and other third parties for development
and manufacturing services.
Our strategy for development and commercialization of some of our products
depends upon entering into various arrangements with third parties and upon the
subsequent success of these parties in performing their obligations. We may not
be able to negotiate acceptable arrangements in the future, and our existing
arrangements may not be successful. We rely heavily on contracted development
services, particularly from Rivertek Medical Systems, Inc. Also, we currently
assemble our products from components manufactured by a limited number of
manufacturers. Therefore, we are dependent on component and subassembly
manufacturers. If we experience a termination, modification or disruption of
any of our development or manufacturing arrangements, we may be unable to
deliver products to our customers on a timely basis, which may lead to customer
dissatisfaction and damage to our reputation.
We may not have adequate intellectual property protection.
Although we believe that we have effective patent protection, our patents
and proprietary technology may not be able to prevent competition by others.
Our lead patent expired in May 2001. In addition, in the future our products
may be found to infringe upon the rights of others. From time to time, we have
received communications from third parties asserting that features of some of
our products may infringe on the intellectual property rights of others. Any
claims resulting in intellectual property litigation, whether defensive or
offensive, would have no certain outcome other than to drain our resources.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions. Future patent applications may not be
issued, the scope of any patent protection may not exclude competitors, and our
patents may not provide competitive advantages to us. Our patents may be found
to be invalid, and other companies may claim rights in or ownership of the
patents and other proprietary rights held or licensed by us. Also, our existing
patents may not cover products that we develop in the future. Moreover, when
our key patents expire, the inventions will enter the public domain.
Since patent applications in the United States are maintained in secrecy
until patents issue, our patent applications may infringe patents that may be
issued to others. If our products were found to infringe patents held by
competitors, we may have to modify our products to avoid infringement, and it is
possible that our modified products would not be commercially successful.
7
We face competition from other companies and technologies.
We compete with other companies that are developing and marketing
noninvasive hemodynamic monitors. We are also subject to competition from
companies that support invasive technologies. Many of these companies have more
established and larger marketing and sales organizations, significantly greater
financial and technical resources and a larger installed base of customers than
we do. The introduction by others of products embodying new technologies and
the emergence of new industry standards may render our products obsolete and
unmarketable. In addition, other technologies or products may be developed that
have an entirely different approach or means of accomplishing the intended
purposes of our products. Accordingly, the life cycles of our products are
difficult to estimate. To compete successfully, we must develop and introduce
new products that keep pace with technological advancements, respond to evolving
consumer requirements and achieve market acceptance. We may be unable to
develop new products that address our competition.
Our business plan contemplates an income stream from sales of disposable
sensors that are compatible with an installed base of our monitors. We may be
subject to price competition from other sensor manufacturers whose products are
also compatible with our monitors. To mitigate this we successfully developed
proprietary sensor technology that provides enhanced features to our customers
and promotes the exclusive use of our proprietary sensors with our equipment.
The current widespread acceptance of PAC, and the lack of widespread
acceptance of noninvasive technologies like ours, is an important competitive
disadvantage that we must overcome. In addition, our current and potential
competitors may establish cooperative relationships with large medical equipment
companies to gain access to greater research and development or marketing
resources. Competition may result in price reductions, reduced gross margins
and loss of market share.
The cost and availability of power in the State of California is subject to
uncertainty.
In late 2000 and continuing into 2001, the State of California has been
subject to a deterioration in the ability of major utilities to provide energy
for the State's needs. In Northern California, the crisis has resulted in
"rolling blackouts" where certain areas are not provided with any electricity
for periods of up to two hours. To date the most immediate impact has been the
significant increase in power rates for most users, including us. In addition,
the major utility providers are purchasing power on a "spot" basis. The cost of
such purchases has exceeded their ability to fully collect the increases from
their customers. Any future interruption in power or further increases in power
costs could delay production or increase our operating costs and could have a
material adverse effect on our operations.
We have no experience with home healthcare.
We intend to enter the home healthcare market through strategic
relationships with other parties. We have not concluded any agreements or
understandings with any third parties, and we may not be able to enter into any
arrangements on terms satisfactory to us. Even if we are successful in
negotiating acceptable arrangements with third parties, the parties may not
perform their obligations to us for reasons beyond our control. If we are not
able to negotiate arrangements with other parties to implement our home
healthcare strategy, or if such arrangements, once negotiated, are not
successful, we will not be able to meet our business objectives in this area.
We have a history of losses and may experience continued losses.
We have experienced losses every year. These losses have resulted because
we have expended more money in the course of researching, developing and
enhancing our technology and products and establishing our sales, marketing and
administrative organizations than we have generated in revenues.
8
We expect that our operating expenses will increase substantially in the
foreseeable future as we increase our sales and marketing activities, expand our
operations and continue to develop our technology. It is possible that we will
never achieve or sustain the revenue levels required for profitability.
We may need additional capital, which may be unavailable.
The commercialization of our product line and the development and
commercialization of any additional products may require greater expenditures
than expected in our current business plan. Our capital requirements will
depend on numerous factors, including:
. our rate of sales growth, as fast growth may actually increase our need for
additional capital to hire additional staff, purchase additional component
inventories, finance the increase in accounts receivable and supply
additional support services;
. our progress in marketing-related clinical evaluations and product
development programs, all of which will require additional capital;
. our receipt of, and the time required to obtain, regulatory clearances and
approvals--the longer regulatory approval takes, the more working capital we
will need to support our regulatory and development efforts in advance of
sales;
. the level of resources that we devote to the development, manufacture and
marketing of our products--any decision we make to improve, expand or simply
change our process, products or technology will require increased funds;
. facilities requirements--as we grow we may need additional manufacturing,
warehousing and administration facilities and the costs of the facilities
would be borne long before any increased revenue from growth would occur;
. market acceptance and demand for our products--although growth may increase
our capital needs, the lack of growth and continued losses would also
increase our need for capital; and
. financing strategies--our attempt to accelerate the otherwise lengthy
purchasing processes of hospitals by offering leasing programs as an
alternative to outright purchasing and by providing purchasers with extended
payment terms and financing options will require additional capital.
We may be unable to predict accurately the timing and amount of our capital
requirements. We may be required to raise additional funds through public or
private financing, bank loans, collaborative relationships or other arrangements
earlier than expected. It is possible that banks, venture capitalists and other
investors may perceive our capital structure, our history of losses or the need
to achieve widespread acceptance of our technology as too great a risk to bear.
As a result, additional funding may not be available on attractive terms, or at
all. If we cannot obtain additional capital when needed, we may be forced to
agree to unattractive financing terms, to change our method of operation or to
curtail our operations.
We may not be able to manage growth.
If successful, we will experience a period of growth that could place a
significant strain upon our managerial, financial and operational resources.
Our infrastructure, procedures and controls may not be adequate to support our
operations and to achieve the rapid execution necessary to successfully market
our products. Our future operating results will also depend on our ability to
expand our direct sales force
9
and our internal sales, marketing and support staff. If we are unable to manage
future expansion effectively, our business, results of operations and financial
condition will suffer, our senior management will be less effective, and our
revenues and product development efforts may decrease.
Our quarterly operating results frequently vary due to factors outside our
control.
We have experienced and expect to continue to experience fluctuations in
quarterly operating results as a result of a number of factors. We cannot
control many of these factors, which include the following:
. the timing and number of new product introductions;
. the mix of sales of higher and lower margin products in a quarter;
. the market acceptance of our products;
. development and promotional expenses relating to the introduction of new
products or enhancements of existing products;
. product returns;
. changes in pricing policies by us and our competitors;
. the timing of orders from major customers and distributors; and
. delays in shipment.
For these reasons, you should not rely on period-to-period comparisons of
our financial results as indications of future results.
We may not continue to receive necessary FDA clearances or approvals.
Our products and activities are subject to extensive, ongoing regulation by
the Food and Drug Administration and other governmental authorities. Delays in
receipt of, or failure to obtain or maintain, regulatory clearances and
approvals, or any failure to comply with regulatory requirements, could delay or
prevent our ability to market our product line.
Terrorist attacks have contributed to economic instability in the United
States; continued terrorist attacks, war or other civil disturbances could lead
to further economic instability and depress our stock price.
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused instability in the
world's financial markets and have contributed to downward pressure on stock
prices of United States publicly traded companies, such as us. These attacks may
lead to armed hostilities or to further acts of terrorism and civil disturbances
in the United States or elsewhere, which may further contribute to economic
instability in the United States.
Continued terrorist attacks, war or other civil disturbances could interfere
with our just-in-time delivery system and otherwise damage our business.
Our manufacturing requirements planning system relies on a "just in time" model,
where we schedule many of our manufacturing parts and components to arrive "just
in time" to be assembled into the finished products for immediate shipment to
customers, rather than manufacturing and storing significant excess production.
In direct response to the terrorist attacks of September 11, 2001, the United
States government ordered the temporary grounding of non-military aircraft for a
period of days, and implemented certain other security measures which delayed
transportation across the nation. Continued terrorist attacks, war, or other
civil disturbances may further affect our ability to manufacture our products on
time and could disrupt our business.
We may not receive approvals by foreign regulators, which are necessary for
international sales.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary from country to country. If we, or our
international distributors, fail to obtain or maintain required pre-market
approvals or fail to comply with foreign regulations, foreign regulatory
authorities may require us to file revised governmental notifications, cease
commercial sales of our products in the applicable countries or otherwise cure
the problem. Such enforcement action by regulatory authorities may be costly.
In order to sell our products within the European community, we must comply
with the European community's medical device directive. The CE marking on our
products attests to this compliance. Future regulatory changes may limit our
ability to use the CE mark, and any new products we develop may not qualify for
the CE mark. If we lose this authorization or fail to obtain authorization on
future products, we will not be able to sell our products in the European
community.
10
Members of our board of directors control a large percentage of our common stock
and may influence our decisions.
J. Michael Paulson and James C. Gilstrap, both of whom are members of our
board of directors, beneficially own approximately 26% of the outstanding shares
of our common stock as of September 25, 2001. Accordingly, Messrs. Paulson and
Gilstrap are able to substantially influence us and our affairs and business,
including any future issuances of common stock or other securities, merger and
acquisition decisions, declaration of dividends and the election of directors.
In addition, our stock price and our ability to raise capital could be injured
if these shareholders were to sell a significant portion of their holdings on
the open market.
We do not know the effects of healthcare reform proposals.
The healthcare industry is undergoing fundamental changes resulting from
political, economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to increase access to
healthcare for the uninsured, control the escalation of healthcare expenditures
within the economy and use healthcare reimbursement policies to balance the
federal budget.
We expect that Congress and state legislatures will continue to review and
assess healthcare proposals, and public debate of these issues will likely
continue. We cannot predict which, if any, of such reform proposals will be
adopted and when they might be adopted. Other countries also are considering
healthcare reform. Significant changes in healthcare systems could have a
substantial impact on the manner in which we conduct our business and could
require us to revise our strategies.
We are subject to product liability claims and product recalls that may not be
covered by insurance.
The nature of our business exposes us to risks of product liability claims
and product recalls. Medical devices as complex as ours frequently experience
errors or failures, especially when first introduced or when new versions are
released. Our products are sometimes used in procedures where there is a high
risk of serious injury or death. These risks will exist even with respect to
those products that have received, or may in the future receive, regulatory
clearance for commercial sale.
We did not carry product liability insurance during some periods before May
15, 1995. We currently maintain product liability insurance at $20,000,000 per
occurrence and $20,000,000 in the aggregate. Our product liability insurance
may not be adequate. In the future, insurance coverage may not be available on
commercially reasonable terms, or at all. In addition, product liability claims
or product recalls could damage our reputation even if we have adequate
insurance coverage.
Our common stock is subject to price volatility.
The market price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could be subject to wide fluctuations in
response to various factors beyond our control, including:
. quarterly variations in operating results;
. changes in, or failure to meet, financial estimates of securities
analysts;
. the rate of adoption by physicians of ICG technology in targeted
markets;
. the timing of patent and regulatory approvals;
11
. the timing and extent of technological advancements;
. results of clinical studies;
. the sales of our common stock by affiliates or other shareholders with
large holdings; and
. general market conditions.
Our future operating results may fall below the expectations of securities
industry analysts or investors. Any such shortfall could result in a
significant decline in the market price of our common stock. In addition, the
stock market has experienced significant price and volume fluctuations that have
affected the market prices of the stock of many medical device companies and
that often have been unrelated to the operating performance of such companies.
These broad market fluctuations may directly influence the market price of our
common stock.
We may be required to issue additional shares of common stock at prices that are
below then market value.
The holders of warrants to purchase our common stock could require us to
issue additional shares of common stock to them pursuant to anti-dilution
rights. These rights would cause us to issue additional common stock upon
exercise of their warrants if we sell common stock at a price less than the
exercise price of their warrants. If we need to sell common stock at a time
when the market price for our shares is depressed, these anti-dilution rights
could further depress the market price and impair our ability to raise needed
capital.
Our international sales expose us to unique risks.
In fiscal 2000, international sales accounted for approximately 9% of our
revenue. We believe that international sales will represent a meaningful
portion of our revenue in the future. We rely on GE Medical Systems Information
Technologies and other regional distributors to assist us with our international
operations. In addition, we are exposed to risks from international sales,
which include unexpected changes in regulatory requirements, tariffs and other
barriers and restrictions and reduced protection for intellectual property
rights. Moreover, fluctuations in the rates of exchange may increase the price
in local currencies of our products in foreign markets and make our products
relatively more expensive than competitive products.
Common stock which is available for immediate resale may depress our market
price.
We have filed registration statements with the Securities and Exchange
Commission covering the potential resale by our shareholders of up to 20,382,000
shares of common stock (including the shares of common stock covered by this
registration statement), the majority of which have not been sold. The
existence of a substantial number of shares of common stock subject to immediate
resale could depress the market price for our common stock and impair our
ability to raise needed capital.
A low stock price could result in our being de-listed from the Nasdaq National
Market and subject us to regulations which could reduce our ability to raise
funds.
If our stock price were to drop below $1.00 per share and remain below
$1.00 per share for an extended period of time, or if we fail to maintain other
Nasdaq criteria, Nasdaq may de-list our common stock from the Nasdaq-Amex
National Market. In such an event, our shares could only be traded on over-the-
counter bulletin board systems. This method of trading could significantly
impair our ability to raise new capital.
12
In the event that our common stock was de-listed from the Nasdaq National
Market due to low stock price, we may become subject to special rules, called
penny stock rules, that impose additional sales practice requirements on broker-
dealers who sell our common stock. The rules require, among other things, the
delivery, prior to the transaction, of a disclosure schedule required by the
Securities and Exchange Commission relating to the market for penny stocks. The
broker-dealer also must disclose the commissions payable both to the broker-
dealer and the registered representative and current quotations for the
securities, and monthly statements must be sent disclosing recent price
information.
In the event that our common stock becomes characterized as a penny stock,
our market liquidity could be severely affected. The regulations relating to
penny stocks could limit the ability of broker-dealers to sell our common stock
and thus the ability of purchasers in this offering to sell their common stock
in the secondary market.
We do not intend to pay dividends in the foreseeable future.
We do not intend to pay any cash dividends on our common stock in the
foreseeable future. Payment of such cash dividends would, in any event, be
prohibited or limited under the terms of our line of credit with Imperial Bank.
13
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These statements include statements regarding our plans,
goals, strategies, intentions, beliefs or current expectations. These
statements are expressed in good faith and we believe had a reasonable basis
when expressed, but we cannot assure you that these expectations will be
achieved or accomplished. Sentences in this prospectus containing verbs such as
"plan," "intend," "anticipate," "target," "predict," "estimate," "believe" or
"expect," or future-tense or conditional constructions (such as "will," "may,"
"could," "should," etc.) constitute forward-looking statements that involve
risks and uncertainties. Items contemplating, or making assumptions about,
actual or potential future sales, market size, collaborations, trends or
operating results also constitute such forward-looking statements. These
statements are only predictions and actual results could differ materially.
Certain factors that might cause such a difference are discussed throughout this
prospectus, including the section entitled "Risk Factors" on pages 6 to 13 of
this document.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The considerations
discussed in "Risk Factors" and elsewhere in this prospectus provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in "Risk Factors" and elsewhere in this prospectus could
have a material adverse effect on our business, operating results and financial
condition.
You should read and interpret any forward-looking statements in conjunction
with our most recent annual report on Form 10-KSB, our quarterly reports on Form
10-Q and our other SEC filings, as well as the considerations discussed in "Risk
Factors."
Any forward-looking statement speaks only as of the date that we made the
statement, and we do not undertake to update the disclosures contained in this
prospectus or reflect events or circumstances that occur subsequently or the
occurrence of unexpected events.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
shareholder. All proceeds from the sale of the shares will be for the account
of the selling shareholder, as described below. See "Selling Shareholder" and
"Plan of Distribution" below.
SELLING SHAREHOLDER
On August 31, 2001, one of our shareholders, the Allen E. Paulson Living
Trust, sold an aggregate of 500,000 shares of its CardioDynamics common stock,
at a price of $5.40 per share, to Pine Ridge Financial, Inc.
Pine Ridge Financial, Inc. (the selling shareholder) has not had a material
relationship with us within the past three years other than as a result of
ownership of our securities. The numbers set forth in the column "Number of
Shares Being Offered" below constitute all of the shares that Pine Ridge
Financial Inc., as the selling shareholder, may distribute in this offering;
however, there are currently no agreements, arrangements or understandings with
respect to the sale of any of the shares and the table below assumes the sale of
all shares. The shares are being registered to permit public secondary trading
of the shares, and the selling shareholder may offer the shares for resale from
time to time.
14
In connection with its purchase of the shares, the selling shareholder
represented that it was acquiring the shares for investment and not with a view
to distributing our common stock and that the selling shareholder was an
accredited investor, as defined in Rule 501(a) under the Securities Act of 1933.
We entered into a registration rights agreement with the selling shareholder,
and agreed that we would file a registration statement on Form S-3 with respect
to the shares purchased by the selling shareholder and would use our best
efforts to cause such registration statement to be declared effective.
Accordingly, we filed with the Commission a registration statement on Form S-3,
of which this prospectus forms a part, with respect to the resale of the shares
from time to time. We also agreed to prepare and file such amendments and
supplements to the registration statement as may be necessary to keep the
registration statement effective until the earliest of (a) the date on which all
of the shares of common stock offered hereby have been re-sold in accordance
with the Securities Act of 1933, (b) two years from the effective date of the
registration statement or (c) the date on which the selling shareholder's shares
could be sold in a single three-month period pursuant to Rule 144 of the
Securities Act. The registration rights provisions require us to bear all of
our registration expenses other than fees and expenses of counsel for the
selling shareholder and brokerage commissions and fees, if any. The Allen E.
Paulson Living Trust has reimbursed us for these registration expenses up to
$10,000 and has further agreed to pay us a fee of approximately $50,000 to
reimburse us for additional direct and indirect expenses incurred in
registration of the shares offered hereby and to compensate us for introducing
the selling shareholder to the Trust.
The following table sets forth the name of the selling shareholder, the
number of shares of our common stock which the selling shareholder owned prior
to the offering and the number of shares of our common stock which may be
offered pursuant to this prospectus.
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After
Offering (1) Offering (1) (3) (4)
Selling ---------------------------------- Number of Shares Being ------------------------------
Shareholder Number Percentage Offered for Sale (2) Number Percentage
---------------------- -------------- ------------------ ------------------------ ------------- ---------------
Pine Ridge Financial 894,600 2.0% 500,000 394,600 0.8%
Inc.
----------
(1) Calculated based on Rule 3d-3(i) of the Exchange Act, using 45,652,522
shares of common stock outstanding as of September 25, 2001.
(2) This registration statement also shall cover any additional shares of
common stock which become issuable in connection with the shares registered
for sale hereby by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of outstanding
shares of our common stock.
(3) Assumes the sale of all shares that may be sold in the offering.
(4) Another registration statement (File No. 333-66396) is currently effective,
registering all shares shown here as being beneficially owned after
offering, for resale by the selling shareholder.
15
PLAN OF DISTRIBUTION
The selling shareholder and any of its pledgees, assignees and successors-
in-interest may, from time to time, sell any or all of its shares of common
stock on any stock exchange, market national quotation system or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling shareholder may use any one
or more of the following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
. block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
. an exchange distribution in accordance with the rules of the
applicable exchange or national quotation system;
. privately negotiated transactions;
. short sales;
. broker-dealers may agree with the selling shareholder to sell a
specified number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The selling shareholder may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling shareholder may pledge its shares to their brokers under the
margin provisions of customer agreements. If the selling shareholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The term "short sales" means any sale of a security that the seller does
not own or any sale which is consummated by the delivery of a security borrowed
by, or for the account of, the seller.
Broker-dealers engaged by the selling shareholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling shareholder and any broker-dealers or agents that are involved
in selling the shares acquired by selling shareholder under the securities
purchase agreement will be considered "underwriters" by the Securities and
Exchange Commission within the meaning of the Securities Act in connection with
sales under this registration statement. Accordingly, any commissions received
by such broker-dealers or
16
agents and any profit on the resale of the shares purchased by them will be
deemed underwriting commissions or discounts under the Securities Act.
We are required to pay all our fees and expenses incident to the
registration of the shares. We have agreed to indemnify the selling shareholder
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act in connection with resale of the shares.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Pillsbury Winthrop LLP, San Diego, California.
EXPERTS
The financial statements of CardioDynamics International Corporation as of
November 30, 2000 and 1999 and for each of the years in the two-year periods
ended November 30, 2000 have been incorporated by reference in this prospectus
and in the registration statement of which this prospectus is a part in reliance
upon the report of KPMG LLP, certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses in connection with
the sale and distribution of the securities being registered. All of the
amounts shown are estimates except the Securities and Exchange Commission
registration fee.
Securities and Exchange Commission registration fee................................. $ 541.88
Accounting fees and expenses*....................................................... 3,000.00
Legal fees and expenses*............................................................ 5,000.00
Printing and engraving fees*........................................................ 2,000.00
Miscellaneous fees and expenses*.................................................... 1,458.12
----------
Total $12,000.00
==========
_________________
* Estimated
Item 15. Indemnification of Directors and Officers.
California Law permits indemnification of officers, directors and other
corporate agents under specified circumstances and subject to specified
limitations. Our certificate of incorporation and bylaws provide that we shall
indemnify our directors, officers, employees and agents to the full extent
permitted by California law, including in circumstances in which indemnification
is otherwise discretionary under California law. In addition, with the approval
of our board of directors and our shareholders, we have entered into separate
indemnification agreements with our directors, officers and some of employees
which require us, among other things, to indemnify them against liabilities
which may arise by reason of their status or service (other than liabilities
arising from willful misconduct of a culpable nature) and to obtain directors'
and officers' insurance, if available on reasonable terms.
These indemnification provisions may be sufficiently broad to permit
indemnification of our officers, directors and other corporate agents for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of ours in which indemnification is
being sought nor are we aware of any threatened litigation that may result in a
claim for indemnification by any director, officer, employee or other agent of
ours.
We have obtained liability insurance for the benefit of our directors and
officers.
II-1
Item 16. Exhibits.
The following exhibits are filed with this registration statement:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------
4.1 Form of common stock certificate (incorporated by reference to
the exhibit of the same number included in our registration
statement on Form 8-A declared effective on April 19, 1984
(File No. 000-11868)).
4.2 Registration Rights Agreement, dated August 31, 2001, by and
between the Registrant and Pine Ridge Financial, Inc.
4.3 Letter Agreement, dated August 31, 2001, between the Registrant
and the Allen E. Paulson Living Trust.
5.1 Opinion of Pillsbury Winthrop LLP.
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of Pillsbury Winthrop LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page contained in
Part II of this registration statement).
Item 17. Undertakings.
We hereby undertake to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) 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; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) under the
Securities Act of 1933 if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(c) 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;
provided, however, that paragraphs (a) and (b) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to
II-2
the Securities and Exchange Commission by us pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
In addition, we hereby undertake:
(a) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
(b) 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.
We hereby undertake that, for purposes of determining any liability under
the Securities Act of 1933, each filing of our annual report pursuant to section
13(a) or 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of ours 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, we will,
unless in the opinion of our 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify that
we have reasonable grounds to believe that we meet all of the requirements for
filing on Form S-3 and have duly caused this registration statement to be signed
on our behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California on October 3, 2001.
CardioDynamics International Corporation
By: /s/ Michael K. Perry
--------------------------------------------
Michael K. Perry
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael K. Perry and Stephen P. Loomis
and each of them, as his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
on Form S-3, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-facts and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
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:
Signature Title Date
/s/ Michael K. Perry Chief Executive Officer and Director October 3, 2001
--------------------------------- (Principal Executive Officer)
Michael K. Perry
/s/ Stephen P. Loomis Vice President, Finance and Chief October 3, 2001
--------------------------------- Financial Officer (Principal Financial and
Stephen P. Loomis Accounting Officer)
Director
---------------------------------
Connie R. Curren, Ed.D. RN
/s/ Jacques C. Douziech Director October 3, 2001
---------------------------------
Jacques C. Douziech
/s/ Cam L. Garner Director October 3, 2001
--------------------------------
Cam L. Garner
/s/ James C. Gilstrap Director October 3, 2001
---------------------------------
James C. Gilstrap
Director
---------------------------------
Richard O. Martin, Ph.D.
Director
---------------------------------
J. Michael Paulson
II-4
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM S-3
UNDER
SECURITIES ACT OF 1933
CARDIODYNAMICS INTERNATIONAL CORPORATION
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit
--------- -------
4.1 Form of Common Stock Certificate (incorporated by reference to the
exhibit of the same number included in our registration statement on
Form 8-A declared effective on April 19, 1984 (File No. 0-11868).
4.2 Registration Rights Agreement, dated August 31, 2001, by and between
the Registrant and Pine Ridge Financial, Inc.
4.3 Letter Agreement, dated August 31, 2001, between the Registrant and
the Allen E. Paulson Living Trust.
5.1 Opinion of Pillsbury Winthrop LLP.
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of Pillsbury Winthrop LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page contained in
Part II of this registration statement).