SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
MW MEDICAL, INC.
(Exact name of Company as specified in its charter)
NEVADA 86-0907471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7373 NORTH SCOTTSDALE ROAD, SUITE B-169, SCOTTSDALE, ARIZONA 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 602-483-8700
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Stock None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES, PAR VALUE $0.001 PER SHARE
(Title of class)
<PAGE>
TABLE OF CONTENTS
Page
COVER PAGE ..................................................................1
TABLE OF CONTENTS ...........................................................2
PART I ................................................................3
DESCRIPTION OF BUSINESS .............................................3
DESCRIPTION OF PROPERTY ............................................10
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES ..........11
REMUNERATION OF DIRECTORS AND OFFICERS .............................12
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS ................................................13
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN
TRANSACTIONS ..................................................13
SECURITIES BEING OFFERED ............................................14
PART II ....................................................................15
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS ...................15
LEGAL PROCEEDINGS .................................................15
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ...................15
RECENT SALES OF UNREGISTERED SECURITIES .............................15
INDEMNIFICATION OF DIRECTORS AND OFFICERS ........................16
PART F/S ....................................................................18
FINANCIAL STATEMENTS ............................................18
PART III ....................................................................19
INDEX TO EXHIBITS .................................................19
SIGNATURES ...............................................................19
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PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
ITEM 6. DESCRIPTION OF BUSINESS
GENERAL
MW Medical, Inc. (the "Company") is in the business of designing and developing
microwave technologies for dermatological applications through its wholly owned
subsidiary, Microwave Medical Corporation ("MMC"). The Company's products are in
the development stage. The Company plans to market and sell its microwave
technology products upon completion of the development stage.
The Company is a Nevada corporation and was incorporated as a subsidiary of
Dynamic Associates, Inc. ("Dynamic") on December 4, 1997. The Company is the
owner of two wholly owned subsidiaries:
(A) Microwave Medical Corporation, a California corporation ("MMC");
(B) P&H Laboratories, Inc., a California corporation ("P&H").
The Company acquired each of MMC and P&H from Dynamic pursuant to a contribution
agreement dated February 26, 1998 between the Company and Dynamic (the
"Contribution Agreement"). The Company has issued to Dynamic 14,223,929 common
shares of the Company in consideration for the transfer by Dynamic to the
Company of:
(A) all of the issued and outstanding shares of P&H;
(B) all of the issued and outstanding shares of MMC and
shareholders loans to MMC in the amount of $2,169,806; and
(C) the agreement of Dynamic to advance to the Company a total of
$200,000. The obligation of Dynamic to advance the sum of
$200,000 is evidenced by a promissory note dated February 26,
1998 (the "Promissory Note").
Dynamic has spun-off all shares of the Company issued pursuant to the
Contribution Agreement to the shareholders of Dynamic by a distribution
completed on March 11, 1998 (the "Distribution"). Each shareholder of Dynamic
received one common share of the Company for each common share of Dynamic held
by the shareholder. The shares of the Company distributed by Dynamic constitute
all of the issued and outstanding shares of the Company. Exhibit 3 contains
information distributed to shareholders regarding the spin off.
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As subsidiaries of Dynamic, each of MMC and P&H has been in the microwave
technologies business for approximately two years. MMC commenced its business as
a subsidiary of Dynamic in September, 1995. Dynamic acquired a 50% interest in
P&H in January, 1996. Dynamic acquired the remaining 50% of P&H in September,
1997. The Company has sold the microwave technologies business carried on by P&H
effective May 6, 1998 in order to concentrate exclusively on the microwave
technologies business carried on by MMC.
PRINCIPAL SERVICES AND PRODUCTS
The Company carries on the business of designing and developing microwave
technologies for dermatological applications through MMC. The Company's products
are in the development stage. The Company plans to market and sell its microwave
technology products upon completion of the development stage.
MMC is engaged in the development of proprietary technology relating to the use
of microwave energy for medical applications. MMC has a patent pending entitled,
"Method and Apparatus for Treating Subcutaneous Histological Features," which
focuses on the application of microwave energy to the treatment of spider veins
and for use in hair removal. The use of microwave for hair removal is based upon
the selective heating of hair follicles while cooling the surface of the skin to
protect the epidermis. MMC has used computer modeling and laboratory studies to
optimize the system for hair removal. Preclinical studies have shown
effectiveness in destroying follicles while maintaining the integrity of the
skin surface. MMC's microwave system for hair removal completed Phase II
clinical trials in June, 1998. Phase II clinical trials consisted of a dose
titration to establish safety and initial indications of efficacy. A total of
21 subjects were tested starting at a low dose in the first group of three
subjects and gradually applying an increasing dose in each group of three
subjects until the maximum tolerable dose was reached. Effectiveness was
evaluated by following hair counts in the treated areas.
MMC's objective is to complete development of a microwave therapy system which
incorporates the technology in the patent for the following applications:
(A) THE TREATMENT OF TELANGIECTASIA, OR, SPIDER VEINS
Spider veins are thread-like red to purplish veins that stem from a
network of small veins just below the surface of the skin. Spider
veins develop more predominately on the legs and faces of women. These
are usually caused by the female hormone estrogen. At this time
surgery, laser and injection (sclerotherapy) are the predominant
treatments for the condition.
(B) THE REMOVAL OF UNWANTED HAIR FOR COSMETIC PURPOSES
Unwanted hair is a common dermatological and cosmetic problem. There is
an increasing demand for hair removal, which thus far has not been well
addressed by
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current technologies. MMC has been able to demonstrate that microwave
technology is a feasible solution for hair removal, and is in the
process of completing Phase II clinical trials for safety and
effectiveness.
RESEARCH AND DEVELOPMENT
MMC began its research and development program in September, 1995 while a
subsidiary of Dynamic. The research and development program included computer
modeling, laboratory studies and preclinical studies which led to the
development of a prototype microwave system that is now in clinical trials for
hair removal, and will soon be in clinical trials for spider veins. P&H
supported the technical development of MMC's prototype system. With the sale of
the business of P&H to Microwave Communications Corp. ("Microwave") on May 6,
1998 (See Description of Business-Sale of the Business of P&H below), Microwave
agreed to provide the technical, management and office support related to
microwave services to MMC for the period to April 1, 1999. This agreement was
arranged by the Company as part of the sale of the business of P&H in order to
ensure that there would be no interruption to the development of the prototype
machines for MMC.
MMC plans to launch its microwave system(s) for spider veins and hair removal at
the end of 1998 or the first quarter of 1999. The Company has three working
prototype systems which are being used in clinical trials in the U.S. and
Europe. A unit ready for production is being developed in conjunction with the
clinical testing and is expected to be ready for market launch when the
regulatory approvals are obtained. MMC is pursuing an agreement with Litton
Industries Inc. whereby Litton would develop a magnetron that can deliver single
microwave pulses according to MMC's specifications. The agreement has been
approved in principal by MMC and Litton and the parties are in the process of
modifying the agreement to include the development of a CW (continuous wave)
magnetron that can be used to deliver multiple pulses for hair removal. The
magnetron is one of the components of the integrated system. Litton already has
a bench level prototype of the magnetron planned for the production unit. The
industrial design of the clinical prototypes was completed by Sonos, Inc. of
Huntington Beach, California. The Company will also use Sonos, Inc. for design
and limited production of the final unit. The Company expects that design of the
production unit will require only 20 percent of MMC's internal resources. MMC
intends to contract with outside vendors for the microwave generator, the
waveguide transmission line, the components of the applicator, the
micro-controller and other components of MMC's microwave system. MMC or a
designated GMP (good manufacturing practice) facility will be responsible for
the final assembly and quality control. The estimated cost of development to
ready production is approximately one million dollars. Initially, MMC will be
dependent upon Litton as the supplier of the magnetron. However, Litton is a
very substantial company, making it unlikely that they could not meet MMC's
production demands. In addition, MMC will search out alternate suppliers of
magnetrons as a back up position.
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COMPETITION AND MARKETING
The Company intends to market its proprietary microwave technology in the
cosmetic dermatology market. In recent years, there has been a substantial
upsurge in the demand for non surgical cosmetic procedures such as the treatment
of spider veins and removal of hair. Market interest has been largely fostered
by the introduction of laser technology for use in cosmetic dermatology.
MMC plans to compete primarily with laser devices in North America and the
European Community. MMC's competitive advantage is expected to be based on
price, safety and effectiveness. The unit price is expected to be in the range
of $70,000 to $80,000, which is 25 to 35 percent below the current cost of the
equivalent laser systems. In addition, laser technology cannot be applied well
in individuals with dark skin (for either spider veins or hair removal) and does
not effectively cause hair removal in individuals with light colored hair. These
limitations are the result of absorption of laser energy by specific pigments in
the skin and hair. In addition, the efficacy of laser systems for spider veins
is suboptimal, in most cases requiring 3 to 5 treatments to achieve an
acceptable clinical response. Based upon the Company's clinical studies to date,
microwave technology is not expected to have these limitations.
The principal competitors are Thermolase Corp. and ESC, Inc., both of which are
U.S. companies. Thermolase concentrates entirely on hair removal and has
established clinics and licensing agreements in North America and Europe.
Thermolase has a market capitalization of $250 million, compared to a high level
of $800 million one year ago. The drop in valuation has been the result of poor
earnings and performance. ESC, Inc. markets pulsed light systems for spider
veins and hair removal, and has a market capitalization of $800 million.
Thermolase has placed 150 laser systems in 33 states and several international
markets. Both companies are growing very rapidly based upon the market demand.
The annual revenue for Thermolase in 1997 was approximately $40 million, and for
ESC, Inc. was $120 million. Both companies have market concentration in North
America and also have sales in markets abroad. Information with respect to
Thermolase and ESC, Inc. was obtained from public information made available by
Thermolase and ESC, Inc. and from generally available market information.
The market strategy will be specific to the geographic area in which the product
is being introduced. MMC will focus on two marketing strategies: selling leasing
the product to physicians and other health-care practitioners, and fee sharing
in which MMC will prefinance the product and will take some percentage of the
revenue generated through the use of the product. MMC plans to use distributors
in each major geographic area who will take over the sales and service of the
product. The Company has not yet entered into any agreements with any
distributors.
The primary customer will be physicians and other healthcare practitioners
specializing in cosmetic dermatology. In the U.S. alone, it is estimated that
there are 17,000 dermatologists. In addition, other physician specialists such
as family practitioners, gynecologist, and surgeons have incorporated cosmetic
dermatology into their practices.
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The worldwide market for the treatment of spider veins and hair removal is
estimated to be $5 billion. New technologies will make up 25% of this market up
to the year 2002.
MMC concentrates marketing and sales efforts in the United States, Canada and
the European Community. The Company will apply to the appropriate regulators for
all three markets simultaneously. On the assumption of efficacy, the European
market launch will be prepared either in the fourth quarter of 1998 or the first
quarter of 1999. The commencement of the American launch is conditional on FDA
approval. In both markets, MMC will apply for hair removal and spider veins.
Depending on end user and region, MMC is preparing three kinds of marketing
strategies. The strategy for the market launch is determined by possibility of
rapid growth and cash flow. Sales in MMC will depend on the respective marketing
strategy.
MMC entered into a license agreement with Microthermia Technology, Inc. (of
California), whereby MMC obtained an exclusive license to develop and
manufacture medical device products related to the treatment of spider veins
(telangiectasia). The license is for an initial period of two years with
automatic one year renewals for the next eight years, at no cost (total license
period of 10 years). This potential 10 year licensing arrangement will terminate
in 2006. MMC does not intend to use this technology at the present time. The
license agreement with Microthermia Technology is a fully paid up license
agreement. The Company does not have any current and will not have any future
payment obligations to Microthermia Technology during the term of the license
agreement.
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EMPLOYEES
The Company's employees consist of its President and Secretary. MMC employs four
individuals, including its President and a Chief Scientist, as well as an
electrical/microwave engineer and a microwave technician. By the end of 1999,
the research and development division of MMC is expected to grow to eight
full-time employees. Expansion will coincide with the Company's product rollout.
Manufacturing and assembly will be conducted by third parties under the
supervision of MMC. Sales, marketing and administration is anticipated to add
another 15 employees also by the end of 1999 to coincide with the Company's
product rollout. None of the employees of the Company or its subsidiaries are
subject to collective bargaining agreements, nor have they been on strike, or
threatened to strike, within the past three years. The Company and its
subsidiaries have no supplemental benefit or incentive arrangements with their
employees.
PATENTS AND TRADEMARKS
The success of the Company substantially depends upon its proprietary microwave
technology for use in cosmetic dermatology. MMC has a patent pending entitled,
"Method and Apparatus for Treating Subcutaneous Histological Features," which
focuses on the application of microwave energy to the treatment of spider veins
and for use in hair removal. The Company has no other trademark or trademark
protection.
COMPLIANCE
The microwave technology products to be manufactured by MMC must be in
compliance with the FCC regulations on Part 18, Title 47 and with the European
standard EN 55011. MMC has performed internal field strength measurements to
demonstrate compliance with FCC regulations. MMC will contract with an
environmental consulting group to confirm environmental compliance.
SALE OF THE BUSINESS OF P&H
The Company has sold the business of P&H pursuant to an asset purchase and sale
agreement dated March 9, 1998 between P&H and Microwave Communication
Corporation, a California corporation ("Microwave"), whereby P&H agreed to sell
to Microwave all of the assets of the business of P&H as a going concern (the
"P&H Sale Agreement"). Microwave is not currently, and, to the Company's
knowledge, has never been an affiliate of the Company. The sale of assets by P&H
to Microwave completed on May 6, 1998. The following consideration was received
by the Company on closing:
(A) cash consideration of $160,534;
(B) a promissory note issued by MCC/Ferro Systems, Inc., a
subsidiary of Microwave, whereby MCC/Ferro has agreed to
pay to P&H the sum of $250,000 on August 1,
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1998 and the sum of $243,125 on March 31, 1999 (the "MCC/Ferro
Promissory Note")
(C) the agreement of Microwave to provide to MMC 1200 hours of
microwave related services for the period to April 1, 1999,
subject to a maximum of 100 hours per month;
(D) office space for the business of MMC at MCC/Ferro's facility
in Simi Valley, California until February 28, 1999.
MCC/Ferro has completed the payment of $250,000 to P&H due August 1, 1998, as
required by the MCC/Ferro Promissory Note.
The obligations of MCC/Ferro under the MCC/Ferro Promissory Note are secured by
a general security agreement against the assets of MCC/Ferro and the guarantee
of Microwave. The general security agreement is subordinated to bank financing
arranged by MCC/Ferro to pay-out P&H's bank financing and pay the amounts under
the MCC/Ferro Promissory Note.
Prior to disposition of its business, P&H was involved in the business of
manufacturing microwave components and subsystems for the communications and
aerospace industries. The devices included isolators, circulators, power monitor
devices, filters, diplexers, switching diplexers, multi-junction circulators,
microwave subsystems and integrated packages and subsystems. P&H is currently
inactive as a result of the sale of the assets comprising its business.
RESEARCH AND DEVELOPMENT EXPENDITURES
During the past two fiscal years, the following amounts were spent by MMC, as a
subsidiary of Dynamic, on research and development activities:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1997
<S> <C> <C>
MMC $ 588,915 $ 1,057,759
</TABLE>
Research and Development cost for P&H is incorporated in the Cost of Goods
category in the Financial Statements.
LIQUIDITY
As a subsidiary of Dynamic, MMC had net losses equal to $595,318 for the year
ended December 31, 1996 and $1,127,675 for the year ended December 31, 1997. The
losses were funded by Dynamic. The Company is now responsible for financing MMC
independently of Dynamic. The Company does not have any debt owing to Dynamic as
a result of the distribution.
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The Company anticipates that its research and development expenditures for the
1998 fiscal year will be approximately $2 Million. The Company will apply the
proceeds of sale from the disposition of the microwave technologies business
owned by P&H to fund MMC. The Company will also apply funds realized from the
promissory note executed by Dynamic in favor of the Company to fund MMC. The
Company completed a private placement of 1,500,000 common shares in October,
1998 at a price of $0.75 per share for gross proceeds of $1,125,000. The Company
has paid a commission of 10% of the gross proceeds in connection with completion
of the financing. The balance of funding and any additional required funding is
anticipated to be achieved by additional equity financing of the Company's
securities. There is no assurance the Company will be able to complete sales of
its securities at such amounts and at such prices as are necessary to fund the
Company's projected research and development expenditures and general and
administrative expenditures.
SUBSIDIARIES
Because the Company acts only as a holding company for P&H and MMC, all of the
information for each of these entities is listed throughout this Form 10SB.
Reference to the Company is to MW Medical and its wholly owned subsidiaries, P&H
and MMC. The subsidiaries' financial information is included in the financial
statements attached hereto. The Company did not come into existence until
December 1997, while the subsidiaries were in existence for all of 1997. P&H and
MMC have maintained separate operations and financial reporting both prior to
and subsequent to the spin-off of the shares of the Company by Dynamic.
ITEM 7. DESCRIPTION OF PROPERTY
The Company leases space on a rent-free basis from its former parent, Dynamic
Associates, Inc., within Dynamic's corporate headquarters at 7373 North
Scottsdale Road, Suite B-169, Scottsdale, Arizona, 85253.
MMC's offices are located at 4496 Runway Street, Simi Valley, CA 93063. The
premises occupied by MMC constitute a portion of the premises formerly occupied
by P&H, constituting approximately 18,000 square feet at 4496 Runway Street,
Simi Valley, California, and now occupied by MCC/Ferro. MCC/Ferro has agreed
pursuant to the P&H Sale Agreement to grant to MMC occupancy of the premises at
Simi Valley, California until February 28, 1999 without any additional payment
or obligation of MMC, other than reimbursement of expenses directly attributable
to MMC's occupancy.
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ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following information sets forth the names of the officers and directors of
the Company, their present positions with the Company and its subsidiaries, and
their biographical information.
<TABLE>
<CAPTION>
MW MEDICAL, INC.
Name Age Office(s) Held
<S> <C> <C>
Jan Wallace 42 Director
Grace Sim 37 Secretary, Treasurer, Director
Paul E. Banko 52 President and Chief Executive
Officer, Director
MICROWAVE MEDICAL CORPORATION
Name Age Office(s) Held
Paul E. Banko 52 President and Chief Executive
Officer
Robert Spertell 49 Chief Operating Officer
Grace Sim 37 Secretary, Treasurer, Director
Jan Wallace 42 Director
P&H LABORATORIES, INC.
Name Age Office(s) Held
Jan Wallace 42 President, CEO, Director
Grace Sim 37 Secretary, Treasurer, Director
</TABLE>
Jan Wallace was President, Chief Executive Officer and Director of the Company
since its inception in December, 1997. Ms. Wallace resigned as President and
Chief Executive Officer effective October 1, 1998. Ms. Wallace has been employed
by Dynamic since April 1995, when she was elected to the Board of Directors and
accepted the position of Chief Operating Officer. Ms. Wallace was previously
Vice President of Active Systems, Inc. a Canadian Company specializing in SGML
Software an ISO standard in Ottawa, Ontario for the period from 1993 to 1994.
Prior to that she was President and Owner of Mailhouse Plus, Ltd., an office
equipment distribution company which was sold to Ascom Corporation. She has also
been in management with Pitney Bowes-Canada and Bell Canada where she received
its highest award in Sales and Marketing. Ms. Wallace was educated at Queens
University in Kingston, Ontario and Carleton University, Ottawa, Ontario in
Political Science with a minor in Economics. Ms. Wallace is also an officer and
director of Claire Technologies, Inc.
Grace Sim has been the Secretary/Treasurer of Dynamic Associates, Inc. since
October 10, 1997 and of MW Medical, Inc. since its inception in December 1997.
Ms. Sim joined Dynamic in January 1997. Prior to joining Dynamic, Ms. Sim owned
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Sim Accounting, an accounting consulting company in Ottawa, Ontario, Canada.
Between 1993 and 1994, she worked as the controller with Fulline, an office
equipment company and with Mailhouse Plus Ltd. between 1990 and 1992. Ms. Sim
received her Bachelor of Mathematics with honors from the University of Waterloo
in Waterloo, Ontario. She is also an Officer in Claire Technologies, Inc., a
company which files annual reports pursuant to the Securities Exchange Act of
1934.
Dr. Robert Spertell has been the Chief Scientist of MMC since April 1996. Dr.
Spertell received a Ph.D. in Chemical Engineering from Princeton University, and
a M.D. from the University of California, San Diego. From 1994 until the time
Dr. Spertell joined MMC, he was Chief Scientist at Zapit Technology, Inc., a
company specializing in the development of an electron beam system for
destruction of organic vapor waste. From 1990, Dr. Spertell was Vice President
and Medical Director of Life Support Systems, Inc., a medical company in the
development of hypo- and hyperthermia devices for medical applications Dr.
Spertell has further consulted in the areas of microwave hyperthermia, stroke
therapies, medical software, and business and strategic planning for various
other medical device companies.
Mr. Paul E. Banko has joined the Company as President and Chief Executive
Officer effective October 1, 1998. Mr. Banko also replaced Dr. Rainer Marquart
as President and Chief Executive Officer of Microwave Medical Corporation
effective October 1, 1998. Mr. Banko has been President of International
Consulting Group, Inc. since 1985. International Consulting Group, Inc. provides
general management and consulting services for start-up companies. Mr. Banko was
President of Bausch Lomb Australia, Bausch Lomb United Kingdom, Chairman of
Hydron Europe Ltd. (London) and President of Hydron Canada Ltd. from 1975 to
1985 and has had extensive experience with domestic and international operations
in the medical and health care fields since 1973.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth certain information as to the Company's five
highest paid executive officers and directors for the fiscal year ending on
December 31, 1998. This information is prospective and there is no assurance
that this compensation will in fact be paid or will not be modified. No other
form of compensation is anticipated to be paid to any such officers other than
the cash compensation set forth below.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Name and principal position | Year | Salary (per annum)
- --------------------------------------------------------------------------------
<S> <C> <C>
| |
Jan Wallace | 1998 | $200,000
Paul E. Banko | 1998 | $144,000
Robert Spertell | 1998 | $110,000
Grace Sim | 1998 | $ 96,000
- --------------------------------------------------------------------------------
</TABLE>
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In addition to the above compensation, each director of the Company will be paid
additional compensation of $2,500 per quarter as consideration for each director
serving on the Company's board of directors.
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth, as of October 8, 1998, the beneficial ownership
of the Company's Common Stock by (i) each of the five most highly compensated
officers, (ii) the officers and directors as a group, and (iii) each person
known by the Company to beneficially own more than 5% of the Company's Common
Stock outstanding as of such date. Except as otherwise indicated, all shares are
owned directly.
<TABLE>
<CAPTION>
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class
- -------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock Cede & Co. 7,828,966 49.8%
P.O. Box 222
Bowling Green Station
New York, NY 10274 - 0000
Common Stock Vickie T. Lucky 2,370,000 15.1%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
Common Stock Jan Wallace 500,000 3.2%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
Common Stock Grace Sim 50,000 0.3%
(Secretary/Treasurer)
7373 N. Scottsdale Rd. Suite B-169
Scottsdale, AZ 85253
Common Stock All Officers and Directors 550,000 3.5%
as a Group (2 persons)
</TABLE>
Neither of Messrs. Banko or Spertell own any shares of Common Stock of the
Company. There were 15,723,929 shares of Common Stock outstanding as of October
8, 1998. There are no options, warrants or rights outstanding to purchase
securities of the Company.
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Nil.
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ITEM 12. SECURITIES BEING OFFERED
The securities being registered are the Company's common shares, par value
$0.001 per share. Under the Company's Articles of Incorporation, the total
number of shares of all classes of stock that the Company shall have authority
to issue is 100,000,000 common shares, par value $0.001 per share, all of which
shall be Company Common Stock. As of October 8, 1998, a total of 15,723,929
shares of Company Common Stock are issued and outstanding. The number of shares
of Common Stock outstanding is based on the number of shares of Common Stock
which were distributed to the shareholders of Dynamic on a one to one basis
based on the shareholders of Dynamic on record as of February 25, 1998, plus an
additional 1,500,000 shares of Common Stock issued in a private placement of the
Company's Common Stock which completed in July, 1998. All of the Shares
distributed to Dynamic shareholders in the distribution and issued on completion
of the private placement are fully paid and non-assessable.
There are no outstanding options to purchase securities of the Company.
COMMON STOCK
Holders of Company Common Stock are entitled to one vote for each share on all
matters voted on by shareholders. Holders of Company Common Stock do not have
cumulative voting rights in the election of directors. The first annual meeting
of shareholders is expected to be held within 12 months of the Distribution
Date.
Holders of Company Common Stock do not have preemptive rights, or any
subscription, redemption or conversion privileges. Holders of Company Common
Stock are entitled to participate ratably in dividends on the Company Common
Stock as declared by the Board of Directors, and are entitled to share ratably
in all assets available for distribution to shareholders in the event of
liquidation or dissolution of the Company.
TRANSFER AGENT
National Stock Transfer, 3098 South Highland Drive, Suite 485, Salt Lake City,
Utah 84106 is the transfer agent for the Shares.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
The Company anticipates applying for a listing on the OTC Bulletin Board upon
effectiveness of this registration statement. Currently, there is no public
market for the Company's stock and there is no assurance that a public market
will materialize.
As of May 31, 1998 there were 409 registered shareholders in the Company. There
are no dividend restrictions in the Company.
None of the holders of the Company's common shares or warrants or options to
purchase common shares have any right to require the Company to register its
common shares pursuant to the SECURITIES ACT OF 1933, as amended.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has had no changes in or disagreements with its accountants since
its inception in December 1997.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued to Dynamic 14,223,929 common shares pursuant to the
Contribution Agreement in consideration for the transfer by Dynamic to the
Company of all shares and shareholder loans of each of MMC and P&H and the
agreement of Dynamic to advance to the Company a total of $200,000. The shares
of the Company issued to Dynamic have subsequently been distributed to the
shareholders of Dynamic on the basis of one common share of the Company for each
common share of Dynamic.
The Company has issued an additional 1,500,000 common shares pursuant to a
private placement offering of its common shares completed pursuant to Rule 506
of Regulation D promulgated under the SECURITIES ACT OF 1933, as amended. The
offering was completed in July, 1998. The Company did not issue any warrants or
other securities convertible into common shares in connection with this
offering.
The issue of common shares by the Company to Dynamic was completed pursuant to
the exemption from registration provided by Section 4(2) of the SECURITIES ACT
OF 1933, as amended.
<PAGE>
-16-
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the Company are indemnified as provided under the
Nevada Revised Statutes and the Bylaws of the Company.
Under the NRS, director immunity from liability to a corporation or its
shareholders for monetary liabilities applies automatically unless it is
specifically limited by a corporation's articles of incorporation (which is not
the case with the Company's Articles of Incorporation). Excepted from that
immunity are: (i) a willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director has a material
conflict of interest; (ii) a violation of criminal law (unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful); (iii) a transaction from
which the director derived an improper personal profit; and (iv) willful
misconduct.
The Bylaws provide that the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a Director, Officer, employee or agent of
this corporation, or is or was serving at the request of this corporation as a
Director, Officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgements, fines, and amounts paid in settlement actually and reasonably
incurred by a director in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of this corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe this conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of this corporation, and with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
The Company also indemnifies any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of this corporation to procure a judgment in its favor by reason of
the fact that that person is or was a Director, Officer, employee, or agent of
the Company, or is or was serving at the request of the Company as a Director,
Officer, employee, or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of this corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Company unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view
<PAGE>
-17-
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper;
To the extent that a Director, Officer, employee, or agent of the Company has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to above, or in defense of any claim, issue, or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith;
Any indemnification shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the Director,
Officer, employee, or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in paragraphs (a) and (b)
above. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who where not parties to such
action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders;
Expenses incurred in defending a civil or criminal action, suit, or proceeding
may be paid by the Company in advance of the final disposition of such action,
suit, or proceeding as authorized by the board of directors in the manner
provided above under receipt of an undertaking by or on behalf of the director,
officer, employee, or agent to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the Company as
authorized in the Bylaws.
The indemnification shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
<PAGE>
-18-
PART F/S
FINANCIAL STATEMENTS
The Company's audited Financial Statements, as described below, are attached
hereto.
1. Audited financial statements for the year ended December 31, 1997,
including:
(a) Balance Sheet;
(b) Consolidated Statement of Operations;
(c) Consolidated Statement of Changes in Stockholders' Equity;
(d) Consolidated Statement of Cash Flows;
(e) Notes to Consolidated Financial Statements;
(f) Unaudited Pro Forma Balance Sheet;
(g) Unaudited Pro Forma Consolidated Statement of Operations.
<PAGE>
-19-
PART III
INDEX TO EXHIBITS
Exhibit 1: Articles of Incorporation*
Exhibit 2: Bylaws*
Exhibit 3: Information Statement*
Exhibit 4: Contribution Agreement*
* Previously Filed
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Amendment No. 1 to Form 10SB Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
MW MEDICAL, INC.
By: /s/ Paul Banko
PAUL E. BANKO
President and Chief Executive Officer
Date: October 9, 1998
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
MW Medical, Inc.
We have audited the accompanying consolidated balance sheets of MW Medical, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MW Medical, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations, changes in stockholders' deficit, and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements at December 31, 1997, the Company has an accumulated deficit of
$306,594. The Company has suffered losses from operations and has a substantial
need for working capital. This raises substantial doubt about its ability to
continue as a going concern. As discussed in Note 14, the Company is also in the
process of selling the net assets of its subsidiary (P&H) which has operations.
This will leave the Company with no operating revenue in the near future.
Management's plans in regard to these matters are described in Note 13 to the
financial statements. The accompanying financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 30, 1998, except Notes 2, 8, and 14
which are dated October 2, 1998
F-1
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 387,982 $ 874,858
Accounts receivable (less allowance for doubtful accounts of
$20,000 in 1997 and $20,000 in 1996) 559,783 525,174
Loans receivable - related parties (Note 5) 0 30,300
Other receivables 19,824 98,120
Inventories (Note 2) 809,977 717,827
Prepaid expense and other current assets 17,829 11,308
Deferred tax benefit (Note 8) 0 67,000
----------------- ------------------
TOTAL CURRENT ASSETS 1,795,395 2,324,587
PROPERTY, PLANT, & EQUIPMENT (Note 4) 693,283 260,730
OTHER ASSETS
Deposits 21,705 22,627
Organization Costs (Note 2) 28,440 880
----------------- ------------------
50,145 23,507
----------------- ------------------
$ 2,538,823 $ 2,608,824
================= ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 227,587 $ 107,364
Accrued expenses 147,667 145,364
Current portion of long-term debt (Note 7) 90,449 48,185
Income taxes payable (Note 8) 0 45,415
----------------- ------------------
TOTAL CURRENT LIABILITIES 465,703 346,328
Payable - former parent (Note 6) 1,999,806 1,085,447
Long-term debt (Note 7) 329,808 124,565
Deferred income tax (Notes 2 and 8) 0 56,500
----------------- ------------------
2,329,614 1,266,512
----------------- ------------------
TOTAL LIABILITIES 2,795,317 1,612,840
Commitments and contingencies (Note 9) 0 0
STOCKHOLDERS' EQUITY Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,223,929 shares 14,224 14,224
Additional paid-in capital 35,876 35,876
Retained earnings (deficit) (306,594) 945,884
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (256,494) 995,984
----------------- ------------------
$ 2,538,823 $ 2,608,824
================= ==================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 3,382,388 $ 3,395,098
Cost of sales 2,659,882 2,496,997
----------------- ------------------
GROSS PROFIT 722,506 898,101
Selling and General & administrative expenses 779,772 662,076
Depreciation and amortization 139,062 60,897
Research and development (Note 2) 1,057,759 588,915
----------------- ------------------
1,976,593 1,311,888
----------------- ------------------
NET OPERATING (LOSS) (1,254,087) (413,787)
OTHER INCOME (EXPENSE)
Interest income 28,366 30,004
Interest expense (16,667) (16,988)
Miscellaneous income 6,675 8,162
----------------- ------------------
18,374 21,178
----------------- ------------------
NET (LOSS) BEFORE INCOME TAXES (1,235,713) (392,609)
INCOME TAX EXPENSE (Note 8) 16,765 74,300
----------------- ------------------
NET (LOSS) $ (1,252,478) $ (466,909)
================= ==================
Net (loss) per weighted average share $ (.09) $ (.03)
================= ==================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 14,223,929 14,223,929
================= ==================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
------------
Par Value $.001 Additional
--------------- Paid-in Retained
Shares Amount Capital Earnings
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Balances at 12/31/95 0 $ 0 $ 0 $ 0
Issuance of common stock (restricted) at $.1028
per share for subsidiaries * 14,223,929 14,224 35,876 1,412,793
Net loss for year (466,909)
------------- --------------- --------------- ---------------
Balances at 12/31/96 14,223,929 14,224 35,876 945,884
Net loss for year (1,252,478)
Balances at 12/31/97 14,223,929 $ 14,224 $ 35,876 $ (306,594)
============= =============== =============== ================
* Transaction actually occurred on March 11, 1998, but is reflected earlier under pooling-of-interests method of accounting.
</TABLE>
F-4
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (1,252,478) $ (466,909)
Adjustments to reconcile net (loss) to cash used by
operating activities:
Depreciation and amortization 139,062 60,897
Book value of assets sold/disposed 47,405 0
Deferred taxes 10,500 (11,500)
Changes in assets and liabilities:
Accounts receivable (34,609) 285,651
Inventories (92,150) (129,024)
Prepaid expenses and other (18,146) (9,196)
Accounts payable and accrued expenses 120,116 21,922
Income taxes payable (45,415) (83,590)
----------------- ------------------
NET CASH USED BY OPERATING ACTIVITIES (1,125,715) (331,749)
INVESTING ACTIVITIES
Loan - other 92,330 (98,120)
Loan - related party 30,300 0
Organization costs (27,800) 0
Purchase of equipment (618,780) (150,680)
Deposits 922 (1,312)
----------------- ------------------
NET CASH USED BY INVESTING ACTIVITIES (523,028) (250,112)
FINANCING ACTIVITIES
Borrowings - former parent 914,360 548,500
Cash from subsidiaries 0 986,944
Principal payments on debt (99,796) (78,206)
Principal payments on capital lease obligation 0 (519)
Loan proceeds 347,303 0
----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,161,867 1,456,719
----------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (486,876) 874,858
Cash and cash equivalents at beginning of year 874,858 0
----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 387,982 $ 874,858
================= ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 14,232 $ 17,356
Cash paid for income taxes 65,715 167,790
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1997
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on
December 4, 1997. The Company is now engaged in the acquisition of
microwave technologies for medical purposes through Microwave Medical
Corp. ("MMC"), and the manufacturing of highly technologically advanced
components and subsystems for the communications and aerospace
industries through P & H Laboratories ("P & H").
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
---------------------------
The consolidated financial statements for 1997 and 1996 include the
accounts of the Company; its wholly owned subsidiaries, MMC and MMC's
Germany based subsidiary Microwave Medical GmBH ("GmBH"), which was
formed in late 1997, and P & H.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Basis of Presentation
---------------------
These financial statements are presented to meet requirements of the
Securities and Exchange Commission and to show the activities of the
entities whose operations are now being continued as subsidiaries of
the Company.
Accounting Methods
------------------
The Company recognizes income and expenses based on the accrual method
of accounting.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. At December 31, 1997 and 1996, inventories were comprised of
the following:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $ 344,909 $ 271,669
Work in progress 465,068 446,158
------------- ------------
$ 809,977 $ 717,827
============= ============
</TABLE>
Research and Development Costs
------------------------------
Research and development costs were $1,057,759 for 1997 and were all
incurred by MMC and GmBH ($588,915 in 1996 and all incurred by MMC).
Warranty Costs
--------------
The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for
products sold during the year. The accrued liability for warranty costs
is included in accrued expenses in the accompanying balance sheets.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends.
Stock Options
-------------
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its future employee stock options
rather than adopting the alternative fair value accounting provided for
under Financial Accounting Standards Board ("FASB") FASB Statement No.
123, Accounting for Stock Based Compensation (SFAS 123).
Estimates
See Notes to Financial Statements.
F-6
<PAGE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Allowance for Uncollectible Accounts
------------------------------------
The Company provides an allowance for uncollectible accounts based upon
prior experience and management's assessment of the collectability of
existing specific accounts.
F-7
<PAGE>
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Concentration of Credit Risk
----------------------------
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The Company
places its investments in highly rated commercial paper obligations
which limits the amount of credit exposure. Historically, the Company
has not experienced any losses related to investments.
Property, Plant, and Equipment
------------------------------
Property, plant, and equipment is recorded at cost and is being
depreciated over a useful life of seventeen months to eight years using
the straight-line and accelerated methods.
Cash and Cash Equivalents
-------------------------
For financial statement purposes, the Company considers all highly
liquid investments with an original maturity of three months or less
when purchased to be cash equivalents.
Organization Costs
------------------
Organization costs of MMC and GmBH are being amortized over sixty
months.
Income Taxes
------------
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than
not that some portion of all of the deferred tax assets will not be
realized. The valuation allowance at December 31, 1997 was $73,000 and
at December 31, 1996 it was zero. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the
date of enactment. As of December 31, 1997, temporary differences arose
primarily from differences in the timing of recognizing expenses for
financial reporting and income tax purposes. Such differences include
depreciation, bad debt allowance, and various accrued operating
expenses.
Prior to October 1, 1997, P&H filed separate income tax returns. For
the period of October 1, 1997 to December 31, 1997, P&H filed a
consolidated tax return with Dynamic Associates, Inc. ("Dynamic"), its
parent at that time. MMC filed a consolidated tax return with Dynamic
in 1996 and 1997.
Loss per Share
--------------
Loss per common share is computed by dividing net loss by the weighted
average shares outstanding during each period.
NOTE 3: CAPITALIZATION
The Company's authorized stock includes 100,000,000 shares of Class "A"
common stock at $.001 par value. March 11, 1998, the Company issued
14,223,929 shares of its restricted common stock to the shareholders of
Dynamic Associates, Inc. in exchange for the common stock of MMC and
P&H held by those shareholders. The financial statements of MMC and P&H
have been presented herein as if the entities had been together for all
periods presented. The acquisitions of MMC & P&H have been accounted
for as reverse acquisitions. The financial statements are presented on
a consolidated basis as if the entities were consolidated for all
periods presented.
NOTE 4: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Net Book Value
Accumulated --------------
Cost Depreciation 1997 1996
------------- ------------------ --------------- ---------
<S> <C> <C> <C> <C>
Machinery & Equipment $ 2,036,681 $ 1,463,473 $ 573,208 $ 187,364
Furniture & Fixtures 240,150 160,872 79,278 73,366
Leasehold Improvements 49,539 8,742 40,797 0
------------- ------------------ --------------- ------
$ 2,326,370 $ 1,633,087 $ 693,283 $ 260,730
============= ================== =============== ============
</TABLE>
Depreciation expense is calculated under straight-line and accelerated
methods based on the estimated service lives of depreciable assets.
Depreciation expense for the year ended December 31, 1997 amounted to
$138,822, ($60,657 in 1996).
Included in machinery and equipment is $59,315 of equipment under a
capital lease at December 31, 1997. The related accumulated
depreciation at December 31, 1997 is $51,397.
F-8
<PAGE>
NOTE 5: LOANS RECEIVABLE - RELATED PARTIES
<TABLE>
<CAPTION>
1997 1996
Due From Amount Amount Interest Rate Due Date
----------------------------- ------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Officer of P & H $ 0 $ 30,300 0% June, 1997
============= ===========
</TABLE>
NOTE 6: PAYABLE - FORMER PARENT
At December 31, 1997, MMC/GmBH owes $1,999,806 to Dynamic, their former
parent ($1,085,447 at December 31, 1996). The amounts represent
advances from Dynamic, which are non-interest bearing and have no set
repayment terms.
During the quarter ended March 31, 1998, Dynamic charged the advances
to bad debt expense and does not anticipate being repaid.
NOTE 7: LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
Notes payable - S.B.A. Payable in monthly installments of
$892, including interest at 4% through June 2003. Debt is
guaranteed by the President of P & H. This note is
subordinated to the bank
note below. $ 0 $ 59,992
Note payable - Bank. Payable in monthly installments of $3,317
plus interest at prime plus 1% per annum and secured by
accounts receivable, other rights to payment, general
intangibles, inventory, and equipment of P & H. Debt
matures
in December, 1999. 72,954 112,758
Note payable - bank. Interest payments only until May, 1998 at
which time it is converted to 48 monthly installments of
$7,235 plus interest at prime (8.5% at December 31, 1997)
plus 1% per annum and secured by assets of P&H. Debt
matures in May 2002. The agreement contains certain
financial and restrictive covenants. As of December 31,
1997, P&H was not in compliance with certain financial
covenants. On March 2, 1998, the bank waived such events
of noncompliance as
of such date. 347,303 0
----------------- -----
420,257 172,750
Less current portion (90,449) (48,185)
----------------- -----------
$ 329,808 $ 124,565
================= ===========
</TABLE>
Scheduled maturities of these obligations are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C> <C>
1998 $ 90,449
1999 119,808
2000 87,000
2001 87,000
2002 36,000
Thereafter 0
-----------------
$ 420,257
</TABLE>
F-9
<PAGE>
NOTE 8: INCOME TAXES
Components of income tax (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------
<S> <C> <C>
Current
Federal $ 4,665 $ 63,500
State 1,600 22,300
---------------------- ----------
6,265 85,800
Deferred
Federal 7,800 (9,000)
State 2,700 (2,500)
---------------------- ----------
10,500 (11,500)
Income tax (benefit) $ 16,765 $ 74,300
====================== ==========
</TABLE>
A reconciliation of the provision for income tax expense with the
expected income tax computed by applying the federal statutory income
tax rate to income before provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- -------------
<S> <C> <C>
Income tax computed at federal
statutory tax rate $ (420,142) $ (133,487)
Tax due to not being able to file
Consolidated return and other 435,851 193,069
State taxes (net of federal benefit) 1,056 14,718
---------------------- ------------
$ 16,765 $ 74,300
====================== ============
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets for income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------
<S> <C> <C>
Current deferred tax assets
Net operating loss $ 11,000 $ 0
Allowance for doubtful accounts 8,600 9,000
Capitalized inventory cost for tax 26,000 21,000
Vacation accrual 22,000 22,000
State income tax 1,000 9,000
Other accruals 4,400 6,000
Valuation allowance (73,000) 0
---------------------- ----------
Net deferred current tax assets $ 0 $ 67,000
====================== ==========
Long-term deferred tax liabilities
Difference in fixed assets $ 0 $ 56,500
====================== ==========
</TABLE>
There was an increase of $73,000 in the valuation allowance for the
year ended December 31, 1997 ($0 change for the year ended December 31,
1996).
The deferred tax items relate to P&H. No deferred tax asset has been
recorded for MMC due to the fact it currently has no operations to use
its loss carryforward.
At December 31, 1997, MMC has a federal net operating loss carryover of
approximately $682,000. The Federal loss will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 2010 $ 31,000
December 31, 2011 651,000
----------------------
$ 682,000
======================
</TABLE>
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company is provided with office space and other management services
at no charge at the present time.
MMC has the following commitments:
One officer will receive $15,000 per month.
Future scheduled payments under these employment related commitments
are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
December 31, 1998 $ 180,000
======================
</TABLE>
P & H leases its facility from one of its officers under an operating
lease that requires minimum monthly payments of $15,468. The lease
expires February 28, 1999 and requires P & H to pay real property
taxes, insurance, and utility bills.
F-10
<PAGE>
NOTE 9: COMMITMENTS AND CONTINGENCIES (continued) Future minimum lease
payments are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
December 31, 1998 $ 186,000
December 31, 1999 31,000
------------
$ 217,000
============
</TABLE>
Rental expense for the year ended December 31, 1997 was $192,466
($189,088 in 1996) which includes $7,298 paid by MMC to P&H ($7,120 in
1996).
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, other
receivables, accounts payable, and accrued expenses approximate fair
value due to the short maturity periods of these instruments. The fair
value of the Company's long-term debt, based on the present value of
the debt, assuming interest rates as follows at December 31, 1997 was:
<TABLE>
<CAPTION>
<S> <C>
Note at 9.5% $ 60,375
Note at 9.5% 230,550
----------------------
$ 290,925
======================
</TABLE>
NOTE 11: MAJOR CUSTOMERS
During 1997, P&H had sales to two customers representing 38.5% and
12.6% of total sales. At December 31, 1997, accounts receivable from
the two customers was about $274,000. During 1996, P&H had sales to two
customers which represented 40.6% and 12.2% of total sales. At December
31, 1996, accounts receivable from the two customers totaled $295,000.
NOTE 12: INDUSTRY SEGMENTS
The following narrative is before elimination of certain intercompany
items.
For 1997, all sales, cost of sales, and selling and general and
administrative expenses were incurred by P&H. P&H also had depreciation
and amortization expense of $63,272, interest income of $21,692,
interest expense of $16,667, other income of $6,675, and income tax
expense of $15,965, for a net loss of $124,803.
MMC had depreciation and amortization expense of $75,790, research and
development expense of $1,057,759, interest income of $6,674, and
income tax expense of $800, for a net loss of $1,127,675.
For 1996, all sales, cost of sales, and selling and general and
administrative expenses were incurred by P&H. P&H also had depreciation
and amortization expense of $44,956, interest income of $19,666,
interest expense of $16,988, other income of $8,162, and income tax
expense of $73,500, for a net income of $128,409.
MMC had depreciation and amortization expense of $15,941, research and
development expense of $588,915, interest income of $10,338, and income
tax expense of $800, for a net loss of $595,318.
Pre-consolidation net income (loss) is as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
<S> <C> <C>
MMC/GmBH $ (1,127,675) $ (595,318)
P & H (124,803) 128,409
----------------- ---------------
Adjusted Net Loss $ (1,252,478) $ (466,909)
================= ===============
</TABLE>
NOTE 13: GOING CONCERN
The financial statements are presented on the basis that the Company is
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. At December 31, 1997, the Company has a loss
from operations for 1997 of $1,254,087 and an accumulated deficit of
$306,594.
Management feels that loans from related parties and a 1998 public
stock/debt offering will provide sufficient working capital to allow
the Company to continue as a going concern. The $653,659 of cash
discussed in Note 14 will also help fund operations.
F-11
<PAGE>
NOTE 14: SUBSEQUENT EVENTS
As discussed in Note 3, the Company actually acquired its subsidiaries
in 1998. The Company had no assets, liabilities, or operations of its
own for 1996 and 1997.
Effective April 1, 1998, a management team was brought in to run P&H.
This entity then began negotiations to purchase the net assets of P&H
from the Company for a total of $653,659 in cash and management
services valued at $240,000, of which $160,534 cash has been received.
The $653,659 is due as follows:
$ 160,534 on April 1, 1998
250,000 on August 1, 1998
243,125 on March 31, 1999
Interest at 8% also accrues on $493,125 and is due March 31, 1999.
If the sale had occurred on December 31, 1997, P&H assets in the amount
of $2,274,732 and liabilities in the amount of $720,348 would not be
included in the financial statements. The Company would have recorded a
receivable in the amount of $653,659 for the sale, prepaid expense of
$240,000, and the amount of $660,725 as loss would have been recorded
on the statement of operations.
F-12
<PAGE>
<TABLE>
<CAPTION>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, Pro Forma
1997 P&H Sale Balances
ASSETS ------------ ---------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 387,982 $ (315,585) $ 72,397
Accounts receivable (less allowance for doubtful
accounts of $20,000 in 1997) 559,783 (559,783) 0
Other receivables 19,824 (14,035) 5,789
Receivable - P&H Sale 0 653,659 653,659
Prepaid expense - P&H Sale 0 240,000 240,000
Inventories 809,977 (809,977) 0
Prepaid expense and other current assets 17,829 (12,558) 5,271
----------------- ----------------- ------------------
TOTAL CURRENT ASSETS 1,795,395 (818,279) 977,116
PROPERTY, PLANT, & EQUIPMENT 693,283 (541,479) 151,804
OTHER ASSETS
Deposits 21,705 (21,315) 390
Organization Costs 28,440 0 28,440
----------------- ----------------- ------------------
50,145 (21,315) 28,830
----------------- ----------------- ------------------
$ 2,538,823 $ (1,381,073) $ 1,157,750
================= ================= ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 227,587 $ (156,260) $ 71,327
Accrued expenses 147,667 (143,831) 3,836
Current portion of long-term debt 90,449 (90,449) 0
----------------- ----------------- ------------------
TOTAL CURRENT LIABILITIES 465,703 (390,540) 75,163
Payable - former parent 1,999,806 0 1,999,806
Long-term debt 329,808 (329,808) 0
----------------- ----------------- ------------------
2,329,614 (329,808) 1,999,806
----------------- ----------------- ------------------
TOTAL LIABILITIES 2,795,317 (720,348) 2,074,969
STOCKHOLDERS' EQUITY Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,223,929 shares 14,224 0 14,224
Additional paid-in capital 35,876 0 35,876
Retained earnings (deficit) (306,594) (660,725) (967,319)
----------------- ----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (256,494) (660,725) (917,219)
----------------- ----------------- ------------------
$ 2,538,823 $ (1,381,073) $ 1,157,750
================= ================= ==================
</TABLE>
This pro forma shows what the balance sheet would have looked like had the
sale of the net assets of P&H occurred on December 31, 1997.
F-13
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, Pro Forma
1997 P&H Sale Balances
------------ --------- ----------
<S> <C> <C> <C>
Net sales $ 3,382,388 $ 0 $ 3,382,388
Cost of sales 2,659,882 0 2,659,882
--------------- -------------- ----------------
GROSS PROFIT 722,506 0 722,506
Selling and General & administrative expenses 779,772 0 779,772
Depreciation and amortization 139,062 0 139,062
Research and development 1,057,759 0 1,057,759
--------------- -------------- ----------------
1,976,593 0 1,976,593
--------------- -------------- ----------------
NET OPERATING (LOSS) (1,254,087) 0 (1,254,087)
OTHER INCOME (EXPENSE)
Interest income 28,366 0 28,366
Interest expense (16,667) 0 (16,667)
Miscellaneous income 6,675 0 6,675
--------------- -------------- ----------------
18,374 0 18,374
--------------- -------------- ----------------
NET (LOSS) BEFORE OTHER (1,235,713) 0 (1,235,713)
Sale of net assets of P&H 0 (660,725) (660,725)
--------------- -------------- ----------------
NET (LOSS) BEFORE INCOME TAXES (1,235,713) (660,725) (1,896,438)
INCOME TAX 16,765 0 16,765
--------------- -------------- ----------------
NET (LOSS) $ (1,252,478) $ (660,725) $ (1,913,203)
=============== ============== ================
Net (loss) per weighted average share $ (.09) $ (.05) $ (.13)
================ ============== ================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 14,223,929 14,223,929 14,223,929
=============== ============== ================
</TABLE>
On April 1, 1998, the Company sold the net assets of P&H. The actual loss on the
transaction was $463,738. This loss differs from the Pro Forma loss due to P&H
having activity through the date of sale which reduced the net assets sold.
This pro forma shows what the statement of operations would have looked
like had the sale of the net assets of P&H occurred on December 31, 1997.
F-14
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this Form
10SB/A registration statement (of 100,000,000 shares of common stock, par value
$0.001 per share of MW Medical, Inc.) of our report dated March 30, 1998, except
Notes 2, 8, and 14 which are dated October 2, 1998, on the financial statements
for the years ended December 31, 1997 and 1996.
/s/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
October 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MW
Medical, Inc. December 31, 1997 financial statements and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001059577
<NAME> MW Medical, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 387,982
<SECURITIES> 0
<RECEIVABLES> 579,783
<ALLOWANCES> (20,000)
<INVENTORY> 809,977
<CURRENT-ASSETS> 1,795,395
<PP&E> 2,326,370
<DEPRECIATION> (1,633,087)
<TOTAL-ASSETS> 2,538,823
<CURRENT-LIABILITIES> 465,703
<BONDS> 0
0
0
<COMMON> 14,224
<OTHER-SE> (270,718)
<TOTAL-LIABILITY-AND-EQUITY> 2,538,823
<SALES> 3,382,388
<TOTAL-REVENUES> 3,382,388
<CGS> 2,659,882
<TOTAL-COSTS> 2,659,882
<OTHER-EXPENSES> 1,976,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,667
<INCOME-PRETAX> (1,235,713)
<INCOME-TAX> 16,765
<INCOME-CONTINUING> (1,252,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,252,478)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
