U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
FORM S-1/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MW Medical, Inc.
(Exact name of Registrant as specified in its charter)
NEVADA 86-0907471
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Jan Wallace File No. 333-86577
6955 E. Caballo Dr.
Paradise Valley, ARIZONA 85253
- ------------------------ -----
(Name and address of principal (Zip Code)
executive offices and agent for service
of process)
Registrant's telephone number, including area code: (602) 483-8700
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration
Statement.
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, 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, 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 this Form is a post-effective amendment filed pursuant to Rule
462(d) 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, check the following box. |__|
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES OFFERING AGGREGATE AMOUNT OF
TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (1) PRICE (2) FEE (2)
- ---------------------------------------------------------------------
Common Stock 5,146,010(3) $3.50 $18,011,035 $5,007.07
shares
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(1) Based on last sales price on September 1, 1999
(2) Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457 under the Securities Act.
(3) This includes: (a) 2,386,750 shares that the selling shareholders
acquired upon conversion of their convertible debentures; (b)
2,159,260 shares underlying the convertible debentures held and not
converted by the selling shareholders as determined by an agreed
formula; and (c) 600,000 shares underlying warrants that are held by
the selling shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
COPIES OF COMMUNICATIONS TO:
Michael A. Cane, Esq.
101 Convention Center Dr., Suite 1200
Las Vegas, NV 89109
(702) 312-6255
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SUBJECT TO COMPLETION, Dated October 25, 1999
PROSPECTUS
MW MEDICAL, INC.
5,146,010 SHARES
COMMON STOCK
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The selling shareholders named in this prospectus are selling
all of the shares of common stock sold through this prospectus.
See the section entitled "Selling Shareholders." The 5,146,010
shares offered by this prospectus break down as follows:
* 2,386,750 shares that the selling shareholders acquired
upon conversion of their convertible debentures;
* 2,159,260 shares issuable upon conversion of convertible
debentures held and not converted by the selling
shareholders; and
* 600,000 shares issuable upon exercise of warrants that
are held by the selling shareholders.
MW is paying all expenses of registration incurred in connection
with this prospectus, but the selling shareholders are paying
all selling and other expenses.
The selling shareholders have not advised MW of any specific plans
for the distribution of the common stock covered by this
prospectus. However, MW anticipates that the selling shareholders
will sell their common stock from time to time primarily in
transactions, including block transactions, on the National Association
of Securities Dealer's Over-The-Counter Bulletin Board System under the
trading symbol MWMD. MW also anticipates that the selling shareholders
will sell at the market price then prevailing, although the selling
shareholders may also sell in negotiated transactions at negotiated
prices, or otherwise. See the section entitled "Plan of Distribution."
- ----------------
The purchase of the securities offered through this prospectus
involve a high degree of risk. See section entitled "Risk
Factors" on pages 6 -12.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
- ----------------
The Date Of This Prospectus Is: OCTOBER 25, 1999
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TABLE OF CONTENTS
PAGE
Summary....................................................... 3
Risk Factors.................................................. 5
Use of Proceeds............................................... 11
Determination of Offering Price............................... 11
Dilution...................................................... 11
Price Range Of Common Stock And Dividend Policy............... 11
Selected Consolidated Financial Data.......................... 12
Selling Shareholders.......................................... 13
Plan of Distribution.......................................... 14
Description of Securities to Be Registered.................... 16
Interests of Named Experts and Counsel........................ 17
Description of Business....................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 23
Management.................................................... 26
Security Ownership Of Certain Beneficial Owners and Management 27
Certain Relationships and Related Transactions................ 30
Legal Matters................................................. 31
Experts....................................................... 32
Available Information......................................... 32
Index to Financial Statements................................. 33
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SUMMARY
The following summary is only a shortened version of the more
detailed information, exhibits and financial statements appearing
elsewhere in this prospectus. Prospective investors are urged to
read this prospectus in its entirety.
MW Medical, Inc.
MW Medical, Inc. is in the business of designing and developing
microwave technologies for dermatological applications through its
wholly owned subsidiary, Microwave Medical Corporation. MW and
MMC's products are in the development stage. MW plans to market
and sell its microwave technology products upon completion of this
development stage. See Section on "Description of Business."
MW has its principal executive offices at 6955 E. Caballo Dr.,
Paradise Valley, AZ, 85253 (telephone no.: (602) 483-8700).
MW entered into a convertible debenture and warrant purchase
agreement dated July 14, 1999, in which it agreed to sell a total
of $3,500,000 worth of 8% convertible debentures due on July 31,
2000. In addition to the convertible debentures, each investor
under the debenture purchase agreement was entitled to a warrant
to purchase one share of common stock for each $10 of convertible
debentures purchased. The exercise price of the warrants is $2.75
per share. Of the $3,500,000 in convertible debentures, only
$3,000,000 were sold immediately. Three of the investors have
agreed to purchase the remaining $500,000 of convertible
debentures upon the registration of the common stock as required
by a registration rights agreement signed by all the parties at
the same time. See the section entitled "Security Ownership of
Certain Beneficial Owners and Management" - "Convertible
Debentures" for a discussion of the convertible debentures and
conversion formula.
On July 20, 1999, MW also issued warrants to purchase 250,000
shares of common stock to JW Genesis Securities, Inc. as part of
its fee for arranging this convertible debenture financing. These
warrants are exercisable at a price of $3.3125 per share at any
time before 5:00 pm New York City Time on July 20, 2004.
As part of the debenture sale, MW also signed and agreed to a
registration rights agreement in which it is obligated to register
all the warrant shares it may issue, along with all the shares
that have been issued to parties exercising their right of
conversion as holders of the convertible debentures. In addition,
MW must register 265% of the shares it is required to issue upon the
conversion of any unconverted debentures. See the section entitled
"Security Ownership of Certain Beneficial Owners and Management" -
"Registration Rights" for a discussion of the registration rights
agreement.
The common stock offered by the selling shareholders through this
prospectus is the common stock into which their convertible debentures
have been or may be converted and the common stock underlying their
warrants. MW is filing this registration statement in order to satisfy
its obligations to the selling shareholders under the registration
rights agreement.
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Securities Being Offered Up to 5,146,010 shares of common stock;
See Section entitled "DESCRIPTION OF
SECURITIES TO BE REGISTERED."
Securities Issued
And to be Issued As of the date of this prospectus,
19,110,679 shares of common stock are
issued and outstanding. In addition, there
are approximately 2,759,260 shares
represented by convertible debentures and
warrants that may be converted into common
stock. Therefore, upon conversion of the
debentures and warrants, there could be
approximately 21,869,939 shares of common
stock issued and outstanding. Existing
shareholders will sell all of the common
stock sold under this prospectus. See
Section entitled
"DESCRIPTION OF SECURITIES TO BE
REGISTERED".
Use of Proceeds MW will not receive any proceeds from the
sale of the common stock by the selling
shareholders. See "USE OF PROCEEDS."
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RISK FACTORS
An investment in the securities offered through this prospectus is
highly speculative and subject to a high degree of risk. Only
those who can bear the risk of loss of their entire investment
should participate. Prospective investors should carefully
consider the following factors, among others, before making an
investment in the common stock described in this document.
If MW Does Not Get Additional Financing, There is a Risk that its
Business May Fail.
While MW has just completed a financing through the sale of
convertible debentures (See section entitled "Description of
Securities to be Registered"), it will not be able to fully expand
or operate its business as planned without obtaining additional
financing in the near future. If this financing is not available
or obtainable, investors may lose a substantial portion or all of
their investment and the business of MW may fail. MW currently
has no immediate means for obtaining this additional financing.
MW can therefore not assure investors that additional
financing, when necessary, will be available to MW on acceptable
terms, or at all.
Because MW is a New Venture with Little Experience in the
Operation of its Business and No Experience in the Sale of its
Products, There is a Risk that its Business May Fail.
MW was only recently incorporated, and, to date, has been involved
primarily in organization and product development. Its only
active subsidiary, Microwave Medical Corporation, has been
conducted as a division of Dynamic for approximately 2 years and,
accordingly does not have any independent operating history. In
addition, MMC has no prior operating history or experience in
manufacturing, developing, and bringing to market the products of
MW. Potential investors should be aware that there is a
substantial risk of failure associated with new businesses because
of problems encountered in connection with their formation and
operation. These problems include, but are not limited to:
(1) unanticipated problems relating to the marketing and
sale of a new product in the marketplace;
(2) the entry of new competition; and
(3) unknown or unexpected additional costs and expenses that
may exceed current estimates.
MW has only a limited operating history upon which to base any
projection of the likelihood it will prove successful, and
thus MW cannot assure potential investors that MW will achieve
profitable operations or even generate any operating revenues.
Because MW's Products are New and Untested in the Market Place,
There is a Risk that They Will Not Sell in Sufficient Quantities
or Fast Enough to Support Business Operations.
As MW is introducing a new product into the market, MW has no
track record of sales for the product. The product may therefore
not sell in large enough quantities or fast enough to support
business operations and make a profit. General market conditions
might be such that sales
will be slow or even non-existent, or the product itself might not
fit the needs of buyers enough to induce sales. While MW
anticipates the ability to sell the products it develops, MW
cannot predict the
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volume of sales that will occur or even if sales will be sufficient
to support the future operations of MW. Numerous factors beyond
the control of MW may effect the marketability of the products
offered and developed. These factors include:
* consumer demand,
* market fluctuations,
* the proximity and capacity of suppliers, and
* government regulations, including regulations relating to:
* prices,
* taxes,
* royalties,
* importing of products,
* exporting of products, and
* environmental controls.
The exact effect of these factors cannot be accurately predicted,
but may result in MW not receiving an adequate return on its
invested capital.
If MW's Products Prove to be Defective, MW Will Be Liable for
Resulting Losses Which May Cause the Business to Fail.
As MW is introducing a new product into the market, MW has no track
record of the product's operation. The product may over time operate
defectively or cause injury to persons or property, even when
operated as designed. This is particularly true of products used in
the treatment of health or cosmetic problems directly on individuals,
such as the products being designed by MW. If MW is unable to
repair any such defect, it may be required to refund purchase
money or be held responsible for losses incurred because of the
defect, including direct and consequential damages to persons or
property. Moreover, even if MW is able to repair the defect, it
may be held liable for losses or injuries caused by the defect
before it is fixed. In such a case, MW may experience losses, or,
in severe cases, be unable to continue operations.
Because The Medical Equipment Industry is Extremely Competitive,
There is a Risk that Products Developed by Competitors Will Reduce
MW's Profits or Force It Out of Business.
Competition in the sale of medical equipment used for
dermatological and related medical applications is intense and
expected to increase. Furthermore, MW will face competition from
numerous companies that currently market, or are developing
products similar to those being developed by MW. Many of these
companies have significantly greater marketing, financial and
managerial resources than MW. MW cannot assure investors that its
competitors will not succeed in developing and distributing
products that will render it's products obsolete or noncompetitive.
Generally, such competition will reduce MW's profits and
potentially force MW out of business.
Because of the Nature of MW's Products, It May Be Subject to
Government Regulations or Laws that Increase Its Costs of
Operations or Decrease its Ability To Generate Income.
MW and its subsidiary are subject to United States and
international laws and regulations regarding the development,
production, transportation and sale of the products it sells. MW
may be required to comply with certain restrictive regulations, or
potential future regulations, rules, or directives.
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Due to the
nature of the medical equipment industry, MW cannot guarantee that
restrictive regulations will not, in the future, be imposed. Such
potential regulatory conditions or compliance with such
regulations may increase MW's cost of operations or decrease its
ability to generate income.
Because MW Plans to Sell Products Used in the Practice of
Medicine, it may be Subject to Potential Medical Malpractice
Liability Claims.
Although MW only sells products used in the practice of medicine
and is not engaged in the practice of medicine, the use of MW's
equipment in the treatment of spider veins and hair removal
entails the risk of professional liability claims. Consequently,
MW may be named as a co-defendant in medical malpractice claims.
MW's exposure to such liability is reduced because purchasing
physicians are likely to buy and carry their own medical
malpractice insurance. While MW currently plans to maintain
insurance for its business in amounts management deems adequate
to cover potential claims when its product comes to
market, it does not currently have any such insurance. Judgments
against MW with respect to all such claims in the
future could have an adverse effect on MW's financial condition,
results of operations and cash flow.
If MW's Stock is Delisted, There is a Risk that the Market Value
and Use of It's Stock Would Decline.
In order for MW's shareholders to sell their common stock through
the NASD Over-The-Counter Bulletin Board Market, MW must continue
to meet the Bulletin Board's listing qualifications. MW cannot
provide any assurance that in the future MW's common stock will
continue to meet these listing qualifications. De-listing from the
Bulletin Board or other market could cause, among other things:
* A decline in the market price of the common stock;
* Difficulty in obtaining future financing;
* Difficulty in using common stock as consideration for
acquisitions; and
* Investors to be unable to sell their stock
Because MW is a New, Small Company With an Untested Market, The
Price of Its Stock is Very Volatile and May Decline.
Recently, the stock market in general, and the shares of bio-tech
companies in particular, have experienced significant price
fluctuations. These broad market and industry fluctuations may
cause the market price of the common stock to decline
dramatically. Factors such as quarterly fluctuations
in results of operations, the timing and terms of future
acquisitions and general conditions in the healthcare industry
may have a significant impact on the market price of the stock.
The market price of MW's common stock has been and may continue
to be very volatile.
If the Selling Shareholders Sell a Large Number of Shares All at
Once or In Blocks, The Market Price of MW's Shares Would Most
Likely Decline.
The selling shareholders are offering all of the common stock
offered through this prospectus. The selling shareholders are not
restricted in the price they can sell the common stock. Shares sold
at a price below the current market price at which the common stock
is trading may cause that market
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price to decline. The outstanding
shares of common stock covered by this prospectus and the shares of
common stock covered by this prospectus that are issuable upon the
conversion or exercise of MW's convertible debentures and Warrants,
represent 26.93% of MW's outstanding shares as of September 1, 1999.
If this large amount
of Stock was sold all at once or in blocks, the market price of
MW's Stock would most likely decline.
If the Selling Shareholders Exercise Their Conversion or Warrant
Rights, The Ownership Percentage Interest Of Existing Shareholders
Will Be Diminished and The Price of MW's Stock May Decline.
MW has $380,000 worth of convertible debentures, convertible into
common stock, issued and outstanding, and has entered into an
agreement to issue another $500,000 worth of convertible
debentures under the same terms following the registration of the
common stock with the Securities and Exchange Commission.
Depending on market conditions, the number of shares issuable upon
conversion of these debentures will vary dramatically. The lower
the stock price goes, the more common stock the debenture holder
receives as a result of conversion. This will have the effect of
diluting the interest of existing shareholders in MW.
The following table illustrates the number of shares that MW would
be required to issue at various assumed prices upon conversion of
these debentures, subject to the limitations described in the text
following the table. This table is for illustrative purposes only,
and should not be assumed to represent MW's best guess of the
range of future stock prices.
Additional Ownership of
MW Medical Shares Issuable Under the Selling Shareholders as a
Stock Price debenture Agreement Result of Share Issuance (1)(3)
- ----------- ------------------------- -------------------------------
$0.875 1,005,714 5.26%
$1.75 502,857 2.63%
$2.62 335,878 1.76%
$3.50 (2) 320,000 1.67%
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(1) Based on 19,110,679 shares outstanding on September 1, 1999.
(2) Last sale price on September 1, 1999, but note that the
debenture Agreement provides a conversion price cap of $2.75.
(3) This is the additional ownership percentage because of the
conversion of the remaining $880,000 debentures by the selling
shareholders. See section entitled "Selling Shareholders".
Investors could therefore experience substantial dilution of their
ownership percentage upon conversion of the debentures. Moreover,
Investors would experience a similar effect upon the exercise of
the 600,000 currently outstanding warrants as well as the exercise
of the 1,365,000 outstanding stock options.
In addition, investors should be note that the current conversion
price of these debentures ($2.75) as well as the exercise price of
the warrants ($2.75 and $3.312) and options ($1) will often at the
time of conversion or exercise be below the market price of the
common shares. The exercise of such a
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large amount of stock,
especially if close in time, may have a substantial negative
effect on the market price of the common stock.
If MW is Unable to Maintain the Effectiveness of this Registration
Statement, It Will Be Subject to Substantial Penalties.
MW is subject to a registration rights agreement that required it
to register certain of its common stock with the Commission within
45 days of the closing of the sale of the convertible debentures,
and, generally, for the registration to be effective within 105
days of that date. Under this agreement, MW must also maintain
this registration until all of the securities covered by the
agreement are sold or can be sold publicly without benefit of this
registration. If MW is unable to obtain or maintain this
Registration, it will be subject to substantial monetary
penalties.
If MW loses any Key Personnel or Management, It May Lose Business
Sales or Be Unable to Otherwise Fully Operate It Business.
Due to the highly technical nature of MW's business, MW is
dependent on certain key personnel. Such
personnel includes MW's scientific consultant, Robert Spertell,
who has intricate knowledge of the operations of MW's products in
development and is handling much of the process of applying for
FDA approval. Consequently, the loss of Mr. Spertell may cause MW
to be unable to fully operate for a period of time.
Moreover, MW is dependent on the principal members of its
management staff, the loss of any of whom could impair the
development or sale of MW's products and projects. MW's success
will be largely dependent on the decisions made by members of
management. Furthermore, MW may depend on its ability to attract
and retain additional qualified personnel to manage certain
business interests. MW may have to recruit qualified personnel
with competitive compensation packages, equity participation and
other benefits which may reduce the working capital available for
MW's operations. Management may seek to obtain outside independent
professionals to assist them in assessing the merits and risks of
any business proposals as well as assisting in the development and
operation of any projects. MW cannot assure investors that it will
be able to obtain this needed assistance on reasonable terms.
If MW is Unable to Protect Its Technology From Use By Competitors,
There is a Risk that It Will Sustain Losses or May Fail
MW's success will depend, in part, on its ability to obtain and
enforce intellectual property protection for its technology in
both the United States and other countries. MW has filed patent
applications in the United States Patent and Trademark Office and
international counterparts of applications in the United States
Receiving Office under the Patent Cooperation Treaty. MW cannot
provide any assurance that patents will issue from these
applications or that, with respect to any patents, issued or
pending, the claims allowed are or will be sufficiently broad to
protect the key aspects of MW's technology or that the patent laws
will provide effective legal or injunctive remedies to stop any
infringement of MW's patents. In addition, MW cannot assure
investors that any patent rights owned by MW will not be
challenged, invalidated or circumvented, that the rights granted
under patents will provide competitive advantages to MW, or that
MW's competitors will not independently develop or patent
technologies that are substantially equivalent or superior to MW's
technology. MW's business plan assumes that they will obtain
comprehensive patent
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protection of its technologies. MW cannot
assure investors that such protection will be obtained, or that,
if obtained, it will withstand challenge. Furthermore, if an
action is brought, a court may find that MW has infringed on the
patents owned by others. MW may have to go to court to defend its
patents, to prosecute infringements, or to defend itself from
infringement claims by others. MW is
not aware of any such patent litigation at this time.
Patent litigation is expensive and time-consuming, and well-funded
adversaries can use such actions as part of a strategy for
depleting the resources of a small company such as MW. MW cannot
assure investors that MW will have sufficient resources to
successfully prosecute its interests in any litigation that may be
brought.
Because Forward Looking Statements are Inherently Unreliable,
Investors Should Not Rely on Such Assessments In Making Their
Investment Decision.
The information contained in this section and elsewhere may at
times represent MW's best estimates of its future financial and
technological performance, based upon assumptions believed to be
reasonable. MW makes no representation or warranty , however, as
to the accuracy or completeness of any of these assumptions, and
nothing contained in this document should be relied upon as a
promise or representation as to any future performance or events.
The ability of MW to accomplish its objectives, and whether or not
MW will be financially successful is dependent upon numerous
factors, each of which could have a material effect on the results
obtained. Some of these factors are within the discretion and
control of management and others are beyond management's control.
Management considers the assumptions and hypothesis used in
preparing any forward-looking assessments of profitability
contained in this document to be reasonable by management.
However, MW cannot assure investors that any projections or
assessments contained in this document or otherwise made by
management will be realized or achieved at any level. Prospective
investors should have this prospectus reviewed by their personal
investment advisors, legal counsel or accountants to properly
evaluate the risks and contingencies of this offering.
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USE OF PROCEEDS
MW will not receive any proceeds from the sale of the common stock
offered through this prospectus by the selling shareholders.
DETERMINATION OF OFFERING PRICE
The offering price of the common stock will not be determined by
MW but by market factors and the independent decisions of the
selling shareholders. See section entitled "Selling Shareholders".
DILUTION
The outstanding shares covered by this prospectus and the shares
of common stock covered by this prospectus that are issuable upon
the conversion or exercise of MW's convertible debentures and
warrants represent 26.93% of MW's outstanding shares of common
stock as of September 1, 1999.
As of September 1, 1999, 19,110,679 shares of MW's common stock
were issued and outstanding. MW has also issued $380,000 worth of
convertible debentures, convertible into common stock, and entered
into an agreement to issue another $500,000 worth of convertible
debentures following the Registration of the common stock with the
Securities and Exchange Commission.
In addition, MW has issued out Warrants to purchase 600,000 shares
of common stock, 350,000 at a price of $2.75 per share and 250,000
at a price of $3.312 per share. MW has also issued out options to
purchase 1,365,000 shares of MW's common stock at a price of $1.00
per share under MW's incentive stock option plan dated March 23,
1999.
Depending on market conditions at the time of conversion, the
number of shares issuable to the holders of the convertible
debenture could prove to be significantly greater in the event of
a decrease in the trading price of the common stock. This will
have the effect of diluting the interest of existing shareholders
in MW.
In addition, the exercise of the outstanding warrants and options
would have the effect of diluting the interest of the existing
shareholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
MW's common stock has been traded on the National Association of
Securities Dealers Over-the-Counter Bulletin Board system, under
the symbol MWMD, since April 5, 1999. There can be no assurance
that in the future the common stock will meet the continued
listing qualifications of the Bulletin Board.
The following table provides the high and low sales prices per
share of the common stock as reported by the Bulletin Board since
the stock began trading:
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HIGH LOW
---- ----
1999
First Quarter Not Trading*
Second Quarter $2.00 $1.00
Third Quarter (through August 30, 1999) $3.93 $1.75
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*Trading of MW's stock did not begin until Second Quarter 1999.
As of the close of business on September 1, 1999, the last
reported sales price per share of MW's common stock was $3.50.
There were 441 holders of record of MW's common stock at the close
of business on September 1, 1999. Such number does not include
persons, whose shares are held by a bank, brokerage house or
clearing company, but does include such banks, brokerage houses
and clearing companies.
No cash dividends have been paid on MW's common stock since the
organization of MW and MW does not anticipate paying dividends in
the foreseeable future. MW currently intends to retain earnings
for future growth and expansion opportunities.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table provides certain comparative financial data
for MW for the years 1996, 1997 and 1998 as well as the first six
months of 1999. The information provided in this table is
qualified by the more complete information contained in the
audited and un-audited consolidated financial statements provided
later in this document.
All amounts shown below unless otherwise noted are in $1000s
increments.
6/99 1998 1997 1996
---- ---- ---- ----
Total Revenue 0 0 0 0
Operating Income (loss) (789) (1221) (1134) (605)
Income (loss) before
Income Tax Expense (775) 1106 (1127) (595)
Net Income (loss) (776) 433 (1252) (467)
Income (loss) per share $(.05) $.03 $(.09) $(.03)
Total assets 2189 1404 2539 2609
Current portion of notes
Payable and L/T debt 425 0 90 48
Notes payable and L/T debt.
Less Current portion 0 0 2330 1556
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Total Shareholder
Equity (deficit) 1097 1198 (256) 9
96
Dividends declared and 0 0 0 0
Paid
SELLING SHAREHOLDERS
The common stock offered hereby consist of:
* 2,386,750 outstanding shares of common stock that were
issued upon conversion of convertible debentures sold to
the selling shareholders by MW in July 1999 through a
private placement exempt under Rule 506 of Regulation D;
* 2,159,260 shares issuable upon the conversion of the
$880,000 in aggregate principal amount of convertible
debentures, issued and contracted for by MW. The number of
these shares are based upon the conversion price
calculation described in the Section entitled "Security
Ownership of Certain Beneficial Owners and Management" -
"Convertible Debentures" below, multiplied by 2.65 as
required by the registration rights agreement; and
* 600,000 shares of common stock underlying warrants issued
to the selling shareholders.
The following table provides as of September 1, 1999, information
regarding the beneficial ownership of MW's common stock held by
each of the selling shareholders; their shares owned prior to this
offering; the total number of shares that are to be offered for
each; the total number of shares that will be owned by each upon
completion of the offering; and the percentage owned by each
assuming conversion.
TOTAL NUMBER TOTAL SHARES TO
OF SHARES TO BE OWNED UPON
BE OFFERED FOR COMPLETION
NAME OF SELLING SHARES OWNED SELLING OF THIS
STOCKHOLDER PRIOR TO THIS SHAREHOLDERS OFFERING PERCENT BENEFICIAL
OFFERING(1) ACCOUNT(2) OWNED(3) OWNER(S)
- --------------- ------------- -------------- --------- -------- ----------
Austost Anstalt
Schaan
Landstrasse 163
9494 Furstenweg,
Vaduz Thomas
Leichtenstein 986,634 986,634 0 5.16% Hackl
Balmore Funds SA
Trident Chambers
Road Town Francois
Tortola, BVI 986,634 986,634 0 5.16% Morax
13
<PAGE>
Roseworth Group, Alex
Ltd Weiderkehr
C/o Dr. Batliner
& Partners Hans
Aeulestrasse 74, Gassner
FI - 9490
Vaduz Kurt
Leichtenstein 1,404,034 1,404,034 0 7.35% Alig
Markham Holdings
Limited
Suite 7B & 8B
50 Town Range J. David
Gibraltar 242,694 242,694 0 1.27% Hassan
High Octane
Fund Ltd
HWR Services
Craigmuir Chamber Richard
PO Box 71 Hubbard
Road Town, Fund
Tortola BVI 1,065,608 765,608 0 5.58% Manager
Strategic
Group Ltd
Suite 41/42
Victoria House Bernard
26 Main Street Hazell
PO Box 743 Fund
Gibraltar 255,203 255,203 0 1.34% Manager
Mark Hubbard
Suite 41/42
Victoria House
26 Main Street
PO Box 743 Mark
Gibraltar 255,203 255,203 0 1.34% Hubbard
JW Genesis
Financial
Services Corp.
599 Lexington
Avenue,
27th Floor Marshall
New York, Leeds
NY 10022 250,000 250,000 0 1.30% President
- ------------------------------------------------------------------------
(1) Except as otherwise noted, the named party beneficially owns
and has sole voting and investment power over all shares or rights
to these shares.
(2) Assumes that none of the selling shareholders sells shares of
common stock not being offered hereunder or purchases additional
shares of common stock.
(3) Based on 19,110,679 shares outstanding on September 1, 1999.
None of the selling shareholders or their beneficial owners have
had a material relationship with MW other than as a shareholder as
noted above at any time within the past three years.
PLAN OF DISTRIBUTION
The selling shareholders, or their respective pledgees, donees,
transferees or other successors in interest, may sell some or all
of the common stock in one or more transactions, including block
transactions:
14
<PAGE>
(1) on the NASD Over-the-Counter Bulletin Board, or on such
other market on which the common stock may from time to time
be trading;
(2) in privately negotiated transactions;
(3) through the writing of options on the common stock;
(4) in short sales; or
(5) in any combination of these methods of distribution.
The sales price to the public may be:
(1) the market price prevailing at the time of sale;
(2) a price related to such prevailing market price; or
(3) such other price as the selling shareholders determine
from time to time.
The common stock may also be sold in compliance with the
Securities and Exchange Commission's Rule 144.
The selling shareholders, or their respective pledgees, donees,
transferees or other successors in interest, may also sell the
common stock directly to market makers acting as principals or
brokers or dealers, who may act as agent or acquire the common
stock as principal. Any broker or dealer participating in such
transactions as agent may receive a commission from the selling
shareholders, or, if they act as agent for the purchaser of such
common stock, from such purchaser. The selling shareholders will
pay the usual and customary brokerage fees . Brokers or dealers
may agree with the selling shareholders to sell a specified number
of shares at a stipulated price per share and, to the extent such
broker or dealer is unable to do so acting as agent for the
selling shareholders, to purchase, as principal, any unsold shares
at the price required to fulfill the respective broker's or
dealer's commitment to the selling shareholders. Brokers or
dealers who acquire shares as principals may thereafter resell
such shares from time to time in transactions in the over-the-
counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices, and
in connection with such resales may pay or receive commissions to
or from the purchasers of such shares. These transactions may
involve cross and block transactions that may involve sales to and
through other brokers or dealers. If applicable, the selling
shareholders also may have distributed, or may distribute, shares
to one or more of their partners who are unaffiliated with MW.
Such partners may, in turn, distribute such shares as described
above. MW can provide no assurance that the selling shareholders
will sell all or any of their common stock.
MW is bearing all costs relating to the registration of the common
stock. All commissions or other fees payable to brokers or dealers
in connection with any sale of the common stock will be borne by
the selling shareholders or other party selling such common stock.
MW has agreed to indemnify the selling shareholders, or their
transferees or assignees, against certain liabilities, including
liabilities under the Securities Act, and to contribute to
payments the selling shareholders, or their transferees or
assignees, may be required to make.
The selling shareholders must comply with the requirements of the
Securities Act and the Securities Exchange Act in the offer and
sale of the common stock. In particular, during such times as the
selling shareholders may be deemed to be engaged in a distribution
of the common stock, and therefore be considered to be an
underwriter under the Securities Act, it must comply with
applicable law and may, among other things:
15
<PAGE>
(a) not engage in any stabilization activities in connection with
MW's securities;
(b) furnish each broker or dealer through which common stock may
be offered such copies of this prospectus, as amended from time to
time, as may be required by such broker or dealer; and
(c) not bid for or purchase any securities of MW or attempt to
induce any person to purchase any securities of MW other than as
permitted under the Securities Exchange Act.
DESCRIPTION OF SECURITIES TO BE REGISTERED
MW has 100,000,000 authorized common shares with a par value of
$0.001 per share of common stock, of which 19,110,679 are
currently outstanding, including the 2,386,750 shares issued to
the selling shareholders upon the partial exercise of their
convertible debentures. In addition, there are approximately:
* 2,159,260 common shares issuable upon the conversion of $880,000
in convertible debentures based upon the conversion price
calculation as required in the registration rights agreement See
Section entitled "Security Ownership of Certain Beneficial
Owners and Management" - "Convertible Debentures";
* 600,000 shares of common stock issuable upon the exercise of
warrants issued to the selling shareholders, and
Thus, there are a total of 5,146,010 shares of common stock
registered by this registration statement which includes:
* 2,386,750 shares that the selling shareholders acquired upon
conversion of their convertible debentures,
* 2,159,260 shares underlying convertible debentures held and
not converted by the selling shareholders, and
* 600,000 shares underlying warrants that are held by the
selling shareholders.
There are also 1,365,000 shares issuable upon the exercise of
employee incentive stock option agreements which are not being
registered by this registration statement.
Holders of common stock have the right to cast one vote for each
share held of record on all matters submitted to a vote of holders
of common stock, including the election of directors. There is no
right to cumulative voting in the election of directors.
Stockholders holding a majority of the voting power of the capital
stock issued and outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum at any
meeting of MW's stockholders. The vote by the holders of a
majority of such outstanding shares is required to effect certain
fundamental corporate changes such as liquidation, merger or
amendment of MW's Articles of Incorporation.
Holders of common stock are entitled to receive dividends on a pro
rata basis , when, as and if declared by the board of directors,
from funds legally available, subject to the rights of holders of
any outstanding preferred stock. In the event of the liquidation,
dissolution or winding up of the
16
<PAGE>
affairs of MW, all assets and funds of MW remaining after the
payment of all debts and other liabilities, subject to the rights
of the holders of any outstanding preferred stock, shall be
distributed, pro rata, among the holders of the common stock.
Holders of common stock are not entitled to pre-emptive or
subscription or conversion rights, and there are no redemption
or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and the shares of common
stock offered hereby will be when issued, fully paid and
non-assessable.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared
or certified any part of it or having given an opinion upon the
validity of the securities being registered or upon other legal
matters in connection with the registration or offering of the
common stock was employed on a contingency basis, or had, or is to
receive, in connection with the offering, a substantial interest,
direct or indirect, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the
registrant or any of its parents or subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director,
officer, or employee.
Michael A. Cane of Cane & Company, Independent Counsel to MW has
provided an opinion on the validity of MW's common stock.
DESCRIPTION OF BUSINESS
Investors are cautioned that forward-looking statements are
inherently uncertain. Actual performance and results may differ
materially from those that are projected or suggested. Additional
information concerning certain risks and uncertainties that could
cause actual results to differ materially from those projected or
suggested may be identified from time to time in MW's public
filings and announcements.
MW Medical, Inc. is in the business of designing and developing
microwave technologies for dermatological applications through its
wholly owned subsidiary, Microwave Medical Corporation, a
California Corporation. Unless specified otherwise, throughout
this discussion, MW and this subsidiary will be referred to
interchangeably as MW. MW's products are in the developmental
stage. MW plans to market and sell its microwave technology
products upon completion of this developmental stage.
Principal Services and Products
MW is engaged in the development of technology relating to the use
of microwave energy for medical applications. MW has a patent
pending entitled, "Method and Apparatus for Treating Subcutaneous
Histological Features," which focuses on the application of
microwave energy in 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 for its protection. The hair follicle is the tissue
around the hair which promotes the growth of the hair. MW has
used computer modeling and laboratory studies to optimize its
system for hair removal. Studies have shown effectiveness in
destroying hair follicles while maintaining the integrity of the
skin surface. MW completed Phase II clinical trials in June, 1998
on its microwave system for hair removal. Phase II clinical
trials consisted of a gradually increasing dosage to establish
safety and initial indications of efficacy. Twenty one subjects
were tested, starting at a low dose in the first
17
<PAGE>
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.
Phase III clinical trials for hair removal were completed in April
1999 to prove safety and efficacy in the use of the product. MW
then submitted the results to the FDA on April 22, 1999. A
determination of MW's FDA application has not yet been made, and
no assurance can be given that the FDA will approve the
application at any time in the future.
MW's objective is to obtain FDA approval and complete its
development of a microwave therapy system that incorporates the
technology described in its patent application for the following
purposes:
(A) 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
current technologies. MW has been able to demonstrate
that microwave technology is a safe, effective and
feasible solution for hair removal in its Phase II and
III clinical trials.
(B) 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
predominantly on the legs and faces of women. The
female hormone estrogen usually causes these problems.
At this time, injection and lasers are the predominant
treatments for this condition.
Research and Development
MW began its research and development program in April 1996 while
a subsidiary of Dynamic. The research and development program
included computer modeling, laboratory and other studies which led
to the development of the prototype microwave system that has now
completed clinical trials for hair removal, and will soon be in
clinical trials for spider veins. With the sale of the business of
P&H to Microwave Communications Corp. on May 6, 1998, Microwave
agreed to provide the technical, management and office support
related to microwave services to MW through April 1, 1999. This
agreement was arranged by MW 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 MW.
MW currently plans to launch its microwave system for hair removal
by the end of the fourth quarter of 1999, subject to obtaining FDA
approval. MW has three working prototype systems that are
currently being used in clinical trials in the U.S. MW has an
arrangement with ETM Industries, Inc. whereby ETM will develop a
microwave power amplifier to deliver microwave pulses according to
MW's specifications. Sonos, Inc. of Huntington Beach, California
completed the industrial design of the clinical prototypes. MW
will also use Sonos, Inc. for design and limited production of the
final unit. MW intends to contract with outside vendors for the
microwave
18
<PAGE>
generator, the wave guide transmission line, the components of the
applicator, the micro-controller and other components of MW's
microwave system. MW or a designated facility will be responsible
for the final assembly and quality control.
Competition and Marketing
MW intends to market its microwave technology in the cosmetic
dermatology market. In recent years, there has been a substantial
upsurge in the demand for non-surgical cosmetic procedures in 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.
MW plans to compete primarily with laser devices in North America
and the European Community. MW's competitive advantage is expected
to be based on price, safety and effectiveness. The end user
price is expected to be in the range of $95,000 to 100,000, 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 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 below optimal, in most cases requiring 3 to 5
treatments to achieve an acceptable result. Based upon MW's
clinical studies to date, these limitations are not expected.
MW's principal competitors are Candela Corporation and ESC Medical
Systems Ltd. Both Companies sell, among other things, laser
systems used for hair removal and the treatment of spider veins.
The market strategy will be specific to the geographic area in
which the product is being introduced. MW will focus on two
marketing strategies: (1) selling or leasing the product to
physicians and other health-care practitioners, and (2) fee
sharing in which MW will arrange for financing of the product and
take some percentage of the revenue generated through the use of
the product. MW plans to use distributors in each major
geographic area who will take over the sales and service of the
product. MW has not yet entered into any formal agreements with
any distributors, but expects to complete distribution agreements
before the end of the fourth quarter 1999.
The primary customer will be physicians and other healthcare
practitioners specializing in cosmetic surgery and dermatology.
In the U.S. alone, it is estimated that there are approximately
25,000 cosmetic surgeons and dermatologists. In addition, other
physician specialists such as family practitioners, gynecologists,
and surgeons have incorporated cosmetic dermatology into their
practices.
The world wide 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 through the year 2002.
MW will concentrate marketing and sales efforts in the United
States, Canada and the European Community. MW will apply to the
appropriate regulators for all three markets. The commencement of
the product shipments in the United States is conditional on FDA
approval. In all markets, MW will apply for approval with regard
to hair removal and spider veins.
19
<PAGE>
FDA Approval Process
The Process of obtaining and maintaining FDA approval for the
marketing and sale of a product like the one designed by MW has
two aspects: (1) obtaining approval for the products use; and (2)
complying with good manufacturing practices by establishing
quality controls, operating procedures and technical
documentation, among other aspects of the manufacturing process.
Step by step, the process of obtaining FDA approval occurs
generally as follows:
1. The applicant goes through its beginning studies and testing;
2. The applicant submits an application to conduct human clinical
trials with an Institutional Review Board. The IRB reviews the
application and can grant the applicant the right to start human
clinical trials. Alternatively, the IRB can require the applicant
to apply to the FDA and obtain an exemption to do trials if it
determines that the planned device creates a significant risk to
human subjects.
3. If the applicant is granted the right to begin human clinical
trials, it does so in phases. The first phase usually involves a
safety study on normal individuals. Data is obtained and
submitted to the IRB with other documentation to get approval to
do Phase II studies. Phase II studies involve small groups of
patients who are treated. The device is tested for safety and
effectiveness. The data that is collected is again submitted to
the IRB with a request to go to Phase III clinical studies. If the
application is approved, Phase III clinical studies are begun on a
larger group of patients. Safety and efficacy are tested more
extensively and over multiple centers for more detailed analysis.
4. If the results of these clinical studies justify, the
applicant can file an application with the FDA.
MW has completed all three phases of clinical trials and has
applied to the FDA for approval. This application is in the
process of being reviewed. The examiner has made no final
determination, and no assurance can be given that once his
investigation is completed the examiner will approve this
application.
In addition, even if clearance is obtained, the devise must
satisfy international electronic safety and emissions requirements
as set by IEC 60601-1 to be sold in the US and Europe. As MW has
not yet built its production device, no testing has been done to
determine if the machine meets this standard. Upon completion of
the device, MW will submit it to a certified testing laboratory
for a determination that it meets these requirements. The test
data obtained from this will be incorporated into a technical file
and submitted to the appropriate agency in the European Market to
obtain approval, assuming the device has passed the test. Once
obtained, MW will be able to market and sell its machines as
planned.
Note that no assurance can be given that such approval will be
obtained upon this application.
Employees
MW's six employees consist of its President, Vice President of
Sales, Director of Sales, N.A., Secretary/Financial Officer,
electrical/microwave engineer and microwave technician. By the
end of 1999, the research and development division of MW is
expected to increase to four full-time employees. Expansion will
coincide with MW's product rollout. Independent companies and
persons under the supervision of MW will conduct manufacturing and
assembly. Sales, marketing
20
<PAGE>
and administration is anticipated to add approximately 5 new
employees by the end of Fourth Quarter 1999 to coincide with MW's
product release and anticipated regulatory approval. None of the
employees of MW or its subsidiaries are subject to collective
bargaining agreements, nor have they been on strike, or threatened
to strike, within the past three years. MW and its subsidiaries
have no supplemental benefit or incentive arrangements with their
employees other than health insurance coverage and MW's incentive
stock option plan.
Patents and Trademarks
The success of MW substantially depends upon its microwave
technology for use in cosmetic dermatology. MW 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. MW has no other patent, trademark or intangible
property.
Research and Development Expenditures
During the 1997 and 1998 fiscal years, the following amounts were
spent by MW on research and development activities:
Year Ended Year Ended
December 31, 1997 December 31, 1998
----------------- -----------------
MW $ 1,057,759 $ 569,738
Note that part of these expenditures were expended while MMC was a
subsidiary of Dynamic. The Research and Development costs for P&H
is incorporated into the discontinued operations category in the
Financial Statements.
Subsidiaries
Because MW acts only as a holding company for P&H and MMC, all of
the information for each of these entities is listed throughout
this prospectus. The subsidiaries' financial information is
included in the consolidated financial statements attached to this
document. MW 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 and subsequent to the spin-off of the shares of MW by
Dynamic.
Description of Property
MW leases space on a rent-free basis at 6955 E. Caballo Dr.,
Paradise Valley, AZ 85253., and MMC's offices are located at 65 W.
Easy St., Suite 104, Simi Valley, CA 93063.
Corporate Organization
MW is a Nevada corporation and was incorporated as a subsidiary of
Dynamic Associates, Inc. on December 4, 1997. On February 26,
1998, MW entered into an agreement with Dynamic in which MW issued
14,223,929 of its common shares to Dynamic in consideration for:
21
<PAGE>
(a) all of the issued and outstanding shares of P&H Laboratories,
Inc., a California corporation ;
(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 pay to MW a total of $200,000.
The obligation of Dynamic to pay the sum of $200,000 is evidenced
by a promissory note dated February 26, 1998. Dynamic made a
payment of $50,000 toward this obligation in March of 1999, making
the current principal amount of the debt $150,000.
Dynamic then transferred all shares of MW to the shareholders of
Dynamic through a distribution completed on March 11, 1998. Each
shareholder of Dynamic received one common share of MW for each
common share of Dynamic held by the shareholder. The shares of MW
distributed by Dynamic constituted all of the issued and
outstanding shares of MW at the time.
As subsidiaries of Dynamic, each of MMC and P&H had been in the
microwave technologies business for approximately 2 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.
MW sold the business of P&H under an asset purchase and sale
agreement dated March 9, 1998 between P&H and Microwave
Communication Corporation, a California corporation. Under this
Agreement, MW, through P&H agreed to sell to Microwave all of the
assets of the business of P&H as a going concern. The sale of
assets by P&H to Microwave was completed on May 6, 1998. MW
received the following consideration on closing:
(a) cash consideration of $160,943;
(b) a promissory note issued by MCC/ Ferro Systems, Inc., a
subsidiary of Microwave, whereby MCC/Ferro agreed to pay to P&H
the sum of $250,000 on August 1, 1998 and the sum of $243,125 on
March 31, 1999. P&H has assigned this note to MW;
(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.
The obligations of MCC/Ferro under its 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 a bank financing arranged by
MCC/Ferro to pay-out P&H's bank financing and pay the amounts
owed.
Before 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,
22
<PAGE>
multi-junction circulators, microwave subsystems and integrated
packages and subsystems. P&H is currently inactive because of
the sale of the assets comprising its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MW's products are in the development stage. MW plans to market
and sell its microwave technology products upon completion of the
development stage.
Default on Note Payment by Purchaser of P&H
As noted above, MW sold the business of P&H on March 9, 1998. As
part of the consideration for this sale, MW took back a promissory
note from MCC/ Ferro Systems, Inc. to pay to P&H the sum of
$250,000 on August 1, 1998 and the sum of $243,125 on March 31,
1999. P&H has assigned the note to MW.
The payment on this note was not received on March 31, 1999 as
promised. MW has recorded an allowance for doubtful accounts of
$60,000 and extended the repayment terms. MCC was to make monthly
payments of $15,000 including interest at 8% beginning in July on
the principal balance of $243,125. MCC is currently in default of
it's July and August payments under this revised agreement and MW
is currently negotiating the collection of this debt.
Liquidity And Capital Resources
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. MW is
now responsible for financing MMC independently of Dynamic. MW
does not, however, have any debt owing to Dynamic because of the
spin-off.
MW has applied and will apply the proceeds from the disposition of
the microwave technologies business owned by P&H to fund MMC. MW
will also apply funds realized from the promissory note executed
by Dynamic in favor of MW to fund MMC. MW began an offering of
2,500,000 shares of stock in June, 1998 which was completed in
parts with the sale 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
sale of 300,000 shares in March of 1999 at a price of $0.75 per
share for gross proceeds of $225,000 and the sale of the remaining
700,000 shares in June of 1999 at a price of $0.75 per share for
gross proceeds of $525,000. MW has paid a commission of 10% of
the gross proceeds in connection with completion of this
financing.
As of June 30, 1999, MW had $918,002 in cash and cash equivalents.
During the six months ended June 30, 1999, MW received cash of
$750,000 and incurred capital raising costs of $75,000 in
connection with the sale of 1,000,000 shares of MW's common stock.
These shares were sold using the exemption from registration
provided by Rule 506 of Regulation D of the Securities Act of
1933. Loss per share from research operations, general and
administrative expenses and depreciation and amortization was
$.05.
Subsequent to June 30, MW raised $3 million from the sale of 8%
convertible debentures due July 31, 2000 to a number of investors
using the exemption from registration provided by Rule 506 of
23
<PAGE>
Regulation D of the Securities Act of 1933. Under the Purchase
Agreement for these convertible
debentures, the purchasers obtained warrants for the purchase
of 350,000 shares of MW's common stock at a price of $2.75 per
share, and the registration rights contained in the registration
rights agreement. Three of the investors also agreed to purchase
an additional $500,000 of the convertible debentures following
registration of the securities. A large number of the purchasers
exercised their option to convert their debentures into common
stock shortly after purchase.
Results Of Operations
The financial statements for 1999 present the combined activities
of MW and MMC.
The financial statements for 1998 present the combined activities
of MW, MMC, P&H, and MW's German subsidiary, Microwave Medical
GmBH. The financial information for P&H is for the first quarter
of 1998 only.
First Six Months Fiscal 1999 Compared With First Six Months Fiscal
1998
During the six months ended June 30, 1999, the management of MW
received $210,000. The President received $72,000, the Chairman
received $90,000 and the Secretary/Treasurer received $48,000.
Net loss for the six months ended June 30, 1999 was $775,975
compared to income of $1,185,495 for the same period in 1998. The
income generated in 1998 was due to the cancellation of its $2
million debt from MMC's former parent company, Dynamic.
General and administrative expenses for the six months ended June
30, 1999 were $477,320 compared to $87,304 for the same period in
1998. In 1999, MW has been assembling key executives for growth.
Research and development expenses were $262,151 for the six months
ended June 30, 1999 compared to $351,940 for the same period in
1998. R&D cost were higher in 1998 due to the additional testing
site of MW's German subsidiary.
Depreciation and amortization expenses for the six months ended
June 30, 1999 were $49,344 compared to $50,564 for the same period
in 1998.
Fiscal 1998 Compared to Fiscal 1997
MW experienced an operating loss of $1,221,065 for the year ending
December 31, 1998. This is a slight increase over the loss
experience by MW of $1,133,549 in 1997. The Gross Profit for 1998
and 1997 was $0, however, in 1998 MW had net income before taxes
of $1,106,167 versus a loss of $1,126,875 for the previous year.
This income was the result of the spin-off from Dynamic, the
forgiveness of the debt owed to Dynamic, the contribution
agreement with MW and other miscellaneous interest income.
Research and development costs shown on the statements of
operations relate to costs incurred by Microwave Medical Corp. and
MMC GmBH. In 1998, Research and Development was $569,738 compared
to $1,057,759 in 1997. These R&D expenses declined because of
closing the German
24
<PAGE>
testing facility and concentrating all of these operations at the
US facility. In 1998, the majority of the research was in the
clinical trials and less on the development of the product.
The sales, general and administrative expenses increased to
$554,979 in 1998 from $0 in 1997. This increase is attributed to
the addition of administrative personnel made necessary after the
sale of P&H.
MW reported net interest/expense income, bad debts and
miscellaneous income of $2,327,232 for 1998, compared to $6,674
for 1997. This is due primarily to the forgiveness of the Dynamic
debt in the amount of $2,169,807.
Working capital was $969,072 at December 31, 1998 compared to
$1,329,692 at December 31, 1997. The decrease is mainly from the
sale of the net assets of P&H.
Comparison of Fiscal 1997 with Fiscal 1996
Depreciation and amortization expense was $75,790 for 1997
compared to $15,941 for 1996. The increase is due to the fact
that MW had more equipment in service in 1997.
Research and development expense was $1,057,759 in 1997 compared
with $588,915. The increase is due to the fact that MW was
conducting research in Germany as well as in the U.S. in 1997 and
greatly expanded its research activities in 1997.
The loss from operations of P & H was $124,803 in 1997 compared
with income from those operations in 1996 of $128,409. The
decline in operations in 1997 was a major factor in MW's decision
to sell the operations of P & H in early 1998.
Note that MW Medical did not have any operations until 1998 and
that the information provided above is therefore a reflection of
the operations of its subsidiaries under their former parent,
Dynamic Associates, Inc.
Impact of the Year 2000 Issue
The "Year 2000 problem" arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a
year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create
erroneous results. The extent of the potential impact of the Year
2000 problem is not yet known, and if not timely corrected, it
could affect the global economy. MW believes that its computer
programs are Y2K compliant and does not expect to be adversely
affected by the issue. MW is presently identifying and assessing
the year 2000 readiness of its key suppliers that it believes to
be significant to MW's business operations. At this point in
time, the worst case scenario would be that certain of MW's
material suppliers or vendors experience business disruptions due
to the year 2000 issue and are unable to provide materials and
services to MW on time. In such a case, MW would be delayed in
its product deliveries and would likely experience losses as a
result.
25
<PAGE>
MANAGEMENT
The following are the names of the officers and directors of MW,
their present positions with MW and its subsidiaries, and some
brief information about their background.
MW Medical, Inc. and Microwave Medical Corporation
Name Age Offices Held
Jan Wallace 43 Director, President
Grace Sim 38 Secretary, Treasurer, Director
Elliot Smith 67 Director
Jack Friedland 59 Director
Jan Wallace was President, Chief Executive Officer and a director
of MW at its inception in December, 1997. Ms. Wallace resigned
as President and Chief Executive Officer effective October 1, 1998
and was then re-appointed on July 9, 1999 after the resignation of
former President Paul Banko. 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.
She is currently a director and the President of Dynamic. 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. Before 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.
Grace Sim has been the Secretary/Treasurer and a director of MW
since its inception in December 1997. She is also currently the
Secretary/Treasurer and a director of Dynamic Associates, Inc., a
public company. Ms. Sim joined Dynamic in January 1997. Before
joining Dynamic, Ms. Sim owned 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.
Elliot Smith is a Director of the Company appointed on September
16, 1999. Mr. Smith has held a
variety of senior management-level positions in some of the
world's most prestigious financial institutions during the past 40
years. Mr. Smith began a 29 year career with Prudential Bache in
1954 when he was hired as a Registered Representative in its
Syracuse, New York office. By 1973, Mr. Smith was elected to the
Board of Directors of Bache & Company Inc. In 1977, he was named
Senior Officer of Commodity Division and Metal Company and in
1980, was elected President of Bach Haley Stuart Metal Company
Inc. On leaving Prudential-Bache in 1983, Mr. Smith served as
Executive Vice President at R. Lewis Securities, Inc., located in
New York City and from 1983 to 1995, was President of Whale
Securities Company, L.P., in New York. Since 1995, Mr. Smith has
served as President of the Equity Division of Rickel & Associates,
Inc., an investment company. Mr. Smith has also been elected to
the Boards of The Pennington School and Jullians Corporation. He
is a former Member and Director of the Chicago Board of Options
Exchange; Governor of the American Stock Exchange (AMEX); Governor
and Chairman of the AMEX Commodities Exchange; Director and Member
of the Executive Committee of the Securities Industry Automation
26
<PAGE>
Corp. and a past President of the Association of Investment
Brokers. Mr. Smith is currently Executive Vice President,
Investments at Oscar Gruss & Son, Inc.
Jack Friedland is a Director of the Company appointed on September
16, 1999. Dr. Friedland has operated a medical office in Phoenix,
Arizona for the past 25 years.
Dr. Friedland specializes in aesthetic plastic
and reconstructive surgery for both children and adults. Dr.
Friedland completed his undergraduate education at the University
of Wisconsin (Madison), received his Bachelor of Science degree from
Northwestern University in 1962 and graduated from Northwestern
Medical School in 1965 where he was elected to the Alpha Omega
Alpha Honor Medical Society. Following his graduation from medical
school, Dr. Friedland's post-doctoral work included a surgical
internship (1965-1966) and surgical residency (1966-1970) through
New York University - Bellevue Medical Center. Dr. Friedland was
Surgery Resident and Chief Resident during his surgical residency
at N.Y.U. from 1966-1970, and Chief Resident and Plastic Surgery
Resident at the Institute of Reconstructive Plastic Surgery, N.Y.U.
Medical Center, from 1972-1974. Dr. Friedland maintains three board
certifications: National Board of Medical Examiners (1966), American
Board of Surgery (1971), and American Board of Plastic Surgery (1975)
and is a Fellow with the American College of Surgeons. Dr. Friedland
is also a former President and current member of the Board of Trustees
of the prestigious American Society for Aesthetic Plastic Surgery. Dr.
Friedland has authored numerous published books and peer-reviewed
articles in his practice specialty.
On July 9, 1999, Paul Banko resigned as President, director and
CEO of MW and on August 31, 1999, Robert Spertell, resigned as
MW's Chief Scientist. MW subsequently retained Mr. Spertell as a
scientific consultant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table provides , the beneficial ownership of MW's
common stock by each person known by MW to beneficially own more
than 5% of MW's common stock outstanding as of August 31, 1999and
by the officers and directors of MW as a group. Except as
otherwise indicated, all shares are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial of class*
ownership
- -------------- ------------------- ---------- ---------
Common Stock Jan Wallace 500,000(1) 2.62%
(Chairman)
6955 E. Caballo Dr.
Paradise Valley, AZ
85253
Common Stock Grace Sim 50,000(2) 0.26%
(Secretary/Treasurer)
6955 E. Caballo Dr.
Paradise Valley, AZ
85253
Common Stock Elliot Smith 50,000(3) 0.26%
(Director)
27
<PAGE>
6955 E. Caballo Dr.
Paradise Valley, AZ
85253
Common Stock Jack Friedland 0(4) 0%
(Director)
6955 E. Caballo Dr.
Paradise Valley, AZ
85253
Common Stock All Officers and 600,000 3.14%
Directors as a
Group (4 persons)
- -------------------------------------------------------------------
* Based on 19,110,679 shares of common stock outstanding as of
September 1, 1999.
(1) Ms. Wallace also holds stock options to purchase 400,000
shares at a price of $1.00.
(2) Ms. Sim also holds stock options to purchase 200,000 shares at
a price of $1.00.
(3) Mr. Smith also holds stock options to purchase 100,000 shares
at a price of $2.62.
(4) Dr. Friedland also holds stock options to purchase 100,000
shares at a price of $2.62.
Warrants
There are 600,000 warrants to purchase securities of MW
outstanding. 350,000 of these warrants are exercisable at a price
of $2.75 per share on or before the close of business on July 30,
2002. The remaining 250,000 warrants are exercisable at a price
of $3.312 per share at any time before 5:00 pm New York City time
on July 20, 2004.
Options
The Board has adopted an incentive stock option plan providing for
the issuance of up to 2,500,000 shares of MW's common stock to its
directors, officers, consultants, and employees, and is in the
process of obtaining the necessary shareholder approval to
initiate the plan. Currently, there are options issued to purchase
1,365,000 shares of MW's stock through this stock option plan.
Convertible Debentures
On July 20, 1999, MW sold $3,000,000 worth of convertible
debentures. $2,620,000 of these debentures were converted between
July 21, 1999 and July 23, 1999, leaving $380,000 in debentures
still outstanding. These remaining debentures are convertible by
their holders, the selling shareholders, at a price determined by
the following formula:
(a) the principal amount of the debenture, together with
accrued but unpaid interest;
(b) multiplied by a price for each share of common stock
equal to the lower of (1) 75% of the market price at
the Conversion Date, or (2) $2.75. The term market
price means the average of the three lowest closing
bid prices on MW's principal market on any trading day
during the twenty-two (22) trading day period ending
on the trading day immediately prior to the date upon
which the market price is to be determined; but --
(c) the conversion price may not be less than $0.75 if
all of the following conditions are satisfied:
a. a registration statement is effective for the
common stock;
28
<PAGE>
b. the common stock has been traded since the
effective date of the registration statement for
thirty (30) consecutive trading days with an
average daily volume of 140,000 shares at a
volume-weighted average price of at least 150%
of the closing bid price on the closing date for
the sale of the debentures;
c. MW's microwave hair removal product has received
written FDA approval; and
(d) the minimum conversion price may also be increased if
the foregoing conditions continue to be met and any or
all of the following conditions are met:
a. MW's most recent timely filed Form 10-Q shows net
revenues for the quarter of at least $10,000,000.
In such a case the minimum conversion price would
then be increased by $0.25;
b. MW's most recent timely filed Form 10-K shows net
revenues for the fiscal year of at least
$50,000,000. In such a case the minimum
conversion price would then be increased by
$0.35;
c. the common stock has traded since the effective
date of the registration statement for thirty
(30) consecutive trading days with an average
daily volume of 250,000 shares. In such a case,
the minimum conversion price would then be
increased by $0.25.
For example, if a holder of $100,000 of convertible debentures
converted his debentures into shares on a date when the average of
the three lowest closing bid prices for the previous twenty two
trading days was $3.00 per share, the conversion price would be
$2.25 (($3.00X.75) resulting in the issuance of 44,444 shares.
If, however, the average of the three lowest closing bid prices
was $4.00, the conversion price would be $2.75 rather than $3.00
(($4.00X.75) , as the cap of $2.75 would apply. On the other
hand, if the average price dropped below $1.00 per share, the
minimum price of 75 cents would apply if all of the conditions of
item (c) above were met. Moreover, this minimum price would be
increased by the increments provided in item (d) if any or all of
the conditions described in that item were also met.
In addition, there are $500,000 worth of convertible debentures
under an agreement of sale to the following three investors:
Austost Anstalt Schaan $125,000
Balmore Funds SA $125,000
Roseworth Group, Ltd $250,000
These debentures, once issued, will be convertible under the same
formula as described above.
29
<PAGE>
Public Market
MW's shares are currently trading on the OTC Bulletin Board under
the stock symbol MWMD. On September 1, 1999, the closing sale
price of the common stock was $3.50 per share.
Registration Rights
The selling shareholders have the right to require MW to register
their common shares with the US Securities and Exchange
Commission. These rights are evidenced by a registration rights
agreement and is the sole reason for MW's filing of this S-1
registration statement on behalf of the selling shareholders. The
registration rights agreement provides, in part, that MW is
obligated to register all the warrant shares it has issued to
investors, along with all the shares that have been issued to
parties exercising their right of conversion as holders of the
convertible debentures. In addition, MW must register 265% of
the shares it is required to issue upon the conversion of any
unconverted debentures at the conversion price in effect on the
closing date for the sale of the debentures. Under this
registration rights agreement, a registration statement must be
filed with the SEC within 45 days of the closing date and such
registration statement must become effective within 105 days from
the closing date or five (5) days from clearance by the Commission
to request effectiveness. Failure to meet these deadlines or to
maintain the registration statement as effective will create
potentially severe penalties for MW, including the requirement to
pay liquidated damages to the purchasers of the convertible
debentures of three percent (3%) of the aggregate market value of
shares of common stock purchased from MW such registration
statement is not effective.
This registration statement is being filed to satisfy MW's
obligations under the registration rights agreement. The filing
of this registration statement satisfied the 45 day filing
requirement. The clearance by the SEC to the effectiveness of
this registration statement on or before November 2, 1999 will be
necessary to satisfy the 105 day requirement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as disclosed below, none of the following parties since the
date of MW's incorporation has had any material interest, direct
or indirect, in any transaction with MW or in any presently
proposed transaction that, in either case, has or will materially
affect MW.
* Director or officer of MW
* Proposed nominee for election as a director of MW
* Person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to all
outstanding shares of MW
* Promoter of MW
* Relative or spouse of any of the foregoing persons
During 1998, MW's President was paid $36,000, MW's Chairman of the
Board was paid $150,000 and MW's Secretary/Treasurer was paid
$80,000.
30
<PAGE>
In 1999, MW's Former President received $12,000 monthly, its
Chairman received $15,000 monthly and its Secretary received
$8,000 monthly.
Annual Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Restricted
Annual Stock Options/* LTIP All
Name Title Year Salary Bonus Compen- Awarded SARs (#) pay- Other
sation outs($) Compen-
sation
- ---- ----- ----- ------ ----- ------ ---------- ------- ------- -------
Jan Chair-
Wallace man 1998 $150,000(1) $0 0 0 0 0 0
Director
Paul E. Pres-
Banko ident 1998 $ 36,000(2) $0 0 0 0 0 0
CEO
Grace Dir-
Sim ector 1998 $ 80,000(3) $0 0 0 0 0 0
Secretary/
Treasurer
Elliot Dir-
Smith ector 1998 $ 0 $0 0 0 0 0 0
Jack Dir-
Fried- ector 1998 $ 0 $0 0 0 0 0 0
land
(1) Includes $86,393 accrued at 12/31/98.
(2) For October 1, 1998 to December 31, 1998
(3) Includes $45,569 accrued at 12/31/98.
In March 1999, MW granted 400,000 options to Paul E. Banko,
400,000 to Jan Wallace, and 200,000 to Grace Sim. The options
allow the holders to purchase common shares of MW for $1.00 per
share. 50% of the options are exercisable immediately and 50%
require a one-year waiting
period. A number of other employees were granted options on similar
terms. Subsequently, Paul Banko resigned and an agreement was reached
in which he retained only 200,000 of his original 400,000 options.
MW's policy regarding related transactions requires that any
director or officer who has an interest in any transaction to be
approved by the board of directors of MW disclose the presence and
the nature of the interest to the board of directors prior to any
approval of the transaction by the board of directors. The
transaction may then be approved by a majority of the
disinterested directors, provided that an interested director may
be counted in the determining the presence of a quorum at the
meeting of the board of directors to approve the transaction.
MW's policy regarding compensation for directors and officers is
that the board of directors may, without regard to personal
interest, establish the compensation of directors for services in
any capacity.
LEGAL MATTERS
MW is not a party to any material legal proceedings and to MW's
knowledge, no such proceedings are threatened or contemplated. MW
is, however, a party in a legal proceeding in Northern California
based on a breach of certain promissory notes by and against
Microthermia Corporation. Settlement discussions in that matter
are currently in process. Management believes that such
litigation will not have a material impact on the business of MW.
31
<PAGE>
EXPERTS
The consolidated balance sheet of MW Medical, Inc. as of December
31, 1998 and the consolidated statements of operations,
stockholders' equity and cash flows and the financial statement
schedule for the years ended December 31, 1998, appearing in this
prospectus and registration statement, have been audited by Smith
and Company, independent auditors, as described in their report
appearing elsewhere in this document, and are included in reliance
upon such report given upon the authority of such firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
MW is subject to the informational requirements of the Securities
and Exchange Act of 1934, and as a result files reports, proxy
statements and other information with the Securities and Exchange
Commission. Such reports, proxy and information statements filed
by MW may be inspected and copied at the Public Reference Section
of the Commission at 450 Fifth Street, N.W. Washington, D.C.
20549, and at the Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained
from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549 at
prescribed rates. The Commission maintains a Web site that
contains reports, proxy and information statements and other
information regarding MW at the address http://www.sec.gov.
MW has filed with the Securities Exchange Commission a
registration statement on Form S-1, under the Securities Act of
1933, with respect to the offered common stock. This prospectus,
which constitutes a part of the registration statement, does not
contain all of the information provided in the registration
statement, certain parts of which are omitted in compliance with
the rules and regulations of the Commission. Copies of the
registration statement, including all exhibits, may be
obtained from the Commission's principal office in Washington D.C.
upon payment of a fee or may be examined without charge at the offices
of the Commission as described above.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(a) The following financial statements are included:
F-1 Independent Auditor's Report
F-2 Consolidated Balance Sheets - December 31, 1998 and 1997
F-3 Consolidated Statements of Operations - Years Ended
December 31, 1998, 1997, and 1996.
F-4 Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1998, 1997 and 1996.
F-5 Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997, and 1996.
F-6 Notes to Consolidated Financial Statements
(b) Un-audited Consolidated Financials Prepared by Management for
the first six months of 1999:
F-14 Consolidated Balance Sheets - June 1999
F-15 Consolidated Statements of Operations -- June 1999
F-16 Consolidated Statements of Cash Flows -- June 1999.
33
<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, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1998, 1997, and 1996. 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, 1998 and 1997, and the results of their
operations, changes in stockholders' equity, and their cash flows for the years
ended December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 12, 1999
F-1
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1998 1997
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 890,283 $ 387,982
Accounts receivable (less
allowance for doubtful
accounts of $0 in 1998 and
$20,000 in 1997) 0 559,783
Receivable - former parent 200,000 0
Receivable - P&H sale
(less allowance for doubtful
accounts of $60,000) (Note 15) 21,625 0
Other receivables 2,000 19,824
Inventories (Note 2) 0 809,977
Prepaid expense and other
current assets 61,282 17,829
Deferred tax benefit (Note 8) 0 0
-------------- ---------------
TOTAL CURRENT ASSETS 1,175,190 1,795,395
PROPERTY, PLANT, & EQUIPMENT
(Note 4) 67,392 693,283
OTHER ASSETS
Deposits 0 21,705
Receivable - P&H sale (Note 15) 161,500 0
Organization Costs (Note 2) 400 28,440
-------------- ---------------
161,900 50,145
-------------- ---------------
$ 1,404,482 $ 2,538,823
============== ===============
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 70,766 $ 227,587
Accrued expenses 1,038 147,667
Accrued expenses - related
parties (Note 13) 132,714 0
Current portion of long-
term debt (Note 7) 0 90,449
Income taxes payable (Note 8) 1,600 0
-------------- ---------------
TOTAL CURRENT LIABILITIES 206,118 465,703
Payable - former parent (Note 6) 0 1,999,806
Long-term debt (Note 7) 0 329,808
Deferred income tax
(Notes 2 and 8) 0 0
-------------- ---------------
0 2,329,614
-------------- ---------------
TOTAL LIABILITIES 206,118 2,795,317
Commitments and contingencies (Note 9) 0 0
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding
15,723,929 shares
(14,223,929 in 1997) 15,724 14,224
Additional paid-in capital 1,055,997 35,876
Retained earnings (deficit) 126,643 (306,594)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,198,364 (256,494)
-------------- ---------------
$ 1,404,482 $ 2,538,823
============== ===============
See Notes to Financial Statements.
F-2
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
Net sales $ 0 $ 0 $ 0
Cost of sales 0 0 0
------------- ------------- -------------
GROSS PROFIT 0 0 0
Selling and General &
administrative expenses 554,979 0 0
Depreciation and amortization 96,348 75,790 15,941
Research and development
(Note 2) 569,738 1,057,759 588,915
------------- ------------- -------------
1,221,065 1,133,549 604,856
NET OPERATING (LOSS) (1,221,065) (1,133,549) (604,856)
OTHER INCOME (EXPENSE)
Interest income 17,425 6,674 10,338
Debt cancellation -
former parent (Note 6) 2,169,807 0 0
Bad debts (60,000) 0 0
Fee - former parent 200,000 0 0
------------- ------------- -------------
2,327,232 6,674 10,338
------------- ------------- -------------
Income (loss) from
continuing operations
before income taxes 1,106,167 (1,126,875) (594,518)
INCOME TAX EXPENSE (Note 8) 800 800 800
------------- ------------- -------------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS 1,105,367 (1,127,675) (595,318)
DISCONTINUED OPERATIONS
Operations of subsidiary
sold 4/1/98 (194,268) (124,803) 128,409
Sale of net assets of
subsidiary (477,862) 0 0
------------- ------------- -------------
Loss from discontinued
operations (672,130) (124,803) 128,409
------------- ------------- -------------
NET INCOME (LOSS) $ 433,237 $ (1,252,478) $ (466,909)
============= ============= =============
Net income (loss) per
weighted average share -
continuing operations $ .08 $ (.08) $ (.04)
Net income (loss) per
weighted average share -
discontinued operations (.05) (.01) .01
------------- ------------- -------------
$ .03 $ (.09) $ (.03)
============= ============= =============
Weighted average number
of common shares used
to compute net income
(loss) per weighted
average share 14,462,285 14,223,929 14,223,929
============ ============= =============
See Notes to Financial Statements.
F-3
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
-------------------
Par Value $.001 Paid-in Retained
-------------------
Shares Amount Capital Earnings
------ ------- ------- --------
Balances at 12/31/95 0 $ 0 $ 0 $ 0
Issuance of common
stock (restricted)
at $.1028per 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)
Stock sold for cash 1,500,000 1,500 1,009,513
Subsidiary adjustment 10,608
Net income for year 433,237
---------- ------- -------- ---------
Balances at 12/31/98 15,723,929 $ 15,724 $1,055,997 $ 126,643
========== ======== ========= =========
* Transaction actually occurred on March 11, 1998, but is reflected earlier
under pooling-of-interests method of accounting.
See Notes to Financial Statements.
F-4
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
OPERATING ACTIVITIES
Net income (loss) $ 433,237 $ (1,252,478) $ (466,909)
Adjustments to reconcile
net income (loss) to
cash used by operating
activities:
Depreciation and
amortization 134,925 139,062 60,897
Bad debts 60,000 0 0
Net value of subsidiary's
assets sold 1,128,419 0 0
Debt cancelled (2,169,806) 0 0
Book value of assets
sold/disposed 0 47,405 0
Deferred taxes 0 10,500 (11,500)
Changes in assets and
liabilities:
Accounts receivable (433,519) (34,609) 285,651
Inventories 80,636 (92,150) (129,024)
Prepaid expenses and other (46,056) (18,146) (9,196)
Accounts payable and accrued
expenses 124,436 120,116 21,922
Deposits 37,000 0 0
Income taxes payable 1,600 (45,415) (83,590)
------------- ------------- -------------
NET CASH USED BY
OPERATING ACTIVITIES (649,128) (1,125,715) (331,749)
INVESTING ACTIVITIES
Loan - other (3,915) 92,330 (98,120)
Loan - related party 0 30,300 0
Organization costs 0 (27,800) 0
Purchase of equipment (13,493) (618,780) (150,680)
Deposits (2,225) 922 (1,312)
------------- ------------- -------------
NET CASH USED BY
INVESTING ACTIVITIES (19,633) (523,028) (250,112)
FINANCING ACTIVITIES
Borrowings - former parent 170,000 914,360 548,500
Cash from subsidiaries 0 0 986,944
Principal payments on debt (9,951) (99,796) (78,206)
Principal payments on
capital lease obligation 0 0 (519)
Loan proceeds 0 347,303 0
Loans - related party 100,000 0 0
Loan repayment -
related party (100,000) 0 0
Sale of common stock 1,011,013 0 0
------------- ------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,171,062 1,161,867 1,456,719
------------- ------------- -------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 502,301 (486,876) 874,858
Cash and cash equivalents
at beginning of year 387,982 874,858 0
------------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 890,283 $ 387,982 $ 874,858
============= ============= =============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 9,824 $ 14,232 $ 17,356
Cash paid for income
taxes 800 65,715 167,790
See Notes to Financial Statements.
F-5
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
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 prior to April 1, 1998 was engaged in 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 1998, 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.
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, inventories were comprised of the following:
1997
-------------
Raw materials $ 344,909
Work in progress 465,068
-------------
$ 809,977
=============
Research and Development Costs
------------------------------
Research and development costs were $569,738 in 1998 and were all incurred
by MMC and GmBH ($1,057,759 in 1997 and all incurred by MMC and GmBH, and
$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
---------
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-6
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
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 1998 was $0 and at December 31, 1997 was $73,000 and at December
31, 1996 it was $0. 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, 1998, 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.
Income (Loss) per Share
-----------------------
Income (loss) per common share is computed by dividing net income (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, 1998 and 1997 are
summarized as follows:
Accumulated Net Book Value
------------------------------
Cost Depreciation 1998 1997
--------- ------------- ------------- ---------------
Machinery & Equipment $ 243,055 $ 186,580 $ 56,475 $ 573,208
Furniture & Fixtures 11,697 780 10,917 79,278
Leasehold Improvements 0 0 0 40,797
---------- ------------- ------------- ---------------
$ 254,752 $ 187,360 $ 67,392 $ 693,283
========== ============= ============= ===============
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, 1998 amounted to
$134,685, ($138,822 in 1997 and $60,657 in 1996).
Included in machinery and equipment at December 31, 1997 was $59,315 of
equipment under a capital lease. The related accumulated depreciation at
December 31, 1997 was $51,397.
F-7
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 5: RECLASSIFICATION OF CERTAIN ITEMS
The operations of P&H for 1997 and 1996 have been reclassified under the
caption "Operations of Subsidiary Sold 4/1/98" to conform to the 1998
presentation.
NOTE 6: PAYABLE - FORMER PARENT
At December 31, 1997, MMC/GmBH owed $1,999,806 to Dynamic, their former
parent. 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. The Company recorded debt cancellation income of
$2,169,807 including an additional $170,000 received from Dynamic in 1998.
NOTE 7: LONG-TERM DEBT
1998 1997
---------- ----------
Notepayable - 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. $ 0 $ 72,954
Notepayable - 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. 0 347,303
----------- ------------
0 420,257
Less current portion 0 (90,449)
----------- ------------
$ 0 $ 329,808
=========== ============
NOTE 8: INCOME TAXES
Components of income tax (benefit) are as follows:
1998 1997 1996
------------- ------------- -------------
Current
Federal $ 0 $ 4,665 $ 63,500
State 1,600 1,600 22,300
------------- ------------- -------------
1,600 6,265 85,800
------------- ------------- -------------
Deferred
Federal 0 7,800 (9,000)
State 0 2,700 (2,500)
------------- ------------- -------------
0 10,500 (11,500)
------------- ------------- -------------
Income tax (benefit) $ 1,600 $ 16,765 $ 74,300
============= ============= =============
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:
1998 1997 1996
------------- ------------- -------------
Income tax computed at
federal statutory
tax rate $ 147,573 $ 420,142) $ (133,487)
Tax due to not being
able to file
Consolidated return
and other 0 435,851 193,069
Debt forgiveness not
taxable due to Insolvency (147,573) 0 0
State taxes (net of
federal benefit) 1,600 1,056 14,718
$ 1,600 $ 16,765 $ 74,300
============= ============= =============
F-8
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 8: INCOME TAXES (continued)
Significant components of the Company's deferred tax liabilities and assets
for income taxes consist of the following:
1998 1997 1996
------------- ------------- -------------
Current deferred tax
assets
Net operating loss $ 0 $ 11,000 $ 0
Allowance for doubtful
accounts 0 8,600 9,000
Capitalized inventory
cost for tax 0 26,000 21,000
Vacation accrual 0 22,000 22,000
State income tax 0 1,000 9,000
Other accruals 0 4,400 6,000
Valuation allowance 0 (73,000) 0
------------- ------------- -------------
Net deferred current
tax assets $ 0 $ 0 $ 67,000
============= ============= =============
Long-term deferred tax
liabilities
Difference in fixed
assets $ 0 $ 0 $ 56,500
============= ============= =============
There was a decrease of $73,000 in the valuation allowance for the year
ended December 31, 1998.
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 the Company and MMC due to the fact they currently have no
operations to use their loss carryforward.
At December 31, 1998, the Company has a federal net operating loss
carryforward of approximately $234,000 which expires December 31, 2018.
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company is provided with office space and other management services at
no charge at the present time.
The Company has the following commitments:
One officer will receive $15,000 per month, one will receive
$12,000 and one will receive $8,000 per month.
Future scheduled payments under these employment related commitments are as
follows:
Year Ending
-----------------
December 31, 1999 $ 384,000
December 31, 2000 46,000
----------------------
$ 430,000
======================
Rental expense for the year ended December 31, 1998 was $800 ($192,466 in
1997 and $189,088 in 1996) which includes $0 paid by MMC to P&H ($7,298 in
1997 and $7,120 in 1996). The contracts are renewable.
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:
Note at 9.5% $ 60,375
Note at 9.5% 230,550
----------------------
$ 290,925
======================
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.
F-9
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 12: INDUSTRY SEGMENTS
The following narrative is before elimination of certain intercompany
items.
For 1998, the Company had general and administrative expenses of $554,979,
depreciation expense of $780, bad debt expense of $60,000 interest income
of $17,254, fee income from former parent of $200,000, and loss on the sale
of P&H assets of $477,862 for a net loss of $876,367.
MMC had depreciation and amortization expense of $95,568, research and
development expense of $569,738, interest income of $171, debt cancellation
of $2,169,807, and income tax expense of $800 for net income of $1,503,872.
P&H had a loss from discontinued operations of $194,268.
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:
1998 1997 1996
----------- ------------ -------------
MW Medical $ (701,367) $ 0 $ 0
MMC/GmBH 1,503,872 (1,127,675) (595,318)
P & H (194,268) (124,803) 128,409
----------- ------------ -------------
Adjusted Net Income (Loss) $ 608,237 $ (1,252,478) $ (466,909)
============= ============ =============
NOTE 13: RELATED PARTY TRANSACTIONS
During 1998, a total of $416,000 in management fees was paid or accrued to
current or former officers of the Company and its subsidiaries. $266,000
was paid or accrued to three individuals who remain with the Company and
$150,000 was paid or accrued to a former officer. At December 31, 1998,
$132,714 is due to two officers for management fees and other expenses.
NOTE 14: 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, 1998, the Company had a loss
from operations for 1998 of $1,221,065.
Management feels that collection of its receivables and revenue from
operations in the third quarter of 1999 will provide sufficient working
capital to allow the Company to continue as a going concern.
NOTE 15: SALE OF P&H OPERATIONS
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 $410,534 cash has been received. The $243,125 is due as
follows:
$243,125 on March 31, 1999 - secured by P&H assets
Interest at 8% also accrues on $493,125 and is due March 31, 1999.
During March of 1999, the Company agreed to restructure the receivable.
Monthly payments of $15,000 including interest of 8% will be due beginning
in July of 1999.
F-10
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 15: SALE OF P&H OPERATIONS (continued)
Future expected principal receipts are as follows:
Year ending December 31, 1999 $ 81,625
Year ending December 31, 2000 158,365
Year ending December 31, 2001 3,135
-------------
$ 243,125
=============
At December 31, 1998, an allowance for doubtful accounts in the amount of
$60,000 has been established.
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-11
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, Pro Forma
1997 P&H Sale Balances
------------ ----------- -----------
ASSETS
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
============ =========== ===========
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-12
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended
December 31, Pro Forma
1997 P&H Sale Balances
----------- -------------- ------------
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
============ ============== ============
On April 1, 1998, the Company sold the net assets of P&H. The actual loss on the
transaction was $477,862. 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-13
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
(Unaudited) (Audited)
------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 918,002 $ 890,283
Receivable - former parent 150,000 200,000
Receivable - P & H sale 106,570 21,625
Other receivables 4,990 2,000
Prepaid expense and other
current assets 14,258 61,282
------------- -------------
TOTAL CURRENT ASSETS 1,193,820 1,175,190
PROPERTY, PLANT, & EQUIPMENT 918,168 67,392
OTHER ASSETS
Receivable - P&H sale 76,555 161,500
Organization costs 280 400
-------------- -------------
76,835 161,900
-------------- -------------
$ 2,188,823 $ 1,404,482
============== =============
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 524,180 $ 70,766
Loan payable 425,000 0
Income taxes payable 800 1,600
Accrued expenses 1,449 1,038
Deposits 10,000 0
Accrued expenses - related party 130,005 132,714
-------------- -------------
TOTAL CURRENT LIABILITIES 1,091,434 206,118
-------------- -------------
TOTAL LIABILITIES 1,091,434 206,118
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 16,723,929
shares (15,723,929 in 1998) 16,724 15,724
Additional paid in capital 1,729,997 1,055,997
Retained earnings (deficit) (649,332) 126,643
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,097,389 1,198,364
-------------- -------------
$ 2,188,823 $ 1,404,482
============== =============
F - 14
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Six months
ended ended
June 30, June 30,
---------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
General & administrative
expenses $ 222,785 $ 86,249 $ 477,320 $ 87,304
Depreciation and
amortization 24,672 25,282 49,344 50,564
Research and development 144,636 159,783 262,151 351,940
------------ ----------- ----------- ----------
392,093 271,314 788,815 489,808
------------ ----------- ----------- ----------
NET OPERATING (LOSS) (392,093) (271,314) (788,815) (489,808)
OTHER INCOME (EXPENSE)
Interest income 5,684 580 13,640 627
Debt cancellation -
former parent 0 0 0 2,169,806
Fee - former parent 0 0 0 200,000
Sale of subsidiary 0 (500,862) 0 (500,862)
------------ ----------- ----------- ----------
5,684 (500,282) 13,640 1,869,571
------------ ----------- ----------- ----------
Income (loss) from
continuing operations
before income taxes (386,409) (771,596) (775,175) 1,379,763
Income tax expense 0 0 800 800
------------ ----------- ----------- ----------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS (386,409) (771,596) (775,975) 1,378,963
Discontinued operations:
Operations of subsidiary
sold 4/1/98 0 0 0 (193,468)
------------ ----------- ----------- ----------
NET INCOME (LOSS) $ (386,409)$ (771,596)$ (775,975)$1,185,495
============ =========== ========= =========
Net income (loss)
per weighted
average share $ (.02) $ (.05)$ (.05)$ .08
==== ==== ==== ===
Weighted average
number of common
shares used
to compute net income
(loss) per weighted
average share 16,232,262 14,223,929 16,003,096 14,223,929
=========== ========== ========== ==========
F - 15
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
--------------------------
1999 1998
---------- -----------
OPERATING ACTIVITIES
Net income (loss) $ (775,975) $ 1,185,495
Adjustments to reconcile net income
(loss) to cash used by operating
activities:
Depreciation and amortization 49,344 89,141
Net value of subsidiary sold 0 1,398,034
Debt cancelled 0 (2,169,806)
Changes in assets and
liabilities:
Accounts receivable 47,010 (683,519)
Inventories 0 80,636
Prepaid expenses and other 47,024 (166,791)
Accounts payable and accrued expenses 451,116 (7,756)
Deposits 10,000 37,000
Income taxes payable (800) 0
----------- -------------
NET CASH USED BY OPERATING ACTIVITIES (172,281) (237,566)
INVESTING ACTIVITIES
Loan - other 0 (6,231)
Purchase of equipment (900,000) (1,796)
Deposits 0 (2,225)
----------- -------------
NET CASH USED BY INVESTING ACTIVITIES (900,000) (10,252)
FINANCING ACTIVITIES
Borrowings - former parent 0 170,000
Loans 425,000 0
Cash remaining with former subsidiary 0 (243,102)
Sale of common stock 675,000 0
Principal payments on debt 0 (9,951)
----------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,100,000 (83,053)
----------- --------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 27,719 (330,871)
Cash and cash equivalents at
beginning of period 890,283 387,982
----------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 918,002 $ 57,111
=========== ==============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 3,963 $ 9,824
Cash paid for income taxes 1,600 800
F - 16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Securities and Exchange Commission registration fee $ 5,007.07
Accounting fees and expenses 20,000.00
Legal fees and expenses 30,000.00
Blue Sky fees and expenses 2,000.00
Miscellaneous 20,000.00
------------
Total $ 77,007.07
============
- -----------------------------------------------------------------
* All amounts are estimates other than the Commission's
registration fee. No portion of these expenses will be borne by
the selling shareholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of MW are indemnified as provided under
the Nevada Revised Statutes and the Bylaws of MW.
Unless specifically limited by a corporation's articles of
incorporation, the Nevada Revised Statutes automatically provides
directors with immunity from monetary liabilities. MW's Articles
of Incorporation do not contain any such limiting language.
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 MW 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,
judgments, 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, does 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.
34
<PAGE>
MW 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 MW to procure a
judgment in its favor by reason of the fact that the person is or
was a director, officer, employee, or agent of MW, or is or was
serving at the request of MW 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 will 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 MW, 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 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 MW
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, he or she will be indemnified against
expenses, including attorneys' fees, actually and reasonably
incurred by him or her in connection therewith;
MW may make an indemnification only upon a determination that the
indemnification is proper under the circumstances because the
director, officer, employee, or agent has met the applicable
standard of conduct described in the paragraphs 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 MW in advance of the final
disposition of such action, suit, or proceeding as authorized by
the board of directors 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 MW as authorized in the bylaws.
The indemnification is not 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a list of equity securities sold by MW within the
past three years that were not registered under the Securities
Act.
MW issued to Dynamic 14,223,929 common shares in consideration for
the transfer by Dynamic to MW of all shares and shareholders loans
of each of MMC and P&H, and the agreement of Dynamic to advance to
MW a total of $200,000, $50,000 of which has been paid. The
shares of MW issued to Dynamic have subsequently been distributed
to the shareholders of Dynamic on the basis of one
35
<PAGE>
common share of MW for each common share of Dynamic. This issue of
common shares by MW to Dynamic was completed in compliance with the
exemption from registration provided by Section 4(2) of the Securities
Act of 1933.
MW also issued 2,500,000 common shares in a private placement to
accredited investors at a price of $0.75 per share in compliance
with Rule 506 of Regulation D of the Securities Act as follows:
(1) 1,500,000 shares in October,1998;
(2) 300,000 shares in March, 1999;
(3) 700,000 shares in June, 1999
On July 14, 1999, MW entered into a convertible debenture and
warrant purchase agreement in which it agreed to sell a total of
$3,500,000 worth of convertible debentures in compliance with the
exemption from registration provided by Rule 506 of Regulation D
of the Securities Act. In addition to the convertible debentures,
each investor under the debenture Purchase Agreement was entitled
to warrants in a proportional amount to their purchase of
debentures. The exercise price of the warrants is at a price of
$2.75 per share. Of the $3,500,000 in convertible debentures, only
$3,000,000 were sold immediately. Three of the investors have
agreed to purchase the remaining $500,000 of convertible
debentures upon the registration of the common stock as required
by a registration rights agreement signed contemporaneously with
the debenture purchase agreement. Between July 21 and July 23,
1999, the Investors exercised their conversion rights under the
debentures and converted $2,620,000 worth of debentures into
2,386,750 shares of common stock.
On July 20, 1999, MW also issued warrants to purchase 250,000
shares of common stock in MW to JW Genesis Securities, Inc. as
part of its fee for arranging the convertible debenture financing.
These warrants were also issued in compliance with an exemption
from registration provided by Rule 506 of Regulation D of the
Securities Act. These warrants are exercisable at a price of
$3.312 per share at any time before 5:00 pm New York City time on
July 20, 2004.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------
3.1 Articles of Incorporation*
3.2 By-Laws*
4.1 Stock Option Plan dated March 23, 1999
5.1 Opinion of Michael A. Cane, Esq. with consent to use
10.1 Debenture Purchase Agreement dated as of July 14, 1999
10.2 Registration Rights Agreement dated as of July 14, 1999
10.3 Stock Purchase Warrant Form
10.4 8% Convertible Debenture Form
23.1 Consent of Smith and Company to use its Report on
Audited Financial Statements
- -------------
* Incorporated by reference from MW's registration statement on
Form 10-SB12B filed with the commission on 7-13-98 (File No. 001-14297)
36
<PAGE>
ITEM 17. UNDERTAKING.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement, or most
recent post-effective amendment, which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which
remain unsold at the termination of the offering.
Insofar as indemnifications for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities, other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of
the registrant in the successful defense of any action, suit or
proceeding, is asserted by such director, officer, or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act,
and will be governed by the final adjudication of such issue.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing Form S-1
and has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized in the
City of Scottsdale, State of Arizona on October 25, 1999.
MW MEDICAL, INC.
\s\ Jan Wallace
By: __________________________
JAN WALLACE, PRESIDENT
AND CHAIRMAN OF THE
BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, the
following persons in the capacities noted, have signed this
registration statement onOctober 25, 1999.
SIGNATURE CAPACITY IN WHICH SIGNED
\s\ Grace Sim Director
- ----------------------
GRACE SIM
\s\ Jan Wallace President and Chief Executive
- ---------------------- Officer (Principal Executive
JAN WALLACE Officer)
Chief Financial Officer
\s\ Grace Sim (Principal Officer)
- ---------------------- Financial/Accounting
GRACE SIM
38
