<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
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
6617 N. Scottsdale Road, Suite 103
Scottsdale, Arizona 85250
---------------------------------- ------------------------------
(Name and address of principal (Zip Code)
executive offices and agent for
service of process)
Registrant's telephone number, including area code: (480) 315-8600
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
--------------------------------------------------------------------------
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 2,706,000(3)shares $0.875 $2,367,750 $658.24
--------------------------------------------------------------------------
(1) Based on last sales price on October 3, 2000
(2) Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457 under the Securities Act.
(3) This includes: (a) 2,460,000 shares held by the selling
shareholders and (b) 246,000 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.
2300 West Sahara Avenue, Suite 500
Las Vegas, NV 89102
(702) 312-6255
fax (702) 312-6249
<PAGE>
PROSPECTUS
MW MEDICAL, INC.
Up to 2,706,000 SHARES
COMMON STOCK
----------------
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."
Our common stock is currently traded on the National Association of
Securities Dealer's over-the-counter bulletin board system. The
closing price of the stock on October 3, 2000 was $0.875 per share.
The selling shareholders own 2,460,000 shares of our common stock
along with warrants to purchase 100,000 shares of common stock at a
price of $3.50 per share and 146,000 shares of common stock at a
price of $1.75 per share. We are registering and offering for sale
in this prospectus the 2,460,000 shares of common stock and the
246,000 shares of common stock underlying the warrants.
----------------
The purchase of the securities offered through this prospectus
involves a high degree of risk. See section entitled "Risk
Factors" on pages 4 -8.
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 3, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Summary............................................................ 3
Risk Factors....................................................... 4
Use of Proceeds.................................................... 8
Determination of Offering Price.................................... 8
Dilution........................................................... 8
Price Range Of Common Stock And Dividend Policy.................... 9
Selected Consolidated Financial Data............................... 9
Selling Shareholders............................................... 10
Plan of Distribution............................................... 13
Description of Securities to Be Registered......................... 14
Interests of Named Experts and Counsel............................. 15
Description of Business............................................ 15
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 24
Management......................................................... 27
Security Ownership Of Certain Beneficial Owners and Management..... 29
Certain Relationships and Related Transactions..................... 32
Legal Matters...................................................... 33
Experts............................................................ 34
Available Information.............................................. 34
Index to Financial Statements...................................... 35
2
<PAGE>
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.
We are in the business of designing and developing microwave
technologies for dermatological applications through a wholly owned
subsidiary named Microwave Medical Corporation. MMC is in
various stages of research and development on several new
applications and products while MW Medical is actively marketing
our main product, the MW 2000 hair removal system. . See Section
on "Description of Business."
Our principal executive offices are at 6617 N. Scottsdale Road,
Suite 103, Scottsdale, AZ, 85250 (telephone no.: (480) 315-8600).
In December 1999 through January 2000, we offered and sold to the
Selling Shareholders 1,000,000 shares of our common stock in a
private placement exempt from registration under Rule 506 of
Regulation D of the Securities Act, along with warrants to purchase
100,000 shares at an exercise price of $3.50 per share. From July
2000 through September 2000, we offered and sold 1,860,000 shares
of our common stock in a private placement exempt from registration
under Rule 506 of Regulation D of the Securities Act, along with
warrants to purchase 186,000 shares at an exercise price of $1.75
per share, of which the selling shareholders purchased 1,460,000
shares and warrants to purchase 146,000 shares. As part of these
sales, we agreed to a registration rights agreement in which we are
obligated to register all the shares we sold, including the shares
of common stock underlying the warrants. 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 we sold them plus the common stock
underlying their warrants. We are filing this registration
statement in order to satisfy our obligations to the selling
shareholders under the registration rights agreement.
Securities Being Offered Up to 2,706,000 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,
21,292,443 shares of common stock are
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 We will not receive any proceeds from the
sale of the common stock by the selling
shareholders. See "Use Of Proceeds."
3
<PAGE>
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 We Do Not Get Additional Financing, There is a Risk that Our
Business Will Fail.
While we have just completed a financing through the sale of common
stock in September 2000, we will not be able to fully expand or
operate our 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 our business may fail. We currently have no
immediate means for obtaining this additional financing.
Consequently, we cannot assure investors that additional financing,
when necessary, will be available to us on acceptable terms, or at
all.
Because Ours is a New Venture and We Have Little Experience in the
Operation of Our Business and Sale of Our Products, There is a Risk
that Our Business May Fail.
We have only recently incorporated, and, to date, have been
involved primarily in organization and product development.
Moreover, our sales activities, to date, have been largely
unsuccessful. Our only active subsidiary, Microwave Medical
Corporation, had been conducted as a division of Dynamic
Associates, Inc. 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 our products. 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.
We have only a limited operating history upon which to base any
projection of the likelihood we will prove successful, and thus we
cannot assure potential investors that we will achieve profitable
operations or even generate any operating revenues.
Because Our 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.
Since we are introducing a new product into the market, we have no
real 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
4
<PAGE>
sales. While we anticipate the ability to sell
the products we develop, we cannot predict the volume of sales that
will occur or even if sales will be sufficient to support the
future operations of our company. Numerous factors beyond our
control may affect 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:
o prices,
o taxes,
o royalties,
o importing of products,
o exporting of products, and
o environmental controls.
The exact effect of these factors cannot be accurately predicted,
but may result in our not receiving an adequate return on our
invested capital.
If Our Products Prove to be Defective, We Will Be Liable for
Resulting Losses Which May Cause Our Business to Fail.
Since we are introducing a new product into the market, we have
only a very limited 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 us. If we are unable to repair any such defect,
we 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 we
are able to repair the defect, we may be held liable for losses or
injuries caused by the defect before it can be fixed. In such a
case, we 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 Our Competitors Sales Will Reduce Our Profits
or Force Us Out of Business.
Competition in the sale of medical equipment used for
dermatological and related medical applications is intense and
expected to increase. Furthermore, we will face competition from
numerous companies that currently market, or are developing
products similar to those being developed by us. Many of these
companies have significantly greater marketing, financial and
managerial resources than we do. We cannot assure investors that
our competitors will not succeed in developing and distributing
products that will render our products obsolete or noncompetitive.
Generally, such competition will reduce our profits and potentially
force us out of business.
Because of the Nature of Our Products, We May Be Subject to
Government Regulations or Laws that Increase Our Costs of
Operations or Decrease Our Ability To Generate Income.
We, along with our subsidiary, are subject to United States and
international laws and regulations regarding the development,
production, transportation and sale of the products we sell. We
may be
5
<PAGE>
required to comply with certain restrictive regulations, or
potential future regulations, rules, or directives. Due to the
nature of the medical equipment industry, we cannot guarantee that
restrictive regulations will not, in the future, be imposed. Such
potential regulatory conditions or compliance with such regulations
may increase our cost of operations or decrease our ability to
generate income.
Because We Plan to Sell Products Used in the Practice of Medicine,
We May be Subject to Potential Medical Malpractice Liability Claims
As Well As Products' Liability Claims.
Although we only sell products used in the practice of medicine and
are not engaged in the practice of medicine ourselves, the use of
our equipment in the treatment of spider veins and hair removal
entails the risk of professional liability claims as well as
product liability claims. Consequently, we may be named as a
defendant or co-defendant in such claims. While we currently
maintain some medical malpractice and products liability insurance
for our business, we cannot provide investors with any assurance
that this insurance will prove adequate or cover all claims made
against us. Judgments against us with respect to all such claims
in the future could have an adverse effect on our financial
condition, results of operations and cash flow.
If Our Stock is De-listed, There is a Risk that the Market Value of
Our Stock Would Decline.
In order for our shareholders to sell their common stock through
the NASD Over-The-Counter Bulletin Board Market, we must continue
to meet the Bulletin Board's listing qualifications. We cannot
provide any assurance that in the future our 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 We Are a New, Small Company With a Relatively Untested
Market, The Price of Our 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 our 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 Our 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 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 our
6
<PAGE>
convertible debentures and warrants, represent about 12.71% of our
outstanding shares as of October 3, 2000.
If the Selling Shareholders Exercise Their Warrant Rights, The
Ownership Percentage Interest Of Existing Shareholders Will Be
Diminished and The Price of Our Stock May Decline.
Investors should note that the exercise price of the warrants while
higher than the market price on the date of this offering would
most likely be below market price at the time of exercise. The
exercise and sale of the selling shareholder's 246,000 shares in
combination may have a substantial negative effect on the market
price of the common stock at that time.
If We Are Unable to Maintain the Effectiveness of this Registration
Statement, We Will Be Subject to Penalties.
We are subject to a registration rights agreement that required us
to register certain of our common stock with the Commission. Under
this agreement, we 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 we are unable to
obtain or maintain this Registration, we will be subject to
penalties under this agreement.
If We lose any Key Personnel or Management, We May Lose Business
Sales or Be Unable to Otherwise Fully Operate Our Business.
Due to the highly technical nature of our business, we are
dependent on certain key personnel. Such personnel include our
scientific consultant and our sales people who have intricate
knowledge of our products and potential customers. Consequently,
the loss of any of these people may cause us to be unable to fully
operate for a period of time.
Moreover, we are dependent on the principal members of our
management staff, the loss of any of whom could impair the
development or sale of our products and projects. Our success will
be largely dependent on the decisions made by members of
management. Furthermore, we may depend on our ability to attract
and retain additional qualified personnel to manage certain
business interests. We may have to recruit qualified personnel
with competitive compensation packages, equity participation and
other benefits that may reduce the working capital available for
our 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. We cannot assure investors that we will
be able to obtain this needed assistance on reasonable terms.
If We Are Unable to Protect Our Technology From Use By Competitors,
There is a Risk that We Will Sustain Losses or Our Business May
Fail
Our success will depend, in part, on our ability to obtain and
enforce intellectual property protection for our technology in both
the United States and other countries. We have been issued a patent
from the United States Patent and Trademark Office 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. We
cannot assure investors that this or any
7
<PAGE>
other patent rights issued to us will not be challenged, invalidated
or circumvented, that the rights granted under this or other patents
will provide competitive advantages to us, or that our competitors will
not independently develop or patent technologies that are substantially
equivalent or superior to our technology. Furthermore, if an action is
brought, a court may find that we have infringed on the patents owned
by others. We may have to go to court to defend our patents, to
prosecute infringements, or to defend ourselves from infringement
claims by others. We are 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 us. We cannot
assure investors that we will have sufficient resources to
successfully prosecute our 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 our best estimates of our future financial and
technological performance, based upon assumptions believed to be
reasonable. We make 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.
Our ability to accomplish our objectives, and whether or not we
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, we 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.
USE OF PROCEEDS
We 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 us
but by market factors and the independent decisions of the selling
shareholders. See section entitled "Selling Shareholders".
DILUTION
Two million, eight hundred and sixty thousand shares of the common
stock to be sold by the selling shareholders in this offering are
common stock that are currently issued and outstanding.
Accordingly, there will be no dilution to our existing shareholders
upon the sale of these shares.
8
<PAGE>
However, the exercise of the warrants that represent a part of this
prospectus would have the effect of diluting the interest of the
existing shareholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our 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. We can provide investors 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:
HIGH LOW
------- ------
1999
First Quarter Not Trading
Second Quarter $2.00 $1.00
Third Quarter $3.93 $1.75
Fourth Quarter $4.19 $2.66
2000
First Quarter $4.56 $1.75
Second Quarter $2.41 $0.50
Third Quarter (up to October 3, 2000) $1.88 $0.56
--------------------------------------------------------------------
Trading of our stock did not begin until Second Quarter 1999.
As of the close of business on October 3, 2000, the last reported
sales price per share of our common stock was $0.875.
There were 458 holders of record of our common stock at the close
of business on October 3, 2000. This 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 our common stock since our
organization and we do not anticipate paying dividends in the
foreseeable future. We currently intend to retain earnings for
future growth and expansion opportunities.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table provides certain comparative financial data for
us for the years 1996, 1997, 1998, and 1999 as well as the first
six months of 1999 and 2000. 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.
9
<PAGE>
All amounts shown below unless otherwise noted are in $1000s except
per share data.
Six months ended Year ended December 31,
6/00 6/99 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Total revenue $0 $0 $0 $0 $0 $0
Operating loss (2,025) (788) (2,646) (1,221) (1,134) (605)
Loss before
income tax expense (2,006) (775) (4,590) (1,264) (1,127) (595)
Net loss $(2,008) $(776) $(4,593) $(1,937) $(1,252) (467)
Loss per share $(.10) $(.05) $(.27) ($.13) $(.09) $(.03)
Dividends declared 0 0 0 0 0 0
and paid
6/30/2000 12/31/1999 12/31/1998 12/31/1997 12/31/96
--------- ---------- ---------- ---------- --------
Total assets $3,697 $4,117 $1,204 $2,539 $2,609
Current portion
of notes payable
and L/T debt 0 0 0 90 48
Notes payable
and L/T debt.
less current
portion 0 0 0 2,330 1,556
Total shareholder
equity (deficit) 2,775 2,325 998 (256) 996
-----------------------------------------------------------------------------
SELLING SHAREHOLDERS
The common stock offered hereby consist of:
* 2,460,000 outstanding shares of common stock that were sold
and issued to the selling shareholders by us in December
1999,January 2000 and July 2000 through September 2000
through private placements exempt under Rule 506 of
Regulation D; and
* 246,000 shares of common stock underlying warrants issued
to the selling shareholders.
The following table provides as of October 3, 2000, information
regarding the beneficial ownership of our common stock held by each
of the selling shareholders, including:
(A) the number of shares owned by each prior to this
offering, including the common shares underlying warrants
that were issued to the selling shareholders;
10
<PAGE>
(B) the total number of shares that are to be offered for
each, including the common shares underlying warrants
that were issued to the selling shareholders;
(C) the total number of shares that will be owned by each
upon completion of the offering, assuming no other shares
are sold or bought;
(D) the percentage owned by each based on 22,178,443 shares
outstanding on September 18, 2000, including all
outstanding warrants; and
(E) the identity of the beneficial holder of any entity that
owns the shares.
To the best of our knowledge, the named parties in the table that
follows are the beneficial owners and have the sole voting and
investment power over all shares or rights to the shares reported.
In addition, the table assumes that the selling shareholders do not
sell shares of common stock not being offered through this
prospectus and do not purchase additional shares of common stock.
The column reporting the percentage owned upon completion assumes
that all shares offered are sold, and is calculated based on
22,178,443 shares outstanding on October 3, 2000. All share
holdings, past and present, include shares underlying warrants.
Total Number Total Shares To Percent
Of Shares To Be Owned Upon Owned
Name and Be Offered For Completion Owned Upon
Address Shares Owned Selling Of This Completion
Of Selling Prior To This Shareholders Offering Of This
Stockholder Offering Account Offering
-------------------- ------------- -------------- --------- -----------
M.F.B. Hubbard
c/o Deutsche Banc
Alex Brown
1635 Market Street
17th Floor
Philadelphia, PA
19103 421,203 181,500 239,703 1.08%
Eastern European
Management Services
c/o Deutsche Banc
Alex Brown
1635 Market Street
17th Floor
Philadelphia, PA
19103 356,900 192,500 164,400 .74%
Beneficial Owner:
Richard Hubbard
Strategic Group Ltd.
Suite 5
Water gardens 4
Gibraltar 436,703 181,500 230,203 1.04 %
Beneficial Owner: Bernard Hazell
Fund Manager
11
<PAGE>
Total Number Total Shares To Percent
Of Shares To Be Owned Upon Owned
Name and Be Offered For Completion Owned Upon
Address Shares Owned Selling Of This Completion
Of Selling Prior To This Shareholders Offering Of This
Stockholder Offering Account Offering
-------------------- ------------- -------------- --------- -----------
Hans Klisch
Hindenburg Ste. 48
D-40667 Meerbusch
Germany 145,000 55,000 90,000 0.41%
VP Bank
(Luxembourg) S.A.
L-2019 Luxembourg
Avenue de la Liberte,
B.P. 923
Luxembourg 132,000 132,000 0 0.00%
Bankhaus
Carl F. Plump
Postfach 10 25 07
28195 Bremen
Germany 220,000 220,000 0 0.00%
Rudolf Heinz
Niedenau 82
60325
Frankfurt
am Main 145,000 55,000 90,000 0.41%
Bodo Pawlik
Landesbank Hessen-
Thuringen, Frankfurt
Waldstr 2
D-40883 Ratingen
Germany 37,000 22,000 15,000 0.07%
Value Management &
Research AG
am Kronberger Hang 5
D-65824 Schwwalbach
Germany 2,145,199 764,500 1,380,699 6.23%
High Octane Fund Ltd
HWR Services
Craigmuir Chamber
PO Box 71
Road Town,
Tortola BVI 1,222,781 440,000 782,781 3.53%
Richard Hubbard
12
<PAGE>
Total Number Total Shares To Percent
Of Shares To Be Owned Upon Owned
Name and Be Offered For Completion Owned Upon
Address Shares Owned Selling Of This Completion
Of Selling Prior To This Shareholders Offering Of This
Stockholder Offering Account Offering
-------------------- ------------- -------------- --------- -----------
Jan Wallace
6617 N. Scottsdale
Road #103
Scottsdale, Arizona
85250 940,000 440,000 500,000 2.25%
Tyler Brown
6617 N. Scottsdale
Road
Scottsdale, Arizona
85250 25,500 22,000 3,500 0.02%
--------------------------------------------------------------------------
None of the selling shareholders or their beneficial owners has had
a material relationship with us 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:
(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 the 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
13
<PAGE>
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 re-sales 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 us. Such partners may, in
turn, distribute such shares as described above. We can provide no
assurance that the selling shareholders will sell all or any of
their common stock.
We are 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.
We have 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, they must comply with
applicable law and may, among other things:
(a) not engage in any stabilization activities in connection with
our 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 of our securities attempt to induce
any person to purchase any of our securities other than as
permitted under the Securities Exchange Act.
DESCRIPTION OF SECURITIES TO BE REGISTERED
We have 100,000,000 authorized shares of common stock with a par
value of $0.001 per share of which 21,292,443 are currently issued
and outstanding as of October 3, 2000, including 2,460,000 of the
shares offered by the selling shareholders through this prospectus.
In addition, there are approximately 246,000 shares of common stock
issuable upon the exercise of warrants, issued to the selling
shareholders.
Thus, there are a total of 2,706,000 shares of common stock that
could be sold by the selling shareholders under this offering.
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 our stockholders. The vote by the
14
<PAGE>
holders of a majority of such outstanding shares is required to effect
certain fundamental corporate changes such as liquidation, merger or
amendment of our 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 our affairs, all of our assets and
funds 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 us has
provided an opinion on the validity of our common stock.
DESCRIPTION OF BUSINESS
We are in the business of designing and developing microwave
technologies for dermatological applications through our wholly
owned subsidiary, Microwave Medical Corporation, a California
corporation. Unless specified otherwise, throughout this
discussion, we will refer to this subsidiary and ourselves,
interchangeably.
Principal Services and Products
We are engaged in the development of technology relating to the use
of microwave energy for medical applications. In January of 2000,
the US Patent and Trademark Office issued us a patent 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 that
promotes the growth of the hair. We have used computer modeling
and laboratory studies to optimize our system for hair removal.
Our studies have shown effectiveness in destroying hair follicles
while maintaining the integrity of the skin surface.
Phase III clinical trials for hair removal were completed in April
1999 to prove safety and efficacy in the use of the product. We
submitted the results to the FDA on April 22, 1999. On October 25,
15
<PAGE>
1999, the FDA granted us approval to begin marketing our microwave
hair removal device for non-facial hair removal.
Our plan is to complete the development of a microwave therapy
system that incorporates the technology described in our patent
application for the treatment of facial hair and Telangiectasia,
or, spider veins as a follow up to this hair removal treatment.
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.
We launched our microwave system for hair removal at the end of the
fourth quarter of 1999, but incurred difficulties in the sale and
operation of the machines. We have re-launched the MW 2000 hair
removal system during the third quarter 2000.
Our systems use microwave energy delivered to various target
structures within the body to induce highly controlled
hyperthermia. This condition enables our machine to induce a
change in a person's tissue to produce the desired cosmetic or
therapeutic affect.
The nature of the technology requires us to research, design and
develop unique components. These proprietary components are then
incorporated into systems using other mechanisms from a variety of
suppliers. Although we make an effort to reduce dependence on
single source suppliers, there are some components that are jointly
developed with others who we are contractually or practically
obligated to work with on an exclusive basis.
We build our devices based on forecasts of future sales and then
inventory the products. Our build, configuration and test process
requires certain system adjustments and final testing for each
order received. Our objective is to ship sales orders within 14
days of final order approval. However, we rely on a variety of
suppliers for key components and services, and therefore delivery
capability is dependent on these outside suppliers' capacity and
lead times.
Our expertise is in the precise delivery of microwave energy to
targeted tissue in whichever application the system is operating.
Our product development efforts require basic research, design
engineering, clinical investigation and manufacturing engineering.
The final product must not only work as designed technically, it
must be clinically effective and commercially viable. Although,
some of these efforts are within our control and expertise, we
operate in a highly regulated industry. As a result, government
regulatory bodies will often determine our products' availability
to the market.
1. Multi-Platform Device
One of our strengths is the multi-platform nature of our machines,
which are comprised of a versatile amplifier and an interchangeable
delivery device. Using this platform, we believe we can produce a
family of devices to meet customer expectations for economy,
performance and efficiency as well as patient needs for safety and
efficacy.
Our core microwave system is capable of producing energy at
frequencies and pulse durations that should provide benefits in a
variety of aesthetic and therapeutic procedures. Although specific
system configurations have not yet been determined, by modifying
accessories, rather than the
16
<PAGE>
microwave system, for each indication, we may be able to provide cost-
effective solutions for users while building economies of scale in our
manufacturing process.
2. Recent Approvals
On October 25, 1999, our microwave system for non-facial hair
removal received written approval from the U.S. Department of
Health and Human Services, Food and Drug Administration to begin
marketing. The device was classified into Class II - Special
Controls. We may, therefore, market this device subject to the
general control provisions of the Act, including requirements for
annual registration, listing of devices, good manufacturing
practice, labeling, and prohibitions against misbranding and
adulteration, and the additional controls mandated by the Class II
classification.
In January 2000, the US Patent Office issued a new patent for our
microwave delivery system, entitled, Method and Apparatus for
Treating Subcutaneous Histological Features.
3. Facial Hair
In July 2000, we received Investigational Review Board approval
from Independent Review Consulting, Inc. to conduct Phase III
clinical trials for the treatment of facial hair using our
microwave delivery system. When this phase of the clinical trial
is successfully completed, we expect to proceed with an FDA
submission for this application.
4. Telangiectasia (Spider Veins) Treatments
In May 1999, we received Investigational Review Board approval from
Independent Review Consulting, Inc. to conduct Phase III clinical
trials for the treatment of spider veins in the legs using our
microwave delivery system. When this phase of the clinical trial
is successfully completed, we expect to proceed with an FDA
submission for this application.
5. Orbital Facial Wrinkles
We believe that our microwave technology may provide a treatment
for facial elastosis, or facial wrinkles. This condition exists
widely in certain age groups with the financial means and
motivation to correct the condition.
In September 1999, we received IRB approval for a pilot study to
treat orbital facial wrinkles as an alternative to laser therapy
and chemical peels. These are high-demand elective procedures
that, as currently performed, require dedicated equipment and long
patient recovery periods. We believe our technology may provide a
clinical improvement in the appearance of facial wrinkles. However,
we can provide investors with no assurance that such results will
materialize upon testing.
6. Striae (Stretch Marks) Treatments
We believe that our microwave technology may provide a treatment
for striae or stretch marks. This condition exists in certain
groups who currently have limited treatment options. Both
providers and patients are motivated to find a reliable effective
treatment.
In December 1999, we received IRB approval for a pilot study on the
treatment of striae or stretch marks due to scarring. Currently,
although significant demand exists, there is no widely accepted
17
<PAGE>
treatment for this condition. Theoretically, our technology might
provide at least a cosmetic improvement in the appearance of
striae. However, we can provide investors with no assurance that
such results will materialize upon testing.
7. Additional Clinical Uses
While we continue to pursue our target markets of non-invasive
aesthetic clinical procedures, the versatility of our microwave
technology makes other therapeutic opportunities appear viable.
We are evaluating several of these therapeutic uses, including
oncology, urology, gynecology and cardiology.
Aesthetic Medical Treatment Industry
In the United States, according to a Smith Barney report, 1 million
women are customers of electrologists, spending an average of
$1,000 per year on an average 27 procedures. An additional 80
million women spend an additional $500 million on depilatory
products such as shaving, waxing, and other accessories.
The current U.S. market is therefore around $1.5 billion for such
services. The market size in Japan has also been estimated at over
$1 billion, and other world markets taken together may account for
a similar figure. Huge potential exists in the Japanese markets for
microwave hair removal where their cultural aversion to body and
facial hair is stronger than in any other ethnic group. To date
there has been no non-invasive hair removal technology that
satisfies this population. The reason for this stems from the Asian
skin type that is extremely prone to hyper-pigmentation, or
darkening of the skin, when treated by a laser whose only mechanism
for hair removal is melanin absorption. Microwave hair removal has
no effect on melanin making the risk of pigmentary changes
virtually non-existent.
There are two ways of looking at the U.S. market for potential hair
removal: (a) treatment at a salon, currently through waxing and
electrolysis; or (b) treatment by a physician, where the treatment
is performed either by a dermatologist or a cosmetologist working
under a physician's direction.
To date, hair removal lasers have been sold primarily to physicians
and have not been accepted by electrologists. We believe there are
several reasons for this. First, electrologists are already trained
in electrology and they see laser hair removal clearance rates as
being too low. Second, they are uncomfortable and ill equipped to
deal with the undesirable side effects associated with laser hair
removal. As a result, we believe there is an untapped market of
24,000 to 26,000 beauty care salons or spas (19,000 - 20,000 self
standing), and 11,000 to 15,000 electrologists operating either on
their own or as part of a beauty/skin care salon.
Leg Vein Market
Up to 80 million adults in the U.S. alone are affected by unwanted
leg veins. It has been estimated that 29%-41% of women and 6%-15%
of men worldwide have abnormal leg veins. Most vessels presented
for treatment are less than 1 mm in diameter, although varicose
veins range from under .3 mm to over 3 mm in diameter. Currently,
the treatment of leg veins using conventional sclerotherapy is
estimated to be a $1 billion annual worldwide market. Sclerotherapy
is a largely successful approach, but one that is often unpopular
because of the invasiveness of the process. As
18
<PAGE>
a result, noninvasive techniques such as microwave treatments are
considered highly desirable by both patient and physician. Thus, if
ultimately successful, the microwave technique may expand the
original sclerotherapy market. Those practitioners who have had
unacceptable cosmetic results with current laser and pulsed-light
devices would be good candidates to buy our microwave delivery
system as a replacement technology for this market. It is estimated
that there are 1,500 lasers installed worldwide for the purpose of
treating leg veins.
As is the case with hair removal, the Asian markets offer a
particularly strong potential market for our microwave delivery
system.
Although leg vein lasers use wavelengths that target blood they
still have strong absorption in melanin creating an high risk of
hyper-pigmentation. Microwave technology presents no such risk
giving our microwave delivery system an advantage in this and other
international markets with predominantly dark-skinned populations.
Stretch marks
Stretch marks are common in many healthy women and men and often
occur during puberty or pregnancy. They can be seen following a
rapid weight gain or loss, in weight lifters as well as in
Cushing's disease or debilitating infections. It is estimated that
unwanted stretch marks plague 80 - 100 million people in the U.S.
alone and double again that number internationally. The equipment
market for stretch marks is estimated at $250 to $350 million. The
results from laser technology have been disappointing. As a
result, the treatment is rarely performed and the market awaits a
new technology that offers acceptable cosmetic results without the
undesirable side effects attendant with pulsed dye laser
technology. The potential market for microwave technology at an
average selling price of $93,000 is estimated to be between 2,000
to 3,000 units.
Resurfacing
The resurfacing market is more mature and lucrative than the other
markets described above with 6,500 lasers installed worldwide. The
current focus is on finding a non-invasive way to remove wrinkles
that does not involve sanding, vaporizing or otherwise removing
tissue. The goal is to offer a facelift-type cosmetic result,
strengthening instead of thinning the skin without creating an open
wound. This would amount to the creation of a whole new treatment
method, significantly enhancing market penetration among the
156,500 potential physicians/users.
Competition and Marketing
The worldwide annual market for dermatology/cosmetic equipment
sales presents a tremendous opportunity for business development.
This is the result of the medical community's need for elective or
private pay income to offset declining managed care mandated fee
cutbacks. This has propelled the development of the burgeoning
aesthetic surgery market.
We will primarily market our 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.
19
<PAGE>
We plan to compete with laser devices in North America and the
European Community. Our competitive advantage is expected to be our
price, safety, hair and skin color range and effectiveness. The
end user price is expected to range from $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 our studies to date, these limitations are not expected to
appear in our microwave system.
Our 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.
Marketing Program
As a medical device company with a new technology, delivery
mechanism and clinical technique, we are pursuing an educational
marketing program followed by promotional efforts in the
appropriate markets. We plan to use electronic media and web-based
applications for this purpose. Additionally, we plan to exhibit
and offer promotions at influential industry congresses and events.
Our focus is on two marketing strategies for our hair removal
product: (1) selling or leasing the product to physicians and other
health-care practitioners, and (2) fee sharing in which we arrange
for the financing of the product and then take some percentage of
the revenue generated through the use of the product.
The primary customers for our hair removal product are 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.
To date, we have concentrated our marketing and sales efforts in
the United States.
In the third and fourth quarter of 1999, we introduced the MW2000
to the hair removal marketplace. We attempted to accomplish this
primarily through national and local trade shows and the individual
efforts of sales personnel. It was our hope that these actions
would set the ground work for generating future sales and revenues.
During 1999, we expanded our outside sales force by contracting
with several independent sales representatives and four major
distributors. Our outside independent sales force grew to 50
persons in the fourth quarter of 1999.
Our inside sales department, located in Phoenix, AZ is composed of
one person who is our national sales manager. The national sales
manager is responsible for developing new accounts, as well as
working locally with independent sales representatives and
distributors.
20
<PAGE>
Independent salespeople are generally compensated through a
straight commission based on completed sales. Distributors
purchase machines at discounted prices based on volume and then re-
sell to physicians.
We hope to attain prominence as a market leader through a carefully
constructed marketing program, encompassing the following
components:
1. Public Relations
We plan to launch an aggressive, well-timed, PR campaign in the
popular print and broadcast media. We hope to place editorials in
health and beauty journals and televised national and local news
broadcasts announcing our non-invasive cosmetic technology. We
also plan to obtain the testimony of physicians attesting to the
fact that microwave technology is much safer, more effective, and
better tolerated than existing technologies.
This strategy will require the retention of a well-connected PR
firm during the product introduction period and must be timed to
coincide with targeted journal advertising, direct mail and trade
shows. The videotapes and reprints derived from this campaign can
then be used to sell the device to physicians and as patient
information to sell the microwave treatment.
2. Journal Advertising
We plan to place advertisements in seven journals that specialize
in the medical areas of plastic surgery, cosmetic surgery, and
dermatology. For maximum impact, the ads will be timed to coincide
with specific events and special issues relating to our business
activities.
3. Direct Mail
We also plan to use direct mail as a method of generating leads.
Most of the cosmetic surgery societies make their mailing lists
available to manufacturers for a fee. Through regional and
specialty focused direct mail efforts, we hope to generate a
consistent stream of new interest in our microwave system.
4. Trade Show Attendance
One of the most cost-effective methods of reaching a large,
focused, audience is through trade show participation. Throughout
the year, we plan to attend approximately eight trade shows,
reaching several thousand physicians in this manner.
5. Specialty Microwave Workshops and Seminars
We plan to attend and/or sponsor approximately 20 hands-on
educational courses directed at small participant groups each year
to expose physicians from different specialties to our microwave
system. Our training seminars will feature experts who will present
on the use of microwaves in medical treatment, the clinical
applications of the MW Microwave Delivery System, and financial
analysis and programs involving our machines. In addition, a
device will be on the premises for the attendees to see and view a
hands-on treatment with a live patient.
21
<PAGE>
6. Clinical Presentations
Sales representatives will be provided with a book containing all
clinical data related to our machines, including abstracts, white
papers, re-prints from medical journals, and before and after
images. The book will also contain other related materials such as,
reprints from the popular press, a comparison matrix and a
physician reference list.
7. Observation of a Patient Treatment
Physician prospects will have the ability to observe a patient
procedure at the office of one of our preceptor physicians. In this
way they can get the story from one of their peers as opposed to a
sales representative. They will also have the chance to query the
patient on how well they tolerated the treatment. Observing a
patient procedure also obviates the need to make a demo unit
available to the sales representatives.
8. Creating Physician Advertising Materials
Consumer marketing is becoming an increasingly crucial part of
cosmetic surgery. Cosmetic surgery patients are consumers who have
treatment choices and physicians have begun to recognize the need
to compete for their dollars. The number of companies being
utilized by physicians to help market their practices amply
illustrates this fact. By providing this value added service, we
can provide physicians with one more reason to purchase.
Employees
We have nine employees including our president, chief operating
officer, chief financial officer, director of sales,
secretary/comptroller, electrical/microwave engineers and microwave
technicians. Expansion will coincide with sales of our product.
Independent companies currently conduct manufacturing and assembly
of our machines. None of our employees or the employees of our
subsidiaries is subject to collective bargaining agreements, nor
have they been on strike, or threatened to strike, within the past
three years. We have no supplemental benefit or incentive
arrangements with our employees other than health insurance
coverage and our incentive stock option plan.
Patents and Trademarks
We have recently obtained a patent 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 hair removal. We also have several other filed
patents pending.
22
<PAGE>
Research and Development Expenditures
During the 1998 and 1999 fiscal years, we spent the following
amounts on research and development activities:
Six Months ended Year Ended Year Ended
June 30, 2000 December 31, 1999 December 31, 1998
---------------- ----------------- -----------------
$ 607,748 $ 678,162 $ 569,738
Corporate Organization and History
We are a Nevada corporation that was incorporated as a subsidiary
of Dynamic Associates, Inc. on December 4, 1997. On February 26,
1998, we entered into an agreement with Dynamic in which we issued
14,223,929 of our common stock to Dynamic in consideration for:
(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 Microwave
Communication Corporation and shareholders loans to MMC in the
amount of $2,169,806; and
(c) the agreement of Dynamic to pay to us 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. This amount is currently
past due.
On March 11, 1998, Dynamic distributed all of our shares to its
shareholders. Each shareholder of Dynamic received one of our
common shares for each of their common shares in Dynamic. The
shares distributed by Dynamic constituted all of our issued and
outstanding shares at the time.
We sold the business of P&H under an asset purchase and sale
agreement dated March 9, 1998. Under this Agreement, we took back
a promissory note from the purchaser, MCC/ Ferro Systems, Inc., as
partial consideration. This promissory note is currently in
default.
Subsidiaries
We have two subsidiaries, Microwave Medical Corporation and P&H
Laboratories, Inc. MMC is our only active subsidiary.
All of the information listed throughout this prospectus includes
both this subsidiary and us. The subsidiaries' financial
information is included in the consolidated financial statements
attached to this document. We 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 our spin-off from
Dynamic.
23
<PAGE>
Description of Property
Our principal business offices are in leased premises at 6617 N.
Scottsdale Road, Suite 103, Scottsdale, AZ 85250. Our lease
commitment expires on December 31, 2002. We own no real property.
MMC's offices are located at 601 Del Norte Boulevard Suite S,
Oxnard, California 93030. This lease expires on July 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Over the past several months, we have been faced with a number of
problems in bringing our new product to market. In addition to the
more traditional difficulties of generating sales, our vice
president of marketing and national sales manager resigned in
January 2000. Following this, we have been actively involved in
hiring and training new sales executives and personnel, but the
process has been slow and costly.
We delivered 36 machines to doctors prior to December 31, 1999,
however, because these deliveries did not meet all of the criteria
required for the recognition of revenue by December 31, 1999, no
revenue was recognized on our books in 1999. This along with other
complications from operations caused us to be unable to include our
audited financial statements with our original 10K filing. An
amended 10K filing with these audited financials was made on May
16, 2000.
Management believes that the adverse results we experienced during
our initial sales activities were primarily attributable to the
following:
1. problems with the operation of our new microwave system;
2. the learning curve associated with the specialized selling and
training requirements of our new microwave technology;
3. the limited amount of internal resources and personnel
available to us at the time.
Management believes that these difficulties will be overcome
through the addition of new key personnel, including a new C.E.O.,
C.F.O., marketing director, product and quality assurance manager,
clinical nurses, and an inventory/shipping manager. As of the date
of this filing we have added a new C.F.O., national sales manager
and clinical nurse. We intend to add the other new key personnel
over the next few months after financing is obtained.
We have expanded our clinical sites. Management believes this
expansion will provide us with a number of peer review publications
and clinical white papers from medical luminaries in the field of
dermatology, pheblology, plastic surgery and other specialties.
This action may also provide individuals who can be called upon to
lecture on the merits of our microwave technology.
As the product was re-launched late in the third quarter and no
significant cash flows from sales have been generated, management
anticipates we may require additional funds to continue operations
in the fourth quarter of 2000 and the first quarter of 2001. We
therefore intend to offer a new private placement to fund
operations until sufficient cash flows are derived from sales
24
<PAGE>
revenues. To help expand our ability to generate revenue, we will
also be looking for a strategic partner or strong national sales
distribution organization to expand our sales opportunities.
While we have been able to raise funds through equity and debt
offerings in the past, we can offer no guarantee to investors that
we will be able to raise sufficient funds in the future or that
sufficient cash flows from revenues will ever be achieved. Failure
to obtain additional financing or generate sufficient revenues
would have a material adverse effect on our viability.
Default on Note Payment by Purchaser of P&H
We sold the business of P&H Laboratories to Microwave Communication
Corporation on March 9, 1998 and received a promissory note payable
to P&H. P&H later assigned its rights under this note to us.
The payment due on March 31, 1999 was not received when due. We
re-negotiated a new payment schedule, but MCC defaulted on this
obligation as well. We are currently considering the enforcement
of our claim through litigation.
Prior Period Adjustments
In 1998, our former parent, Dynamic Associates, Inc., as part of
the spin-off, agreed to cancel our subsidiary's debt to it of
$2,169,806. We recognized this discharge of indebtedness as
earnings for the year ended December 31, 1998. After careful
review, we changed this entry on our books to a capital
transaction, and thus decreased net income by $2,169,806 and
increased additional paid in capital by a like amount.
Additionally, as part of our spin off with Dynamic, it agreed to
pay us $200,000 to help in our start-up. We originally recorded
this item as a receivable and revenue. In 1999, Dynamic paid us
$50,000 towards this debt. After careful review, we reclassified
this item to a capital transaction, thereby decreasing net income
by $200,000 and reclassifying the receivable into stockholders'
equity.
Assets
Our total assets decreased to $3,697,183 as of June 30, 2000 from
$4,117,108 on December 31, 1999, a decrease of $419,925 or 10.2%.
The net change resulted primarily from decrease in cash and
deposits partially offset by an increase in inventory. The
decrease in cash resulted primarily from cash used in normal
operations. The decrease in the deposits was caused by our
renegotiating a contract with a major supplier and offsetting a
corresponding liability. The increase in inventory of approximately
$1,119,044, or 67.1% is the result of our continuing production of
MW 2000 systems in connection with the re-launch of the product in
the third quarter.
Liabilities And Stockholders' Equity
Our operations for the six months ending June 30, 2000 were funded
by an increase in capital and short-term borrowings. Stockholders'
equity increased $449,936, or 19.4%, to $2,774,500 as of June 30,
2000. The net increase in stockholders' equity resulted primarily
from our sale of common
25
<PAGE>
stock, approximately $2,400,000, and the exercise of stock options,
less the net loss from operations.
We borrowed funds from an officer in the amount of $150,000 in
exchange for a promissory note. We then converted $100,000 of the
note into equity as part of a private placement. The remaining
$50,000 note matures in October 2000 and has an interest rate of
10%. We also increased our borrowings on our line of credit by
$40,000.
Results of Operations
In the prior year, we began our initial production of the MW 2000
machines and delivered 36 of the machines to clinical sites across
the country. Of these machines, we have taken back 4 machines, 10
are with our national distributor pending order placement, 10 are
involved in clinical trials and 12 have been returned to inventory
to receive upgrades or other product modification.
Our net loss for the six months ended June 30, 2000 was $2,008,064
compared to a loss of $775,975 during the same period in 1999.
This increase in the net loss was caused by ramping up production
and establishing the necessary internal infrastructure to
accommodate the projected sales expected in connection with the re-
launch of the MW 2000 machine.
Our general and administrative expenses for the six months ended
June 30, 2000 were $1,388,954 compared to $477,320 for the same
period in 1999. This reflects an increase of $911,634, or 191%.
This increase in general and administrative costs as compared to
the same period in the prior year was primarily due to advertising
and promotion cost involved in bringing the product to market, an
increase in professional fees and an increase in the costs
associated with clinical trials.
Our research and development expenses were $607,748 for the six
months ended June 30, 2000 compared to $262,151 for the same period
in 1999. The increase of $345,597, or 131.8%, reflects our
continued research into additional applications for its microwave
technology.
Despite initial efforts, our sales have not met management's
expectations. We recorded our first revenue during the third
quarter of 2000 and anticipate increasing revenues in the fourth
quarter. We have resolved a number of issues and problems
regarding the use and operation of the MW 2000 machine by
physicians and their staff. Management has developed an internal
evaluation process that has resulted in planned modifications and
upgrades to the MW 2000 machine, including such things as warning
labels, instruction manuals, on-site training, and clinical
support.
Liquidity and Capital Resources
As of June 30, 2000, we had $66,253 in cash. During the first six
months of 2000, we completed a private placement of 1,000,000
shares of our common stock. Net cash proceeds from this placement
were $2,400,000. We completed an additional private placement of
1,860,000 shares of common stock in September 2000. Net proceeds
to date from this private placement, net of issuance costs, are
$930,000.
We used cash of $2,715,324 in our operating activities during the
six months ending June 30, 2000 compared to $172,281 for the same
period in 1999. In the six months of 2000, we were primarily
involved in product upgrades, re-structuring management and in
enhancing internal procedures. We have substantially completed
upgrades to the MW 2000 and have re-launched the product.
26
<PAGE>
Management intends to obtain financing, as necessary, through
additional equity offerings until such time as cash flows from
operations are sufficient to support operations. Management
believes that it will be able to raise the money that is necessary,
but currently does not have this financing in place.
Forward-Looking Statements
This prospectus contains forward-looking statements that involve
risks and uncertainties. We use words such as anticipate, believe,
plan, expect, future, intend, hope and similar expressions to
identify such forward-looking statements. You should not place too
much reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks
faced by us described in the risk factors section and elsewhere in
this prospectus. The forward-looking statements made in this
prospectus relate only to events as of the date on which the
statements are made.
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. We have not experienced any
difficulties as a result of this potential problem and do not
expect any problems in the future.
MANAGEMENT
The following are the names of our officers and directors, their
present positions, and some brief information about their
background.
Name Age Offices Held
---- --- ------------
Jan Wallace 43 Director, President
Tyler Brown 41 Chief Operating Officer
Dean Drummond 31 Chief Financial Officer
Elliot Smith 68 Director
Jack Friedland 59 Director
Neil Marcus 58 Director
Nigel Parker 47 Director
Jan Wallace was our president, chief executive officer and one of
our directors at our inception in December, 1997. Ms. Wallace
resigned as president and chief executive officer effective October
1, 1998 but was then re-appointed on July 9, 1999 after the
resignation of former president Paul Banko. Ms. Wallace is also
employed by Dynamic Associates Inc. and has been 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
that was sold to Ascom Corporation. She has also been in management
with Pitney Bowes-Canada and Bell Canada where
27
<PAGE>
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.
Tyler M. Brown has been our chief operating officer since November
1999. Mr. Brown has over 17 year of experience in the medical
device field. Prior to joining us, he held positions as the
Director of Marketing for the Medical Division and Senior Product
Manager for Cosmetic and Surgical Lasers and Accessories for ESC
Medical Systems, Inc. From 1990-1995, he was the product manager
for ultrasound systems and sales and marketing manager for
ultrasound transducers for Advanced Technology Laboratories. From
1987 -1988, he was Vice President and co-founder of Sound
Technology, a company that developed ultrasound transducers for OEM
customers. From 1983 - 1987, Mr. Brown was the marketing manager
for OEM products for Johnson and Johnson Ultrasound. Mr. Brown
received his undergraduate degree from Ohio Wesleyan University and
a MBA from Pennsylvania State University.
Dean A. Drummond was recently appointed CFO of MW Medical in June
2000. Mr. Drummond has over 8 years of public and private
accounting experience. Prior to joining us, he was a senior
accountant with Grant Thornton. While at Grant Thornton, Mr.
Drummond worked with a wide variety of industries specializing in
technology and manufacturing companies. From 1992 - 1995, Mr.
Drummond was the accounting manager for BW Seafoods, Inc., an
importing and wholesale company. Mr. Drummond received his
bachelors degree in accounting from the University of Southern
California.
Elliot Smith is one of our directors, 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; governor and chairman of the AMEX Commodities
Exchange; director and member of the executive committee of the
Securities Industry Automation 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 one of our directors, 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 from 1965-1966 and surgical residency from1966-
1970 through New York
28
<PAGE>
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, American Board of Surgery, and American Board of Plastic
Surgery 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.
Neil Marcus is one our directors, appointed July 22, 2000. Mr.
Marcus is a certified public accountant with over 36 years of
experience in the finance area. Since 1999, Mr. Marcus has been an
independent financial consultant. From 1997 through 1998, Mr.
Marcus was the chief financial officer of Unitel Video, Inc. From
1973 to 1997, Mr. Marcus was the chief financial officer of Kavanau
Real Estate Trust, a publicly traded company and Sanford Nalitt and
Associated companies, a Staten Island real estate developer. Mr.
Marcus was a CPA with Alexander Grant & Co. (now known as Grant
Thornton LLP) from 1964 to 1973. Mr. Marcus received his bachelor
degree from City College of New York.
Dr. Nigel Parker in one of our directors, appointed July 22, 2000.
Mr. Parker brings to the board with a wealth of experience in the
healthcare industry and particular expertise in cutting edge
medical technology. Since 1998, Dr Parker has been the CEO of
Eurogene Ltd, one of Europe's leading gene therapy companies. From
1995 through 1998, Dr. Parker was the European vice president and
United Kingdom general manager or Teva Pharmaceuticals, Ltd. From
1991 through 1995, Dr. Parker was the European Vice President of
PMSI, a pharmaceutical sales and marketing service organization.
Dr. Parker's scientific background will benefit us in clinical and
preceptor site selection, while his experience in funding and
investment financing adds to the board's audit committee, on which
he will also serve. Dr Parker has previously served as European
vice president for Teva Pharmaceuticals Ltd (NASDAQ) and for
Pharmaceutical Marketing Services Inc. (NASDAQ) where he was also a
corporate officer. Dr. Parker holds a PhD from London University.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table provides, the beneficial ownership of our
common stock by each person known by us to beneficially own more
than 5% of our common stock outstanding as of October 3, 2000 and
by our officers and directors as a group. Except as otherwise
indicated, all shares and warrants are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class
-------------- ------------------- -------------------- --------
Common Stock High Octane Fund Ltd
HWR Services
Craigmuir Chamber
PO Box 71
Road Town,
Tortola BVI 1,222,781 5.51%
29
<PAGE>
Common Stock Chase Manhattan Bank
4 New York Plaza
13th Floor
New York, NY 3,924,338 17.69%
Common Stock Boston Safe Deposit
& Trust Co.
C/O Mellon Bank
Mellon Bank NA
Three Mellon Bank Center
Room 153-3015
Pittsburgh, PA 1,135,949 5.12%
Common Stock Value Management &
Research AG
Am Kronberger Hang 5
D-65824 Schwalbach
Germany 2,145,199 9.67%
---------------------------------------------------------------------------
We know of no other person who is the beneficial owner of more
than five percent of our common stock.
Management
Common Stock Jan Wallace 940,000 4.24%
(Chairman)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
Common Stock Tyler Brown 25,500 0.11%
(COO)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
Common Stock Dean Drummond 0 0%
(CFO)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
Common Stock Elliot Smith 64,000 0.29%
(Director)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
Common Stock Jack Friedland 0 0%
(Director)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
30
<PAGE>
Common Stock Neil Marcus 0 0%
(Director)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
Common Stock Nigel Parker 0 0%
(Director)
6617 N. Scottsdale Road,
Suite 103,
Scottsdale, AZ 85250
Common Stock All Officers and Directors 1,029,500 4.64%
as a Group (7 persons)
----------------------------------------------------------------------------
These percentages are based on 22,178,443 shares of common stock
and warrants outstanding as of October 3, 2000.
In addition, Ms. Wallace holds stock options to purchase 400,000
shares at a price of $1.00, Mr. Brown holds stock options to
purchase 100,000 shares at a price of $1.50, Mr. Drummond holds
options to purchase 50,000 shares of our common stock at a price of
$1.50, Mr. Marcus holds options to purchase 100,000 shares of our
common stock at a price of $1.50, Mr. Smith holds stock options to
purchase 100,000 shares at a price of $1.50, Dr. Parker holds
options to purchase 100,000 shares of our common stock at a price
of $1.50, and Dr. Friedland holds stock options to purchase 100,000
shares at a price of $1.50.
Warrants
We have issued warrants to purchase 886,000 shares of our common
stock. Warrants to purchase 350,000 of these shares are
exercisable at a price of $2.75 per share on or before the close of
business on July 30, 2002. Warrants to purchase 100,000 of these
shares are exercisable at a price of $3.50 per share on or before
the close of business on December 15, 2001. Warrants to purchase
250,000 of these shares 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. The remaining 186,000 warrants are exercisable at a price of
$1.75 per share and expire on September 18, 2003.
Options
Our board of directors has adopted an incentive stock option plan
providing for the issuance of up to 2,500,000 shares of our common
stock to our directors, officers, consultants, and employees.
Currently, there are options issued and outstanding to purchase
2,182,000 shares of our stock through this stock option plan at
prices ranging from $1 to $3.00.
Convertible Debentures
On July 20, 1999, we sold $3,000,000 worth of convertible
debentures. All of these debentures were converted into shares of
common stock by the end of 1999.
31
<PAGE>
Public Market
Our common stock is currently trading on the OTC Bulletin Board
under the symbol MWMD. On October 3, 2000, the closing sale price
of our common stock was $0.875 per share.
Registration Rights
The selling shareholders have the right to require us 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 our filing of this registration statement on
behalf of the selling shareholders. The registration rights
agreement provides, in part, that we are obligated to also register
all of the shares of stock underlying the warrants we issued to
these investors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as disclosed below, none of the following parties since the
date of our incorporation has had any material interest, direct or
indirect, in any transaction with us or in any presently proposed
transaction that, in either case, has or will materially affect our
business.
* Any of our directors or officers
* Any proposed nominee for election as a director on our board
of directors
* Any person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights attached to
our issued and outstanding shares
* Any promoter of our stock
* Any relative or spouse of any of the foregoing persons
During 1999, we paid our president $180,000, and our
secretary/treasurer $96,000.
For 2000, we are currently paying our president $16,500 a month,
our COO $8,333 per month and our CFO $7,500 per month.
32
<PAGE>
Annual Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Restricted
Annual Stock Options/* LTIP All
Name Title Year Salary Bonus Compen- Awarded SARs (#) pay- Other
sation outs($) Compen-
sation
---- ----- ----- ------ ----- ------ ---------- ------- ------- -------
Jan Pres-1999 $180,000 0 0 0 400,000 0 0
Wallace ident,
CEO &
Di-
rector
Grace Sec- 1999 $ 96,000 0 0 0 200,000 0 0
Sim retary,
Treas-
urer
Elliot Di- 1999 $ 0 0 0 0 100,000 0 0
Smith rector
Jack Di- 1999 $ 0 0 0 0 100,000 0 0
Fried- rector
land
Tyler COO 1999 $ 0 0 0 0 100,000 0 0
Brown
Dean CFO 1999 $ 0 0 0 0 0 0 0
Drum-
mond
Neil Di- 1999 $ 0 0 0 0 0 0 0
Marcus rector
Nigel Di- 1999 $ 0 0 0 0 0 0 0
Parker rector
In March 1999, we granted an option to purchase 400,000 shares of
our common stock to Paul E. Banko, our former president and CEO,
and 400,000 shares to Jan Wallace. In November 1999, we granted an
option to purchase 100,000 shares of our common stock to Tyler
Brown. In July 2000, we granted an option to purchase 100,000
shares of stock to Neil Marcus, 100,000 shares to Nigel Parker, and
50,000 shares to Dean Drummond. The options allow the holders to
purchase our common shares at a price of $1.00 - $1.50 per share.
Fifty percent of these options were exercisable immediately and
fifty percent required a one-year vesting period. A number of
other employees were granted options on similar terms.
Subsequently, Paul Banko resigned as president and CEO and an
agreement was reached in which he retained only 200,000 of his
original 400,000 options.
Our policy regarding related transactions requires that any
director or officer who has an interest in any transaction to be
approved by our board of directors, disclose the presence and the
nature of the interest to the board prior to any approval of the
transaction. The transaction may then be approved by a majority
of the disinterested directors, provided that an interested
director may be counted in determining the presence of a quorum at
the meeting to approve the transaction. Our 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
We are not a party to any material legal proceeding and to our
knowledge, no such proceeding is threatened or contemplated. At
this time, we do not have any material bankruptcy, receivership, or
similar proceedings pending.
33
<PAGE>
EXPERTS
Our consolidated statements of operations, stockholders' equity and
cash flows and the financial statement schedule for the year 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.
Our consolidated balance sheet as of December 31, 1999 and the
consolidated statements of operations, stockholders' equity and
cash flows for the year December 31, 1999, appearing in this
prospectus and registration statement, have been audited by Grant
Thornton LLP, 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
We have filed a registration statement on Form S-1 with the
Securities and Exchange Commission with respect to the shares of
our common stock offered by this prospectus. This prospectus is
filed as a part of the registration statement and does not contain
all of the information contained in the registration statement and
exhibits. Reference is therefore made to such omitted information.
Statements made in this prospectus are summaries of the material
terms of referenced contracts, agreements or documents, but are not
necessarily complete. Reference is made to each exhibit for a more
complete description of the matters involved and these statements
shall be deemed qualified in their entirety by the reference. You
may inspect the registration statement and exhibits and schedules
filed with the Securities and Exchange Commission at the Securities
and Exchange Commission's principle office in Washington, D.C.
Copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Securities and Exchange Commission also maintains a web
site (http://www.sec.gov) that contains reports, proxy statements
and information regarding registrants that file electronically with
the Commission. For further information pertaining to us and our
common stock offered by this prospectus, reference is made to the
registration statement.
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Our financial statements, as described below, are attached hereto.
1. Audited Consolidated Financial Statements
(a) Reports of Independent Certified Public Accountants
(b) Consolidated Balance Sheet
(c) Consolidated Statements of Operations
(d) Consolidated Statement of Stockholders' Equity;
(e) Consolidated Statements of Cash Flows;
(f) Notes to Consolidated Financial Statements;
2. Un-audited Consolidated Financials for the first six months of 2000
(a) Consolidated Balance Sheet
(b) Consolidated Statements of Operations
(c) Consolidated Statements of Cash Flows;
(d) Notes to Consolidated Financial Statements.
35
<PAGE>
May 12, 2000
MW Med-123199
Financial Statements and Report of
Independent Certified Public
Accountants
MW Medical, Inc.
December 31, 1999 and 1998
<PAGE>
C O N T E N T S
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
MW Medical, Inc.
We have audited the accompanying consolidated balance sheet of MW
Medical, Inc. (a Nevada corporation) as of December 31, 1999 and
the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 audit provides 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. as of December 31, 1999 and the
results of its operations and its cash flows for the year
December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note B to the consolidated financial
statements, the Company has cash flow constraints, an accumulated
deficit, and suffered recurring losses from operations. These
factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note B.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ Grant Thorton LLP
Los Angeles, California
April 13, 2000
<PAGE>
MW Medical, Inc.
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 394,832
Restricted cash 500,000
Inventory 1,667,258
Deposits 1,350,000
Other current assets 165,341
------------
Total current assets 4,077,431
PROPERTY AND EQUIPMENT, net 21,104
OTHER RECEIVABLES, net 18,573
------------
$ 4,117,108
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,143,802
Short-term borrowings 425,000
Income taxes payable 2,400
Accrued expenses 118,242
Deposits 103,100
------------
Total current liabilities 1,792,544
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common stock $.001 par value; authorized - 100,000,000
shares issued and outstanding, 18,374,443 18,375
Additional paid-in capital 9,291,928
Note receivable from former parent (150,000)
Accumulated deficit (6,835,739)
------------
Total stockholders' equity 2,324,564
------------
$ 4,117,108
============
The accompanying notes are an integral part of these statements.
4
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998
-------------- --------------
Selling, general and
administrative expenses $ 1,905,239 $ 614,979
Depreciation and amortization 62,622 96,348
Research and development 678,162 569,738
------------- --------------
Net operating loss (2,646,023) (1,281,065)
Other income (expense)
Interest income 66,728 17,425
Interest expense (2,010,880) -
------------- --------------
(1,944,152) 17,425
------------- --------------
Net loss from continuing operations
before income taxes (4,590,175) (1,263,640)
Income tax expense 2,400 800
------------- --------------
Net loss before discontinued
operations (4,592,575) (1,264,440)
Discontinued operations
Sale of subsidiary - (477,862)
Operations of subsidiary sold
April 1, 1998 - (194,268)
------------- --------------
- (672,130)
------------- --------------
NET LOSS $ (4,592,575)$ (1,936,570)
============= ==============
Basic and diluted earnings per share
Net loss from continuing operations $ (0.27)$ (0.08)
Net loss from discontinued operations - (0.05)
------------- --------------
Net loss $ (0.27)$ (0.13)
============= ==============
Weighted-average number of common shares 16,912,700 14,462,285
============= ==============
The accompanying notes are an integral part of these statements.
5
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Two years ended December 31, 1999
Note
Addit- receiv-
ional able Total
Common stock paid- from Accum- stock-
------------ in former ulated holders'
Shares Amount capital parent deficit equity
------ ------ ---------- ------ ------- -----------
BALANCE,
January
1, 1998 14,223,929 $14,224 $ 35,876 $ - $ (306,594) $ (256,494)
Issuance of
common
stock for
cash 1,500,000 1,500 1,009,513 - - 1,011,013
Subsidiary
adjustment - - 10,608 - - 10,608
Debt
forgiveness
and note
receivable
from former
parent - - 2,369,807 (200,000) - 2,169,807
Net loss - - - - (1,936,570) (1,936,570)
------ ------ ---------- ------ ------- -----------
BALANCE,
December
31, 1998 15,723,929 15,724 3,425,804 (200,000) (2,243,164) 998,364
Issuance of
common
stock,
net of
issuance
costs 1,000,000 1,000 673,974 - - 674,974
Beneficial
conversion
feature in
debentures - - 1,000,000 - - 1,000,000
Convertible
debentures
converted to
common
stock 2,575,514 2,576 2,997,424 - - 3,000,000
Stock
warrants
and
options
granted in
connection
with
debentures - - 671,248 - - 671,248
Retirement
of stock (1,185,000) (1,185) 1,185 - - -
Exercise
of stock
options 260,000 260 259,740 - - 260,000
Stock
options
granted
for
services - - 262,553 - - 262,553
Capital
Contrib-
ution
by former
parent - - - 50,000 - 50,000
Net loss - - - - (4,592,575) (4,592,575)
------ ------ ---------- ------ ------- -----------
BALANCE,
December
31, 1999 18,374,443 $18,375 $ 9,291,928$(150,000)$(6,835,739) $2,324,564
========== ======= =========== ======== =========== ==========
The accompanying notes are an integral part of these statements.
6
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998
-------------- --------------
Cash flows from operating activities
Net loss $ (4,592,575) $ (1,936,570)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 62,622 134,925
Loss on sale of subsidiary - 477,862
Non-cash consideration in sale
of subsidiary - 303,125
Amortization of discount on
convertible debentures 671,248 -
Stock options granted for services 262,553 -
Interest expense related to
beneficial conversion feature 1,000,000 -
Bad debt expense 183,125 60,000
Changes in assets and liabilities
Increase in accounts receivable - (233,519)
Increase in other receivable (14,340) -
(Increase) decrease in inventories (1,667,258) 80,636
Increase in restricted cash (500,000) -
Increase in deposits and other
current assets (1,456,192) (109,157)
Increase in accounts payable 1,073,036 124,436
Increase in accrued expenses 117,204 -
Decrease in accrued expenses -
related party (132,714) -
Increase in deposits payable 103,100 34,775
Increase in income taxes payable 800 1,600
-------------- --------------
Net cash used in
operating activities (4,889,391) (1,061,887)
Cash flows from investing activities
Payment of loan-other - (3,915)
Purchase of equipment (16,034) (13,493)
Proceeds from sale of subsidiary - 410,534
-------------- --------------
Net cash (used in) provided
by investing activities (16,034) 393,126
The accompanying notes are an integral part of these statements.
7
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Year ended December 31,
1999 1998
-------------- --------------
Cash flows from financing activities
Borrowings - former parent - 170,000
Proceeds from convertible debt offering 3,000,000 -
Principal payment from debt - (9,951)
Capital contribution from former parent 50,000 -
Borrowings from - related party - 100,000
Repayments of loans - related party - (100,000)
Proceeds from short-term borrowings 425,000 -
Sale of common stock 934,974 1,011,013
-------------- --------------
Net cash provided by financing
Activities 4,409,974 1,171,062
-------------- --------------
(Increase) decrease in cash (495,451) 502,301
Cash at beginning of year 890,283 387,982
-------------- --------------
Cash at end of year $ 394,832 $ 890,283
============== ==============
Supplemental information
Cash paid for interest $ 321,472 $ 9,824
Cash paid for income taxes $ 1,600 $ 800
Non-Cash Financing Activities:
------------------------------
The Company issued $3,000,000 of convertible debentures with
detachable warrants and a beneficial conversion feature. Included
in operating activities is $1,000,000 of interest expense related to
the beneficial conversion feature and $671,248 of interest expense
related to the discount on the debt. As of December 31, 1999, all
of the convertible debentures were converted to equity.
The Company stock granted options valued at $262,553 for certain
services.
The accompanying notes are an integral part of these statements.
8
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
MW Medical, Inc. ("the Company") was incorporated under the
laws of the State of Nevada on December 4, 1997. The Company
is currently engaged in the development of technology relating
to the use of microwave energy for medical applications.
Through its subsidiary, Microwave Medical Corporation ("MMC"),
the Company produces and distributes medical devices utilizing
the Company's proprietary microwave technology.
Prior to April 1, 1998, the Company was also engaged in the
manufacturing of highly technologically advanced components and
subsystems for the communications and aerospace industries
through its subsidiary, P & H Laboratories ("P&H"). During
1998, the Company decided to discontinue doing business in this
industry, and consequently sold the net assets of P&H.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
the Company; its wholly-owned subsidiaries, MMC and MMC's
German based subsidiary, Microwave Medical ("GmbH"), which was
formed in late 1997, and P&H through the date of the sale. All
significant intercompany balances have been eliminated in
consolidation.
Concentration of Risk
---------------------
The Company outsources the majority of its manufacturing to one
supplier. The reliance on a limited number of vendors is
subject to several risks, including economic disruptions and
price fluctuations, any one of which could have a material
adverse effect on the Company's business and results of
operations.
The Company maintains several accounts with established
financial institutions. The balances in these institutions
exceed insured amounts by approximately $683,000 at December
31, 1999. The Company believes there is little risk of loss
based on its use of high quality institutions.
Revenue Recognition
-------------------
Revenue related to sales to end customers and to distributors are
recognized upon shipment, when the price to the purchaser is
fixed, there are not significant obligations for future
performance and the purchaser's obligation is not contingent on
resale of related merchandise.
9
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Deposits
--------
Deposits represent payments made to a supplier, which performs
the majority of the Company's manufacturing. The supplier
requires that the Company maintain an ongoing deposit with the
supplier as collateral for goods in process.
Inventory
---------
Inventory, consisting principally of raw materials and
finished goods, is stated at the lower of cost (principally
using First-in, First-out) or market.
Research and Development Costs
------------------------------
Research and development costs are generally charged to
operations as incurred. Research and development costs that
have an alternative future use are capitalized. The total
amount of research and development costs captialized in 1999
was $107,528. No research and development costs were
capitalized in 1998.
Stock-Based Compensation
------------------------
The Company accounts for stock-based awards in accordance with
APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25"), which requires that compensation cost be recorded based on
the intrinsic value of the award at the grant date and recognized
over the service period. The Company, in accordance with
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-based Compensation" (SFAS 123), provides pro-forma
disclosures of net earnings (loss) and earnings (loss) per share
as if the fair value based method of accounting for awards had
been applied. Under the fair value based method, compensation
cost is recorded based on the value of the award at the grant
date and is recognized over the service period.
Estimates
---------
The Company's management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
expenses during the year to prepare these financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
10
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Depreciation and Amortization
-----------------------------
Depreciation and amortization of property and equipment are
computed principally using the straight-line and accelerated
methods with useful lives ranging from 17 months to 8 years.
Income Taxes
------------
The Company accounts for income taxes under the asset and
liability method. Deferred taxes and liabilities are
recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which such taxable differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilties of a
change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the
deferred tax asset will not be realized.
Net Loss per Share
------------------
Basic and diluted loss per share is computed by dividing net
loss available to common stockholders by the weighted average
number of common shares outstanding during the periods
presented. The Company's diluted loss per share does not
include any common stock equivalents, as their effect is
antidilutive.
Stock options and stock purchase warrants to purchase shares on
common stock that were outstanding during 1999 which were not
included in the computation of diluted loss per share because
the impact would have been antidilutive were 1,745,000 and
600,000, respectively.
Reclassifications
-----------------
Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
11
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE B - REALIZATION OF ASSETS
The Company has suffered recurring losses from operations and
may continue to incur operating losses for the foreseeable
future due to the significant costs anticipated to be incurred
in connection with manufacturing, marketing and distributing
its microwave products. In addition, the Company intends to
continue to conduct research and development activities,
including regulatory submittals and clinical trials to develop
additional applications for its technology. The Company
operates in a highly competitive environment and is subject to
all of the risks inherent in a new business enterprise.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in
its future operations. The consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management has taken steps which it believes are sufficient to
provide the Company with the ability to continue its operations
over the near term. In January 2000, the Company raised
$2,400,000 through the sale of common stock in connection with
a private placement memorandum. The Company also began to ship
its initial product at the end of the year and expects to
receive cash flows from such products within the near term. As
of the end of the first quarter of 2000, the Company has not
recognized any sales revenue. The Company expects that the
proceeds from those activities will be sufficient to fund
activities in the near term. The Company is actively pursuing
additional financing. However, there can be no assurance that
the Company will be able to complete any additional financing.
12
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE C - INVENTORY
At December 31, 1999, inventory was comprised of the following:
Raw materials $ 136,586
Finished goods 1,530,672
---------------
$1,667,258
---------------
Prior to December 31, 1999, the Company shipped approximately
$1,300,000 of the above inventory to selected customers.
Revenue related to these shipments was not recognized in 1999
due to the earnings process not being complete.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December
31, 1999:
Machinery & equipment $237,464
Other 33,562
----------
271,026
Less accumulated depreciation (249,922)
----------
$ 21,104
----------
NOTE E - NOTE RECEIVABLE RELATED PARTY
In 1998, the Company was spun off from its former parent,
Dynamics Corporation ("Dynamics"). As part of the spin-off
transaction, the Company issued stock on a one-for-one basis to
the shareholders of Dynamics. In return, the Company received
its subsidiaries, MMC and P&H, had debt forgiven in the amount of
$2.1 million and a note receivable from its former parent for
$200,000. As of December 31, 1999, $150,000 of the note
receivable remains unpaid and is included as an offset to equity.
13
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE F - SHORT -TERM BORROWINGS
The Company has a line of credit with a bank in the amount of
$500,000, of which $425,000 was outstanding as of December 31,
1999. The line of credit accrues interest at 8.5% per annum and
expires on June 12, 2000. The line of credit is collateralized
by a certificate of deposit in the amount of $500,000. The
certificate of deposit is included in restricted cash as of
December 31, 1999.
NOTE G - STOCKHOLDERS' EQUITY AND CONVERTIBLE DEBENTURES
During 1999, the Company offered and sold 1,000,000 shares of
common stock through a private placement memorandum dated
January 15, 1999, at a price of $.75 per share. Cash proceeds,
net of issuance costs, were $674,974. The Company granted stock
options to acquire 130,000 shares of common stock in exchange
for services related to the sale of such offering. These stock
options were valued at $84,563 and were charged to additional
paid-in-capital.
On July 14, 1999, the Company entered into a convertible
debenture agreement in which it agreed to sell to certain named
investors a total of $3,500,000 of 8% Convertible Debentures
due July 31, 2000. The convertible debentures were convertible
upon issuance into registered shares of common stock at 75% of
the fair market value of the stock when converted, or $2.75 per
share, whichever is lower. The debt matures and the conversion
option expires in July 2000.
Substantially all of the debentures were converted shortly
after issuance. The first closing of $3,000,000 occurred on
July 23, 1999. Concurrently, three of the investors agreed to
purchase the balance of $500,000 of convertible debentures upon
the registration of the common stock as required by a
registration rights agreement. The Company completed the
registration of the common stock in November 1999. As of
December 31, 1999 the remaining $500,000 of the debentures has
expired.
In connection with the agreement, the Company granted stock
purchase warrants to the investors of the debentures to acquire
up to 350,000 shares of common stock at a price of $2.75 per
share. As a result, the Company recorded a discount to
debentures of $252,000, which was charged to interest expense
upon conversion of the convertible debt. At December 31, 1999,
all warrants are exercisable and no warrants have been
exercised. The warrants expire in July 2002.
The Company allocated a portion of the convertible debentures
to the embedded beneficial conversion feature contained in the
convertible debentures and charged it to paid-in capital. The
portion allocated to the beneficial conversion feature totaled
$1,000,000, which was
14
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
charged to interest expense at the date of issuance.
15
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE G - STOCKHOLDERS' EQUITY AND CONVERTIBLE DEBENTURES -
Continued
The Company granted stock purchase warrants to the underwriters
of the debentures to purchase up to 250,000 shares of common
stock at a price of $3.3125 per share. The Company also
granted 150,000 options at $1.00 per share to certain
individuals as commissions related to the sale of the
debentures. As of December 31, 1999, all stock warrants and
50% of the options are exercisable and no warrants or options
have been exercised. These warrants and stock options expire
in July 2002 and September 2002, respectively. The Company
recorded debt issuance costs of $419,248 which were charged to
operations upon conversion of the convertible debt.
NOTE H - STOCK OPTIONS
In March 1999, the Company authorized 2,500,000 shares of its
common stock to be utilized in an incentive compensation program.
The Company granted 2,250,000 options in 1999. No options were
granted in 1998. The stock options vest and become exercisable
as follows: 50% at the date of grant and 50% one year from the
date of grant. The stock options were granted at the market value
of the Company's common stock on the date of grant.
At December 31, 1999, there were 250,000 additional common
stock shares available for grant under the Plan. A summary of
the activity related to this plan is as follows:
Weighted
average exercise
price Options
---------------- -------------
Balance at
December 31, 1998 - -
Options granted $1.39 2,250,000
Options forfeited $1.00 (245.000)
Options exercised $1.00 (260,000)
-------------
Balance at
December 31, 1999 $ 1.48 1,745,000
=============
16
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE H - STOCK OPTIONS - Continued
The following information applies to options outstanding at
December 31, 1999:
Options outstanding Options exercisable
--------------------------------- ---------------------
Wtd. avg. Wtd. avg. Wtd. avg.
Number remaining exercise Number exercise
Outstanding life (years) price exercisable price
----------- ----------- -------- ----------- ---------
Exercise
Price
$1.00 -
$3.31 $ 1,745,000 2.61 $ 1.42 872,500 $ 1.42
=========== =========== ======== =========== =========
The Company recognized compensation cost of $376,624 under the
Plan for the year ended December 31, 1999. Had compensation
cost for the Plan been determined based on the fair value of
the options at the grant dates consistent with the method of
SFAS No. 123, the Company's net loss and net loss per share
would have been:
Net loss As reported $ (4,592,575)
Pro forma $ (5,331,676)
Basic loss per share As reported $ (0.27)
Pro forma $ (0.32)
These proforma numbers may not be representative of future
disclosures. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes method with the
following weighted-average assumptions used for grants in
1999: Risk-free interest rate of 6.50 percent, expected lives
of 5 years and volatility of 100%. The weighted-average fair
value of options granted during 1999 was $1.07.
17
<PAGE>\
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE I - INCOME TAXES
No provision for income taxes has been recorded as the Company
has incurred net operating losses from the commencement of
operations through December 31, 1999. At December 31, 1999,
the Company has net operating loss carryforwards available to
offset future taxable income for federal income tax purposes
of approximately $4,200,000; such carryforwards expire in
various years through 2019. The Company also has $3,450,000
of net operating loss carryforwards available to offset future
state taxable income that expires in various years through
2004. Deferred tax assets total approximately $1,800,000 and
include the effects of these net operating loss carryforwards
as well as certain expenses that are reported for financial
statement and income tax purposes in different periods. The
Company has provided a valuation allowance to offset all net
deferred tax assets due to the uncertainty of realization.
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company has entered into non-cancelable operating leases
for property and equipment as of December 31, 1999. The leases
require monthly payments ranging from $1,800 to $4,900 and
expire at various dates through December 2002. The future
lease payments are as follows:
2000 $ 68,000
2001 61,000
2002 63,000
---------
$192,000
=========
The Company is involved in various lawsuits arising from its
normal operations. It is the opinion of management, in
consultation with counsel, that the outcome of such matters
will not have a material adverse impact on the Company's
consolidated financial position, results of operations, or
cash flows.
NOTE L - SALE OF P&H LABORATORIES
Effective April 1, 1998, the Company sold its subsidiary, P&H,
for total consideration of $653,659. The consideration
included $160,534 in cash, notes receivable of $493,125 and
management services valued at $240,000. As of December 31,
1999 the remaining outstanding note receivable and management
services balances were $243,125 and $60,000 respectively. The
payor of the note defaulted on the payments for the remaining
$243,125 and as of December 31, 1999
18
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE L - SUBSEQUENT EVENT
In January 2000, the Company sold approximately, 1,000,000
shares of common stock in connection with the private placement
memorandum dated December 15, 1999. Cash proceeds from the
sale, net of issuance costs, were $2,400,000.
19
<PAGE>
MW Medical, Inc.
CONSOLIDATED BALANCE SHEET
June 30,
2000
-----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 66,253
Restricted cash 500,000
Inventory 2,786,302
Deposits 107,600
Prepaid expenses and other current assets 30,729
-----------
Total current assets 3,490,884
PROPERTY, PLANT AND EQUIPMENT, net 203,959
OTHER RECEIVABLES, net 2,340
-----------
$ 3,697,183
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 182,498
Line of credit 465,000
Deposits 10,000
Accrued expenses 165,185
Note payable - related party 100,000
-----------
Total current liabilities 922,683
STOCKHOLDERS' EQUITY
Common stock $.001 par value;
authorized - 100,000,000 shares issued
and outstanding - 19,432,443 19,432
Additional paid in capital 11,748,871
Note receivable related party (150,000)
Accumulated deficit (8,843,803)
-----------
2,774,500
-----------
Total stockholders' equity $ 3,697,183
===========
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
Sales, net $ - $ - $ - $ -
Cost of sales - - - -
------------ ------------ ----------- -----------
- - - -
General and
administrative
expenses 264,049 222,785 1,388,954 477,320
Depreciation and
amortization 23,454 24,672 28,399 49,344
Research and
Development 364,802 144,636 607,748 262,151
------------ ------------ ----------- -----------
Net operating loss (652,305) (392,093) (2,025,101) (788,815)
Interest income, net 11,613 5,684 18,637 13,640
------------ ------------ ----------- -----------
Loss from continuing
operations before
income taxes (640,692) (386,409) (2,006,464) (775,175)
Income tax expense - - 1,600 800
------------ ------------ ----------- -----------
NET LOSS $ (640,692) $ (386,409) $(2,008,064) $ (775,975)
============ ============ =========== ===========
Net loss per
weighted average
share (0.03) $ (0.02) $ (0.10) $ (0.05)
============ ============ =========== ===========
Weighted average
number of common
shares used to
compute net loss
per weighted
average share 19,432,443 16,232,262 19,358,868 16,003,096
============ ============ =========== ===========
<PAGE>
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
-------------------------
2000 1999
------------ -----------
Cash flows from operating activities
Net Loss $(2,008,064) $ (775,975)
Adjustments to reconcile net loss
of cash used in operating activities:
Depreciation and amortization 28,399 49,344
Changes in assets and liabilities
(Increase) decrease accounts
receivable - 47,010
Increase inventories (1,119,044) -
Decrease prepaid expenses and other 1,393,246 47,024
Increase (decrease) accounts
payable and accrued expenses (914,361) 451,116
Increase (decrease) deposits (93,100) 10,000
Decrease income taxes payable (2,400) (800)
------------ -----------
Net cash used in operating activities (2,715,324) (172,281)
------------ -----------
Cash flows used in investing activities
Purchase of equipment (211,254) (900,000)
Cash flows from financing activities
Proceeds from loans 140,000 425,000
Sale of common stock 2,457,999 675,000
------------ -----------
Net cash provided by financing
Activities 2,597,999 1,100,000
------------ -----------
(Decrease) increase in cash (328,579) 27,719
Cash at beginning of period 394,832 890,283
------------ -----------
Cash at end of period $ 66,253 $ 918,002
============ ===========
Supplemental information
Cash paid for interest $ 9,169 $ 3,963
Cash paid for income taxes $ 3,200 $ 1,600
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
---------------------
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and
with the instructions to Form 10Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted auditing
principles for complete financial statements. The unaudited
consolidated financial statements and notes should, therefore,
be read in conjunction with the financial statements and notes
thereto in the Annual Report on Form 10-K for the year ended
December 31, 1999. In the opinion of management, all
adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation, have been
included. The results of operations for the three and six-
month periods ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the entire
fiscal year.
NOTE B - REALIZATION OF ASSETS
The Company has suffered recurring losses from operations and
may continue to incur losses for the foreseeable future due to
the significant costs anticipated to be incurred in connection
with manufacturing, marketing and distributing its microwave
products. In addition, the Company intends to continue to
conduct research and development activities, including
regulatory submittals and clinical trials to develop additional
applications for its technology. The Company operates in a
highly competitive environment and is subject to all of the
risks inherent in a new business enterprise.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain present financing, and to
succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has taken the following steps, which it believes are
sufficient to provide the Company with the ability to continue
its operations over the near term: The Company raised $2.4
million and $210,000 through the sale of common stock in
connection with private placement memorandums in January and
July 2000, respectively. The Company expects to ship its first
sales units by the targeted August re-launch and expects to
receive cash flows from such products subsequent to those
shipments. The Company expects that the proceeds from those
activities will be sufficient to fund activities in the near
term, while it actively pursues additional financing. However,
there can be no assurance that the Company will be able to
complete any additional financing.
NOTE C - RELATED PARTY
In June 2000, the Company borrowed $100,000 from Jan Wallace,
the President and Chairman of the Board of Directors of the
Company, and signed a loan agreement to make available an
additional $100,000 to the Company. The note for $100,000
accrued interest at a rate of 10% and was to mature in
September 2000. This note, however, was converted to equity on
July 17, 2000 when it was used by agreement with Ms. Wallace to
purchase 200,000 shares of common stock as part of the current
private placement being sold by the Company. In addition, Ms.
Wallace purchased another $100,000 worth of stock, or 200,000
shares, in this offering. Thus, Ms. Wallace has purchased a
total of 400,000 shares of common stock in the Company's
current private placement.
<PAGE>
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
As a result of this purchase, Ms. Wallace will also receive
warrants to purchase up to 40,000 shares of the Company's
common stock at an exercise price of $1.75 per share
Subsequent to this, Ms. Wallace loaned the Company an
additional $50,000 at an interest rate of 10%. This note is
due and payable in October 2000.
NOTE D - SUBSEQUENT EVENT
In July 2000, the Company sold 420,000 shares of common stock
in a private placement memorandum dated July 15, 2000.
Proceeds, net of issuance costs, were $210,000. Proceeds from
the private placement include $200,000 received from Ms. Jan
Wallace, the President and Chairman of the Board of Directors
of the Company. In connection with the 420,000 shares sold as
part of the private placement, the Company will issue warrants
to purchase up to 42,000 shares of the Company's common stock
at an exercise price of $1.75 per share.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission registration fee $ 658.24
Accounting fees and expenses 5,000.00
Legal fees and expenses 20,000.00
Blue Sky fees and expenses 0.00
Miscellaneous 0.00
-----------
Total $ 25,658.24
===========
-------------------------------------------------------------------------
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
Our officers and directors are indemnified as provided under the
Nevada Revised Statutes and our bylaws.
Unless specifically limited by a corporation's articles of
incorporation, the Nevada Revised Statutes automatically provides
directors with immunity from monetary liabilities. Our articles of
incorporation do not contain any such limiting language. Excepted
from that immunity are:
(1) a willful failure to deal fairly with the company or its
shareholders in connection with a matter in which the
director has a material conflict of interest;
(2) 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);
(3) a transaction from which the director derived an improper
personal profit; and
(4) willful misconduct.
Our bylaws provide that we must 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
36
<PAGE>
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.
We also indemnify 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 our right to procure a judgment
in its favor by reason of the fact that the person is or was our
director, officer, employee, or agent, or is or was serving at our
request 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 us, 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 one of our directors, officers, employees, or
agents 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;
We 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 us 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 us 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 us within the
past three years that were not registered under the Securities Act.
We issued to Dynamic 14,223,929 of our common shares in
consideration for the transfer by Dynamic to us of all shares and
shareholders loans of each of MMC and P&H, and the agreement of
37
<PAGE>
Dynamic to pay us a total of $200,000, $50,000 of which has been
paid. The shares we issued to Dynamic were subsequently
distributed to the shareholders of Dynamic on the basis of one of
our common shares of stock for each common share of Dynamic owned.
This issue of common shares by us to Dynamic was completed in
compliance with the exemption from registration provided by Section
4(2) of the Securities Act of 1933.
We 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, we entered into a convertible debenture and
warrant purchase agreement in which we 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, all of which were converted into our common
stock by year end 1999.
The shares issued pursuant to the conversion of the debentures, as
well as the shares underlying the issued warrants, were registered
with the Securities and Exchange Commission, effective November 3,
1999.
On July 20, 1999, we issued warrants to purchase 250,000 shares of
our common stock 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.
In December 1999, we offered 1,000,000 shares of our common stock
in a private placement exempt from registration under Rule 506 of
Regulation D of the Securities Act at a price of $3.00 per share
along with warrants to purchase 100,000 shares at an exercise price
of $3.50 per share. This placement was closed on January 15, 2000
with all the shares sold to accredited investors.
In July 2000, we offered 2,000,000 shares of our common stock in a
private placement exempt from registration under Rule 506 of
Regulation D of the Securities Act at a price of $0.50 per share
along with warrants to purchase 200,000 shares at an exercise price
of $1.75 per share. This placement was closed on September 15,
2000 with 1,860,000 shares sold to accredited investors.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
-------- --------------------
3.1 Articles of Incorporation*
3.2 By-Laws*
5.1 Opinion of Michael A. Cane, Esq. with consent to use
10.1 Registration Rights Agreement
38
<PAGE>
10.2 Stock Purchase Warrant Form
23.1 Consent of Smith and Company to use its Report on Audited
Financial Statements
23.2 Consent of Grant Thornton LLP to use its Report on
Audited Financial Statements
-------------
* Incorporated by reference from our registration statement on Form
10-SB12B filed with the commission on 7-13-98 (File No. 001-14297)
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.
39
<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 3, 2000.
MW MEDICAL, INC.
By: /s/ Jan Wallace
__________________________
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 amended
registration statement on October 3, 2000.
SIGNATURE CAPACITY IN WHICH SIGNED
/s/ Jan Wallace President and Chief Executive
------------------------------------- Officer (Principal Executive
JAN WALLACE Officer)
/s/ Dean Drummond Chief Financial Officer (Principal
------------------------------------- Financial/Accounting Officer)
DEAN DRUMMOND
/s/ Jack Friedland Director
-------------------------------------
JACK FRIEDLAND, M.D.
/s/ Elliott Smith Director
-------------------------------------
ELLIOT SMITH
/s/ Neil Marcus Director
-------------------------------------
NEIL MARCUS
40
