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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 001-14297
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MW Medical, Inc.
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(Exact name of Registrant as specified in its charter)
NEVADA 86-0907471
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 483-8700
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the
Act: 100,000,000 shares of common stock
Check whether the issuer (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. [ X ] Yes [ ] No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in
this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form
10-KSB. [ ]
Revenues for 1999 were $0*(best estimate of company at this time).
The aggregate market value of the voting stock held by non-
affiliates computed by reference to the last reported sale
price of such stock as of December 31, 1999 is $37,655,277.
The number of shares of the issuer's Common Stock
outstanding as of December 31, 1999 is 18,324,434.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
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PART I
Item 1. Description of Business
MW Medical, Inc. is in the business of designing and
developing microwave technologies for dermatological
applications through its wholly owned subsidiary, Microwave
Medical Corporation, a California Corporation. Unless
specified otherwise, throughout this discussion, MW and
this subsidiary will be referred to interchangeably as MW.
Principal Services and Products
MW is 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
a patent to MW entitled, "Method and Apparatus for Treating
Subcutaneous Histological Features," which focuses on the
application of microwave energy in the treatment of spider
veins and for use in hair removal. The use of microwave
for hair removal is based upon the selective heating of
hair follicles while cooling the surface of the skin for
its protection. The hair follicle is the tissue around the
hair which promotes the growth of the hair. MW has used
computer modeling and laboratory studies to optimize its
system for hair removal. Studies have shown effectiveness
in destroying hair follicles while maintaining the
integrity of the skin surface.
Phase III clinical trials for hair removal were completed
in April 1999 to prove safety and efficacy in the use of
the product. MW then submitted the results to the FDA on
April 22, 1999. On October 25, 1999, the FDA granted MW
approval to begin marketing its microwave hair removal
device for non-facial hair removal.
MW's plans to complete its development of a microwave
therapy system that incorporates the technology described
in its patent application for the treatment of
Telangiectasia, or, spider veins as a follow up to its 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.
MW launched its microwave system for hair removal at the
end of the fourth quarter of 1999.
MW's systems use microwave energy delivered to various
target structures within the body to induce highly
controlled hyperthermia. This condition enables our systems
to induce a change in a person's tissues to produce the
desired cosmetic or therapeutic affect.
The nature of the technology, high frequency Rf energy
delivered under highly controlled conditions, requires us to
research, design and develop unique components. These
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proprietary components are then incorporated into systems
using other mechanisms from a variety of suppliers. Although
MW makes an effort to reduce dependence on single source
suppliers, there are some components that MW has jointly
developed with others who MW is contractually or practically
obligated to work with on an exclusive basis.
MW builds its devices based on a forecast of future sales
and then inventories its products. Its build, configuration
and test process requires certain system adjustments and
final testing for each order. MW's objective is to ship
sales orders within 14 days of final order approval.
However, MW relies on a variety of suppliers for key
components and services, and therefore delivery capability
is dependent on these outside suppliers capacity and lead
times.
MW's expertise is in the precise delivery of microwave
energy to targeted tissue in whichever application the
system is operating. It's 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 the company's control and
expertise, MW operates in a highly regulated industry. As a
result, government regulatory bodies will often determine
it's products availability to the market.
Multi-Platform Device
One of the company's strengths is the multi-platform
nature of its device, comprised of a versatile amplifier
and interchangeable delivery devices. Using this platform,
MW believes it can produce a family of devices to meet
customer expectations for economy, performance and
efficiency and patient needs for safety and efficacy.
The core microwave system is capable of producing energy at
frequencies and pulse durations which should provide
clinical utility in a variety of aesthetic and therapeutic
procedures. Although specific system configurations are
not yet determined, by modifying accessories, rather than
the microwave system for each indication, MW can and may be
able to provide cost-effective solutions for users while
building economies of scale in its manufacturing processes.
Recent Approvals
In January 2000, the US Patent Office issued a new patent
for its microwave delivery system, entitled, "Method and
Apparatus for Treating Subcutaneous Histological Features".
This patent focuses on a system and method for treating
subcutaneous histological features without affecting
adjacent tissues adversely by employing microwave energy of
selected power, frequency and duration to penetrate
subcutaneous tissue and heat target areas with optimum
doses to permanently affect the undesirable features. The
frequency chosen preferentially interacts with the target
areas as opposed to adjacent tissue, and the microwave
energy is delivered as a short pulse causing minimal
discomfort and side effects.
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On October 25, 1999, MMC's microwave system for non-facial
hair removal received written approval from the U.S.
Department of Health and Human Services, Food and Drug
Administration (FDA) to begin marketing. The device has
been classified into Class II (Special Controls). MW 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.
Telangiectasia (Spider Veins) Treatments
In May 1999, MW received Investigational Review Board
approval from Independent Review Consulting, Inc. to
conduct Phase II clinical trials for the treatment of
spider veins (telangiectasias) in the legs using MW's
microwave delivery system. Since this phase of the
clinical trial is nearing completion, MW is preparing an
IRB submission for the next Phase of testing. With
sufficient data, MW expects to proceed with an FDA
submission for this application.
Orbital Facial Wrinkles
MW believes that its microwave technology may provide a
treatment for facial elastosis, or facial wrinkles. This
condition exists widely is certain age groups with the
financial means and motivation to correct the condition.
The market opportunity is of significant interest to the
company because the market exists, the providers of current
solutions are part of our current target market and our
technology may offer benefits not currently available with
other modalities.
In September 1999, MW received IRB approval for a pilot
study to treat orbital facial wrinkles as an alternative to
laser therapy and chemical peels. This is high-demand
elective procedure that, as currently performed, requires
dedicated equipment and long patient recovery periods. MW
believes it's technology may perform non-ablative heating
of the dermatologic structures to provide an clinical
improvement in the appearance of facial wrinkles. However,
there can be no assurance that such results will
materialize upon testing.
Striae (Stretch Marks) Treatments
MW believes that its microwave technology may provide a
treatment for Striae or stretch marks. This condition
exists in certain groups who currently have limited
treatment options. Additionally, both providers and
patients are motivated to secure a reliable effective
treatment. The market opportunity is of significant
interest to MW because our technology may offer a highly
unique clinical solution to this condition.
In December 1999, MW received IRB approval for a pilot
study to treat striae or stretch marks due to scarring.
Currently, although significant demand exists, there is no
widely accepted treatment for this condition.
Theoretically, MW's technology might provide at
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least a cosmetic improvement in the appearance of striae.
However, there can be no assurance that such results will
materialize upon testing.
Additional Clinical Uses
While MW Medical continues to pursue its target markets of
non-invasive aesthetic clinical procedures, the versatility
of the technology makes other therapeutic opportunities
appear viable. MW is evaluating several of these
therapeutic uses of microwave energy, including oncology,
urology, gynecology and cardiology. MW continues to
investigate the economics and development implications of
these applications.
Aesthetic Industry
In the United States, according to analysts reports
(source: Smith Barney), I million women are customers of
electrologists, spending an average of $1,000 per year on
an average 27 procedures. A further 80 Million women spend
an additional $500 million on depilatory products such as
shaving, waxing, and other accessories.
As per the above, the current U.S. market is around $1.5
billion for such services. The market size in Japan has
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 for any other ethnic group. To date
there has been no noninvasive hair removal technology that
satisfies this population. The reason for this stems from
the Asian skin type which is extremely prone to
hyperpigmentation (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: treatment at a salon, the way it is
done at present through waxing and electrolysis: or
treatment by a physician, where the laser treatment will be
performed either by a dermatologist or a cosmetologist
working under a physician's direction. To date, however,
hair removal lasers have been sold primarily to physicians.
We believe that there are several reasons for the lack of
acceptance of laser hair removal by the electrologists.
First, they are already trained in electrology and can get
hair clearance rates of up to 90% (albeit after several
painful, and tedious treatments). Second, they see laser
hair removal clearance rates as being too low - with the
end result being temporary hair removal in many cases.
Lastly, they are uncomfortable and ill-equipped to deal
with the undesirable post operative side effects associated
with laser hair removal including: textural changes,
scarring and transient, hyper-pigmentation (darkening of
the skin), and hypo-pigmentation (lightening of the skin).
As a result, 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
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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
percent 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. The technique has a success rate
of over 90%, but is difficult to administer for small
vessels and has significant attendant adverse sequellae. As
a consequence, optical techniques, with their promise of
noninvasive and easy to administer selective therapy, are
considered highly desirable by both patient and physician.
A viable, truly effective technique may be poised to assume
up to 50% of the practitioners annual $1 billion
sclerotherapy revenues. 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 MDS 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 MDS. Although leg
vein lasers use wavelengths that target blood they still
have strong absorption in melanin creating an unacceptably
high risk of hyper-pigmentation. Microwave technology
presents no such risk giving MDS 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 during pregnancy. They can
be seen following a rapid weight gain or loss, in weight
lifters as well as in Cushings 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 conservatively estimated at $250 to
$350 million or potential unit sales of the pulsed dye
lasers were originally sold as medical (as opposed to
cosmetic) devices designed to treat port-wine stains, and
other vascular abnormalities covered by health insurance.
It is estimated that there are 4,500 pulsed dye lasers
installed worldwide. The results from the laser technology
has been disappointing, as is the case with leg veins, it
offers sub-optimal results (20% to 30% clearance at best),
with a high potential for pigmentary, textural changes,
scarring, and purpura. As a result, the treatment is
rarely performed and the market awaits a new technology
that offers acceptable cosmetic results without all the
undesirable side effects attendant with pulsed dye
technology. The potential market for MDS at an average
selling price of $93,000 is conservatively estimated to be
between 2,000 to 3,000 units.
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Resurfacing
The resurfacing market is more mature than the above
mentioned markets with over 6,500 lasers installed
worldwide. Yet wrinkles remain the most lucrative of all
cutaneous procedures because everyone has them and billions
of dollars a year are spent trying to remove them. The
current focus is on finding a noninvasive way to remove
wrinkles not by "sanding", "vaporizing" or otherwise
removing tissue such that the ridges of wrinkles are
debunked to conform to the valleys, but to "bulk up" the
valleys to conform to the ridges. This offers a facelift-
type cosmetic result, strengthening instead of thinning the
skin without creating an open wound. If collagen synthesis
using microwave therapy were successful, it could replace
invasive procedures currently performed by plastics
surgeons and dermatologists including some face-lifts,
collagen injections, and goretex implants in the lips and
naso-labial folds - a large potential market. This would
amount to the creation of a whole new treatment modality,
significantly broadening worldwide 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 (private pay) income to
offset declining managed care mandated fee cutbacks. This
has propelled the development of the burgeoning aesthetic
surgery market.
MW primarily markets its microwave technology in the
cosmetic dermatology market. In recent years, there has
been a substantial upsurge in the demand for non-surgical
cosmetic procedures in the treatment of spider veins and
removal of hair. Market interest has been largely fostered
by the introduction of laser technology for use in cosmetic
dermatology.
MW plans to compete with laser devices in North America and
the European Community. MW's competitive advantage is
expected to be based on price, safety, hair and skin color
range and effectiveness. The end user price is expected to
be in the range of $95,000 to 100,000, which is 25 to 35
percent below the current cost of the equivalent laser
systems. In addition, laser technology cannot be applied
well in individuals with dark skin and does not effectively
cause hair removal in individuals with light colored hair.
These limitations are the result of absorption of laser
energy by specific pigments in the skin and hair. In
addition, the efficacy of laser systems for spider veins is
below optimal, in most cases requiring 3 to 5 treatments to
achieve an acceptable result. Based upon MW's clinical
studies to date, these limitations are not expected.
MW's principal competitors are Candela Corporation and ESC
Medical Systems Ltd. Both Companies sell, among other
things, laser systems used for hair removal and the
treatment of spider veins.
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Marketing Strategy
MW hopes to attain prominence as a market leader through a
carefully constructed marketing program encompassing the
following components:
Public Relations:
The most effective way to launch a new technology into the
cosmetic market is through an aggressive, well timed, PR
campaign in the popular print and broadcast media.
Editorials in the health and beauty journals (Cosmopolitan,
Vogue, Allure, etc.) and televised national and local news
broadcasts (local news medical segments, national news
segments, and news magazine programs i.e., 20/20)
announcing this breakthrough, patent pending, noninvasive
cosmetic technology will be powerful. Physicians will be
interviewed attesting to the fact that microwave technology
is much safer, more effective, and better tolerated than
existing technologies for these indications. All of this
media exposure creates patient driven demand and compels
the physician to buy the device and offer microwave
cosmetic treatments or lose the business to someone else.
This strategy requires 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 video tapes and reprints derived
from this campaign provides some of the most compelling
marketing material that can be used to both sell the device
to the Physician and as patient information to sell the
microwave treatment.
Journal Advertising:
Advertisements placed in medical specialty journals will be
evaluated based on the following criteria: those journals
most frequently read by the target audience, editorial
content, advertising to editorial ratio, and cost to reach
each reader. Based on these factors, there are 7 leading
publications in the specialties of Plastic Surgery,
Cosmetic Surgery, and Dermatology that will provide the
best coverage for the cost. For maximum impact, the ads
will be timed to coincide with specific events and special
issues.
Direct Mail:
An efficient and cost effective method of generating leads
is through direct mail advertising. Most of the cosmetic
surgery societies make their mailing lists available to
manufacturers for a fee. Through regional and specialty
focused efforts, MW Medical will maintain a consistent
stream of new interest in the microwave system.
Trade Show Attendance:
One of the most cost-effective methods of reaching a large,
focused, audience is through trade show participation.
Throughout the year, MW Medical will attend approximately 8
trade shows, reaching several thousand physicians in this
manner.
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Specialty Microwave Workshops and Seminars:
Participation in hands-on courses directed at small
participant groups is an important educational and sales
opportunity. MW Medical will attend and/or sponsor
approximately 20 such meetings each year to expose
physicians from different specialties to its microwave
system. The company sales representative sponsored training
seminars will feature several experts to present on the
"surgical microwave science", the "clinical applications of
the MW Medical Microwave Delivery System", financial
analysis and finance programs. In addition, a device will
be on the premises for the attendees to see, and a hands-on
treatment with a live patient will be performed. Attendance
varies but with a new technology usually ranges from 40 to
90 physicians.
Clinical Presentation:
The company expects to have many clinical sites with noted
doctors and institutions representing and documenting its
differing therapies. A sales book will be provided to all
sales representatives. It will contain all clinical data
attesting to the safety, efficacy, and patient treatment
tolerance including: abstracts, white papers, reprints from
medical journals, and before and after images. The book
will also contain all other related material, such as:
reprints from the popular press, a comparison matrix and a
physician reference list.
Observation of a Patient Treatment:
All 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.
Creating Physician Advertising Materials:
Consumer marketing is becoming an increasingly crucial goal
in cosmetic surgery. Cosmetic surgery patients are
consumers who have treatment choices and physicians have
begun to recognize the need to compete for their dollars.
This fact is amply illustrated by the number of companies
being utilized by physicians to help market their
practice's. By providing this value added service, MW
Medical gives the physician one more reason to purchase.
Toward this end, MW Medical will provide a practice
enhancement kit titled "Your Link to The Local Media". The
material will include a media relations kit; a sample pitch
letter: a sample press release, copy for 20, 30, and 60
second radio spots; cosmetic microwave surgery fact sheets;
sample advertisements; consultation materials; patient
brochures; image enhancement ideas; a patient video tape
and more for physicians to use in furthering their
professional image and generating patient interest.
Additionally, these materials can be very effective in both
branding the product (i.e., the MW Medical Dermawave
treatment) and spreading the word.
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It is well established in the medical community that one of
the most effective sales strategies is to let surgical
luminaries and opinion leaders sell your equipment for you,
since physicians will believe the opinion of their peers
more readily than the word of a salesperson. As medical
practitioners tend to be highly reliant on published data
and anecdotal recommendations of their peers, MW Medical
has selectively distributed microwave systems for clinical
trials to the offices of these practitioners. Specifically,
double blind test studies comparing microwave to laser and
pulsed light treatments for clinical efficacy, risk of
undesirable side effects, recovery time, and patient
preference are being performed.
To ensure optimal market penetration and better brand
recognition, these opinion leaders will be expanded to
include physicians of different specialties and in
different geographic regions. The following sub-specialties
will be targeted: Dermatology, Plastic Surgery, ENT Facial
Plastic Surgery, Ophthalmology, and G.P./Family Practice.
The market strategy will be specific to the geographic area
in which the product is being introduced. MW has focused on
two marketing strategies for its hair removal product: (1)
selling or leasing the product to physicians and other
health-care practitioners, and (2) fee sharing in which MW
arranges for financing of the product and takes some
percentage of the revenue generated through the use of the
product. Moving forward MW will be adding in-house direct
sales and will implement training and certification
programs, for its sales organization and its end user. The
company finds this critical since the sales force in the
marketplace, while having competent laser sales knowledge,
has little understanding of microwave technology and
delivery systems.
The primary customers for the 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.
The world wide market for the treatment of spider veins and
hair removal is estimated to be $5 billion. New
technologies will make up 25% of this market through the
year 2002.
To date, MW has concentrated its marketing and sales
efforts in the United States.
Employees
MW's eleven employees consist of its President, Chief
Operating Officer, Director of Sales, N.A.,
Secretary/Financial Officer, electrical/microwave engineers
and microwave technicians. By the end of 2000, MW is
expected to have twenty full-time employees. Expansion
will coincide with sales of MW's product. Independent
companies and persons under the supervision of MW currently
conduct manufacturing and assembly. None of the employees
of MW or its subsidiaries are subject to collective
bargaining
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agreements, nor have they been on strike, or
threatened to strike, within the past three years. MW and
its subsidiaries have no supplemental benefit or incentive
arrangements with their employees other than health
insurance coverage and MW's incentive stock option plan.
Patents and Trademarks
The success of MW substantially depends upon its microwave
technology for use in cosmetic dermatology. MW has
recently obtained a patent entitled, "Method and Apparatus
for Treating Subcutaneous Histological Features," which
focuses on the application of microwave energy to the
treatment of spider veins and for use in hair removal. MW
has no other patent, trademark or intangible property. It
does, however, have several other filed patents pending.
Research and Development Expenditures
During the 1998 and 1999 fiscal years, the following
amounts were spent by MW on research and development
activities:
Year Ended Year Ended
December 31, 1998 December 31, 1999
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MW $ 569,738 $ 718,139
Corporate Organization and History
MW is a Nevada corporation that was incorporated as a
subsidiary of Dynamic Associates, Inc. on December 4, 1997.
On February 26, 1998, MW entered into an agreement with
Dynamic in which MW issued 14,223,929 of its common shares
to Dynamic in consideration for:
(a) all of the issued and outstanding shares of P&H
Laboratories, Inc., a California corporation ;
(b) all of the issued and outstanding shares of MMC and
shareholders loans to MMC in the amount of $2,169,806; and
(c) the agreement of Dynamic to pay to MW a total of
$200,000. The obligation of Dynamic to pay the sum of
$200,000 is evidenced by a promissory note dated February
26, 1998. Dynamic made a payment of $50,000 toward this
obligation in March of 1999, making the current principal
amount of the debt $150,000.
Dynamic then transferred all shares of MW to the
shareholders of Dynamic through a distribution completed on
March 11, 1998. Each shareholder of Dynamic received one
common share of MW for each common share of Dynamic held by
the shareholder. The
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shares of MW distributed by Dynamic constituted all of the
issued and outstanding shares of MW at the time.
MW sold the business of P&H under an asset purchase and
sale agreement dated March 9, 1998 between P&H and
Microwave Communication Corporation, a California
corporation. Under this Agreement, MW, through P&H agreed
to sell to Microwave all of the assets of the business of
P&H as a going concern. The sale of assets by P&H to
Microwave was completed on May 6, 1998. MW received the
following consideration on closing:
(a) cash consideration of $160,943;
(b) a promissory note issued by MCC/ Ferro Systems, Inc., a
subsidiary of Microwave, whereby MCC/Ferro agreed to pay to
P&H the sum of $250,000 on August 1, 1998 and the sum of
$243,125 on March 31, 1999. P&H has assigned this note to
MW;
(c) the agreement of Microwave to provide to MMC 1200 hours
of microwave related services for the period to April 1,
1999, subject to a maximum of 100 hours per month;
(d) office space for the business of MMC at MCC/Ferro's
facility in Simi Valley, California until February 28,
1999.
The obligations of MCC/Ferro under its promissory note are
secured by a general security agreement against the assets
of MCC/Ferro and the guarantee of Microwave. The general
security agreement is subordinated to a bank financing
arranged by MCC/Ferro to pay-out P&H's bank financing and
pay the amounts owed.
Before disposition of its business, P&H was involved in the
business of manufacturing microwave components and
subsystems for the communications and aerospace industries.
The devices included isolators, circulators, power monitor
devices, filters, diplexers, switching diplexers,
multi-junction circulators, microwave subsystems and
integrated packages and subsystems. P&H is currently
inactive because of the sale of the assets comprising its
business.
Marketing Plans
As a medical device company with a new technology, delivery
mechanism and clinical technique, MW is pursuing an
educational marketing program followed by a promotional
effort in the appropriate markets. As its customers are
medical professionals, MW is attempting to reach these
markets through targeted campaigns to inform buyers about
its new technologies. MW plans to use electronic media and
web-based applications for this purpose. Additionally, MW
plans to exhibit and offer promotions at influential
industry congresses and events.
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Sales
MW's sales focus in the third and forth quarter of 1999 was
to introduce the MW2000 and it's microwave technology to
the hair removal marketplace. The Company attempted to
accomplished this primarily through national and local
trade shows as well as through individual efforts of sales
personnel. It was the company's hope that this would set
the ground work for generating future sale revenues.
The Company's sales force consists of several independent
sales representatives and distributors.
The independent sales representatives play an important
role in introducing this new technology to the market place,
developing sales leads as well as making sales. The
Company's independent sales representatives are each given
responsibility for a specific geographical territory.
The Company and its independent sales representatives
jointly advertise and participate in trade shows. The
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.
Item 2. Description of Property
MW is headquartered in leased premises at 6617 N.
Scottsdale Road, Suite 103, Scottsdale, AZ 85250. The
lease commitment is for three years and expires on December
31, 2002. The Company owns no real property.
MMC's offices are located at 65 West Easy Street, Suite
104, Simi Valley, CA 93065. The lease is for one (1) year
and expires on May 31, 2000 with an option to extend for an
additional two years.
Item 3. Legal Proceedings
MW is not a party to any material legal proceedings and to
MW's knowledge, no such proceedings are threatened or
contemplated. MW, however, was or is a party in the
following pending or threatened legal proceedings:
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1. an action in northern California based on a breach of
certain promissory notes by and against Microthermia
Corporation. This matter was recently settled and MW
received a license to certain microwave technology
patents as a result;
2. an action in southern California against the company
by a Ken Karasuik in regards to a claimed contract
violation;
3. an action for federal trademark infringement against
the company that was settled by the agreement not to
use the disputed trade name;
4. a threatened action by two former employees for
certain benefits claimed;
5. a potential action by the company seeking remedies
against (2) former employees for breach of contract;
6. a potential collection action based on the breach of
certain promissory notes owed to the company for which
the company has not as yet taken action;
Management does not believe that any of these pending or
threatened actions have or will have a material impact on
the business of MW. At this time, neither the Company, nor
any of its subsidiaries, have any material bankruptcy,
receivership, or similar proceedings pending.
Item 4. Submission of matters to a Vote of Security
Holders
The Company held its Annual Shareholder Meeting on December
10, 1999. At this meeting, the shareholders voted on the
election of directors and approved the Incentive Stock
Option. The following was the result of the election of
directors:
Votes Votes Votes Broker
Nominee For Against Withheld Abstentions Non-Votes
- - --------------
Jan Wallace 1,463,072 62 0 0 0
Grace Sim 1,463,072 62 0 0 0
Elliot Smith 1,463,072 62 0 0 0
Jack Friedland 1,463,072 62 0 0 0
No other matters were submitted to our security holders for
a vote during the fiscal year ending December 31, 1999.
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholders Matters.
Market Information
The Company received approval for listing on the Frankfurt
Stock Exchange on January 24, 2000 under the symbol MWMD.F.
The Company has been listed in the U.S. on the
14
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NASD, Over the Counter, Bulletin Board (OTC BB) since April 1999
under the symbol MWMD.
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
- - ------------------------------------------------------------------
*Trading of MW's stock did not begin until Second Quarter 1999.
** The prices are all "bid" prices.
As of December 31, 1999 there were 470 record holders of
the Company's common stock.
The Company has not previously declared or paid any
dividends on its common stock and does not anticipate
declaring any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
The following is a list of equity securities sold by MW
within the past three years that were not registered under
the Securities Act.
MW issued to Dynamic 14,223,929 common shares in
consideration for the transfer by Dynamic to MW of all
shares and shareholders loans of each of MMC and P&H, and
the agreement of Dynamic to advance to MW a total of
$200,000, $50,000 of which has been paid. The shares of MW
issued to Dynamic have subsequently been distributed to the
shareholders of Dynamic on the basis of one common share of
MW for each common share of Dynamic. This issue of common
shares by MW to Dynamic was completed in compliance with
the exemption from registration provided by Section 4(2) of
the Securities Act of 1933.
MW also issued 2,500,000 common shares in a private
placement to accredited investors at a price of $0.75 per
share in compliance with Rule 506 of Regulation D of the
Securities Act as follows:
(1) 1,500,000 shares in October,1998;
(2) 300,000 shares in March, 1999;
(3) 700,000 shares in June, 1999
On July 14, 1999, MW entered into a convertible debenture
and warrant purchase agreement in which it agreed to sell a
total of $3,500,000 worth of convertible debentures in
compliance with the exemption from registration provided by
Rule 506 of Regulation D of the Securities Act. In
addition to the convertible debentures, each investor under
the
15
<PAGE>
debenture Purchase Agreement was entitled to warrants
in a proportional amount to their purchase of debentures.
The exercise price of the warrants is at a price of $2.75
per share. Of the $3,500,000 in convertible debentures,
only $3,000,000 were sold immediately. Between July 21 and
July 23, 1999, the investors exercised their conversion
rights under the debentures and converted $2,620,000 worth
of debentures into 2,386,750 shares of common stock. The
remaining $380,000 worth of debentures were converted in
November 1999 into 188,764 shares of common stock.. The
shares issued pursuant to the exercise of the debentures
were registered with the Securities and Exchange
Commission, effective November 3, 1999. The second
closing of $500,000 was allowed to expire without sale.
On July 20, 1999, MW also issued warrants to purchase
250,000 shares of common stock in MW to JW Genesis
Securities, Inc. as part of its fee for arranging the
convertible debenture financing. These warrants were also
issued in compliance with an exemption from registration
provided by Rule 506 of Regulation D of the Securities Act.
These warrants are exercisable at a price of $3.312 per
share at any time before 5:00 pm New York City time on July
20, 2004.
In December 1999, the Company offered 1 million shares of
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.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Please note that the Company's audited Financial Statements
have not been included at this time as they were not completed
in time for this filing. The Company anticipates filing an amended
form 10KSB before the end of April with said financials
included. As a result, management cannot comment effectively
on the results of operation or on the Company's financial condition
in this section at this time.
Over the past several months the Company has been faced
with a number of problems in bringing its new product to
market. In addition, to the more traditional difficulties
of generating sales, its vice president of marketing and
national sales manager resigned in January and it
discovered that a number of the sales it thought had been
made had not actually occurred. Following this, the
company has been actively involved in hiring and training
new sales executives and personnel, but the process has
been slow and costly.
Management believes that these difficulties will be
overcome and that the company will recover with new
marketing and support personnel by the end of the second
quarter.
Default on Note Payment by Purchaser of P&H
The Company sold the business of P&H Laboratories, Inc.
("P&H") to Microwave Communication Corporation ("MCC") on
March 9, 1998. Pursuant to the agreement of sale, MCC
signed a promissory note payable to P&H in which it was
obligated to pay
16
<PAGE>
$250,000 to P&H on August 1, 1998 and
$243,125 on March 31, 1999. P&H later assigned its rights
under this note to the Company.
The payment due on March 31, 1999 has not been received.
The Company re-negotiated a new payment schedule, but MCC
defaulted on this obligation in July. The company has
submitted documentation to the defaulting parties to
restructure repayment of their
obligations. The company intends to proceed with enforcement of
its claims unless this documentation is executed and timely returned.
Prior Period Adjustments
In 1998, the Company's former parent, Dynamic Associates,
Inc., as part of its spin-off of MW, agreed to cancel MMC's
debt of $2,169,806. MW recognized this discharge of
indebtedness as earnings for the year ended December 31,
1998. After careful review, the Company changed this
entry on its books to a capital transaction, and thus
decrease net income by $2,169,806 and increased additional
paid in capital by a like amount.
Additionally, as part of the spin off, Dynamic agreed to
pay the Company $200,000 to help in its start-up. MW
originally entered this item as a receivable on its books.
In 1999, Dynamic paid MW, $50,000 towards this debt. After
careful review, the Company changed this entry to a capital
transaction, thereby decreasing net income by $200,000 and
reclassifying the receivable into stockholders' equity.
General Discussion
Despite initial efforts, the Company's sales efforts have
not met management's expectations. Management now
believes that there will be a period of at least six months
before it will be able to generate enough sales to offset
operating and other expenses. Moreover, the Company
continues to deal with a number of issues regarding the use
and operation of the MW 2000 by physicians and their staff
which suggests that there will be at least this same amount
of time before initial operational problems will be
resolved. In the meantime, management expects the return
of a number of machines and continual internal evaluation
of such things as warning labels and operating
instructions.
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". The Company has not experience any
difficulties as a result of this potential problems.
Item 7. Financial Statements
The information required by this item is set forth in Item
13 of this Report.
17
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
We have had no changes in or disagreements with our
accountants on accounting or financial disclosures.
18
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
The following are the names of the officers and directors
of MW, their present positions with MW and its
subsidiaries, and some brief information about their
background.
MW Medical, Inc. and Microwave Medical Corporation
Name Age Offices Held
- - ---- --- ------------
Jan Wallace 43 Director, President
Grace Sim 39 Secretary, Treasurer, Director
Elliot Smith 67 Director
Jack Friedland 59 Director
Jan Wallace was President, Chief Executive Officer and a
director of MW at its inception in December, 1997. Ms.
Wallace resigned as President and Chief Executive Officer
effective October 1, 1998 and was then re-appointed on July
9, 1999 after the resignation of former President Paul
Banko. Ms. Wallace has been employed by Dynamic since
April 1995, when she was elected to the Board of Directors
and accepted the position of Chief Operating Officer. She
is currently a director and the President of Dynamic. Ms.
Wallace was previously Vice President of Active Systems,
Inc. a Canadian company specializing in SGML Software, an
ISO standard, in Ottawa, Ontario for the period from 1993
to 1994. Before that, she was President and Owner of
Mailhouse Plus, Ltd., an office equipment distribution
company which was sold to Ascom Corporation. She has also
been in management with Pitney Bowes-Canada and Bell Canada
where she received its highest award in Sales and
Marketing. Ms. Wallace was educated at Queens University in
Kingston, Ontario and Carleton University, Ottawa, Ontario
in Political Science with a minor in Economics.
Grace Sim has been the Secretary/Treasurer and a director
of MW since its inception in December 1997. She is also
currently the Secretary/Treasurer and a director of Dynamic
Associates, Inc., a public company. Ms. Sim joined Dynamic
in January 1997. Before joining Dynamic, Ms. Sim owned Sim
Accounting, an accounting consulting company in Ottawa,
Ontario, Canada. Between 1993 and 1994, she worked as the
controller with Fulline, an office equipment company and
with Mailhouse Plus Ltd. between 1990 and 1992. Ms. Sim
received her Bachelor of Mathematics with honors from the
University of Waterloo in Waterloo, Ontario.
Elliot Smith is a Director of the Company appointed on
September 16, 1999. Mr. Smith has held a variety of senior
management-level positions in some of the world's most
prestigious financial institutions during the past 40
years. Mr. Smith began a 29 year career with Prudential
Bache in 1954 when he was hired as a Registered
Representative in its Syracuse, New York office. By 1973,
Mr. Smith was elected to the Board of Directors of Bache &
Company Inc. In 1977, he was named Senior Officer of
19
<PAGE>
Commodity Division and Metal Company and in 1980, was
elected President of Bach Haley Stuart Metal Company Inc.
On leaving Prudential-Bache in 1983, Mr. Smith served as
Executive Vice President at R. Lewis Securities, Inc.,
located in New York City and from 1983 to 1995, was
President of Whale Securities Company, L.P., in New York.
Since 1995, Mr. Smith has served as President of the Equity
Division of Rickel & Associates, Inc., an investment
company. Mr. Smith has also been elected to the Boards of
The Pennington School and Jullians Corporation. He is a
former Member and Director of the Chicago Board of Options
Exchange; Governor of the American Stock Exchange (AMEX);
Governor and Chairman of the AMEX Commodities Exchange;
Director and Member of the Executive Committee of the
Securities Industry Automation Corp. and a past President
of the Association of Investment Brokers. Mr. Smith is
currently Executive Vice President, Investments at Oscar
Gruss & Son, Inc.
Jack Friedland is a Director of the Company appointed on
September 16, 1999. Dr. Friedland has operated a medical
office in Phoenix, Arizona for the past 25 years. Dr.
Friedland specializes in aesthetic plastic and
reconstructive surgery for both children and adults. Dr.
Friedland completed his undergraduate education at the
University of Wisconsin (Madison), received his Bachelor of
Science degree from Northwestern University in 1962 and
graduated from Northwestern Medical School in 1965 where he
was elected to the Alpha Omega Alpha Honor Medical Society.
Following his graduation from medical school, Dr.
Friedland's post-doctoral work included a surgical
internship (1965-1966) and surgical residency (1966-1970)
through New York University - Bellevue Medical Center. Dr.
Friedland was Surgery Resident and Chief Resident during
his surgical residency at N.Y.U. from 1966-1970, and Chief
Resident and Plastic Surgery Resident at the Institute of
Reconstructive Plastic Surgery, N.Y.U. Medical Center, from
1972-1974. Dr. Friedland maintains three board
certifications: National Board of Medical Examiners
(1966), American Board of Surgery (1971), and American
Board of Plastic Surgery (1975) and is a Fellow with the
American College of Surgeons. Dr. Friedland is also a
former President and current member of the Board of
Trustees of the prestigious American Society for Aesthetic
Plastic Surgery. Dr. Friedland has authored numerous
published books and peer-reviewed articles in his practice
specialty.
On July 9, 1999, Paul Banko resigned as President, director
and CEO of MW and on August 31, 1999, Robert Spertell,
resigned as MW's Chief Scientist. MW subsequently retained
Mr. Spertell as a scientific consultant.
Terms of Office
MW's directors are appointed for one year terms to hold
office until the next annual general meeting of the
stockholders or until removed from office in accordance
with the Company's by-laws. Officers are appointed by the
board of directors and hold office until removed by the
board.
20
<PAGE>
Significant Employees
The Company does not have any employees who are not
executive officers that are expected to make a significant
contribution to the business.
Section 16(a) Beneficial Ownership Reporting Compliance
The following persons have failed to file, on a timely
basis, the identified reports required by section 16(a) of
the Exchange Act during the most recent fiscal year.
- - -------------------------------------------------------------------
Number Transactions Known Failures
of Late Not Timely To File a
Name and principal position Reports Reported Required Form
- - -------------------------------------------------------------------
Jan Wallace, Director,
President, CEO 2 0 None
Grace Sim, Director,
Sec/Treas. 2 0 None
Elliot Smith, Director 2 0 None
Jack Friedland, Director 2 0 None
- - -------------------------------------------------------------------
Item 10. Executive Compensation
Annual Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other All
Annual Other
Com- Com-
pen- Restricted pen-
sa- Stock Options/* LTIP sa-
Name Title Year Salary Bonus tion Awarded SARs (#)payouts($)tion
- - ---- ----- ---- -------- ----- ------ ------- ------- --------- ----
Jan Wallace Chairman 1999 $180,000 $ 0 0 400,000 0 0 0
Director
Grace Sim Director 1999 $ 96,000 $ 0 0 200,000 0 0 0
Secretary/Treasurer
Elliot Smith Director 1999 $ 0 $ 0 0 100,000 0 0 0
Jack
Friedland Director 1999 $ 0 $ 0 0 100,000 0 0 0
In March 1999, MW granted 400,000 options to Paul E. Banko,
400,000 to Jan Wallace, and 200,000 to Grace Sim. The
options allow the holders to purchase common shares of MW
for $1.00 per share. 50% of the options are exercisable
immediately and 50%
21
<PAGE>
require a one-year waiting period. A number of other employees were
granted options on similar terms. Subsequently, Paul Banko resigned
and an agreement was reached in which he retained only 200,000 of his
original 400,000 options.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table provides , the beneficial ownership of
MW's common stock by each person known by MW to
beneficially own more than 5% of MW's common stock
outstanding as of December 31, 1999 and by the officers and
directors of MW as a group. Except as otherwise indicated,
all shares are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class*
- - -------------- ------------------- -------------------- ---------
Common Stock High Octane Fund Ltd
HWR Services
Craigmuir Chamber
PO Box 71
Road Town,
Tortola BVI 990,608 5.4%
Common Stock Chase Manhattan Bank
4 New York Plaza
13th Floor
New York, NY 2,791,342 15.23%
Common Stock Bank Safe Deposit & Trust Co.
C/O Mellon Bank
Mellon Bank NA
Three Mellon Bank Center
Room 153-3015
Pittsburgh, PA 1,544,549 8.42%
The Company knows of no other person who is the beneficial
owner of more than five percent of the Company's common
stock.
Management
Common Stock Jan Wallace 500,000(1) 2.72%
(Chairman)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
22
<PAGE>
Common Stock Grace Sim 50,000(2) 0.27%
(Secretary/Treasurer)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
Common Stock Elliot Smith 50,000(3) 0.27%
(Director)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
Common Stock Jack Friedland 0(4) 0%
(Director)
6617 N. Scottsdale Road, Suite 103,
Scottsdale, AZ 85250
Common Stock All Officers and Directors 600,000 3.33%
as a Group (4 persons)
- - ------------------------------------------------------------------------
* Based on 18,324,434 shares of common stock outstanding as
of December 31, 1999.
(1) Ms. Wallace also holds stock options to purchase
400,000 shares at a price of $1.00.
(2) Ms. Sim also holds stock options to purchase 200,000
shares at a price of $1.00.
(3) Mr. Smith also holds stock options to purchase 100,000
shares at a price of $2.62.
(4) Dr. Friedland also holds stock options to purchase
100,000 shares at a price of $2.62.
Item 12. Certain Relationships and Related Transactions.
Except as disclosed below, none of the following parties
since the date of MW's incorporation has had any material
interest, direct or indirect, in any transaction with MW or
in any presently proposed transaction that, in either case,
has or will materially affect MW.
* Director or officer of MW
* Proposed nominee for election as a director of MW
* Person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights
attached to all outstanding shares of MW
* Promoter of MW
* Relative or spouse of any of the foregoing persons
During 1999, $180,000 was paid to the Company's President,
and $96,000 was paid or accrued to the Secretary/Treasurer.
For 2000, it is projected that the Company's President will
receive $16,500 monthly and the Secretary/Treasurer $8,800
per month.
23
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibits
- - --------
None
Financial Statements
- - --------------------
The Company's audited Financial Statements have not been
included at this time as they were not completed in time
for this filing. The Company anticipates filing an amended
form 10KSB before the end of April with said financials
included. Investors and shareholders should take into
consideration that comments made by management herein
reflecting the Companies financial condition or results
of operation are likely to differ from those presented
in the audited financials when available. Such comments
are simply managements best estimates at this time.
Exhibits
- - --------
S-1 filing incorporated by reference as originally filed
with the commission on 9-3-99 and as finally amended on 11-
3-99.
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MW Medical, Inc.
By: /s/ Jan Wallace
___________________________________
Jan Wallace, Director, President and CEO
Date: April 15, 2000
In accordance with the Securities Exchange Act, this report
has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
By: /s/ Grace Sim
___________________________________
Grace Sim, Director, Secretary and Treasurer,
Chief Financial Officer and Controller
Date: April 15, 2000
By: /s/ Elliot Smith
___________________________________
Elliot Smith, Director
Date: April 15, 2000
By: /s/ Jack Friedland
___________________________________
Jack Friedland, Director
Date: April 15, 2000
25
