SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1999; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-28010
MEDWAVE, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1493458
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
4382 Round Lake Road West
Arden Hills, Minnesota 55112
(Address of principal executive offices,
zip code)
(651) 639-1227
(Registrant's telephone number, including
area code)
Indicate by mark whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period as the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
As of November 30, 1999, the issuer had 5,499,596 shares of Common Stock
outstanding.
<PAGE>
Medwave, Inc.
Form 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - April 30, 1999 and October 31, 1999 2
Statements of Operations - Three Months Ended October 31, 1999 3
and 1998, Six Months Ended October 31, 1999 and 1998, and Period
from June 27, 1984 (Inception) to October 31, 1999
Statements of Cash Flows - Three Months Ended October 31, 1999 4
and 1998, Six Months Ended October 31, 1999 and 1998, and
Period from June 27, 1984 (Inception) to October 31, 1999
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters To A Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
April 30, October 31,
1999 1999
--------------------------------------
(see note 2) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,175,756 $1,447,615
Short term investments 2,785,672 1,996,296
Accounts receivable 31,069 45,973
Inventories 137,938 204,934
Prepaid expenses 75,714 16,741
--------------------------------------
Total current assets 4,206,149 3,711,559
Investments 1,838,918 1,198,593
Property and equipment:
Research and development equipment 237,136 231,085
Office Equipment 111,745 111,745
Manufacturing and engineering equipment 65,259 86,893
Sales and marketing equipment 59,927 59,927
Leasehold improvements 31,613 31,613
--------------------------------------
505,680 521,263
Accumulated depreciation (435,274) (406,278)
--------------------------------------
70,406 114,985
Patents, net 28,019 15,320
======================================
Total Assets $ 6,143,492 $5,040,457
======================================
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 176,496 $ 127,474
Accrued payroll 64,040 54,130
--------------------------------------
Total current liabilities 240,536 181,604
Shareholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000
Issued and outstanding shares -- 5,436,596 at 16,294,620 16,436,870
April 30, 1999 and 5,499,596 at Oct 31, 1999
Unrealized gain/(loss) on investments (17,842) (3,747)
Deficit accumulated during the development stage (10,373,822) (11,574,270)
--------------------------------------
Total shareholders' equity 5,902,956 4,858,853
--------------------------------------
Total liabilities and shareholders' equity $ 6,143,492 $5,040,457
======================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
Three months ended October 31 Six months ended October 31 (Inception)
---------------------------- --------------------------- to
1999 1998 1999 1998 October 31, 1999
---------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net Sales $80,016 $162,134 $120,199 $362,456 $1,295,683
Operating expenses:
Cost of sales and product development 112,660 130,700 166,139 304,267 1,337,071
Research and development 290,383 329,495 589,060 600,164 7,440,011
Sales and marketing 152,950 210,713 287,901 429,360 3,500,241
General and administrative 180,785 126,327 380,592 227,042 2,975,805
---------------------------- ------------------------- -----------------
Operating loss (656,762) (635,101) (1,303,493) (1,198,377) (13,957,445)
Other income:
Interest income 36,748 110,577 103,045 188,256 1,509,929
Other income 1,500,000
---------------------------- ------------------------- -----------------
Net Loss ($620,014) ($524,524) ($1,200,448) ($1,010,121) ($10,947,516)
============================ ========================= =================
Net loss per share - basic and diluted ($0.11) ($0.10) ($0.22) ($0.19) ($4.07)
============================ ========================= =================
Weighted average number of common and
common equivalent shares outstanding 5,468,166 5,390,176 5,452,300 5,385,609 2,692,787
============================ ========================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
Three months ended October 31 Six months ended October 31 (Inception)
------------------------------------------------------------ to
1999 1998 1999 1998 October 31, 1999
------------------------------------------------------------ -----------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $ (620,014) $ (524,542) $(1,200,448) $(1,010,121) $ (10,947,515)
Adjustments to reconcile net loss to
net cash provided (used) in operating activities:
Depreciation 12,160 16,160 23,067 35,532 643,802
Amortization 6,350 6,350 12,700 12,700 120,698
Loss on sale of equipment --- --- --- --- 7,375
Issuance of Common Stock for consulting
services --- --- --- --- 3,413
Changes in operating assets and liabilities:
Accounts receivable (23,090) (934) (14,904) (116,761) (45,973)
Inventories (54,148) (42,583) (66,996) 5,229 (204,934)
Prepaid expenses 27,563 12,200 58,973 42,763 (16,741)
Accounts payable and accrued expenses (11,580) 35,132 (49,022) 56,205 127,474
Accrued payroll and related taxes 5,446 762 (9,909) (3,062) 54,131
Deferred income --- 1,500,000 --- 1,500,000 ---
-------------------------------------------------------------- --------------
Net cash used in operating activities (657,313) 1,002,545 (1,246,539) 522,485 (10,258,270)
Investing activities
Patent expenditures --- --- --- --- (136,017)
Purchase of investments (388,464) (1,989,837) (868,964) (2,232,797) (37,963,053)
Sales and maturity of investments 775,405 562,908 2,312,758 823,281 34,766,261
Purchase of property and equipment (59,701) --- (67,646) (3,306) (787,021)
Proceeds from sale of equipment --- --- --- 3,463 21,663
-------------------------------------------------------------- --------------
Net cash provided (used) in investing activities 327,290 (1,426,929) 1,376,198 (1,409,359) (4,098,117)
Financing activities
Net proceeds from issuance of
Convertible Preferred Stock --- --- --- --- 4,848,258
Net proceeds from issuance of Common Stock 142,250 7,000 142,250 11,500 10,955,794
-------------------------------------------------------------- --------------
Net cash provided by financing activities 142,250 7,000 142,250 11,500 15,804,052
-------------------------------------------------------------- --------------
(Decrease) increase in cash and cash equivalents (187,773) (417,384) 271,909 (875,374) 1,447,615
Cash and cash equivalents at beginning of period 1,635,438 1,468,707 1,175,756 1,926,697 ---
-------------------------------------------------------------- --------------
Cash and cash equivalents at end of period $ 1,447,615 $1,051,323 $ 1,447,615 $ 1,051,323 $ 1,447,615
============================================================== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
October 31, 1999
1. Organization and Description of Business
Medwave, Inc. (the Company), a development stage company, is engaged
exclusively in the development, manufacturing and marketing of a
proprietary, non-invasive system that continually monitors arterial blood
pressure of adults, and in the development of related technology and
products. Utilizing the Company's proprietary technology, the Vasotrac(R)
system monitors blood pressure continually, providing new readings
approximately every 15 heartbeats. In 1997, the Company began development
of a hand-held blood pressure measurement device. This hand-held device is
based upon the technology used in the Vasotrac(R) system.
2. Basis of Presentation
The financial information presented as of October 31, 1999 has been
prepared from the books and records without audit. Financial information
as of April 30, 1999 is based on audited financial statements of the
Company but does not include all disclosures required by generally
accepted accounting principles. In the opinion of management, all
adjustments consisting only of normal recurring adjustments necessary for
a fair presentation of the financial information for the periods
indicated, have been included. For further information regarding the
Company's accounting policies, refer to the financial statements and
related notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1999.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following discussion should be read in conjunction with, and is qualified
by, the Company's financial statements set forth in Item 1 of this Form 10-Q.
General
The Company, which was formed in 1984, is a development stage company that
currently employs seventeen full-time employees and two part-time employees.
Since its inception, the Company has been engaged exclusively in the development
of a non-invasive, blood pressure measurement and monitoring system. Utilizing
proprietary technology, the Company's Vasotrac(R) system monitors blood
pressure, providing new readings approximately every fifteen heartbeats. The
Company believes that continual blood pressure readings and non-invasive
features of the Vasotrac(R) system make it the most advanced approach to blood
pressure monitoring. In 1997, the Company began development of a hand-held blood
pressure measurement device. This hand-held unit is based on the technology used
in the Vasotrac(R) system.
The Company has incurred an accumulated deficit of $(11,574,270) from its
inception through October 31, 1999. Additional losses from development, testing,
regulatory compliance, sales, and other expenses are expected to be incurred by
the Company at least until it emerges from the development stage.
The Company's success is dependent upon the successful development and marketing
of the Vasotrac(R) system and/or related technology. However, there can be no
assurance that the Vasotrac(R) system or related products will be successfully
marketed or sold in sufficient quantities and at margins necessary to achieve or
maintain profitability.
5
<PAGE>
The Company recognized in 1997 that it had to enhance its distribution channel.
The Company attempted to add dealer partners; however, due to long sales cycles,
product user interface issues, and poor sales and marketing direction, success
of the Vasotrac(R) was dependent on either an individual sales representative or
a dealer partner to self promote and position the Vasotrac(R) product. Most of
the Company's original distribution agreements have expired or have been
terminated.
The Company released its enhanced Vasotrac(R) 205A during the American Society
of Anesthesiologists Meeting in Dallas, Texas, in October, 1999. The Vasotrac(R)
205A sets up quickly and is designed to be easier to use than the earlier
version of the Vasotrac(R) which the 205A replaces. Response from the physicians
attending the meeting was favorable. In addition, the Company conducted numerous
meetings with potential business partners during this meeting. The purpose of
these meetings was to discuss both distribution and OEM arrangements. As a
result, numerous meetings have occurred since, and the Company is intent on
partnering with distribution companies who have nationwide coverage and a focus
on critical care, operating room and cardiology market segments in the hospital
market. The structure of the Company's sales organization will be one of
creating three regional Business Units, with full business responsibility for
managing the business processes in their assigned geography. In addition, the
Business Units will partner with distribution company(ies) in an effort to drive
Vasotrac(R) sales, support customers, and provide business direction. The
Company will have the Business Units focus only on the hospital market segments
for the majority of calendar year 2000. The Company will also attempt to enter
specific international markets during calendar year 2000; however, success of
this will be dependent on several factors including, but not necessarily limited
to, international distribution partnerships, local country regulatory
requirements, and Company focus.
A critical success factor for the Company is the Company's ability to develop
comprehensive education tools for distribution partners, employees and
end-users. As with any medical sensor, proper sensor placement is critical to
successful performance. However, the Company believes with development of
educational material focused on blood-pressure monitoring in general, and on how
blood-pressure monitoring is best accomplished using the Vasotrac(R) system, it
will assist in establishing market acceptance for the Vasotrac(R) system.
The Company has re-submitted its hand-held blood-pressure monitor to the U.S.
Food and Drug Administration for 510(K) clearance. The Company believes that
this product will have a place in the "professional market" where clinical
professionals can use the hand-held unit in obtaining spot blood-pressure
readings on patients with improved accuracy and comfort. The first phase of
market release will be targeted to the hospital market; it is anticipated that
this will be possible in the spring of 2000. Second phase release will be
outside the hospital environment. The Company will search for the appropriate
distribution partners for this environment; it is anticipated that this will be
different from the hospital based distribution partner(s).
The Company is in the process of performing feasibility studies regarding other
development projects which will use the core technology of the Vasotrac(R) and
hand-held products.
The Company's goal moving forward, will be to emerge as a recognized alternative
for non-invasive blood-pressure monitoring. In order to accomplish this, the
Company will be expected to offer solutions not presently available in
monitoring a patient's blood-pressure non-invasively.
For the Company to emerge from the development stage, its success will also
depend on its ability to hire additional employees for key operating positions.
Competition for such employees is intense and there can be no assurance that the
Company will be successful in hiring such employees on acceptable terms or when
required, or in maintaining the services of its present employees. The Company
preliminarily estimates that these employees will increase employee-related
expenses in excess of $500,000 during the next twelve months. However, such
requirements are subject to change and are highly dependent on the development
process for the products, including the manufacturing scale-up process, market
acceptance, and the Company's distribution methods.
6
<PAGE>
Cash and cash equivalents, and short and long-term investments are being used
primarily to finance continued clinical testing of the Vasotrac(R) system, for
manufacturing and marketing, to conduct additional research and product
development efforts that may be necessary, and to provide working capital. Over
the next twelve months, the Company expects to spend in excess of $1,200,000 for
research and development. Specifically, the funds are expected to be used to
develop an improved sensor and to sustain engineering support for manufacturing
and for the continued development of hand-held unit. No significant amount of
equipment is expected to be required. Company believes that the cash, cash
equivalents, and short and long-term investments will allow the Company to meet
its cash requirements for approximately one and one-half years from October 31,
1999. If the development and marketing process for the Vasotrac System does not
proceed as expected because significant product design changes are required to
achieve market acceptance or unexpected difficulties are encountered in
attaining cost-effective manufacturability, the Company may require additional
capital at an earlier date. Such capital may be sought through bank borrowing,
equipment financing, equity financing, and other methods. The Company's
financing needs are subject to change depending on, among other things, market
conditions and opportunities, equipment or other asset-based financing that may
be available, and cash flow from operations. Any material favorable or
unfavorable deviation from its anticipated expense could significantly affect
the timing and amount of additional financing that may be required. However,
additional financing may not be available when needed or, if available, may not
be on terms that are favorable to the Company or its security holders. In
addition, any such financing could result in substantial dilution to then
existing security holders.
Results of Operations
The results of operations compares the three months and six months ended October
31, 1999 and 1998, respectively. The analysis of liquidity and capital resources
compares October 31, 1999 to April 30, 1999.
Operating revenue was $80,000 and $162,000 for the quarter ended October 31,
1999 and 1998, respectively. Operating revenue was $120,000 and $362,500 for the
six months ended October 31, 1999 and 1998, respectively. The operating revenue
decrease was attributed to the Company's focus on the development of its
enhanced Vasotrac(R), as previously described.
Cost of sales and product development was $113,000 and $130,500 for the quarter
ended October 31, 1999 and 1998, respectively. Cost of sales and product
development was $166,000 and $304,000 for the six months ended October 31, 1999
and 1998, respectively. The cost of sales and product development decrease was
attributed to a decrease in the number of units sold.
The Company incurred $290,000 and $329,500 for research and development expenses
for the quarter ended October 31, 1999 and 1998 respectively. The Company
incurred $589,500 and $600,000 for research and development expenses for the six
months ended October 31, 1999 and 1998, respectively. The research and
development expense decrease was primarily attributed to the completion of the
Multi-Center study in January 1999.
The Company incurred $153,000 and $210,500 for sales and marketing expenses for
the quarter ended October 31, 1999 and 1998, respectively. The Company incurred
$288,000 and $429,500 for sales and marketing expenses for the six months ended
October 31, 1999 and 1998 respectively. The sales and marketing expense decrease
was attributable to the decrease in the number of sales representatives employed
by the Company as the Company focused on the development of the enhanced
Vasotrac(R).
The Company incurred $181,000 and $126,500 for general and administrative
expenses for the quarter ended October 31, 1999 and 1998, respectively. The
Company incurred $380,500 and $227,000 for the six months ended October 31, 1999
and 1998 respectively. The increase in general and administrative expenses was
primarily attributable to fees paid to the Company's investment banking firm
retained to explore strategic alternatives for the Company and its shareholders
and fees for a search team in the Company's hiring of a new president.
7
<PAGE>
Interest income was $36,500 and $110,500 for the quarter ended October 31, 1999
and October 31, 1998, respectively. Interest income was $103,000 and $188,000
for the six months ended October 31, 1999 and 1998 respectively. The decrease
reflects lower cash, cash equivalents, and short and long-term investments as
the Company uses its investment accounts to fund operations.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and short- and long-term investments were
$4,642,500 and $5,800,500 at October 31, 1999 and April 30, 1999, respectively.
With the cash and cash equivalents, and short and long-term investments, the
Company believes that sufficient liquidity is available to satisfy its working
capital needs for approximately one and one-half years from October 31, 1999.
The Company has no significant capital expenditure commitments.
Year 2000 Update
The Company has instituted a Year 2000 compliance project to address the issue
of computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000. In the spring of 1998, the Company
conducted a review of its Information Technology ("IT") systems and non-IT
systems to identify the impact of the Year 2000 issue. The review concluded that
the Company's software and internal operations will not require Year 2000
modifications. The total cost associated with testing for Year 2000 compliance
is not expected to be material to the Company's financial position.
In connection with this review, the Company also asked critically important
vendors, suppliers, and financial institutions whose incomplete or untimely
resolution of the Year 2000 problem could potentially have a significant impact
on the Company's operations to assess their Year 2000 readiness. The Company has
been informed that these vendors, suppliers, and financial institutions will be
substantially Year 2000 compliant by late 1999.
In the reasonable worst case scenario, the Company's suppliers and customers
would experience delays in filling orders, making payments or other Year 2000
problems that may adversely affect the Company. Contingency plans are being
prepared, where necessary, to minimize any significant exposures from the
failure of third parties to be Year 2000 compliant. These plans include
development of back-up procedures, identification of alternate suppliers, and an
assessment of the need for increases in inventory levels.
The Company does not expect the Year 2000 problem or the cost of the compliance
program to have a material impact on the results of operations, financial
condition, or cash flows. However, there can be no absolute assurance that third
parties will convert their systems in a timely manner and in a way that is
compatible with the Company's systems.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Statements made in this report that are stated as expectations, plans,
anticipations, prospects or future estimates or which otherwise look forward in
time are considered "forward-looking statements" and involve a variety of risks
and uncertainties, known and unknown, which are likely to affect the actual
results. The following factors, among others, as well as factors discussed in
the Company's other filings with the SEC, have affected, and in the future,
could affect the Company's actual results: resistance to the acceptance of new
medical products, the market acceptance of the Vasotrac(R) system or other
products of the Company, hospital budgeting cycles, the possibility of adverse
or negative commentary from clinical researchers or other users of the Company's
products, the Company's success in creating effective distribution channels for
its products, the Company's ability to scale up its manufacturing process, and
delays in product development or enhancement or regulatory approval.
Consequently, no forward-looking statement can be guaranteed and actual results
may vary materially.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
See Exhibit Index on Page Following Signatures
(B) REPORTS ON FORM 8K:
No reports on Form 8-K were filed by the Company during
the quarter ended October 31, 1999
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 15, 1999 Medwave, Inc.
/s/ Timothy O'Malley
By: Timothy O'Malley
President and Chief Executive Officer
/s/ Mark T. Bakko
Mark T. Bakko
Chief Financial Officer
9
<PAGE>
EXHIBIT INDEX
MEDWAVE, INC.
FORM 10-Q
FOR QUARTER ENDED
OCTOBER 31, 1999
Exhibit No. Description
10.1 Letter agreement of employment with Timothy
O'Malley dated September 9, 1999 and amendment
dated September 16, 1999.
10
September 9, 1999
Mr. Timothy O'Malley
19 Pheasant Lane
Topsfield MA 01983
Dear Tim:
We are pleased to be able to offer you employment with the following conditions:
You will become an officer of the company with title of President and Chief
Executive Officer. Your starting salary will be $180,000 per year (paid at the
rate of $7,500 biweekly) and you will be granted stock options for 225,000
shares of Medwave stock with the terms described below.
You will be granted a ten-year incentive stock option for approximately 55,000
shares (which is approximately the maximum permitted under tax laws) and a
ten-year non-qualified stock option for approximately 170,000 shares. Each of
these options will become exercisable over a four-year period, commencing after
one year of employment and will expire thirty (30) days after termination of
employment. The options will be priced at common stock's fair market value as of
the your first day of your employment. The price on your first day of employment
will determine the number of incentive stock options permitted by tax laws, the
remaining stock options will be non-qualified.
You will also receive company benefits as established by management from time to
time, such as vacation, holiday pay, floating holiday(s) and health insurance.
Presently, Medwave's vacation policy will allow you to accrue vacation at the
rate of three (3) weeks per year. In addition, Medwave will pay 80% of the
premium cost for an approved health plan. After six months of employment, you
will be eligible to participate in Medwave's SEP plan. This plan may be changed
from time to time but presently the company contributes up to 3% of your base
salary if you elect to match that amount.
In addition, Medwave agrees to reimburse you for normal and customary moving
expenses for household items and house hunting and transition costs. Medwave's
goal in paying these transition costs is to allow you to move to the Twin Cities
area at the earliest possible date. The cost of such moving expenses must be
pre-approved by Medwave. This will be done after you are able to obtain an
estimate for the cost of moving. If you accept employment with the Company, you
understand that the duties require residence in the Twin Cities area. Failure to
move to the Twin Cities within six months of your hire would likely result in
termination of employment.
<PAGE>
You will begin employment on October 1, 1999 or as otherwise mutually agreed.
This offer of employment will expire on September 17, 1999 if not accepted by
you before this date. Your employment will be at-will, which means you may
terminate your employment at any time, with or without cause and with or without
notice, and the Company has the same right. As a condition of employment, you
are required to sign an agreement which includes a confidentiality,
non-competition, and assignment of patents provisions, a copy of which is
attached. By accepting this offer of employment you represent that your
employment with Medwave and your compliance with the attached agreement do not
violate or conflict with any other agreements to which you are subject. No
modifications of this employment letter agreement may be made except by means of
written agreement or memorandum signed by the parties. Medwave and you agree
that this employment letter agreement will be governed by the laws of the State
of Minnesota (whether or not the laws of other jurisdictions might otherwise
govern under Minnesota principles of conflicts of law) and that if any action is
brought relating to your employment or termination of employment, it will be
brought in state or federal court in Minneapolis or St. Paul, Minnesota and
Medwave and you consent to the jurisdiction of such courts.
If the terms of this offer meet your acceptance, please acknowledge acceptance
of this offer by signing below and returning the enclosed copy, along with the
executed agreement to me.
Tim, I have enjoyed our two meetings. Each meeting has left me with a high
regard for what you have accomplished and for you personally. In my
conversations with board members, similar views have been expressed. We are
confident that under your guidance Medwave can achieve significant growth.
Sincerely,
______________________________ __________________________________
G Kent Archibald Accepted By:
President and CEO
<PAGE>
September 16, 1999
Mr. Timothy O'Malley
19 Pheasant Lane
Topsfield MA 01983
Dear Tim:
Based upon our conversations, we are amending our letter offering you
employment, which was dated September 9, 1999, to include the following terms
and conditions:
1. Management will develop a bonus plan, based upon the business objectives of
the company. This plan will be presented to the board prior to December 31,
1999. As you know, only the board has authority to authorize a bonus plan.
2. In addition to the moving items discussed in the September 9, 1999 letter,
Medwave agrees that moving costs will include up to four months of
reasonable temporary living expenses and related travel between the Twin
Cities and Boston, and you agree to move your family to the Twin Cities by
July 2000.
3. We have revised the agreement on confidentially to delete one year after
employment with Medwave prohibition of non-competition and have attached a
revised copy.
4. For you stock options we agree to the following change in terms. If you
are terminated by the Company before one year of employment without
Cause (as defined herein), the stock options will become 25%
exercisable. If you are terminated for Cause, you would lose your
unexercisable stock options. "Cause" as used herein shall include, but
not be limited to, neglect of your duties; performance which in the
good faith, reasonable judgment of the Board of Medwave, or their
designated representative, is unsatisfactory; conviction of, or a plea
of nolo contendere to a felony or any crime or offense involving moral
turpitude; conduct detrimental to Medwave's business reputation or
goodwill; any act of dishonesty; any breach of fiduciary duty involving
personal profit; actively using alcohol or controlled substances in a
manner which impairs your ability to perform you duties; refusal to
comply with Company's directives, rules, regulations, or policies; and
the violation of your confidentiality and assignment of patents
agreement.
5. You will begin employment on October 4, 1999 or as otherwise mutually
agreed.
If the terms of this offer meet your acceptance, please acknowledge acceptance
of this offer by signing below and returning the enclosed copy, along with the
executed agreement to me.
Sincerely,
______________________________
G Kent Archibald ______________________________________
President and CEO Accepted By:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,447,615
<SECURITIES> 1,996,296
<RECEIVABLES> 45,973
<ALLOWANCES> 0
<INVENTORY> 204,934
<CURRENT-ASSETS> 3,711,559
<PP&E> 521,263
<DEPRECIATION> 406,278
<TOTAL-ASSETS> 5,040,457
<CURRENT-LIABILITIES> 181,604
<BONDS> 0
0
0
<COMMON> 16,436,870
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,040,457
<SALES> 120,199
<TOTAL-REVENUES> 120,199
<CGS> 0
<TOTAL-COSTS> 166,139
<OTHER-EXPENSES> 1,257,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,200,448)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,200,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,200,448)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
