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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
[X] EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDING APRIL 30, 2000
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 No.)
4382 ROUND LAKE ROAD WEST, ARDEN HILLS MINNESOTA 55112
(Address or principal executive offices, zip code)
Registrant's telephone number, including area code: (651) 639-1227
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, NO PAR
VALUE
Indicate by check mark whether the Registrant (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 that 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant, based on the last sale price of the Registrant's Common Stock in the
over-the-counter market as reported by the Nasdaq Stock Market, Inc. on June 30,
2000, was approximately $24,618,627. Shares held by officers, directors, and
persons who own 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive.
As of June 30, 2000, 5,499,596 shares of Common Stock, no par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
ITEM 1 BUSINESS...............................................................................3
ITEM 2 PROPERTIES............................................................................14
ITEM 3 LEGAL PROCEEDINGS.....................................................................14
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................14
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.............................14
ITEM 6 SELECTED FINANCIAL DATA...............................................................15
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS.......................................16
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................18
ITEM 8 FINANCIAL STATEMENTS..................................................................18
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..............................................................37
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....................................37
ITEM 11 EXECUTIVE COMPENSATION................................................................39
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................40
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................42
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K...................................................................................42
</TABLE>
MEDWAVE(R), VASOTRAC(R), VASOTRAX(TM) ARE TRADEMARKS OF THE COMPANY.
Forward Looking Statements
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR
THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-K THAT ARE NOT STATEMENTS
OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT
LIMITING THE FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE",
"ANTICIPATE", "ESTIMATE", "CONTINUED" OR THE NEGATIVE OR OTHER VARIATIONS
THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY
OF FACTORS, INCLUDING THOSE SET FORTH IN ITEM 1.
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PART I
ITEM 1. BUSINESS.
COMPANY PROFILE
The Company was organized under Minnesota Law in 1984. The Company is engaged
exclusively in the development, manufacture, and sale of a non-invasive,
continual blood pressure measurement and monitoring system and of related
technology.
The Company's principal offices are located at 4382 Round Lake Road West, Arden
Hills, Minnesota 55112 and its telephone number is 651/639-1227.
The Company has an April 30 fiscal year.
BUSINESS
GENERAL
The Company is a development stage company that currently employs seventeen (17)
full-time employees and one part-time employee. Since its inception, the Company
has been engaged exclusively in the development of devices for monitoring and
devices for measuring blood pressure. Utilizing the Company's proprietary
technology, the Vasotrac(R) APM205A system monitors blood pressure, providing
new readings approximately every fifteen heartbeats. The Company believes that
the continual blood pressure readings and non-invasive qualities of the Vasotrac
system make it the most advanced approach to blood pressure monitoring. In
addition, the Company has also completed the design of a hand-held blood
pressure measurement device. This hand-held unit is based on the technology used
in the Vasotrac system. The Company re-submitted a 510(k) notification to the US
Food and Drug Administration in June 2000 for the hand-held unit. For additional
information, see "Reliance on Single Product."
During the year, the Company completed the project to make improvements to the
Vasotrac system and introduced the enhanced Vasotrac system in October 1999.
Since then the Company has signed numerous distribution agreements in several
major markets throughout the world. These improvements were done principally to
meet customer needs for greater ease of use for the Company's Vasotrac system.
In addition, the Company has completed the design of the Vasotrax(TM), which is
the Company's hand-held blood pressure monitor. The Company expects to perform
market introductions of the hand-held unit later this calendar year. The Company
has incurred an accumulated deficit of $12,926,765 from its inception through
April 30, 2000. Additional losses resulting from development, testing,
regulatory compliance, sales, and other expenses are expected to continue to be
incurred by the Company at least until it emerges from the development stage.
The Company has financed its activities through the Company's initial public
offering (IPO) in November 1995, and a series of earlier private placements of
equity securities, including shares of Preferred Stock that were converted into
Common Stock just prior to the Company's IPO in November, 1995. In addition, on
March 6, 1998, the Company completed a private placement that raised
approximately $2,990,000.
The Company's success is dependent upon the successful development and marketing
of the Vasotrac system and the Vasotrax hand-held unit as well as related
technology. However, there can be no assurance that the Company's products or
related technology will be successfully marketed or sold in sufficient
quantities and at margins necessary to achieve or maintain profitability.
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In late December 1999, the Company entered into an exclusive distribution
agreement with 3Ci of Atlanta, Georgia, a national hospital based distributor
sales company with approximately 100 sales consultants, for selling the Vasotrac
system to the hospital market in the United States. 3Ci is primarily focused in
the critical care and operating room departments of the hospital market.
Although market visibility for the Vasotrac system from this relationship is
noticeably higher than before, the Company has yet to see the order flow which
would indicate successful market entry.
In addition, between February 2000 and July 2000 the Company has entered into
several international distribution agreements in Germany, Italy, Japan, South
Korea, and Taiwan. In the foreign markets, the Company is currently working with
the distributors to obtain the necessary government clearances to be able to
sell a medical device in those countries. In June 2000, the Company signed an
agreement with Nihon Kohden of Tokyo, Japan. Nihon Kohden is a very well known
medical device company in the Japanese market, with close to 50% market share in
patient monitoring. Nihon Kohden and the Company will work together to prepare
the necessary requirements to obtain Ministry of Health approval, which is
required prior to sales commencing in the Japanese market. As part of the
agreement between the Company and Nihon Kohden, Nihon Kohden issued a purchase
order valued at $250,000, which will be completely fulfilled at the time of
Ministry of Health approval. A portion of this order will be pre-paid by
December 2000, regardless of Ministry of Health status.
The Company focused on building a dealer network so that the Company could seek
nationwide sales coverage without the commensurate increase in sales staff and
cost that would occur if the same coverage were sought by building the Company's
own employee sales force. The success of the Company's product sales will depend
upon the ability of dealers and/or sales representatives to sell the products to
the hospitals, their affiliates, and other markets. At this time, dealers have
not consistently demonstrated that they will be successful.
Feedback from the dealers and from clinicians indicates that the enhanced
Vasotrac system is much easier to use than the previous configuration. However,
the Company has limited experience with its distribution arrangements and there
can be no assurance that the Company will be able to successfully implement or
effectuate these arrangements or other such arrangements. The initial response
regarding the Vasotrax hand-held unit, from focus groups, and limited showings
has been favorable. However, the Company must establish distribution
arrangements, and complement those arrangements with a number of "in house"
experts. The Vasotrax hand-held product will be targeted at the pre-hospital
(EMT and EMS market), the hospital market, and the post-hospital markets
(sub-acute, skilled nursing homes, homecare, and physician offices).
The Company's short-term and long-term investments are being used primarily to
continue clinical testing of the Vasotrac system, Vasotrax hand-held unit and
related technologies, to continue manufacturing and marketing, and to conduct
any additional research and product development efforts that may be necessary.
The Company anticipates incurring significant additional losses from further
development, testing, regulatory compliance and sales and marketing expenses for
the foreseeable future. Over the next twelve months, the Company expects to
spend in excess of $1,100,000 for research and development, including amounts
expected to be spent on clinical trials. Specifically, the funds are expected to
be used to develop alternative sensors (including sensors for use on pediatrics)
and to sustain engineering support for manufacturing start-up and for the
continued development of the hand-held unit. In addition, the Company expects to
spend approximately $200,000 for equipment, which would include tooling for
production manufacturing scale-up. The Company spent $1,122,247, $1,230,072, and
$1,033,145 on research and development expense for fiscal years ending 2000,
1999, and 1998 respectively. Even assuming limited sales, the Company believes
that its current investments will allow the Company to meet its cash
requirements for approximately one year from April 30, 2000. If the development
process for the Company's products does not proceed as expected due to
significant product design changes, market acceptance difficulties, unexpected
difficulties in attaining cost-effective manufacturability or higher than
expected sales and marketing costs, the Company may require additional capital
at an earlier date. Such capital may be sought through bank borrowing, equipment
financing, equity financing, and/or 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.
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In September 1998, the Company entered into a technical evaluation agreement
with an interested party, related to its blood pressure technology, specifically
its hand-held blood pressure measurement device. The agreement called for the
Company to receive $1,500,000 in exchange for a "stand still" period of six (6)
months, during which the Company would not have any discussions or negotiations
with other parties including, among other things, the licensing or selling of
the technology of its hand-held unit. The amount received was recognized as
revenue when the agreement terminated with no additional agreement with the
interested party.
In October 1999, the Company hired a new CEO, Tim O'Malley. The new CEO has a
sales and marketing background and he is now focusing the Company on the
marketing of its products.
Blood Pressure Measurement. Blood pressure or, more precisely, arterial
pressure, is the pressure that the blood exerts against the interior of the
arterial walls. The level of the pressure depends upon the strength of the
heart's contraction, the volume of blood in the circulatory system, the
elasticity of the arteries, and the degree of capillary constriction impeding
circulation. During the heart's relaxation phase, the diastole, blood pressure
falls and rises when the heart muscle contracts. Clinically, blood pressure is
commonly reported as three different values. Systolic and diastolic pressures
are the maximum and minimum pressures during a single cardiac cycle,
respectively. Mean pressure is the average pressure during the cardiac cycle.
Blood pressure and changes in blood pressure are critical indicators of the
health and performance of the body's cardiovascular system. Blood pressure
varies with age and by gender, such that young adults tend to have lower blood
pressures than older adults and men tend to have higher blood pressures than
women of the same age. Even in healthy bodies, blood pressure normally
fluctuates during the day. For example, exercise, emotion, and exposure to the
cold tend to cause blood pressure to rise, while it falls in instances of
warmth, fainting, hemorrhage, and certain diseases. All hospital patients
require measurement of their blood pressure and many surgical or critically ill
patients require frequent or continual monitoring of their blood pressure.
Continual monitoring of blood pressure is important for patients in operating
rooms, surgical recovery rooms, intensive care units, and other critical care
sites because of the acuteness of these patients' conditions and rapidity with
which their conditions can deteriorate. Trend information obtained from
successive blood pressure measurements plays an important role in the diagnosis,
prognosis, and treatment of diseases.
Current Technology. Currently, both invasive and non-invasive techniques are
used to measure blood pressure. Invasive techniques employ the surgical
placement of a catheter directly into an artery, an A-line. The fluid-filled
catheter is connected to a pressure transducer and assorted tubing to produce
beat-by-beat continual, as well as generally accurate, blood pressure
measurements. In addition, the catheter may be used to extract blood samples
from which a number of diagnostic test results, such as blood gas information,
may be obtained. Because the Company's non-invasive Vasotrac system does not
allow for the extraction of blood samples, invasive techniques offer a
competitive advantage in this area. The surgical insertion of the catheter takes
about fifteen to twenty minutes, assuming no complications. While such
insertions frequently are performed without incident, serious complications may
include thrombosis (blood clot), air emboli (air bubble), and infection.
Measurement errors may occur due to air bubbles, catheter clotting or movement,
or changes in elevation between the pressure transducer and the level of the
heart. Immediately following catheter withdrawal, firm pressure must be applied
over the arterial site for an extended period of time to avoid serious blood
loss. Primarily because of its invasive nature, the A-line is generally used by
clinicians in critical cases and for only relatively short time periods.
As a general matter, the Company believes that non-invasive rather than invasive
treatments and methods are preferred by clinicians for numerous medical
conditions and processes, including the measurement and monitoring of blood
pressure. Non-invasive techniques significantly reduce patient risk and increase
patient comfort. In addition, the time and expense required to set up, maintain,
and remove non-invasive equipment generally is substantially less than with
invasive systems. The Company believes that, in some cases, patients in critical
care sites could benefit from continual blood pressure monitoring after the
point at which clinicians may now cease obtaining such readings due to concerns
associated with prolonged or indefinite uses of invasive techniques.
Most non-invasive blood pressure measurement techniques utilize a manually
operated occlusive cuff around the upper arm. A relatively simple blood pressure
instrument, called a sphygmomanometer, contains a cuff connected to an air pump
and pressure gauge. The cuff is inflated to a pressure above that of systolic
pressure until the brachial artery is occluded, and then deflated at a typical
rate of two to four millimeters of mercury per heartbeat. During inflation and
deflation, the clinician must listen to the pulse in the brachial artery. Upon
hearing and properly
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interpreting the appropriate sounds, the clinician records the pressures shown
on the gauge. The cuff pressure occurring simultaneously with certain observed
events within the circulatory or cuff systems are taken as the systolic and
diastolic pressures. This process may take several minutes to complete, and in
some patients will cause significant discomfort due to the squeezing of the cuff
around the upper arm. The Vasotrax hand-held unit appears to have several
advantages over a traditional sphygmomanometer. The Vasotrax can produce a
reading in approximately 15 seconds, whereas the sphygmomanometer may take
several minutes to produce a reading. Patient comfort is improved as the
Vasotrax does not occlude the artery as the sphygmomanometer will. In addition,
in the future the Vasotrax will be capable of storing approximately 200 patient
readings and with up to 16 different patients.
An automated system that performs these functions is commonly used in critical
care and operating room settings. The automated non-invasive blood pressure
monitoring market is currently dominated by the Dinamap(R) product, marketed by
Critikon, Inc. The Dinamap(R) provides blood pressure measurements via automatic
inflation and deflation of an occlusive cuff at predetermined intervals. It is
reasonably reliable and simple to use. However, the Dinamap(TM) product provides
only intermittent measurements at one-to-ninety minute intervals, as selected by
the clinician. Some patients suffer from frequent cuff inflations. In addition,
with cuff-based systems, arm circulation is occluded during each measurement,
the arm holding the pressure cuff is unavailable for intravenous lines, and arm
bruising and sleep interruption may occur.
In contrast to the sphygmomanometer and other cuff-based systems, the Company's
Vasotrac system and the Vasotrax hand-held unit require no inflatable cuff but
instead contains a unique pressure sensor that is placed on the wrist. The
Company believes that the Vasotrac system and the Vasotrax hand-held unit have a
number of advantages over cuff-based systems, primarily continual monitoring of
blood pressure through measurements taken approximately every fifteen heartbeats
and improved patient comfort.
Cuff-based systems may offer some advantages over the Company's Vasotrac system
and the Vasotrax hand-held unit. Given differences in individual bone
construction, body weight, and physical condition, the product may not provide
accurate readings or be usable on all patients. Contraindications for the
product include patients on cardiopulmonary bypass, patients with any condition
in which rendering a pulsating pressure signal from the radial artery is not
possible which may occur with severe arterial restrictions, and pediatric use.
To date, the Company has not detected any significant patient complications that
are caused by the system. However, as with any relatively new medical device,
complications may become manifest as the device is used on a greater number of
patients with different characteristics and under various conditions. Finally,
the Company must overcome the resistance of the medical community to the
introduction of new techniques or technology. The Company believes that this
resistance may be exacerbated due to the lack of market acceptance of previous,
unsuccessful efforts of other companies to introduce accurate, continuous,
non-invasive blood pressure monitors and because the blood pressure cuff has
been in use for more than 100 years.
For those critically ill patients who require continual blood pressure
monitoring, invasive methods are currently the clinician's technology of choice.
Given the attractiveness of non-invasive monitoring, however, several companies
have introduced or are introducing products for non-invasive continual
monitoring of arterial pressure based upon several technologies. These
technologies include pulse-wave velocity, partially inflated finger cuffs,
partially inflated arm cuffs, tonometry, and other technologies now being
developed. The Company believes that none has gained wide acceptance within the
clinical community for continually monitoring arterial pressure. This belief is
based on previous, unsuccessful efforts of other companies to introduce
accurate, continuous, and non-invasive blood pressure monitors, the absence of
such products at major medical and other product shows, the lack of published
advertisements, papers or studies about such products in respected scientific,
medical and other journals, and anecdotal discussions with physicians and other
medical personnel by the Company's management.
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PRODUCT DESCRIPTION
The Company believes that the continual blood pressure readings, and the
efficacious and non-invasive qualities of the Company's Vasotrac system make it
a new approach to adult blood pressure monitoring. The system is designed to
assist clinicians in the therapeutic management of their patients by providing
frequently updated blood pressure readings in an easily obtained and comfortable
manner. This microprocessor-controlled system consists of (i) a liquid crystal
display, LED displays, a Central Processing Unit and a key pad housed in an
aluminum case, (ii) a patient cable, and (iii) a pressure sensor. The Company
requires that the sensors be changed at a minimum of every six months.
The Vasotrac system monitors blood pressure using as a key component a pressure
sensor placed on the wrist over the radial artery, a main artery in the arm. The
pressure sensor in the Vasotrac system is a replaceable component. Over five
hundred (500) of the Company's Vasotrac system monitors have been used for
clinical studies and laboratory experiments, by the sales representatives, and
by customers. The monitor has no moving parts and is composed of standard,
off-the-shelf components. Although these monitors have been subject to
electrical testing of various duration, no end-of-life failures have been
determined. The sensor and motor assembly are the only moving parts of the
Vasotrac system and, as such, they are receiving the most attention from the
Company for life testing. The Company has configured testing equipment for use
in conjunction with the Vasotrac system to exercise these components
continuously in an unattended mode. Testing and evaluation of these components
are still in process.
The Vasotrac system and the Vasotrax hand-held unit utilizes proprietary
technology of the Company, which applies pressure to the artery as the pressure
waveforms are measured by the sensor. Then, the Company's proprietary algorithms
analyze the pressure waveforms to calculate the systolic, diastolic, and mean
readings of blood pressure approximately every fifteen heartbeats. The Vasotrac
system displays systolic, diastolic, and mean blood pressure in millimeters of
mercury (mmHg) as well as heart rate in beats per minute. The Vasotrax hand-held
unit displays systolic and diastolic blood pressure as well as pulse rate. These
values are displayed after the clinical user manually presses the Vasotrax on
the subject's radial artery for approximately 15 seconds.
The Vasotrac system is designed to be used by trained medical personnel on
adults in hospitals and other critical care sites where continual blood pressure
monitoring is desirable. Patient pressures can be monitored audibly and visually
by entering limits into the Vasotrac system alarm menu. Those values above or
below the limits will be automatically brought to the attention of the clinician
through audible and visual alarms. Given differences in individual bone
construction, body weight, and physical condition, the system may not be usable
on all patients. However, with proper placement, the system has been usable on
all patients participating in the Company's clinical studies conducted to date
and the Company believes that the system will continue to be usable on virtually
all adults. Care must be taken to properly place the sensor, as clinical studies
have demonstrated that improper placement may lead to erroneous blood pressure
readings. Although there are contraindications for the system, the Company
believes that, as a general matter, virtually no medical device is universally
applicable for all patients at all times. Furthermore, the Company does not
believe that market acceptance of the system is likely to be jeopardized by lack
of universal applicability of the system for the adult population, although
there can be no assurance in this regard.
The Company's research and development of its hand-held blood pressure
measurement device may result in a product that has sales potential both in the
professional market (doctors, nurses, and medical technicians) and in the
consumer market. The Company has finished development of its Vasotrax hand-held
unit, has submitted a 510(k) review to the United States Food and Drug
Administration, and has plans to release the Vasotrax to the United States
market at several trade shows beginning in August 2000. This device is designed
to make accurate blood pressure and pulse rate measurements without using a cuff
or stethoscope. To use the device, the clinician presses the device against the
wrist with increasing force. In about fifteen seconds, the device will display
the blood pressure and pulse rate. The Company has shown the Vasotrax hand-held
unit to clinicians at Company sponsored market focus groups, as well as at
recent industry trade shows. The initial response to this product has been very
favorable. The technology employed in the hand-held device may be useful in
developing products for other markets. Currently the Company does not have
suitable distribution channels for the potential markets for the hand-held unit
and there can be no assurance that the Company will be able to implement or
effectuate suitable arrangements for such markets.
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CLINICAL STUDIES
The Company has conducted clinical studies for three purposes: (i) to aid the
product development process, (ii) to obtain data for submission to the
Regulatory Agencies, and (iii) to help the Company prepare marketing and sales
information to promote greater awareness of the Vasotrac system and Vasotrax
hand-held unit. Two standards of comparison have been used, the automated cuff
and the arterial line (A-line). The automated cuff clinicals did not allow
synchronization of measurements between the cuff and the Company's system
because of the different number of heartbeats required to produce readings for
each method. Further, the cuff does not meet the accuracy objectives that the
Company has set for the Vasotrac system and Vasotrax hand-held unit. For these
reasons, the cuff proved to be of limited utility in the Company's studies.
However, these studies were useful in the initial development process for the
Company's products.
In contrast to automated cuffs, A-lines are believed to provide more accurate
blood pressure measurements. Further, the A-line studies allow for data
synchronization. By inserting an arterial catheter in the radial artery on one
wrist and by placing the Vasotrac system (or the Vasotrax hand-held unit) sensor
on the radial artery of the other wrist, data was simultaneously recorded on a
beat-by-beat basis. The Company's clinical studies were conducted at teaching
hospitals under institutional review board controls and protocols. Hospitals
performing investigational studies of medical devices or drugs are required by
the FDA to have an "institutional review board" that supervises such studies.
Generally, such a board represents the hospital and includes physicians that can
make appropriate judgments regarding the safety of the study. The board
periodically reviews protocols for medical devices and maintains meeting
minutes, which are subject to audit by the FDA.
The Company's initial clinical studies were performed on approximately 30
consenting subjects, some of whom were healthy and some of whom were undergoing
surgery. Results from a series of these studies comparing the Vasotrac system's
readings with the A-line readings were used in the Company's 510(k) submissions
to the FDA. Subsequent to the 510(k) submissions, the Company has conducted
clinical trials on approximately 350 additional individuals. During the
Company's clinical trials conducted to date, the variance between synchronized
Vasotrac system readings obtained from one arm of the patient and the
comparative A-line readings obtained from the other arm was calculated by
computing the standard deviation of error from more than 30,000 paired readings
from the patients. Based on these measurements, which excludes a certain number
of paired readings because the Company believes that these readings have been
affected by artifact, patient level differences, arm-to-arm differences, or
experimental error, the magnitude of this variance is calculated as a standard
deviation of approximately 7, 5, and 7 mmHg for systolic, mean and diastolic
blood pressure measurements, respectively. The Vasotrac system compares
favorably with those found in previous generations of non-invasive blood
pressure measurement devices, such as the Dinamap(TM) cuff-based system with
which the Company claimed "substantial equivalence" in its 510(k) submission to
the FDA. In addition, these values are below the 8 mmHg standard deviation limit
of clinical acceptability defined by the Association for the Advancement of
Medical Instrumentation ("AAMI") as the national standard for electronic or
automated sphygmomanometers.
AAMI is a non-profit professional association comprised mainly of physicians and
clinicians, medical institutions, medical device manufacturers and governmental
employees and agencies, although participation by federal agency representatives
in the development of AAMI standards does not constitute endorsement by the
federal government or any of its agencies. The AAMI electronic or automated
sphygmomanometer standard was submitted to AAMI by AAMI's Sphygmomanometer
Committee, a group of approximately 25 individuals associated with medical
institutions, the FDA, and manufacturing companies.
In its 510(k) submission to the FDA, the Company included not only clinical
data, but also outlined its plan to continue testing and integrating the results
therefrom into the Vasotrac system. Based on the foregoing and, most
importantly, the improvement in the overall results of the system's performance
subsequent to its 510(k) submission, the Company does not believe that
applicable FDA regulations require, and therefore at this point does not
anticipate, any need to submit to the FDA the post-510(k) clinical studies.
While the Company believes that the Vasotrac system's accuracy compares
favorably with that found in previous generations of non-invasive blood pressure
measurement devices, the accuracy of the Vasotrac system's readings may be
negatively impacted by the presence of certain drugs in the patient's system.
Although the Company believes that its current product design for the Vasotrac
system and its clinical studies conducted to date provide an adequate basis for
the Company to continue marketing the system, it will take widespread use and
testing to verify that the Vasotrac
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system is usable under most conditions. The Company expects to continue
conducting or supervising on-going clinical studies of the system on individuals
with different characteristics and under various conditions until such time as
the Vasotrac system receives market acceptance. The Company cannot currently
estimate the number of individuals to be tested or the amount of time and
expense that will be required to perform and analyze these additional clinical
studies in order to achieve general market acceptance for the system.
In March 2000, the Company began testing the Vasotrac system in pediatric
applications. The purpose of this testing is to determine the approximate
minimum size limit the Vasotrac can be used accurately with pediatric patients.
The Company expects to enter into an agreement with a children's hospital by
fall 2000, with the purpose of comparing the performance of the Vasotrac to the
performance of an A-line in pediatric patients. Once this study is complete, the
Company will analyze the results to determine the minimum wrist size that can be
achieved with the existing Vasotrac product. The Company will also study this
data to determine if the possibility exists to use the current sensor technology
on different sites of the patient's body.
The object of these continued studies is to refine the design of the system and
to test the system on a greater number of patients with different
characteristics and under various conditions, such as a wide range of blood
pressure readings, until such time, if ever, as the Vasotrac system receives
market acceptance. In addition, the Company believes the studies will help the
Company to prepare marketing and sales information as well as to promote greater
awareness and market acceptance of the Vasotrac system toward the goal of
attaining commercial viability for the product. The Company has conducted some
of these studies outside the United States. To the Company's knowledge, all
studies conducted to date have been performed with Company participation.
The Company has conducted clinical studies to develop and validate the Company's
Vasotrax hand-held blood pressure measurement technology. These clinical studies
included 60 consenting healthy subjects. For each subject an arterial catheter
was inserted in one arm and several operators performed repeated blood pressure
measurements from the opposite arm using the hand-held unit. For each one of the
operator's blood pressure measurements, the corresponding arterial blood
pressure measurements were determined and compared for accuracy. The raw
waveform data from the arterial line as well as the raw data from the hand-held
device were also recorded and stored into the Company's clinical database for
further processing. The data from the first 45 subject was used for product
development purposes. The data from the last set of 15 subjects was recorded
with the final design of the hand-held unit. The results of the comparison
between the arterial line blood pressure readings and the hand-held device on
these 15 subjects was then referenced as part of the Company's filing with the
FDA for the hand-held device's 510(k) submission, which was filed in June 2000.
EMPLOYEES
The Company's success currently depends on the services of Tim O'Malley,
President and Chief Executive Officer of the Company, as well as its engineering
group, which has sophisticated technical knowledge about the Vasotrac system.
For the Company to emerge from the development stage, it will depend on its
ability to hire additional employees within a 12-month period for key operating
positions, including general and administrative, sales and marketing, R&D, and
manufacturing 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 $400,000 during the next twelve
months. However, such requirements are subject to change and are highly
dependent on the development process for the system, including the manufacturing
scale-up process, market acceptance, and the Company's distribution methods.
MARKETING
The success of the Company depends primarily on gaining physician and hospital
acceptance of the Company's products. One focus of the Company's marketing
strategy must necessarily involve overcoming resistance of the medical community
to the introduction of new techniques or technology. The Company believes that
this resistance may be exacerbated by unsuccessful attempts by other companies
to manufacture and market accurate, continuous and non-invasive blood pressure
monitors. The company believes that testing of the Company's products has
yielded favorable results compared to other non-invasive blood pressure
monitors. However, the pressure sensor of the
9
<PAGE> 10
Company's products must be placed over the center of the radial artery. Improper
placement of the pressure sensor or improper use of the system may cause the
readings produced by the Company's products to be clinically unacceptable. As a
result, another key component of the Company's marketing strategy will be to
focus on training of clinicians in the correct use of the Company's products.
Also, given differences in individual bone physiology, body weight and physical
condition, the Company's products may not provide accurate readings or be usable
on all patients. For example, if a patient's peripheral blood flow to his or her
arms has been affected, the products may not function properly. Other
contraindications for the system may result from patients on cardiopulmonary
bypass, patients with any condition in which rendering a pulsating pressure
signal from the radial artery is not possible, and pediatric use. To date, the
Company has not detected significant patient complications caused by the system.
However, as with any relatively new product, complications may occur as the
Company's products are used on a greater number of patients with different
characteristics and under various conditions. The presence of any significant
complications would necessitate additional research and evaluation to determine
the impact of such complications. Therefore, there can be no assurance that the
Vasotrac system will gain market acceptance. If the system does not gain market
acceptance, the Company's future would be jeopardized. For additional
information, see discussion regarding dealers and ease of use under "General"
above.
INSURANCE
The Company has not had any material claims against its liability insurance. The
Company has comprehensive general liability insurance, including excess umbrella
coverage, in the aggregate amount of $9,000,000. However, there can be no
assurance that the Company will be able to maintain such insurance in amounts
and with coverage that will adequately cover associated risks or that such
insurance will be available in the future at premiums that can be economically
justified. Lack of such insurance could expose the Company to substantial
damages, which could have a material adverse effect upon the Company.
RELIANCE ON SINGLE PRODUCT
The Company believes that significant and expanding markets exist for the
Vasotrac system and/or the Vasotrax hand-held unit, and for additional products
incorporating the Company's proprietary technology. Currently the Company has,
however, only one product in production, the Vasotrac system. Reliance on a
single product creates substantial risks for the Company. If for example, the
Vasotrac system is not successfully marketed or if it fails to meet customer
needs, or is not accepted in the marketplace, the Company would be materially
and adversely affected, its primary business focus would require re-evaluation
and its ability to continue operations would be jeopardized. Additionally, there
can be no assurance that other products utilizing the Company's proprietary
technology will ever be successfully developed or marketed. The Company has not
undertaken any comprehensive patent infringement searches or studies. If the
Vasotrac system were found to infringe on the patent rights of others or if
third parties asserted, and were successful in claiming, rights to the Vasotrac
system, the Company would be materially adversely affected.
The Company is developing additional products based on the Company's core
technology. For example, the Company has developed its Vasotrax hand-held unit
based upon the Company's core technology. This unit is designed to make accurate
blood pressure and pulse rate measurements without using a cuff or stethoscope.
To use the unit, the clinician presses the unit against the patient's wrist with
increasing force. In about fifteen seconds, the unit will display the blood
pressure and pulse rate. Although not yet released, this unit may have
advantages to existing technology in the hospital and non-hospital settings
including the physician office and home care markets. The technology employed in
the hand-held unit may be useful in developing products for other markets. The
Company is early in the development or regulatory process of these new products
so there can be no assurance that additional products will be successful either
from a technical standpoint or from a manufacturing or customer acceptance
standpoint.
NEED TO EVALUATE DESIGN
While the Company's initial product development and clinical testing program for
the Vasotrac system is complete, extensive use and evaluation of the design is
necessary in order to determine whether the system, as currently configured,
will meet customer needs or be accepted in the marketplace. The Company
continues to test the Vasotrac system to enhance its market acceptance. If the
configuration of the system must be modified, there can be no assurance that
such modifications will be acceptable to customers or be technically feasible.
Even if feasible, such modifications could result in significant delays and
significant expense. If such modifications require regulatory approval,
additional significant delays could result. The Company could be materially and
adversely affected by these developments. For additional information, see ease
of use discussion under "General" above.
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<PAGE> 11
PRODUCT SERVICING REQUIREMENTS
The Company's goal is to produce Vasotrac systems that do not require excessive
servicing, that are sufficiently accurate, stable and reliable for the user's
needs, and that otherwise meet or exceed clinical and regulatory standards of
acceptability. There can be no assurance, however, that the Company will be
successful in achieving such goals. There also can be no assurance that
additional problems will not occur, that additional servicing requirements will
not be necessary or that any such additional problems or servicing requirements,
individually or in the aggregate, will not be significant, difficult to correct,
time-consuming or prohibitively expensive. Further, the need for any such
additional servicing may not be readily apparent to clinicians using the
Vasotrac system. The Company believes that actual or perceived excessive
servicing requirements for, or erroneous readings produced by, the Vasotrac
system could materially and adversely affect market acceptance of the system or
could raise product liability concerns. Although the Company plans to continue
testing the Vasotrac system to determine the extent of its servicing
requirements, there can be no assurance that the exact scope of such servicing
requirements can be precisely identified.
MANUFACTURING
The Company currently procures from outside vendors, on a purchase order basis,
small quantities of virtually all components and subassemblies for the Vasotrac
system. At present, many components are supplied by only one vendor or are made
by hand without production tooling in the Company's facility. Furthermore, the
Company has no agreement with any such supplier. Should the Company's production
rates increase, the supply of components and subassemblies will become more
critical. In that event, the Company will attempt to consummate formal supply
agreement relationships and/or obtain multiple sources of supply for most of its
components, although it may, in some cases, be preferable or necessary for the
Company to obtain components or subassemblies on a purchase order basis or to
utilize single sources of supply.
PRICING AND DISTRIBUTION
The Company is currently evaluating the price of the enhanced Vasotrac system.
Such pricing will evolve throughout the marketing process for the Vasotrac
system, but can be expected to remain dependent on a number of factors,
including manufacturing costs, prices of competitive products, distribution
methods, volume discounts, and market acceptance. The Company believes that the
enhanced Vasotrac System is currently priced slightly higher than the high end
automatic cuffs. The Company believes that the higher price will be supportable
due to the superior features associated with its product.
In comparison to the costs associated with A-line procedures, the Company
believes that the Vasotrac system will, on a per-procedure basis, result in
savings for healthcare providers. Insertion of an A-line is an invasive surgical
procedure requiring a physician. No matter how routine any such procedure may
become, all invasive procedures retain the inherent risk of complications and
have attendant direct and indirect costs associated with them. The Company
believes that the cost for non-invasively monitoring the blood pressure of a
patient with the Vasotrac system will be less than with an invasive A-line. The
Company believes that this will give it a competitive edge in an increasingly
cost-conscious healthcare industry. For additional information, see discussion
regarding dealers under "General" above.
The Company will also investigate marketing the system to manufacturers of
multi-parameter monitoring and display systems for use as a component or module
of such systems. However, the Company does not currently have, and there can be
no assurance that in the future it will implement or effectuate, such
arrangements.
COMPETITION
The Company will compete with companies that are developing and marketing
instruments that measure blood pressure continually by invasive techniques,
including Abbott Laboratories, Baxter Healthcare Corporation, and Agilent
Technologies Company (formerly part of Hewlett Packard Company). In addition,
the Company will compete with other companies that are developing and marketing
instruments that measure blood pressure continually or at regular intervals by
several non-invasive techniques. Presently, most non-invasive methods of
measuring blood pressure use an inflatable cuff. Companies that market such a
product include Critikon, Inc. which markets the Dinamap(TM), Hewlett Packard
Company, Colin Medical Instrument Corporation, SpaceLabs Medical,
11
<PAGE> 12
Inc., GE/Marquette Electronics Inc., and others. In the Company's 510(k)
Submission to the FDA, the Company claimed that the Vasotrac system was
"substantially equivalent" to the Dinamap(TM) product and provided analysis and
comparative data in areas such as intended use, display parameters, and
performance specifications.
Several of the Company's competitors have significantly greater resources as
well as established technologies and product reputations in the blood pressure
monitoring field. The Company's ability to compete successfully in this market
will depend on its ability to develop and market a technologically superior
blood pressure monitoring system that provides ease of use, reliability and cost
effectiveness.
TECHNOLOGICAL OBSOLESCENCE
The medical device industry is subject to rapid technological innovation and,
consequently, the life cycles of products tend to be relatively short. The
Company is engaged in a field characterized by extensive research efforts. There
can be no assurance that new developments or discoveries in the field will not
render the Vasotrac system obsolete. The greater resources of many of the
companies currently engaged in research in the area in which the Company expects
to compete may permit such companies to create or respond more rapidly than the
Company to technological innovations and advances.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has applied for U.S. patents covering various aspects of Medwave's
blood pressure technology. As of July 2000, fourteen U.S. patents relating to
Medwave's blood pressure technology have been granted, and seven U.S. patent
applications are pending (two of which have been allowed and are awaiting
issuance). The Company also has pending patent applications relating to its
blood pressure technology in the European Patent Office, Australia, Brazil,
Canada, China, India, Japan, and Russia. Most of the patents and patent
applications relate to both the Vasotrac system and to the Vasotrax hand-held
blood pressure unit.
There can be no assurance that any pending U.S. or any foreign patents will be
granted or, if obtained, that they will sufficiently protect the Company's
proprietary rights. Even if the patents for which the Company applies are
granted, they do not confer on the Company the right to manufacture and market
products if such products infringe on patents held by others. While the Company
has reviewed prior art in connection with its patent applications, it has not
undertaken or conducted any comprehensive patent infringement searches or
studies. If any such third parties hold any such conflicting rights, the Company
may be required in the future to stop making, using or selling its products or
to obtain licenses from or pay royalties to others, which could entail
significant expense and have a material adverse effect on the Company. Further,
in such event, there can be no assurance that the Company would be able to
obtain or maintain any such licenses on acceptable terms, if at all. The Company
has, throughout the development process for the Vasotrac and Vasotrax products,
been associated with various companies, institutions and individuals. Although
the Company has no knowledge that any such companies, institutions or
individuals have claimed, or have any basis for claiming, interests in the
Company's proprietary rights or in the Vasotrac system, there can be no
assurance that such claims will not be threatened, asserted or perfected. Such
claims, even if the Company ultimately prevails on the merits, could have a
material adverse effect upon the Company.
In addition to patent protection, the Company intends to rely, to the extent
possible, on trade secrets, unpatented proprietary know-how, and its continuing
development of new products.
THIRD PARTY PAYOR; HEALTHCARE REFORM
The success of the Company in the United States may be related to the number of
third party payors, such as Medicare, private insurance companies, health
maintenance organizations, and other payors, that approve payment or
reimbursement for the use of the Vasotrac system and the amount of any such
payments or reimbursements. If, for example, hospitals are not able to recover
the cost of the system through reimbursement, they may be reluctant to purchase
the system, with the result that the Company's marketing efforts may be
adversely affected. The healthcare industry and associated regulatory
environment are dynamic and rapidly changing, particularly with respect to
proposals to reform Medicare and to control healthcare costs. This environment
makes it impossible to predict the effects, including costs and/or impediments
to development, that adoption of and changes in healthcare laws, rules and
regulations may have on the Company and its operations. However, such
developments could materially and adversely affect the Company's ability to
market its product.
12
<PAGE> 13
GOVERNMENT REGULATION
The Company is subject to FDA and other government regulations, including
regulations with respect to marketing approval, manufacturing practices,
packaging, labeling and complaint reporting. Medical devices "substantially
equivalent" to existing systems continuously marketed since May 1976 may be
marketed pursuant to a Pre-market Notification Submission (a "510(k)
Submission") with the FDA. The FDA finding of "substantial equivalence" for the
Vasotrac system does not in any way denote official approval of the device.
Further, any representation that creates an impression of official approval of a
device because it complies with the pre-market notification regulations is
misleading and constitutes misbranding. Certain devices, including those which
are not "substantially equivalent" to predicate devices, are subject to
Pre-market Approval Application ("PMA") requirements and more stringent FDA
reviews. In contrast to the 510(k) process, the PMA process generally occurs
over a more protracted time period and requires more extensive clinical data. In
January 1995, the Company filed a 510(k) Submission, including clinical data,
with the FDA for the Vasotrac system. In February 1995, the Company received
notice from the FDA that no further data would be required and that the Company
could immediately commence marketing the Vasotrac system in the United States.
Again, this does not constitute FDA "approval" of the Vasotrac system, but
merely allows the Company to market the system in the United States. In
addition, the Company, like all medical device manufacturers, must implement,
maintain and follow the FDA's Quality System Regulation ("QSR") Good
Manufacturing Practices ("GMP"). The Company believes its manufacturing costs
will be driven by initial scale-up and ultimate production levels and will not
be significantly impacted by such requirements. Should the Company intend to
market the Vasotrac system for new or different uses, or should it significantly
modify the system in a way that could significantly affect its safety or
effectiveness, the Company would be required to again file a 510(k) Submission
for the Vasotrac system with the FDA.
In its initial 510(k) Submission to the FDA, the Company included not only
clinical data, but also outlined its plans to continue testing, and integrating
the results therefrom into the Vasotrac system. The Company does not believe
that FDA regulations require, and therefore at this point does not anticipate,
submission to the FDA of its post-510(k) clinical studies. Although the FDA has
stated that the manufacturer is best qualified to make an initial determination
of whether a new 510(k) Submission is necessary, the FDA can overrule a
manufacturer's decision not to submit a new 510(k) Submission and take
appropriate regulatory action. If the Company determines it need not submit any
such new 510(k) Submission, including with respect to its post-510(k) clinical
studies, and the FDA consequently takes regulatory action, the Company could be
materially and adversely affected. If the Company seeks to sell the Vasotrac
system outside the United States, it will be subject to additional regulation.
Failure to comply with all such regulations may result in material and adverse
effects to the Company, including loss of any regulatory approvals relating to
the Vasotrac system.
In February 2000 the Company completed an agreement with E-Wha International of
Seoul, South Korea. As part of this agreement, the Company and E-Wha must submit
extensive documentation to the South Korean FDA for review prior to sales
commencing. The Company believes this submission will be completed during July
2000. It is also possible that the South Korean FDA will not clear the Company's
submission, or may require revision or additional clinical trials before the
Vasotrac system can be marketed by the Company.
During the Spring of 2000, the Company has been working on gaining the CE Mark,
which is required by European Union countries prior to commencement of sales
into those countries. Although the Company believes it has satisfied the
requirements to display the "CE Mark" on designated units of its Vasotrac
system, as of July 2000, it has not received the official certificate from the
notified body, which has completed its inspection.
In June 2000 the Company entered into an agreement with Nihon Kohden of Tokyo,
Japan. As part of this agreement, the Company and Nikon Kohden will submit
extensive documentation to the Japanese Ministry of Health for approval of the
Vasotrac System in the Japanese market. Because the Company is just starting
this process, the Company is not certain as to the timing associated with this
approval.
In June 2000, the Company filed a 510(k) submission with the FDA for the
Company's Vasotrax hand-held unit for the professional market. The Company is
uncertain as to the timing for final FDA clearance. It is also possible that the
FDA will not clear the Company's submission, or may require revision or
additional clinical trials before the hand-held device can be marketed by the
Company.
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<PAGE> 14
It is anticipated that with new product concepts developed by the Company, if
any, various government approvals will be required prior to being able to sell
the products.
ITEM 2. PROPERTIES.
The Company leases property in Arden Hills, Minnesota. The building lease, as
recently extended, is for two years, expiring in May 2002. The monthly lease
payment is approximately $3,050. The Company is generally responsible for taxes,
insurance, maintenance, and other expenses related to the operation of the
facility. The Company's production capacity is adequate for its present needs.
The Company believes that its property has been adequately maintained and is
suitable for the Company's business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Trading activity with respect to the Company's Common Stock has been limited. A
public trading market having the characteristics of depth, liquidity and
orderliness depends upon the existence of market makers as well as the presence
of willing buyers and sellers, which are circumstances over which the Company
does not have control.
The Common Stock began trading in November 1995 on the Nasdaq SmallCap Market
under the symbol "MDWV" The following table sets forth the high and low closing
sales price for the Common Stock during each specified period as reported by the
Nasdaq Stock Market, Inc.:
<TABLE>
<CAPTION>
FISCAL 1999 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter $ 12.00 $ 8.50
Second Quarter 14.50 9.00
Third Quarter 13.875 13.50
Fourth Quarter 14.125 9.00
<CAPTION>
FISCAL 2000 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter $ 9.00 $ 7.50
Second Quarter 7.75 6.75
Third Quarter 7.188 6.375
Fourth Quarter 10.00 6.75
</TABLE>
There were approximately 150 record holders and 1,100 beneficial holders of the
Company's Common Stock as of June 30, 2000. On June 30, 2000, the closing price
for the Common Stock was $7.125. The Company has never paid a dividend on its
Common Stock and does not intend to pay dividends in the foreseeable future.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended April 30
----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net Sales 486,132 $ 509,530 $ 593,012 $ 72,942 $ --
Operating expenses:
Cost of sales and product development 617,172 505,110 552,560 113,261 --
Research and development 1,122,247 1,230,072 1,033,145 816,099 379,320
Sales and marketing 823,373 855,153 1,091,780 555,888 85,537
General and administrative 691,771 506,621 491,229 529,831 389,433
----------------------------------------------------------------------
Total operating expenses 3,254,563 3,096,956 3,168,714 2,015,079 854,290
----------------------------------------------------------------------
Operating loss ($2,768,431) ($2,587,426) ($2,575,702) ($1,942,137) ($854,290)
Other income:
Interest income (other expense) 215,488 367,529 238,965 331,670 182,431
Other Income -- 1,500,000 -- -- --
----------------------------------------------------------------------
Net loss $(2,552,943) $ (719,897) $(2,336,737) $(1,610,467) (671,859)
======================================================================
Net loss per share - basic and diluted $ (0.47) $ (0.13) $ (0.48) $ (0.34) $ (0.17)
======================================================================
Weighted average number of common and
common equivalent shares outstanding
- basic and diluted 5,475,886 5,398,331 4,916,654 4,789,242 3,915,295
======================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,155,924 $ 1,175,756 $ 1,926,697 $ 1,240,700 $ 769,161
Working capital 3,007,302 3,965,613 2,903,011 3,888,440 5,001,042
Total assets 3,766,789 6,143,492 6,739,162 5,551,796 6,831,204
Total shareholders' equity 3,499,665 5,902,956 6,572,046 5,422,596 6,718,900
</TABLE>
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<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
<TABLE>
<CAPTION>
Year Ended April 30
-------------------------------------------
2000 1999 1998
-------------------------------------------
<S> <C> <C> <C>
Revenue:
Net Sales 486,132 $509,530 $593,012
Operating expenses:
Cost of sales and product development 617,172 505,110 552,560
Research and development 1,122,247 1,230,072 1,033,145
Sales and marketing 823,373 855,153 1,091,780
General and administrative 691,771 506,621 491,229
-------------------------------------------
Total operating expenses 3,254,563 3,096,956 3,168,714
-------------------------------------------
Operating loss ($2,768,431) ($2,587,426) ($2,575,702)
Other income:
Interest income (other expense) 215,488 367,529 238,965
Other Income -- 1,500,000 --
-------------------------------------------
Net loss $(2,552,943) $ (719,897) $(2,336,737)
===========================================
Net loss per share - basic and diluted $ (0.47) $ (0.13) $ (0.48)
===========================================
Weighted average number of common and
common equivalent shares outstanding
- basic and diluted 5,475,886 5,398,331 4,916,654
===========================================
</TABLE>
Fiscal year ended April 30, 2000 compared to fiscal years ended April 30, 1999
and April 30, 1998.
Operating revenue for fiscal 2000 was $486,132, a decrease of $23,398 or 4.6%
from fiscal year 1999 operating revenue of $509,530. Operating revenue for
fiscal 1999 was $509,530, a decrease of $83,482 or 14.1% from fiscal year 1998
operating revenue of $593,012. The decrease in operating revenue from fiscal
year 1999 to fiscal year 2000 and from fiscal year 1998 to 1999 was due to
dealers not devoting the sales effort that the Company had anticipated as the
Company converted to a dealer network from a direct sales force and the Company
focused on the engineering of the enhanced Vasotrac product and the hand-held
product during the last two quarters of the 1999 fiscal year, as previously
stated.
Operating expense for fiscal 2000 was $3,254,563, an increase of $157,607 or
5.1% from fiscal year 1999 operating expense of $3,096,956. Operating expense
for fiscal 1999 was $3,096,956, a decrease of $71,758 or 2.3% from fiscal 1998
operating expense of $3,168,714. The increase in operating expense from fiscal
year 1999 to fiscal year 2000 relates primarily to an increase in production
costs and an increase in salary due to an increase in the number of sales
employees and the new Company's CEO as the Company increased sales efforts with
the release of the enhanced Vasotrac System in October 1999. The decrease in
operating expense from fiscal year 1998 to fiscal year 1999 relates primarily to
a decrease in the number of sales employees as the Company focused on the
engineering of the enhanced Vasotrac system and on the hand-held unit. However,
part of this decrease was offset by an increase in research and development
expense related to the ongoing research and development of the Vasotrac system
and the hand-held unit.
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<PAGE> 17
Cost of sales and product development for fiscal 2000 were $617,172, an increase
of $112,062 or 22.2% from fiscal year 1999 cost of sales and product development
expense of $505,110. Cost of sales and product development for fiscal 1999 were
$505,110, a decrease of $47,450 from fiscal year 1998 cost of sales and product
development expense of $552,560 or 8.6%. The increase in cost of sales and
product development from fiscal 1999 to fiscal 2000 was the result of increased
production costs as the Company discontinued the manufacturing of its original
product and introduced its enhanced Vasotrac System in October 1999. The
decrease in cost of sales and product development from fiscal 1998 to fiscal
1999 was the result of lower unit sales. The cost associated with the Company's
research and development of its hand-held unit and enhanced Vasotrac system are
reflected in the Company's research and development expense.
Research, development, and clinical expense for fiscal year 2000 were
$1,122,247, a decrease of $107,825 or 8.8% from fiscal year 1999 research and
development expense of $1,230,072. Research, development, and clinical expense
for fiscal year 1999 were $1,230,072, an increase of $196,927 or 19.0% from
fiscal year 1998 research and development expense of $1,033,816. The decrease in
research, development, and clinical expense from fiscal 1999 to fiscal 2000 was
related to the completion of the research and development of the enhanced
Vasotrac system in October 1999. The Company continued its research and
development on the hand-held unit. The increase in research, development, and
clinical expense from fiscal year 1998 to fiscal year 1999 was related to the
continued research and development of an enhanced Vasotrac system with the focus
on "ease of use" issues and the ongoing development of the hand-held unit.
General and administrative expense for fiscal year 2000 were $691,771, an
increase of $185,150 or 36.5% from fiscal year 1999 general and administrative
expense of $506,621. General and administrative expense for fiscal year 1999
were $506,621, an increase of $15,392 or 3.1% from fiscal year 1998 general and
administrative expense of $491,229. The increase in general and administrative
expenses from fiscal 1999 to fiscal 2000 was related to the hiring of a new
President and CEO including cost of outside contractors used in the hiring
process. The increase in general and administrative expense from fiscal 1998 to
fiscal 1999 is attributable to an overall increase in general expenses.
Sales and marketing expense for fiscal year 2000 were $823,373, a decrease of
$31,780 or 3.7% from fiscal year 1999 sales and marketing expense of $855,153.
Sales and marketing expense for fiscal year 1999 were $855,153, a decrease of
$236,627 or 21.7% from fiscal year 1998 sales and marketing expense of
$1,091,780. The decrease in sales and marketing expense from fiscal year 1999 to
fiscal year 2000, as well as the decrease from fiscal year 1998 to fiscal year
1999, was due to the decrease in sales personnel as the Company was focused on
the engineering of the enhanced Vasotrac System released in October 1999. In
addition, the Company experimented with several different sales distribution
methods is fiscal 1998.
Other income in fiscal year 1999 was due to the technical evaluation agreement
entered into in September 1998. For additional information, see discussion
regarding technical evaluation agreement under "General" in Item 1.
Interest income for fiscal year 2000 was $245,488, a decrease of $122,041 or
33.2% from fiscal year 1999 interest income of $367,529. Interest income for
fiscal year 1999 was $367,529, an increase of $128,564 or 53.8% from fiscal year
1998 interest income of $238,965. The decrease in interest income in fiscal 2000
from fiscal 1999 was a result of the use of investments to fund operations. The
increase in interest income in fiscal 1999 from fiscal 1998 was the result of
the increase in the investment accounts as a result of the private placement in
March of 1998 and the $1,500,000 from the stand-still agreement.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, short and long-term investments were
$3,240,765 and $5,800,346 at April 30, 2000 and April 30, 1999, respectively.
The Company incurred cash expenditures of $2,634,293 for operations for the
fiscal year ended April 30, 2000.
With the cash and cash equivalents, and short-term and long-term investments the
Company believes that sufficient liquidity is available to satisfy its working
capital needs for approximately one year from the end of fiscal year April 2000.
The Company has no significant capital expenditure commitments and does not plan
any significant sale of capital equipment.
IMPACT OF INFLATION
Inflation has had no material effect on the Company's operations or financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. Not
Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
18
<PAGE> 19
Medwave, Inc.
(A Development Stage Company)
Financial Statements
Years ended April 30, 2000 and 1999
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors..........................................................................20
Audited Financial Statements
Balance Sheets..........................................................................................21
Statements of Operations................................................................................23
Statement of Changes in Stockholders' Equity............................................................24
Statements of Cash Flows................................................................................25
Notes to Financial Statements...........................................................................28
</TABLE>
19
<PAGE> 20
Report of Independent Auditors
Board of Directors and Stockholders
Medwave, Inc.
We have audited the balance sheets of Medwave, Inc. (a development stage
company) as of April 30, 2000 and 1999, and the related statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended April 30, 2000 and the period from June 27, 1984
(inception) to April 30, 2000. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medwave, Inc. at April 30, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended April 30, 2000 and the period from June 27, 1984
(inception) to April 30, 2000, in conformity with accounting principles
generally accepted in the United States.
June 9, 2000 /s/ Ernst & Young LLP
---------------------
20
<PAGE> 21
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
APRIL 30
2000 1999
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,155,924 $1,175,756
Short-term investments 1,684,841 2,785,672
Accounts receivable 99,188 31,069
Inventories 257,877 137,938
Prepaid expenses 76,596 75,714
--------------------------------------
Total current assets 3,274,426 4,206,149
Investments 400,000 1,838,918
Property and equipment:
Research and development equipment 216,464 237,136
Office equipment 109,898 111,745
Manufacturing and engineering equipment 126,652 65,259
Sales and marketing equipment 51,536 59,927
Leasehold improvements 31,613 31,613
--------------------------------------
536,163 505,680
Accumulated depreciation (453,805) (435,274)
--------------------------------------
82,358 70,406
Patents, net of accumulated amortization of $126,012 in 2000 and
$107,998 in 1999 10,005 28,019
--------------------------------------
Total assets $3,766,789 $6,143,492
======================================
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
APRIL 30
2000 1999
--------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 216,067 $ 176,496
Accrued payroll 51,057 64,040
--------------------------------------
Total current liabilities 267,124 240,536
Stockholders' equity:
Common Stock, no par value:
Authorized shares - 50,000,000
Issued and outstanding shares - April 30, 2000--5,499,596 and
April 30, 1999--5,436,596 16,436,870 16,294,620
Accumulated other comprehensive loss (10,440) (17,842)
Deficit accumulated during the development stage (12,926,765) (10,373,822)
--------------------------------------
Total stockholders' equity 3,499,665 5,902,956
--------------------------------------
Total liabilities and stockholders' equity $ 3,766,789 $ 6,143,492
======================================
</TABLE>
See accompanying notes.
22
<PAGE> 23
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1984
YEAR ENDED APRIL 30 (INCEPTION) TO
2000 1999 1998 APRIL 30, 2000
----------------------------------------------------- -----------------------
<S> <C> <C> <C> <C>
Revenue:
Net sales $ 486,132 $ 509,530 $ 593,012 $ 1,661,616
Operating expenses:
Cost of sales and product development 617,172 505,110 552,560 1,788,103
Research and development 1,122,247 1,230,072 1,033,145 7,973,196
General and administrative 691,771 506,621 491,229 3,904,111
Sales and marketing 823,373 855,153 1,091,780 3,418,583
----------------------------------------------------- -----------------------
Operating loss (2,768,431) (2,587,426) (2,575,702) (15,422,377)
Interest income 215,488 367,529 238,965 1,622,372
Other income 1,500,000 - 1,500,000
----------------------------------------------------- -----------------------
Net loss $ (2,552,943) $ (719,897) $ (2,336,737) $ (12,300,005)
===================================================== =======================
Net loss per share - basic and diluted $(.47) $(.13) $(.48) $(4.42)
===================================================== =======================
Weighted average number of shares
outstanding - basic and diluted 5,475,886 5,398,331 4,916,654 2,781,076
===================================================== =======================
</TABLE>
See accompanying notes.
23
<PAGE> 24
Medwave, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
COMMON STOCK OTHER DURING THE
----------------------------- COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT LOSS STAGE TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock at $.15 per share in
July 1984 for capital equipment donated 10,000 $ 1,500 $ - $ $ 1,500
-
Assets donated to Company by officer in
August 1984 - 1,145 - - 1,145
Net income for the period of June 27, 1984
(inception) to April 30, 1985 - - - 235 235
-----------------------------------------------------------------------------
Balance at April 30, 1985 10,000 2,645 - 235 2,880
Net income - - - 1,393 1,393
-----------------------------------------------------------------------------
Balance at April 30, 1986 10,000 2,645 - 1,628 4,273
Issuance of Common Stock in connection with
stock split in July 1986 190,000 - - - -
Net loss - - - (98,211) (98,211)
-----------------------------------------------------------------------------
Balance at April 30, 1987 200,000 2,645 - (96,583) (93,938)
Net loss - - - (131,931) (131,931)
-----------------------------------------------------------------------------
Balance at April 30, 1988 200,000 2,645 - (228,514) (225,869)
Net loss - - - (258,135) (258,135)
-----------------------------------------------------------------------------
Balance at April 30, 1989 200,000 2,645 - (486,649) (484,004)
Issuance of Common Stock at $.975 per share in
April 1990 for consulting services 3,500 3,413 - - 3,413
Accrual of dividends payable on the Redeemable
Convertible Preferred Stock, Series A
- (1,145) - (21,343) (22,488)
Net loss - - - (278,845) (278,845)
-----------------------------------------------------------------------------
Balance at April 30, 1990 203,500 4,913 - (786,837) (781,924)
Accrual of dividends payable on the Redeemable
Convertible Preferred Stock Series A
- - - (1,775) (1,775)
Accretion on the Redeemable Convertible
Preferred Stock - Series I - - - (9,711) (9,711)
Net loss - - - (553,710) (553,710)
-----------------------------------------------------------------------------
Balance at April 30, 1991 203,500 4,913 - (1,352,033) (1,347,120)
Accretion on the Redeemable Convertible
Preferred Stock - Series I - - - (10,649) (10,649)
Accretion on the Redeemable Convertible
Preferred Stock - Series II - - - (105,318) (105,318)
Net loss - - - (1,371,031) (1,371,031)
-----------------------------------------------------------------------------
Balance at April 30, 1992 (carried forward) 203,500 4,913 - (2,839,031) (2,834,118)
</TABLE>
24
<PAGE> 25
Medwave, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (continued)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
COMMON STOCK OTHER DURING THE
----------------------------- COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT LOSS STAGE TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1992 (brought forward) 203,500 $ 4,913 $ - $(2,839,031) $(2,834,118)
Accretion on the Redeemable Convertible
Preferred Stock - Series I - - - (10,914) (10,914)
Accretion on the Redeemable Convertible
Preferred Stock - Series II - - - (118,197) (118,197)
Net loss - - - (615,888) (615,888)
-----------------------------------------------------------------------------
Balance at April 30, 1993 203,500 4,913 - (3,584,030) (3,579,117)
Accretion on the Redeemable Convertible
Preferred Stock - Series I - - - (11,185) (11,185)
Accretion on the Redeemable Convertible
Preferred Stock - Series II - - - (121,904) (121,904)
Net loss - - - (646,480) (646,480)
-----------------------------------------------------------------------------
Balance at April 30, 1994 203,500 4,913 - (4,363,599) (4,358,686)
Accretion on the Redeemable Convertible
Preferred Stock - Series I - - - (11,463) (11,463)
Accretion on the Redeemable Convertible
Preferred Stock - Series II - - - (125,732) (125,732)
Net loss - - - (455,498) (455,498)
-----------------------------------------------------------------------------
Balance at April 30, 1995 203,500 4,913 - (4,956,292) (4,951,379)
Exercise of stock options and warrants 126,896 144,299 - - 144,299
Initial public offering of Common Stock, net of
expenses 1,610,000 6,833,491 - - 6,833,491
Preferred Stock conversion 2,750,164 5,476,163 - - 5,476,163
Accretion on the Redeemable Convertible
Preferred Stock - Series I - - - (5,874) (5,874)
Accretion on the Redeemable Convertible
Preferred Stock - Series II - - - (64,838) (64,838)
Accrual of dividends payable on the Redeemable
Convertible Preferred Stock - Series X and
Series I - - - (7,858) (7,858)
Change in unrealized loss on investments - - (33,245) - (33,245)
Net loss - - - (671,859) (671,859)
------------
Comprehensive loss (705,104)
-----------------------------------------------------------------------------
Balance at April 30, 1996 4,690,560 12,458,866 (33,245) (5,706,721) 6,718,900
Exercise of stock options and warrants 128,178 305,837 - - 305,837
Change in unrealized loss on investments - - 8,326 - 8,326
Net loss - - - (1,610,467) (1,610,467)
------------
Comprehensive loss (1,602,141)
-----------------------------------------------------------------------------
Balance at April 30, 1997 (carried forward) 4,818,738 12,764,703 (24,919) (7,317,188) 5,422,596
</TABLE>
25
<PAGE> 26
Medwave, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (continued)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
COMMON STOCK OTHER DURING THE
----------------------------- COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT LOSS STAGE TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1997(brought forward) 4,818,738 $12,764,703 $(24,919) $ (7,317,188) $ 5,422,596
Exercise of stock options and warrants 119,658 484,058 - - 484,058
Private Placement of Common Stock, in March
1998 at $7.50 per share, net of expenses 440,000 2,992,209 - - 2,992,209
Change in unrealized loss on investments - - 9,920 - 9,920
Net loss - - - (2,336,737) (2,336,737)
-------------
Comprehensive loss (2,326,817)
-----------------------------------------------------------------------------
Balance at April 30, 1998 5,378,396 16,240,970 (14,999) (9,653,925) 6,572,046
Exercise of stock options and warrants 58,200 53,650 - - 53,650
Change in unrealized loss on investments - - (2,843) - (2,843)
Net loss - - - (719,897) (719,897)
-------------
Comprehensive loss (722,740)
-----------------------------------------------------------------------------
Balance at April 30, 1999 5,436,596 16,294,620 (17,842) (10,373,822) 5,902,956
Exercise of stock options and warrants 63,000 142,250 - - 142,250
Change in unrealized loss on investments - - 7,402 - 7,402
Net loss - - - (2,552,943) (2,552,943)
-------------
Comprehensive loss (2,545,541)
-----------------------------------------------------------------------------
Balance at April 30, 2000 5,499,596 $16,436,870 $(10,440) $(12,926,765) $ 3,499,665
=============================================================================
</TABLE>
See accompanying notes.
26
<PAGE> 27
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1984
YEAR ENDED APRIL 30 (INCEPTION) TO
2000 1999 1998 APRIL 30, 2000
------------------------------------------------ -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,552,943) $ (719,897) $(2,336,737) $ (12,300,005)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 62,998 64,115 79,736 683,722
Amortization 18,014 25,399 25,400 126,012
Loss on sale of equipment - - - 7,375
Issuance of Common Stock for consulting
services - - - 3,413
Changes in operating assets and liabilities:
Accounts receivable (68,119) 28,549 (17,632) (99,188)
Inventories (119,939) 111,141 (134,612) (257,877)
Prepaid expenses (882) (739) 6,207 (76,596)
Accounts payable 39,571 66,911 31,195 216,067
Accrued payroll (12,983) 6,509 6,721 51,057
------------------------------------------------ -----------------
Net cash used in operating activities (2,634,293) (418,012) (2,339,722) (11,646,020)
INVESTING ACTIVITIES
Purchase of property and equipment (74,940) (6,882) (54,158) (794,315)
Patent expenditures - - - (136,017)
Purchase of investments (1,814,634) (3,481,041) (4,745,431) (38,908,724)
Sales and maturities of investments 4,361,785 3,097,881 4,349,641 36,815,285
Proceeds from sale of equipment - 3,463 - 21,663
------------------------------------------------ -----------------
Net cash provided by (used in) investing 2,472,211 (386,579) (449,948) (3,002,108)
activities
FINANCING ACTIVITIES
Net proceeds from issuance of Common Stock 142,250 53,650 3,476,267 10,955,794
Net proceeds from issuance of Convertible
Preferred Stock - - - 4,848,258
------------------------------------------------ -----------------
Net cash provided by financing activities 142,250 53,650 3,476,267 15,804,052
------------------------------------------------ -----------------
(Decrease) increase in cash and cash equivalents (19,832) (750,941) 686,597 1,155,924
Cash and cash equivalents at beginning of period 1,175,756 1,926,697 1,240,100 -
------------------------------------------------ -----------------
Cash and cash equivalents at end of period $ 1,155,924 $1,175,756 $ 1,926,697 $1,155,924
================================================ =================
</TABLE>
See accompanying notes.
27
<PAGE> 28
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements
April 30, 2000
1. BUSINESS ACTIVITY
Medwave, Inc. (the "Company"), a development stage company, is engaged
exclusively in the development, manufacturing and marketing of a proprietary,
noninvasive 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 System.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining maturity of
three months or less to be cash equivalents. Cash equivalents are carried at
cost which approximates market value.
INVESTMENTS
Short-term investments consist primarily of U.S. corporate securities and
treasury notes with maturities of less than one year. Investments with a
remaining maturity of more than one year are classified as long-term
investments.
Investments are classified as available-for-sale and are carried at fair value
with unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses and declines in value judged to
be other than temporary are included in investment income along with interest
and dividends.
INVENTORIES
Inventories are valued at the lower of cost or market on the first-in, first-out
(FIFO) method. The majority of inventory consists of purchased components.
28
<PAGE> 29
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over estimated useful lives of the assets ranging from
three to seven years.
PATENTS
Patent costs are being amortized on a straight-line basis over five years. The
Company periodically reviews its patents for impairment in value. Any adjustment
from the analysis is charged to operations.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income taxes
are provided for temporary differences between the financial reporting and the
tax bases of assets and liabilities.
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment of the product.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
29
<PAGE> 30
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
For all years presented, the Company's basic and diluted loss per share is the
same because the effects of all options, warrants and convertible securities
were antidilutive.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Included in accumulated other comprehensive loss is unrealized gains or losses
on available-for-sale securities.
3. INVESTMENTS
The following is a summary of the investments available-for-sale as of April 30:
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C>
2000
U.S. corporate debt securities $2,095,281 $(10,440) $2,084,841
======================================================
</TABLE>
30
<PAGE> 31
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C>
1999
U.S. corporate debt securities $4,356,379 $ (4,445) $4,351,934
European bank notes 286,053 (13,397) 272,656
------------------------------------------------------
$4,642,432 $(17,842) $4,624,590
======================================================
</TABLE>
4. CAPITAL STOCK
INITIAL PUBLIC OFFERING
In November 1995, the Company sold 1,610,000 shares of Common Stock in an
initial public offering from which the Company received net proceeds of
$6,800,000.
In March 1998, the Company sold 440,000 shares of Common Stock in a private
placement for $7.50 per share from which the Company received net proceeds of
$2,992,209.
5. LEASES
The Company leases its office, research and development, sales and production
facility under an operating lease that expires May 31, 2002. Operating expenses
including maintenance, utilities, real estate taxes and insurance are paid by
the Company. Total rent expense under operating leases was $53,712, $52,566 and
$53,109 for the years ended April 30, 2000, 1999 and 1998, respectively.
31
<PAGE> 32
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. LEASES (CONTINUED)
Future minimum rental payments required under leases that have remaining terms
in excess of one year as of April 30, 2000 are as follows:
<TABLE>
<S> <C>
Year ending April 30:
2001 $36,438
2002 36,438
2003 3,036
-------------------
$75,912
===================
</TABLE>
6. INCOME TAXES
At April 30, 2000, the Company had net operating loss carryforwards of
approximately $12,450,000 and research and development tax credit carryforwards
of approximately $460,000. These carryforwards are available to offset future
taxable income through 2020; however, a portion of the net operating loss will
begin to expire in 2002.
No income taxes were paid for the years ended April 30, 2000, 1999 and 1998,
respectively.
Components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
APRIL 30
2000 1999
----------------------------
<S> <C> <C>
Net operating loss carryforwards $ 4,731,000 $ 3,733,000
Research and development credit carryforwards 460,000 343,000
Less valuation allowance (5,191,000) (4,076,000)
----------------------------
Net deferred tax assets $ - $ -
============================
</TABLE>
32
<PAGE> 33
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan that includes both incentive stock options
and non-statutory stock options to be granted to certain eligible employees or
consultants of the Company. The maximum number of shares of Common Stock
currently reserved for issuance is 1,700,000 shares. A majority of the options
granted have ten year terms and vest and become fully exercisable at the end of
four years of continued employment.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING WEIGHTED AVERAGE
AVAILABLE --------------------- EXERCISE PRICE
FOR GRANT PLAN NON-PLAN PER SHARE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at April 30, 1997 213,500 1,182,700 20,000 $ 2.85
Additional shares reserved for
issuance 300,000 - - -
Granted (255,000) 255,000 - 12.98
Exercised - (107,000) - 4.30
Canceled 122,500 (122,500) - 7.16
----------------------------------------------
Balance at April 30, 1998 381,000 1,208,200 20,000 4.28
Granted (126,000) 126,000 - 12.18
Exercised - (58,200) - .92
Canceled 17,000 (17,000) - 9.59
----------------------------------------------
Balance at April 30, 1999 272,000 1,259,000 20,000 5.14
Granted (455,000) 455,000 - 6.98
Exercised - (63,000) - 2.26
Canceled 291,000 (291,000) - 12.38
----------------------------------------------
Balance at April 30, 2000 108,000 1,360,000 20,000 $ 4.34
==============================================
</TABLE>
33
<PAGE> 34
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes information about the stock options outstanding
at April 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$ .75 130,000 4 years $ .75 130,000 $ .75
1.25 330,960 3 years 1.25 330,960 1.25
2.00 - 2.25 264,040 5 years 2.23 264,040 2.23
3.00 30,000 5 years 3.00 30,000 3.00
5.00 - 5.25 59,000 6 years 5.22 59,000 5.22
6.75 385,000 10 years 6.75 - -
7.50 30,000 9 years 7.50 - -
8.00 - 9.25 42,000 7 years 8.78 500 9.13
10.00 - 11.00 49,000 8 years 10.05 32,250 10.04
13.00 - 14.00 60,000 8 years 13.50 30,000 13.50
---------------- ----------------
$ .75 - $14.00 1,380,000 6.2 years $ 4.34 876,750 $ 2.55
================ ================
</TABLE>
Options outstanding expire at various dates during the period from 2002 through
2008. The number of options exercisable as of April 30, 2000, 1999 and 1998 were
876,750, 888,250 and 792,200, respectively, at weighted average exercise prices
of $2.55, $2.72 and $1.76 per share, respectively. The Company has issued 60,000
options to employees, which become exercisable only if certain sales targets are
obtained.
In connection with the IPO in 1995, the Company issued warrants to purchase
140,000 shares of Common Stock at an exercise price of $6.00 per share. The
warrants expire in November 2000.
34
<PAGE> 35
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
PRO FORMA DISCLOSURES
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for 2000, 1999
and 1998: risk-free interest rates ranging from 6.00% to 5.29%, respectively;
dividend yield of 0%; volatility factor of the expected market price of the
Company's common stock of .57, .68 and .65, respectively, and a weighted average
expected life of the option of four years.
The weighted average fair value of options granted during the years ended April
30, 2000, 1999 and 1998 was $3.40, $6.35 and $7.07 per share, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
35
<PAGE> 36
Medwave, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
APRIL 30
2000 1999 1998
--------------------------------------------------------
<S> <C> <C> <C>
Actual net loss $(2,552,943) $ (719,897) $(2,336,737)
Pro forma net loss (2,313,865) (1,410,264) (2,736,066)
Pro forma net loss per common share (.42) (.26) (.56)
</TABLE>
The pro forma effect on net loss for fiscal 2000, 1999 and 1998 is not
representative of the pro forma effect on net loss in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to fiscal 1996.
8. CONTRACTS
In September 1998, the Company entered into a technical evaluation agreement
with an interested party related to its blood pressure technology, specifically
its hand-held blood pressure device. The Company received and recognized other
income of $1,500,000 when the agreement terminated with no additional agreement
with the interested party.
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the directors
and executive officers of the Company as of June 30, 2000. A summary of the
background and experience of each of these individuals is set forth after the
table.
The directors and executive officer of the Company are:
<TABLE>
<CAPTION>
Name Age Position
-------------------------------- ------- -------------------------------------
<S> <C> <C>
G. Kent Archibald 59 Chairman and Director
Mark T. Bakko 40 Chief Financial Officer and
Secretary
William D. Corneliuson(1) 57 Director
Norman Dann(1) 73 Director
Keith A. Libbey(1) 63 Director
Timothy J. O'Malley 39 President, Chief Executive Officer,
and Director
</TABLE>
(1) Member of the Audit and Compensation Committees
All directors hold office until the next annual meeting of shareholders or until
their successors have been duly elected and qualified. Executive officers of the
Company are appointed by and serve at the discretion of the Board of Directors.
There are no family relationships among the directors and executive officers.
The Board of Directors has an Audit Committee, which (i) reviews the Company's
annual financial statements, (ii) makes recommendations regarding the Company's
independent auditors and scope of auditor services, (iii) reviews the adequacy
of accounting and audit policies, compliance assurance procedures and internal
controls, (iv) reviews non-audit service performed by auditors to maintain
auditors' independence, and (v) reports to the Board on the adequacy of
disclosures and adherence to accounting principles. The Board of Directors also
has formed a Compensation Committee, which (i) reviews compensation philosophy
and major compensation benefits for executives, (ii) administers the Company's
Stock Option Plan, and (iii) approves executive officers' compensation.
G. KENT ARCHIBALD has been Chairman and a director of the Company since 1991.
From 1991 to 1999 Mr Archibald served as President, Chief Executive Officer, and
Secretary of the Company. From 1988 to 1991, Mr. Archibald was a private
consultant and investor. From 1978 to 1984, Mr. Archibald was founder, president
and director of AVI, Inc., a medical device company acquired by 3M Company's
Medical Products Division in 1984. Mr. Archibald holds a B.S. degree in
electrical engineering and is a professional engineer in the State of Minnesota.
MARK T. BAKKO is the Chief Financial Officer of the Company. He has served in
this position since February 1996. From 1984 to 1996, Mr. Bakko was with
Deloitte & Touche LLP with his most recent position being a senior manager. Mr.
Bakko has been a Certified Public Accountant since 1985 in the State of
Minnesota. Mr. Bakko holds a Masters of Business Taxation and B.S.B.A. degree in
Accounting from the University of Minnesota.
WILLIAM D. CORNELIUSON, has been a director of the Company since May 1999. Mr.
Corneliuson is President of B.C. Holdings, Inc., a registered investment
advisor. Mr. Corneliuson has been with B.C. Holdings, Inc. since 1993.
Previously Mr. Corneliuson was President, Co-Founder, and Vice Chairman of the
Board of Strong/Corneliuson Capital Management, Inc from 1976 to 1993.
37
<PAGE> 38
NORMAN DANN, a director of the Company since August 1995, has extensive
experience in the medical device industry. Since 1992, Mr. Dann has been a
business consultant concentrating in the areas of venture capital, strategic
planning, marketing and product development. Mr. Dann also currently serves as a
director of Minntech Corporation, and several private companies. From 1980 to
1992, Mr. Dann served as an executive officer of and consultant to Pathfinder
Ventures, Inc., a venture capital firm ("Pathfinder"), and served as a general
partner of three of Pathfinder's funds and partnerships. From 1971 to 1977, Mr.
Dann served as Vice President of Sales and Marketing and Senior Vice President
of Development with Medtronic, Inc., a leading manufacturer of cardiac
pacemakers and other medical products. In 1960, Mr. Dann founded The Dann
Company, an independent representative and service organization for medical
products which was acquired by Medtronic, Inc. in 1971. Mr. Dann holds a B.S.
degree in industrial engineering from Pennsylvania State University.
KEITH A. LIBBEY, has been a director of the Company since July 1999. Mr. Libbey
is Chairman Emeritus of the Board of Directors of Fredrikson & Byron, P.A., a
law firm in Minneapolis, Minnesota. Mr. Libbey has been with Fredrikson & Byron,
P.A. since 1969.
TIMOTHY J. O'MALLEY is the President, Chief Executive Officer, and a director of
the Company. He has served in these positions since October 1999. From 1984
until 1999, Mr. O'Malley was an employee of Siemens Medical Systems, Inc.
Throughout his employment he served in a variety of technical, sales, marketing
and general management roles. At the time of his departure from Siemens, Mr.
O'Malley was Vice President/Division Manager of Siemens Medical Systems,
Electromedical Division for North America. Prior to joining Siemens, Mr.
O'Malley worked as a biomedical engineer at a small privately held company in
the Chicago area, selling and supporting medical equipment service and
maintenance agreements. Mr. O'Malley received his Associates of Applied Science
degree in 1983 from Oakton College in DesPlaines, Illinois and attended DePaul
University of Chicago from 1986 until 1991, with an emphasis in Business
Management and Marketing.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and directors,
and persons who beneficially own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors, and greater than 10% shareholders
are required by Exchange Act regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5 was
required for such persons, the Company believes that during the fiscal year
ending April 30, 2000, all filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complied with.
38
<PAGE> 39
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding compensation earned
or awarded Tim O'Malley, the President and Chief Executive Officer, and G. Kent
Archibald, formerly the President and Chief Executive Officer during the
Company's last three fiscal years ended April 30, 1998, 1999, and 2000. No other
executive officer of the Company received total salary and bonus compensation in
excess of $100,000 for the fiscal year ended 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation
(# of shares)(1)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
G. Kent Archibald, 2000 $ 82,922 ---- ---- $2,488(2)
Former President and Chief 1999 150,000 ---- ---- 4,500(2)
Executive Officer 1998 150,000 ---- ---- 4,500(2)
----------------------------------------------------------------------------------------------------------------------
Tim O'Malley 2000 $ 96,808 ---- 225,000 ----
President and Chief Executive 1999 ---- ---- ---- ----
Officer 1998 ---- ---- ---- ----
</TABLE>
(1) Number of shares of Common Stock subject to options that were granted
during the year.
(2) Reflects the Company's contribution to executive's individual retirement
account under the Company's Simplified Employee Pension Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options to purchase Medwave
common stock granted pursuant to the Medwave Stock Incentive Plan during
Medwave's 2000 fiscal year to the persons named in the Summary Compensation
Table. No SARs were granted.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------------------------------
Percent of Potential Realizable Value at
Number of Total Assumed Annual Rates of
Name Securities Options/SARs Stock Price Appreciation For
Underlying Granted to Exercise or Option Term
Options/SARs Employees in Base Price Expiration
Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tim O'Malley 225,000 49.5% $6.75 10/04/09 1,092,751 2,639,343
G. Kent Archibald 30,000 6.6% $6.75 01/12/10 145,676 351,912
</TABLE>
39
<PAGE> 40
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning each exercise of
stock options during the year ended April 30, 2000 by each of the executive
officers named in the above Summary Compensation Table and the aggregated fiscal
year-end value of the unexercised options of each such executive officer.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-
Securities Underlying Money Options at Fiscal Year-
Options at Fiscal Year-End (#) End ($)(1)
-----------------------------------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
G. Kent Archibald - 0 - $ - 0 - 435,000 30,000 $2,338,750 $7,500
Tim O'Malley - 0 - $ - 0 - --- 225,000 --- $56,250
</TABLE>
(1) Based on the differences between the closing price of the Company's Common
Stock at fiscal year-end and the option exercise price.
COMPENSATION OF DIRECTORS
Directors are not currently paid fees for attending meetings. Under the
Company's Stock Option Plan, each non-employee director receives an option to
purchase 30,000 shares of Common Stock upon his initial election to the Board.
Pursuant to such provision, in January 2000 Mr. Archibald received a
non-qualified option to purchase 30,000 shares of Common Stock at an exercise
price of $6.75 per share, in August 1995 Mr. Dann received a non-qualified
option to purchase 30,000 shares of Common Stock at an exercise price of $3.00
per share, in May 1999 Mr. Corneliuson received a non-qualified option to
purchase 30,000 shares of Common Stock at an exercise price of $8.94, and in
July 1999 Mr. Libbey received a non-qualified option to purchase 30,000 shares
of Common Stock at an exercise price of $7.50. Each such option is for a term of
ten years and vests over a four-year period. In addition, after three years of
service each non-employee director receives a ten-year non-qualified option for
10,000 shares, vesting after one year, each year he or she continues to serve as
a director. Mr. Dann received an option for 10,000 shares in November 1998 at an
exercise price of $13.50 and an option for 10,000 shares in November 1999 at an
exercise price of $6.75.
The Company has non-compete and confidentiality agreements with its employees.
In addition, the Company has a letter agreement of employment with Mr. O'Malley.
The letter agreement outlines the terms of Mr. O'Malley's stock options and
compensation plan. The letter agreement does not provide for any severance
benefits. The Company does not have key man life insurance on Mr. O'Malley. The
Company does not have an employment agreement with, or key man life insurance
on, any other individual.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of shares of Common
Stock of the Company on June 30, 2000 by each of the executive officers named in
the Summary Compensation Table set forth in Item 11 by each director, by all
directors and current executive officers as a group and by all persons known by
the Company to be beneficial owners of more than 5% of the Company's Common
Stock. Except as otherwise indicated, each of the shareholders listed in the
table or included within a group listed in the table possesses sole voting and
investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Percent of
Owned(1) Ownership
--------------------------------------------------------------------------------
<S> <C> <C>
John R. Albers 451,869 8.2%
3825 Gillon Avenue
Dallas, TX 75205
</TABLE>
40
<PAGE> 41
Name and Address Shares Beneficially Percent of
Owned(1) Ownership
------------------------------------------------------------------------------
G. Kent Archibald 609,243(2) 10.3%
4382 Round Lake Road West
Arden Hills, MN 55112
Aaron Boxer Revocable Trust 504,539 9.2%
Aaron Boxer, Trustee
5500 Wayzata Boulevard
8th Floor - Suite 800
Minneapolis, MN 55416
William D. Corneliuson 395,100(3) 7.2%
777 East Wisconsin Avenue
Suite 3020
Milwaukee, WI 53202
Norman Dann 40,000(4) *
4382 Round Lake Road West
Arden Hills, MN 55112
Keith A. Libbey 14,200(3) *
900 Second Avenue South
1100 International Center
Minneapolis, MN 55402
David B. Johnson 514,400(5) 9.2%
5500 Wayzata Boulevard
8th Floor - Suite 800
Minneapolis, MN 55416
Tim O'Malley None *
4382 Round Lake Road West
St. Paul, MN 55112
All Current Executive Officers and 1,118,543(6) 18.5%
Directors as a Group (6 persons)
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percentage owned by
such person or group.
(2) Includes options to purchase 435,000 shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of June 30,
2000.
(3) Includes options to purchase 7,500 shares of Common Stock which are
currently exercisable or will become excercisable with in 60 days of June
30, 2000.
(4) Such shares are not outstanding but may be purchased upon exercise of
options which are currently exercisable or will become exercisable within
60 days of June 30, 2000.
41
<PAGE> 42
(5) Includes 237,603 shares held by Mr. Johnson's spouse and minor children and
75,000 shares owned by a foundation, over all which he may be deemed to
share voting and dispositive power, and warrants to purchase 70,000 shares
of Common Stock which are currently exercisable or will become exercisable
within 60 days of June 30, 2000.
(6) Includes options to purchase 545,000 shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of June 30,
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no related party transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
See Part II, Item 8.
(a)(2) Exhibits
See Exhibit Index on page following signatures.
(a)(3) Financial Statement Schedules
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal 2000.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MEDWAVE, INC.
Date: July 21, 2000 By /s/ Tim O'Malley
-----------------------------
Tim O'Malley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Tim O'Malley President, CEO, and Director July 21, 2000
---------------------------------------- (principal executive officer)
Tim O'Malley
/s/ Mark T. Bakko Chief Financial Officer July 21, 2000
---------------------------------------- (principal financial and accounting officer)
Mark T. Bakko
/s/ G. Kent Archibald Director July 21, 2000
----------------------------------------
G. Kent Archibald
/s/ William D. Corneliuson Director July 21, 2000
----------------------------------------
William D. Corneliuson
/s/ Norman Dann Director July 21, 2000
----------------------------------------
Norman Dann
/s/ Keith A. Libbey Director July 21, 2000
----------------------------------------
Keith A. Libbey
</TABLE>
43
<PAGE> 44
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
MEDWAVE, INC.
EXHIBIT INDEX
TO
FORM 10-K FOR FISCAL YEAR ENDED APRIL 30, 2000
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation - incorporated by
reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form SB-2, Reg. No. 33-96878C*
3.2 Amended and Restated Bylaws - incorporated by reference to
Exhibit 3.4 to the Registrant's Registration Statement on Form
SB-2, Reg. No. 33-96878C*
10.1** Amended and Restated Medwave Stock Option Plan (as amended through
August 4, 1998 - incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1998)*
10.2** Forms of Incentive and Nonstatutory Stock Option Agreements under
Amended and Restated Stock Option Plan - incorporated by reference
to Exhibit 10.2 to the Registrant's Annual Report on From 10-KSB
for the fiscal year ended April 30, 1996*
10.3 Agreement of Lease dated April 10, 1997 between the Company and
The Remada Companies - incorporated by reference to Exhibit 10.3
to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended April 30, 1997*
10.4 Agreement dated September 25, 1998 between the Company and an
unnamed Company - incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1998*
10.5** Letter agreement of employment with Timothy O'Malley dated
September 9, 1999 and amendment dated September 16, 1999 -
incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1999*
10.6 Critical Care Concepts Distributor Agreement - incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 2000*
10.7 Agreement of Lease extension dated November 30, 1999 between the
Company and AMB Property, L.P.
23 Consent of Ernst & Young LLP
27 Financial data Schedule (filed in electronic format only)
* Incorporated by reference to a previously filed report or
document, SEC File No. 0-28010 unless otherwise indicated
** Indicates a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form 10-K
44
