UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 001-14297
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MW Medical, Inc.
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(Exact name of Small Business Issuer as specified in its charter)
Nevada 86-0907471
- ------------------------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
6617 N. Scottsdale Road, Suite 103, Scottsdale, Arizona 85250
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(Address of principal executive offices)
(480) 315-8600
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Issuer's telephone number, including area code
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the last practicable date.
Class Outstanding as September 30, 2000
- ------------------------------------ ---------------------------------
$.001 par value Class A Common Stock 21,292,443 shares
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [ X ]
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 (Unaudited)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared
in accordance with the instructions to Form 10-QSB and, therefore,
do not include all information and footnotes necessary for a
complete presentation of financial position, results of operations,
cash flows, and stockholders' equity in conformity with generally
accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and
all such adjustments are of a normal recurring nature. Operating
results for the nine months ended September 30, 2000, are not
necessarily indicative of the results that can be expected for the
year ending December 31, 2000.
MW Medical, Inc.
CONSOLIDATED BALANCE SHEET
September 30,
2000
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ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 231,041
Accounts receivable 998
Inventory 2,322,463
Deposits 182,600
Prepaid expenses and other current assets 19,933
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Total current assets 2,757,035
PROPERTY, PLANT AND EQUIPMENT, net 384,063
OTHER RECEIVABLES, net 2,723
$ 3,143,821
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 152,875
Accrued expenses 211,163
Total current liabilities 364,038
STOCKHOLDERS' EQUITY
Common stock $.001 par value; authorized - 100,000,000
shares issued and outstanding - 21,292,443 21,292
Additional paid-in-capital 12,746,101
Note receivable - related party (150,000)
Accumulated deficit (9,837,610)
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Total stockholders' equity 2,779,783
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$ 3,143,821
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3
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2000 1999 2000 1999
------------- ------------ ------------ -----------
(as restated) (as restated)
------------- ------------ ------------ -----------
Sales, net $ 70,950 $ - $ 70,950 $
Cost of sales 35,928 - 35,928 -
------------- ------------ ------------ -----------
35,022 - 35,022 -
General and
administrative expenses 618,007 644,178 2,006,961 1,121,498
Depreciation and
Amortization 34,666 12,498 63,065 61,842
Research and development 365,639 239,781 973,387 501,932
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Total operating
expenses 1,018,312 896,457 3,043,413 1,685,272
Net operating loss (983,290) (896,457) (3,008,391) (1,685,272)
Interest income
(expense), net (10,517) (1,641,500) 8,120 (1,627,860)
------------- ------------ ------------ -----------
Loss from operations
before income taxes (993,807) (2,537,957) (3,000,271) (3,313,132)
Income tax expense - - 1,600 800
------------- ------------ ------------ -----------
NET LOSS $ (993,807) $(2,537,957) $(3,001,871) $(3,313,932)
============= ============ ============ ===========
Net loss per weighted
average share $ (0.05) $ (0.15) $ (0.15) $ (0.20)
============= ============ ============ ===========
Weighted average number
of common shares used
to compute net loss
per weighted average
share 19,675,052 16,852,846 19,465,421 16,852,846
============= ============ ============ ===========
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
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2000 1999
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Cash flows from operating activities (as restated)
Net Loss $ (3,001,871) $ (3,313,932)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 63,065 61,842
Amortization of discount on
convertible debt - 1,208,830
Non monetary compensation - 148,064
Bad debt expense - 183,125
Changes in assets and liabilities
Increase in accounts receivable (998) -
Increase in inventories (979,205) (134,201)
Decrease (increase) in
restricted cash 500,000 (500,000)
Decrease (increase) in prepaid
expenses and other receivables 1,328,658 (860,494)
Increase (decrease) in accounts
payable and accrued expenses (898,006) 173,461
Increase (decrease) in
customer deposits (103,100) 20,000
Decrease in income taxes payable (2,400) (800)
---------------- --------------
Net cash used in operating activities (3,093,857) (3,014,105)
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Cash flows used in investing activities
Purchase of equipment (102,024) (4,851)
Cash flows from financing activities
Capital contribution from former parent - 50,000
Proceeds from convertible debenture offering - 3,000,000
Proceeds from loans 190,000 425,000
Payments on loans (515,000)
Sale of common stock 3,357,090 686,100
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Net cash provided by
financing activities 3,032,090 4,161,100
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(Decrease) increase in cash and
cash equivalents (163,791) 1,142,144
Cash and cash equivalents at
beginning of period 394,832 890,283
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Cash and cash equivalents at end of period $ 231,041 $ 2,032,427
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5
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
2000 1999
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Supplemental information
Cash paid for interest $ 28,596 $ 3,963
Cash paid for income taxes $ 3,200 $ 1,600
Non cash items
Inventory being used in clinical trials in the amount of $324,000
was capitalized as R&D equipment.
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with
the instructions to Form 10-QSB and Rule 10-01 of Regulation S-
X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. The unaudited consolidated
financial statements and notes should, therefore, be read in
conjunction with the financial statements and notes thereto in
the Annual Report on Form 10-KSB for the year ended December
31, 1999. In the opinion of management, all adjustments
(consisting of normal and recurring adjustments) considered
necessary for a fair presentation, have been included. The
results of operations for the three and nine-month periods
ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31,
2000.
NOTE B -RESTATEMENT
The Company's financial statements as of September 30, 1999,
have been restated to reflect the Company's recognition of
certain items originally recorded as revenue that upon further
review did not meet revenue recognition criteria according to
generally accepted accounting principles. Amounts included in
costs of goods sold that related to these items were transferred
to inventory on the balance.
The effect of the restatement is as follows:
For the nine months ended
September 30, 1999 As previously reported As restated
Statement of operations:
Revenue $ 139,200 $ 0
Net loss (3,224,532) (3,313,932)
Net loss per common and
common equivalent share $ (0.19) $ (0.20)
NOTE C - REALIZATION OF ASSETS
The Company has suffered recurring losses from operations and
may continue to incur losses for the foreseeable future due to
the significant costs anticipated to be incurred in connection
with manufacturing, marketing and distribution of its microwave
products. In addition, the Company intends to continue to
conduct research and development activities, including
regulatory submittals and clinical trials to develop additional
applications for its technology. The Company operates in a
highly competitive environment and is subject to all of the
risks inherent in a new business enterprise.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain present financing, and to
succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should
the Company be unable to continue in existence.
7
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 (Unaudited)
Management has taken the following steps, which it believes are
sufficient to provide the Company with the ability to continue
its operations over the near term: The Company raised
$2,400,000 and $930,000 through the sale of common stock in
connection with private placement memorandums in January 2000
and July through September 2000, respectively. The Company
recorded its first revenue during the third quarter 2000 and
expects both revenues and cash flows from revenues to improve
in the fourth quarter 2000 as the MW 2000 begins to establish
itself in the marketplace. The Company expects that the
proceeds from those activities will be sufficient to fund
activities in the near term, while it actively pursues
additional financing. However, there can be no assurance that
the Company will be able to complete any additional financing.
NOTE D - RELATED PARTY TRANSACTIONS
During June and July 2000, the Company borrowed a total of
$150,000 from Jan Wallace, the President and Chairman of the
Board of Directors of the Company. The note for $150,000
accrued interest at a rate of 10% and was to mature in
September 2000. As of September 30, 2000, this liability has
been settled in full. A portion of this note, $100,000, was
converted to equity on July 17, 2000 when it was used, by
agreement with Ms. Wallace, to purchase 200,000 shares of
common stock as part of the current private placement being
sold by the Company.
In addition, Ms. Wallace and Tyler Brown, the Chief Operating
Officer, purchased another $100,000 and $10,000 worth of stock,
respectively. Thus, Ms. Wallace and Mr. Brown have purchased a
total of 420,000 shares of common stock in the Company's
private placement. As a result of this purchase, Ms. Wallace
and Mr. Brown will also receive warrants to purchase up to
40,000 and 2,000 shares of the Company's common stock,
respectively, at an exercise price of $1.75 per share.
NOTE E - STOCKHOLDERS' EQUITY
The Company has raised funds through two private placements,
which raised a combined total, net of issuance costs, of
approximately $3,300,000. In January 2000, the Company sold
1,000,000 shares of common stock in a private placement dated
December 15, 1999. Proceeds, net of issuance costs were
approximately $2,400,000. In connection with the 1,000,000
shares sold, the Company issued warrants to purchase up to
100,000 shares of common stock at an exercise price of $3.00.
In July 2000, the Company sold 1,860,000 shares of common stock
in a private placement memorandum dated July 15, 2000.
Proceeds, net of issuance costs, were $930,000. Proceeds from
the private placement include $210,000 received from Ms. Jan
Wallace, the President and Chairman of the Board of Directors
of the Company and Mr. Brown, Chief Operating Officer. In
connection with the 1,860,000 shares sold as part of the
private placement, the Company will issue warrants to purchase
up to 186,000 shares of the Company's common stock at an
exercise price of $1.75 per share.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Through September 30, 2000, the Company has primarily concentrated
on corporate re-structuring, refining and upgrading the MW 2000
system, improving its training and clinical support documentation
programs and marketing the MW 2000.
The Company has added additional management and support personnel,
including a new chief financial officer, national sales manager,
and a clinical nurse. The Company will continue its search for a
new chief executive officer and other key support positions, but
will need to secure financing before this task can be completed.
The Company has also expanded its clinical sites. It is hoped that
this expansion will provide the Company with a number of peer
review publications and additional clinical white papers from
medical luminaries in the fields of dermatology, pheblology,
plastic surgery and other specialties. Additional clinical sites
may also provide the Company with individuals who can be called
upon to lecture on the merits of the Company's microwave
technology.
The Company re-launched the MW 2000 into the market late in the
third quarter 2000. Revenue and cash flows from revenue were modest
in the third quarter 2000 and the Company expects both to increase
in the fourth quarter 2000. To complement its internal sales force
and help expand the Company's marketing and distribution channels,
the Company is also looking for a strategic partner or strong
national sales distribution organization to expand the Company's
sales opportunities.
The Company may require another equity offering to fund operations
until sufficient cash flows are derived from sales revenues. The
Company completed private placements of 1,000,000 shares of the
Company's common stock in January 2000 and an additional 1,860,000
shares of the Company's common stock from July to September 2000.
Net cash proceeds to date from these placements were approximately
$2,400,000 and $930,000, respectively. Although the Company has
been able to raise funds through equity and debt offerings in the
past, the Company can offer no guarantee that it will be able to
raise sufficient funds in the future or that cash flows from
revenues will ever be achieved. Failure to obtain additional
financing or generate cash flows from revenues would have a
material adverse effect on the Company.
Assets
Total assets decreased to $3,143,821 on September 30, 2000 from
$4,117,108 on December 31, 1999, a decrease of $973,287or 23.6%.
The net change resulted primarily from a decrease in cash and
deposits, offset by an increase in inventory and fixed assets. The
decrease in cash resulted primarily from cash used in normal
operations. The decrease in deposits was caused by the
renegotiation of a contract with a major supplier that resulted in
the reduction of the deposit and an offsetting of a corresponding
liability. The increase in inventory of approximately $655,205, or
39.3% was the result of the Company's ongoing production of MW 2000
systems to support the third quarter 2000 product re-launch. The
increase in fixed assets was primarily caused by the capitalization
of MW 2000 systems placed in service at new clinical sites.
Liabilities And Stockholders' Equity
The Company's operations for the nine months ending September 30,
2000 were primarily funded by increased stockholders' equity.
Stockholders' equity increased $455,219, or 19.6%, to $2,779,783
as of September 30, 2000. The net increase in stockholders'
equity resulted primarily from the sale of common stock,
approximately $3,300,000, net, and the exercise of stock options,
less the net loss from operations.
The Company repaid the $150,000 note payable to an officer
through a payment of $50,000 in cash and cancellation of the
remaining note in exchange for participation in the private
placement dated July 15, 2000. The Company also paid off its
$465,000 line of credit in July 2000.
Results of Operations
In the prior year, the Company began its initial production of
the MW 2000 machines and delivered 36 of the machines to clinical
sites across the country. Of these machines, the Company has
taken back 4 machines, 9 are involved in clinical trials and 23
have been returned to the Company's inventory to receive upgrades
or other product modification.
9
Net loss for the nine months ended September 30, 2000 was
$3,001,871 compared to a loss of $3,313,932 during the same period
in 1999. The decrease in the net loss was caused by a one-time
interest charge of approximately $1,600,000, which related to a
convertible debt offering in September 1999. An analysis of the
net operating loss for the first nine months of 2000 shows an
increase in the net operating loss of 1,323,119, or 78.5%. The
increase in the net operating loss was caused by the Company
ramping up production and establishing the necessary infrastructure
to accommodate the projected sales associated with the re-launch of
the MW 2000 machine.
General and administrative expenses for the nine months ended
September 30, 2000 were $2,006,961 compared to $1,121,498 for the
same period in 1999. This reflects an increase of $885,463, or
79.0%. This increase in general and administrative expenses, as
compared to the same period in the prior year, was primarily due to
advertising and promotional costs involved in bringing the product
to market and an increase in professional fees.
Research and development expenses were $9973,387 for the nine
months ended September 30, 2000 compared to $501,932 for the same
period in 1999. The increase of $471,445, or 93.9%, reflects the
Company's continued research into and clinical trials for
additional applications for its microwave technology.
Despite initial efforts, the Company's sales have not met
management's expectations. During the first nine months of 2000,
the Company spent time resolving a number of issues regarding the
use and operation of the MW 2000 machine by physicians and their
staff. This resulted in certain modifications and upgrades to the
MW 2000 system, including such things as warning labels,
instruction manuals, on-site training, and clinical support. After
completing these upgrades and modifications in the third quarter
2000, the Company began marketing and distributing its MW 2000 hair
removal system. This culminated in the Company recording its first
revenue late in the third quarter. The Company expects increasing
revenues to be generated in the fourth quarter of 2000.
Liquidity and Capital Resources
As of September 30, 2000, the Company had $231,041 in cash. During
the first nine months of 2000, the Company completed private
placements of 2,860,000 shares of the Company's common stock. Net
cash proceeds from these placements were approximately $3,300,000.
The Company used cash of $3,558,857 in its operating activities
during the nine months ending September 30, 2000 compared to
$3,014,105 for the same period in 1999. In the first nine months
of 2000, the Company was primarily involved in product upgrades,
re-structuring and enhancing internal procedures. The Company
has substantially completed the upgrades to the MW 2000 and
relaunched the product in the third quarter of 2000. Management
intends to obtain financing, as necessary, through additional
equity or debt offerings until such time as cash flows from
operations are sufficient to support the Company. Management
believes that it will be able to raise the necessary funds, but
currently does not have this financing in place.
Forward-Looking Statements
Many statements made in this report are forward-looking statements
that are not based on historical facts. Because these forward-
looking statements involve risks and uncertainties, there are
important factors that could cause actual results to differ
materially from those expressed or implied by these forward-looking
statements. The forward-looking statements made in this report
relate only to events as of the date on which the statements are
made.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceeding and to our
knowledge, no such proceeding is threatened or contemplated. At
this time, we do not have any material bankruptcy, receivership,
or similar proceedings pending.
Item 2. Certain Stock Transactions
In September 2000, the Company issued 1,860,000 shares of common
stock and 186,000 warrants at $0.50 per share under Regulation D
rule 506.
Item 3.
None
Item 4.
None
Item 5.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MW Medical, Inc.
DATED: November 14, 2000 /s/ Dean Drummond
______________________________________
Dean Drummond, Chief Financial Officer
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