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 March 31, 2001
[ ] 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
---------
MW Medical, Inc.
----------------
(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
(Address of principal executive offices)
(480) 483-8600
--------------
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 March 31, 2000
- ------------------------------------ -----------------------------
$.001 par value Class A Common Stock 21,292,443 shares
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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 three months ended March 31, 2001,
are not necessarily indicative of the results that can be
expected for the year ending December 31, 2001.
2
MW Medical, Inc.
CONSOLIDATED BALANCE SHEETS
March 31,
2001
---------------
CURRENT ASSETS
Cash $ 1,446
Accounts Receivable 78,145
Inventory 2,234,098
Other current assets 14,870
---------------
Total current assets 2,328,559
PROPERTY AND EQUIPMENT, net 310,235
OTHER RECEIVABLES, net 2,383
---------------
$ 2,641,177
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 226,175
Accrued expenses 21,523
Accrued expenses - related party 285,278
Note payable - related party 586,100
---------------
Total current liabilities 1,119,076
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common stock $.001 par value; authorized -
100,000,000 shares issued and outstanding,
18,374,443 21,292
Additional paid-in capital 12,818,583
Note receivable from former parent (150,000)
Accumulated deficit (11,167,774)
---------------
Total stockholders' equity 1,522,101
---------------
$ 2,641,177
===============
3
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
----------------------------
2001 2000
------------- -------------
Sales, net $ 110,060 $ -
Cost of sales 71,056 -
------------- -------------
39,004 -
General and administrative expenses 219,402 1,126,505
Depreciation and amortization 36,978 4,945
Research and development 126,934 242,946
------------- -------------
Total operating expenses 383,314 1,374,396
Net operating loss (344,310) (1,374,396)
Interest income (expense) (14,068) 7,024
NET LOSS $ (358,378) $ (1,367,372)
============= =============
Net loss per weighted average share $ (0.02) $ (0.07)
============= =============
Weighted average number of common
shares used to compute net loss per
weighted average share 21,292,443 19,925,931
============= =============
4
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
----------------------------
2001 2000
------------- -------------
Cash flows from operating activities
Net Loss $ (358,378) $ (1,367,372)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 36,638 4,945
Deferred salaries 78,624 -
Interest expense 14,068 -
Changes in assets and liabilities
Increase in accounts receivable (71,516) -
Decrease (increase) in inventories 48,653 (431,380)
Decrease (increase) in restricted cash - -
Decrease (increase) in prepaid expenses
and other receivables (89) 29,062
Decrease in accounts payable and accrued
Expenses (45,479) (86,129)
Increase in deposits - 200,465
------------- -------------
Net cash used in operating activities (297,479) (1,650,409)
------------- -------------
Cash flows used in investing activities
Purchase of equipment - (95,111)
5
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Three months ended March 31,
----------------------------
2001 2000
------------- -------------
Cash flows from financing activities
Proceeds from line of credit - 40,000
Proceeds from loans 289,100 -
Payments on loans - -
Proceeds from the exercise of stock options - 57,999
Sale of common stock - 2,400,000
------------- -------------
Net cash provided by financing activities 289,100 2,497,999
------------- -------------
(Decrease) increase in cash and
cash equivalents (8,379) 752,479
Cash and cash equivalents at beginning of period 9,825 394,832
------------- -------------
Cash and cash equivalents at end of period $ 1,446 $ 1,147,311
============= =============
Supplemental information
Cash paid for interest $ - $ 6,395
Cash paid for income taxes $ 2,400 $ -
Supplemental Disclosure
Through agreement of both parties, the Company settled a liability of
approximately $175,000 to a supplier through the exchange of inventory.
This supplier has agreed to provide replacement inventory components to
the Company at specified prices in the future. The Company is not
contractually required to repurchase this or any other inventory
from this supplier in the future.
The Company sold a MW 2000 to a entity in which our Chief Executive
Officer serves on their Board of Directors. Our Chief Executive Officer
has elected to have the Company reduce the accrued payable to her as
payment for the MW 2000.
6
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 (Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
- ---------------------
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with
the instructions to Form 10QSB and Rule 10-01 of Regulation S-
X. Accordingly, they do not include all of the information and
footnotes required by generally accepted auditing principles
for complete financial statements. The unaudited consolidated
financial statements and notes should, therefore, be read in
conjunction with the financial statements and notes thereto in
the Annual Report on Form 10-KSB for the year ended December
31, 2000. 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-month period ended March
31, 2001 are not necessarily indicative of the results that may
be expected for the entire fiscal year.
NOTE B - REALIZATION OF ASSETS
The Company has suffered recurring losses from operations and
will continue to incur losses for the foreseeable future due to
the significant costs anticipated to be incurred in connection
with manufacturing, marketing and distributing its microwave
products. In addition, the Company intends to continue to
conduct research and development activities, including
regulatory submittals and clinical trials to develop additional
applications for its technology. The Company operates in a
highly competitive environment and is subject to all of the
risks inherent in a new business enterprise.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in
its future operations. The financial statements do not include
any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable
to continue in existence.
7
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 (Unaudited)
NOTE B - REALIZATION OF ASSETS - Continued
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 has reduced
staffing to key personnel, specifically corporate officers and
technicians necessary to continue manufacturing operations.
Additionally, all officers are voluntarily participating in a
salary deferral program until additional funding is secured.
The Company has also initiated talks with several of its larger
vendors to obtain extended payment terms. While the Company
has been successful in negotiating payment terms with a few
vendors, formal agreements have not been established with all
of the vendors and there can be no guarantee such agreements
will ever be reached. Sales of the MW 2000 are expected to at
least partially offset the cash requirements of the business.
The Company is pursuing opportunities to establish a strategic
alliance with an established entity or to possibly be acquired
or merged with another entity. However, there can be no
assurance that the Company will be able to complete any
contemplated alliance, merger or sale transaction within the
required time frame.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
We have drastically scaled back all operations and have implemented
significant cost reduction measures during the first quarter of
2001. Currently, we are not able to operate our business according
to plan because of cash constraints. Failure to raise the
necessary capital in the immediate future will, at a minimum, cause
us to not be able to fully operate our business or, in the worst
case, cause our business to fail. We are actively pursuing
candidates for a strategic alliance or possible acquisition of our
business. Although, we are pursuing these avenues, it cannot be
guaranteed that such arrangements can be reached in such a time or
manner that will enable us to continue operations.
Cash is extremely limited and Ms. Wallace, our president and chief
executive officer, continues to finance us. All financing has been
provided on an as needed basis. We currently owe Ms. Wallace in
excess of $600,000. This borrowing is secured by all of our
assets, including, but not limited to, all of our inventory and
patents. We are currently in default on these notes. Should we
not be able to raise additional capital in the immediate future,
our business may fail. Additionally, Ms. Wallace would be in the
first credit position on all of our assets and may be required to
foreclose in order to protect her personal interests.
Due to our significantly limited resources, we have reduced the
number of our clinical sites. The costs of the maintenance and
oversight over these sites are too prohibitive in our current
financial position. We have maintained all clinical sites that are
crucial to our various submissions to the FDA. All other sites
have been closed until we are in a position to perform proper
maintenance and oversight. We hope to expand our clinical sites
again by the third quarter of 2001.
In February 2001, we received FDA clearance to begin marketing the
larger aperture hand piece. With this new hand piece, the size of
our aperture is now comparable with our competitors and removes one
of the barriers we had been facing in the market. We are also
pursuing several established distributors to assist us in expanding
our sales coverage. We expect to solidify relationships with at
least one of these distributors in the second quarter. The market
demand for our product has been growing in our targeted
geographical areas and we expect demand to continue to grow as our
product gets more exposure in the market and is used in more
commercial settings. We expect we will continue to market our
products in limited geographic markets until our additional FDA
clearances for facial hair removal and the treatment of spider
veins are received. After these FDA clearances are obtained and we
obtain the necessary financing we plan to begin a more aggressive
marketing campaign.
Even with the cash generated from sales, we will require additional
funds to continue operations in the immediate future. We plan to
complete another equity or debt financing to fund operations,
however, we can offer no guarantee that we will be able to raise
sufficient funds in the future or that cash flows from operations
will ever be sufficient to continue operations. Failure to obtain
additional financing or generate cash flows from operations will
cause us to, at a minimum, not fully operate our business, or in
the worst case, cause our business to fail. We continue to pursue
a relationship with a strategic partner to assist us in our fund
raising and distribution activities.
9
Assets
Total assets decreased to $2,641,177 on March 31, 2001 from
$2,883,242 on December 31, 2000, a decrease of $242,065 or 8.4%.
The net change resulted primarily from a decrease in inventory
offset by an increase in accounts receivable. The decrease in
inventory resulted primarily from our sale of MW 2000 systems and
the exchange of inventory for the settlement of a liability with a
vendor. The increase in accounts receivable is the result of the
sale of MW 2000 systems.
Liabilities And Stockholders' Equity
Our liabilities increased by $116,313, or 11.6% to $1,119,076 as
of March 31, 2001. The increase in liabilities was caused by
increases in notes payable - related party and accrued expense
related party. We have primarily been funded by Ms. Wallace, our
president and chief executive officer for the past several
months. These amounts are reflected in notes payable - related
party. The officers of the company have elected to defer all or
a portion of their salaries. The deferral of salaries are
reflected in accrued expense - -related party. The increases in
notes payable were offset by a reduction in accounts payable.
Accounts payable was decreased through the settlement of a
liability with inventory. Stockholders' equity decreased
$358,378, or 19.06%, to $1,522,101 as of March 31, 2001. The
decrease in stockholders' equity resulted from the net loss from
operations.
Results of Operations
Due to serious cash constraints, we have drastically scaled back
operations during the first quarter of 2001 and are not fully
operating our business according to plan. We have reduced the
workforce to 3 employees, including officers, and slowed the pace
of our clinical trials. We do not expect to increase employee or
more actively operate our business until we are able to raise
additional capital or generate suficient revenues from
operations. We have coninued to sell the MW 2000 in selected
geopgraphic markets with moderate success. We have established a
relationship with a national distributor in April 2001 and have
begun to develop a joint marketing and sales effort. We believe
this relationship will enable us to have a stronger presence
nationally and within our targeted geographic areas, which should
result in additional sales.
Net loss for the three months ended March 31, 2001 was $358,378
compared to a loss of $1,367,372 during the same period in 2000.
This decrease in the net loss was caused by our scaling back of
operations, including a reduction in employees, closing of certain
clinical sites, and a slow down in research and development work.
General and administrative expenses for the three months ended
March 31, 2001 were $219,402 compared to $1,126,505 for the same
period in 2000. This reflects a decrease of $907,103, or 80.52%.
This decrease was primarily due to significant reductions in
payroll and professional fees.
Research and development expenses were $126,934 for the three
months ended March 31, 2001 compared to $242,946 for the same
period in 2000. The decrease of $116,012 reflects our reduction in
clinical sites, a slow down in research and development activities
and the reduction of several research and development personnel.
10
Depreciation and amortization expenses for the three months ended
March 31, 2001 were $36,978 compared to $4,945 for the same period
in 2000. The increase in depreciation was due to an increased
fixed asset purchases during the second and third quarters of 2000.
Despite initial efforts, our sales have not met expectations. We
believe the slow sales are a result of a lack of approval for
facial hair removal, the size of the aperture and longer than
expected trial periods in the sales cycle. To overcome these
obstacles, we are continuing our clinical trials, with an emphasis
on the facial hair removal trial. We hope to be able to submit
data to the FDA for facial hair removal sometime in 2001. We have
received FDA clearance to begin marketing the larger aperture and
have incorporated it into our marketing and sales efforts.
Extended trial periods for doctors appear to be a trend in the
marketplace. While this is not a deterrence to sales, it does
affect the length of the sales cycle and the timing of revenue
recognition. We will continue to market and sell the MW 2000
during 2001, and expect sales will increase as additional FDA
clearances are obtained and adequate financing is secured.
Liquidity and Capital Resources
We have extremely limited cash resources to sustain operations.
While limited funds have been generated from revenues, it is
unlikely cash generated from operations will be sufficient to
continue operations. We will need to raise additional capital in
the immediate future or we will experience significant material
adverse results.
For the first quarter of 2001, we have relied upon Ms. Wallace to
providing funding. In fact, Ms. Wallace funded all operations
since November 2000. We have not yet identified new sources for
financing and we are currently in default on our notes to Ms.
Wallace. If we are unable to raise additional capital in the
immediate future, we will not be able to meet our obligations to
Ms. Wallace and other vendors. Failure to meet these obligations
will likely cause our business to fail.
As of March 31, 2001, the Company had $1,446 in cash.
We used cash of $297,479 in our operating activities during the
three months ending March 31, 2001 compared to $1,650,409 for the
same period in 2000. In the first quarter of 2001, we were
primarily involved in significant cost cutting measures and were
able to work out payment terms with some of our suppliers.
Although, we have been able to agree to terms with several of our
suppliers we have not obtain written agreements with several of
our vendors. Failure to obtain payment plans with certain vendors
may cause significant cash strains on our business, which may
cause us to be unable to fully operate our business. We intend
to obtain financing through additional equity offerings until
such time as cash flows from operations are sufficient to support
us. We currently do not have this financing in place and we can
provide investors with no assurance that such financing will be
obtained.
11
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.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities and Use of Proceeds:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
None
13
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: May 14, 2001 /s/ Dean Drummond
--------------------------------------
Dean Drummond, Chief Financial Officer
14