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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 June 30, 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
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(Address of principal executive offices)
(480) 315-8600
--------------
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 June 30, 2001
----------------------- ----------------------------------
$.001 par value Class A 22,517,443 shares
Common Stock
Transitional Small Business Disclosure Format (Check one): Yes [ ]
No [ X ]
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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 six months ended June 30, 2001,
are not necessarily indicative of the results that can be
expected for the year ending December 31, 2001.
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MW Medical, Inc.
CONSOLIDATED BALANCE SHEETS
June 30, Dec. 31,
2001 (unaudited) 2000
----------------- -----------------
CURRENT ASSETS
Cash $ 182 9,825
Accounts Receivable 24,645 51,629
Inventory 2,221,413 2,457,751
Other current assets 28,528 14,781
----------------- -----------------
Total current assets 2,274,768 2,533,986
PROPERTY AND EQUIPMENT, net 273,046 346,873
OTHER RECEIVABLES, net 2,383 2,383
----------------- -----------------
$ 2,550,197 2,883,242
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 266,361 430,755
Accrued expenses 31,137 275,008
Accrued expenses -
related party 365,420 -
Note payable -
related party 647,100 297,000
----------------- -----------------
Total current liabilities 1,310,018 1,002,763
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common stock $.001 par value;
authorized - 100,000,000
shares issued and outstanding,
22,517,443 22,517 21,292
----------------- -----------------
Additional paid-in capital 12,936,858 12,818,583
Note Receivable from
former parent (150,000)
Accumulated deficit (11,719,196) (10,809,396)
----------------- -----------------
Total stockholders' equity 1,240,179 1,880,479
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$ 2,550,197 2,883,242
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
---------------------------------------------------------
2001 2000 2001 2000
---------- ------------------------------ --------------
Sales, net $ 59,500 $ - $169,560 $ -
Cost of sales 9,738 - 80,794 -
---------- ------------------------------ --------------
49,762 - 88,766 -
General and
administrative
expenses 211,597 264,049 430,999 1,388,954
Officer
compensation
with stock 264,000 264,000
Depreciation and
amortization 36,849 23,454 73,827 28,399
Research and
development 73,106 364,802 200,040 607,748
---------- ------------------------------ --------------
Total
operating
expenses 585,552 652,305 968,866 2,025,101
Net
operating
loss (535,790) (652,305) (880,100) (2,025,101)
Interest
income - 11,613 - 18,637
Interest income
(expense) (15,632) (29,700)
---------- ------------------------------ --------------
(15,632) (640,692) (29,700) 18,637
Loss from
continuing
operations
before income
taxes (551,422) (640,692) (909,800) (2,006,464)
Income
tax expense - - - 1,600
---------- ------------------------------ --------------
NET LOSS ($553,534) ($640,692) ($909,800) ($2,008,064)
========== ============================== ==============
Net loss per
weighted average
share ($0.02) ($0.03) ($0.04) ($0.10)
========== ============================== ==============
Weighted average
number of
common shares
used to
compute net
loss per
weighted
average
share 22,517,443 19,432,443 21,904,943 19,358,868
========== ================ ============= ==============
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
-----------------------------------
2001 2000
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Cash flows from operating activities
Net Loss $ (909,800) $(2,008,064)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 73,827 28,399
Expenses paid in stock 269,500 -
Interest expense - -
Changes in assets and liabilities
Increase in accounts receivable 26,984 -
Decrease (increase) in inventories 236,338 (1,119,044)
Decrease (increase) in restricted cash - -
Decrease (increase) in prepaid expenses
and other receivables (13,747) 1,393,246
Decrease in accounts payable and
accrued expenses (42,845) (914,361)
Increase (decrease) in deposits 93,100
Decrease income taxes payable - (2,400)
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Net cash used in operating activities (359,743) (2,715,324)
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Cash flows used in investing activities
Purchase of equipment - (211,254)
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Six months ended June 30,
-----------------------------------
2001 2000
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Cash flows from financing activities
Proceeds from line of credit - -
Proceeds from loans 350,100 140,000
Payments on loans - -
Proceeds from the exercise of stock
options - -
Sale of common stock - 2,457,999
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Net cash provided
by financing activities 350,100 2,597,999
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(Decrease) increase in cash and cash
equivalents (9,643) (328,579)
Cash and cash equivalents at
beginning of period 9,825 394,832
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Cash and cash equivalents at
end of period $ 182 $ 66,253
============== =============
Supplemental information
Cash paid for interest $ - $ 9,169
Cash paid for income taxes $ 2,400 $ 3,200
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 fair market value of
such component parts is $175,000.
The Company sold a MW 2000 for $45,000 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.
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 (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. 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 six-month period ended June 30,
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. Since the Company has
inadequate funds to meet its business plan, the Company has
scaled-back its research and development activities and reduced
the number of our clinical sites. The Company's on-going business
operations are limited to its ability to generate revenue from
sales. No adjustments have been made to the interim financial
statements to reflect the possibility of a reduction in the sales
of inventory.
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 (Unaudited)
NOTE B - REALIZATION OF ASSETS - Continued
Management has taken the following steps, which it believes may
be 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. 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. The Company intends to raise
funds in a private placement in the third quarter of 2001.
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.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Company have drastically scaled back all operations and has
implemented significant cost reduction measures during the first
half 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. Ms. Wallace, our President and Chief
Executive Officer, loaned a significant amount of money to the
Company. Since November 2000, the company has been funded by Ms.
Wallace on a need to basis. There is no guarantee that Ms. Wallace
will continue to do so in the future, although she intends to
continue to do so at this time. All financing has been provided
on an as needed basis. There is a note outstanding to Ms.
Wallace in excess of $647,000. This borrowing is secured by all
of our assets, including, but not limited to, all of our
inventory and patents. 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. We are
currently in default on these notes. The maturity date of the
note has been extended to a point in time which is at the sole
discretion of Ms. Wallace. Should we not be able to raise
additional capital in the immediate future and should we be
unable to establish a strategic alliance or other means of
financial support, our business may fail.
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. The Company has
established distributor agreements to assist in expanding our sales
coverage. 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.
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The Company has started to sell machines to specific clientele at
specific geographical locations for the remaining of fiscal year
2001. The cash flow to be generated from these sales will be
sufficient to sustain operations for the immediate year. However,
as inventory is reduced, and increased cost for sales and marketing
increase, the company will require additional equity funding.
There can be no guarantee that such funding will be secured.
Assets
- ------
Total assets decreased to $2,550,179 on June 30, 2001 from
$2,883,242 on December 31, 2000, a decrease of $333,045 or 12%.
The net change resulted primarily from a decrease in inventory
primarily from our sale of MW 2000 systems and the exchange of
inventory for the settlement of a $175,000 liability with a vendor
and a decrease in cash.
Liabilities And Stockholders' Equity
- ------------------------------------
Our liabilities increased to $1,310,018 as of June 30, 2001
compared to $1,002,763 as of December 31, 2000. The increase in
liabilities was caused by increases in notes payable - related
party and accrued expense related party. The Company 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. Stockholders' equity decreased
$640,300, or 34%, to $1,240,179 as of June 30, 2001. The
decrease in stockholders' equity resulted from the net loss from
operations partially offset by stock issued for services in the
amount of $269,500.
Results of Operations
- ---------------------
Due to serious cash constraints, we have drastically scaled back
operations during the first half of 2001 and are not fully
operating our business according to plan. Our reduced
workforce from the first quarter 2001 has been increased by the
addition of a new engineer We have continued to sell the MW 2000
in selected geographic 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 six months ended June 30, 2001 was $909,800
compared to a loss of $2,008,064 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 June
30, 2001 were $430,999 compared to $1,388,954 for the same period
in 2000. This reflects a decrease of $957,955, or 69%. This
decrease was primarily due to significant reductions in payroll and
professional fees. The expense for "Officer compensation in stock"
was compensation to the Chief Executive Officer for funding the
Company.
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Research and development expenses were $200,040 for the six months
ended June 30, 2001 compared to $607,748 for the same period in
2000. The decrease of $407,708 reflects our reduction in clinical
sites, However, the Company has maintained sufficient sites in
order for us to complete clinical trials for facial hair and spider
vein approvals.
Depreciation and amortization expenses for the six months ended
June 30, 2001 were $73,827 compared to $28,399 for the same period
in 2000. The increase in depreciation was due to the number of
research and development systems.
With our alliance with the new distributor, we are hopeful that
sales will increase in the next quarter. We are continuing our
efforts in our clinical trial in order to submit for facial hair
approval with the FDA. We have received FDA clearance to begin
marketing the larger aperture and have incorporated it into our
marketing and sales efforts. 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. While limited funds
have been generated from revenues, the Company is dependent on
ongoing sales of equipment to sustain operations. We will need
to raise additional capital in the immediate future or we will
experience adverse results.
During the thirty days after July 5th, 2001, the Company
completed transactions which enabled the Company to obtain a
limited amount of funding. None of the proceeds of the financing
were applied towards the repayment of Ms. Wallace's note. The
Company received a total of $100,000 from three parties. The
Agreements provide for the issuance of common shares and warrants
for common shares in exchange for proceeds received by the
Company. The warrants may be exercised, in whole or in part,
from time to time after the execution of each Agreement and
before June 13, 2006. The Company does not have the right to call
the warrants at any time. In exchange for the receipt of proceeds
in the aggregate of $100,000, the Company agreed to the issuance
of 700,000 shares of common stock at $0.1429 per share plus
1,400,000 "Class A" warrants for common shares exercisable at
$0.20 plus $700,000 "Class B" warrants for common shares
exercisable at $0.40.
As of June 30, 2001, the Company had $182 in cash. We used cash
of $359,743 in our operating activities during the six months
ending June 30, 2001 compared to $2,715,324 for the same period
in 2000. In the first half 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
obtained written agreements with several of our vendors. We
intend to obtain financing through additional equity offerings
until such time as cash flows from operations are sufficient to
support us. We are currently pursuing financing from various
potential investors.
Forward-Looking Statements
- --------------------------
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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:
None
Item 2. Changes in Securities and Use of Proceeds:
At April 1, 2001, 1,200,000 shares of restricted common stock were
issued to the Company's President as compensation in lieu of cash.
The stock was valued at the bid price at such time. The Company
believes that the issuance of such common stock is exempt from
registration with the Commission pursuant to Regulation 4(2) of the
Securities Act of 1933.
At April 1, 2001, 25,000 shares of common stock were issued to a
consultant in lieu of cash as a reimbursement for expenses paid on
behalf of the Company. The Company believes that the issuance of
such common stock is exempt from registration with the Commission
pursuant to Regulation 4(2) of the Securities Act of 1933.
In July, 2001 the Company entered into Agreements for the sale of
certain securities. The terms of such Agreements are described in
this quarterly report under Liquidity and Capital Resources.
Item 3. Defaults Upon Senior Securities:
The Company is presently in default with regard to notes payable of
$647,000 to Jan Wallace, President of the Company.
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
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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: August 15, 2001 /s/ Jan Wallace
----------------------------------
Jan Wallace, President, Chief
Executive Officer