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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 September 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
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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, 2001
- ----- -------------------------------------
$.001 par value Class A Common Stock 23,217,443 shares
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
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, 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
Sept. 30 Dec 31,
2001 2000
(unaudited) (audited)
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CURRENT ASSETS
Cash 1,342 9,825
Accounts Receivable. 22,988 51,629
Inventory 568,448 568,448
Deposits (3,050) -
Other current assets 14,781
Total current assets 589,728 644,683
INVENTORY, Long Term 1,617,286 1,889,303
PROPERTY AND EQUIPMENT, net. 236,408 346,873
OTHER RECEIVABLES, net 2,383
2,443,422 2,883,242
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 226,550 430,755
Short-term borrowings
Deposit for shares not issued. 200,000
Accrued expenses 8,520 23,922
Accrued expenses - related party 486,427 251,086
Note payable - related party 722,347 297,000
Total current liabilities. 1,643,844 1,002,763
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock $.001 par value;
authorized - 100,000,000
shares issued and outstanding, 18,374,443 22,517 21,292
Additional paid-in capital 13,350,511 12,818,583
Note receivable from former parent - (150,000)
Accumulated deficit. (12,573,450) (10,809,396)
Total stockholders' equity 799,578 1,880,479
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2,443,422 2,883,242
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Nine months
ended Sept 30, ended Sept. 30,
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2001 2000 2001 2000
---------- ------------ ----------- -------------
Sales, net $ 48,000 $ 70,950 $ 217,560 $ 70,950
Cost of sales 41,186 35,928 121,978 35,928
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6,815 35,022 95,582 35,022
General and administrative
expenses 192,312 618,007 623,311 2,006,961
Depreciation and amortization 36,978 34,666 110,805 63,065
Research and development 58,879 365,639 258,919 973,387
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Total operating expenses 288,169 1,018,312 993,035 3,043,413
Net operating loss (281,355) (983,290) (897,453) (3,008,391)
- - -
Interest income (expense) (19,900) (10,517) (866,600) 8,120
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(19,900) (993,807) (866,600) 8,120
Loss from continuing operations
before income taxes (301,255) (993,807) (1,764,053) (3,000,271)
Income tax expense. - - - 1,600
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NET LOSS. (301,255) (993,807) (1,764,053) (3,001,871)
========== =========== =========== ===========
Net loss per weighted
average share ($0.02) ($0.05) ($0.04) ($0.15)
========== =========== =========== ===========
Weighted average number of
common shares used to
compute net loss per
weighted average share 22,517,443 19,675,052 21,904,943 19,465,421
========== =========== =========== ===========
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 31
2001 2000
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Cash flows from operating activities
Net Loss. $ (1,764,053) $ (3,001,871)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 110,805 63,065
Amortization of discount on
convertible debt - -
Expenses paid in stock 5,500 -
Interest expense. 817,000 -
Changes in assets and liabilities
Decrease in accounts receivable 28,641 (998)
Decrease (increase) in inventories. 272,017 (979,205)
Decrease (increase) in restricted cash. - 500,000
Decrease (increase) in prepaid expenses
and other receivables 19,873 1,328,658
Decrease in accounts payable and accrued
expenses 15,734 (898,006)
Increase in deposits. (103,100)
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Decrease in income taxes payable. - (2,400)
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Net cash used in operating activities (494,483) (3,093,857)
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Cash flows used in investing activities
Purchase of equipment - (102,024)
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Nine months ended September 31
2001 2000
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Cash flows from financing activities
Capital contribution from former parent - -
Proceeds from convertible debenture
offering - -
Proceeds from line of credit - -
Proceeds from loans. 286,000 190,000
Payments on loans. - (515,000)
Proceeds from the exercise of stock
options - -
Deposit for shares not issued 200,000
Sale of common stock - 3,357,090
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Net cash provided by financing
activities 486,000 3,032,090
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(Decrease) increase in cash and
cash equivalents (8,483) (163,791)
Cash and cash equivalents at beginning
of period 9,825 394,832
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Cash and cash equivalents at end of
period $ 1,342 $ 231,041
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Supplemental information
Cash paid for interest $ - $ 28,596
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 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.
In April 2001, the Company issued 1,200,000 shares of stock to Ms. Wallace as
required by the convertible note agreement signed in February 2001. This
resulted in a decrease of $200,000 in the accrued expenses related party and
an increase in additional paid in capital.
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In May 2001, the Company agreed to issue Ms. Wallace 600,000 shares of the
Company's stock in exchange for extending the due date of the note due to
her. The charge related to this entry of $617,000 is posted as an adjustment
to the yield of the note with the recording of an additional $617,000 interest
expense.
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine -month period ended September 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 - CONTINUED
September 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 actively evaluating other viable economic alternatives including possible
acquisition, merger or reorganization. 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 has drastically scaled back all operations and has implemented
significant cost reduction measures during 2001. Although the Company is selling
a few machines, it is not currently able to operate the business according to
plan because of cash constraints. The Company is continually evaluating other
viable economic alternatives including possible acquisition, merger or
reorganization. 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.
Since November, 2000, the Company has been funded by Ms. Jan Wallace, the
President and Chief Executive Officer, on an as needed basis. There is no
guarantee that Ms. Wallace will continue to do so in the future. There is a
note outstanding to Ms. Wallace in excess of $733,000. 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.
The Company continues to maintain several clinical sites in order to obtain
clinical data for submission to the FDA. The Company feels that it is vital to
obtain approvals for new research from the FDA and hopes to expand it clinical
sites as soon as it is financially able.
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 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.
The Company has been selling machines to specific clientele within targeted
geographical locations and expects to continue this pattern for the remainder of
fiscal year 2001. If sales targets are achieved, the cash flows expected from
these sales should be sufficient to sustain operations in the near future.
However, as inventory is reduced, and sales and marketing expenses increase, the
company will require additional equity funding. There can be no guarantee that
such funding will be secured.
In July, 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 and Ms. Wallace converted $100,000 from her
debt to this private placement. The Agreements provide for the issuance of
1,400,000 shares of common stock at $0.1429 per share plus 2,800,000 "Class A"
warrants for common shares exercisable at $0.20, plus 2,800,000 "Class B"
warrants for common shares exercisable at $0.40. 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.
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Assets
Total assets decreased to $2,443,422 on September 30, 2001 from $2,883,242 on
December 31, 2000, a decrease of $439,820 or 15%. 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 $1,643,844 as of September 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 has 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
$1,080,901, or 57%, to $799,578 as of September 31, 2001. The decrease in
stockholders' equity resulted from the net loss from operations partially offset
by stock issued for services in the amount of $681,928.
Results of Operations
Due to serious cash constraints, we have drastically scaled back operations
during 2001 and are not fully operating our business according to plan.
Although we have a reduced workforce we are continuing to sell machines
Net loss for the nine months ended September 30, 2001 was $1,764,053 compared to
a loss of $3,001,871 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 nine months ended September 31, 2001
were $623,311 compared to $2,006,961 for the same period in 2000. This reflects
a decrease of $1,383,650, or 69%. This decrease was primarily due to
significant reductions in payroll and professional fees.
Research and development expenses were $258,919 for the nine months ended
September 30, 2001 compared to $973,387 for the same period in 2000. The
decrease of $714,468 reflects our reduction in clinical sites. 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 nine months ended September 30,
2001 were $110,805 compared to $63,065 for the same period in 2000. The
increase in depreciation was due to the number machine assigned for research and
development , as compared to the prior year.
We are continuing our efforts in our clinical trial in order to submit for
facial hair approval with the FDA, however due to cash constraints the process
is moving slower than originally anticipated. At this time we are uncertain
when either the clinical trials will be completed or the documentation will
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be submitted to the FDA for clearance. 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
and equity or debt financing to sustain operations. We will need to raise
additional capital in the immediate future or we will experience significant
adverse results.
As of September 30, 2001, the Company had $1,342 in cash. We used cash of
$494,483 in our operating activities during the nine months ending September 30,
2001 compared to $3,093,857 for the same period in 2000. In 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 extending our payment terms with several of our vendors. Should these
vendors collectively or individually demand payment, it could have a significant
adverse effect on the Company. We intend to obtain financing through additional
equity or debt 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
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:
In July, 2001, the Company received a total of $100,000 from three parties and
Ms. Wallace converted $100,000 from her debt to this private placement. The
Agreements provide for the issuance of 1,400,000 shares of common stock at
$0.1429 per share plus 2,800,000 "Class A" warrants for common shares
exercisable at $0.20, plus 2,800,000 "Class B" warrants for common shares
exercisable at $0.40. 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.
Item 3. Defaults Upon Senior Securities:
The Company is presently in default with regard to notes payable of $733,000 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: November 13, 2001 By: /s/ Jan Wallace
_____________________________
Jan Wallace, President, and
Chief Executive Officer
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