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, 2002
[ ] 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
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(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
6929 E. Cheney, Paradise Valley, Arizona 85253
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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 June 30, 2002
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$.001 par value
Class A Common Stock 24,517,443 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' (deficit) 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, 2002, are not necessarily indicative of the results that
can be expected for the year ending December 31, 2002
2
MW Medical, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
June 30, December 31,
2002 2001
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CURRENT ASSETS
Cash $ 218 $ 209
Accounts Receivable -
Inventory 300,000 300,000
Other current assets
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Total current assets 300,218 300,209
INVENTORY, long-term
PROPERTY AND EQUIPMENT, net of allowance 36,574 55,928
for depreciation of $336,948 and $317,544
OTHER RECEIVABLES, net -
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$ 336,792 $ 356,137
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LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 265,217 $ 241,617
Accrued expenses 679,390 510,867
Note payable - related party 685,256 615,871
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Total current liabilities 1,629,863 1,368,355
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' (DEFICIT)
Common stock $.001 par value;
authorized - 100,000,000
shares issued and outstanding,
24,517,443 24,517 24,517
Additional paid-in capital 13,687,857 13,687,857
Note receivable from former parent
Accumulated deficit (15,005,445) (14,724,592)
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Total stockholders' (deficit) (1,293,071) (1,012,218)
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$ 336,792 $ 356,137
3
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
At June 30, 2002
(Unaudited)
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
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Sales, net - $ 59,500 $ - $ 169,560
Cost of sales - 9,737 - 80,793
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- 49,763 - 88,767
General and administrative expenses 109,901 211,598 226,907 430,999
Depreciation and amortization 9,677 36,849 19,354 73,827
Research and development 73,106 1,000 200,040
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Total operating expenses 119,578 321,553 247,261 704,866
Net operating loss (119,578) (271,790) (247,261) (616,099)
Interest income -
Interest income (expense) (18,049) (632,632) (33,591) (846,701)
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(18,049) (632,632) (33,591) (846,701)
Loss from continuing operations
before income taxes (137,627) (904,422) (280,852) (1,462,800)
Income tax expense - - -
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NET LOSS (137,627) (904,422) (280,852) (1,462,800)
=========== ========================== =============
Net loss per weighted average share ($0.01) ($0.04) ($0.01) ($0.07)
=========== ========================== =============
Weighted average number of common shares
used to compute net loss per weighted
average share 24,517,443 22,517,443 24,517,443 21,904,943
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4
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
At June 30, 2002
(Unaudited)
Six months ended June 30
2002 2001
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Cash flows from operating activities
Net Loss $(280,852) $(1,462,800)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 19,354 73,827
Deferred Salaries 171,630 -
Expenses paid in stock 5,500
Interest expense 33,591 846,701
Changes in assets and liabilities
Increase in accounts receivable 26,984
Decrease (increase) in inventories 236,338
Decrease (increase) in restricted cash -
Decrease (increase) in prepaid expenses and other receivables (13,747)
Increase in accounts payable and accrued expenses 24,536 (72,546)
Increase in deposits -
Decrease in income taxes payable -
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Net cash used in operating activities (31,741) (359,743)
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Cash flows used in investing activities
Purchase of equipment -
5
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
At June 30, 2002- Continued
(Unaudited)
Six months ended June 30,
2002 2001
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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 31,750 350,100
Payments on loans - -
Proceeds from the exercise of stock options - -
Sale of common stock -
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Net cash provided by financing activities 31,750 350,100
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(Decrease) increase in cash and cash
equivalents 9 (9,643)
Cash and cash equivalents at beginning of period 209 9,825
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Cash and cash equivalents at end of period $ 218 $ 182
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Supplemental information
Cash paid for interest $ -
Cash paid for income taxes $ 2,400
6
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 (Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
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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, 2001. 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, 2002 are not necessarily
indicative of the results that may be expected for the entire fiscal year 2002.
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
June 30, 2002 (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 stopped the
manufacturing of all its systems until new funding can be secured. 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
has been unsuccessful in this current year partially because we are unable to
service machines outside the immediate geographical areas due to the lack of
funding for technical staff. 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.
As of January 22, 2002, we have filed a Petition for relief under Chapter 11 of
the Bankruptcy Code. An automatic stay is now in place. We will use this
bankruptcy to protect the business from our creditors while we reorganize and
try to work out a plan to pay our debts. The Petition was filed in United
States Bankruptcy Court, District of Arizona, In Re: MW MEDICAL, INC., a Nevada
Corporation, Case No. 02-0108-90-PHX-RTB, and In Re: MICROWAVE MEDICAL
CORPORATION, a California Corporation, Case No. 02-01298-PHX-GBN. The location
of the United States Trustee is 2929 N. Central Avenue, Suite 700, P.O. Box
36170, Phoenix, Arizona 85067-6170, (602) 640-2100.
In the past year, sales have been slower than anticipated. Our small revenues
have been greatly outpaced by our operating expenses, and we are now insolvent.
With the economic downturn, our unproven ability to generate revenues and the
economic fallout from the events of September 11, 2001, we have been unable to
raise additional capital. Our secured creditor has determined that the value of
the collateral and the growing unsecured debt made it unlikely that we could
raise additional capital. Without any further loans available, and with no
prospect of raising additional capital in the face of our current balance sheet,
we are unable to continue in business without the aid of Chapter 11 protection.
Even with the protection afforded by the bankruptcy petition, we cannot provide
investors with any assurance we will emerge from bankruptcy as a viable
business.
There are no assets to be distributed to creditors or shareholders as the
secured creditor has a lien on all assets and is undersecured. The primary
objective of this reorganization is to allow us to go forward as a public
company free of all debt and with a reduced secured debt. The plan also
provides for payment to unsecured creditors of more than they would receive in a
liquidation. We can then seek business opportunities for a reverse merger that
will allow creditors and shareholders to realize value not otherwise available
to them. In the event of an inability to raise capital and the loss of its
assets, we will still have the capacity to seek a reverse merger partner but we
cannot assure investors a reverse merger partner will be found.
Since the filing of the Bankruptcy, the company has not been actively selling
any machines. The Company submitted to the Debtors, the First Amended Joint Plan
of Reorganization on February 21, 2002 and all ballots were collected and
accepted on May 22, 2002.
Assets
Total assets decreased to $ 336,792 on June 30, 2002 from $356,137 from December
31, 2001, a decrease of $19,345 or 5.4%. The net change resulted primarily from
a decrease in the value of our equipment.
Liabilities And Stockholders' Equity
Our liabilities increased by $261,508, or 19% to $ 1,629,863 as of June 30,
2002. The increase in liabilities was caused by unpaid salary and notes payable
- - related party. All cost involved in the filing of the bankruptcy and the
continued operations of the Company is still being funded by
9
Ms. Wallace, our president and chief executive officer. These amounts are
reflected in notes payable - related party. The officers of the company have
elected to defer all of their salaries. Stockholders' equity decreased to a
deficit of $1,293,071 from $1,012,218 as of December 31, 2001. The decrease in
stockholders' equity resulted from the continued net losses from operations.
Results of Operations
Due to the lack of funding and the filing of Chapter 11, Bankruptcy code, the
operations of the Company have consisted of planning for the reorganization of
the Company
Net operating loss for the three months ended June 30, 2002 was $119,578
compared to $271,790 on June 30, 2001. 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, 2002
were $109,901 compared to $211,598 for the same period in 2001. This reflects a
decrease of $101,697 or 48%. This decrease was primarily due to significant
reductions in staff and all operating expenses.
Research and development expenses were $0 for the three months ended June 30,
2002 compared to $73,106 for the same period in 2001. The decrease reflects the
cessation of all clinical sites and research into new microwave applications for
our proprietary technologies.
Depreciation and amortization expenses for the three months ended June 30, 2002
were $9,677 compared to $36,849 for the same period in 2001. In 2001, the
Company wrote down the value of its inventory. We also wrote off the value of
all machines used in the clinical sites for research and development.
Liquidity and Capital Resources
With the exception of new loans advanced by Ms. Wallace, the Company has no 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.
For the first half of 2002, 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.
As of June 30, 2002, the Company had $218 in cash.
We used cash of $31,741 in our operating activities during the six months ending
June 30, 2002 compared to $359,743 for the same period in 2001. In the first
half of 2002, we were primarily involved in procedures for the bankruptcy and in
researching the possiblity of an acquistion or a merger with another entity. The
Company did not have any funds for operations.
10
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.
11
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
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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 19, 2002 /s/ Jan Wallace
____________________________________
Jan Wallace, Chief Executive Officer
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jan Wallace, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on
Form 10-QSB of MW Medical for the quarterly period ended June 30, 2002 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Quarterly Report
on Form 10-QSB fairly presents in all material respects the financial condition
and results of operations of MW Medical.
By: /s/ Jan Wallace
--------------------------------
Name: Jan Wallace
Title: Chief Executive Officer
Date: August 19, 2002
I, Grace Sim, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on
Form 10-QSB of MW Medical for the quarterly period ended June 30, 2002 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Quarterly Report
on Form 10-QSB fairly presents in all material respects the financial condition
and results of operations of MW Medical.
By: /s/ Grace Sim
--------------------------------
Name: Grace Sim
Title: Acting Chief Financial Officer
Date: August 19, 2002