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, 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
- -------------------------------- ----------
(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) 941-3875
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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, 2002
- ------------------------------------ ---------------------------------
$.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 nine
months ended September 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)
September 30, December 31,
2002 2001
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CURRENT ASSETS
Cash $ 10,418 $ 209
Accounts Receivable -
Inventory 300,000 300,000
Other current assets
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Total current assets 310,418 300,209
INVENTORY, long-term
PROPERTY AND EQUIPMENT, net of allowance 26,897 55,928
for depreciation of $346,625 and $317,544
OTHER RECEIVABLES, net -
------------- -------------
$ 337,315 $ 356,137
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 276,960 $ 241,617
Accrued expenses 762,880 510,867
Note payable - related party 716,221 615,871
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Total current liabilities 1,756,061 1,368,355
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' (DEFICIT)
Common stock $.001 par value;
authorized - 100,000,000 shares issued and
outstanding, 24,517,443 24,517 24,517
Additional paid-in capital 13,687,857 13,687,857
Note receivable from former parent
Accumulated deficit (15,131,120) (14,724,592)
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Total stockholders' (deficit) (1,418,746) (1,012,218)
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$ 337,315 $ 356,137
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3
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
At Sept. 30, 2002
(Unaudited)
Three months Nine months
ended Sept. 30, ended Sept. 30,
------------------------- ---------------------------
2002 2001 2002 2001
----------- -------------------------- -------------
Sales, net - $ 48,000 $ - $ 217,560
Cost of sales - 41,186 - 121,978
----------- ------------ ------------ -------------
- 6,814 - 95,582
General and administrative
expenses 99,501 192,312 326,408 623,311
Depreciation and amortization 9,677 36,978 29,031 110,805
Research and development 58,879 1,000 258,919
----------- ------------ ------------ -------------
Total operating expenses 109,178 288,169 356,439 993,035
Net operating loss (109,178) (281,355) (356,439) (897,453)
Interest income -
Interest income (expense) (16,498) (19,900) (50,089) (866,600)
----------- ------------ ------------ -------------
(16,498) (19,900) (50,089) (866,600)
Loss from continuing operations
before income taxes (125,676) (301,255) (406,528) (1,764,053)
Income tax expense - - - -
----------- ------------ ------------ -------------
NET LOSS (125,676) (301,255) (406,528) (1,764,053)
=========== ============ ============ =============
Net loss per weighted average
share ($0.01) ($0.01) ($0.02) ($0.08)
=========== ============ ============ =============
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
=========== ============ ============ =============
4
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
At September 30, 2002
(Unaudited)
Nine months ended September 30
2002 2001
--------------- ------------
Cash flows from operating activities
Net Loss $ (406,528) $(1,764,053)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 29,031 110,805
Deferred Salaries 252,120 -
Expenses paid in stock 5,500
Interest expense 50,089 817,000
Changes in assets and liabilities
Increase in accounts receivable 28,641
Decrease (increase) in inventories 272,017
Decrease (increase) in restricted cash -
Decrease (increase) in prepaid expenses
and other receivables 19,873
Increase in accounts payable and accrued
expenses 41,959 15,734
Increase in deposits -
Decrease in income taxes payable -
--------------- ------------
Net cash used in operating activities (33,329) (494,483)
--------------- ------------
Cash flows used in investing activities
Purchase of equipment -
5
MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
At September 30, 2002- Continued
(Unaudited)
Nine months
ended September 30
2002 2001
--------- ---------
Cash flows from financing activities
Capital contribution from former parent - -
Proceeds from convertible debenture offering - -
Proceeds from line of credit - -
Proceeds from loans 43,538 286,000
Payments on loans - -
Proceeds from the exercise of stock options - -
Sale of common stock - 200,000
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Net cash provided by financing activities 43,538 486,000
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(Decrease) increase in cash and cash equivalents 10,209 (8,483)
Cash and cash equivalents at beginning of period 209 9,825
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Cash and cash equivalents at end of period $ 10,418 $ 1,342
========= =========
Supplemental information
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ 2,400
6
MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 (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, 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 nine-month period ended September 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. These losses, in the past, were due to
the significant costs incurred in connection with manufacturing, marketing and
distributing its microwave products. 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, 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. Sales of the
MW 2000 has been unsuccessful in the past 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.
On January 22, 2002, we 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.
A plan of organization was filed with the court, and amended on May 29, 2002.
On October 23, 2002 we requested that the court approve the report, close the
estate and enter a final decree. We are currently waiting for the court's final
approval.
Under the plan of organization, 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.
The plan of organization stipulates only one secured creditor, Ms. Jan Wallace.
Ms. Wallace's security consists of patented and the proprietary technology,
ongoing product approvals, inventory and goodwill. Sales of the patented
product have not proved profitable despite investment of significant monies in
marketing efforts. The inventory has little value beyond scrap or salvage value
except through the sale as retail product to physicians. Under the plan of
organization, Ms. Wallace's secured claim shall be evidenced by a new promissory
note issued to Ms. Wallace secured by the same property.
The largest group of unsecured creditors consists of management and former
management personnel who are owed salary and expenses. Under the plan of
reorganization, this group of creditors' claims are being satisfied by receiving
equity in other "to be formed" companies that will have shares authorized by the
bankruptcy court. Additionally, MW Medical's Equity Security Holders' Interests
will maintain their ownership in MW Medical in addition to receiving a small pro
rata equity interest in these "to be formed" companies.
Other creditor's claims filed during the bankruptcy proceedings have been
satisfied from either our nominal cash funds available or with MW Medical shares
to be issued.
In the year prior to the Petition, sales had been slow. 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 determined that the
9
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 were 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.
Assets
Total assets decreased to $ 337,315 on September 30, 2002 from $356,137 from
December 31, 2001, a decrease of $18,822 or 5.3%. The net change resulted
primarily from a decrease in the valuation of our equipment.
Liabilities And Stockholders' Equity
Our liabilities increased by $387,706, or 28% to $ 1,756,061 as of September 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 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 $1,418,746
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 September 30, 2002 was $109,178
compared to $281,355 on September 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 no work in research and development.
General and administrative expenses for the three months ended September 30,
2002 were $99,501 compared to $192,312 for the same period in 2001. This
reflects a decrease of $92,811 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 September
30, 2002 compared to $58,879 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 September 30,
2002 were $9,677 compared to $36,978 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.
10
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.
Since November 2000, we have relied upon Ms. Wallace to providing funding. We
have not yet identified new sources for financing and we are currently in
default on our notes to Ms. Wallace.
As of September 30, 2002, the Company had $10,418 in cash. The majority of these
funds have been allocated to the Debtor Settlement.
We used cash of $33,329 in our operating activities during the nine months
ending September 30, 2002 compared to $494,483 for the same period in 2001. In
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.
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.
ITEM 3. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer, Ms. Jan
Wallace and Chief Financial Officer, Ms. Grace Sim. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting management
to material information relating to us that is required to be included in our
periodic SEC filings. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
On January 22, 2002, we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code. The petition was filed in the United States
Bankruptcy Court, District of Arizona, under Case Number 02-01090-PHX-RTB for MW
Medical Inc. and Case Number 02-01298-PHX-GBN for Microwave Medical Corp. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for more discussion regarding this proceeding.
Other than the above discussed legal proceedings, we are not a party to any
material litigation and to our knowledge, no such proceedings are currently
threatened.
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:
The Company filed a definitive 14A proxy statement with the Securities and
Exchange Commission on November 8, 2002, and mailed same to shareholders on or
about the same date, announcing an annual shareholder meeting scheduled for
December 2, 2002. The purpose of the meeting will be to elect directors and
approve a reverse split of the stock on a basis of one share for every 25 shares
presently outstanding. Shares outstanding on the record date of October 9, 2002
were 24,550,070. Outstanding shares after the split will be approximately
980,700. Management believes that this capital restructuring will maximize our
business opportunities going forward by making the Company more attractive as a
target for a merger or reverse acquisition.
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: November 19, 2002 /s/Jan Wallace
____________________________________
Jan Wallace, Chief Executive Officer
14
CERTIFICATIONS
I, Jan Wallace, Chief Executive Officer of MW Medical, Inc. (the "Registrant"),
certify that;
(1) I have reviewed this quarterly report on Form10-QSB of MW Medical, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2002 /s/ Jan Wallace
___________________________________
Jan Wallace
Chief Executive Officer
15
CERTIFICATIONS
I, Grace Sim, Chief Financial Officer of MW Medical, Inc. (the "Registrant"),
certify that;
(1) I have reviewed this quarterly report on Form10-QSB of MW Medical, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
(4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 19, 2002 /s/ Grace Sim
___________________________________
Grace Sim
Chief Financial Officer
16