SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 001-14297
MW Medical, Inc.
(Exact name of Registrant as specified in its charter)
NEVADA 86-0907471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6955 E. Caballo Dr.
Paradise Valley, ARIZONA 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-8700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
100,000,000 shares of common stock
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
Revenues for 1998 were $0.
As of March 26, 1999 there was no market value of the voting stock held by
non-affiliates of the registrant as the stock currently has no market price.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1999
- ------------------------------------ -------------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 15,873,929 SHARES
1
<PAGE>
PART I
The information provided in this amended 10-KSB reflects facts as they existed
at the time of the original filing and has not been updated. For more current
information regarding the business of the Company, readers are referred to the
Form S-1 and the Form 10-QSBs filed with the Securities and Exchange Commission
in 1999.
ITEM 1. Business.
Overview
MW Medical, Inc. (the "Company") is in the business of designing and developing
microwave technologies for dermatological applications through its wholly owned
subsidiary, Microwave Medical Corporation ("MMC"). MMC established an office in
Germany in late 1997, called Microwave Medical GmBH ("GmBH"). Testing in Germany
was concluded in July 1998. The Company's products are in the development stage.
The Company plans to market and sell its microwave technology products upon
completion of the development stage.
The Company is a Nevada corporation and was incorporated as a subsidiary of
Dynamic Associates, Inc. ("Dynamic") on December 4, 1997. The Company is the
owner of two wholly owned subsidiaries:
(A) Microwave Medical Corporation, a California corporation
("MMC");
(B) P&H Laboratories, Inc., a California corporation ("P&H").
The Company acquired each of MMC and P&H from Dynamic pursuant to a contribution
agreement dated February 26, 1998 between the Company and Dynamic (the
"Contribution Agreement"). The Company has issued to Dynamic 14,223,929 common
shares of the Company in consideration for the transfer by Dynamic to the
Company of:
(A) all of the issued and outstanding shares of P&H
(B) all of the issued and outstanding shares of MMC and
shareholders loans to MMC in the amount of $2,169,806; and
(C) the agreement of Dynamic to pay to the Company fee of
$200,000. The obligation of Dynamic to pay the sum of $200,000
is evidenced by a promissory note dated February 26, 1998 (the
"Promissory Note").
As of March 21, 1999, Dynamic has paid the first $50,000 of the $200,000 of this
promissory note.
Dynamic has spun-off all shares of the Company issued pursuant to the
Contribution Agreement to the shareholders of Dynamic by a distribution
completed on March 11, 1998 (the "Distribution"). Each shareholder of Dynamic
received one common share of the Company for each common share of Dynamic held
by the shareholder. The shares of the Company distributed by Dynamic constitute
all of the issued and outstanding shares of the Company at that point.
As subsidiaries of Dynamic, each of MMC and P&H has been in the microwave
technologies business for approximately 2 years. MMC commenced its business as a
subsidiary of Dynamic in September, 1995. Dynamic acquired a 50% interest in P&H
in January, 1996. Dynamic acquired the remaining 50% of P&H in September, 1997.
The Company has sold the microwave technologies business carried on by P&H
effective May 6, 1998 in order to concentrate exclusively on the microwave
technologies business carried on by MMC.
2
<PAGE>
Narrative Description of Business
Principal Services and Products
The Company carries on the business of designing and developing microwave
technologies for dermatological applications through MMC. The Company's products
are in the development stage. The Company plans to market and sell its microwave
technology products upon completion of the development stage.
MMC is engaged in the development of proprietary technology relating to the use
of microwave energy for medical applications. MMC has a patent pending entitled,
"Method and Apparatus for Treating Subcutaneous Histological Features," which
focuses on the application of microwave energy to the treatment of spider veins
and for use in hair removal. The use of microwave for hair removal is based upon
the selective heating of hair follicles while cooling the surface of the skin to
protect the epidermis. MMC has used computer modeling and laboratory studies to
optimize the system for hair removal. Preclinical studies have shown
effectiveness in destroying follicles while maintaining the integrity of the
skin surface. MMC's microwave system for hair removal has completed Phase III
clinical trials, however, our FDA Consultants after reviewing the results of
Phase II and Phase III clinical results have concluded that the Company has
sufficient data to submit for FDA approval. Accordingly, our Chief Scientist is
working with the FDA Consultants to prepare our 510K submission seeking approval
for the indication of hair removal. Trials will continue for spider veins and
orbital facial wrinkles and as results are compiled, reviewed and determined to
be satisfactory, additional indications will be submitted for expanded use of
the microwave technology. In Phase II, the objective of the trials was to
perform a dose titration to establish safety and initial indications of
efficacy. At total of 21 subjects were tested starting at a low dose in the
first group of three subjects and gradually applying an increasing dose in each
group of three subjects until the maximum tolerable dose was reached.
Effectiveness was evaluated by following hair counts in the treated areas.
MMC's objective is to complete development of a microwave therapy system which
incorporates the technology in the patent for the following applications:
(A) The removal of unwanted hair for cosmetic purposes
Unwanted hair is a common dermatological and cosmetic problem.
There is an increasing demand for hair removal, which thus far
has not been well addressed by current technologies. MMC has
been able to demonstrate that microwave technology is a
feasible solution for hair removal, and is in the proces of
completing Phase II clinical trials for safety and
effectiveness.
(B) The treatment of Telangiectasia, or, spider veins
Spider veins are thread-like red to purplish veins that stem
from a network of small veins just below the surface of the
skin. Spider veins develop more predominantly on the legs and
faces of women. These are usually caused by the female hormone
estrogen. At this time surgery, laser and injection
(sclerotherapy) are the predominant treatments for the
condition.
(C) The treatment of orbital facial wrinkles
The Company has also identified a significant opportunity in
the field of treating orbital facial wrinkles as an
alternative to laser therapy and chemical peels. Phase II
trials have begun in Los Angeles. In addition, the Company
will begin trials for the use of the technology to treat
"stretch marks" and this is expected to start before July
1999.
3
<PAGE>
Sale of the Business of P&H
The Company has sold the business of P&H pursuant to an asset purchase and sale
agreement dated March 9, 1998 between P&H and Microwave Communication
Corporation, a California corporation ("Microwave"), whereby P&H agreed to sell
to Microwave all of the assets of the business of P&H as a going concern (the
"P&H Sale Agreement"). Microwave is not currently, and, to the Company's
knowledge, has never been an affiliate of the Company. The sale of assets by P&H
to Microwave was completed on May 6, 1998. The following consideration was
received by the Company on closing:
(A) cash consideration of $160,534;
(B) a promissory note issued by MCC/ Ferro Systems, Inc., a
subsidiary of Microwave. whereby MCC/Ferro has agreed to pay
to P&H the sum of $250,000 on August 1,1998 and the sum of
$243,125 on March 31, 1999 (the "MCC/Ferro Promissory Note");
(C) the agreement of Microwave to provide to MMC 1200 hours of
microwave related services for the period to April 1, 1999,
subject to a maximum of 100 hours per month for a total cash
consideration of $240,000;
(D) office space for the business of MMC at MCC/Fer 's facility in
Simi Valley, California until February 28, 1999.
MCC/Ferro has completed the payment of $250,000 to P&H due August 1, 1998, as
required by the MCC/Ferro Promissory Note. MCC has requested new payment terms
for their last installment payment of $243,125 due on March 31, 1999.
Negotiations are currently underway to extend the repayment terms to monthly
payments over 18 months beginning July 1st, 1999. The Company has established an
allowance for bad debts in the amount of $60,000.
The obligations of MCC/Ferro under the MCC/Ferro Promissory Note are secured by
a general security agreement against the assets of MCC/Ferro and the guarantee
of Microwave. The general security agreement is subordinated to bank financing
arranged by MCC/Ferro to pay-out P&H's bank financing and pay the amounts under
the MCC/Ferro Promissory Note.
ITEM 2. Properties
MW Medical, Inc.
MW is headquartered in the premises at 6955 E. Caballo Dr., Paradise Valley,
Arizona 85253. There is no lease at this location but the Company shares
expenses with another corporation at the same location. The Company owns no
other property.
MMC's offices are located at 4496 Runway Street, Simi Valley, CA 93063. The
premises occupied by MMC constitute a portion of the premises formerly occupied
by P&H, constituting approximately 18,000 square feet at 4496 Runway Street,
Simi Valley, California, and now occupied by MCC/Ferro. MCC/Ferro has agreed
pursuant to the P&H Sale Agreement to grant to MMC occupancy of the premises at
Simi Valley, California until February 28, 1999 without any additional payment
or obligation of MMC. MMC has agreed to rent space in Simi Valley on a month to
month basis and anticipates using that site for an additional six months.
4
<PAGE>
ITEM 3. Legal Proceedings.
The Company and any of its subsidiaries and any of their property, are not
involved in any material pending legal proceeding. At this time, neither the
Company, nor any of its subsidiaries, have any material bankruptcy,
receivership, or similar proceeding pending.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company has not had an Annual Shareholders Meeting.
No other matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1998.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters.
The Company has been approved by NASD to trade its shares on the Over The
Counter, Bulletin Board (OTC BB) under the symbol MWMD. The Company intends to
call the market when it has informed all shareholders of record, has updated its
web site and determined that an effective market making system is in place.
As of March 31, 1999 there were 431 record holders of the Company's common
stock. The Company issued 14,223,929 shares of stock to the Dynamic shareholders
and has issued an additional 2,500,000 common shares pursuant to a private
placement offering of its common shares completed pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended. The
offering was completed in March, 1999. The Company did not issue any warrants or
other securities convertible into common shares in connection with this
offering.
None of the holders of the Company's common shares or warrants or options to
purchase common shares have any right to require the Company to register its
common shares pursuant to the Securities Act of 1933, as amended.
The Company has not previously declared or paid any dividends on its common
stock and does not anticipate declaring any dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
Impact of the Year 2000 Issue
The "Year 2000 problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results. The extent of the potential impact of the Year 2000 problem
is not yet known, and if not timely corrected, it could affect the global
economy. The Company believes that its computer programs are Y2K compliant and
does not expect to be adversely affected by the issue.
The consolidated financial statements for 1998 include the accounts of
the Company; its wholly owned subsidiaries, MMC and MMC's Germany based
subsidiary Microwave Medical GmBH ("GmBH"), which was formed in late 1997, and P
& H.
5
<PAGE>
All significant intercompany balances and transactions have been
eliminated in the consolidation.
The Company has not generated any sales since its inception in 1997. It
is currently a development stage company undergoing research and development.
The Gross Profit for the year ended December 31, 1998 was $0, resulting
in an operating loss of $1,221,065 for the year. The net loss for 1998 was
$1,936,570 compared with a loss of $1,252,478 in 1997. Most of the increase in
the loss relates to discontinued operations.
RESEARCH AND DEVELOPMENT. Research and development costs shown on the
statements of operations relate to costs incurred by Microwave Medical Corp. and
MMC GmBH. In 1998, Research and Development was $569,738 compared to $1,057,759
in 1997. In 1998, the majority of the research was in the clinical trials and
less on the development of the product.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. The sales, general and
administrative expenses increased to $554,979 in 1998 from $0 in 1997. This
increase is attributed to higher operating costs with the reduced cost of
research and development.
OTHER INCOME/EXPENSE. The Company reported net interest/expense income,
and bad debt expense of $42,575 for 1998, compared to income of $6,674 for 1997.
The change is due primarily to the bad debts related to the sale of the P & H
assets.
LIQUIDITY AND CAPITAL RESOURCES. Working capital was $969,072 at
December 31, 1998 compared to $1,329,692 at December 31, 1997. The decrease is
mainly from the sale of the net assets of P&H.
ITEM 7. Financial Statements and Supplementary Data.
See Item 13.
ITEM 8. Changes in and Disagreements with Accountants o Accounting and Financial
Disclosure.
No independent accountant previously engaged as the principal
accountant to audit the Company's financial statements, nor an independent
accountant who was previously engaged to audit a significant subsidiary and on
whom the principal accountant expressed reliance in its report, has resigned or
was dismissed. The Company has not changed accountants nor has it had any
disagreements with any accountants.
6
<PAGE>
PART III
ITEM 9. Directors and Executive Officers of the Registrant.
The following table shows the positions held by the Company's officers
and directors. The directors were appointed and will serve until the next annual
meeting of the Company's stockholders, and until their successors have been
elected and have qualified. The officers were appointed to their positions, and
continue in such positions at the discretion of the directors.
Name Age Position
Jan Wallace 42 Chairman, Director
Paul E. Banko 53 President, CEO, Director
Grace Sim 38 Director, Secretary-Treasurer
Jan Wallace is a Director, Chairman of the Company. Ms. Wallace has been
employed by the Company since its inception. She is also on the Board of
Directors of Dynamic Associates, Inc. Ms. Wallace was previously Vice President
of Active Systems, Inc. a Canadian Company specializing in SGML Software, an ISO
standard in Ottawa, Ontario. Prior to that she was President and Owner of
Mailhouse Plus, Ltd., an office equipment distribution company which was sold to
Ascom Corporation. She has also been in management with Pitney Bowes-Canada and
Bell Canada where she received its highest award in Sales and Marketing. Ms.
Wallace was educated at Queens University in Kingston, Ontario and Carleton
University, Ottawa, Ontario in Political Science with a minor in Economics.
Paul E. Banko has joined the Company as President and Chief Executive Officer
effective October 1, 1998. Mr. Banko also replaced Dr. Rainer Marquart as
President and Chief Executive Officer of Microwave Medical Corporation effective
October 1, 1998. Mr. Banko has been President of International Consulting Group,
Inc. since 1985. International Consulting Group, Inc. provides general
management and consulting services for start-up companies. Mr. Banko was
President of Bausch Lomb Australia, Bausch Lomb United Kingdom, Chairman of
Hydron Europe Ltd. (London) and President of Hydron Canada Ltd. from 1975 to
1985 and has had extensive experience with domestic and international operations
in the medical and health care fields since 1973.
Grace Sim has been the Director and Secretary/Treasurer of the Company since its
inception. Since 1997, Ms. Sim has also been Secretary/Treasurer of Dynamic
Associates, Inc., a Company that files with the SEC. Prior to joining Dynamic,
Ms. Sim owned Sim Accounting, an accounting consulting company in Ottawa,
Ontario, Canada. Between 1993 and 1994, she worked as the controller with
Fulline, an office equipment company and with Mailhouse Plus Ltd. between 1990
and 1992. Ms. Sim received her Bachelor of Mathematics with honors from the
University of Waterloo in Waterloo, Ontario.
7
<PAGE>
ITEM 10. Executive Compensation.
<TABLE>
<CAPTION>
Annual Compensation Table
Annual Compensation Long Term Compensation
Other Restricted
Annual Stock Options/* LTIP All Other
Name Title Year Salary Bonus Compensation Awarded SARs (#) payouts ($) Compensation
- ---- ----- ---- --------- ----- ------------ ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan Wallace Chairman 1998 $150,000(1) $ 0 0 0 0 0 0
Director
Paul E. Banko President 1998 $36,000(2) $ 0 0 0 0 0
CEO
Grace Sim Director 1998 $80,000(3) $ 0 0 0 0 0 0
SecretaryTreasurer
</TABLE>
(1)Includes $86,393 accrued at 12/31/98.
(2)for October 1, 1998 to December 31, 1998
(3)Includes $45,569 accrued at 12/31/98.
On March 25, 1999, the Company granted 400,000 options to Paul E.
Banko, 400,000 to Jan Wallace, and 200,000 to Grace Sim. The options allow the
holders to purchase common shares of the Company for $1.00 per share. 50% of the
options are exercisable immediately and 50% require a one year waiting period.
Three other employees were granted a total of 245,000 options with the same
terms.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 1998, information
regarding the beneficial ownership of shares by each person known by the Company
to own five percent or more of the outstanding shares, by each of the directors
and by the officers and by each director and officer as a group, consisting of:
<TABLE>
<CAPTION>
Number of Shares
Class Name and Address to be Projected
of Beneficial Owner Beneficially Owned Percent of Class
- ----------------- -------------------------- ----------------------- ------------------
<S> <C> <C> <C>
Class A Common Vickie T. Lucky 2,370,000 14.17%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
Class A Common Jan Wallace 800,000(1) 4.78%
(Director)
6929 East Cheney
Paradise Valley, AZ 85253
Class A Common Paul E. Banko 400,000(2) 2.39%
(President, Director)
Carlsbad, CA
Class A Common Grace Sim 250,000(3) 1.49%
(Director, Secretary/Treasurer)
6955 E. Caballo Dr.
Paradise Valley, AZ 85253
All officers and directors 1,450,000 8.67%
</TABLE>
(1) includes 400,000 options held by Ms. Wallace
(2) includes 400,000 options held by Mr. Banko
(3) includes 200,000 options held by Ms. Sim
8
<PAGE>
ITEM 12. Certain Relationships and Related Transactions.
During 1998 $36,000 was paid to the Company's President, and $150,000
was paid or accrued to the Chairman and $80,000 was paid or accrued to the
Secretary/Treasurer.
For 1999, it is projected that the Company's President will receive
$12,000 monthly, the Chairman $15,000 monthly, and the Secretary $8,000 monthly.
PART IV
ITEM 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following financial statements, financial statement schedules and
supplementary date are included:
F-1 Independent Auditor's Report
Financial Statements:
F-2 Consolidated Balance Sheets - December 31, 1998 and 1997
F-3 Consolidated Statements of Operations - Years Ended December
31, 1998, 1997, and 1996.
F-4 Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1998, 1997 and 1996.
F-5 Consolidated Statements of Cash Flows - Years Ended December
31, 1998, 1997, and 1996.
F-6 Notes to Consolidated Financial Statements
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1998.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MW Medical, Inc.
Date: December 24, 1999 By:
Jan Wallace, President, CEO, Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: December 24, 1999 By:
Jan Wallace, President, CEO, Director
Date: December 24, 1999 By:
Grace Sim, Secretary/Treasurer
and Director
10
<PAGE>
Smith
&
Company
A Professional Corporation of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Board of Directors
MW Medical, Inc.
We have audited the accompanying consolidated balance sheets of MW Medical, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1998, 1997, and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MW Medical, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations, changes in stockholders' equity, and their cash flows for the years
ended December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 16, certain errors resulting in overstatement of previously
reported income as of December 31, 1998, were discovered by management of the
Company during the current year. Accordingly, the 1998 financial statements have
been restated to correct the errors.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 12, 1999,
except Note 16, which is dated November 19, 1999
10 West 100 South, Suite 700 o Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 o Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants o
Utah Association of Certified Public Accountants
F-1
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 890,283 $ 387,982
Accounts receivable (less allowance for doubtful accounts of
$0 in 1998 and $20,000 in 1997) 0 559,783
Receivable - P&H sale (less allowance for doubtful accounts of
$60,000) (Note 15) 21,625 0
Other receivables 2,000 19,824
Inventories (Note 2) 0 809,977
Prepaid expense and other current assets 61,282 17,829
Deferred tax benefit (Note 8) 0 0
----------------- ------------------
TOTAL CURRENT ASSETS 975,190 1,795,395
PROPERTY, PLANT, & EQUIPMENT (Note 4) 67,392 693,283
OTHER ASSETS
Deposits 0 21,705
Receivable - P&H sale (Note 15) 161,500 0
Organization Costs (Note 2) 400 28,440
----------------- ------------------
161,900 50,145
----------------- ------------------
$ 1,204,482 $ 2,538,823
================= ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 70,766 $ 227,587
Accrued expenses 1,038 147,667
Accrued expenses - related parties (Note 13) 132,714 0
Current portion of long-term debt (Note 7) 0 90,449
Income taxes payable (Note 8) 1,600 0
----------------- ------------------
TOTAL CURRENT LIABILITIES 206,118 465,703
Payable - former parent (Note 6) 0 1,999,806
Long-term debt (Note 7) 0 329,808
Deferred income tax (Notes 2 and 8) 0 0
----------------- ------------------
0 2,329,614
----------------- ------------------
TOTAL LIABILITIES 206,118 2,795,317
Commitments and contingencies (Note 9) 0 0
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 15,723,929 shares (14,223,929 in 1997) 15,724 14,224
Additional paid-in capital 3,425,804 35,876
Note receivable - former parent (Note 16) (200,000) 0
Retained earnings (deficit) (2,243,164) (306,594)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 998,364 (256,494)
----------------- ------------------
$ 1,204,482 $ 2,538,823
================= ==================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net sales $ 0 $ 0 $ 0
Cost of sales 0 0 0
----------------- ----------------- ------------------
GROSS PROFIT 0 0 0
Selling and General & administrative expenses 554,979 0 0
Depreciation and amortization 96,348 75,790 15,941
Research and development (Note 2) 569,738 1,057,759 588,915
----------------- ----------------- ------------------
1,221,065 1,133,549 604,856
----------------- ----------------- ------------------
NET OPERATING (LOSS) (1,221,065) (1,133,549) (604,856)
OTHER INCOME (EXPENSE)
Interest income 17,425 6,674 10,338
Bad debts (60,000) 0 0
----------------- ----------------- ------------------
(42,575) 6,674 10,338
----------------- ----------------- ------------------
Loss from continuing operations before income taxes (1,263,640) (1,126,875) (594,518)
INCOME TAX EXPENSE (Note 8) 800 800 800
----------------- ----------------- ------------------
NET (LOSS) BEFORE
DISCONTINUED OPERATIONS (1,264,440) (1,127,675) (595,318)
DISCONTINUED OPERATIONS
Operations of subsidiary sold 4/1/98 (194,268) (124,803) 128,409
Sale of net assets of subsidiary (477,862) 0 0
----------------- ----------------- ------------------
Loss from discontinued operations (672,130) (124,803) 128,409
----------------- ----------------- ------------------
NET (LOSS) $ (1,936,570) $ (1,252,478) $ (466,909)
================= ================= ==================
Net loss per weighted average share - continuing operations $ (.08) $ (.08) $ (.04)
Net loss per weighted average share - discontinued operations (.05) (.01) .01
----------------- ----------------- ------------------
$ (.13) $ (.09) $ (.03)
================= ================= ==================
Weighted average number of common shares used to
compute net loss per weighted average share 14,462,285 14,223,929 14,223,929
================= ================= ==================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Earnings
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balances at 12/31/95 0 $ 0 $ 0 $ 0
Issuance of common stock (restricted) at $.1028
per share for subsidiaries * 14,223,929 14,224 35,876 1,412,793
Net loss for year (466,909)
------------- --------------- --------------- ---------------
Balances at 12/31/96 14,223,929 14,224 35,876 945,884
Net loss for year (1,252,478)
------------- --------------- --------------- ---------------
Balances at 12/31/97 14,223,929 14,224 35,876 (306,594)
Capital contribution - Notes 6 and 16 2,369,807
Stock sold for cash 1,500,000 1,500 1,009,513
Subsidiary adjustment 10,608
Net loss for year (1,936,570)
------------- --------------- --------------- ---------------
Balances at 12/31/98 15,723,929 $ 15,724 $ 3,425,804 $ (2,243,164)
============= =============== =============== ===============
</TABLE>
* Transaction actually occurred on March 11, 1998, but is reflected
earlier under pooling-of-interests method of accounting.
See Notes to Financial Statements.
F-4
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------- ----------------- ------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (1,936,570) $ (1,252,478) $ (466,909)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation and amortization 134,925 139,062 60,897
Bad debts 60,000 0 0
Net value of subsidiary's assets sold 1,128,419 0 0
Book value of assets sold/disposed 0 47,405 0
Deferred taxes 0 10,500 (11,500)
Changes in assets and liabilities:
Accounts receivable (233,519) (34,609) 285,651
Inventories 80,636 (92,150) (129,024)
Prepaid expenses and other (46,055) (18,146) (9,196)
Accounts payable and accrued expenses 124,436 120,116 21,922
Deposits 37,000 0 0
Income taxes payable 1,600 (45,415) (83,590)
----------------- ----------------- ------------------
NET CASH USED BY OPERATING ACTIVITIES (649,128) (1,125,715) (331,749)
INVESTING ACTIVITIES
Loan - other (3,915) 92,330 (98,120)
Loan - related party 0 30,300 0
Organization costs 0 (27,800) 0
Purchase of equipment (13,493) (618,780) (150,680)
Deposits (2,225) 922 (1,312)
----------------- ----------------- ------------------
NET CASH USED BY INVESTING ACTIVITIES (19,633) (523,028) (250,112)
FINANCING ACTIVITIES
Borrowings - former parent 170,000 914,360 548,500
Cash from subsidiaries 0 0 986,944
Principal payments on debt (9,951) (99,796) (78,206)
Principal payments on capital lease obligation 0 0 (519)
Loan proceeds 0 347,303 0
Loans - related party 100,000 0 0
Loan repayment - related party (100,000) 0 0
Sale of common stock 1,011,013 0 0
----------------- ----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,171,062 1,161,867 1,456,719
----------------- ----------------- ------------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 502,301 (486,876) 874,858
Cash and cash equivalents at beginning of year 387,982 874,858 0
----------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 890,283 $ 387,982 $ 874,858
================= ================= ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 9,824 $ 14,232 $ 17,356
Cash paid for income taxes 800 65,715 167,790
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on
December 4, 1997. The Company is now engaged in the acquisition of
microwave technologies for medical purposes through Microwave Medical Corp.
("MMC"), and prior to April 1, 1998 was engaged in the manufacturing of
highly technologically advanced components and subsystems for the
communications and aerospace industries through P & H Laboratories ("P &
H").
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1998, 1997, and 1996 include the
accounts of the Company; its wholly owned subsidiaries, MMC and MMC's
Germany based subsidiary Microwave Medical GmBH ("GmBH"), which was formed
in late 1997, and P & H.
All significant intercompany balances and transactions have been eliminated
in consolidation.
Accounting Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. At December 31, 1997, inventories were comprised of the following:
1997
-------------
Raw materials $ 344,909
Work in progress 465,068
-------------
$ 809,977
=============
Research and Development Costs
Research and development costs were $569,738 in 1998 and were all incurred
by MMC and GmBH ($1,057,759 in 1997 and all incurred by MMC and GmBH, and
$588,915 in 1996 and all incurred by MMC).
Warranty Costs
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold
during the year. The accrued liability for warranty costs is included in
accrued expenses in the accompanying balance sheets.
Dividend Policy
The Company has not yet adopted any policy regarding payment of dividends.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its future employee stock options rather
than adopting the alternative fair value accounting provided for under
Financial Accounting Standards Board ("FASB") FASB Statement No. 123,
Accounting for Stock Based Compensation (SFAS 123).
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based upon
prior experience and management's assessment of the collectability of
existing specific accounts.
F-6
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The Company places
its investments in highly rated commercial paper obligations which limits
the amount of credit exposure. Historically, the Company has not
experienced any losses related to investments.
Property, Plant, and Equipment
Property, plant, and equipment is recorded at cost and is being depreciated
over a useful life of seventeen months to eight years using the
straight-line and accelerated methods.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid
investments with an original maturity of three months or less when
purchased to be cash equivalents.
Organization Costs
Organization costs of MMC and GmBH are being amortized over sixty months.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and operating
loss carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of all
of the deferred tax assets will not be realized. The valuation allowance at
December 1998 was $658,000 and at December 31, 1997 was $73,000 and at
December 31, 1996 it was $0. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. As of December 31, 1998, temporary differences arose primarily
from differences in the timing of recognizing expenses for financial
reporting and income tax purposes. Such differences include depreciation,
bad debt allowance, and various accrued operating expenses.
Prior to October 1, 1997, P&H filed separate income tax returns. For the
period of October 1, 1997 to December 31, 1997, P&H filed a consolidated
tax return with Dynamic Associates, Inc. ("Dynamic"), its parent at that
time. MMC filed a consolidated tax return with Dynamic in 1996 and 1997.
Income (Loss) per Share
Income (loss) per common share is computed by dividing net income (loss) by
the weighted average shares outstanding during each period.
NOTE 3: CAPITALIZATION
The Company's authorized stock includes 100,000,000 shares of Class "A"
common stock at $.001 par value. February 26, 1998, the Company issued
14,223,929 shares of its restricted common stock to Dynamic in exchange for
the common stock of MMC and P&H held by Dynamic. The financial statements
of MMC and P&H have been presented herein as if the entities had been
together for all periods presented. The acquisitions of MMC & P&H have been
accounted for as reverse acquisitions. The financial statements are
presented on a consolidated basis as if the entities were consolidated for
all periods presented.
NOTE 4: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Accumulated Net Book Value
Cost Depreciation 1998 1997
------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Machinery & Equipment $ 243,055 $ 186,580 $ 56,475 $ 573,208
Furniture & Fixtures 11,697 780 10,917 79,278
Leasehold Improvements 0 0 0 40,797
------------- ------------------ --------------- ------------------
$ 254,752 $ 187,360 $ 67,392 $ 693,283
============= ================== =============== ==================
</TABLE>
Depreciation expense is calculated under straight-line and accelerated
methods based on the estimated service lives of depreciable assets.
Depreciation expense for the year ended December 31, 1998 amounted to
$134,685, ($138,822 in 1997 and $60,657 in 1996).
Included in machinery and equipment at December 31, 1997 was $59,315 of
equipment under a capital lease. The related accumulated depreciation at
December 31, 1997 was $51,397.
F-7
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 5: RECLASSIFICATION OF CERTAIN ITEMS
The operations of P&H for 1997 and 1996 have been reclassified under the
caption "Operations of Subsidiary Sold 4/1/98" to conform to the 1998
presentation.
NOTE 6: PAYABLE - FORMER PARENT
At December 31, 1997, MMC/GmBH owed $1,999,806 to Dynamic, their former
parent. The amounts represented advances from Dynamic, which were
non-interest bearing and had no set repayment terms. During the quarter
ended March 31, 1998, Dynamic accepted 14,223,929 shares of common stock of
the Company in exchange for $2,169,807 of advances.
NOTE 7: LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Note payable - Bank. Payable in monthly installments
of $3,317 plus interest at prime plus 1% per
annum and secured by accounts receivable, other
rights to payment, general intangibles, inventory,
and equipment of P&H. Debt matures in December,
1999. $ 0 $ 72,954
Note payable - bank. Interest payments only until May,
1998 at which time it is converted to 48 monthly
installments of $7,235 plus interest at prime
(8.5% at December 31, 1997) plus 1% per annum and
secured by assets of P&H. Debt matures in May 2002.
The agreement contains certain financial and
restrictive covenants. As of December 31, 1997,
P&H was not in compliance with certain financial
covenants. On March 2, 1998, the bank waived such
events of noncompliance as of such date. 0 347,303
----------------- -----------------
0 420,257
Less current portion 0 (90,449)
----------------- -----------------
$ 0 $ 329,808
================= =================
</TABLE>
NOTE 8: INCOME TAXES
Components of income tax (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
Current
<S> <C> <C> <C>
Federal $ 0 $ 4,665 $ 63,500
State 1,600 1,600 22,300
------------- ------------- -------------
1,600 6,265 85,800
------------- ------------- -------------
Deferred
Federal 0 7,800 (9,000)
State 0 2,700 (2,500)
------------- ------------- -------------
0 10,500 (11,500)
------------- ------------- -------------
Income tax (benefit) $ 1,600 $ 16,765 $ 74,300
============= ============= =============
</TABLE>
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to
income before provision for income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income tax computed at federal
statutory tax rate $ (658,000) $ (420,142) $ (133,487)
Tax due to not being able to file
Consolidated return and other 0 435,851 193,069
Valuation allowance 658,000 0 0
State taxes (net of federal benefit) 1,600 1,056 14,718
------------- ------------- -------------
$ 1,600 $ 16,765 $ 74,300
============= ============= =============
</TABLE>
F-8
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 8: INCOME TAXES (continued)
Significant components of the Company's deferred tax liabilities and assets
for income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
Current deferred tax assets
<S> <C> <C> <C>
Net operating loss $ 458,000 $ 11,000 $ 0
Allowance for doubtful accounts 0 8,600 9,000
Capitalized inventory cost for tax 0 26,000 21,000
Vacation accrual 0 22,000 22,000
State income tax 0 1,000 9,000
Other accruals 0 4,400 6,000
Valuation allowance (458,000) (73,000) 0
------------- ------------- -------------
Net deferred current tax assets $ 0 $ 0 $ 67,000
============= ============= =============
Long-term deferred tax liabilities
Difference in fixed assets $ 0 $ 0 $ 56,500
============= ============= =============
</TABLE>
There was an increase of $385,000 in the valuation allowance for the year
ended December 31, 1998.
There was an increase of $73,000 in the valuation allowance for the year
ended December 31, 1997 ($0 change for the year ended December 31, 1996).
The deferred tax items relate to P&H. No deferred tax asset has been
recorded for the Company and MMC due to the fact they currently have no
operations to use their loss carryforward.
At December 31, 1998, the Company has a federal net operating loss
carryforward of approximately $885,000 which expires December 31, 2018.
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company is provided with office space and other management services at
no charge at the present time.
The Company has the following commitments:
One officer will receive $15,000 per month, one will receive
$12,000 and one will receive $8,000 per month.
Future scheduled payments under these employment related commitments are as
follows:
Year Ending
December 31, 1999 $ 384,000
December 31, 2000 46,000
----------------------
$ 430,000
======================
Rental expense for the year ended December 31, 1998 was $800 ($192,466 in
1997 and $189,088 in 1996) which includes $0 paid by MMC to P&H ($7,298 in
1997 and $7,120 in 1996). The contracts are renewable.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, other receivables,
accounts payable, and accrued expenses approximate fair value due to the
short maturity periods of these instruments. The fair value of the
Company's long-term debt, based on the present value of the debt, assuming
interest rates as follows at December 31, 1997 was:
Note at 9.5% $ 60,375
Note at 9.5% 230,550
----------------------
$ 290,925
======================
NOTE 11: MAJOR CUSTOMERS
During 1997, P&H had sales to two customers representing 38.5% and 12.6% of
total sales. At December 31, 1997, accounts receivable from the two
customers was about $274,000. During 1996, P&H had sales to two customers
which represented 40.6% and 12.2% of total sales. At December 31, 1996,
accounts receivable from the two customers totaled $295,000.
F-9
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 12: INDUSTRY SEGMENTS
The following narrative is before elimination of certain intercompany
items.
For 1998, the Company had general and administrative expenses of $554,979,
depreciation expense of $780, bad debt expense of $60,000 interest income
of $17,254, and loss on the sale of P&H assets of $477,862 for a net loss
of $1,076,367.
MMC had depreciation and amortization expense of $95,568, research and
development expense of $569,738, interest income of $171, and income tax
expense of $800 for net loss of $665,935.
P&H had a loss from discontinued operations of $194,268.
For 1997, all sales, cost of sales, and selling and general and
administrative expenses were incurred by P&H. P&H also had depreciation and
amortization expense of $63,272, interest income of $21,692, interest
expense of $16,667, other income of $6,675, and income tax expense of
$15,965, for a net loss of $124,803.
MMC had depreciation and amortization expense of $75,790, research and
development expense of $1,057,759, interest income of $6,674, and income
tax expense of $800, for a net loss of $1,127,675.
For 1996, all sales, cost of sales, and selling and general and
administrative expenses were incurred by P&H. P&H also had depreciation and
amortization expense of $44,956, interest income of $19,666, interest
expense of $16,988, other income of $8,162, and income tax expense of
$73,500, for a net income of $128,409.
MMC had depreciation and amortization expense of $15,941, research and
development expense of $588,915, interest income of $10,338, and income tax
expense of $800, for a net loss of $595,318.
Pre-consolidation net loss is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
MW Medical $ (1,076,367) $ 0 $ 0
MMC/GmBH (665,935) (1,127,675) (595,318)
P & H (194,268) (124,803) 128,409
------------- ------------- -------------
Adjusted Net Loss $ (1,936,570) $ (1,252,478) $ (466,909)
============= ============= =============
</TABLE>
NOTE 13: RELATED PARTY TRANSACTIONS
During 1998, a total of $416,000 in management fees was paid or accrued to
current or former officers of the Company and its subsidiaries. $266,000
was paid or accrued to three individuals who remain with the Company and
$150,000 was paid or accrued to a former officer. At December 31, 1998,
$132,714 is due to two officers for management fees and other expenses.
NOTE 14: GOING CONCERN
The financial statements are presented on the basis that the Company is a
going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. At December 31, 1998, the Company had a loss
from operations for 1998 of $1,221,065.
Management feels that collection of its receivables and revenue from
operations in the third quarter of 1999 will provide sufficient working
capital to allow the Company to continue as a going concern.
NOTE 15: SALE OF P&H OPERATIONS
Effective April 1, 1998, a management team was brought in to run P&H. This
entity then began negotiations to purchase the net assets of P&H from the
Company for a total of $653,659 in cash and management services valued at
$240,000, of which $410,534 cash has been received. The $243,125 is due as
follows:
$243,125 on March 31, 1999 - secured by P&H assets
Interest at 8% also accrues on $493,125 and is due March 31, 1999.
During March of 1999, the Company agreed to restructure the receivable.
Monthly payments of $15,000 including interest of 8% will be due beginning
in July of 1999.
F-10
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 15: SALE OF P&H OPERATIONS (continued)
Future expected principal receipts are as follows:
Year ending December 31, 1999 $ 81,625
Year ending December 31, 2000 158,365
Year ending December 31, 2001 3,135
-------------
$ 243,125
=============
At December 31, 1998, an allowance for doubtful accounts in the amount of
$60,000 has been established.
If the sale had occurred on December 31, 1997, P&H assets in the amount of
$2,274,732 and liabilities in the amount of $720,348 would not be included
in the financial statements. The Company would have recorded a receivable
in the amount of $653,659 for the sale, prepaid expense of $240,000, and
the amount of $660,725 as loss would have been recorded on the statement of
operations.
NOTE 16: CORRECTION OF ERRORS
During 1998, the Company's former parent, Dynamic, as part of its spin-off
of the Company, agreed to cancel MMC's debt of $2,169,807 and pay $200,000
to the Company. The Company recognized the amounts as debt cancellation and
fee income respectively. The Company also recorded the $200,000 as a
receivable as it was uncollected at December 31, 1998. The Company has
corrected the errors by reducing income by $2,369,807, increasing
additional paid-in capital by $2,369,807 and reclassifying the $200,000
receivable from Dynamic as a component of stockholders' equity.
F-11
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, Pro Forma
1997 P&H Sale Balances
----------------- ----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 387,982 $ (315,585) $ 72,397
Accounts receivable (less allowance for doubtful
accounts of $20,000 in 1997) 559,783 (559,783) 0
Other receivables 19,824 (14,035) 5,789
Receivable - P&H Sale 0 653,659 653,659
Prepaid expense - P&H Sale 0 240,000 240,000
Inventories 809,977 (809,977) 0
Prepaid expense and other current assets 17,829 (12,558) 5,271
----------------- ----------------- ------------------
TOTAL CURRENT ASSETS 1,795,395 (818,279) 977,116
PROPERTY, PLANT, & EQUIPMENT 693,283 (541,479) 151,804
OTHER ASSETS
Deposits 21,705 (21,315) 390
Organization Costs 28,440 0 28,440
----------------- ----------------- ------------------
50,145 (21,315) 28,830
----------------- ----------------- ------------------
$ 2,538,823 $ (1,381,073) $ 1,157,750
================= ================= ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 227,587 $ (156,260) $ 71,327
Accrued expenses 147,667 (143,831) 3,836
Current portion of long-term debt 90,449 (90,449) 0
----------------- ----------------- ------------------
TOTAL CURRENT LIABILITIES 465,703 (390,540) 75,163
Payable - former parent 1,999,806 0 1,999,806
Long-term debt 329,808 (329,808) 0
----------------- ----------------- ------------------
2,329,614 (329,808) 1,999,806
----------------- ----------------- ------------------
TOTAL LIABILITIES 2,795,317 (720,348) 2,074,969
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 14,223,929 shares 14,224 0 14,224
Additional paid-in capital 35,876 0 35,876
Retained earnings (deficit) (306,594) (660,725) (967,319)
----------------- ----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (256,494) (660,725) (917,219)
----------------- ----------------- ------------------
$ 2,538,823 $ (1,381,073) $ 1,157,750
================= ================= ==================
</TABLE>
This pro forma shows what the balance sheet would have looked like had the
sale of the net assets of P&H occurred on December 31, 1997.
F-12
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, Pro Forma
1997 P&H Sale Balances
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net sales $ 3,382,388 $ 0 $ 3,382,388
Cost of sales 2,659,882 0 2,659,882
----------------- ----------------- ------------------
GROSS PROFIT 722,506 0 722,506
Selling and General & administrative expenses 779,772 0 779,772
Depreciation and amortization 139,062 0 139,062
Research and development 1,057,759 0 1,057,759
----------------- ----------------- ------------------
1,976,593 0 1,976,593
----------------- ----------------- ------------------
NET OPERATING (LOSS) (1,254,087) 0 (1,254,087)
OTHER INCOME (EXPENSE)
Interest income 28,366 0 28,366
Interest expense (16,667) 0 (16,667)
Miscellaneous income 6,675 0 6,675
----------------- ----------------- ------------------
18,374 0 18,374
----------------- ----------------- ------------------
NET (LOSS) BEFORE OTHER (1,235,713) 0 (1,235,713)
Sale of net assets of P&H 0 (660,725) (660,725)
----------------- ----------------- ------------------
NET (LOSS) BEFORE INCOME TAXES (1,235,713) (660,725) (1,896,438)
INCOME TAX 16,765 0 16,765
----------------- ----------------- ------------------
NET (LOSS) $ (1,252,478) $ (660,725) $ (1,913,203)
================= ================= ==================
Net (loss) per weighted average share $ (.09) $ (.05) $ (.13)
================= ================= ==================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 14,223,929 14,223,929 14,223,929
================= ================= ==================
</TABLE>
On April 1, 1998, the Company sold the net assets of P&H. The actual loss on the
transaction was $477,862. This loss differs from the Pro Forma loss due to P&H
having activity through the date of sale which reduced the net assets sold.
This pro forma shows what the statement of operations would have looked
like had the sale of the net assets of P&H occurred on December 31, 1997.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MW
Medical, Inc. December 31, 1998 financial statements and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001059577
<NAME> MW Medical, Inc.
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 890,283
<SECURITIES> 0
<RECEIVABLES> 83,625
<ALLOWANCES> (60,000)
<INVENTORY> 0
<CURRENT-ASSETS> 975,190
<PP&E> 254,752
<DEPRECIATION> (187,360)
<TOTAL-ASSETS> 1,204,482
<CURRENT-LIABILITIES> 206,118
<BONDS> 0
0
0
<COMMON> 15,724
<OTHER-SE> 982,640
<TOTAL-LIABILITY-AND-EQUITY> 1,204,482
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,221,065
<OTHER-EXPENSES> 60,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,263,640)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,264,440)
<DISCONTINUED> (672,130)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,936,570)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
