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, 1999
[] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
For the transition period from to
Commission File Number 001-14297
MW Medical, Inc.
(Exact name of Small Business Issuer as specified in its charter)
Nevada 86-0907471
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
6955 East Caballo Drive
Paradise Valley, Arizona 85253
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (602) 483-8700
Indicate by a check mark whether the issuer (1) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of June 30, 1999
- ------------------------------------ --------------------------------
$.001 par value Class A Common Stock 16,723,929 shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the six
months ended June 30, 1999, are not necessarily indicative of the results that
can be expected for the year ending December 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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"). The Company is a Nevada
corporation and was incorporated on December 4, 1997.
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 was originally 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").
Sale of the Business of P&H and Default on Note Payment by Purchaser
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"). 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 $160,943;
(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"); P&H has
assigned the note to the Company;
(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;
(D) office space for the business of MMC at MCC/Ferro's facility in
Simi Valley, California until February 28, 1999.
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.
2
<PAGE>
The payment was not received on March 31, 1999. The Company has recorded an
allowance for doubtful accounts of $60,000 and extended the repayment terms. MCC
is to make monthly payments of $15,000 including interest at 8% beginning in
July on the principal balance of $243,125. MCC is currently in default of its
July and August payments.
Recent Activities of Microwave Medical Corporation
The Company's wholly owned subsidiary, 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
and the Company has sufficient data to submit for the U.S. Food and Drug
Administration (FDA) approval. In April 1999, the Company filed the first in a
series of FDA 510(k) submissions for its proprietary microwave technology for
minimally invasive cosmetic surgery. The 510(k) will focus on the use of the
Company's microwave device for hair removal.
In May 1999, the Company received IRB approval from Independent Review
Consulting, Inc. to conduct Phase II clinical trials for the treatment of spider
veins (telangiectasias) in the legs using the Company's microwave delivery
system.
Liquidity And Capital Resources
As of June 30, 1999, the Company had $918,002 in cash and cash equivalents.
During the six months ended June 30, 1999, the Company received cash of $750,000
and incurred capital raising costs of $75,000 in connection with the sale of
1,000,000 shares of the Company's restricted common stock. Loss per share from
research operations, general and administrative expenses and depreciation and
amortization was $.05.
Subsequent to June 30, the Company raised $3 million from the sale of 8%
convertible debentures due July 31, 2000 to a number of investor/purchasers sold
pursuant to an exemption from registration under Rule 506 of Regulation D of the
Securities Act of 1933. Under the Purchase Agreement for these convertible
debentures, the purchasers obtained warrants for the purchase of 350,000 shares
of the Company's common stock at a price of $2.50 per share, and certain
registration rights. Certain of the purchasers also agreed to purchase an
additional $500,000 of the convertible debentures following registration of the
securities. A large number of the purchasers exercised their option to convert
their debentures into common stock shortly after purchase.
Results of Operations
The financial statements for 1999 present the combined activities of the Company
and MMC.
The financial statements for 1998 present the combined activities of the
Company, MMC, and P&H for the first quarter.
Second Quarter 1999 Compared with Second Quarter 1998
During the three months ended June 30, 1999, the management of the Company
received $105,000. The President received $36,000, the Chairman of the Board
received $45,000 and the Secretary/Treasurer received $24,000. The President
resigned on July 9, 1999 and was replaced by the Chairman, who now serves as
President, C.E.O., and Chairman of the Board.
Net loss for the three months ended June 30, 1999 was $386,409 compared to a
loss of $771,596 for the same period in 1998. The higher loss in 1998 was due to
the sale of its subsidiary, P&H. If the Company receives FDA approval on its
microwave hair removal process, it expects to generate revenue in late 1999 or
early 2000.
3
<PAGE>
General and administrative expenses for the three months ended June 30, 1999
were $222,785 compared to $86,249 for the same period in 1998. In 1998, the
Company concentrated in the development of its technology and was able to
minimize all administrative cost whereas in 1999, the assembly of its management
team and staff increased expenditures.
Research and development expenses were $144,636 for the three months ended June
30, 1999 compared to $159,783 for the same period in 1998. Research and
development cost has remained fairly constant.
Depreciation and amortization expenses for the three months ended June 30, 1999
were $24,672 compared to $25,282 for the same period in 1998. Depreciation of
its equipment is taken on a straight-line method of between 3 and 5 years.
First Six Months Fiscal 1999 Compared with First Six Months Fiscal 1998
During the six months ended June 30, 1999, the management of the Company
received $210,000. The President received $72,000, the Chairman received $90,000
and the Secretary/Treasurer received $48,000.
Net loss for the six months ended June 30, 1999 was $775,975 compared to income
of $1,185,495 for the same period in 1998. The income generated in 1998 was due
to the cancellation of its $2 million debt from MMC's former parent, Dynamic.
General and administrative expenses for the six months ended June 30, 1999 were
$477,320 compared to $87,304 for the same period in 1998. In 1999, the Company
has been assembling key executives for growth.
Research and development expenses were $262,151 for the six months ended June
30, 1999 compared to $351,940 for the same period in 1998. R&D costs were higher
in 1998 due to the additional testing site of the Company's German subsidiary.
Depreciation and amortization expenses for the six months ended June 30, 1999
were $49,344 compared to $50,564 for the same period in 1998.
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 Company is presently
identifying and assessing the year 2000 readiness of its key suppliers that we
believe to be significant to the Company's business operations. At this point in
time, the Company's one possible worst case scenario would be that certain of
the Company's material suppliers or vendors experience business disruptions due
to the year 2000 issue and are unable to provide materials and services to the
Company on time.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99-1 Financial Statements as of June 30, 1999.
Financial Data Schedule
(b) Reports on Form 8-K
None.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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.
DATED: August 23, 1999
Grace Sim, Secretary/Treasurer and Director
5
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 918,002 $ 890,283
Receivable - former parent 150,000 200,000
Receivable - P & H sale 106,570 21,625
Other receivables 4,990 2,000
Prepaid expense and other current assets 14,258 61,282
----------------- ------------------
TOTAL CURRENT ASSETS 1,193,820 1,175,190
PROPERTY, PLANT, & EQUIPMENT 918,168 67,392
OTHER ASSETS
Receivable - P&H sale 76,555 161,500
Organization costs 280 400
----------------- ------------------
76,835 161,900
----------------- ------------------
$ 2,188,823 $ 1,404,482
================= ==================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 524,180 $ 70,766
Loan payable 425,000 0
Income taxes payable 800 1,600
Accrued expenses 1,449 1,038
Deposits 10,000 0
Accrued expenses - related party 130,005 132,714
----------------- ------------------
TOTAL CURRENT LIABILITIES 1,091,434 206,118
----------------- ------------------
TOTAL LIABILITIES 1,091,434 206,118
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 16,723,929 shares (15,723,929 in 1998) 16,724 15,724
Additional paid in capital 1,729,997 1,055,997
Retained earnings (deficit) (649,332) 126,643
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 1,097,389 1,198,364
----------------- ------------------
$ 2,188,823 $ 1,404,482
================= ==================
</TABLE>
F - 1
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
General & administrative expenses $ 222,785 $ 86,249 $ 477,320 $ 87,304
Depreciation and amortization 24,672 25,282 49,344 50,564
Research and development 144,636 159,783 262,151 351,940
------------- ------------- ------------- -------------
392,093 271,314 788,815 489,808
------------- ------------- ------------- -------------
NET OPERATING (LOSS) (392,093) (271,314) (788,815) (489,808)
OTHER INCOME (EXPENSE)
Interest income 5,684 580 13,640 627
Debt cancellation - former parent 0 0 0 2,169,806
Fee - former parent 0 0 0 200,000
Sale of subsidiary 0 (500,862) 0 (500,862)
------------- ------------- ------------- -------------
5,684 (500,282) 13,640 1,869,571
------------- ------------- ------------- -------------
Income (loss) from continuing operations before
income taxes (386,409) (771,596) (775,175) 1,379,763
Income tax expense 0 0 800 800
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS (386,409) (771,596) (775,975) 1,378,963
Discontinued operations:
Operations of subsidiary sold 4/1/98 0 0 0 (193,468)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (386,409) $ (771,596) $ (775,975) $ 1,185,495
============= ============= ============= =============
Net income (loss) per weighted average share $ (.02) $ (.05) $ (.05) $ .08
============= ============= ============= =============
Weighted average number of common shares used
to compute net income (loss) per weighted
average share 16,232,262 14,223,929 16,003,096 14,223,929
============= ============= ============= =============
</TABLE>
F - 2
<PAGE>
MW MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
------------------ ------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (775,975) $ 1,185,495
Adjustments to reconcile net income (loss) to cash used
by operating activities:
Depreciation and amortization 49,344 89,141
Net value of subsidiary sold 0 1,398,034
Debt cancelled 0 (2,169,806)
Changes in assets and liabilities:
Accounts receivable 47,010 (683,519)
Inventories 0 80,636
Prepaid expenses and other 47,024 (166,791)
Accounts payable and accrued expenses 451,116 (7,756)
Deposits 10,000 37,000
Income taxes payable (800) 0
------------------ ------------------
NET CASH USED BY OPERATING ACTIVITIES (172,281) (237,566)
INVESTING ACTIVITIES
Loan - other 0 (6,231)
Purchase of equipment (900,000) (1,796)
Deposits 0 (2,225)
------------------ ------------------
NET CASH USED BY INVESTING ACTIVITIES (900,000) (10,252)
FINANCING ACTIVITIES
Borrowings - former parent 0 170,000
Loans 425,000 0
Cash remaining with former subsidiary 0 (243,102)
Sale of common stock 675,000 0
Principal payments on debt 0 (9,951)
------------------ ------------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 1,100,000 (83,053)
------------------ ------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 27,719 (330,871)
Cash and cash equivalents at beginning of period 890,283 387,982
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 918,002 $ 57,111
================== ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 3,963 $ 9,824
Cash paid for income taxes 1,600 800
</TABLE>
F - 3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from MW Medical, Inc. June 30, 1999 financial statements and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001059577
<NAME> MW Medical, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 918,002
<SECURITIES> 0
<RECEIVABLES> 321,560
<ALLOWANCES> (60,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,193,820
<PP&E> 1,154,752
<DEPRECIATION> (236,584)
<TOTAL-ASSETS> 2,188,823
<CURRENT-LIABILITIES> 1,091,434
<BONDS> 0
0
0
<COMMON> 16,724
<OTHER-SE> 1,080,665
<TOTAL-LIABILITY-AND-EQUITY> 2,188,823
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 784,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,963
<INCOME-PRETAX> (775,175)
<INCOME-TAX> 800
<INCOME-CONTINUING> (775,975)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (775,975)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
