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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 001-14297
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MW Medical, Inc.
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(Exact name of Small Business Issuer as specified in its charter)
Nevada 86-0907471
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(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
6617 N. Scottsdale Road, Suite 103, Scottsdale, Arizona 85250
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(Address of principal executive offices)
(480) 483-8700
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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 March 31, 2000
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$.001 par value Class A Common Stock 19,359,434 shares
Transitional Small Business Disclosure Format (Check one): Yes [ ]
No [ X ]
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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 three months ended March
31, 2000, are not necessarily indicative of the results
that can be expected for the year ending December 31, 2000.
2
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MW Medical, Inc.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
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ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 1,147,311 $ 394,832
Restricted Cash 500,000 500,000
Inventory 2,098,638 1,667,258
Deposits 1,350,000 1,350,000
Other current assets 148,906 165,341
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Total current assets 5,244,855 4,077,431
PROPERTY, PLANT AND EQUIPMENT, net 114,870 21,104
OTHER RECEIVABLES, net 2,346 18,573
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$ 5,362,071 $ 4,117,108
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,058,927 $ 1,143,802
Short-term borrowings 465,000 425,000
Income taxes payable 2,400 2,400
Accrued expenses 116,988 118,242
Deposits 303,565 103,100
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Total current liabilities 1,946,880 1,792,544
STOCKHOLDERS' EQUITY
Common stock $.001 par value;
authorized - 100,000,000
shares issued outstanding 19,433,443
and 18,374,443 as of March 31, 2000
and December 31, 1999, respectively 19,434 18,375
Additional paid-in capital 11,748,868 9,291,928
Note receivable from former parent (150,000) (150,000)
Accumulated deficit (8,203,111) (6,835,739)
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Total stockholders' equity 3,415,191 2,324,564
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$ 5,362,071 $ 4,117,108
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
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2000 1999
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Revenue $ - $ -
Cost of sales - -
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Gross profit - -
Selling, general and administrative expenses 1,124,905 254,535
Depreciation and amortization 4,945 24,672
Research and development 242,946 117,515
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Net operating loss (1,372,796) (396,722)
Interest income (expense) 7,024 7,956
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Net loss from continuing operations
before income taxes (1,365,772) (388,766)
Income tax expense 1,600 800
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NET LOSS $(1,367,372) $ (389,566)
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Net loss per weighted average share $ (0.07) $ (0.02)
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Weighted average number of common shares
used to compute net loss per
weighted average share 19,276,221 15,788,929
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
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2000 1999
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Cash flows from operating activities
Net loss $(1,367,372) $ (389,566)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 4,945 24,672
Changes in assets and liabilities
Increase (decrease) in accounts receivable - 50,200
Increase (decrease) in inventories (431,380) -
Increase in other receivable 12,835 -
Increase in prepaid expenses and other 16,227 53,984
Increase (decrease) in accounts
payable and accrued expenses (86,129) 6,384
Increase in deposits 200,465 -
Decrease in income taxes payable - (800)
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Net cash used in operating activities (1,650,409) (255,126)
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Cash flows from investing activities
Purchase of equipment (95,111) -
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Net cash used in investing activities (95,111) -
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5
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Three months ended March 31,
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2000 1999
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Cash flows from financing activities
Proceeds from line of credit 40,000 -
Sale of common stock 2,400,000 101,250
Stock options exercised 57,999 -
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Net cash provided by financing activities 2,497,999 101,250
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Increase (decrease) in cash and
cash equivalents 752,479 (153,876)
Cash and cash equivalents at beginning of
period 394,832 890,283
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Cash and cash equivalents at end of period $ 1,147,311 $ 736,407
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Supplemental information
Cash paid for interest $ 6,395 $ -
Cash paid for income taxes $ - $ 1,600
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
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The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with
the instructions to Form 10Q and Rule 10-01 of Regulation S-X.
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-K for the year ended December 31,
1999. 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 three-month period ended March
31, 2000 are not necessarily indicative of the results that
may be expected for the entire fiscal year.
NOTE B - REALIZATION OF ASSETS
The Company has suffered recurring losses from operations and
may continue to incur losses for the foreseeable future due to
the significant costs anticipated to be incurred in connection
with manufacturing, marketing and distributing its microwave
products. In addition, the Company intends to continue to
conduct research and development activities, including
regulatory submittals and clinical trials to develop
additional applications for its technology. The Company
operates in a highly competitive environment and is subject to
all of the risks inherent in a new business enterprise.
7
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 (Unaudited)
NOTE B - REALIZATION OF ASSETS - Continued
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.
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: In January 2000, the Company
raised $2.4 million through the sale of common stock in
connection with a private placement memorandum. The Company also
began to ship its initial product at the end of the year and
expects to receive cash flows from such products within the near
term. The Company expects that the proceeds from those
activities will be sufficient to fund activities in the near
term, while it actively pursues additional financing. However,
there can be no assurance that the Company will be able to
complete any additional financing.
NOTE C - EQUITY
In January 2000, the Company sold 1,000,000 shares of common
stock in a private placement memorandum dated December 15, 1999.
Cash proceeds, net of issuance costs, were $2,400,000. In
connection with the private placement, the Company issued
warrants to purchase 100,000 share of the Company's common
stock. These warrants were valued at approximately $161,000.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Through the first quarter 2000, the Company has concentrated on
re-structuring its management and organization, and has been
working to solve problems with its MW 2000 machine, its product
sales and its training and supportive clinical documentation
programs.
The Company has a new national sales manager, an in-house sales
person and a seasoned distributor. The Company is also in the
process of adding replacement and additional support personnel,
including a new C.E.O., C.F.O., marketing director, product and
quality assurance manager, three clinical nurses and an
inventory/shipping manager. Management hopes to have the new
people in these positions by the beginning of the third quarter,
but will need to secure financing before this task can be
completed. At that time, the Company also plans to re-launch its
product into the market.
The Company has also expanded its clinical sites. It is hoped
that this expansion will provide the Company with a number of peer
review publications and clinical white papers from medical
luminaries in the field of dermatology, pheblology, plastic
surgery and other specialties. It may also provide individuals
who can be called upon to lecture on the merits of MW's microwave
technology. Management expects to have one such article written
by Dr. Nicholas Lowe available in the coming weeks.
Management believes that it will require additional funds to
continue operations in the second or third quarter of this year.
The Company completed a private placement of 1,000,000 shares of
the Company's common stock in January 2000. Net cash proceeds
from this placement were $2,400,000. The Company intends to
complete another equity offering to fund operations until
sufficient funds are derived from sales revenues. For this
purpose, the Company will also be looking for a strategic partner
or strong national sales distribution organization to expand its
sales opportunities. The Company has been able to raise funds
through equity and debt offerings in the past; however, the
Company can offer no guarantee that it will be able to raise
sufficient funds in the future or that cash flows from revenues
will ever be achieved. Failure to obtain additional financing or
generate cash flows from revenues would have a material adverse
effect on the Company.
Assets
Total assets of the Company increased to $5,362,071 on March 31,
2000 from $4,117,108 on December 31, 1999, an increase of
$1,244,963 or 30%. The net change resulted primarily from an
increase in cash and inventory. The Company's increase of its
cash resulted primarily from its sale of $3,000,000 in common
stock in January 2000. The increase in inventory of approximately
$431,000 is the result of the Company's initial production of its
MW 2000 systems in anticipation of the product re-launch later
this year.
Liabilities And Stockholders' Equity
The Company's asset growth for the three months ending March 31,
2000 was funded by increased stockholders' equity and short-term
borrowings. Stockholders' equity increased $1,090,627, or 47%,
to $3,415,191 as of March 31, 2000. The net increase in
stockholders'
9
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equity resulted primarily from the sale of common
stock, approximately $2,400,000, net, and the exercise of stock
options, less the net loss from operations.
Short-term borrowings were made from the Company's line of
credit.
Results of Operations
The Company began its initial production of the MW 2000 machines
and delivered 36 of the machines to clinical sites across the
country. Of these 36 machines, the Company has taken back four
machines, 10 are with its national distributor pending order
placement, 10 are involved in clinical trials and 12 have been
returned to the Company's inventory to receive upgrades or other
product modification.
Net loss for the three months ended March 31, 2000 was $1,367,372
compared to a loss of $389,566 during the same period in 1999.
This increase in the net loss was caused by the Company ramping up
production and establishing the necessary internal infrastructure
to accommodate the projected growth expected in connection with
the re-launch of the MW 2000 machine.
General and administrative expenses for the three months ended
March 31, 2000 were $1,124,905 compared to $254,535 for the same
period in 1999. This reflects an increase of $870,370, or 342%.
This increase was primarily due to advertising and promotion cost
involved in bringing the product to market and an increase in
professional fees.
Research and development expenses were $242,946 for the three
months ended March 31, 2000 compared to $117,515 for the same
period in 1999. The increase of $125,431 reflects the Company's
continued research into additional applications for its microwave
technology.
Depreciation and amortization expenses for the three months ended
March 31, 2000 were $4,945 compared to $24,672 for the same period
in 1999. The decrease in depreciation was due to a decrease in
the amount of depreciable assets. Depreciable assets as of
December 31, 1999 and for the majority of the first quarter of
2000 totaled approximately $21,100.
Despite initial efforts, the Company's sales have not met
management's expectations. Management believes the Company will
begin generating revenues late in the second or during the third
quarter of 2000 with significant revenues being generated in the
fourth quarter. The Company has and continues to deal with a
number of issues and problems regarding the use and operation of
the MW 2000 machine by physicians and their staff. In response to
these issues, management has implemented a continuing internal
evaluation process that has resulted in planned modifications and
upgrades to the MW 2000 machine, including such things as warning
labels, instruction manuals, on-site training, and clinical
support. Management believes that the MW 2000 machine will be
ready for its re-launch in the late second or early third quarter
of 2000.
Liquidity and Capital Resources
As of March 31, 2000, the Company had $1,147,311 in cash. During
the first quarter of 2000, The Company completed a private
placement of 1,000,000 shares of the Company's common stock. Net
cash proceeds from this placement were $2,400,000.
10
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The Company used cash of $1,650,409 in its operating activities
during the three months ending March 31, 2000 compared to
$255,126 for the same period in 1999. In the first quarter of
2000, the Company was primarily involved in product upgrades,
re-structuring management and in enhancing internal procedures.
The Company has only begun the production of the MW 2000 in the
fourth quarter of 1999 and will require substantial additional
financing in the future to continue the operations. Management
intends to obtain financing through additional equity offerings
until such time as cash flows from operations are sufficient to
support the Company. Management believes that it will be able
to raise the money that is necessary, but currently does not
have this financing in place.
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.
None
Item 4.
None
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11
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PART II - OTHER INFORMATION
Item 5.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
None.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MW Medical, Inc.
DATED: May 18, 2000 /s/ Grace Sim
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Grace Sim, Secretary, Treasurer and Director
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN
THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<INVENTORY> 2098638
<CURRENT-ASSETS> 5244855
<PP&E> 114870
<DEPRECIATION> 4945
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<CURRENT-LIABILITIES> 1946880
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