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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 June 30, 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) 315-8600
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Issuer's telephone number, including area code
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the last practicable date.
Class Outstanding as June 30, 2000
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$.001 par value Class A Common Stock 19,432,443 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 six months ended June 30, 2000, are not necessarily
indicative of the results that can be expected for the year ending
December 31, 2000.
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MW Medical, Inc.
CONSOLIDATED BALANCE SHEET
June 30,
2000
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ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 66,253
Restricted cash 500,000
Inventory 2,786,302
Deposits 107,600
Prepaid expenses and other current assets 30,729
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Total current assets 3,490,884
PROPERTY, PLANT AND EQUIPMENT, net 203,959
OTHER RECEIVABLES, net 2,340
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$ 3,697,183
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 182,498
Line of credit 465,000
Deposits 10,000
Accrued expenses 165,185
Note payable - related party 100,000
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Total current liabilities 922,683
STOCKHOLDERS' EQUITY
Common stock $.001 par value;
authorized - 100,000,000 shares issued
and outstanding - 19,432,443 19,432
Additional paid in capital 11,748,871
Note receivable related party (150,000)
Accumulated deficit (8,843,803)
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2,774,500
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Total stockholders' equity $ 3,697,183
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
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2000 1999 2000 1999
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Sales, net $ - $ - $ - $ -
Cost of sales - - - -
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- - - -
General and
administrative
expenses 264,049 222,785 1,388,954 477,320
Depreciation and
amortization 23,454 24,672 28,399 49,344
Research and
Development 364,802 144,636 607,748 262,151
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Net operating loss (652,305) (392,093) (2,025,101) (788,815)
Interest income, net 11,613 5,684 18,637 13,640
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Loss from continuing
operations before
income taxes (640,692) (386,409) (2,006,464) (775,175)
Income tax expense - - 1,600 800
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NET LOSS $ (640,692) $ (386,409) $(2,008,064) $ (775,975)
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Net loss per
weighted average
share (0.03) $ (0.02) $ (0.10) $ (0.05)
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Weighted average
number of common
shares used to
compute net loss
per weighted
average share 19,432,443 16,232,262 19,358,868 16,003,096
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MW Medical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
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2000 1999
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Cash flows from operating activities
Net Loss $(2,008,064) $ (775,975)
Adjustments to reconcile net loss
of cash used in operating activities:
Depreciation and amortization 28,399 49,344
Changes in assets and liabilities
(Increase) decrease accounts
receivable - 47,010
Increase inventories (1,119,044) -
Decrease prepaid expenses and other 1,393,246 47,024
Increase (decrease) accounts
payable and accrued expenses (914,361) 451,116
Increase (decrease) deposits (93,100) 10,000
Decrease income taxes payable (2,400) (800)
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Net cash used in operating activities (2,715,324) (172,281)
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Cash flows used in investing activities
Purchase of equipment (211,254) (900,000)
Cash flows from financing activities
Proceeds from loans 140,000 425,000
Sale of common stock 2,457,999 675,000
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Net cash provided by financing
Activities 2,597,999 1,100,000
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(Decrease) increase in cash (328,579) 27,719
Cash at beginning of period 394,832 890,283
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Cash at end of period $ 66,253 $ 918,002
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Supplemental information
Cash paid for interest $ 9,169 $ 3,963
Cash paid for income taxes $ 3,200 $ 1,600
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and six-
month periods ended June 30, 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.
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: The Company raised $2.4
million and $210,000 through the sale of common stock in
connection with private placement memorandums in January and
July 2000, respectively. The Company expects to ship its first
sales units by the targeted August re-launch and expects to
receive cash flows from such products subsequent to those
shipments. 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 - RELATED PARTY
In June 2000, the Company borrowed $100,000 from Jan Wallace,
the President and Chairman of the Board of Directors of the
Company, and signed a loan agreement to make available an
additional $100,000 to the Company. The note for $100,000
accrued interest at a rate of 10% and was to mature in
September 2000. This note, however, was converted to equity on
July 17, 2000 when it was used by agreement with Ms. Wallace to
purchase 200,000 shares of common stock as part of the current
private placement being sold by the Company. In addition, Ms.
Wallace purchased another $100,000 worth of stock, or 200,000
shares, in this offering. Thus, Ms. Wallace has purchased a
total of 400,000 shares of common stock in the Company's
current private placement.
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MW Medical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
As a result of this purchase, Ms. Wallace will also receive
warrants to purchase up to 40,000 shares of the Company's
common stock at an exercise price of $1.75 per share
Subsequent to this, Ms. Wallace loaned the Company an
additional $50,000 at an interest rate of 10%. This note is
due and payable in October 2000.
NOTE D - SUBSEQUENT EVENT
In July 2000, the Company sold 420,000 shares of common stock
in a private placement memorandum dated July 15, 2000.
Proceeds, net of issuance costs, were $210,000. Proceeds from
the private placement include $200,000 received from Ms. Jan
Wallace, the President and Chairman of the Board of Directors
of the Company. In connection with the 420,000 shares sold as
part of the private placement, the Company will issue warrants
to purchase up to 42,000 shares of the Company's common stock
at an exercise price of $1.75 per share.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Through June 30, 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 added additional management and support personnel,
including a new C.F.O., national sales manager, and a clinical
nurse. The Company will continue its search for a new C.E.O and
other key support positions. Management hopes to have the new
people in these positions before the end of the third quarter, but
will need to secure financing before this task can be completed.
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.
The Company plans to re-launch the MW 2000, into the market during
the third quarter and cash flows from operations are not expected
to be significant until late in the fourth quarter or early in
fiscal year 2001. The Company may require another equity offering
to fund operations until sufficient cash flow is 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
completed a private placement of 1,000,000 shares of the Company's
common stock in January 2000 and currently has a private placement
of an additional 1,000,000 shares of the Company's common stock
open as of the date of this filing. Net cash proceeds to date
from these placements were $2,400,000 and $210,000, respectively.
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 decreased to $3,697,183 on June 30,
2000 from $4,117,108 on December 31, 1999, a decrease of $419,925
or 10.2%. The net change resulted primarily from decrease in cash
and deposits offset by an increase in inventory. The Company's
decrease in cash resulted primarily from cash used in normal
operations. The decrease in the deposits was caused by the Company
renegotiating a contract with a major supplier and offsetting a
corresponding liability. The increase in inventory of approximately
$1,119,044, or 67.1% is the result of the Company's continuing
production of its MW 2000 systems in anticipation of the product
re-launch later this year.
Liabilities And Stockholders' Equity
The Company's operations for the six months ending June 30, 2000
were funded by increased stockholders' equity and short-term
borrowings. Stockholders' equity increased $449,936, or 19.4%,
to $2,774,500 as of June 30, 2000. The net increase in
stockholders' 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.
In June 2000, the Company borrowed $100,000 from Jan Wallace, its
President and Chairman of the Board. The note for $100,000
accrued interest at a rate of 10% and was to mature in September
2000. This note, however, was converted to equity on July 17,
2000 when it was used by agreement with Ms. Wallace to purchase
200,000 shares of common stock as part of the Company's current
private placement being sold by the Company. In addition, Ms.
Wallace purchased another $100,000 worth of stock, or 200,000
shares, in this offering. Thus, Ms. Wallace has purchased a
total of 400,000 shares of common stock in the Company's current
private placement for $200,000.
As a result of this purchase, Ms. Wallace will also receive
warrants to purchase up to 40,000 shares of the Company's common
stock at an exercise price of $1.75 per share
Subsequent to this, Ms. Wallace loaned the Company an additional
$50,000 at an interest rate of 10%. This note is due and payable
in October 2000.
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Results of Operations
In the prior year, 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 machines, the Company has
taken back 4 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 six months ended June 30, 2000 was $2,008,064
compared to a loss of $775,975 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 sales expected in connection with the
re-launch of the MW 2000 machine.
General and administrative expenses for the six months ended June
30, 2000 were $1,388,954 compared to $477,320 for the same period
in 1999. This reflects an increase of $911,634, or 191%. This
increase in general and administrative costs as compared to the
same period in the prior year was primarily due to advertising and
promotion cost involved in bringing the product to market, an
increase in professional fees and an increase in the costs
associated with clinical trials.
Research and development expenses were $607,748 for the six months
ended June 30, 2000 compared to $262,151 for the same period in
1999. The increase of $345,597, or 131.8%, reflects the Company's
continued research into additional applications for its microwave
technology.
Despite initial efforts, the Company's sales have not met
management's expectations. Management believes the Company will
begin generating revenues during the third quarter of 2000 with
more significant revenues being generated in the fourth quarter.
The Company has resolved a number of issues and problems regarding
the use and operation of the MW 2000 machine by physicians and
their staff. In response to physicians and their staff, management
has developed an 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 during the third
quarter of 2000.
Liquidity and Capital Resources
As of June 30, 2000, the Company had $66,253 in cash. During the
first six months 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. The Company is
currently offering an additional private placement of 1,000,000
share of the Company's common stock in July 2000. Net proceeds to
date from this private placement, net of issuance costs, are
$210,000.
The Company used cash of $2,715,324 in its operating activities
during the six months ending June 30, 2000 compared to $172,281
for the same period in 1999. In the six months of 2000, the
Company was primarily involved in product upgrades, re-structuring
management and in enhancing internal procedures. The Company has
substantially completed upgrades to the MW 2000 and ancipates to
relaunch the product in the third quarter of 2000. Management
intends to obtain financing, as necessary, 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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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.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MW Medical, Inc.
DATED: August 9, 2000 /s/ Dean Drummond
_________________________
Dean Drummond,
Chief Financial Officer
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