<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1010397
______________________________
PHYSIOMETRIX, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0248588
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(State or other jurisdiction of (IRS Employer identification
incorporation or organization) No.)
Five Billerica Park, N. Billerica, MA 01862-1256
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(Address of principal executive offices) (Zipcode)
(508) 670-2422
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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. ITEM 1 - Yes X No
---- ---
ITEM 2 - Yes X No
---- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at September 30, 1996
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Common Stock, $.001 par value 5,552,641
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PHYSIOMETRIX, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 Financial Statements
Balance Sheets as of December 31, 1995 and 3
September 30, 1996
Statements of Operations for the Three Months 4
and Nine Months ended September 30, 1995 and 1996
Statements of Cash Flows for the Nine Months 5
ended September 30, 1995 and 1996
Notes to Financial Statements 6
ITEM 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION 11
SIGNATURES 12
2
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PHYSIOMETRIX, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 432,126 $ 18,565,290
Short-term investments - 500,000
Accounts receivable, net 90,912 107,630
Inventories, net 171,862 182,692
Prepaid expenses 9,357 22,252
------------ --------------
Total current assets 704,257 19,377,864
Property, plant and equipment 447,899 598,346
Less allowances for depreciation (173,474) (249,928)
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274,425 348,418
Due from officer 63,000 84,000
Other assets 6,318 6,318
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Total assets $ 1,048,000 $ 19,816,600
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 255,864 $ 279,096
Accrued expenses 253,089 523,684
Convertible notes payable to stockholders 308,972 -
Current portion of notes payable to stockholder 101,042 85,754
Short-term debt - 524,764
------------ --------------
Total current liabilities 918,967 1,413,298
Notes payable to stockholder, net of current portion 82,089 8,529
Stockholders' equity:
Preferred stock: $.001 par value; 10,000,000 shares authorized:
Series D Convertible Preferred Stock, 2,965,600 shares issued
and outstanding 2,966 -
Series E Convertible Preferred Stock, 1,062,062 shares issued
and outstanding 1,062 -
Common stock: $.001 par value, 50,000,000 shares authorized;
134,154 shares in 1995 and 5,552,641 shares in 1996 issued and outstanding 134 5,552
Additional paid-in-capital 10,019,496 30,511,106
Accumulated deficit (9,976,714) (12,121,885)
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Total stockholders' equity 46,944 18,394,773
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Total liabilities and stockholders' equity $ 1,048,000 $ 19,816,600
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</TABLE>
SEE ACCOMPANYING NOTES.
3
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<TABLE>
<CAPTION>
PHYSIOMETRIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1995 1996 1995 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 67,998 $ 94,094 $ 206,837 $ 309,051
Costs and expenses:
Cost of goods sold 222,518 312,283 883,198 900,305
Research and development 69,198 386,742 248,508 803,222
Selling, general, and administrative 405,091 448,628 1,222,526 1,143,493
---------- ---------- ----------- -----------
696,807 1,147,653 2,354,232 2,847,020
---------- ---------- ----------- -----------
Operating loss (628,809) (1,053,559) (2,147,395) (2,537,969)
Interest income 14,122 290,632 69,535 462,153
Interest expense (8,858) (21,405) (28,776) (69,355)
---------- ---------- ----------- -----------
Net loss $ (623,545) $ (784,332) $(2,106,636) $(2,145,171)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net loss per share $ (0.17) $ (0.14) $ (0.58) $ (0.45)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Shares used in computing net loss per share 3,650,934 5,552,641 3,650,934 4,721,557
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
4
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<TABLE>
<CAPTION>
PHYSIOMETRIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------------
1995 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,106,636) $ (2,145,171)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 74,049 76,453
Changes in operating assets and liabilities:
Accounts receivable 7,933 (16,718)
Inventories (77,361) (10,830)
Prepaid expenses and other assets (30,223) (33,895)
Accounts payable and accrued expenses (52,578) 293,827
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Net cash used in operating activities (2,184,816) (1,836,334)
INVESTING ACTIVITIES:
Purchase of equipment (95,577) (150,446)
Purchase of short-term investments - (500,000)
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Net cash used in investing activities (95,577) (650,446)
FINANCING ACTIVITIES:
Proceeds from notes payable to stockholders - 380,460
Proceeds from debt financing - 524,666
Principal payments on notes payable to stockholders (62,965) (88,750)
Proceeds from issuance of common stock, net 2,943 19,803,568
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Net cash provided by (used in) financing activities (60,022) 20,619,944
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Net increase (decrease) in cash and cash equivalents (2,340,415) 18,133,164
Cash and cash equivalents at beginning of period 3,019,483 432,126
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Cash and cash equivalents at end of period $ 679,068 $ 18,565,290
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NON CASH FINANCING ACTIVITIES:
Conversion of notes payable to common stock - (689,432)
</TABLE>
SEE ACCOMPANYING NOTES.
5
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NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions for Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996 or any other interim period. The accompanying financial statements should
be read in conjunction with the audited financial statements for the period
ending December 31, 1995 included in the Registrant's Registration Statement on
Form S-1 (Reg. No. 333-2138).
NOTE B - INVENTORIES
Inventories consist of the following:
December 31 September 30
1995 1996
----------- ------------
Raw materials $ 120,878 $ 129,380
Work-in-process 20,622 32,212
Finished goods 30,362 21,100
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$ 171,862 $ 182,692
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NOTE C - INITIAL PUBLIC OFFERING
On April 30, 1996, the Company sold 2,000,000 shares of common stock at
$11.00 per share through an initial public offering. Net proceeds from this
transaction, before deducting expenses payable by the Company, were $20,460,000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in January 1990, Physiometrix has been engaged
primarily in the design and development and more recently the manufacture and
sale of noninvasive, advanced medical products. The Company's products which
incorporate proprietary materials and electronics technology are used in
neurological monitoring applications. The Company's initial products are its
e-Net headpiece and disposable HydroDot biosensors and custom electronics,
which are packaged as the HydroDot NeuroMonitoring System. The Company is
also developing two additional neurological monitoring products, the Equinox
EEG System and the Patient State Analyzer. The Company believes that the
Patient State Analyzer, Equinox EEG System and other potential products
currently under development will be subject to FDA clearance by 510(k)
notification; however the FDA may require the Company to submit a pre-market
approval ("PMA") application for such products. The Company submitted a
510(k) application to the FDA for the Equinox EEG System in June, 1996.
Review of the Company's 510(K) application for the Equinox EEG System is
ongoing and there can be no assurance that the Company will be able to obtain
510(K) clearance to market the Equinox EEG System on a timely basis, if at
all. There can be no assurance that the Company will be able to obtain
necessary 510(k) clearance or PMA application approval, to market the Patient
State Analyzer or any other products on a timely basis, if at all.
Physiometrix has a limited history of operations and has experienced
significant operating losses since its inception. As of September 30, 1996, the
Company had an accumulated deficit of approximately $12.1 million. The HydroDot
NeuroMonitoring System is currently the Company's principal commercial product
and is expected to account for most of the Company's revenue through 1997. To
date, revenue from sales of the Company's HydroDot NeuroMonitoring System
have been lower than management's expectations. The inability by the Company
to achieve greater market acceptance of the HydroDot NeuroMonitoring System
could have a short-term, material adverse effect on the Company's business,
financial condition and results of operations, particularly prior to the
introduction of other products currently being developed by the Company.
The Company anticipates that its operating losses will continue for at
least the next few years as the Company continues to expend substantial
resources to expand marketing and sales activities, scale up manufacturing
capabilities, increase research and development and support regulatory and
reimbursement approvals. There can be no assurance that the Company will ever
achieve significant commercial revenues or profitability or that profitability,
if achieved, will be sustained.
The Company anticipates that its results of operations will fluctuate on a
quarterly basis for the foreseeable future due to several factors, including
actions relating to regulatory and reimbursement matters, the extent to which
the Company's products gain market acceptance, introduction of alternative means
for neurophysiological monitoring and competition. Results of operations will
also be affected by the progress of clinical trials and in-house development
activities, and the extent to which the Company establishes distribution
channels for its products domestically and internationally.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward looking statements. The
Company's actual results of
7
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operations may differ materially from those anticipated by such forward looking
statements. Factors that may affect future results of operations include those
described herein.
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
REVENUES
Revenues increased 38% to $94,094 for the three months ended September 30,
1996 from $67,998 for the three months ended September 30, 1995. This increase
is primarily the result of additional sales of the Company's HydroDot
NeuroMonitoring System.
COST OF GOODS SOLD
Cost of goods sold increased 40% to $312,283 for the three months ended
September 30, 1996 from $222,518 for the three months ended September 30,
1995. This increase was primarily due to a higher sales volume and increased
personnel costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 11% to $448,628
for the three months ended September 30, 1996 from $405,091 for the three
months ended September 30, 1995. This increase is primarily due to investor
relations costs incurred in 1996. Also contributing to this increase were
additional costs for marketing personnel.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 459% to $386,742 for the
three months ended September 30, 1996 from $69,198 for the three months ended
September 30, 1995. This increase is primarily the result of ongoing
development and clinical evaluation for the Company's Patient State Analyzer,
development of the Equinox low cost EEG System and continued enhancements to and
support for the Company's existing products.
INTEREST INCOME
Interest income increased $276,510 to $290,632 for the three months ended
September 30, 1996 from $14,122 for the three months ended September 30, 1995 as
a result of higher cash balances from the Company's initial public offering.
Interest expense increased $12,547 to $21,405 for the three months ended
September 30, 1996 from $8,858 for the three months ended September 30, 1995.
This increase is the result of borrowings in 1996 under a revolving line of
credit.
8
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NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
REVENUES
Revenues increased 49% to $309,051 for the nine months ended September 30,
1996 from $206,837 for the nine months ended September 30, 1995. This growth
was the result of sales of the Company's NeuroLink product in 1996, combined
with an increase in the sale of the Company's HydroDot NeuroMonitoring System.
COST OF GOODS SOLD
Cost of goods sold increased 2% to $900,305 for the nine months ended
September 30, 1996 from $883,198 for the nine months ended September 30,
1995. This increase is small when compared with the 49% increase in sales.
This is the result of a higher sales volume of NeuroLink products along with
a reduction in overhead costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 6% to $1,143,493 for
the nine months ended September 30, 1996 from $1,222,526 for the nine months
ended September 30, 1995. This decrease is the result of lower personnel and
facilities costs due to the movement of the Company's operations from California
to Massachusetts in late 1994 and early 1995.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 223% to $803,222 for the
nine months ended September 30, 1996 from $248,508 for the nine months ended
September 30, 1995. This increase is primarily the result of ongoing
development and clinical evaluation for the Company's Patient State Analyzer,
development of the Equinox low cost EEG System and continued enhancements to and
support for the Company's existing products.
INTEREST INCOME
Interest income increased $392,618 to $462,153 for the nine months ended
September 30, 1996 from $69,535 for the nine months ended September 30, 1995.
This increase is the result of higher cash balances from the Company's initial
public offering. Interest expense increased $40,579 to $69,355 for the nine
months ended September 30, 1996 from $28,776 for the nine months ended September
30, 1995. This increase is the result of additional notes payable and
borrowings under a revolving line of credit.
9
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's cash and cash equivalents were
$18,565,290 as compared to $432,126 at December 31, 1995.
The Company's operating activities used cash of $1,836,334 in the nine
months ended September 30, 1996 as compared to $2,184,816 in the nine months
ended September 30, 1995. The decrease in net cash used was primarily the
result of an increase in accounts payable and accrued expenses.
The Company's financing activities provided cash of $20,619,944 in the
nine months ended September 30, 1996 as compared to $60,022 used in the
nine months ended September 30, 1995. This increase was the result of the
Company receiving $19,778,053 from the initial public offering of shares of
its Common Stock in May 1996 and $500,000 under its revolving credit
agreement.
Although the Company believes that its capital resources together with
cash generated from the future sale of its products will be sufficient to
meet the Company's operating and capital requirements at least through 1997,
there can be no assurance that the Company will not require additional
financing within this time frame. There can be no assurance that additional
financing, if required, will be available on satisfactory terms if at all.
In addition, the Company may in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of
capital. The Company's future liquidity and capital requirements will depend
on numerous factors, including progress of the Company's clinical trials,
actions relating to regulatory and reimbursement matters, the costs and
timing of expansion of marketing, sales, manufacturing and product
development activities, the extent to which the Company's products gain
market acceptance, and competitive developments.
10
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PHYSIOMETRIX, INC.
SEPTEMBER 30, 1996
PART II Other Information
ITEM 1 Legal Proceedings:
Not applicable.
ITEM 2 Changes in Securities:
Not applicable.
ITEM 3 Defaults upon Senior Securities:
Not applicable.
ITEM 4 Submission of matters to a vote of security holders:
Not applicable.
ITEM 5 Other information:
None.
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits - None
27.1 Financial Data Schedule
(b) Reports on Form 8-K - None
11
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PHYSIOMETRIX, INC.
SEPTEMBER 30, 1996
SIGNATURE
Pursuant to the requirements 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.
PHYSIOMETRIX, INC.
DATE: November 12, 1996
BY: /s/John A. Williams
---------------------
John A. Williams
President and Chief
Executive Officer
BY: /s/ Michael J. Tubridy
-----------------------------
Michael J. Tubridy
Duly Authorized Officer and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,565,290
<SECURITIES> 500,000
<RECEIVABLES> 107,630
<ALLOWANCES> 0
<INVENTORY> 182,692
<CURRENT-ASSETS> 19,377,864
<PP&E> 348,418
<DEPRECIATION> 249,928
<TOTAL-ASSETS> 19,816,600
<CURRENT-LIABILITIES> 1,413,298
<BONDS> 0
0
0
<COMMON> 5,572
<OTHER-SE> 18,389,201
<TOTAL-LIABILITY-AND-EQUITY> 19,816,600
<SALES> 309,051
<TOTAL-REVENUES> 309,051
<CGS> 900,305
<TOTAL-COSTS> 2,847,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,537,969
<INTEREST-EXPENSE> 69,355
<INCOME-PRETAX> (2,145,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,145,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,145,171)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
