<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 March 31, 1996
---------------
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1010397
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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.)
101 Billerica Ave., 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 No X
-- --
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at March 31, 1996
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Common Stock, $.001 par value 145,754
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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
March 31, 1996
Statements of Operations for the Three Months 4
ended March 31, 1995 and 1996
Statements of Cash Flows for the Three Months 5
ended March 31, 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 9
SIGNATURES 10
2
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PHYSIOMETRIX, INC.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1996
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 432,126 $ 262,382
Accounts receivable, net 90,912 156,529
Inventories, net 171,862 155,293
Prepaid expenses 9,357 121,455
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Total current assets 704,257 695,659
Property, plant and equipment 447,899 460,329
Less allowances for depreciation (173,474) (195,522)
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274,425 264,807
Due from officer 63,000 84,000
Other assets 6,318 10,218
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Total assets $ 1,048,000 $ 1,054,684
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 255,864 $ 297,695
Accrued expenses 253,089 289,969
Convertible notes payable to
stockholders 308,972 689,432
Current portion of notes payable
to stockholder 101,042 101,042
Short-term debt - 250,534
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Total current liabilities 918,967 1,628,672
Notes payable to stockholder, net
of current portion 82,089 44,618
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Stockholders' equity:
Preferred stock: $.001 par value;
5,000,000 shares authorized:
Series D Convertible Preferred
Stock, 2,965,600 shares issued
and outstanding ($1,008,304
aggregate liquidation preference) 2,966 2,966
Series E Convertible Preferred
Stock, 1,062,062 shares issued
and outstanding ($5,310,310
aggregate liquidation preference) 1,062 1,062
Common stock: $.001 par value,
15,000,000 shares authorized;
134,154 shares in 1995 and 145,754
shares in 1996 issued and
outstanding 134 146
Additional paid-in-capital 10,019,496 10,027,087
Accumulated deficit (9,976,714) (10,649,867)
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Total stockholders' equity 46,944 (618,606)
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Total liabilities and stockholders'
equity $ 1,048,000 $ 1,054,684
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</TABLE>
SEE ACCOMPANYING NOTES.
3
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PHYSIOMETRIX, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------------
1995 1996
------------- --------------
<S> <C> <C>
Revenues $ 62,888 $ 136,226
Costs and expenses:
Cost of goods sold 360,429 295,181
Research and development 63,852 179,115
Selling, general, and administrative 437,568 331,221
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861,849 805,517
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Operating loss (798,961) (669,291)
Interest income 32,363 4,007
Interest expense (10,397) (7,869)
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Net loss $ (776,995) $ (673,153)
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Net loss per share $ (0.21) $ (0.18)
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Shares used in computing net loss per share 3,650,934 3,650,934
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------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
PHYSIOMETRIX, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Operating Activities:
Net Loss $ (776,995) $ (673,153)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 23,648 22,048
Changes in operating assets and liabilities:
Accounts receivable (5,455) (65,617)
Inventories (84,330) 16,569
Prepaid expenses and other assets (13,183) (136,998)
Accounts payable and accrued expenses (45,121) 78,710
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Net cash used in operating activities (901,436) (758,441)
Investing Activities:
Purchase of equipment (58,072) (12,430)
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Net cash used in investing activities (58,072) (12,430)
Financing Activities:
Proceeds from notes payable to stockholders - 380,460
Proceeds from debt financing - 250,534
Principal payments on notes payable to stockholders (25,845) (37,471)
Proceeds from issuance of common stock 2,943 7,250
Proceeds from issuance of warrants - 354
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Net cash provided by (used) in financing activities (22,902) 601,127
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Net decrease in cash and cash equivalents (982,410) (169,744)
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 $ 2,037,073 $ 262,382
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</TABLE>
See accompanying notes.
5
<PAGE>
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 March 31
1995 1996
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Raw materials $ 120,878 $ 100,679
Work-in-process 20,622 32,598
Finished goods 30,362 22,016
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$ 171,862 $ 155,293
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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
<PAGE>
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
incorporate proprietary materials and electronics technology and 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. 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 March 31, 1995, the
Company had an accumulated deficit of approximately $10.6 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.
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 of 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 operations may differ materially from those
anticipated by such forward looking statements. Factors that may affect
future results of operations include those described herein and those set
forth under "Risk Factors" in the Company's Prospectus dated April 30, 1996
relating to its initial public offering of Common Stock.
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
REVENUES
Revenues increased 117% to $136,226 for the three months ended March 31,
1996 from $62,888 for the three months ended March 31, 1995. This growth was
primarily the result of sales of the Company's NeuroLink product, which was
introduced in the fourth quarter of 1995.
GROSS MARGIN
Gross margin improved from $(297,541) for the three months ended March
31, 1995 to $(158,955) for the three months ended March 31, 1996. This
improvement was primarily the result of a higher volume of sales and
NeuroLink product sales. To a lesser extent, lower personnel costs
contributed to the gross margin improvement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses decreased 24% to $331,221 for
the three months ended March 31, 1996 from $437,568 for the three months ended
March 31, 1995. This decrease is the result of lower personnel costs 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 181% to $179,115 for
the three months ended March 31, 1996 from $63,852 for the three months ended
March 31, 1995. This increase is primarily the result of ongoing development
and clinical evaluation of the Company's Patient State Analyzer and
continued enhancements to and support for the Company's existing products.
INTEREST INCOME
Interest income decreased $28,356 to $4,007 for the three months ended
March 31, 1996 from $32,363 for the three months ended March 31, 1995. This
decrease is the result of an approximately $1.8 million decrease in cash and
cash equivalents from March 31, 1995 to March 31, 1996.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 the Company had $262,382 in cash and cash
equivalents as compared to $432,126 at December 31, 1995.
Cash used for operating activities was $758,441 for the three months
ended March 31, 1996 and was primarily the result of a $673,153 net loss for
the period. $601,127 in cash was provided by financing activities. This was
the result of the Company receiving $380,460 in the form of notes payable to
stockholders and $250,534 under its $500,000 revolving credit agreement.
In March 1996, the Company entered into a one year $500,000 revolving
credit agreement with a lending institution. Under the terms of the credit
agreement, the Company may make borrowings based on 80% of eligible accounts
receivable and various percentages of most fixed assets and inventory.
Borrowings under the credit agreement bear interest at 12.5% and are
collateralized by a $500,000 certificate of deposit.
On May 3, 1996, the Company received net proceeds of $20,460,000 (prior to
offering expenses) relating to the initial public offering of 2,000,000 shares
of common stock. The Company expects to use the net proceeds to fund
development activities and expansion of marketing, sales and manufacturing
activities for the Company's HydroDot NeuroMonitoring System and other products.
The Company expects to use the balance of the net proceeds for working capital,
general and administrative expenses and general corporate purposes.
Although the Company believes that the proceeds from the initial public
offering together with current cash balances and cash generated from future
sales of 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.
8
<PAGE>
PHYSIOMETRIX, INC.
MARCH 31, 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:
On April 25, 1996, the Company held its 1996 annual meeting of
shareholders. The matters voted upon at the meeting and the vote with respect
to each such matter are set forth below:
1. Election of John A. Williams, Harold C. Hohbach, Annet Campbell-White,
Thomas J. Toy, Thomas Baruch, Mir A. Imran and Thomas J. Fogarty as
directors of the Company:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
- ------- --- --------
<S> <C> <C>
John A. Williams 3,020,530 0
--------- --------
Harold C. Hohbach 3,020,530 0
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Thomas J. Toy 3,020,530 0
--------- --------
Thomas Baruch 3,020,530 0
--------- --------
Mir A. Imran 3,020,530 0
--------- --------
Thomas J. Fogarty 3,020,530 0
--------- --------
</TABLE>
2. Approval of a change in the Company's state of incorporation from
California to Delaware by means of a merger into a wholly-owned Delaware
subsidiary:
For: 3,020,530 Against: 0 Abstain: 0
--------- --------- -----------
3. Adoption of the 1996 Director Option Plan:
For: 3,020,530 Against: 0 Abstain: 0
--------- --------- -----------
4. Adoption of the 1996 Employee Stock Purchase Plan:
For: 3,020,530 Against: 0 Abstain: 0
--------- --------- -----------
5. Approval of an amendment to the Company's 1991 Incentive Stock Plan:
For: 3,020,530 Against: 0 Abstain: 0
--------- --------- -----------
6. Ratification of the selection of Ernst & Young LLP as the independent
public accountants of the Company for the fiscal year ending December 31,
1996:
For: 3,020,530 Against: 0 Abstain: 0
--------- --------- -----------
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
9
<PAGE>
PHYSIOMETRIX, INC.
MARCH 31, 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: May 15, 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
10
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 262,382
<SECURITIES> 0
<RECEIVABLES> 156,529
<ALLOWANCES> 0
<INVENTORY> 155,293
<CURRENT-ASSETS> 695,659
<PP&E> 264,807
<DEPRECIATION> 195,522
<TOTAL-ASSETS> 1,054,684
<CURRENT-LIABILITIES> 1,628,672
<BONDS> 0
0
4,028
<COMMON> 146
<OTHER-SE> (622,780)
<TOTAL-LIABILITY-AND-EQUITY> 618,606
<SALES> 136,226
<TOTAL-REVENUES> 136,226
<CGS> 295,181
<TOTAL-COSTS> 805,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (669,291)
<INTEREST-EXPENSE> 7,869
<INCOME-PRETAX> (673,153)
<INCOME-TAX> 0
<INCOME-CONTINUING> (673,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (673,153)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
