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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, 1997
------------------
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
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______________________________
PHYSIOMETRIX, INC.
- --------------------------------------------------------------------------------
(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) (Zip code)
(978) 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
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ITEM 2 - Yes X No
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The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at September 30, 1997
----- ---------------------------------
Common Stock, $.001 par value 5,628,861
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PHYSIOMETRIX, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1 Financial Statements
Balance Sheets as of December 31, 1996 and 3
September 30, 1997
Statements of Operations for the Three Months 4
and Nine Months ended September 30, 1996 and
1997
Statements of Cash Flows for the Nine Months 5
ended September 30, 1996 and 1997
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 13
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2
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PHYSIOMETRIX, INC.
BALANCE SHEETS
(Unaudited)
DECEMBER 31 SEPTEMBER 30
1996 1997
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 328,331 $ 660,470
Short-term investments 17,817,917 12,512,006
Accounts receivable, net 38,196 373,943
Inventories, net 279,789 709,938
Prepaid expenses 102,393 118,354
------------ ------------
Total current assets 18,566,626 14,374,711
Property, plant and equipment 777,578 1,025,648
Less allowances for depreciation (284,740) (434,468)
------------ ------------
492,838 591,180
Due from officer 84,000 84,000
Other assets 8,518 8,593
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Total assets $ 19,151,982 $ 15,058,484
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 691,690 $ 377,156
Accrued expenses 261,107 547,904
Demand note payable 541,334 -
Current portion of notes payable to stockholder 82,236 19,518
------------ ------------
Total current liabilities 1,576,367 944,578
Stockholders' equity:
Preferred stock: $.001 par value; 10,000,000
shares authorized: - -
Common stock: $.001 par value, 50,000,000
shares authorized; 5,580,324 shares in 1996
and 5,628,861 shares in 1997 issued and
outstanding 5,580 5,629
Additional paid-in-capital 30,571,122 30,671,909
Accumulated deficit (13,001,087) (16,563,632)
------------ ------------
Total stockholders' equity 17,575,615 14,113,906
------------ ------------
Total liabilities and stockholders' equity $ 19,151,982 $ 15,058,484
------------ ------------
------------ ------------
SEE ACCOMPANYING NOTES.
3
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PHYSIOMETRIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 94,094 $ 476,293 $ 309,051 $ 898,516
Costs and expenses:
Cost of goods sold 312,283 559,052 900,305 1,362,072
Research and development 386,742 614,736 803,222 1,705,568
Selling, general, and administrative 448,628 790,999 1,143,493 1,988,654
----------- ----------- ----------- -----------
1,147,653 1,964,787 2,847,020 5,056,294
----------- ----------- ----------- -----------
Operating loss (1,053,559) (1,488,494) (2,537,969) (4,157,778)
Interest income 290,632 190,997 462,153 617,143
Interest expense (21,405) (1,237) (69,355) (21,910)
----------- ----------- ----------- -----------
Net loss $ (784,332) $(1,298,734) $(2,145,171) $(3,562,545)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share $ (0.14) $ (0.23) $ (0.45) $ (0.64)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computing net loss per share 5,552,641 5,628,861 4,721,557 5,609,407
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
4
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PHYSIOMETRIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------------------
1996 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,145,171) $ (3,562,545)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 76,453 149,728
Stock compensation - 53,000
Changes in operating assets and liabilities:
Accounts receivable (16,718) (335,747)
Inventories (10,830) (430,149)
Prepaid expenses and other assets (33,895) (16,036)
Accounts payable and accrued expenses 293,827 (27,737)
------------- -------------
Net cash used in operating activities (1,836,334) (4,169,486)
INVESTING ACTIVITIES:
Purchase of equipment (150,446) (248,070)
Purchase of short-term investments (500,000) -
Purchase of available-for-sale securities (75,740,038) (103,823,010)
Proceeds from maturity of available-for-sale securities 57,461,765 109,128,921
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Net cash provided by (used in) investing activities (18,928,719) 5,057,841
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 19,803,568 47,836
Principal payments on short-term debt - (541,334)
Proceeds from notes payable to stockholders 380,460 -
Proceeds from debt financing 524,666 -
Principal payments on notes payable to stockholders (88,750) (62,718)
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Net cash provided by (used in) financing activities 20,619,944 (556,216)
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Net increase (decrease) in cash and cash equivalents (145,109) 332,139
Cash and cash equivalents at beginning of period 432,126 328,331
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Cash and cash equivalents at end of period $ 287,017 $ 660,470
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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, 1997 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, 1996.
NOTE B - INVENTORIES
Inventories consist of the following:
December 31 September 30
1996 1997
----------- ------------
Raw materials $ 149,032 $ 375,821
Work-in-process 78,726 142,629
Finished goods 52,031 191,488
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$ 279,789 $ 709,938
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NOTE C - ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Standard No. 128, "Earnings Per Share" (FAS 128) which
simplifies the calculation of earnings or net loss per share and creates a
standard of comparability to the recently issued International Accounting
Standard No. 33, "Earnings Per Share". Since early application is not
permitted, the Company will adopt this standard in the fourth quarter of
1997. The pro forma net loss per share calculation required under FAS 128 is
not materially different from the primary and fully diluted net loss per
share calculations presented herein.
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive Income" and
FAS 131, "Disclosures About Segments of an Enterprise and Related
Information." Both FAS 130 and FAS 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the
Company's financial statements.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Physiometrix, Inc. should be read in conjunction with the
Financial Statements and related Notes thereto included elsewhere in this
Form 10-Q. This Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Actual events or results may differ
materially from those projected in the forward-looking statements as a result
of the factors described herein and other risks detailed from time to time in
the Company's SEC reports, including its annual report on Form 10-K for the
year ended December 31, 1996. Such forward-looking statements include, but
are not limited to, statements concerning (i) business strategy; (ii)
products under development; (iii) marketing and distribution; (iv) research
and development; (v) manufacturing; (vi) competition; (vii) government
regulation especially as it relates to FDA approvals; (viii) third-party
reimbursement and (ix) operating and capital requirements.
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-TM- headpiece and disposable HydroDot-TM- biosensors and custom
electronics, which are packaged as the HydroDot-TM- NeuroMonitoring System.
The Company also has two additional neurological monitoring products, the
Equinox-TM- EEG System which was commercially introduced in February 1997 and
the Patient State Analyzer-TM-, which was tested in its first phase of
clinical trials and was submitted to the FDA for 510(k) clearance
notification. The Company believes that the Patient State Analyzer,
currently in its second phase of clinical trials, will be subject to FDA
510(k) clearance notification. However, the FDA may require the Company to
submit a premarket approval ("PMA") application for this product. There can
be no assurance that the Company will be able to obtain necessary 510(k)
clearance or PMA approval to market the Patient State Analyzer or any other
products on a timely basis, if at all. Failure of the Company to receive
510(k) clearance or PMA approval for the Patient State Analyzer would have a
material adverse effect on the business, financial condition or results of
operations of the Company.
Physiometrix has a limited history of operations and has experienced
significant operating losses since its inception. As of September 30, 1997,
the Company had an accumulated deficit of approximately $16.6 million. The
HydroDot NeuroMonitoring System and Equinox are currently the Company's
principal commercial products and are expected to account for most of the
Company's revenue through 1997. The Company anticipates that its results of
operations will fluctuate on a quarterly basis for the foreseeable future due
7
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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. There can be no assurance the
Company will achieve significant commercial revenues or profitability. In
addition, profitability, if achieved, may not be sustained.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
REVENUES
Revenues increased 406% to $476,293 for the three months ended September
30, 1997 from $94,094 for the three months ended September 30, 1996. This
increase is primarily the result of sales of the Company's Equinox EEG
System which was commercially introduced in the United States in February
1997.
COST OF GOODS SOLD
Cost of goods sold increased 79% to $559,052 for the three months ended
September 30, 1997 from $312,283 for the three months ended September 30,
1996. This increase was primarily due to a higher sales volume.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 59% to $614,736 for the
three months ended September 30, 1997 from $386,742 for the three months
ended September 30, 1996. This increase is primarily the result of ongoing
development and clinical evaluation for the Patient State Analyzer and
continued enhancements to and support for the Company's existing products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 76% to $790,999
for the three months ended September 30, 1997 from $448,628 for the three
months ended September 30, 1996. This increase is primarily due to
additional costs associated with sales and marketing personnel, advertising
costs for the introduction of the Equinox EEG System, and non-recurring
severance costs which were recorded in the quarter.
8
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INTEREST INCOME AND EXPENSE:
Interest income decreased $99,635 to $190,997 for the three months ended
September 30, 1997 from $290,632 for the three months ended September 30,
1996. This was the result of a lower average cash balance in the third
quarter of 1997 versus the third quarter of 1996. The Company's initial
public offering occurred on April 30, 1996. Interest expense decreased
$20,168 to $1,237 for the three months ended September 30, 1997 from $21,405
for the three months ended September 30, 1996. This decrease was primarily
the result of a repayment of $541,334 under a revolving line of credit in
March, 1997 along with paying down the current portion of notes payable.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
REVENUES
Revenues increased 191% to $898,516 for the nine months ended September
30, 1997 from $309,051 for the nine months ended September 30, 1996. This
increase is primarily the result of sales of the Company's Equinox EEG
System which was commercially introduced in the United States in February
1997.
COST OF GOODS SOLD
Cost of goods sold increased 51% to $1,362,072 for the nine months ended
September 30, 1997 from $900,305 for the nine months ended September 30,
1996. This increase was primarily due to a higher sales volume.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 112% to $1,705,568 for
the nine months ended September 30, 1997 from $803,222 for the nine months
ended September 30, 1996. This increase is primarily the result of ongoing
development and clinical evaluation for the Patient State Analyzer and
continued enhancements to and support for the Company's existing products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 74% to $1,988,654
for the nine months ended September 30, 1997 from $1,143,493 for the nine
months ended September 30, 1996. This increase is primarily due to
additional costs associated with sales and marketing personnel and
advertising costs for the introduction of the Equinox EEG System.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased $154,990 to $617,143 for the nine months ended
September 30, 1997 from $462,153 for the nine months ended September 30,
1996. This was the result of a higher average cash balance in the first nine
months of 1997 versus the first nine months of 1996. The Company's initial
9
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public offering occurred on April 30, 1996. Interest expense decreased
$47,445 to $21,910 for the nine months ended September 30, 1997 from $69,355
for the nine months ended September 30, 1996. This decrease was primarily
the result of a repayment of $541,334 under a revolving line of credit in
March, 1997 along with paying down the current portion of notes payable.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's cash, cash equivalents and
short-term investments were $13,172,476 as compared to $18,146,248 at
December 31, 1996.
The Company's operating activities used cash of $4,169,486 in the nine
months ended September 30, 1997 as compared to $1,836,334 in the nine months
ended September 30, 1996. The increase in cash used was the result of a
$3,562,545 net loss combined with a $335,747 increase in accounts receivable,
a $430,149 increase in inventory as well as a $27,737 decrease in accounts
payable and accrued expenses.
The Company's investing activities provided cash of $5,057,841 for the
nine months ended September 30, 1997 as compared to cash used of $18,928,719
for the nine months ended September 30, 1996. This increase was the result
of securities purchased in 1996 with the proceeds from the company's initial
public offering combined with proceeds from maturing securities in 1997.
The Company's financing activities used cash of $556,216 for the nine
months ended September 30, 1997 as compared to $20,619,944 of cash provided
in the nine months ended September 30, 1996. This decrease was due to the
Company receiving $19.8 million in net proceeds from its' initial public
offering in 1996 as well as the repayment of a $541,334 line of credit during
March, 1997.
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 1998,
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 clinical trials involving the
Patient State Analyzer, 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, including the Equinox EEG System, gain market acceptance, and
competitive developments.
10
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PHYSIOMETRIX, INC.
SEPTEMBER 30, 1997
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:
See page 12.
ITEM 5 Other information:
None.
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K - None
11
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PART II, ITEM 4
On May 13, 1997, the Company held its annual meeting of stockholders. The
following items were submitted for a vote of the stockholders.
Election of James Nicholson as a class 1 director:
For: 4,064,082 shares
Against: 3,000 shares
Abstain: --
Ratification of selection of Ernst & Young as independent auditors for
the year ended December 31, 1997:
For: 4,065,582 shares
Against: --
Abstain: 1,500 shares
The foregoing information was inadvertently omitted from the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
12
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PHYSIOMETRIX, INC.
SEPTEMBER 30, 1997
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, 1997
BY: /s/John A. Williams
--------------------
John A. Williams
President, Chief Executive
Officer and Acting Chief
Financial Officer
13
<TABLE> <S> <C>
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<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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 660,470
<SECURITIES> 12,512,006
<RECEIVABLES> 373,943
<ALLOWANCES> (39,307)
<INVENTORY> 709,938
<CURRENT-ASSETS> 14,374,711
<PP&E> 1,025,648
<DEPRECIATION> (434,468)
<TOTAL-ASSETS> 15,058,484
<CURRENT-LIABILITIES> 944,578
<BONDS> 0
0
0
<COMMON> 5,629
<OTHER-SE> 14,108,277
<TOTAL-LIABILITY-AND-EQUITY> 15,058,484
<SALES> 898,516
<TOTAL-REVENUES> 898,516
<CGS> 1,362,072
<TOTAL-COSTS> 5,056,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (4,157,778)
<INTEREST-EXPENSE> (21,910)
<INCOME-PRETAX> (3,562,545)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,562,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,562,545)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
