<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 JUNE 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
______________________________
PHYSIOMETRIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0248588
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer identification
incorporation or organization) No.)
Five Billerica Park, N. Billerica, MA 01862-1256
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(508) 670-2422
- -------------------------------------------------------------------------------
(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 JUNE 30, 1997
----- ----------------------------
Common Stock, $.001 par value 5,628,861
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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, 1996 and
June 30, 1997 3
Statements of Operations for the Three Months
and Six Months ended June 30, 1996 and 1997 4
Statements of Cash Flows for the Six Months
ended June 30, 1996 and 1997 5
Notes to Financial Statements 6
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 11
SIGNATURES 12
2
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PHYSIOMETRIX, INC.
BALANCE SHEETS
(Unaudited)
DECEMBER 31 JUNE 30
1996 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 328,331 $ 527,885
Short-term investments 17,817,917 14,205,671
Accounts receivable, net 38,196 123,274
Inventories, net 279,789 542,925
Prepaid expenses 102,393 111,399
------------ -------------
Total current assets 18,566,626 15,511,154
Property, plant and equipment 777,578 916,860
Less allowances for depreciation (284,740) (381,124)
------------ -------------
492,838 535,736
Due from officer 84,000 84,000
Other assets 8,518 10,403
------------ -------------
Total assets $ 19,151,982 $ 16,141,293
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 691,690 $ 262,852
Accrued expenses 261,107 493,341
Demand note payable 541,334 -
Current portion of notes payable
to stockholder 82,236 25,460
------------ -------------
Total current liabilities 1,576,367 781,653
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 30,618,909
Accumulated deficit (13,001,087) (15,264,898)
------------ -------------
Total stockholders' equity 17,575,615 15,359,640
------------ -------------
Total liabilities and stockholders' equity $ 19,151,982 $ 16,141,293
------------ -------------
------------ -------------
SEE ACCOMPANYING NOTES.
3
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PHYSIOMETRIX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- ------------------------------
1996 1997 1996 1997
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 78,732 $ 218,496 $ 214,958 $ 422,223
Costs and expenses:
Cost of goods sold 292,841 408,722 588,022 803,020
Research and development 237,366 520,051 416,481 1,090,831
Selling, general, and administrative 363,646 622,760 694,867 1,197,656
---------- ------------ ------------ ------------
893,853 1,551,533 1,699,370 3,091,507
---------- ------------ ------------ ------------
Operating loss (815,121) (1,333,037) (1,484,412) (2,669,284)
Interest income 167,515 210,833 171,522 426,147
Interest expense (40,080) (1,755) (47,949) (20,674)
---------- ------------ ------------ ------------
Net loss $ (687,686) $ (1,123,959) $ (1,360,839) $ (2,263,811)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Net loss per share $ (0.14) $ (0.20) $ (0.32) $ (0.40)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Shares used in computing
net loss per share 4,940,199 5,611,134 4,299,128 5,599,519
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
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PHYSIOMETRIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------------------
1996 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,360,839) $ (2,263,811)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 46,683 96,384
Changes in operating assets and liabilities:
Accounts receivable (13,630) (85,078)
Inventories (3,549) (263,136)
Prepaid expenses and other assets (32,508) (10,891)
Accounts payable and accrued expenses 149,910 (196,604)
------------- -------------
Net cash used in operating activities (1,213,933) (2,723,136)
INVESTING ACTIVITIES:
Purchase of equipment (97,451) (139,282)
Purchase of short-term investments (500,000) -
Purchase of available-for-sale securities - (77,406,179)
Proceeds from maturity of available-for-sale securities - 81,018,425
------------- -------------
Net cash provided by (used in) investing activities (597,451) 3,472,964
FINANCING ACTIVITIES:
Proceeds from notes payable to stockholders 380,460 -
Proceeds from debt financing 508,706 -
Principal payments on notes payable to stockholders (59,851) (56,776)
Principal payments on short-term debt - (541,334)
Proceeds from issuance of common stock, net 19,801,299 47,836
------------- -------------
Net cash provided by (used in) financing activities 20,630,614 (550,274)
------------- -------------
Net increase in cash and cash equivalents 18,819,230 199,554
Cash and cash equivalents at beginning of period 432,126 328,331
------------- -------------
Cash and cash equivalents at end of period $ 19,251,356 $ 527,885
------------- -------------
------------- -------------
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 June 30
1996 1997
----------- ----------
Raw materials $ 149,032 $ 203,311
Work-in-process 78,726 186,117
Finished goods 52,031 153,497
---------- ----------
$ 279,789 $ 542,925
---------- ----------
---------- ----------
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 beginning 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 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 application ("PMA") for this product. 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 June 30, 1997, the
Company had an accumulated deficit of approximately $15.3 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
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
7
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monitoring and competition. Results of operations will also be affected by
the progress of clinical trials and inhouse 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.
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
REVENUES
Revenues increased 178% to $218,496 for the three months ended June 30,
1997 from $78,732 for the three months ended June 30, 1996. This increase is
primarily the result of sales of the Company's Equinox EEG System which was
commercially introduced in February 1997.
COST OF GOODS SOLD
Cost of goods sold increased 40% to $408,722 for the three months ended
June 30, 1997 from $292,841 for the three months ended June 30, 1996. This
increase was primarily due to a higher sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 71% to $622,760
for the three months ended June 30, 1997 from $363,646 for the three months
ended June 30, 1996. This increase is primarily due to additional costs for
sales and marketing personnel and advertising costs associated with the
Equinox EEG System introduction.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 119% to $520,051 for
the three months ended June 30, 1997 from $237,366 for the three months ended
June 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.
INTEREST INCOME AND EXPENSE
Interest income increased $43,318 to $210,833 for the three months ended
June 30, 1997 from $167,515 for the three months ended June 30, 1996. This
was the result of a higher average cash balance in the second quarter of 1997
versus the second quarter of 1996. The Company's initial public offering
occurred on April 30, 1996. Interest expense decreased $38,325 to $1,755 for
the three months ended June 30, 1997 from $40,080 for the three months ended
June 30, 1996. This decrease was primarily the result of a repayment of
$541,334 under a revolving line of credit in March, 1997.
8
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SIX MONTHS ENDED JUNE 30, 1996 AND 1997
REVENUES
Revenues increased 96% to $422,223 for the six months ended June 30, 1997
from $214,958 for the six months ended June 30, 1996. This increase is
primarily the result of sales of the Company's Equinox EEG System which was
commercially introduced in February 1997.
COST OF GOODS SOLD
Cost of goods sold increased 37% to $803,020 for the six months ended
June 30, 1997 from $588,022 for the six months ended June 30, 1996. This
increase was primarily due to a higher sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 72% to $1,197,656
for the six months ended June 30, 1997 from $694,867 for the six months ended
June 30, 1996. This increase is primarily due to additional costs for sales
and marketing personnel and advertising costs associated with the Equinox EEG
System introduction.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 162% to $1,090,831 for
the six months ended June 30, 1997 from $416,481 for the six months ended
June 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.
INTEREST INCOME AND EXPENSE
Interest income increased $254,625 to $426,147 for the six months ended
June 30, 1997 from $171,522 for the six months ended June 30, 1996. This was
the result of a higher average cash balance in the first six months of 1997
versus the first six months of 1996. The Company's initial public offering
occurred on April 30, 1996. Interest expense decreased $27,275 to $20,674
for the six months ended June 30, 1997 from $47,949 for the six months ended
June 30, 1996. This decrease was primarily the result of a repayment of
$541,334 under a revolving line of credit in March, 1997.
9
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's cash, cash equivalents and short-term
investments were $14,733,556 as compared to $18,146,248 at December 31, 1996.
The Company's operating activities used cash of $2,723,136 in the six
months ended June 30, 1997 as compared to $1,213,933 in the six months ended
June 30, 1996. The increase in cash used was the result of a $2,263,811 net
loss combined with a $196,604 decrease in accounts payable and accrued
expenses and a $263,136 increase in inventories.
The Company's investing activities provided cash of $3,472,964 for the
six months ended June 30, 1997 as compared to cash used of $597,451 for the
six months ended June 30, 1996. This increase was the result of maturing
securities which were purchased with proceeds from the Company's initial
public offering.
The Company's financing activities used cash of $550,274 for the six
months ended June 30, 1997 as compared to $20,630,614 of cash provided in the
six months ended June 30, 1996. This decrease was due to the repayment of a
$541,334 line of credit during March, 1997. The Company received $19.8
million in net proceeds from their initial public offering in 1996.
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 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 gain market acceptance, and competitive developments.
10
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PHYSIOMETRIX, INC.
JUNE 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:
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.
JUNE 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: August 12, 1997
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 527,885
<SECURITIES> 14,205,671
<RECEIVABLES> 123,274
<ALLOWANCES> 33,584
<INVENTORY> 542,925
<CURRENT-ASSETS> 15,511,154
<PP&E> 916,860
<DEPRECIATION> 381,124
<TOTAL-ASSETS> 16,141,293
<CURRENT-LIABILITIES> 781,653
<BONDS> 0
0
0
<COMMON> 5,629
<OTHER-SE> 15,354,011
<TOTAL-LIABILITY-AND-EQUITY> 16,141,293
<SALES> 422,223
<TOTAL-REVENUES> 422,223
<CGS> 803,020
<TOTAL-COSTS> 3,091,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2,669,284)
<INTEREST-EXPENSE> 20,674
<INCOME-PRETAX> (2,263,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,263,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,263,811)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
