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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 June 30, 1998
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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.
(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 June 30, 1998
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Common Stock, $.001 par value 5,686,044
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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, 1997 and June 30, 1998 3
Statements of Operations for the Three Month and Six Month 4
Periods ended June 30, 1997 and 1998
Statements of Cash Flows for the Six Months ended June 30, 5
1997 and 1998
Notes to Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
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PHYSIOMETRIX, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31 June 30
1997 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 9,104,147 $ 7,580,180
Short-term investments ....................................... 2,484,139 --
Accounts receivable, net ..................................... 311,194 90,504
Inventories, net ............................................. 640,131 258,306
Prepaid expenses ............................................. 81,631 96,208
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Total current assets ........................................... 12,621,242 8,025,198
Property, plant and equipment .................................. 1,152,605 691,376
Less allowances for depreciation ............................... (490,195) (324,422)
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662,410 366,954
Due from officer ............................................... 84,000 84,000
Other assets ................................................... 8,518 6,318
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Total assets ................................................... $ 13,376,170 $ 8,482,470
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 621,353 $ 333,262
Accrued expenses ............................................. 444,765 474,414
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Total current liabilities ...................................... 1,066,118 807,676
Stockholders' equity
Preferred stock: $.001 par value; 10,000,000 shares authorized: -- --
Common stock: $.001 par value, 50,000,000 shares authorized;
5,640,825 shares in 1997 and 5,686,044 shares in 1998 issued
and outstanding ............................................ 5,641 5,686
Additional paid-in capital ..................................... 30,698,595 30,769,485
Accumulated deficit ............................................ (18,394,184) (23,100,377)
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Total stockholders' equity ..................................... 12,310,052 7,674,794
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Total liabilities and stockholders' equity ..................... $ 13,376,170 $ 8,482,470
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</TABLE>
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
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1997 1998 1997 1998
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<S> <C> <C> <C> <C>
Revenues ......................................... $ 218,496 $ 149,326 $ 422,223 $ 333,166
Costs and expenses:
Cost of goods sold ............................. 408,722 776,346 803,020 1,257,437
Research and development ....................... 520,051 1,390,580 1,090,831 2,476,995
Selling, general and
administrative ............................... 622,760 592,864 1,197,656 1,287,436
Equipment writeoff ............................. -- 266,504 -- 266,504
----------- ----------- ----------- -----------
1,551,533 3,026,294 3,091,507 5,288,372
----------- ----------- ----------- -----------
Operating loss ................................... (1,333,037) (2,876,968) (2,669,284) (4,955,206)
Interest income .................................. 210,833 112,648 426,147 249,013
Interest expense ................................. (1,755) -- (20,674) --
----------- ----------- ----------- -----------
Net loss ......................................... $(1,123,959) $(2,764,320) $(2,263,811) $(4,706,193)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share ............................... $ (0.20) $ (0.49) $ (0.40) $ (0.83)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computing net loss per common
share .......................................... 5,611,134 5,676,559 5,599,519 5,667,442
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</TABLE>
See accompanying notes
4
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PHYSIOMETRIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
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1997 1998
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<S> <C> <C>
Operating activities:
Net loss .................................................................. $ (2,263,811) $ (4,706,193)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 96,384 104,732
Equipment writeoff ...................................................... -- 287,725
Changes in operating assets and liabilities:
Accounts receivable ................................................... (85,078) 220,690
Inventories ........................................................... (263,136) 381,825
Prepaid expenses and other assets ..................................... (10,891) (12,377)
Accounts payable and accrued expenses ................................. (196,604) (258,442)
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Net cash used in operating activities ..................................... (2,723,136) (3,982,040)
Investing activities:
Purchase of equipment ..................................................... (139,282) (97,001)
Purchase of available-for-sale securities ................................. (77,406,179) (22,957,398)
Proceeds from maturity of available-for-sale securities ................... 81,018,425 25,441,537
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Net cash provided by investing activities ................................. 3,472,964 2,387,138
Financing activities:
Proceeds from issuance of common stock, net ............................... 47,836 70,935
Principal payments on demand note ......................................... (541,334) --
Principal payments on notes payable to stockholders ....................... (56,776) --
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Net cash provided by (used in) financing activities ....................... (550,274) 70,935
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Net increase (decrease) in cash and cash equivalents ...................... 199,554 (1,523,967)
Cash and cash equivalents at beginning of period .......................... 328,331 9,104,147
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Cash and cash equivalents at end of period ................................ $ 527,885 $ 7,580,180
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</TABLE>
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,
1998 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, 1997.
Note B - Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998
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<S> <C> <C>
Raw materials .................................. $405,446 $113,855
Work-in-process ................................ 67,391 98,584
Finished goods ................................. 167,294 45,867
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$640,131 $258,306
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</TABLE>
Note C - Net Loss Per Common Share
In accordance with Financial Accounting Standards Board statement No. 128,
Earnings per share, the company is required to calculate basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Basic and
diluted earnings per share are the same for the Three Month and Six Month
Periods ended June 30,1998 and 1997.
Note D - Discontinued Product Line
The Company discontinued its Equinox Product Line during May 1998. As a
result, the Company incurred costs for writedowns of fixed assets and
inventory and for severance related to head count reductions aggregating
approximately $650,000.
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, 1997. 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
eoNet headpiece and disposable HydroDot biosensors and custom electronics, which
are packaged as the HydroDot NeuroMonitoring System. The Company also has two
additional neurological monitoring products, the Equinox EEG System which was
commercially introduced in February 1997 and subsequently discontinued in June
1998 and the Patient State Analyzer, which is currently in clinical trials. The
Company believes that the Patient State Analyzer 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 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, 1998, the
Company had an accumulated deficit of approximately $23.1 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 1998. The
Company anticipates that its operating results 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
7
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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, 1997 and 1998
Revenues
Revenues decreased 32% to $149,326 for the three months ended June 30,
1998 from $218,496 for the three months ended June 30, 1997. This decrease is
primarily the result of a lower level of sales of the Company's Equinox EEG
System partially offset by an increase in e-Net neuromonitoring equipment sales.
Cost of Goods Sold
Cost of goods sold increased 90% to $776,346 for the three months ended
June 30, 1998 from $408,722 for the three months ended June 30, 1997. This
increase was primarily due to inventory writedowns of $354,319 related to
discontinuance of the Company's Equinox product line and higher headcount in
Manufacturing and Quality Assurance Departments.
Research and Development Expenses
Research and development expenses consisting principally of salaries,
consulting fees, pilot production units and clinical trial expenses increased
167% to $1,390,580 for the three months ended June 30, 1998 from $520,051 for
the three months ended June 30, 1997. This increase is primarily the result of
ongoing development and clinical evaluation for the Patient State Analyzer
including the assembly of units for the upcoming clinical study.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 5% to $592,864
for the three months ended June 30, 1998 from $622,760 for the three months
ended June 30, 1997. This decrease is primarily due to the discontinuation of
the Equinox product line which resulted in a reduction of the Company's outside
sales force and related expenses.
Writedown of Assets
The Company took a $266,504 charge in the three months ended June 30,
1998 related to long lived assets no longer utilized by the Company with the
discontinuance of the Equinox product line.
8
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Interest Income and Expense:
Interest income decreased $98,185 to $112,648 for the three months
ended June 30, 1998 from $210,833 for the three months ended June 30, 1997. This
was the result of a lower average cash balance in the second quarter of 1998
versus the second quarter of 1997. Interest expense decreased $1,755 to zero for
the three months ended June 30, 1998. This decrease was primarily the result of
a repayment of a note payable during 1997.
Six Months Ended June 30, 1997 and 1998
Revenues
Revenues decreased 21% to $333,166 for the six months ended June 30,
1998 from $422,223 for the six months ended June 30, 1997. This decrease is
primarily the result of a lower level of sales of the Company's Equinox EEG
System partially offset by an increase in e-Net neuromonitoring equipment sales.
Cost of Goods Sold
Cost of goods sold increased 57% to $1,257,437 for the six months ended
June 30, 1998 from $803,020 for the six months ended June 30, 1997. This
increase was primarily due to inventory writedowns of $354,319 related to
discontinuance of the Company's Equinox product line and higher headcount in
Manufacturing and Quality Assurance Departments.
Research and Development Expenses
Research and development expenses consisting principally of salaries,
consulting fees, pilot production units and clinical trial expenses increased
127% to $2,476,995 for the six months ended June 30, 1998 from $1,090,831 for
the six months ended June 30, 1997. This increase is primarily the result of
ongoing development and clinical evaluation for the Patient State Analyzer
including the assembly of units for the upcoming clinical study.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 7% to $1,287,436
for the six months ended June 30, 1998 from $1,197,656 for the six months ended
June 30, 1997. This increase is primarily due to higher selling expenses and
headcount during the first quarter offset by discontinuation of the Equinox
product line which resulted in a reduction of the Company's outside sales force
and related expenses.
9
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Writedown of Assets
The Company took a $266,504 charge in the three months ended June 30,
1998 related to long lived assets no longer utilized by the Company with the
discontinuance of the Equinox product line.
Interest Income and Expense:
Interest income decreased $177,134 to $249,013 for the six months ended
June 30, 1998 from $426,147 for the six months ended June 30, 1997. This was the
result of a lower average cash balance in the first half of 1998 versus the
first half of 1997. Interest expense decreased $20,674 to zero for the six
months ended June 30, 1998. This decrease was primarily the result of a
repayment of a note payable during 1997.
Liquidity And Capital Resources
At June 30, 1998, the Company's cash, cash equivalents and short-term
investments were $7,580,180 as compared to $11,588,286 at December 31, 1997.
The Company's operating activities used cash of $3,982,040 in the six
months ended June 30, 1998 as compared to $2,723,136 in the six months ended
June 30, 1997. The $1,258,904 increase in net cash used was primarily the result
of an increased net loss of the company.
The Company's financing activities provided cash of $70,935 in the six
months ended June 30, 1998 as compared to $550,274 used in the six months ended
June 30, 1997. The 1997 financing activities included a repayment of the line of
credit of $541,334.
Net cash provided by investing activities in the six months ended June
30, 1998 was $2,387,138, as compared with $3,472,964 provided in the six months
ended June 30, 1997. The decrease was due to maturity of available-for-sale
securities, which was less than the same period in the prior year.
The Company's principal source of liquidity at June 30, 1998 consisted
of cash and cash equivalents of $7,580,180. The Company believes that its
capital resources will be sufficient to meet the Company's operating and capital
requirements through 1998. 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 approvals, the cost
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. The Company may in the future seek to
raise additional funds through bank facilities, debt equity offerings or other
sources of capital. There can be no assurance that additional financing, if
required, will be available on satisfactory terms, if at all.
10
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The Company has begun to review its computer system for Year 2000
compliance and has designed a plan to test whether their systems will conform to
Year 2000 requirements. The Company is expensing all costs associated with these
systems changes and does not anticipate that these costs will have a material
impact on its financial position or results from operations. Although management
does not expect Year 2000 issues to have a material impact on its business or
results of operations, there can be no assurance that there will be no
interruptions or other limitations of system functionality.
11
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PHYSIOMETRIX, INC.
June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
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 13.
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
</TABLE>
12
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PART II, ITEM 4
On May 21, 1998, the Company held its annual meeting of stockholders. The
following items were submitted for a vote of the stockholders.
Election of Thomas J. Toy and James A. Saalfield as a Class II director.
For: 3,921,350 shares
Against: --
Abstain: 15,875 shares
Ratification of selection of Ernst & Young as independent auditors for
the year ended December 31, 1998:
For: 3,932,400 shares
Against: 1,600 shares
Abstain: 3,225 shares
13
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June 30, 1998
SIGNATURES
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 5, 1998
BY: /s/John A. Williams
----------------------------
John A. Williams
President, Chief Executive
Officer
BY: /s/Daniel W. Muehl
----------------------------
Daniel W. Muehl
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,580,180
<SECURITIES> 0
<RECEIVABLES> 90,504
<ALLOWANCES> 25,000
<INVENTORY> 258,306
<CURRENT-ASSETS> 8,025,198
<PP&E> 691,376
<DEPRECIATION> 324,422
<TOTAL-ASSETS> 8,482,470
<CURRENT-LIABILITIES> 807,676
<BONDS> 0
0
0
<COMMON> 5,686
<OTHER-SE> 7,669,108
<TOTAL-LIABILITY-AND-EQUITY> 8,482,470
<SALES> 149,326
<TOTAL-REVENUES> 149,326
<CGS> 776,346
<TOTAL-COSTS> 2,249,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,764,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,764,320)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
