<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, 1998
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 ___
ITEM 2 - Yes X No ___
The number of shares outstanding of each of the issuer's classes of common
stock as of
<TABLE>
<CAPTION>
Class Outstanding at March 31, 1998
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<S> <C>
Common Stock, $.001 par value 5,667,075
</TABLE>
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PHYSIOMETRIX, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<C> <C> <S> <C>
ITEM 1 Financial Statements
Balance Sheets as of December 31, 1997 and 3
March 31, 1998
Statements of Operations for the Three Months 4
ended March 31, 1997 and 1998
Statements of Cash Flows for the Three Months 5
ended March 31, 1997 and 1998
Notes to Financial Statements 6
ITEM 2 Management s Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION 10
SIGNATURES 11
</TABLE>
2
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PHYSIOMETRIX, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 9,104,147 $ 9,030,989
Short-term investments.................................................................. 2,484,139 687,718
Accounts receivable, net................................................................ 311,194 111,140
Inventories, net........................................................................ 640,131 747,143
Prepaid expenses........................................................................ 81,631 81,493
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Total current assets....................................................................... 12,621,242 10,658,483
Property, plant and equipment.............................................................. 1,152,605 1,188,111
Less allowances for depreciation........................................................... (490,195) (546,350)
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662,410 641,761
Due from officer........................................................................... 84,000 84,000
Other assets............................................................................... 8,518 8,520
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Total assets............................................................................... $ 13,376,170 $ 11,392,764
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 621,353 $ 436,884
Accrued expenses........................................................................ 444,765 571,295
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Total current liabilities.................................................................. 1,066,118 1,008,179
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 5,667,075 shares in 1998 issued and outstanding............ 5,641 5,667
Additional paid-in capital................................................................. 30,698,595 30,714,976
Accumulated deficit........................................................................ (18,394,184) (20,336,058)
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Total stockholders' equity................................................................. 12,310,052 10,384,585
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Total liabilities and stockholders' equity................................................. $ 13,376,170 $ 11,392,764
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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
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1997 1998
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<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $ 203,727 $ 183,840
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . 394,298 481,092
Research and development . . . . . . . . . . . . . 570,780 1,086,415
Selling, general and administrative . . . . . . . 574,896 694,571
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1,539,974 2,262,078
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Operating loss . . . . . . . . . . . . . . . . . . . (1,336,247) (2,078,238)
Interest income . . . . . . . . . . . . . . . . . . . 215,314 136,364
Interest expense . . . . . . . . . . . . . . . . . . (18,919) -
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Net loss . . . . . . . . . . . . . . . . . . . . . . $ (1,139,852) $(1,941,874)
----------- -----------
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Net loss per share. . . . . . . . . . . . . . . . . . $ (0.20) $ (0.34)
----------- -----------
----------- -----------
Shares used in computing net loss per common share. . 5,587,775 5,658,325
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</TABLE>
See accompanying notes
4
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PHYSIOMETRIX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
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1997 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (1,139,852) $ (1,941,874)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . 45,516 56,155
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (84,385) 200,054
Inventories . . . . . . . . . . . . . . . . . . (26,315) (107,012)
Prepaid expenses and other assets . . . . . . . (37,881) 136
Accounts payable and accrued expenses . . . . . (223,289) (57,940)
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Net cash used in operating activities . . . . . . . . (1,466,206) (1,850,481)
INVESTING ACTIVITIES:
Purchase of equipment . . . . . . . . . . . . . . . . (107,908) (35,506)
Purchase of available-for-sale securities . . . . . . (41,813,005) (30,745,019)
Proceeds from maturity of available-for-sale
securities. . . . . . . . . . . . . . . . . . . . . 43,844,016 32,541,440
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Net cash provided by investing activities . . . . . . 1,923,103 1,760,915
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net . . . . . 802 16,408
Principal payments on short-term debt . . . . . . . . (541,334) -
Principal payments on notes payable to
stockholders . . . . . . . . . . . . . . . . . . . (33,175)
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Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . (573,707) 16,408
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Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . . . . (116,810) (73,158)
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. . . . . . $ 211,521 $ 9,030,989
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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 March 31
1997 1998
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<S> <C> <C>
Raw materials $ 405,446 $ 477,643
Work-in-process 67,391 81,936
Finished goods 167,294 187,564
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$ 640,131 $ 747,143
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</TABLE>
NOTE C - ACCOUNTING PRONOUNCEMENTS
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 QUARTERS ENDED
MARCH 31, 1998 AND 1997.
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 e-Net 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 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 March 31, 1998, the
Company had an accumulated deficit of approximately $20.3 million. The
HydroDot NeuroMonitoring System and Equinox are currently the Company's
principal commercial products 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 MARCH 31, 1998
REVENUES
Revenues decreased 10% to $183,840 for the three months ended March 31,
1998 from $203,727 for the three months ended March 31, 1997. This decrease
is primarily the result of a lower level of sales of the Company's Equinox
EEG System and e-Net neuromonitoring equipment.
COST OF GOODS SOLD
Cost of goods sold increased 22% to $481,092 for the three months ended
March 31, 1998 from $394,298 for the three months ended March 31, 1997. This
increase was primarily due to a higher headcount in Manufacturing and Quality
Assurance Departments.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees and clinical trial expenses increased 90% to $1,086,415 for
the three months ended March 31, 1998 from $570,780 for the three months
ended March 31, 1997. This increase is primarily the result of ongoing
development and clinical evaluation for the Patient State Analyzer and
continued enhancements and support for the Company's existing products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 21% to $694,571 for
the three months ended March 31, 1998 from $574,896 for the three months
ended March 31, 1997. This increase is primarily due to additional costs
associated with sales and marketing personnel and other costs for the support
of the Equinox EEG System.
INTEREST INCOME AND EXPENSE:
Interest income decreased $78,949 to $136,365 for the three months ended
March 31, 1998 from $215,314 for the three months ended March 31, 1997. This
was the result of a lower average cash balance in the first quarter of 1998
versus the first quarter of 1997. Interest expense decreased $18,919 to zero
for the three months ended March 31, 1998. 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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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's cash, cash equivalents and short-term
investments were $9,719,000 as compared to $11,588,000 at December 31, 1997.
The Company's operating activities used cash of $1,850,480 in the three
months ended 1998 as compared to $1,466,206 in the three months ended 1997.
The $384,274 increase in net cash used was primarily the result of an
increased net loss of the company, accounts payable and inventory.
The Company's financing activities provided cash of $16,407 in the three
months ended 1998 as compared to $573,707 used in the three months ended 1997.
The 1997 financing activities included a repayment of the line of credit of
$541,334.
Net cash provided by investing activities in the three months ended 1998
was $1,760,915, as compared with $1,923,103 provided in the three months ended
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 March 31, 1998 consisted
of cash, cash equivalents and short term investments of $9,719,000. The
Company believes that its capital resources will be sufficient to meet the
Company's operating and capital requirements at least 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.
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.
9
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PHYSIOMETRIX, INC.
MARCH 31, 1998
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:
None.
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
10
<PAGE>
MARCH 31, 1998
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 1, 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)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,030,989
<SECURITIES> 687,718
<RECEIVABLES> 111,140
<ALLOWANCES> 20,000
<INVENTORY> 747,143
<CURRENT-ASSETS> 10,658,483
<PP&E> 641,761
<DEPRECIATION> 546,350
<TOTAL-ASSETS> 11,392,764
<CURRENT-LIABILITIES> 1,008,179
<BONDS> 0
0
0
<COMMON> 5,667
<OTHER-SE> 10,378,918
<TOTAL-LIABILITY-AND-EQUITY> 11,392,764
<SALES> 183,840
<TOTAL-REVENUES> 183,840
<CGS> 481,092
<TOTAL-COSTS> 2,262,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,941,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,941,873)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
