<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, 2000
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.
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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.)
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, 2000
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<S> <C>
Common Stock, $.001 par value 7,914,121
</TABLE>
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PHYSIOMETRIX, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
ITEM 1 Financial Statements
Balance Sheets as of December 31, 1999 and March 31, 2000 3
Statements of Operations for the Three Months ended March 4
31, 1999 and 2000
Statements of Cash Flows for the Three Months ended March 5
31, 1999 and 2000
Notes to Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION 11
SIGNATURES 12
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2
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PHYSIOMETRIX, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31 March 31
1999 2000
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 1,365,002 $ 6,569,332
Short-term investments............................................................ -- 15,313,710
Accounts receivable, net ......................................................... 41,209 36,317
Inventory ........................................................................ 31,916 18,975
Prepaid expenses ................................................................. 115,917 35,311
------------ ------------
Total current assets ................................................................... 1,554,044 21,973,645
Property, plant and equipment........................................................... 591,481 595,072
Less allowances for accumulated depreciation ........................................... (382,084) (404,527)
------------ ------------
209,397 190,545
Due from officer....................................................................... 84,000 84,000
Other assets........................................................................... 6,318 6,318
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Total assets........................................................................... $ 1,853,759 $ 22,254,508
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 62,305 $ 42,624
Accrued expenses................................................................... 327,929 433,516
------------ ------------
Total current liabilities............................................................... $ 390,234 $ 476,140
Stockholders' equity
Preferred stock: $.001 par value; 10,000,000 shares authorized: -- --
Common stock: $.001 par value, 50,000,000 shares authorized;
5,818,383 shares in 1999 and 7,914,121 shares in 2000 issued and
outstanding .................................................................... 5,818 7,914
Additional paid-in capital.............................................................. 30,819,965 53,030,424
Deferred compensation .................................................................. -- (548,437)
Accumulated deficit..................................................................... (29,362,258) (30,711,533)
------------ ------------
Total stockholders' equity ............................................................. 1,463,525 21,778,368
------------ ------------
Total liabilities and stockholders' equity ............................................. $ 1,853,759 $ 22,254,508
============ ============
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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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1999 2000
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<S> <C> <C>
Revenues .................................................................... $ 118,379 $ 87,243
Costs and expenses:
Cost of goods sold ..................................................... 213,071 224,631
Research and development ............................................... 536,112 930,353
Selling, general and administrative .................................... 246,905 398,072
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996,088 1,553,056
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Operating loss .............................................................. (877,709) (1,465,813)
Interest income ............................................................. 44,854 116,538
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Net loss .................................................................... $ (832,855) $(1,349,275)
=========== ============
Net loss per share .......................................................... $ (0.15) $ (0.21)
=========== ============
Shares used in computing net loss per common share .......................... 5,720,699 6,558,012
=========== ============
</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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1999 2000
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ...................................................... $ (832,855) $ (1,349,275)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................ 26,887 22,443
Stock compensation ....................................... -- 125,156
Changes in operating assets and liabilities:
Accounts receivable .................................. (8,699) 4,892
Inventories .......................................... -- 12,941
Prepaid expenses and other assets .................... (39,819) 80,606
Accounts payable and accrued expenses ................ (86,409) 110,905
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Net cash used in operating activities ......................... (940,895) (992,332)
INVESTING ACTIVITIES:
Purchase of equipment ......................................... (1,395) (3,591)
Purchase of available-for-sale securities ..................... (13,675,416) (19,200,309)
Proceeds from maturity of available-for-sale securities ....... 13,675,416 3,886,599
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Net cash used in investing activities ......................... (1,395) (15,317,301)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net ................... 750 21,513,963
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Net cash provided by financing activities ..................... 750 21,513,963
Net increase (decrease) in cash and cash equivalents .......... (941,540) 5,204,330
Cash and cash equivalents at beginning of period .............. 4,589,585 1,365,002
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Cash and cash equivalents at end of period .................... $ 3,648,045 $ 6,569,332
============ ============
</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,
2000 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, 1999.
NOTE B - ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting For Derivative Instruments and
Hedging Activities" was issued which is effective for fiscal year 2001. The
Company believes that the adoption of this statement will not have a material
impact on the Company's financial statement.
NOTE C - STOCKHOLDERS EQUITY
On February 29, 2000 the Company closed a private placement of common
stock and warrants totaling $21.5 million in net proceeds to the Company. The
Company issued 2,080,340 shares of common stock at $10.80 and warrants to
purchase 624,102 shares of common stock at $14.04 per share.
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, 1999. Such forward-looking statements include, but are not
limited to, statements concerning (i) business strategy; (ii) products under
development; (iii) other products; (iv) marketing and distribution; (v) research
and development; (vi) manufacturing; (vii) competition; (viii) government
regulation especially as it relates to FDA approvals; (ix) third-party
reimbursement (x) operating and capital requirements and (xi) clinical trials.
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 discontinued in June 1998 and the
Patient State Analyzer (PSA), which is currently pending FDA 510(k) approval.
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, 2000, the
Company had an accumulated deficit of approximately $30.7 million. The HydroDot
NeuroMonitoring System is currently the Company's principal commercial product.
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
channels for its products domestically and internationally. There can be no
assurance the Company will achieve significant commercial revenues or
profitability.
7
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THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
Revenues decreased 26% to $87,000 for the three months ended March 31,
2000 from $118,000 for the three months ended March 31, 1999. This decrease is
primarily the result of a lower sales volume of the Company's Hydrodot
NeuroMonitoring products. The Company intends to either license the HydroDot
NeuroMonitoring technology to another company or transition out of the business
by the end of 2000.
COST OF GOODS SOLD
Cost of goods sold increased 6% to $225,000 for the three months ended
March 31, 2000 from $213,000 for the three months ended March 31, 1999. This is
due to increased headcount related expenses.
GROSS MARGIN
The negative gross profit margin results from fixed headcount and
overhead in the quality assurance and manufacturing group. The gross margin
produced by the HydroDot NeuroMonitoring business does not provide enough sales
volume to cover these fixed expenses. Gross margin percentage related to the
HydroDot NeuroMonitoring business in 2000 was slightly lower in percentage terms
compared with gross margin produced in 1999 . Pricing of the product did not
change in 2000, but material costs of inventory were slightly higher comparable
to 1999. The Company intends to either license the HydroDot NeuroMonitoring
technology to another company or transition out of the business by the end of
2000.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees, and clinical trial expenses increased 73% to $930,000 for the
three months ended March 31, 2000 from $536,000 for the three months ended March
31, 1999. This increase is primarily the result of outside consulting related to
the analysis of the data from the prospective study of the PSA. The study was
completed in the first quarter of 2000 and the Company filed a 510(k) submission
to the Food and Drug Administration on March 31, 2000.
8
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 61% to $398,000
for the three months ended March 31, 2000 from $247,000 for the three months
ended March 31, 1999. This increase is primarily due to higher headcount
expenses, consulting fees and outside services incurred as the Company
approaches the commercialization of the PSA.
INTEREST INCOME AND EXPENSE:
Interest income increased to $117,000 for the three months ended March
31, 2000 from $45,000 for the three months ended March 31, 1999. This was due to
a higher average cash balance in 2000 versus 1999 as a result of a private
placement of the Company's common stock during the first quarter of 2000, which
raised $21.5 million in net proceeds.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's cash, cash equivalents and short term
investments were $21,883,000 as compared to $1,365,000 at year ended December
31, 1999.
The Company's operating activities used cash of $992,000 in the three
months ended March 31, 2000 as compared to $941,000 in the three months ended
March 31, 1999. The increase in net cash used in 2000 compared to 1999 was
primarily the result of the increased net loss of the Company, which was offset
by the increase in accounts payable and accrued expenses.
Net cash used in investing activities in the three months ended March
31, 2000 was $15,317,000, as compared with $1,395 used in the three months ended
March 31, 1999. The increase was due to the short-term investments made by the
Company as a result of the $21.5 million in net proceeds raised in the issuance
of the Company's common stock during the first quarter of 2000.
The Company's financing activities provided cash of $21,514,000 in the
three months ended March 31, 2000 as compared to $750 in the three months ended
March 31, 1999. During the first quarter of 2000, the Company completed an
issuance of common stock that raised $21.5 million in net proceeds.
The Company's principal source of liquidity at March 31, 2000 consists
of cash, cash equivalents and short-term investments in the amount of $21.9
million. On February 29, 2000, the Company issued common stock totaling $21.5
million in net proceeds to the company. The Company believes it has the
necessary cash and cash equivalents on hand to fund its operations for more than
a year from March 31, 2000.
9
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The Company believes that the success of the PSA is the most critical
component to the Company's ability to become profitable. The Company completed
its pivotal study for the PSA on January 5, 2000. A 510(k) was submitted to the
FDA on March 31, 2000 for the PSA. The company expects to receive a response
from the Food and Drug Administration by the end of June 2000. The Company's
plan for 2000 is to commercially launch the PSA during the third quarter pending
FDA approval. The Company is in the process of identifying qualified strategic
partners to serve as external manufacturer and as the worldwide distributors of
the product. There can be no assurance that the company will be successful in
doing so.
10
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PHYSIOMETRIX, INC.
MARCH 31, 2000
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
10.7* Stock Purchase Agreement dated
February 29, 2000 between the
Registrant and the purchasers of
common stock of the Registrant
named therein, including form of
Stock Purchase Warrant and other
exhibits thereto.
27.1 Financial Data Schedule
(b) Reports on Form 8-K - None
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* Incorporated by reference to exhibit 4.2 to Registrant's registration
statement on Form S-3 filed with the Securities and Exchange Commission March
31, 2000 (SEC File No. 333-33660).
11
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MARCH 31, 2000
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: April 25, 2000
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)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,569,332
<SECURITIES> 15,313,710
<RECEIVABLES> 36,317
<ALLOWANCES> 0
<INVENTORY> 18,975
<CURRENT-ASSETS> 21,973,645
<PP&E> 595,072
<DEPRECIATION> (404,527)
<TOTAL-ASSETS> 22,254,508
<CURRENT-LIABILITIES> 476,140
<BONDS> 0
0
0
<COMMON> 7,914
<OTHER-SE> 21,770,454
<TOTAL-LIABILITY-AND-EQUITY> 22,254,508
<SALES> 87,243
<TOTAL-REVENUES> 0
<CGS> 224,631
<TOTAL-COSTS> 1,553,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,465,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,349,275)
<EPS-BASIC> (.21)
<EPS-DILUTED> 0
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