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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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)
<TABLE>
<S> <C>
DELAWARE 77-0248588
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
FIVE BILLERICA PARK, N. BILLERICA, MA 01862-1256
(Address of principal executive offices) (Zip code)
</TABLE>
(978) 670-2422
(Registrant's telephone number including area code)
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Indicate by check mark whether the registrants: (1) have 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) have 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 .
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Class Outstanding at September 30, 2000
Common Stock, $.001 par value 8,326,624
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PHYSIOMETRIX, INC.
TABLE OF CONTENTS
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PAGE
PART I FINANCIAL INFORMATION NO.
<S> <C> <C> <C>
ITEM 1 Condensed Unaudited Financial Statements
Unaudited Condensed Balance Sheets as of December 31,
1999 and September 30, 2000............................. 3
Unaudited Condensed Statements of Operations for the
Three and Nine Months ended September 30, 1999 and
2000.................................................... 4
Unaudited Condensed Statements of Cash Flows for the
Nine Months ended September 30, 1999 and 2000........... 5
Notes to Unaudited Condensed Financial Statements....... 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
PART II OTHER INFORMATION.................................................... 12
SIGNATURES......................................................................... 13
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2
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PHYSIOMETRIX, INC.
UNAUDITED CONDENSED BALANCE SHEETS
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<CAPTION>
DECEMBER 31 SEPTEMBER 30
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,365,002 $ 5,338,809
Short-term investments.................................... -- 16,955,470
Accounts receivable, net.................................. 41,209 869,703
Inventories............................................... 31,916 739,000
Prepaid expenses.......................................... 115,917 352,916
------------ ------------
Total current assets........................................ 1,554,044 24,255,898
Property, plant and equipment............................... 591,481 698,337
Less allowances for depreciation............................ (382,084) (451,198)
------------ ------------
209,397 247,139
Due from officer............................................ 84,000 84,000
Other assets................................................ 6,318 9,570
------------ ------------
Total assets................................................ $ 1,853,759 $ 24,596,607
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 62,305 $ 184,379
Accrued expenses.......................................... 327,929 1,117,552
------------ ------------
Total current liabilities................................... 390,234 1,301,931
Stockholders' equity
Preferred stock: $.001 par value; 10,000,000 shares
authorized: none issued and outstanding................. -- --
Common stock: $.001 par value; 50,000,000 shares
authorized: 5,818,383 shares in 1999 and 8,326,624
shares in 2000 issued and outstanding................... 5,818 8,327
Additional paid-in capital.................................. 30,819,965 56,596,629
Deferred compensation....................................... -- (584,238)
Accumulated deficit......................................... (29,362,258) (32,726,042)
------------ ------------
Total stockholders' equity.................................. 1,463,525 23,294,676
------------ ------------
Total liabilities and stockholders' equity.................. $ 1,853,759 $ 24,596,607
============ ============
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See accompanying notes
3
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PHYSIOMETRIX, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ -------------------------
1999 2000 1999 2000
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................... $ 84,231 $ 907,120 $ 284,841 $ 1,086,024
Costs and expenses:
Cost of goods sold........................ 178,851 1,011,310 584,094 1,488,418
Research and development.................. 458,911 667,201 1,441,835 2,107,231
Selling, general and administrative....... 196,589 804,485 713,441 1,626,641
---------- ----------- ----------- -----------
834,351 2,482,996 2,739,370 5,222,290
---------- ----------- ----------- -----------
Operating loss.............................. (750,120) (1,575,876) (2,454,529) (4,136,266)
Interest income............................. 30,883 341,488 112,362 772,482
---------- ----------- ----------- -----------
Net loss.................................... $ (719,237) $(1,234,388) $(2,342,167) $(3,363,784)
========== =========== =========== ===========
Net loss per share.......................... $ (0.12) $ (0.15) $ (0.41) $ (0.44)
========== =========== =========== ===========
Shares used in computing net loss per common
share..................................... 5,787,041 8,260,906 5,756,074 7,611,331
========== =========== =========== ===========
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See accompanying notes
4
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PHYSIOMETRIX, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1999 2000
----------- ------------
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OPERATING ACTIVITIES:
Net loss.................................................... $(2,342,167) $ (3,363,784)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 79,047 69,114
Stock compensation........................................ -- 240,039
Changes in operating assets and liabilities:
Accounts receivable..................................... 23,791 (828,494)
Inventories............................................. -- (707,084)
Prepaid expenses and other assets....................... 26,156 (240,251)
Accounts payable and accrued expenses................... (220,222) 911,697
----------- ------------
Net cash used in operating activities....................... (2,433,395) (3,918,763)
INVESTING ACTIVITIES:
Purchase of equipment....................................... (2,965) (106,856)
Purchase of available-for-sale securities................... -- (44,131,031)
Proceeds from maturity of available-for-sale securities..... -- 27,175,561
----------- ------------
Net cash used in investing activities....................... (2,965) (17,062,326)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net................. 47,965 24,954,896
----------- ------------
Net cash provided by financing activities................... 47,965 24,954,896
----------- ------------
Net increase (decrease) in cash and cash equivalents........ (2,388,395) 3,973,807
Cash and cash equivalents at beginning of period............ 4,589,585 1,365,002
----------- ------------
Cash and cash equivalents at end of period.................. $ 2,201,190 $ 5,338,809
=========== ============
</TABLE>
See accompanying notes
5
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 ending 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
ended 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.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements".
SAB 101 clarifies the SEC staff's views on applying generally accepted
accounting principles to revenue recognition in financial statements. In
March 2000, the SEC issued an amendment, SAB 101A, which deferred the effective
date of SAB 101. In June 2000, the SEC issued an amendment, SAB 101B, which
again deferred the effective date of SAB 101. The Company will adopt SAB 101 in
the fourth quarter of 2000 in accordance with SAB 101B. The adoption of this SAB
is not expected to have a significant impact on the Company's financial
statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation (the Interpretation)". This
Interpretation clarifies how companies should apply the Accounting Principles
Board's Opinion No. 25, "Accounting for Stock Issued to Employees". The
Interpretation will be applied prospectively to new awards, modifications to
outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: the definition of an employee applies to awards granted after
December 15, 1998; the Interpretation applies to modifications that reduce the
exercise price of an award after December 15, 1998; and the Interpretation
applies to modifications that add a reload feature to an award made after
January 12, 2000. At the present time, there are no awards granted by the
Company, which would result in an adjustment at July 1, 2000 as a result of the
adoption of this Interpretation.
6
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--INVENTORIES
Inventory is recorded at the lower of cost (first-in, first-out) or market,
and consists of the following:
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DECEMBER 31, SEPTEMBER 30,
1999 2000
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Purchased components................................ $28,743 $728,913
Finished units...................................... 3,173 10,087
------- --------
$31,916 $739,000
======= ========
</TABLE>
NOTE D--STOCKHOLDERS' EQUITY
On February 29, 2000, the Company closed a private placement of common stock
and warrants totaling $21.5 million in net proceeds less offering costs 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.
7
<PAGE>
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 received FDA 510(k) approval on June 30, 2000. The Company
began shipments of the PSA in the 3rd quarter to Baxter Healthcare Corporation,
our exclusive U.S. distribution partner.
Physiometrix has a limited history of operations and has experienced
significant operating losses since its inception. As of September 30, 2000, the
Company had an accumulated deficit of approximately $32.7 million. The HydroDot
NeuroMonitoring System and the Patient State Analyzer are currently the
Company's principal commercial products. 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. For the nine month period ending September 30, 2000,
substantially all of the Company's sales were to Baxter Healthcare Corporation.
There can be no assurance the Company will achieve significant commercial
revenues or profitability.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
Revenues increased 977% to $907,000 for the three months ended
September 30, 2000 from $84,000 for the three months ended September 30, 1999.
This increase is primarily the result of sales of the Patient State Analyzer,
which began during the 3rd quarter of 2000. Sales of the Company's HydroDot
NeuroMonitoring products were relatively unchanged compared with the same
quarter last year. The Company continues to explore options to either license
the HydroDot NeuroMonitoring technology to another company or transition out of
the business.
8
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COST OF GOODS SOLD
Cost of goods sold increased 465% to $1,011,000 for the three months ended
September 30, 2000 from $179,000 for the three months ended September 30, 1999.
This was primarily due to product costs of the Patient State Analyzer, which
began during the 3rd quarter of 2000, and additional headcount and expenses in
the manufacturing group.
GROSS MARGIN
The negative gross profit margin results from costs of the product and the
level of headcount and overhead required in the Company's manufacturing group.
The gross margin produced by our current products at the current sales volume is
not sufficient to cover these 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 continues to explore options to either license the HydroDot
NeuroMonitoring technology to another company or transition out of the business.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of headcount
related expenses and consulting fees increased 45% to $667,000 for the three
months ended September 30, 2000 from $459,000 for the three months ended
September 30, 1999. This increase is primarily the result of headcount expenses,
outside consulting related to the continued development of the Patient State
Analyzer and stock option compensation expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 309% to $804,000 for
the three months ended September 30, 2000 from $197,000 for the three months
ended September 30, 1999. This increase is due to expenses related to increased
headcount related expenses, costs associated with investor relations,
professional fees and marketing expenses incurred as the Company continues the
commercialization of the Patient State Analyzer.
INTEREST INCOME AND EXPENSE
Interest income increased to $341,000 for the three months ended
September 30, 2000 from $31,000 for the three months ended September 30, 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 and warrant exercises which
raised $3.3 million during the third quarter.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
Revenues increased 281% to $1,086,000 for the nine months ended
September 30, 2000 from $285,000 for the nine months ended September 30, 1999.
This increase is primarily the result of sales of the Patient State Analyzer,
which began during the 3rd quarter of 2000. Sales of the Company's HydroDot
NeuroMonitoring products were relatively unchanged compared with the same period
last year. The Company continues to explore options to either license the
HydroDot NeuroMonitoring technology to another company or transition out of the
business.
9
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COST OF GOODS SOLD
Cost of goods sold increased 155% to $1,488,000 for the nine months ended
September 30, 2000 from $584,000 for the nine months ended September 30, 1999.
This increase was primarily due to product costs of the Patient State Analyzer,
which began during the 3rd quarter of 2000, and additional headcount and
expenses in the manufacturing group.
GROSS MARGIN
The negative gross profit margin results from costs of the product and the
level of headcount and overhead required in the manufacturing group. The gross
margin produced by our current products at the current sales volume is not
sufficient to cover these 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 continues to explore options to either license the HydroDot
NeuroMonitoring technology to another company or transition out of the business.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consisting principally of salaries,
consulting fees, and clinical trial expenses increased 46% to $2,107,000 for the
nine months ended September 30, 2000 from $1,442,000 for the nine months ended
September 30, 1999. This increase is primarily the result of outside consulting
related to the analysis of the data from the prospective study of the Patient
State Analyzer, stock compensation expense and continued development. The
Company filed a 510(k) submission to the FDA on March 31, 2000 and received
510(k) approval for the Patient State Analyzer on June 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 128% to $1,627,000
for the nine months ended September 30, 2000 from $713,000 for the nine months
ended September 30, 1999. This increase is due to expenses related to relisting
on the Nasdaq National Market, headcount expenses, costs associated with
investor relations, professional fees and marketing expenses incurred related to
the commercialization of the Patient Sate Analyzer.
INTEREST INCOME
Interest income increased to $772,000 for the nine months ended
September 30, 2000 from $112,000 for the nine months ended September 30, 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 and warrant exercises which
raised $3.4 million during the nine month period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's cash, cash equivalents and short-term
investments were $22,294,000 as compared to $1,365,000 at year ended
December 31, 1999.
The Company's operating activities used cash of $3,919,000 in the nine
months ended September 30, 2000 as compared to $2,433,000 in the nine months
ended September 30, 1999. The increase in net cash used in 2000 compared to 1999
was primarily the result of the increased net loss of the Company, increased
accounts receivable due to shipments of the Patient State Analyzer and increased
inventory of the Patient State Analyzer. These increases were partially offset
by an increase
10
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in accounts payable and accrued expenses as well as the effect of noncash stock
option compensation expense.
Net cash used in investing activities in the nine months ended
September 30, 2000 was $17,062,000, as compared with $2,965 used in the nine
months ended September 30, 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 private placement of the Company's common stock during the first
quarter of 2000 and warrant exercises, which raised $3.4 million during the nine
month period.
The Company's financing activities provided cash of $24,955,000 in the nine
months ended September 30, 2000 as compared to $48,000 in the nine months ended
September 30, 1999. During the first quarter of 2000, the Company completed a
private placement of common stock that raised $21.5 million in net proceeds. As
part of the private placement, the Company issued warrants to purchase 624,102
shares of common stock at $14.04 per share. A total of 255,800 of warrant shares
were issued for $3.4 million in proceeds during the nine-month period.
The Company's principal source of liquidity at September 30, 2000 consists
of cash, cash equivalents and short-term investments in the amount of $22.3
million. On February 29, 2000, the Company issued common stock totaling $21.5
million in net proceeds to the company. On June 12, 2000, the Company's stock
was re-listed on the Nasdaq National Market. The Company believes it has the
necessary cash and cash equivalents on hand to fund its operations for more than
a year from September 30, 2000.
The Company believes that the success of the Patient State Analyzer is the
most critical component to the Company's ability to become profitable. The
Company completed its pivotal study on January 5, 2000. A 510(k) was submitted
to the FDA on March 31, 2000 and the Company received FDA 510(k) approval on
June 30, 2000. The Company signed a distribution agreement with Baxter
Healthcare Corporation on May 31, 2000 for exclusive distribution rights in the
United States. The Company shipped the first units of the Patient State Analyzer
during the third quarter. The Company believes that it has one commercial
competitor for the PSA. The Company believes it will be able to successfully
compete against them in the marketplace, although it has no assurance that it
will be able to do so.
11
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PHYSIOMETRIX, INC.
SEPTEMBER 30, 2000
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PART II OTHER INFORMATION
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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
27.1 Financial Data Schedule
(b) Reports on Form 8-K--None
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12
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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.
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<S> <C> <C>
PHYSIOMETRIX, INC.
DATE: November 13, 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)
</TABLE>
13
