UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended October 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-28010
MEDWAVE, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1493458
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
4382 Round Lake Road West
Arden Hills, Minnesota 55112
(Address of principal executive offices)
(612) 639-1227
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period as the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 30, 1996, the issuer had 4,810,533 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
Medwave, Inc.
Form 10-QSB
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - April 30, 1996 and October 31, 1996 2
Statements of Operations - Three Months Ended October 31, 1995 3
and 1996, Six Months Ended October 31, 1995 and 1996 and
Period from June 27, 1984 (Inception) to October 31, 1996
Statements of Cash Flows - Three Months Ended October 31, 1995 4
and 1996, Six Months Ended October 31, 1995 and 1996 and
Period from June 27, 1984 (Inception) to October 31, 1996
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 8
Item 2 Changes in Securities 8
Item 3 Defaults upon Senior Securities 8
Item 4 Submission of Matters to a Vote of Security Holders 8
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
April 30, Ocotober 31,
1996 1996
--------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 769,121 $ 173,517
Short term investments 4,234,080 3,942,949
Accounts receivable ----- 4,995
Inventories 8,974 125,394
Prepaid expenses 101,171 141,833
--------------------------------------
Total current assets 5,113,346 4,388,688
Property and equipment:
Office equipment 114,088 120,113
Research and development equipment 261,076 215,727
Sales and marketing ----- 15,075
Manufacturing and engineering equipment 46,312 63,925
Leasehold improvements 31,613 31,613
--------------------------------------
453,089 446,453
Less accumulated depreciation 339,127 306,857
--------------------------------------
113,962 139,596
Patents, net 78,776 91,878
Investments 1,525,120 1,830,690
--------------------------------------
Total Assets $6,831,204 $ 6,450,852
======================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 83,607 $ 38,683
Accrued payroll and related taxes 28,697 40,997
--------------------------------------
Total current liabilities 112,304 79,680
Shareholders' equity (deficiency):
Common Stock, no par value:
Authorized shares--50,000,000 at April 30, 1996 and
at October 31, 1996
Issued and outstanding shares--4,690,560 at April 30,
1996 and 4,808,533 at October 31, 1996 12,458,866 12,749,876
Unrealized loss on investments (33,245) (6,989)
Deficit accumulated during the development stage (5,706,721) (6,371,715)
--------------------------------------
Total shareholders' equity 6,718,900 6,371,172
--------------------------------------
Total liabilities and shareholders' equity $6,831,204 $ 6,450,852
======================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
Three months ended October 31 Six months ended October 31 (Inception)
------------------------------ ------------------------------ to
1995 1996 1995 1996 October 31, 1996
------------------------------ ------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net sales - $ 4,995 - $ 4,995 $ 4,995
Operating expenses:
Cost of sales, product development, $ 21,862 247,792 $ 61,774 423,812 4,195,444
and research and development
Sales and marketing 938 126,159 938 199,559 291,948
General and administrative 72,513 110,847 179,368 219,261 1,903,922
------------- ------------- ------------- ------------- -----------------
95,313 484,798 242,080 842,632 6,391,314
------------- ------------- ------------- ------------- -----------------
Operating loss (95,313) (479,803) (242,080) (837,637) (6,386,319)
Other income:
Interest income 1,956 85,862 6,720 172,642 641,362
============= ============= ============= ============= =================
Net loss $ (93,357) $ (393,941) $ (235,360) $(664,995) $ (5,744,957)
============= ============= ============= ============= =================
Net loss per share $ (0.18) $ (0.08) $ (0.47) $ (0.14) $ (2.74)
============= ============= ============= ============= =================
Weighted average number of common and
common equivalent shares outstanding 521,933 4,808,533 504,811 4,765,375 2,096,366
============= ============= ============= ============= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
Three months ended October 31 Six months ended October 31 (Inception)
-------------------------------- ---------------------------- to
1995 1996 1995 1996 October 31, 1996
-------------------------------- ---------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $ (93,357) $ (393,941) $(235,360) $(664,995) $ (5,744,957)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 10,261 5,628 21,794 16,516 431,255
Amortization 3,638 7,254 7,276 16,951 47,035
Loss on sale of equipment --- --- --- --- 7,375
Issuance of Common Stock
for consulting services --- --- --- --- 3,413
Changes in operating assets
and liabilities:
Accounts receivable --- (4,995) --- (4,995) (4,995)
Other receivable (36,135) --- (51,530) --- ---
Inventories 7,659 (101,267) (156) (116,420) (125,394)
Prepaid expenses (10,218) (91,706) (1,573) (40,662) (141,833)
Accounts payable and
accrued expenses (3,615) (20,294) 35,656 (44,924) 38,683
Accrued payroll and
related taxes --- 9,190 (7,314) 12,300 40,997
------------- --------------- ------------- ----------- ------------------
Net cash used in operating activities (121,767) (590,131) (231,207) (826,229) (5,448,421)
Investing activities
Patent expenditures (4,475) --- (8,284) (27,157) (136,017)
Purchase of investments --- (2,657,825) --- (5,216,054) (25,168,819)
Sales and maturity of investments --- 2,741,704 --- 5,241,477 19,401,796
Purchase of property and equipment --- (19,186) --- (58,650) (610,279)
Proceeds from sale of equipment --- --- --- --- 18,200
------------- --------------- ------------- ------------- ------------------
Net cash provided by (used in)
investing activities (4,475) 64,693 (8,284) (60,384) (6,495,119)
Financing activities
Proceeds from notes payable
to shareholders --- --- --- --- 324,998
Payments of notes payable
to shareholders --- --- --- --- (324,998)
Net proceeds from issuance
of Common Stock 92,276 --- 92,276 291,009 12,117,057
------------- --------------- ------------- ------------ ------------------
Net cash provided by financing
activities 92,276 --- 92,276 291,009 12,117,057
------------- --------------- ------------- ------------ ------------------
(Decrease) increase in cash and
cash equivalents (33,966) (525,438) (147,215) (595,604) 173,517
Cash and cash equivalents at
beginning of period 213,824 698,955 327,073 769,121 ---
------------- --------------- ------------- ------------ ------------------
Cash and cash equivalents at end
of period $ 179,858 $ 173,517 $ 179,858 $ 173,517 $ 173,517
============= =============== ============= ============= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
October 31, 1996
1. Organization and Description of Business
Medwave, Inc. (the Company) is a development stage enterprise engaged
exclusively in the development of, and intends to market, manufacture and
sell, a proprietary, non-invasive system that continually monitors arterial
blood pressure of adults.
2. Basis of Presentation
The financial information presented as of October 31, 1996 has been
prepared from the Company's books and records without audit. Financial
information as of April 30, 1996 is based on audited financial statements
of the Company but does not include all disclosures required by generally
accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information for the periods indicated
have been included. For further information regarding the Company's
accounting policies, refer to the financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for the fiscal year
ended April 30, 1996.
The results of operations for the six months ended October 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. Public Offering
In November 1995, the Company received the proceeds from an initial public
offering of 1,610,000 shares of Common Stock at $5.00 per share before
underwriting discount and offering expenses.
The Company's shareholders, as a condition of the initial public offering,
approved a plan of recapitalization whereby all convertible preferred stock
automatically converted into an aggregate of 2,750,164 shares of Common
Stock. As part of the plan of recapitalization, the Company's articles of
incorporation were amended to, among other things, increase the authorized
capital stock of the Company to 50,000,000 shares without par value.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with, and is qualified
by, the Company's financial statements set forth in Item 1 of this Form 10-QSB.
Plan of Operation
The Company, which was formed in 1984, is a development stage company that
currently employs thirteen full-time employees and two part-time employees.
Since its inception, the Company has been engaged exclusively in the development
of a non-invasive, continual blood pressure measurement and monitoring system.
The Company's initial concept for measuring blood pressure was based upon
parameters obtained from a doppler signal. By 1991, it was evident that this
approach would not yield the desired results, so those efforts were abandoned.
However, the Company used information gained from these initial efforts to
direct its technical efforts to different approaches, which eventually resulted
in the approach the Company now uses in its Vasotrac(R) system. This innovative
system, the Vasotrac(R) system, includes as one of its key components a unique
pressure sensor that is placed on the wrist over a main artery. Utilizing the
Company's proprietary technology, the Vasotrac(R) system monitors blood pressure
continually, providing new readings about every fifteen heartbeats. The
continual, efficacious and non-invasive qualities of the Vasotrac(R) system make
it a new approach to blood pressure monitoring.
<PAGE>
The Company is not presently generating any significant revenue from operations
and has incurred an accumulated deficit of $6,371,715 from its inception through
October 31, 1996. Significant additional losses from, among other things,
development, testing, regulatory compliance, and sales expenses are expected to
be incurred by the Company at least until it emerges from the development stage.
Until November 1995, the Company financed its activities through a series of
private placements of equity securities, including shares of Preferred Stock
that were converted into Common Stock just prior to the Company's initial public
offering (IPO) in November, 1995.
The Company's success is dependent upon the successful development and marketing
of the Vasotrac(R) system. However, there can be no assurance that the
Vasotrac(R) system can ever by successfully marketed or sold in sufficient
quantities and at margins necessary to achieve or maintain profitability. The
Company is currently marketing the Vasotrac(R) with a controlled rollout. As
part of the controlled market rollout, the Company is now focusing on hospitals
in the Midwest. The Company received its first order in August 1996, and the
Company shipped the first Vasotrac(R) to a customer in September 1996. The
Company has received additional purchase orders which will be delivered in
December 1996. Consistent with the controlled market rollout, the Company has
been conducting a hospital-wide clinical study. The response to the study has
allowed the Company to refine its marketing plan to include emergency and trauma
centers as well as the operating/surgery rooms that the Company has been
targeting. The Vasotrac(R) continues to receive positive interest from the
medical community. The sale of the Vasotrac(R) to a hospital must coincide with
the hospital's budget cycle. Therefore, the Company has found that even though
the hospital's medical staff is interested in the Vasotrac(R), the actual
purchase of the Vasotrac(R) is delayed until the hospital's capital equipment
budget allows for the purchase of the system.
If the Company emerges from the development stage, its success will also depend
on its ability to hire additional employees for key operating positions,
including sales and marketing positions. Competition for such employees is
intense and there can be no assurance that the Company will be successful in
hiring such employees on acceptable terms or when required, or in maintaining
the services of its present employees. The Company estimates that within the
next twelve months, it may require approximately 11 additional persons,
including one in the area of general and administrative, five in sales and
marketing, two in research and development, and three in manufacturing. The
Company preliminarily estimates that these employees will increase
employee-related expenses in excess of $780,000 during the next twelve months.
However, such requirements are subject to change and are highly dependent on the
development process for the system, including the manufacturing scale-up
process, market acceptance, and the Company's distribution methods.
Proceeds from the IPO are being used primarily to continue clinical testing of
the Vasotrac(R) system, to begin manufacturing and marketing, to conduct any
additional research and product development efforts that may be necessary, and
to provide working capital. Over the next twelve months, the Company expects to
spend in excess of $960,000 for research and development, including amounts
expected to be spent on clinical trials. The funds are expected to be used to
develop sensors and holders, to repackage the monitor for cost reduction, and to
sustain engineering support for manufacturing. No significant amount of
equipment is expected to be required. Even assuming no sales by the Company, the
Company believes that the net proceeds of the IPO offering will allow the
Company to meet its cash requirements for approximately two years from the end
of the second quarter. If the development process for the system does not
proceed as expected because significant product design changes are required to
achieve market acceptance or unexpected difficulties are encountered in
attaining cost-effective manufacturability, the Company may require additional
capital at an earlier date. Such capital may be sought through bank borrowing,
equipment financing, additional equity financing, and other methods. The
Company's financing needs are subject to change depending on, among other
things, market conditions and opportunities, equipment or other asset-based
financing that may be available, and cash flow from operations. Any material
favorable or unfavorable deviation from its anticipated expense could
significantly affect the timing and amount of additional financing that may be
required. However, additional financing may not be available when needed or, if
available, may not be on terms that are favorable to the Company or its security
holders. In addition, any such financing could result in substantial dilution to
then existing security holders.
<PAGE>
Results of Operations
The results of operations compares the three months and six months ended October
31, 1996 and 1995, respectively. The analysis of liquidity and capital resources
compares October 31, 1996 to April 30, 1996.
The Company incurred $247,792 and $21,862 for cost of sales, product
development, and research and development expenses for the quarter ended October
31, 1996 and 1995, respectively. Cost of sales, product development and research
and development costs for the six months ended October 31, 1996 and 1995 were
$423,812 and $61,774, respectively. The cost of sales, product development and
research and development expense increase was primarily attributed to the hiring
of additional employees as the Company prepares for production of the
Vasotrac(R) system. Also, in August through October 1995, the Company had
consulting revenues of $111,000 from an unrelated outside project relating to
services performed on a single doppler flowmeter project. This consulting
revenue was netted against cost of sales, product development, and research and
development costs. The consulting project was performed pursuant to a single
purchase order and was substantially completed by December 1995.
The Company incurred $126,159 and $938 for sales and marketing expenses for the
quarter ended October 31, 1996 and 1995, respectively. Sales and marketing
expenses for the six months ended October 31, 1996 and 1995 were $199,559 and
$938, respectively. The sales and marketing expenses increase was attributable
to the hiring of a Vice President of Sales and additional Sales Associates along
with the development of sales material.
The Company incurred $110,847 and $72,513 for general and administrative
expenses for the quarter ended October 31, 1996 and 1995, respectively. General
and administrative expenses for the six-month period ended October 31, 1996 and
1995 were $219,261 and $179,368, respectively. The increase in general and
administrative expenses was primarily attributed to increased insurance expenses
associated with increased activities of its operations and the hiring of a Chief
Financial Officer.
Interest income was $85,862 and $1,956 for the quarter ended October 31, 1996
and October 31, 1995, respectively. Interest income for the six months ended
October 31, 1996 and 1995 was $172,642 and $6,720, respectively. The interest
income increase reflects higher cash, cash equivalents, and short and long-term
investments resulting from the Company's IPO.
Liquidity and Capital Resources
The Company's cash, cash equivalents, short and long-term investments were
$5,947,156 and $6,528,321 at October 31, 1996 and April 30, 1996, respectively.
The Company incurred cash expenditures of $590,131 for operations for the
quarter ended October 31, 1996.
In November 1995, the Company completed its initial public offering of 1,610,000
shares of Common Stock raising approximately $6,900,000 in net proceeds to the
Company. Prior to the initial public offering, the Company financed its
activities through a series of private placements of equity securities. The
Company's Common Stock is quoted on the Nasdaq SmallCap Market under the symbol
"MDWV".
With the proceeds of the initial public offering, the Company believes that
sufficient liquidity is available to satisfy its working capital needs for
approximately two years from October 31, 1996. The Company has no significant
capital expenditure commitments.
<PAGE>
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.
a) On October 7, 1996 the Company held its annual meeting of
shareholders. The Company's shareholders elected the following three
persons as directors, each to serve until the next annual meeting of
shareholders or until their successor is elected and qualified:
Votes Votes
Election of Directors For Withheld
- ------------------------------- -------------- -------------
G. Kent Archibald 3,821,193 16,130
Norman Dann 3,819,193 18,130
Jerry E. Robertson 3,819,193 18,130
b) A proposal to set the number of directors at three was adopted by a
vote of 3,827,266 shares in favor, with 2,323 shares against, 7,734
shares abstaining and no broker non-votes.
c) The shareholders approved the Company's Amended and Restated Stock
Option Plan by a vote of 2,687,097 shares in favor, with 356,860
shares against, 29,650 shares abstaining, and 764,316 shares
represented by broker non-votes.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
11. Statement re: computation of per share earnings
27. Financial data schedule (filed in electronic format only)
(B) REPORTS ON FORM 8K
No reports on Form 8-K were filed by the Company during
the quarter ended October 31, 1996
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: December 4, 1996 Medwave, Inc.
By: /s/ G. Kent Archibald
G. Kent Archibald
President and Chief Executive Officer
/s/ Mark T. Bakko
Mark T. Bakko
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
MEDWAVE, INC.
FORM 10-QSB
FOR QUARTER ENDED
OCTOBER 31, 1996
Exhibit No. Description
11 Statement re: computation of per share earnings
27 Financial Data Schedule (filed in electronic format only)
EXHIBIT 11.1
Statement Regarding Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Period from
June 27, 1984
Quarter Ended October 31 Six Months Ended October 31 (Inception)
---------------------------- ------------------------------ to
1996 1995 1996 1995 October 31, 1996
---------------------------- ------------------------------ -----------------
<S> <C> <C> <C> <C> <C>
Primary loss per share:
Average shares outstanding 4,808,533 292,423 4,808,533 292,423 4,808,533
Effect of using weighted average
common and common None (54,865) (47,176) (71,987) (2,974,405)
equivalent shares
Effect of shares issuable under
common stock warrants using * * * * *
the treasury stock method
Effect of shares issuable under
stock options using the * * * * *
treasury stock method
SAB No. 83 - for stock options granted
at exercise price less than the initial
public offering price during the 12
months preceding the initial public
offering using the treasury method None 284,375 None 284,375 262,238
------------- -------------- --------------- ---------------- -----------------
Total 4,808,533 521,933 4,761,357 504,811 2,096,366
============= ============== ================ ================ =================
Net loss $ (393,941) $ (93,357) $ (664,995) $ (235,360) $ (5,744,957)
============= ================ ================ ================ =================
Net loss per share $ (0.08) $ (0.18) $ (0.14) $ (0.47) $ (2.74)
============= ================ ================ ================ =================
Fully diluted loss per share:
Shares used in computing primary
earnings per share 4,808,533 521,933 4,765,357 504,811 2,096,366
Assumed conversion of all series
of redeemable convertible preferred
stock None * None * None
-------------- ---------------- --------------- ---------------- ----------------
Total 4,808,533 521,933 4,765,357 504,811 2,096,366
============== ================ ================ ================ ================
Net Loss $ (393,941) $ (93,357) $ (664,995) $ (235,360) $ (5,744,957)
============== ================ ================ ================ ================
Pro forma net loss per share $ (0.08) $ (0.18) $ (0.14) $ (0.47) $ (2.74)
============== ================ ================ ================ ================
* Antidilutive
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-QSB FOR QUARTER ENDED OCTOBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 173,517
<SECURITIES> 3,942,949
<RECEIVABLES> 4,995
<ALLOWANCES> 0
<INVENTORY> 125,394
<CURRENT-ASSETS> 4,388,688
<PP&E> 446,453
<DEPRECIATION> 306,857
<TOTAL-ASSETS> 6,450,852
<CURRENT-LIABILITIES> 79,680
<BONDS> 0
0
0
<COMMON> 12,749,876
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,450,852
<SALES> 4,995
<TOTAL-REVENUES> 4,995
<CGS> 0
<TOTAL-COSTS> 423,812
<OTHER-EXPENSES> 418,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (664,995)
<INCOME-TAX> 0
<INCOME-CONTINUING> (664,995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664,995)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
