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 July 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 August 30, 1996, the issuer had 4,808,533 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 July 31, 1996 2
Statements of Operations - Three Months Ended July 31, 1995 3
and 1996 and Period from June 27, 1984 (Inception) to
July 31, 1996
Statements of Cash Flows - Three Months Ended July 31, 1995 4
and 1996 and Period from June 27, 1984 (Inception) to
July 31, 1996
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis and Plan of Operation 6
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
April 30, July 31,
1996 1996
--------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 769,121 $ 698,955
Short term investments 4,234,080 4,023,338
Inventories 8,974 24,127
Prepaid expenses 101,171 50,127
--------------------------------------
Total current assets 5,113,346 4,796,547
Property and equipment:
Office equipment 114,088 116,111
Research and development equipment 261,076 243,676
Sales and marketing ----- 8,077
Manufacturing and engineering equipment 46,312 59,666
Leasehold improvements 31,613 37,191
--------------------------------------
453,089 464,721
Less accumulated depreciation 339,127 325,080
--------------------------------------
113,962 139,641
Patents, net 78,776 99,132
Investments 1,525,120 1,795,246
======================================
Total Assets $6,831,204 $ 6,830,566
======================================
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued expenses $ 83,607 $ 58,977
Accrued payroll and related taxes 28,697 31,807
--------------------------------------
Total current liabilities 112,304 90,784
Shareholders' equity (deficiency):
Common Stock, no par value:
Authorized shares--50,000,000 at April 30, 1996 and at July 31,
1996 Issues and outstanding shares--4,690,560 at April 30,
1996 and 4,808,533 at July 31, 1996 12,458,866 12,749,876
Unrealized loss on investments (33,245) (32,319)
Deficit accumulated during the development stage (5,706,721) (5,977,775)
--------------------------------------
Total shareholders' equity (deficiency) 6,718,900 6,739,782
--------------------------------------
Total liabilities and shareholders' equity (deficiency) $6,831,204 $ 6,830,566
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
(Inception)
Three months ended July 31 to
---------------------------------
1995 1996 July 31, 1996
--------------------------------- ------------------
<S> <C> <C> <C>
Operating expenses:
Research and development $ 39,912 $ 176,020 $ 3,947,652
Sales and marketing None 73,400 165,789
General and administrative 106,855 108,414 1,793,075
--------------------------------- ------------------
Operating loss 146,767 357,834 5,906,516
Other expense (income):
Interest (income) (4,609) (86,780) (555,500)
================================= ==================
Net loss $(142,158) $(271,054) $ (5,351,016)
================================= ==================
Net loss per share $ (0.29) $ (0.06) $ (2.63)
================================= ==================
Weighted average number of common and
common equivalent shares outstanding 487,875 4,721,706 2,032,987
================================= ==================
</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
(Inception)
Three months ended July 31 to
-----------------------------------
1995 1996 July 31, 1996
----------------------------------- --------------
<S> <C> <C> <C>
Operating activities
Net loss $(142,158) $ (271,054) $ (5,351,014)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 11,533 10,888 425,625
Amortization 3,638 9,697 39,781
Loss on sale of equipment --- --- 7,375
Issuance of Common Stock for consulting services --- --- 3,413
Changes in operating assets and liabilities:
Other receivable (15,395) --- ---
Inventories (7,660) (15,153) (24,127)
Prepaid expenses 8,645 51,044 (50,127)
Accounts payable and accrued expenses 39,271 (24,630) 58,977
Accrued payroll and related taxes (7,314) 3,110 31,807
----------------------------------- ------------------
Net cash used in operating activities (109,440) (236,098) (4,858,290)
Investing activities
Patent expenditures (3,809) (27,157) (136,017)
Purchase of investments --- (2,558,229) (22,510,994)
Sales and maturity of investments --- 2,499,773 16,660,092
Purchase of property and equipment --- (39,464) (591,093)
Proceeds from sale of equipment --- --- 18,200
----------------------------------- ------------------
Net cash used in investing activities (3,809) (125,077) (6,559,812)
Financing activities
Proceeds from notes payable to shareholders --- --- 324,998
Payments of notes payable to shareholders --- --- (324,998)
Net proceeds from issuance of Common and Stock --- 291,009 12,117,057
----------------------------------- ------------------
Net cash provided by financing activities 291,009 12,117,057
----------------------------------- ------------------
(Decrease) increase in cash and cash equivalents (113,249) (70,166) 698,955
Cash and cash equivalents at beginning of period 327,073 769,121
=================================== ==================
Cash and cash equivalents at end of period $ 213,824 $ 698,955 $ 698,955
=================================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
July 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 July 31, 1996 has been prepared
from the 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.
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.
<PAGE>
ITEM 2. Management's Discussion and Analysis and 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(TM) system. This innovative
system, the Vasotrac(TM) 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(TM) system monitors blood
pressure continually, providing new readings about every fifteen heartbeats. The
continual, efficacious and non-invasive qualities of the Vasotrac(TM) system
make it a new approach to blood pressure monitoring.
The Company is not presently generating any significant revenue from operations
and has incurred an accumulated deficit of $5,977,775 from its inception through
July 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(TM) system. However, there can be no assurance that the
Vasotrac(TM) system can ever by successfully marketed or sold in sufficient
quantities and at margins necessary to achieve or maintain profitability. The
Company received its first order in August 1996, and the Company shipped the
first Vasotrac(TM) to a customer in September 1996. 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
$700,000 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.
<PAGE>
Proceeds from the IPO are being used primarily to continue clinical testing of
the Vasotrac(TM) 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 $600,000 for research and development, exclusive of 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
modular system use, 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
three years from the date of the closing of the offering. 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, 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.
Results of Operations
The results of operations compares the three months ended July 31, 1996 and 1995
respectively. The analysis of liquidity and capital resources compares July 31,
1996 to April 30, 1996.
The Company incurred $176,020 and $39,912 for research and development expenses
for the quarter ended July 31, 1996 and 1995, respectively. The research and
development expense increase was primarily attributed to the hiring of
additional employees as the Company prepares for production of the Vasotrac(TM)
system.
The Company incurred $73,400 and $0 for sales and marketing expenses for the
quarter ended July 31, 1996 and 1995, respectively. The sales and marketing
expenses were attributable to the hiring of a Vice President of Sales and
additional Sales Associates along with the development of sales material.
The Company incurred $108,414 and $106,855 for general and administrative
expenses for the quarter ended July 31, 1996 and 1995, respectively. The
increase in general and administrative expenses was primarily attributed to
increased insurance expenses associated with increased activities of its
operations.
Interest income was $86,780 and $4,609 for the quarter ended July 31, 1996 and
July 31, 1995, respectively. The increase reflects higher cash, cash
equivalents, and short and long-term investments resulting from the Company's
IPO.
<PAGE>
Liquidity and Capital Resources
The Company's cash, cash equivalents, short and long-term investments were
$6,517,539 and $6,528,321 at July 31, 1996 and April 30, 1996, respectively. The
Company incurred cash expenditures of $236,098 for operations for the quarter
ended July 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 three years from the date of the closing of the IPO. The Company
has no significant capital expenditure commitments.
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
27 Financial data schedule
(B) REPORTS ON FORM 8K:
No reports on Form 8-K were filed by the Company during
the quarter ended July 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: September 13, 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
JULY 31, 1996
Exhibit No. Description
27 Financial Data Schedule (filed in electronic format only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB FOR QUARTER ENDED 7-31-96 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<EXCHANGE-RATE> 1
<CASH> 698,955
<SECURITIES> 4,023,338
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 24,127
<CURRENT-ASSETS> 4,796,547
<PP&E> 464,721
<DEPRECIATION> 325,080
<TOTAL-ASSETS> 6,830,566
<CURRENT-LIABILITIES> 90,784
<BONDS> 0
0
0
<COMMON> 12,749,876
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,830,566
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 357,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (357,834)
<INCOME-TAX> 0
<INCOME-CONTINUING> (357,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (271,054)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
