SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended July 31, 1997; or
[ ] TRANSITION REPORT PERSUANT TO 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 registrant 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,
zip code)
(612) 639-1227
(Registrant's telephone number, including
area code)
Indicate by mark whether the issuer (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 as the registrant 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, 1997, the issuer had 4,820,738 shares of Common Stock
outstanding.
<PAGE>
Medwave, Inc.
Form 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - April 30, 1997 and July 31, 1997 2
Statements of Operations - Three Months Ended July 31, 1997 3
and 1996 and Period from June 27, 1984 (Inception) to
July 31, 1997
Statements of Cash Flows - Three Months Ended July 31, 1997 4
and 1996 and Period from June 27, 1984 (Inception) to
July 31, 1997
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters To A Vote of Security Holders 7
Item 5. Other Information 8
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,
1997 1997
--------------------------------------
(see note 2) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $1,240,100 $ 156,955
Short term investments 2,539,905 2,544,438
Accounts receivable 41,986 152,975
Inventories 114,467 186,150
Prepaid expenses 81,182 46,724
--------------------------------------
Total current assets 4,017,640 3,087,242
Investments 1,298,658 1,809,605
Property and equipment:
Research and development equipment 237,561 230,721
Office Equipment 121,193 118,690
Manufacturing and engineering equipment 68,262 71,582
Sales and marketing equipment 34,371 39,420
Leasehold improvements 31,613 31,613
--------------------------------------
493,000 492,026
Accumulated depreciation (336,320) (336,662)
--------------------------------------
156,680 155,364
Patents, net 78,818 72,468
======================================
Total Assets $5,551,796 $ 5,124,679
======================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 78,390 $ 188,154
Accrued payroll 50,810 49,605
--------------------------------------
Total current liabilities 129,200 237,759
Shareholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000
Issued and outstanding shares--4,818,738 12,764,703 12,764,703
Unrealized gain/(loss) on investments (24,919) 2,554
Deficit accumulated during the development stage (7,317,188) (7,880,337)
--------------------------------------
Total shareholders' equity 5,422,596 4,886,920
--------------------------------------
Total liabilities and shareholders' equity $5,551,796 $ 5,124,679
======================================
</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
---------------------------------
1997 1996 July 31, 1997
--------------------------------- -----------------
<S> <C> <C> <C>
Revenue:
Net Sales $ 186,709 None $ 259,651
Operating expenses:
Cost of sales and product development 188,836 None 302,097
Research and development 276,657 176,020 4,864,389
Sales and marketing 252,528 73,400 900,805
General and administrative 93,839 108,414 2,308,329
--------------------------------- -----------------
Operating loss (625,151) (357,834) (8,115,969)
Other income:
Interest income 62,001 86,780 862,391
================================= =================
Net loss $(563,150) $ (271,054) $ (7,253,578)
================================= =================
Net loss per share $ (0.12) $ (0.06) $ (3.22)
================================= =================
Weighted average number of common and
common equivalent shares outstanding 4,818,738 4,721,706 2,251,284
================================= =================
</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 July 31 (Inception)
----------------------------------- to
1997 1996 July 31, 1997
----------------------------------- -----------------
<S> <C> <C> <C>
Operating activities
Net loss $ (563,150) $ (271,054) $ (7,253,578)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 17,730 10,888 494,613
Amortization 6,350 9,697 63,549
Loss on sale of equipment --- --- 7,375
Issuance of Common Stock for consulting services --- --- 3,413
Changes in operating assets and liabilities:
Accounts receivable (110,989) --- (152,975)
Inventories (71,683) (15,153) (186,150)
Prepaid expenses 34,458 51,044 (46,724)
Accounts payable and accrued expenses 109,764 (24,630) 188,154
Accrued payroll and related taxes (1,205) 3,110 49,605
----------------------------------- -----------------
Net cash used in operating activities (578,725) (236,098) (6,832,718)
Investing activities
Patent expenditures --- (27,157) (137,858)
Purchase of investments (488,006) (2,558,229) (29,355,624)
Sales and maturity of investments --- 2,499,773 25,005,978
Purchase of property and equipment (16,414) (39,464) (672,908)
Proceeds from sale of equipment --- --- 18,200
----------------------------------- -----------------
Net cash used in investing activities (504,420) (125,077) (5,142,212)
Financing activities
Net proceeds from issuance of Convertible Preferred Stock --- --- 4,848,258
Net proceeds from issuance of Common Stock --- 291,009 7,283,627
----------------------------------- -----------------
Net cash provided by financing activities --- 291,009 12,131,885
----------------------------------- -----------------
(Decrease) increase in cash and cash equivalents (1,083,145) (70,166) 156,955
Cash and cash equivalents at beginning of period 1,240,100 769,121 ---
=================================== =================
Cash and cash equivalents at end of period $ 156,955 $ 698,955 $ 156,955
=================================== =================
</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, 1997
1. Organization and Description of Business
Medwave, Inc. (the Company) is a development stage enterprise engaged
exclusively in the development, manufacturing and marketing of 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, 1997 has been prepared
from the books and records without audit. Financial information as of April
30, 1997 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, 1997.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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-Q.
General
The Company, which was formed in 1984, is a development stage company that
currently employs sixteen 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.
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.
The Company has incurred an accumulated deficit of $7,880,337 from its inception
through July 31, 1997. Significant additional losses from development, testing,
regulatory compliance, sales, and other 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.
<PAGE>
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 conducting a controlled market rollout of the Vasotrac(R). This
controlled market rollout is designed to provide the Company with user feedback
on the Vasotrac(R). The Company is using the feedback to make minor product
enhancements and hopes to be ready for nationwide sales by April 1998. This is
highly dependent on the development process for the system, the scale-up
process, customer acceptance, and distribution methods that become available to
the Company. This strategy also pursues limited unit sales to larger healthcare
organizations for review and trial before any significant unit orders are
considered by the customer.
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 15 additional persons,
including one in the area of general and administrative, eight in sales and
marketing, two in research and development, and four in manufacturing. The
Company preliminarily estimates that these employees will increase
employee-related expenses in excess of $900,000 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 $900,000 for research and development, including amounts
expected to be spent on clinical trials. The funds are expected to be used to
develop improved sensors and wrist holders and to sustain engineering support
for manufacturing. No significant amount of equipment is expected to be
required. The Company believes that the net proceeds of the IPO offering will
allow the Company to meet its cash requirements for approximately eighteen
months from July 31, 1997. 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, 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 ended July 31, 1997 and
1996, respectively. The analysis of liquidity and capital resources compares
July 31, 1997 to April 30, 1997.
Operating revenue was $186,709 and $0 for the quarter ended July 31, 1997 and
1996, respectively. The Company commenced sales during fiscal 1997.
Cost of sales and product development was $188,836 and $0 for the quarter ended
July 31, 1997 and 1996, respectively. The Company commenced sales during fiscal
1997.
The Company incurred $276,657 and $176,020 for research and development expenses
for the quarter ended July 31, 1997 and 1996, respectively. The research and
development expense increase was primarily attributed to conducting a multi-site
clinical study on the accuracy of the Vasotrac(R) system.
The Company incurred $252,528 and $73,400 for sales and marketing expenses for
the quarter ended July 31, 1997 and 1996, respectively. The sales and marketing
expense increase was attributable to the hiring of additional sales associates
and an increase in travel expenses as the Company continues the sales rollout of
the Vasotrac(R).
The Company incurred $93,839 and $108,414 for general and administrative
expenses for the quarter ended July 31, 1997 and 1996, respectively. The
decrease in general and administrative expenses was primarily attributed to
decreased insurance expenses associated with more favorable liability rates.
Interest income was $62,001 and $86,780 for the quarter ended July 31, 1997 and
July 31, 1996, respectively. The decrease reflects lower cash, cash equivalents,
and short and long-term investments as the Company increases the cost of rolling
out the Vasotrac(R) system.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and short-and long-term investments were
$4,560,998 and $5,078,663 at July 31, 1997 and April 30, 1997, respectively. The
Company incurred cash expenditures of $578,725 for operations for the quarter
ended July 31, 1997.
<PAGE>
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 eighteen months from July 31, 1997. The Company has no significant
capital expenditure commitments.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this filing, and elsewhere, which look forward in time
involve risks and uncertainties which may affect the actual results of
operations. The following important factors, among others, have affected and, in
the future, could affect the Company's actual results: resistance to the
acceptance of new biotechnology and medical monitoring products, the market
acceptance of the Vasotrac(R) system, hospital budgeting cycles, and the
possibility of adverse findings or negative commentary from clinical researchers
or other users of the product.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
11 Statement regarding Computation of Earnings Per Share
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, 1997
SIGNATURES
In accordance with 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.
Date: September 12, 1997 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-Q
FOR QUARTER ENDED
JULY 31, 1997
Exhibit No. Description
- ----------- -----------
11 Statement regarding Computation of Earnings Per Share
27 Financial Data Schedule (filed in electronic format only)
Exhibit 11.1 - Statement Regarding Computation of Earnings Per Share
<TABLE>
<CAPTION>
Period from
June 27, 1984
Quarter Ended July 31 (Inception)
---------------------------------- to
1997 1996 April 30, 1997
---------------------------------- -----------------
<S> <C> <C> <C>
Primary loss per share:
Shares outstanding 4,818,738 4,808,533 4,818,738
Effect of using weighted average common and None (86,827) (2,814,424)
common 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 N/A N/A 246,970
-------------- ------------ -----------------
Total 4,818,738 4,721,706 2,251,284
============== ============ =================
Net loss $ (563,150) $ (271,054) $ (7,253,578)
============== ============ =================
Net loss per share ($0.12) ($0.06) ($3.22)
============== ============ =================
Fully diluted loss per share:
Shares used in computing primary earnings per share 4,818,738 4,721,706 2,251,284
Assumed conversion of all series of redeemable
convertible preferred stock None None None
-------------- ------------ -----------------
Total 4,818,738 4,721,706 2,251,284
============== ============ =================
Net Loss $ (563,150) $ (271,054) $ (7,253,574)
============== ============ =================
Pro forma net loss per share $ (0.12) $ (0.06) $ (3.22)
============== ============ =================
</TABLE>
* Antidilutive
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN COMPANY'S FORM 10-Q FOR THE QUARTER ENDED
JULY 31, 1997, 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-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 156,955
<SECURITIES> 2,544,438
<RECEIVABLES> 152,975
<ALLOWANCES> 0
<INVENTORY> 186,150
<CURRENT-ASSETS> 3,087,242
<PP&E> 492,026
<DEPRECIATION> 336,662
<TOTAL-ASSETS> 5,124,679
<CURRENT-LIABILITIES> 237,759
<BONDS> 0
0
0
<COMMON> 12,764,703
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,124,679
<SALES> 186,709
<TOTAL-REVENUES> 186,709
<CGS> 188,836
<TOTAL-COSTS> 188,836
<OTHER-EXPENSES> 623,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (563,150)
<INCOME-TAX> 0
<INCOME-CONTINUING> (563,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (563,150)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
