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 January 31, 1997
[ ] 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 February 28, 1997, the issuer had 4,812,333 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 January 31, 1997 2
Statements of Operations - Three Months Ended January 31, 1996 3
and 1997, Nine Months Ended January 31, 1996 and 1997 and
Period from June 27, 1984 (Inception) to January 31, 1997
Statements of Cash Flows - Three Months Ended January 31, 1996 4
and 1997, Nine Months Ended January 31, 1996 and 1997 and
Period from June 27, 1984 (Inception) to January 31, 1997
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 9
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, January 31,
1996 1997
--------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 769,121 $ 175,376
Short term investments 4,234,080 4,122,026
Accounts receivable ----- 5,323
Inventories 8,974 107,116
Prepaid expenses 101,171 109,677
--------------------------------------
Total current assets 5,113,346 4,519,518
Property and equipment:
Office equipment 114,088 119,808
Research and development equipment 261,076 231,412
Sales and marketing ----- 27,356
Manufacturing and engineering equipment 46,312 63,924
Leasehold improvements 31,613 31,613
--------------------------------------
453,089 474,113
Less accumulated depreciation 339,127 319,568
--------------------------------------
113,962 154,545
Patents, net 78,776 85,348
Investments 1,525,120 1,279,630
======================================
Total Assets $6,831,204 $ 6,039,041
======================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 83,607 $ 43,756
Accrued payroll and related taxes 28,697 42,064
--------------------------------------
Total current liabilities 112,304 85,820
Shareholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000 at April 30, 1996 and at January
31, 1997
Issued and outstanding shares--4,690,560 at April 30,
1996 and 4,812,333 at January 31, 1997 12,458,866 12,752,726
Unrealized loss on investments (33,245) (6,390)
Deficit accumulated during the development stage (5,706,721) (6,793,115)
--------------------------------------
Total shareholders' equity 6,718,900 5,953,221
--------------------------------------
Total liabilities and shareholders' equity $6,831,204 $ 6,039,041
======================================
</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 January 31 Nine months ended January 31 to
----------------------------- ----------------------------
1996 1997 1996 1997 January 31, 1997
----------------------------- ---------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net sales - $ 20,481 - $ 25,476 $ 25,476
Operating expenses:
Cost of sales, product development, and $ 136,502 242,902 $ 198,276 666,714 4,438,346
research and development
Sales and marketing 24,990 136,669 25,928 336,228 428,617
General and administrative 99,060 139,129 278,468 358,390 2,043,051
---------- ----------- ------------- ------------ ---------
260,552 518,700 502,672 1,361,332 6,910,014
---------- ----------- ------------- ------------ ---------
Operating loss (260,552) (498,219) (502,672) (1,335,856) (6,884,538)
Other income:
Interest income 67,254 76,818 73,974 249,460 718,180
========== =========== ============= ============ =========
Net loss $ (193,298) $(421,401) $(428,698) $(1,086,396) $(6,166,358)
========== =========== ============= ============ =========
Net loss per share $ (0.05) $ (0.09) $ (0.25) $ (0.23) $ (2.87)
=========== =========== ============= =========== ==========
Weighted average number of common and
common equivalent shares outstanding 4,242,166 4,811,034 1,741,798 4,780,629 2,150,338
========== =========== ============= =========== =========
</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 January 31 Nine months ended January 31 to
----------------------------- ----------------------------
1996 1997 1996 1997 January 31, 1997
----------------------------- ---------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $ (193,298) $ (421,401) $ (428,660) $(1,086,396) $ (6,166,358)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 12,921 12,713 34,715 29,229 446,864
Amortization 3,638 6,530 10,914 23,481 50,669
Loss on sale of equipment --- --- --- --- 7,375
Issuance of Common Stock for consulting services --- --- --- --- 3,413
Changes in operating assets and liabilities:
Accounts receivable --- (328) --- (5,323) (5,323)
Other receivable --- --- (51,530) --- ---
Inventories (458) 18,278 (614) (98,142) (107,116)
Prepaid expenses (97,521) 32,156 (99,094) (8,506) (109,677)
Accounts payable and accrued expenses (44,729) 5,074 (9,073) (39,850) 43,757
Accrued payroll and related taxes --- 1,067 (7,314) 13,367 42,064
------------- --------------- ------------- ------------- --------------
Net cash used in operating activities (319,447) (345,911) (550,656) (1,172,140) (5,794,332)
Investing activities
Patent expenditures (8,782) --- (17,066) (27,157) (136,017)
Purchase of investments (18,736) (6,046,921) (18,736) (11,262,975) (31,215,740)
Sales and maturity of investments --- 6,419,501 --- 11,660,978 25,821,297
Purchase of property and equipment --- (27,660) --- (86,310) (637,939)
Proceeds from sale of equipment --- --- --- --- 18,200
------------- --------------- ------------- ------------- --------------
Net cash provided by (used in) investing activities (27,518) 344,920 (35,802) 284,536 (6,150,199)
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 6,927,379 2,850 7,019,655 293,859 12,119,907
------------- --------------- ------------- ------------- --------------
Net cash provided by financing activities 6,927,379 2,850 7,019,655 293,859 12,119,907
------------- --------------- ------------- ------------- --------------
(Decrease) increase in cash and cash equivalents 6,580,414 1,859 6,433,197 (593,745) 175,376
Cash and cash equivalents at beginning of period 179,858 173,517 327,073 769,121 ---
============= =============== ============= ============= ==============
Cash and cash equivalents at end of period $ 6,760,272 $ 175,376 $ 6,760,270 $ 175,376 $ 175,376
============= =============== ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
January 31, 1997
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 January 31, 1997 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 nine months ended January 31, 1997 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.
<PAGE>
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 sixteen full-time employees and one part-time employee. 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.
The Company is not presently generating any significant revenue from operations
and has incurred an accumulated deficit of $6,793,115 from its inception through
January 31, 1997. 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 is currently focusing its sales efforts on the
operating/surgery room. In addition, the Company is focusing on the Emergency
and Trauma Centers because of the need for these centers to be able to record
low blood pressure. 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.
The Company hired two additional sales representatives at the end of January
1997 to bring the sales force up to four individuals. In addition, the Company
hired a Clinical Coordinator in January to help coordinate the clinical testing.
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.
<PAGE>
The Company estimates that within the next twelve months, it may require
approximately 12 additional persons, including one in the area of general and
administrative, seven in sales and marketing, one in research and development,
and three in manufacturing. The Company preliminarily estimates that these
employees will increase employee-related expenses in excess of $860,000 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 1-1/2 - 2 years from the
end of the third quarter (January 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, 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.
Results of Operations
The results of operations compares the three months and nine months ended
January 31, 1997 and 1996, respectively. The analysis of liquidity and capital
resources compares January 31, 1997 to April 30, 1996.
The Company had sales of $20,481 and $0 for the quarter ended January 31, 1997
and 1996, respectively. Sales for the nine months ended January 31, 1997 and
1996 were $25,476 and $0, respectively. The Company delivered its first unit in
September and did not ship additional units until December because the Company
re-designed the software to make the user interface more intuitive.
The Company incurred $242,902 and $136,502 for cost of sales, product
development, and research and development expenses for the quarter ended January
31, 1997 and 1996, respectively. Cost of sales, product development and research
and development costs for the nine months ended January 31, 1997 and 1996 were
$666,714 and $198,276, 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 produces 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 $136,669 and $24,990 for sales and marketing expenses for
the quarter ended January 31, 1997 and 1996, respectively. Sales and marketing
expenses for the nine months ended January 31, 1997 and 1996 were $336,228 and
$25,928, respectively. The sales and marketing expenses increase was
attributable to the hiring of a Vice President of Sales and additional sales
representatives.
<PAGE>
The Company incurred $139,129 and 99,060 for general and administrative expenses
for the quarter ended January 31, 1997 and 1996, respectively. General and
administrative expenses for the nine month period ended January 31, 1997 and
1996 were $358,390 and $278,468, 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 $76,818 and $67,254 for the quarter ended January 31, 1997
and January 31, 1996, respectively. Interest income for the nine months ended
January 31, 1997 and 1996 was $249,458 and $73,974, 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
$5,577,032 and $6,528,321 at January 31, 1997 and April 30, 1996, respectively.
The Company incurred cash expenditures of $345,911 for operations for the
quarter ended January 31, 1997 and $1,172,140 for the nine months ended January
31, 1997.
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 1-1/2 - 2 years from the end of the third quarter (January 31,
1997). The Company has no significant capital expenditure commitments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
On November 7, 1996, the Registrant sold 2,000 shares of Common Stock for
cash consideration of $1,500 and on December 30, 1996, the Registrant sold
1,800 shares of Common Stock for cash consideration of $1,350. Such shares
were sold to two employees of the Registrant upon exercise of option granted
under the Registrant's Stock Option Plan. No commissions were paid in
connection with such sales. In such transactions, the Registrant relied upon
Rule 701 under the Securities Act of 1933 (the "Act") for an exemption from
registration under the Act. Such options were granted pursuant to a written
plan, prior to the date on which the Registrant became subject to the
reporting requirements of the Securities Exchange Act of 1934, a copy of the
plan was provided to each purchaser and the amount of securities offered and
sold in reliance upon Rule 701 did not exceed the amounts permitted by such
Rule.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
<PAGE>
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
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 January 31, 1997
<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: March 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-QSB
FOR QUARTER ENDED
JANUARY 31, 1997
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
(Inception)
Quarter Ended January 31 Nine Months Ended October 31 to
----------------------------- ----------------------------
1997 1996 1997 1996 January 31, 1997
----------------------------- ---------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Primary loss per share:
Shares outstanding 4,812,333 4,690,560 4,812,333 4,690,560 4,812,333
Effect of using weighted average common and (1,299) (476,519) (31,704) (3,148,342) (2,918,680)
common equivalent shares
Effect of shares issuable under common stock * * * * *
warrrants 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 28,125 None 199,580 256,685
------------- ------------- ------------- ------------- --------------
Total 4,811,034 4,242,166 4,780,629 1,741,798 2,150,338
============= ============= ============= ============= ==============
Net loss $ (421,401) $ (193,298) $ (1,086,396) $ (428,698) $ (6,166,358)
============= ============= ============== ============ ==============
Net loss per share $ (0.09) $ (0.05) $ (0.23) $ (0.25) $ (2.87)
============= ============= ============== ============ ==============
Fully diluted loss per share:
Shares used in computing primary earnings per share 4,811,034 4,242,166 4,780,629 1,741,798 2,150,338
Assumed conversion of all series of redeemable
convertible preferred stock None None None None None
------------- --------------- ------------- ------------- --------------
Total 4,811,034 4,242,166 4,780,629 1,741,798 2,150,338
============= =============== ============== ============= ==============
Net Loss $ (421,401) $ (193,298) $ (1,086,396) $ (428,698) $ (6,166,358)
============= =============== ============== ============= ==============
Pro forma net loss per share $ (0.09) $ (0.05) $ (0.23) $ (0.25) $ (2.87)
============= =============== ============== ============= ==============
</TABLE>
* Antidilutive
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM 10-QSB FOR THE
3RD QUARTER ENDED JANUARY 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> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 175,376
<SECURITIES> 4,122,026
<RECEIVABLES> 5,323
<ALLOWANCES> 0
<INVENTORY> 107,116
<CURRENT-ASSETS> 4,519,518
<PP&E> 474,113
<DEPRECIATION> 319,568
<TOTAL-ASSETS> 6,039,041
<CURRENT-LIABILITIES> 85,820
<BONDS> 0
0
0
<COMMON> 12,752,726
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,039,041
<SALES> 25,476
<TOTAL-REVENUES> 25,476
<CGS> 666,714
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 694,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,335,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,335,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,086,396)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
