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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDING APRIL 30, 1998
/ / TRANSITION REPORT PURSUANT 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 No.)
4382 ROUND LAKE ROAD WEST, ARDEN HILLS MINNESOTA 55112
(Address or principal executive offices, zip code)
Registrant's telephone number, including area code: (651) 639-1227
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, NO
PAR VALUE
Indicate by check mark whether the Registrant (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 that 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of Common Stock held by non-affiliates of the
Registrant, based on the last sale price of the Registrant's Common Stock in the
over-the-counter market as reported by the Nasdaq Stock Market, Inc. on July 10,
1998, was approximately $45,302,147. Shares held by officers, directors, and
persons who own 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive.
As of July 10, 1998, 5,384,396 shares of Common Stock, no par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
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PART I
<S> <C>
ITEM 1 BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2 PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . .12
ITEM 3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . .12
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS . .13
ITEM 6 SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . .15
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS . . . . . . .16
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. .18
ITEM 8 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .18
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . .36
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT . . . . . .36
ITEM 11 EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . .38
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . .39
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . .40
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . .40
</TABLE>
MEDWAVE-Registered Trademark- AND VASOTRAC-Registered Trademark- ARE TRADEMARKS
OF THE COMPANY.
FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS.
FOR THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-K THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITED THE FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE",
"ANTICIPATE", "ESTIMATE", "CONTINUED" OR THE NEGATIVE OR OTHER VARIATIONS
THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY
OF FACTORS, INCLUDING THOSE SET FORTH IN ITEM 1.
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PART I
ITEM 1. BUSINESS.
COMPANY PROFILE
The Company was organized under Minnesota Law in 1984. The Company is engaged
exclusively in the development, manufacture, and sale of a non-invasive,
continual blood pressure measurement and monitoring system.
The Company's principal offices are located at 4382 Round Lake Road West, Arden
Hills, Minnesota 55112 and its telephone number is 651/639-1227.
The Company has an April 30 fiscal year.
BUSINESS
GENERAL
The Company is a development stage company that currently employs fifteen (15)
full-time employees and three 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-Registered Trademark- system
monitors blood pressure continually, providing new readings approximately every
fifteen heartbeats. The Company believes that the continual blood pressure
readings, and the efficacious and non-invasive qualities of the Vasotrac system
make it the most advanced approach to blood pressure monitoring. In 1997, the
Company began development of a hand-held blood pressure monitor. This hand-held
unit is based on the technology used in the Vasotrac system. For additional
information, see "Reliance on Single Product".
During the year, the Company engaged in a controlled market rollout of the
Vasotrac system. This was done to allow flexibility if product design
alterations were required to meet customer needs or for other reasons.
Management believes that this strategy resulted in limited revenues and the
Company has incurred an accumulated deficit of $9,653,925 from its inception
through April 30, 1998. Additional losses resulting from development, testing,
regulatory compliance, sales, and other expenses are expected to continue 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. In addition, on March 6, 1998, the Company
completed a private placement that raised approximately $2,990,000. The
proceeds from the IPO and private placement have been invested primarily in
short-term investments such as government securities, commercial paper, and
similar investments. The average maturity of the investments is under one year.
The investments are invested in securities with a minimum investment grade of
A-1 for short-term investments and A for long-term investments.
The Company's success is dependent upon the successful development and marketing
of the Vasotrac system and/or related technology. However, there can be no
assurance that the Vasotrac system or related technology will be successfully
marketed or sold in sufficient quantities and at margins necessary to achieve or
maintain profitability.
Recently the Company began developing a dealer sales network for selling the
Vasotrac system. The Company is in the process of signing up dealers to
participate in this sales network. To date, the Company has entered agreements
with eight dealers whose territories cover the southern and western United
States. The Company is actively seeking qualified dealers in the northeast
portion of the United States and the Chicago area. The success of the Company's
Vasotrac system sales will depend upon the ability of dealers to sell the
Vasotrac system to the hospitals in their area. At this time, dealers have not
had enough sales experience with the Vasotrac to demonstrate that they will be
successful. Furthermore, the Company has limited distribution arrangements and
there can be no assurance that the Company will be able to implement or
effectuate other such arrangements.
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Proceeds from the IPO and private placements are being used primarily to
continue clinical testing of the Vasotrac system, to continue manufacturing and
marketing, and to conduct any additional research and product development
efforts that may be necessary. The Company anticipates incurring significant
additional losses from further development, testing, regulatory compliance and
sales and marketing expenses for the foreseeable future. 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.
Specifically, the funds are expected to be used to develop improved sensors and
to sustain engineering support for manufacturing start-up and for the continued
development of a hand-held unit. No significant amount of equipment is expected
to be required. The Company spent $1,033,145, $816,099, and $379,320 on research
and development expenses net of $0, $9,700, and $154,000 of research and
development consulting revenues for fiscal years ending 1998, 1997, and 1996
respectively. The consulting revenues were from an unrelated company for an
unrelated project which was substantially completed by December 31, 1995. Even
assuming limited sales, the Company believes that its current investments will
allow the Company to meet its cash requirements for approximately two years from
April 30, 1998. If the development process for the system does not proceed as
expected due to significant product design changes or unexpected difficulties
are encountered in attaining cost-effective manufacturability or the sales and
marketing costs are higher than expected, the Company may require additional
capital at an earlier date. Such capital may be sought through bank borrowing,
equipment financing, equity financing, and/or 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.
BLOOD PRESSURE MEASUREMENT. Blood pressure or, more precisely, arterial
pressure, is the pressure that the blood exerts against the interior of the
arterial walls. The level of the pressure depends upon the strength of the
heart's contraction, the volume of blood in the circulatory system, the
elasticity of the arteries, and the degree of capillary constriction impeding
circulation. During the heart's relaxation phase, the diastole, blood pressure
falls and rises when the heart muscle contracts. Clinically, blood pressure is
commonly reported as three different values. Systolic and diastolic pressures
are the maximum and minimum pressures during a single cardiac cycle,
respectively. Mean pressure is the average pressure during the cardiac cycle.
Blood pressure and changes in blood pressure are critical indicators of the
health and performance of the body's cardiovascular system. Blood pressure
varies with age and by gender, such that young adults tend to have lower blood
pressures than older adults and men tend to have higher blood pressures than
women of the same age. Even in healthy bodies, blood pressure normally
fluctuates during the day. For example, exercise, emotion, and exposure to the
cold tend to cause blood pressure to rise, while it falls in instances of
warmth, fainting, hemorrhage, and certain diseases. All hospital patients
require measurement of their blood pressure and many surgical or critically ill
patients require frequent or continual monitoring of their blood pressure.
Continual monitoring of blood pressure is important for patients in operating
rooms, surgical recovery rooms, intensive care units, and other critical care
sites because of the acuteness of these patients' conditions and rapidity with
which their conditions can deteriorate. Trend information obtained from
successive blood pressure measurements plays an important role in the diagnosis,
prognosis, and treatment of diseases.
CURRENT TECHNOLOGY. Currently, both invasive and non-invasive techniques are
used to measure blood pressure. Invasive techniques employ the surgical
placement of a catheter directly into an artery, an A-line. The fluid-filled
catheter is connected to a pressure transducer and assorted tubing to produce
beat-by-beat continual, as well as generally accurate, blood pressure
measurements. In addition, the catheter may be used to extract blood samples
from which a number of diagnostic test results, such as blood gas information,
may be obtained. Because the Company's non-invasive Vasotrac system does not
allow for the extraction of blood samples, invasive techniques offer a
competitive advantage in this area. The surgical insertion of the catheter
takes about fifteen to twenty minutes, assuming no complications. While such
insertions frequently are performed without incident, serious complications may
include thrombosis (blood clot), air emboli (air bubble), and infection.
Measurement errors may occur due to air bubbles, catheter clotting or movement,
or changes in elevation between the pressure transducer and the level of the
heart. Immediately following catheter withdrawal, firm pressure must be applied
over the arterial site for an extended period of time to avoid serious blood
loss. Primarily because of its invasive nature, the A-line is generally used by
clinicians in critical cases and for only relatively short time periods.
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As a general matter, the Company believes that non-invasive rather than invasive
treatments and methods are preferred by clinicians for numerous medical
conditions and processes, including the measurement and monitoring of blood
pressure. Non-invasive techniques significantly reduce patient risk and
increase patient comfort. In addition, the time and expense required to set up,
maintain, and remove non-invasive equipment generally is substantially less than
with invasive systems. The Company believes that, in some cases, patients in
critical care sites could benefit from continual blood pressure monitoring after
the point at which clinicians may now cease obtaining such readings due to
concerns associated with prolonged or indefinite uses of invasive techniques.
Most non-invasive blood pressure measurement techniques utilize a manually
operated occlusive cuff around the upper arm. A relatively simple blood
pressure instrument, called a sphygmomanometer, contains a cuff connected to an
air pump and pressure gauge. The cuff is inflated to a pressure above that of
systolic pressure and then deflated at a typical rate of two to four millimeters
of mercury per heartbeat. During inflation and deflation, the clinician must
listen to the pulse in the brachial artery. Upon hearing and properly
interpreting the appropriate sounds, the clinician records the pressures shown
on the gauge. The cuff pressure occurring simultaneously with certain observed
events within the circulatory or cuff systems are taken as the systolic and
diastolic pressures.
An automated system that performs these functions is commonly used in critical
care and operating room settings. The automated non-invasive blood pressure
monitoring market is currently dominated by the Dinamap-TM- product, marketed by
Critikon, Inc., a Johnson & Johnson company. The Dinamap-TM- provides blood
pressure measurements via automatic inflation and deflation of an occlusive cuff
at predetermined intervals. It is reasonably reliable and simple to use.
However, the Dinamap-TM- product provides only intermittent measurements at
one-to-ninety minute intervals, as selected by the clinician. Some patients
suffer from frequent cuff inflations. In addition, with cuff-based systems, arm
circulation is occluded during each measurement, the arm holding the pressure
cuff is unavailable for intravenous lines, and arm bruising and sleep
interruption may occur.
In contrast to the sphygmomanometer and other cuff-based systems, the Company's
Vasotrac system requires no inflatable cuff but instead contains a unique
pressure sensor that is placed on the wrist. The Company believes that the
Vasotrac system has a number of advantages over cuff-based systems, primarily
continual monitoring of blood pressure through measurements taken approximately
every fifteen heartbeats.
Cuff-based systems may offer some advantages over the Company's Vasotrac system.
Given differences in individual bone construction, body weight, and physical
condition, the system may not provide accurate readings or be usable on all
patients. Contraindications for the Vasotrac system include patients on
cardiopulmonary bypass, patients with any condition in which rendering a
pulsating pressure signal from the radial artery is not possible which may occur
with severe arterial restrictions, and pediatric use. To date, the Company has
not detected any significant patient complications that are caused by the
system. However, as with any relatively new medical device, complications may
become manifest as the device is used on a greater number of patients with
different characteristics and under various conditions. Finally, the Company
must overcome the resistance of the medical community to the introduction of new
techniques or technology. The Company believes that this resistance may be
exacerbated due to the lack of market acceptance of previous, unsuccessful
efforts of other companies to introduce accurate, continuous, non-invasive blood
pressure monitors.
For those critically ill patients who require continual blood pressure
monitoring, invasive methods are currently the clinician's technology of choice.
Given the attractiveness of non-invasive monitoring, however, several companies
have introduced or are introducing products for non-invasive continual
monitoring of arterial pressure based upon several technologies. These
technologies include pulse-wave velocity, partially inflated finger cuffs,
partially inflated arm cuffs, tonometry, and other technologies now being
developed. The Company believes that none has gained wide acceptance within the
clinical community for continually monitoring arterial pressure. This belief is
based on previous, unsuccessful efforts of other companies to introduce
accurate, continuous, and non-invasive blood pressure monitors, the absence of
such products at major medical and other product shows, the lack of published
advertisements, papers or studies about such products in respected scientific,
medical and other journals, and anecdotal discussions with physicians and other
medical personnel by the Company's management.
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PRODUCT DESCRIPTION
The Company believes that the continual blood pressure readings, and the
efficacious and non-invasive qualities of the Company's Vasotrac system make it
a new approach to adult blood pressure monitoring. The system is designed to
assist clinicians in the therapeutic management of their patients by providing
frequently updated blood pressure readings in an easily obtained and comfortable
manner. This microprocessor-controlled system consists of (i) a liquid crystal
display, three high intensity LED displays, a Central Processing Unit and a key
pad housed in an aluminum case, (ii) a patient cable assembly consisting of a
motor, hydraulic system, wrist holder and pressure sensor, and (iii) a hospital
grade power cord.
The Vasotrac system monitors blood pressure using as a key component a pressure
sensor placed on the wrist over the radial artery, a main artery in the arm. The
pressure sensor in the Vasotrac system is a replaceable component. Although the
Company is evaluating the system to determine its life cycle, it has not yet
determined how often the sensor or other components should be replaced or
serviced. Over two hundred (200) of the Company's Vasotrac system monitors have
been used for clinical studies and laboratory experiments, by the sales
representatives, and by customers. The monitor has no moving parts and is
composed of standard, off-the-shelf components. Although these monitors have
been subject to electrical testing of various duration, no end-of-life failures
have been determined. The sensor and motor assembly are the only moving parts
of the Vasotrac system and, as such, they are receiving the most attention from
the Company for life testing. The Company has configured testing equipment for
use in conjunction with the Vasotrac system to exercise these components
continuously in an unattended mode. Testing and evaluation of these components
are still in process.
The Vasotrac system utilizes proprietary technology of the Company, which uses a
miniature hydraulic system to apply varied pressure to the artery as the
pressure waveforms are measured by the sensor. Then, the Company's proprietary
algorithms analyze the pressure waveforms to calculate the systolic, diastolic,
and mean readings of blood pressure approximately every fifteen heartbeats. The
Vasotrac system displays systolic, diastolic, and mean blood pressure in
millimeters of mercury (mmHg) as well as heart rate in beats per minute.
The Vasotrac system is designed to be used by trained medical personnel on
adults in hospitals and other critical care sites where continual blood pressure
monitoring is desirable. Patient pressures can be monitored audibly and
visually by entering limits into the Vasotrac system alarm menu. Those values
above or below the limits will be automatically brought to the attention of the
clinician through audible and visual alarms. Given differences in individual
bone construction, body weight, and physical condition, the system may not be
usable on all patients. However, with proper placement, the system has been
usable on all patients participating in the Company's clinical studies conducted
to date and the Company believes that the system will continue to be usable on
virtually all adults. Care must be taken to properly place the sensor, as
clinical studies have demonstrated that improper placement may lead to erroneous
blood pressure readings. Although there are contraindications for the system,
the Company believes that, as a general matter, virtually no medical device is
universally applicable for all patients at all times. Furthermore, the Company
does not believe that market acceptance of the system is likely to be
jeopardized by lack of universal applicability of the system for the adult
population, although there can be no assurance in this regard.
CLINICAL STUDIES
The Company has conducted clinical studies for three purposes: (i) to aid the
product development process, (ii) to obtain data for submission to the FDA, and
(iii) to help the Company prepare marketing and sales information to promote
greater awareness of the Vasotrac system. Two standards of comparison have been
used, the automated cuff and the arterial line (A-line). The automated cuff
clinicals did not allow synchronization of measurements between the cuff and the
Company's system because of the different number of heartbeats required to
produce readings for each method. Further, the cuff does not meet the accuracy
objectives that the Company has set for the Vasotrac system. For these reasons,
the cuff proved to be of limited utility in the Company's studies. However,
these studies were useful in the initial development process for the Vasotrac
system.
In contrast to automated cuffs, A-lines are believed to provide more accurate
blood pressure measurements. Further, the A-line studies allow for data
synchronization. By inserting an arterial catheter in the radial artery on one
wrist and by placing the Vasotrac system sensor on the radial artery of the
other wrist, data was simultaneously recorded on a beat-by-beat basis. The
Company's clinical studies were conducted at teaching hospitals under
institutional review board controls and protocols. Hospitals performing
investigational studies of medical devices or
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drugs are required by the FDA to have an "institutional review board" that
supervises such studies. Generally, such a board represents the hospital and
includes physicians that can make appropriate judgments regarding the safety of
the study. The board periodically reviews protocols for medical devices and
maintains meeting minutes, which are subject to audit by the FDA.
The Company's clinical studies were performed on approximately 30 consenting
adults, some of whom were healthy and some of whom were undergoing surgery.
Results from a series of these studies comparing the Vasotrac system's readings
with the a-line readings were used in the Company's 510(k) submission to the
FDA. Subsequent to the 510(k) submission, the Company has conducted clinical
trials on approximately 120 additional individuals. During the Company's
clinical trials conducted to date, the variance between synchronized Vasotrac
system readings obtained from one arm of the patient and the comparative A-line
readings obtained from the other arm was calculated by computing the standard
deviation of error from more than 24,000 paired readings from the patients.
Based on these measurements, which excludes a certain number of paired readings
because the Company believes that these readings have been effected by artifact,
patient level differences, arm-to-arm differences, or experimental error, the
magnitude of this variance is calculated as a standard deviation of
approximately 7, 5, and 7 mmHg for systolic, mean and diastolic blood pressure
measurements, respectively. The Vasotrac system compares favorably with those
found in previous generations of non-invasive blood pressure measurement
devices, such as the Dinamap-TM- cuff-based system with which the Company
claimed "substantial equivalence" in its 510(k) submission to the FDA. In
addition, these values are below the 8 mmHg limit of clinical acceptability
proposed by the Association for the Advancement of Medical Information ("AAMI")
as the national standard for electronic or automated sphygmomanometers.
AAMI is a non-profit professional association comprised mainly of physicians and
clinicians, medical institutions, medical device manufacturers and governmental
employees and agencies, although participation by federal agency representatives
in the development of AAMI standards does not constitute endorsement by the
federal government or any of its agencies. The AAMI electronic or automated
sphygmomanometer standard was submitted to AAMI by AAMI's Sphygmomanometer
Committee, a group of approximately 25 individuals associated with medical
institutions, the FDA, and manufacturing companies.
In its 510(k) submission to the FDA, the Company included not only clinical
data, but also outlined its plan to continue testing and integrating the results
therefrom into the Vasotrac system. Based on the foregoing and, most
importantly, the improvement in the overall results of the system's performance
subsequent to its 510(k) submission, the Company does not believe that
applicable FDA regulations require, and therefore at this point does not
anticipate, any need to submit to the FDA the post-510(k) clinical studies.
While the Company believes that the Vasotrac system's accuracy compares
favorably with that found in previous generations of noninvasive blood pressure
measurement devices, the accuracy of the Vasotrac system's readings may be
negatively impacted by the presence of certain drugs in the patient's system.
Although the Company believes that its current product design for the Vasotrac
system and its clinical studies conducted to date provide an adequate basis for
the Company to continue marketing the system, it will take wide spread use and
testing to verify that the Vasotrac system is usable under all conditions. The
Company expects to continue conducting or supervising on-going clinical studies
of the system on individuals with different characteristics and under various
conditions until such time as the Vasotrac system receives market acceptance.
The Company cannot currently estimate the number of individuals to be tested or
the amount of time and expense that will be required to perform and analyze
these additional clinical studies in order to achieve general market acceptance
for the system.
The object of these continued studies is to refine the design of the system and
to test the system on a greater number of patients with different
characteristics and under various conditions, such as a wide range of blood
pressure readings, until such time, if ever, as the Vasotrac system receives
market acceptance. In addition, the Company believes the studies will help the
Company to prepare marketing and sales information as well as to promote greater
awareness and market acceptance of the Vasotrac system toward the goal of
attaining commercial viability for the product. The Company is conducting some
of these studies outside the United States. To the Company's knowledge, all
studies conducted to date have been performed with Company participation.
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EMPLOYEES
The Company's success currently depends on the services of G. Kent Archibald,
President and Chief Executive Officer of the Company, as well as its engineering
group, which has sophisticated technical knowledge about the Vasotrac system.
For the Company to emerge from the development stage, it will depend on its
ability to hire additional employees within a 12-month period for key operating
positions, including general and administrative, sales and marketing, R&D, and
manufacturing 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 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.
MARKETING
The success of the Company depends primarily on gaining physician and hospital
acceptance of the system. One focus of the Company's marketing strategy must
necessarily involve overcoming resistance of the medical community to the
introduction of new techniques or technology. The Company believes that this
resistance may be exacerbated by unsuccessful attempts by other companies to
manufacture and market accurate, continuous and non-invasive blood pressure
monitors. The company believes that testing of the Vasotrac system has yielded
favorable results compared to other non-invasive blood pressure monitors.
However, the pressure sensor of the Vasotrac system must be placed over the
center of the radial artery and clinicians may find it difficult to place
properly and use the system. Improper placement of the pressure sensor or
improper use of the system may cause the readings produced by the Vasotrac
system to be clinically unacceptable. As a result, another key component of the
Company's marketing strategy will be to focus on training of clinicians in the
correct use of the Vasotrac system. Also, given differences in individual bone
physiology, body weight and physical condition, the Vasotrac system may not
provide accurate readings or be usable on all patients. For example, if a
patient's peripheral blood flow to his or her arms has been affected, the system
may not function properly. Other contraindications for the system may result
from patients on cardiopulmonary bypass, patients with any condition in which
rendering a pulsating pressure signal from the radial artery is not possible,
and pediatric use. To date, the Company has not detected significant patient
complications caused by the system. However, as with any relatively new
product, complications may occur as the Vasotrac system is used on a greater
number of patients with different characteristics and under various conditions.
The presence of any significant complications would necessitate additional
research and evaluation to determine the impact of such complications.
Therefore, there can be no assurance that the Vasotrac system will gain market
acceptance. If the system does not gain market acceptance, the Company's future
would be jeopardized.
The Company has attended three major medical product shows during the 1998
fiscal year which allowed the Company to advertise and demonstrate the Vasotrac
system. Local, state and regional meetings, journal advertising, press
releases, and targeted direct mail have also been used to promote the product
and Company. Because the Vasotrac system is intended to be used by trained
clinicians, physicians, and other professional caregivers, the Company conducts
extensive training on use of the system and has produced a training video. The
Company has focused on training and motivating dealer sales representatives.
This has included classroom training and sales tools such as charts, journal
reprints, videos, presentation pieces, and working with each sales
representative in the field. In addition, dealers have been supplied with
highly qualified leads. Acceptance of the Vasotrac blood pressure monitoring
system has been encouraging based on clinician response and the number of sales
quotes requested by clinicians. However, sales for the fourth quarter did not
meet Company expectations. In an effort to overcome these obstacles, the
Company is targeting smaller hospitals where the decision cycle may be shorter
and clinicians tend to have greater purchasing authority.
INSURANCE
The Company has not had any material claims against its liability insurance.
The Company has comprehensive general liability insurance, including excess
umbrella coverage, in the aggregate amount of $9,000,000. However, there can be
no assurance that the Company will be able to maintain such insurance in amounts
and with coverages that will adequately cover associated risks or that such
insurance will be available in the future at premiums that can be economically
justified. Lack of such insurance could expose the Company to substantial
damages, which could have a material adverse effect upon the Company.
8
<PAGE>
RELIANCE ON SINGLE PRODUCT
The Company believes that significant and expanding markets exist for the
Vasotrac system, and for additional products incorporating the Company's
proprietary technology. Currently the Company has, however, only one product,
the Vasotrac system. Reliance on a single product creates substantial risks for
the Company. If for example, the Vasotrac system is not successfully marketed
or if it fails to meet customer needs, or is not accepted in the marketplace,
the Company would be materially and adversely affected, its primary business
focus would require re-evaluation and its ability to continue operations would
be jeopardized. Additionally, there can be no assurance that other products
utilizing the Company's proprietary technology will ever be successfully
developed or marketed. The Company has not undertaken any comprehensive patent
infringement searches or studies. If the Vasotrac system were found to infringe
on the patent rights of others or if third parties asserted, and were successful
in claiming, rights to the Vasotrac system, the Company would be materially
adversely affected.
The Company is developing additional products based on the Company's core
technology. For example, the Company has developed a prototype of a hand-held
blood pressure measurement device based upon the Company's core technology.
This device is designed to make accurate blood pressure and pulse rate
measurements without using a cuff or stethoscope. To use the device, the
clinician or consumer presses the device against the wrist with increasing
force. In about ten seconds, the device will display the blood pressure and
pulse rate. Although in the early stage of development, this device may have
advantages to existing technology in the professional and consumer/home markets.
The technology employed in the hand-held device may be useful in developing
products for other markets. The Company is early in the development process of
these new products so there can be no assurance that additional products will be
successful either from a technical standpoint or from a manufacturing or
customer acceptance standpoint.
NEED TO EVALUATE DESIGN
While the Company's initial product development and clinical testing program for
the Vasotrac system is complete, extensive use and evaluation of the design is
necessary in order to determine whether the system, as currently configured,
will meet customer needs or be accepted in the marketplace. The Company
continues to test the Vasotrac system to enhance its market acceptance. If the
configuration of the system must be modified, there can be no assurance that
such modifications will be acceptable to customers or be technically feasible.
Even if feasible, such modifications could result in significant delays and
significant expense. If such modifications require regulatory approval,
additional significant delays could result. The Company could be materially and
adversely affected by these developments.
PRODUCT SERVICING REQUIREMENTS
The Company's goal is to produce Vasotrac systems that do not require excessive
servicing, that are sufficiently accurate, stable and reliable for the user's
needs and that otherwise meet or exceed clinical and regulatory standards of
acceptability. There can be no assurance, however, that the Company will be
successful in achieving such goals. There also can be no assurance that
additional problems will not occur, that additional servicing requirements will
not be necessary or that any such additional problems or servicing requirements,
individually or in the aggregate, will not be significant, difficult to correct,
time-consuming or prohibitively expensive. Further, the need for any such
additional servicing may not be readily apparent to clinicians using the
Vasotrac system. The Company believes that actual or perceived excessive
servicing requirements for, or erroneous readings produced by, the Vasotrac
system could materially and adversely affect market acceptance of the system or
could raise product liability concerns. Although the Company plans to continue
testing the Vasotrac system to determine the extent of its servicing
requirements, there can be no assurance that the exact scope of such servicing
requirements can be precisely identified.
MANUFACTURING
The Company currently procures from outside vendors, on a purchase order basis,
small quantities of virtually all components and subassemblies for the Vasotrac
system. At present, many components are supplied by only one vendor or are made
by hand without production tooling in the Company's facility. Furthermore, the
Company has no agreement with any such supplier. Should the Company's
production rates increase, the supply of components and subassemblies will
become more critical. In that event, the Company will attempt to consummate
formal supply agreement relationships and/or obtain multiple sources of supply
for most of its components, although it
9
<PAGE>
may, in some cases, be preferable or necessary for the Company to obtain
components or subassemblies on a purchase order basis or to utilize single
sources of supply.
PRICING AND DISTRIBUTION
The list price of the Vasotrac is $5,500. Such pricing will evolve throughout
the marketing process for the Vasotrac system, but can be expected to remain
dependent on a number of factors, including manufacturing costs, prices of
competitive products, distribution methods, volume discounts, and market
acceptance. The automated cuff-based systems generally list for approximately
$3,800 per unit. The Company believes that the higher price will be supportable
due to the superior features associated with its product.
In comparison to the costs associated with A-line procedures, the Company
believes that the Vasotrac system will, on a per-procedure basis, result in
savings for healthcare providers. Insertion of an A-line is an invasive
surgical procedure requiring a physician. No matter how routine any such
procedure may become, all invasive procedures retain the inherent risk of
complications and have attendant direct and indirect costs associated with them.
The Company believes that the cost for non-invasively monitoring the blood
pressure of a patient with the Vasotrac system will be less than with an
invasive A-line. The Company believes that this will give it a competitive edge
in an increasingly cost-conscious healthcare industry.
The Company will also investigate marketing the system to manufacturers of
multi-parameter monitoring and display systems for use as a component of such
systems. However, the Company does not currently have, and there can be no
assurance that in the future it will implement or effectuate, such arrangements.
COMPETITION
The Company will compete with companies that are developing and marketing
instruments that measure blood pressure continually by invasive techniques,
including Abbott Laboratories, Baxter Healthcare Corporation, and Hewlett
Packard Company. In addition, the Company will compete with other companies
that are developing and marketing instruments that measure blood pressure
continually or at regular intervals by several non-invasive techniques.
Presently, most non-invasive methods of measuring blood pressure use an
inflatable cuff. Companies that market such a product include Critikon, Inc., a
Johnson & Johnson company, which markets the Dinamap-TM-, Hewlett Packard
Company, Colin Medical Instrument Corporation, SpaceLabs Medical, Inc.,
Marquette Electronics Inc., and others. In the Company's 510(k) Submission to
the FDA, the Company claimed that the Vasotrac system was "substantially
equivalent" to the Dinamap-TM- product and provided analysis and comparative
data in areas such as intended use, display parameters, and performance
specifications.
Several of the Company's competitors have significantly greater resources as
well as established technologies and product reputations in the blood pressure
monitoring field. The Company's ability to compete successfully in this market
will depend on its ability to develop and market a technologically superior
blood pressure monitoring system that provides ease of use, reliability and cost
effectiveness.
TECHNOLOGICAL OBSOLESCENCE
The medical device industry is subject to rapid technological innovation and,
consequently, the life cycles of products tend to be relatively short. The
Company is engaged in a field characterized by extensive research efforts.
There can be no assurance that new developments or discoveries in the field will
not render the Vasotrac system obsolete. The greater resources of many of the
companies currently engaged in research in the area in which the Company expects
to compete may permit such companies to create or respond more rapidly than the
Company to technological innovations and advances.
10
<PAGE>
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has applied for U.S. patents covering various aspects of the
Vasotrac system. As of July 1998, seven U.S. patents have been granted and
seven U.S. patent applications are pending (two of which have been allowed and
are awaiting issuance).
The Company is seeking patent protection in the European Patent office, Brazil,
Canada, China, India, Japan, and Russia on its improved pressure sensor
structure, and the methods and systems for calculating pressure. It is also
seeking patent protection for methods and systems for positioning sensors and
for the pressure sensor support structure in the European Patent Office,
Australia, Canada and Japan. Patent Cooperation Treaty "PCT" applications have
been filed by the Company to preserve the right to file foreign patent
applications on the method and systems of detecting blood pressure pulses and
the segmented estimation method for calculating blood pressure. A PCT
application allows the Company to file applications abroad, including in Europe
and Japan. There can be no assurance that any pending U.S. or any foreign
patents will be granted or, if obtained, that they will sufficiently protect the
Company's proprietary rights. Even if the patents for which the Company applies
are granted, they do not confer on the Company the right to manufacture and
market products if such products infringe on patents held by others. While the
Company has reviewed prior art in connection with its patent applications, it
has not undertaken or conducted any comprehensive patent infringement searches
or studies. If any such third parties hold any such conflicting rights, the
Company may be required in the future to stop making, using or selling its
products or to obtain licenses from or pay royalties to others, which could
entail significant expense and have a material adverse effect on the Company.
Further, in such event, there can be no assurance that the Company would be able
to obtain or maintain any such licenses on acceptable terms, if at all. The
Company has, throughout the development process for the Vasotrac system, been
associated with various companies, institutions and individuals. Although the
Company has no knowledge that any such companies, institutions or individuals
have claimed, or have any basis for claiming, interests in the Company's
proprietary rights or in the Vasotrac system, there can be no assurance that
such claims will not be threatened, asserted or perfected. Such claims, even if
the Company ultimately prevails on the merits, could have a material adverse
effect upon the Company.
In addition to patent protection, the Company intends to rely, to the extent
possible, on trade secrets, unpatented proprietary know-how, and its continuing
development of new products.
THIRD PARTY PAYOR; HEALTHCARE REFORM
The success of the Company in the United States may be related to the number of
third party payors, such as Medicare, private insurance companies, health
maintenance organizations, and other payors, that approve payment or
reimbursement for the use of the Vasotrac system and the amount of any such
payments or reimbursements. If, for example, hospitals are not able to recover
the cost of the system through reimbursement, they may be reluctant to purchase
the system, with the result that the Company's marketing efforts may be
adversely affected. The healthcare industry and associated regulatory
environment are dynamic and rapidly changing, particularly with respect to
proposals to reform Medicare and to control healthcare costs. This environment
makes it impossible to predict the effects, including costs and/or impediments
to development, that adoption of and changes in healthcare laws, rules and
regulations may have on the Company and its operations. However, such
developments could materially and adversely affect the Company's ability to
market its product.
GOVERNMENT REGULATION
The Company is subject to FDA and other government regulations, including
regulations with respect to marketing approval, manufacturing practices,
packaging, labeling and complaint reporting. Medical devices "substantially
equivalent" to existing systems continuously marketed since May 1976 may be
marketed pursuant to a Pre-market Notification Submission (a "510(k)
Submission") with the FDA. The FDA finding of "substantial equivalence" for the
Vasotrac system does not in any way denote official approval of the device.
Further, any representation that creates an impression of official approval of a
device because it complies with the pre-market notification regulations is
misleading and constitutes misbranding. Certain devices, including those which
are not "substantially equivalent" to predicate devices, are subject to Pre-
market Approval Application ("PMA") requirements and more stringent FDA reviews.
In contrast to the 510(k) process, the PMA process generally occurs over a more
protracted time period and requires more extensive clinical data. In January
1995, the Company filed a 510(k) Submission, including clinical data, with the
FDA for the Vasotrac system. In February 1995, the Company received notice from
the FDA that no further data would be required and that the Company could
immediately commence marketing the Vasotrac system in the
11
<PAGE>
United States. Again, this does not constitute FDA "approval" of the Vasotrac
system, but merely allows the Company to market the system in the United States.
In addition, the Company, like all medical device manufacturers, must implement,
maintain and follow the FDA's good manufacturing practices ("GMP"). The Company
believes its manufacturing costs will be driven by initial scale-up and ultimate
production levels and will not be significantly impacted by such GMP
requirements. Should the Company intend to market the Vasotrac system for new
or different uses, or should it significantly modify the system in a way that
could significantly affect its safety or effectiveness, the Company would be
required to again file a 510(k) Submission for the Vasotrac system with the FDA.
In its initial 510(k) Submission to the FDA, the Company included not only
clinical data, but also outlined its plans to continue testing, and integrating
the results therefrom into the Vasotrac system. The Company does not believe
that FDA regulations require, and therefore at this point does not anticipate,
submission to the FDA of its post-510(k) clinical studies. Although the FDA has
stated that the manufacturer is best qualified to make an initial determination
of whether a new 510(k) Submission is necessary, the FDA can overrule a
manufacturer's decision not to submit a new 510(k) Submission and take
appropriate regulatory action. If the Company determines it need not submit any
such new 510(k) Submission, including with respect to its post-510(k) clinical
studies, and the FDA consequently takes regulatory action, the Company could be
materially and adversely affected. If the Company seeks to sell the Vasotrac
system outside the United States, it will be subject to additional regulation.
Failure to comply with all such regulations may result in material and adverse
effects to the Company, including loss of any regulatory approvals relating to
the Vasotrac system.
It is anticipated that with new products developed by the Company, if any,
various government approvals will be required prior to being able to sell the
products.
ITEM 2. PROPERTIES.
The Company leases property in Arden Hills, Minnesota. The building lease is
for two years, expiring in May 2000. The monthly lease payment is approximately
$2,800. The Company is generally responsible for taxes, insurance, maintenance,
and other expenses related to the operation of the facility. The Company's
production capacity is adequate for its present needs. The Company believes
that its property has been adequately maintained and is suitable for the
Company's business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 1998.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Trading activity with respect to the Company's Common Stock has been limited. A
public trading market having the characteristics of depth, liquidity and
orderliness depends upon the existence of market makers as well as the presence
of willing buyers and sellers, which are circumstances over which the Company
does not have control.
The Common Stock began trading in November 1995 on the Nasdaq SmallCap Market
under the symbol "MDWV" The following table sets forth the high and low bid
prices for the Common Stock based on closing transactions during each specified
period as reported by the Nasdaq Stock Market, Inc., which prices reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions:
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter $11.25 $7.75
Second Quarter 12.25 7.875
Third Quarter 12.875 10.50
Fourth Quarter 11.75 9.25
<CAPTION>
FISCAL 1998 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter $11.25 $9.25
Second Quarter 14.375 9.50
Third Quarter 11.625 8.25
Fourth Quarter 13.75 8.00
</TABLE>
There were approximately 180 record holders and 1,000 beneficial holders of the
Company's Common Stock as of July 10, 1998. On July 10, 1998, the high and low
price for the Common Stock was $11.00. The Company has never paid a dividend on
its Common Stock and does not intend to pay dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On March 6, 1998, the Company issued 440,000 shares of Common Stock at a price
of $7.50 per share, in a private placement through Miller, Johnson & Kuehn,
Inc., acting as agent for the Company. The total offering price was $3,300,000,
with commissions of $300,000 for a net offering to the Company of approximately
$2,990,000 after expenses. The sale of such shares was deemed to be exempt from
registration under the Securities Act of 1933 by virtue of Rule 506 of
Regulation D thereunder. The investors represented their intention to acquire
the shares for investment purposes only and not with a view to the distribution
thereof. In addition, a restrictive securities legend has been placed on the
certificate representing the shares.
<TABLE>
<CAPTION>
USE OF PROCEEDS FOR THE PERIOD ENDING: APRIL 30, 1998
<S> <C>
(1) Effective Date: November 9, 1995
SEC File Number: 0-28010-6
(2) Offering Date: November 9, 1995
(4)(ii) Managing Underwriter: Miller, Johnson & Kuehn, Inc.
(4)(iii) Title of Security: Common Stock
(4)(iv) Amount Registered: 1,610,000
Aggregate Offering Price: $8,050,000
Amount Sold: 1,610,000
Aggregate Offering Price Sold: $8,050,000
13
<PAGE>
<CAPTION>
<S> <C>
(4)(v) Underwriting Discount and Commissions: $ 805,000
Expenses paid to or for underwriters: $ 194,169
Other expenses: $ 217,263
Total expenses: $ 1,216,432
All 4(v) are direct or indirect
payments to others
(4)(vi) Net offering proceeds: $ 6,833,568
(4)(vii) Temporary Investments (specify)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Construction of Plant, building and (A) Direct or indirect payments to directors,
Facilities officers, general partners of issuer or their
associates, to persons owning ten percent
(10%) or more of any class of equity securities
of the issuer and to affiliates of the issuer: None
(B) Direct or indirect payment to others: $ 31,613
Purchases and installation of (A) Direct or indirect payments to directors,
machinery and equipment officers, general partners of issuer or their
associates, to persons owning ten percent
(10%) or more of any class of equity securities
of the issuer and to affiliates of the issuer: None
(B) Direct or indirect payment to others: $ 220,505
Reserve Asset Management Account: (A) Direct or indirect payments to directors,
officers, general partners of issuer or their
associates, to persons owning ten percent
(10%) or more of any class of equity securities
of the issuer and to affiliates of the issuer: None
(B) Direct or indirect payment to others: $ 393,110
Marketing & Manufacturing: (A) Direct or indirect payments to directors,
officers, general partners of issuer or their
associates, to persons owning ten percent
(10%) or more of any class of equity securities
of the issuer and to affiliates of the issuer: $ 439,516
(B) Direct or indirect payment to others: $2,228,097
Research & Development: (A) Direct or indirect payments to directors,
officers, general partners of issuer or their
associates, to persons owning ten percent
(10%) or more of any class of equity securities
of the issuer and to affiliates of the issuer: $ 236,868
(B) Direct or indirect payment to others: $1,987,084
General & Administrative: (A) Direct or indirect payments to directors,
officers, general partners of issuer or their
associates, to persons owning ten percent
(10%) or more of any class of equity securities
of the issuer and to affiliates of the issuer: $ 245,881
(B) Direct or indirect payment to others: $1,050,894
</TABLE>
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended April 30
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net Sales $ 593,012 $ 72,942 $ ---- $ ---- $ ----
Operating expenses:
Cost of sales and product development 552,560 113,261 ---- ---- ----
Research and development 1,033,145 816,099 379,320 307,142 496,565
Sales and marketing 1,091,780 555,888 85,537 ---- ----
General and administrative 491,229 529,831 389,433 135,368 203,334
--------------------------------------------------------------------------
Total operating expenses 3,168,714 2,015,079 854,290 442,510 699,899
--------------------------------------------------------------------------
Operating loss ($2,575,702) ($1,942,137) ($854,290) ($442,510) ($699,899)
Other income:
Interest income (other expense) 238,965 331,670 182,431 (12,988) 53,419
--------------------------------------------------------------------------
Net loss $(2,336,737) $(1,610,467) $(671,859) $(455,498) $(646,480)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net loss per share - basic and diluted $ (0.48) $ (0.34) $ (0.17) $ (2.24) $ (3.18)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding
- basic and diluted 4,916,654 4,789,242 3,915,295 203,500 203,500
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $1,926,697 $1,240,700 $ 769,161 $ 327,073 $ 714,725
Working capital 2,903,011 3,888,440 5,001,042 319,751 741,248
Total assets 6,739,162 5,551,796 6,831,204 477,709 914,248
Total shareholders' equity 6,572,046 5,422,596 6,718,900 (4,951,379) (4,358,686)
(deficiency)
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Year Ended April 30
-------------------------------------------
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Revenue:
Net Sales $ 593,012 $ 72,942 $ ----
Operating expenses:
Cost of sales and product
development 552,560 113,261 ----
Research and development 1,033,145 816,099 379,320
Sales and marketing 1,091,780 555,888 85,537
General and administrative 491,229 529,831 389,433
-------------------------------------------
Total operating expenses 3,168,714 2,015,079 854,290
-------------------------------------------
Operating loss ($2,575,702) ($1,942,137) ($854,290)
Other income:
Interest income (other expense) 238,965 331,670 182,431
-------------------------------------------
Net loss $(2,336,737) $(1,610,467) $ (671,859)
-------------------------------------------
-------------------------------------------
Net loss per share - basic and
diluted $ (0.48) $ (0.34) $ (0.17)
-------------------------------------------
-------------------------------------------
Weighted average number of common
and common equivalent shares
outstanding - basic and diluted 4,916,654 4,789,242 3,915,295
-------------------------------------------
-------------------------------------------
</TABLE>
Fiscal year ended April 30, 1998 compared to fiscal year ended April 30, 1997,
and April 30, 1996.
Operating revenue for fiscal 1998 was $593,012, versus $72,942 and $0 in fiscal
year 1997 and 1996. The Company commenced sales during fiscal 1997.
Operating expenses for fiscal 1998 were $3,168,714, an increase of $1,153,635 or
57.3% over fiscal year 1997 operating expenses of $2,015,079. Operating
expenses for fiscal 1997 were $2,015,079, an increase of $1,160,789 or 135.9%
over fiscal 1996 operating expenses of $854,290. The increase from fiscal year
1996 to fiscal year 1997, as well as the increase from fiscal year 1997 to
fiscal year 1998 was partially due to the Company hiring additional individuals
to prepare for the marketing and manufacture of the Vasotrac system. In
addition, the Company continued incurring costs to continue the research and
development of the Vasotrac system.
Cost of sales and product development for fiscal 1998 were $552,560, an increase
of $439,299 or 387.9% over fiscal year 1997 cost of sales and product
development expense of $113,261. Cost of sales and product development for
fiscal 1997 were $113,261, versus $0 in fiscal year 1996. The Company commenced
sales during fiscal 1997.
Research, development, and clinical expenses for fiscal year 1998 were
$1,033,145, an increase of $217,046 or 26.6% over fiscal year 1997 research and
development costs of $816,099. Research, development, and clinical expenses for
fiscal year 1997 were $816,099, an increase of $436,779 or 115.1% over fiscal
year 1996 research and
16
<PAGE>
development costs of $379,320. The increase from fiscal year 1996 to fiscal
year 1997, as well as the increase from fiscal year 1997 to fiscal year 1998 was
due to the continued research and development costs as the Company prepares for
larger scale production of the Vasotrac system. In addition, in fiscal 1998 the
Company completed clinical research for the purpose of preparing a multi-site
paper on the accuracy of the Vasotrac system.
General and administrative expenses for fiscal year 1998 were $491,229, a
decrease of $38,602 or 7.2% versus fiscal year 1997 general and administrative
expenses of $529,831. General and administrative expenses for fiscal year 1997
were $529,831, an increase of $140,398 or 36.1% over fiscal year 1996 general
and administrative expenses of $389,433. The decrease in general and
administrative expenses in fiscal 1998 over fiscal 1997 was primarily
attributable to decreased insurance costs. The increase in general and
administrative expenses in fiscal 1997 over fiscal 1996 expenses was
attributable to the hiring of a Chief Financial Officer, increased insurance
costs, increased use of outside consultants including legal services, and to
other expenses associated with increased activities of the Company's operations.
Sales and marketing expenses for fiscal year 1998 were $1,091,780, an increase
of $535,892 or 96.4% over fiscal year 1997 sales and marketing costs of
$555,888. Sales and marketing expenses for fiscal year 1997 were $555,888, an
increase of $470,351 or 549.9% over fiscal year 1996 sales and marketing costs
of $85,537. The increase from fiscal year 1996 to fiscal year 1997, as well as
the increase from fiscal year 1997 to fiscal year 1998 was due to the Company
hiring a Vice President of Marketing and additional salespersons.
Interest income for fiscal year 1998 was $238,965, a decrease of $92,705 or
28.0% over fiscal year 1997 interest income of $331,670. Interest income for
fiscal year 1997 was $331,670, an increase of $149,239 or 81.8% over fiscal year
1996 interest income of $182,431. The decrease in interest income in fiscal
1998 over fiscal 1997 is a result of the use of investment accounts to fund
increased operations. The increase in interest income in fiscal 1997 over
fiscal 1996 is a result of full year investment of the proceeds from the initial
public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, short and long-term investments were
$6,170,970 and $5,078,663 at April 30, 1998 and April 30, 1997 respectively.
The Company incurred cash expenditures of $2,339,722 for operations for the
fiscal year ended April 30, 1998.
With the cash and cash equivalents, short-term investments, and investments, the
Company believes that sufficient liquidity is available to satisfy its working
capital needs for approximately two years from the end of fiscal year April
1998. The Company has no significant capital expenditure commitments and does
not plan any significant sale of capital equipment.
THE YEAR 2000 ISSUE
Computer designs that use microprocessors have consistently abbreviated dates by
eliminating the first two digits of the year under the assumption that these two
digits would always be 19. As the year 2000 approaches, such systems will be
unable to accurately process certain date-based information. This problem is
commonly referred to as "the Year 2000 Issue".
The Company has determined it will not be necessary to modify or replace
significant portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The products that the Company produces
are all Year 2000 Compliant.
IMPACT OF INFLATION
Inflation has had no material effect on the Company's operations or financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
None
ITEM 8. FINANCIAL STATEMENTS AND SUPLLEMENTAL DATA
17
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Financial Statements
Years ended April 30, 1998 and 1997
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 19
Audited Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 22
Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . . . 23
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . 25
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
18
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Medwave, Inc.
We have audited the balance sheets of Medwave, Inc. (a development stage
company) as of April 30, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended April 30, 1998 and the period from June 27, 1984
(inception) to April 30, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medwave, Inc. at April 30, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended April 30, 1998 and the period from June 27, 1984
(inception) to April 30, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
June 5, 1998
19
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
APRIL 30
1998 1997
------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,926,697 $1,240,100
Short-term investments 759,758 2,539,905
Accounts receivable 59,618 41,986
Inventories 249,079 114,467
Prepaid expenses 74,975 81,182
------------------------------
Total current assets 3,070,127 4,017,640
Investments 3,484,515 1,298,658
Property and equipment:
Research and development equipment 242,606 237,561
Office equipment 115,243 121,193
Manufacturing and engineering equipment 65,259 68,262
Sales and marketing equipment 60,183 34,371
Leasehold improvements 31,613 31,613
------------------------------
514,904 493,000
Accumulated depreciation (383,802) (336,320)
------------------------------
131,102 156,680
Patents, net of accumulated amortization of
$82,599 in 1998 and $57,199 in 1997 53,418 78,818
------------------------------
Total assets $6,739,162 $5,551,796
------------------------------
------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
APRIL 30
1998 1997
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 109,585 $ 78,390
Accrued payroll 57,531 50,810
-----------------------------
Total current liabilities 167,116 129,200
Stockholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000
Issued and outstanding shares--
April 30, 1998--5,378,396 and
April 30, 1997--4,818,738 16,240,970 12,764,703
Unrealized loss on investments (14,999) (24,919)
Deficit accumulated during the
development stage (9,653,925) (7,317,188)
-----------------------------
Total stockholders' equity 6,572,046 5,422,596
-----------------------------
Total liabilities and stockholders' equity $ 6,739,162 $ 5,551,796
-----------------------------
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1984
YEAR ENDED APRIL 30 (INCEPTION) TO
1998 1997 1996 APRIL 30, 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net sales $ 593,012 $ 72,942 $ - $ 665,954
Operating expenses:
Cost of sales and product development 552,560 113,261 - 665,821
Research and development 1,033,145 816,099 379,320 5,620,877
General and administrative 491,229 529,831 389,433 2,705,719
Sales and marketing 1,091,780 555,888 85,537 1,740,057
----------------------------------------------------------------
Operating loss (2,575,702) (1,942,137) (854,290) (10,066,520)
Interest income 238,965 331,670 182,431 1,039,355
----------------------------------------------------------------
Net loss $(2,336,737) $(1,610,467) $(671,859) $(9,027,165)
----------------------------------------------------------------
----------------------------------------------------------------
Net loss per share - basic and diluted $(.48) $(.34) $(.17) $(3.77)
----------------------------------------------------------------
----------------------------------------------------------------
Weighted average number of shares
outstanding - basic and diluted 4,916,654 4,789,242 3,915,295 2,396,993
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK UNREALIZED DURING THE
--------------------------- LOSS ON DEVELOPMENT
SHARES AMOUNT INVESTMENTS STAGE TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock at $.15 per share
in July 1984 for capital equipment donated 10,000 $ 1,500 $ - $ - $ 1,500
Assets donated to Company by officer in
August 1984 - 1,145 - - 1,145
Net income for the period of June 27, 1984
(inception) to April 30, 1985 - - - 235 235
-----------------------------------------------------------------------
Balance at April 30, 1985 10,000 2,645 - 235 2,880
Net income - - - 1,393 1,393
-----------------------------------------------------------------------
Balance at April 30, 1986 10,000 2,645 - 1,628 4,273
Issuance of Common Stock in connection
with stock split in July 1986 190,000 - - - -
Net loss - - - (98,211) (98,211)
-----------------------------------------------------------------------
Balance at April 30, 1987 200,000 2,645 - (96,583) (93,938)
Net loss - - - (131,931) (131,931)
-----------------------------------------------------------------------
Balance at April 30, 1988 200,000 2,645 - (228,514) (225,869)
Net loss - - - (258,135) (258,135)
-----------------------------------------------------------------------
Balance at April 30, 1989 200,000 2,645 - (486,649) (484,004)
Issuance of Common Stock at $.975 per
share in April 1990 for consulting
services 3,500 3,413 - - 3,413
Accrual of dividends payable on the
Redeemable Convertible Preferred Stock,
Series A - (1,145) - (21,343) (22,488)
Net loss - - - (278,845) (278,845)
-----------------------------------------------------------------------
Balance at April 30, 1990 203,500 4,913 - (786,837) (781,924)
Accrual of dividends payable on the
Redeemable Convertible Preferred
Stock Series A - - - (1,775) (1,775)
Accretion on the Redeemable Convertible
Preferred Stock--Series I - - - (9,711) (9,711)
Net loss - - - (553,710) (553,710)
-----------------------------------------------------------------------
Balance at April 30, 1991 203,500 4,913 - (1,352,033) (1,347,120)
Accretion on the Redeemable Convertible
Preferred Stock--Series I - - - (10,649) (10,649)
Accretion on the Redeemable Convertible
Preferred Stock--Series II - - - (105,318) (105,318)
Net loss - - - (1,371,031) (1,371,031)
-----------------------------------------------------------------------
Balance at April 30, 1992 203,500 4,913 - (2,839,031) (2,834,118)
Accretion on the Redeemable Convertible
Preferred Stock--Series I - - - (10,914) (10,914)
Accretion on the Redeemable Convertible
Preferred Stock--Series II - - - (118,197) (118,197)
Net loss - - - (615,888) (615,888)
-----------------------------------------------------------------------
Balance at April 30, 1993 (carried forward) 203,500 4,913 - (3,584,030) (3,579,117)
23
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (continued)
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK UNREALIZED DURING THE
--------------------------- LOSS ON DEVELOPMENT
SHARES AMOUNT INVESTMENTS STAGE TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993 (brought forward) 203,500 $ 4,913 $ - $(3,584,030) $(3,579,117)
Accretion on the Redeemable Convertible
Preferred Stock--Series I - - - (11,185) (11,185)
Accretion on the Redeemable Convertible
Preferred Stock--Series II - - - (121,904) (121,904)
Net loss - - - (646,480) (646,480)
-----------------------------------------------------------------------
Balance at April 30, 1994 203,500 4,913 - (4,363,599) (4,358,686)
Accretion on the Redeemable Convertible
Preferred Stock--Series I - - - (11,463) (11,463)
Accretion on the Redeemable Convertible
Preferred Stock--Series II - - - (125,732) (125,732)
Net loss - - - (455,498) (455,498)
-----------------------------------------------------------------------
Balance at April 30, 1995 203,500 4,913 - (4,956,292) (4,951,379)
Exercise of stock options and warrants 126,896 144,299 - - 144,299
Initial public offering of Common Stock,
net of expenses 1,610,000 6,833,491 - - 6,833,491
Preferred Stock conversion 2,750,164 5,476,163 - - 5,476,163
Change in unrealized loss on investments - - (33,245) - (33,245)
Accretion on the Redeemable Convertible
Preferred Stock--Series I - - - (5,874) (5,874)
Accretion on the Redeemable Convertible
Preferred Stock--Series II - - - (64,838) (64,838)
Accrual of dividends payable on the
Redeemable Convertible Preferred Stock--
Series X and Series I - - - (7,858) (7,858)
Net loss - - - (671,859) (671,859)
-----------------------------------------------------------------------
Balance at April 30, 1996 4,690,560 12,458,866 (33,245) (5,706,721) 6,718,900
Exercise of stock options and warrants 128,178 305,837 - - 305,837
Change in unrealized loss on investments - - 8,326 - 8,326
Net loss - - - (1,610,467) (1,610,467)
-----------------------------------------------------------------------
Balance at April 30, 1997 4,818,738 12,764,703 (24,919) (7,317,188) 5,422,596
Exercise of stock options and warrants 119,658 484,058 - - 484,058
Private Placement of Common Stock, in
March 1998 at $7.50 per share,
net of expenses 440,000 2,992,209 - - 2,992,209
Change in unrealized loss on investments - - 9,920 - 9,920
Net loss - - - (2,336,737) (2,336,737)
-----------------------------------------------------------------------
Balance at April 30, 1998 5,378,396 $16,240,970 $(14,999) $(9,653,925) $ 6,572,046
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1984
YEAR ENDED APRIL 30 (INCEPTION) TO
1998 1997 1996 APRIL 30, 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,336,737) $(1,610,467) $ (671,859) $ (9,027,165)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 79,736 62,147 44,389 556,618
Amortization 25,400 27,115 16,094 82,599
Loss on sale of equipment - - - 7,375
Issuance of Common Stock for
consulting services - - - 3,413
Changes in operating assets and
liabilities:
Accounts receivable (17,632) (41,986) - (59,618)
Inventories (134,612) (105,493) (8,974) (249,079)
Prepaid expenses 6,207 19,989 (75,157) (74,974)
Accounts payable 31,195 (5,217) 74,317 109,585
Accrued payroll 6,721 22,113 6,493 57,531
-------------------------------------------------------------
Net cash used in operating activities (2,339,722) (1,631,799) (614,697) (8,593,715)
INVESTING ACTIVITIES
Purchase of property and equipment (54,158) (104,865) (89,693) (712,493)
Patent expenditures - (27,157) (38,907) (136,017)
Purchase of investments (4,745,431) (8,914,853) (19,952,765) (33,613,049)
Sales and maturities of investments 4,349,641 10,843,816 14,160,320 29,355,619
Proceeds from sale of equipment - - - 18,200
-------------------------------------------------------------
Net cash (used in) provided by investing
activities (449,948) 1,796,941 (5,921,045) (5,087,740)
FINANCING ACTIVITIES
Net proceeds from issuance of Common Stock 3,476,267 305,837 6,977,790 10,759,894
Net proceeds from issuance of Convertible
Preferred Stock - - - 4,848,258
-------------------------------------------------------------
Net cash provided by financing activities 3,476,267 305,837 6,977,790 15,608,152
-------------------------------------------------------------
Increase in cash and cash equivalents 686,597 470,979 442,048 1,926,697
Cash and cash equivalents at beginning
of period 1,240,100 769,121 327,073 -
-------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,926,697 $ 1,240,100 $ 769,121 $ 1,926,697
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
(A Development Stage Company)
Notes to Financial Statements
April 30, 1998
1. BUSINESS ACTIVITY
Medwave, Inc. (the "Company"), a development stage company, is engaged
exclusively in the development, manufacturing and marketing of a proprietary,
noninvasive system that continually monitors arterial blood pressure of adults.
Utilizing the Company's proprietary technology, the VASOTRAC-TM- system monitors
blood pressure continually, providing new readings approximately every fifteen
heartbeats. The continual, efficacious and noninvasive qualities of the
VASOTRAC-TM- system make it a new approach to blood pressure monitoring.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining maturity of
three months or less to be cash equivalents. Cash equivalents are carried at
cost which approximates market value.
INVESTMENTS
Short-term investments consist primarily of U.S. corporate securities and
treasury notes with maturities of less than one year. Investments with a
remaining maturity of more than one year are classified as long-term
investments.
Investments are classified as available-for-sale and are carried at fair value
with unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses and declines in value judged to
be other than temporary are included in investment income along with interest
and dividends.
INVENTORIES
Inventories are valued at the lower of cost or market on the first-in, first-out
(FIFO) method. The majority of inventory consists of purchased components.
26
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over estimated useful lives of the assets ranging from
three to seven years.
PATENTS
Patent costs are being amortized on a straight-line basis over five years. The
Company periodically reviews its patents for impairment in value. Any adjustment
from the analysis is charged to operations.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income taxes
are provided for temporary differences between the financial reporting and the
tax bases of assets and liabilities.
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment of the product.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
27
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
In 1998, the Company adopted Financial Accounting Standards Board Statement No.
128, EARNINGS PER SHARE, which replaces the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share exclude the dilutive effect of options, warrants and
convertible securities, while diluted earnings per share include such effects.
All earnings per share amounts for all periods have been presented to conform
with Statement No. 128 requirements and are unchanged from those previously
reported. Pursuant to SAB No. 83, all common shares issued and stock options and
warrants granted by the Company at a price less than the initial public offering
price during the 12 months preceding the offering date (using the treasury stock
method until shares are issued) have been included in the calculation of common
and common equivalent shares outstanding for all periods up to the initial
public offering date. For all years presented, the Company's basic and diluted
loss per share is the same because the effects of all options, warrants and
convertible securities were antidilutive.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
28
<PAGE>
3. INVESTMENTS
The following is a summary of the investments available-for-sale as of April 30:
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST LOSSES VALUE
------------------------------------------
<S> <C> <C> <C>
1998
U.S. corporate debt securities $3,973,219 $ (9,777) $3,963,442
European bank notes 286,053 (5,222) 280,831
------------------------------------------
$4,259,272 $(14,999) $4,244,273
------------------------------------------
------------------------------------------
<CAPTION>
UNREALIZED FAIR
COST LOSSES VALUE
------------------------------------------
<S> <C> <C> <C>
1997
U.S. corporate debt securities $2,552,681 $(12,776) $2,539,905
U.S. treasury and European bank notes 1,310,801 (12,143) 1,298,658
------------------------------------------
$3,863,482 $(24,919) $3,838,563
------------------------------------------
------------------------------------------
</TABLE>
4. CAPITAL STOCK
INITIAL PUBLIC OFFERING
In November 1995, the Company sold 1,610,000 shares of Common Stock in an
initial public offering from which the Company received net proceeds of
$6,900,000.
PREFERRED STOCK
Upon the conclusion of the Company's initial public offering, all outstanding
shares of preferred stock and accrued cumulative dividends were converted on a
one-for-one basis to Common Stock. Prior to that date, the Company had issued
585,715 shares of no stated par value Redeemable Convertible Preferred Stock,
Series X, 406,818 shares of $1.10 Redeemable Convertible Preferred Stock, Series
I, and 1,757,631 shares of $2.25 Redeemable Convertible Preferred Stock, Series
II.
In March 1998, the Company sold 440,000 shares of Common Stock in a private
placement for $7.50 per share from which the Company received net proceeds of
$2,992,209.
29
<PAGE>
5. LEASES
The Company leases its office, research and development, sales, and production
facility under an operating lease that expires May 31, 2000. Operating expenses
including maintenance, utilities, real estate taxes and insurance are paid by
the Company. Total rent expense under operating leases was $53,109, $56,434 and
$30,949 for the years ended April 30, 1998, 1997 and 1996, respectively.
Future minimum rental payments required under leases that have remaining terms
in excess of one year as of April 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending April 30:
<S> <C>
1999 $33,456
2000 33,456
2001 2,788
---------
$69,700
---------
---------
</TABLE>
6. INCOME TAXES
At April 30, 1998, the Company had net operating loss carryforwards of
approximately $9,200,000 and research and development tax credit carryforwards
of approximately $440,000. These carryforwards are available to offset future
taxable income through 2013; however, a portion of the net operating loss will
begin to expire in 2002. In addition, these carryforwards are subject to the
limitations of Internal Revenue Code Section 382 relating to certain changes in
the equity ownership of the Company.
No income taxes were paid for the years ended April 30, 1998, 1997 and 1996,
respectively.
Components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
APRIL 30
1998 1997
--------------------------
<S> <C> <C>
Net operating loss carryforwards $3,556,000 $2,650,000
Research and development credit carryforwards 440,000 261,000
Less valuation allowance (3,996,000) (2,911,000)
--------------------------
Net deferred tax assets $ - $ -
--------------------------
--------------------------
</TABLE>
30
<PAGE>
7. RESEARCH AND DEVELOPMENT COSTS
Research and development consulting revenues of none, $9,700 and $154,000 have
been netted against research and development costs for the years ended April 30,
1998, 1997 and 1996, respectively. These amounts were received in connection
with consulting services performed on a single doppler flowmeter project for an
unrelated entity.
8. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan that includes both incentive stock options
and non-statutory stock options to be granted to certain eligible employees or
consultants of the Company. The maximum number of shares of Common Stock
currently reserved for issuance is 1,700,000 shares. A majority of the options
granted have 10 year terms and vest and become fully exercisable at the end of 4
years of continued employment.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OPTIONS OUTSTANDING AVERAGE
AVAILABLE --------------------------- EXERCISE PRICE
FOR GRANT PLAN NON-PLAN PER SHARE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at April 30, 1995 302,500 597,500 95,000 $1.09
Granted (525,000) 525,000 - 3.64
Exercised - - (75,000) .98
Canceled 7,000 (7,000) - 1.05
-----------------------------------------
Balance at April 30, 1996 (215,500) 1,115,500 20,000 2.30
Additional shares reserved for issuance 500,000 - - -
Granted (71,000) 71,000 - 9.50
Exercised - (3,800) - .75
-----------------------------------------
Balance at April 30, 1997 213,500 1,182,700 20,000 2.85
Additional shares reserved for issuance 300,000 - - -
Granted (255,000) 255,000 - 12.98
Exercised - (107,000) - 4.30
Canceled 122,500 (122,500) - 7.16
-----------------------------------------
Balance at April 30, 1998 381,000 1,208,200 20,000 4.28
-----------------------------------------
-----------------------------------------
</TABLE>
31
<PAGE>
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes information about the stock options outstanding
at April 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
$ .75 177,200 6 years $ .75 165,950 $ .75
1.25 370,960 5 years 1.25 370,960 1.25
2.00 - 2.25 264,040 7 years 2.23 176,540 2.22
3.00 60,000 7 years 3.00 30,000 3.00
5.00 - 5.25 65,000 8 years 5.22 32,500 5.22
8.00 - 9.00 32,000 9 years 8.38 5,250 8.05
10.00 - 10.50 54,000 9 years 10.11 11,000 10.08
13.00 - 14.00 205,000 10 years 13.34 - -
----------- --------
$ .75 - $14.00 1,228,200 6.9 years $ 4.28 792,200 $ 1.76
----------- --------
----------- --------
</TABLE>
Options outstanding expire at various dates during the period from 2002 through
2008. The number of options exercisable as of April 30, 1998 and 1997 were
792,200 and 736,450, respectively, at weighted average exercise prices of $1.76
and $1.65 per share, respectively.
In connection with bridge financing in 1991, the Company issued warrants to
purchase 109,489 shares of Common Stock at an original exercise price of $1.37
per share. The warrants originally expired on February 1, 1996. In September
1995, the Company's Board of Directors amended such warrants to extend the
exercise date to February 1, 1998 and increased the exercise price from $1.37
per share to $1.87 per share. Warrants for the purchase of 12,658 and 44,378
shares were exercised during fiscal 1998 and 1997, respectively. None of these
warrants remain outstanding.
32
<PAGE>
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
In connection with the IPO, the Company issued warrants to purchase 140,000
shares of Common Stock at an exercise price of $6.00 per share. The warrants
expire in the year 2000.
PRO FORMA DISCLOSURES
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for 1998 and
1997: risk-free interest rates ranging from 6.00% to 5.29%, respectively;
dividend yield of 0%; volatility factor of the expected market price of the
Company's common stock of .65 and .57, respectively, and a weighted average
expected life of the option of 4 years.
The weighted average fair value of options granted during the years ended
April 30, 1998 and 1997 was $7.07 and $4.65 per share, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
33
<PAGE>
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
APRIL 30
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Pro forma net loss $(2,736,066) $(1,910,295) $(812,778)
Pro forma net loss per common share (.56) (.40) (.21)
</TABLE>
The pro forma effect on net loss for fiscal 1998, 1997 and 1996 is not
representative of the pro forma effect on net loss in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to fiscal 1996.
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the directors
and executive officers of the Company as of July 10, 1998. A summary of the
background and experience of each of these individuals is set forth after the
table.
The directors and executive officer of the Company are:
<TABLE>
<CAPTION>
Name Age Position
----------------------------------------------------------------------
<S> <C> <C>
G. Kent Archibald 57 President, Chief Executive Officer,
Secretary, and Director
Mark T. Bakko 38 Chief Financial Officer
Norman Dann(1) 71 Director
Jeffrey W. Green 58 Director
Richard E. Harbaugh 45 Vice President Marketing
Jerry E. Robertson, Ph.D.(1) 65 Director
</TABLE>
- ----------------------------
(1) Member of the Audit and Compensation Committees
All directors hold office until the next annual meeting of shareholders or until
their successors have been duly elected and qualified. Executive officers of
the Company are appointed by and serve at the discretion of the Board of
Directors. There are no family relationships among the directors and executive
officers. The Board of Directors has an Audit Committee, which (i) reviews the
Company's annual financial statements, (ii) makes recommendations regarding the
Company's independent auditors and scope of auditor services, (iii) reviews the
adequacy of accounting and audit policies, compliance assurance procedures and
internal controls, (iv) reviews non-audit service performed by auditors to
maintain auditor's service performed by auditors to maintain auditors'
independence, and (v) reports to the Board on the adequacy of disclosures and
adherence to accounting principles. The Board of Directors also has formed a
Compensation Committee, which (i) reviews compensation philosophy and major
compensation benefits for executives, (ii) administers the Company's Stock
Option Plan, and (iii) approves executive officers' compensation.
G. KENT ARCHIBALD is the President, Chief Executive Officer, Secretary, and a
director of the Company. He has served in these positions since October 1991.
From 1988 to 1991, Mr. Archibald was a private consultant and investor. From
1978 to 1984, Mr. Archibald was founder, president and director of AVI, Inc., a
medical device company acquired by 3M Company's Medical Products Division in
1984. After this acquisition, Mr. Archibald served until 1988 as a general
manager and engineering director for 3M. Prior to his involvement with AVI,
Inc., Mr. Archibald held engineering positions at 3M, Control Data Corporation,
and The Boeing Company, Inc. Mr. Archibald holds a B.S. degree in electrical
engineering and is a professional engineer in the State of Minnesota. He serves
as a director of RayMedica, Inc.
MARK T. BAKKO is the Chief Financial Officer of the Company. He has served in
this position since February 1996. From 1984 to 1996, Mr. Bakko was with
Deloitte & Touche LLP with his most recent position being a senior manager. Mr.
Bakko has been a Certified Public Accountant since 1985 in the State of
Minnesota. Mr. Bakko holds a Masters of Business Taxation and B.S.B.A. degree
in Accounting from the University of Minnesota.
35
<PAGE>
NORMAN DANN, a director of the Company since August 1995, has extensive
experience in the medical device industry. Since 1992, Mr. Dann has been a
business consultant concentrating in the areas of venture capital, strategic
planning, marketing and product development. Mr. Dann also currently serves as a
director of Minntech Corporation, and several private companies. From 1980 to
1992, Mr. Dann served as an executive officer of and consultant to Pathfinder
Ventures, Inc., a venture capital firm ("Pathfinder"), and served as a general
partner of three of Pathfinder's funds and partnerships. From 1971 to 1977, Mr.
Dann served as Vice President of Sales and Marketing and Senior Vice President
of Development with Medtronic, Inc., a leading manufacturer of cardiac
pacemakers and other medical products. In 1960, Mr. Dann founded The Dann
Company, an independent representative and service organization for medical
products which was acquired by Medtronic, Inc. in 1971. Mr. Dann holds a B.S.
degree in industrial engineering from Pennsylvania State University.
JEFFREY W. GREEN, has been a director of the Company since August 1997. Mr.
Green serves as Chairman of the Board of Hutchinson Technology, Inc. Mr. Green
co-founded Hutchinson Technology, Inc. in 1965 and served as its Chief Executive
Officer from January 1983 to May 1996. Hutchinson Technology, Inc. is the
world's leading supplier of suspension assemblies for rigid magnetic disk
drives. Mr. Green is a board member of Applied Biometrics, Inc., a maker of
medical devices. Mr. Green is also a board member of the following privately
held businesses: ContiMed, Inc., which is developing urinary catheters and
Internet Financial Services, Inc. Mr. Green is also a board member of the
following community business organizations: the Minnesota Chamber of Commerce
and the Chamber of Commerce of South Dakota.
RICHARD E. HARBAUGH is the Vice President of Marketing of the Company. He has
served in this position since September 1997. From 1986 to 1995, Mr. Harbaugh
was President of Harbaugh Associates and became President of Sterling Clinical
Resources when it acquired his firm in 1995. Sterling is a market research firm
serving the medical device community. Mr. Harbaugh served as Director of
Marketing for Interpore International, an orthopedic product company, from 1984
to 1986. Previous to 1984, Mr. Harbaugh worked in various marketing and new
product development positions for American Medical International, Bard and the
Edwards divisions of American Hospital Supply (now Baxter). Mr. Harbaugh holds
a B.S. degree from California Polytechnic University where he also performed his
graduate studies.
JERRY E. ROBERTSON, Ph.D., has been a director of the Company since August 1995.
Dr. Robertson also currently serves as a director of the following publicly
traded companies: Manor Care, Inc., Cardinal Health, Inc., CHOICE Hotels
International, Inc., Haemonetics Corporation, Coherent, Inc., Steris
Corporation, and Allianz Life Insurance Company of North America. Dr. Robertson
also serves as a director of Project HOPE, a nonprofit organization which
provides medical services throughout the world. From 1963 to 1994, Dr.
Robertson served in various supervisory, management, and executive positions
with 3M Company. He served as executive vice president of 3M's Life Sciences
Sector and Corporate Services from 1984 to 1994 and a member of 3M's Board of
Directors from 1990 to 1994. Prior to that time, Dr. Robertson served in
various capacities in the areas of surgical and medical products, chemical and
synthetic medicinal research, and technical planning and coordination. Dr.
Robertson holds a Ph.D. in organic chemistry.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and directors,
and persons who beneficially own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors, and greater than 10% shareholders
are required by Exchange Act regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5 was
required for such persons, the Company believes that during the fiscal year
ending April 30, 1998, all filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complied with.
36
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding compensation earned
or awarded to G. Kent Archibald, the President and Chief Executive Officer and
Todd A. Erdmann, formerly the Vice President of Sales of the Company during the
Company's last three fiscal years ended April 30, 1996, 1997, and 1998. No
other executive officer of the Company received total salary and bonus
compensation in excess of $100,000 for the fiscal year ending 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation
(# of shares)(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
G. Kent Archibald, 1998 $150,000 ---- --- $4,500(2)
President and Chief Executive 1997 150,000 ---- --- 4,500(2)
Officer 1996 110,425 ---- 175,000 1,312(2)
- ---------------------------------------------------------------------------------------------
Todd A. Erdmann, 1998 $109,490 ---- --- $3,130(2)
Former Vice President of Sales 1997 162,669 ---- --- 3,206(2)
1996 60,288 ---- 175,000 ---
</TABLE>
- ---------------------------
(1) Number of shares of Common Stock subject to options that were granted
during the year.
(2) Reflects the Company's contribution to executive's individual retirement
account under the Company's Simplified Employee Pension Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options were granted during fiscal year 1998 to the named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning each exercise of
stock options during the year ended April 30, 1998 by each of the executive
officers named in the above Summary Compensation Table and the aggregated fiscal
year-end value of the unexercised options of each such executive officer.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-
Securities Underlying Money Options at Fiscal Year-
Options at Fiscal Year-End (#) End ($)(1)
-------------------------------------------------------------
Shares Value
Acquired on Realized ($) Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
G. Kent Archibald - 0 - $ - 0 - 347,500 87,500 $3,082,500 $ 700,000
Todd A. Erdmann 87,500 278,863(2) - 0 - - 0 - - 0 - - 0 -
</TABLE>
(1) Based on the differences between the closing price of the Company's Common
Stock fiscal year-end and the option exercise price.
(2) Reflects the value realized by Mr. Erdmann upon the exercise of option to
purchase 87,500 shares of Common Stock at an exercise price of $5.06 per
share on January 30, 1998, based upon the sale of the shares simultaneously
with the exercise of the shares.
37
<PAGE>
COMPENSATION OF DIRECTORS
Directors are not currently paid fees for attending meetings. In connection
with the election of Messrs. Dann, Robertson, and Green to the Board of
Directors, in August 1995 each of Messrs. Dann and Robertson received a
non-qualified option to purchase 30,000 shares of Common Stock at an exercise
price of $3.00 per share, and in August 1997, Mr. Green received a non-qualified
option to purchase 30,000 shares of Common Stock at an exercise price of
$13.875. Each such option is for a term of ten years and vests over a four-year
period.
Although the Company has non-compete and confidentiality agreements with its
employees, the Company does not have an employment agreement with, or key-man
life insurance on, Mr. Archibald or any other individual.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of shares of Common
Stock of the Company on July 10, 1998 by each of the executive officers named in
the Summary Compensation Table set forth in Item 11 by each director, by all
directors and current executive officers as a group and by all persons known by
the Company to be beneficial owners of more than 5% of the Company's Common
Stock. Except as otherwise indicated, each of the shareholders listed in the
table or included within a group listed in the table possesses sole voting and
investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Percent of
Owned(1) Ownership
- --------------------------------------------------------------------------------
<S> <C> <C>
G. Kent Archibald 565,493(2) 9.8%
4382 Round Lake Road West
Arden Hills, MN 55112
Aaron Boxer, Revocable Trust 396,639 7.4%
Aaron Boxer, Trustee
5500 Wayzata Boulevard
8th Floor - Suite 800
Minneapolis, MN 55416
William D. Corneliuson 300,100 5.6%
777 East Wisconsin Avenue
Suite 3020
Milwaukee, WI 53202
Norman Dann 22,500(3) *
4382 Round Lake Road West
Arden Hills, MN 55112
Todd A. Erdmann 5,650(4) *
1626 Edona Road
Fort Collins, CO 80525
Jeffrey W. Green 7,500(3) *
3401 4th Avenue North
Sioux Falls, SD 57104
Jerry E. Robertson 32,500(5) *
3050 Minnesota Word Trade Center
30 Seventh Street East
St. Paul, MN 55108
38
<PAGE>
<CAPTION>
Name and Address Shares Beneficially Percent of
Owned(1) Ownership
- --------------------------------------------------------------------------------
<S> <C> <C>
David B. Johnson 450,037(6) 8.4%
5500 Wayzata Boulevard
8th Floor - Suite 800
Minneapolis, MN 55416
All Current Executive Officers and
Directors as a Group (6 persons) 674,243(7) 11.5%
</TABLE>
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percentage owned by
such person or group.
(2) Includes Options to purchase 391,250 shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of the date
hereof.
(3) Such shares are not outstanding but may be purchased upon exercise of
options which are currently exercisable or will become exercisable within
60 days of the date hereof.
(4) Includes 872 shares owned by Mr. Erdmann's wife, over which he may be
deemed to share voting and investment power.
(5) Includes 10,000 shares held by limited partnership of which Dr. Robertson
and his wife are the general partners and options to purchase 22,500 shares
of Common Stock which are currently exercisable or will become exercisable
within 60 days of the date hereof.
(6) Includes 28,500 shares held by Mr. Johnson's spouse and minor children,
over which he may be deemed to share voting and disposition power, and
warrants to purchase 70,000 shares of Common Stock which are currently
exercisable or will become exercisable within 60 days of the date hereof.
(7) Includes options to purchase 485,000 shares of Common Stock which are
currently exercisable or will become exercisable within 60 days of the date
hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no related party transactions.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits
See Exhibit Index on page following signatures.
(b) Financial Statement Schedules
None
(c) Reports on Form 8-K
Reports on Form 8-K were filed during the fourth quarter of fiscal 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MEDWAVE, INC.
a Minnesota Corporation
Date: July 20, 1998 By /s/ G. Kent Archibald
-------------------------------------
G. Kent Archibald, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ G. Kent Archibald President, CEO, and Director July 20, 1998
- ----------------------------- (principal executive officer)
G. Kent Archibald
/s/ Mark T. Bakko Chief Financial Officer July 20, 1998
- ----------------------------- (principal financial and
Mark T. Bakko accounting officer)
/s/ Norman Dann Director July 20, 1998
- -----------------------------
Norman Dann
/s/ Jeffrey W. Green Director July 20, 1998
- -----------------------------
Jeffrey W. Green
/s/ Jerry E. Robertson Director July 20, 1998
- -----------------------------
Jerry E. Robertson, Ph.D.
</TABLE>
40
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
MEDWAVE, INC.
EXHIBIT INDEX
TO
FORM 10-K FOR FISCAL YEAR ENDED APRIL 30, 1998
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation - incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement on
Form SB-2, Reg. No. 33-96878C*
3.2 Amended and Restated Bylaws - incorporated by reference to Exhibit 3.4
to the Registrant's Registration Statement on Form SB-2, Reg. No.
33-96878C*
10.1 Agreement of Lease dated February 22, 1996 between the Company and
Distribution Systems and Service Corporation and Scholl's Inc. -
incorporated by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996*
10.2** Amended and Restated Medwave Stock Option Plan (as amended through
November 19, 1995) and forms of Incentive and Nonstatutory Stock
Option Agreements thereunder - incorporated by reference to Exhibit
10.2 to the Registrant's Annual Report on From 10-K for the fiscal
year ended April 30, 1996*
10.3 Agreement of Lease dated April 10, 1998 between the Company and The
Remada Companies*
23.2 Consent of Ernst & Young LLP
27 Financial data Schedule (filed in electronic format only)
* Incorporated by reference to a previously filed report or document,
SEC File No. 0-28010 unless otherwise indicated
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit
41
<PAGE>
EXHIBIT 23.2
EXHIBIT 23.2 - CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-23583) pertaining to the Amended and Restated Stock Option Plan of
Medwave, Inc. and in the related Prospectus of our report dated June 5, 1998,
with respect to the financial statements of Medwave, Inc. included in this
Annual Report (Form 10-K) for the year ended April 30, 1998.
/s/ Ernst & Young
Minneapolis, Minnesota
July 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1998 AND 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 1,926,697
<SECURITIES> 759,758
<RECEIVABLES> 59,618
<ALLOWANCES> 0
<INVENTORY> 249,079
<CURRENT-ASSETS> 3,070,127
<PP&E> 514,904
<DEPRECIATION> (383,802)
<TOTAL-ASSETS> 6,739,162
<CURRENT-LIABILITIES> 167,116
<BONDS> 0
0
0
<COMMON> 16,240,970
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,739,162
<SALES> 593,012
<TOTAL-REVENUES> 593,012
<CGS> 0
<TOTAL-COSTS> 552,560
<OTHER-EXPENSES> 2,616,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,336,737)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,336,737)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,336,737)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
</TABLE>
