SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 31, 2000; or
[ ] 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
number)
4382 Round Lake Road West
Arden Hills, Minnesota 55112
(Address of principal executive offices,
zip code)
(651) 639-1227
(Registrant's telephone number, including
area code)
Indicate by mark whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period as the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
As of August 31, 2000, the issuer had 5,499,596 shares of Common Stock
outstanding.
<PAGE>
Medwave, Inc.
Form 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - April 30, 2000 and July 31, 2000 2
Statements of Operations - Three Months Ended July 31, 2000 3
and 1999 and Period from June 27, 1984 (Inception) to
July 31, 2000
Statements of Cash Flows - Three Months Ended July 31, 2000 4
and 1999 and Period from June 27, 1984 (Inception) to
July 31, 2000
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters To A Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
April 30, July 31,
2000 2000
-------------------------------------
(see note 2) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $1,155,924 $ 823,517
Short term investments 1,684,841 1,217,679
Accounts receivable 99,188 74,645
Inventories 257,877 550,251
Prepaid expenses 76,596 47,021
-------------------------------------
Total current assets 3,274,426 2,713,113
Investments 400,000 400,000
Property and equipment:
Research and development equipment 216,464 218,292
Office Equipment 109,898 109,898
Manufacturing and engineering equipment 126,652 126,625
Sales and marketing equipment 51,536 51,536
Leasehold improvements 31,613 31,613
-------------------------------------
536,163 537,964
Accumulated depreciation (453,805) (471,084)
-------------------------------------
82,358 66,880
Patents, net 10,005 7,348
=====================================
Total Assets $3,766,789 $3,187,341
=====================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 216,067 $ 306,259
Accrued payroll 51,057 49,291
-------------------------------------
Total current liabilities 267,124 355,550
Shareholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000
Issued and outstanding shares - 5,499,396 16,436,870 16,436,870
Unrealized gain/(loss) on investments (10,440) (9,246)
Deficit accumulated during the development stage (12,926,765) (13,595,833)
-------------------------------------
Total shareholders' equity 3,499,665 2,831,791
-------------------------------------
Total liabilities and shareholders' equity $3,766,789 $3,187,341
=====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
(Inception)
Three months ended July 31 to
-----------------------------------------
2000 1999 July 31, 2000
----------------------------------------- --------------------
<S> <C> <C> <C>
Revenue:
Net Sales $ 84,480 $ 40,183 $ 1,746,096
Operating expenses:
Cost of sales and product development 126,458 53,480 1,914,561
Research and development 260,003 298,679 8,233,199
Sales and marketing 244,604 134,951 3,663,187
General and administrative 172,684 199,808 4,076,798
----------------------------------------- --------------------
Operating loss (719,269) (646,735) (16,141,649)
Other income:
Interest income 50,205 66,297 1,672,573
Other income - - 1,500,000
========================================= ====================
Net loss $ (669,064) $ (580,438) $(12,969,076)
========================================= ====================
Net loss per share - Basic and diluted $ (0.12) $ (0.11) $ (4.59)
========================================= ====================
Weighted average number of common and
common equivalent shares outstanding 5,499,596 5,436,596 2,823,625
========================================= ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
(Inception)
Three months ended July 31 to
----------------------------
2000 1999 July 31, 2000
---------------------------- ------------------
<S> <C> <C> <C>
Operating activities
Net loss $ (669,064) $ (580,438) $ (12,969,072)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 17,303 10,907 701,028
Amortization 2,657 6,350 128,669
Loss on sale of equipment --- --- 7,375
Issuance of Common Stock for consulting services --- --- 3,413
Changes in operating assets and liabilities:
Accounts receivable 24,543 8,186 (74,645)
Inventories (292,374) (12,848) (550,251)
Prepaid expenses 29,575 31,410 (47,021)
Accounts payable and accrued expenses 90,192 (37,442) 306,259
Accrued payroll and related taxes (1,766) (15,355) 49,291
---------------------------- ------------------
Net cash used in operating activities (798,934) (589,230) (12,444,954)
Investing activities
Patent expenditures --- --- (136,017)
Purchase of investments --- (480,500) (38,908,724)
Sales and maturity of investments 468,356 1,537,357 37,283,641
Purchase of property and equipment (1,829) (7,945) (796,144)
Proceeds from sale of equipment --- --- 21,663
---------------------------- ------------------
Net cash used in investing activities 466,527 1,048,912 (2,535,581)
Financing activities
Net proceeds from issuance of Convertible Preferred Stock --- --- 4,848,258
Net proceeds from issuance of Common Stock --- --- 10,955,794
------------ -------------- ------------------
Net cash provided by financing activities --- --- 15,804,052
---------------------------- ------------------
(Decrease) increase in cash and cash equivalents (322,407) 459,682 823,517
Cash and cash equivalents at beginning of period 1,155,924 1,175,756 ---
============================ ==================
Cash and cash equivalents at end of period $ 823,517 $1,635,438 $ 823,517
============================ ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
July 31, 2000
1. Organization and Description of Business
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, and in the development of related technology and
products. Utilizing the Company's proprietary technology, the VASOTRAC(R)
system monitors blood pressure continually, providing new readings
approximately every 15 heartbeats. The Company also developed a hand-held
blood pressure measurement device, the VASOTRAX(TM). The Company submitted
a 510(k) to the FDA for review in June 2000. In August 2000, the Company
received FDA approval, which allows the Company to begin marketing the
Vasotrax in the United States for use on adult patients by trained medical
personnel. This hand-held device is based upon the technology used in the
Vasotrac System.
2. Basis of Presentation
The financial information presented as of July 31, 2000 has been prepared
from the books and records without audit. Financial information as of
April 30, 2000 is based on audited financial statements of the Company but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated have been included. For
further information regarding the Company's accounting policies, refer to
the financial statements and related notes included in the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion should be read in conjunction with, and is qualified
by, the Company's financial statements set forth in Item 1 of this Form 10-Q.
General
The Company, which was formed in 1984, is a development stage company that
currently employs sixteen full-time employees and one part-time employee. Since
its inception, the Company has been engaged exclusively in the development of
devices for monitoring and devices for measuring blood pressure. Utilizing the
Company's proprietary technology, the Vasotrac(R) APM205 system monitors blood
pressure, providing new readings approximately every fifteen heartbeats. The
Company believes that the continual blood pressure readings and non-invasive
qualities of the Vasotrac system make it the most advanced approach to blood
pressure monitoring. The Company also developed a hand-held blood pressure
measurement device, the VASOTRAX(TM). The Company submitted a 510(k) to the FDA
for review in June 2000. In August 2000, the Company received FDA approval,
which allows the Company to begin marketing the Vasotrax in the United States
for use on adult patients by trained medical personnel. This hand-held device is
based upon the technology used in the Vasotrac System.
The Company has incurred an accumulated deficit of $13,595,833 from its
inception through July 31, 2000. Additional losses from development, testing,
regulatory compliance, sales, and other expenses are expected to be incurred by
the Company at least until it emerges from the development stage.
<PAGE>
The Company's success is dependent upon the successful development and marketing
of the Vasotrac system and the Vasotrax hand-held unit as well as related
technology. However, there can be no assurance that the Company's products or
related technology will be successfully marketed or sold in sufficient
quantities and at margins necessary to achieve or maintain profitability.
In late December 1999, the Company entered into an exclusive distribution
agreement with 3Ci of Atlanta, Georgia, a national hospital based distributor
sales company, for selling the Vasotrac system to the hospital market in the
United States. 3Ci is primarily focused in the critical care and operating room
departments of the hospital market. Although market visibility for the Vasotrac
system from this relationship is noticeably higher than before, the Company has
yet to see the order flow which would indicate successful market entry.
In addition, between February 2000 and July 2000 the Company has entered into
several international distribution agreements in Germany, Italy, Japan, South
Korea, and Taiwan. In the foreign markets, the Company is currently working with
the distributors to obtain the necessary government clearances to be able to
sell a medical device in those countries. In August 2000, the Company received
the CE mark allowing the Company to sell the Vasotrac system in European Union
countries.
In June 2000, the Company signed an agreement with Nihon Kohden of Tokyo, Japan.
Nihon Kohden is a well known medical device company in the Japanese market, with
close to 50% market share in patient monitoring. Nihon Kohden and the Company
will work together to prepare the necessary requirements to obtain Ministry of
Health approval, which is required prior to sales commencing in the Japanese
market. As part of the agreement between the Company and Nihon Kohden, Nihon
Kohden issued a purchase order valued at $250,000, which will be completely
fulfilled at the time of Ministry of Health approval. A portion of this order
will be pre-paid by December 2000, regardless of Ministry of Health status.
The Company focused on building a dealer network so that the Company could seek
nationwide and ultimately worldwide sales coverage without the commensurate
increase in sales staff and cost that would occur if the same coverage were
sought by building the Company's own employee sales force. The success of the
Company's product sales will depend upon the ability of dealers and/or sales
representatives to sell the products to the hospitals, their affiliates, and
other markets. At this time, dealers have not demonstrated that they will be
successful.
The initial response regarding the Vasotrax hand-held unit, from focus groups
and limited showings, has been favorable. However, the Company must establish
distribution arrangements, and complement those arrangements with a number of
"in house" experts. The Vasotrax hand-held product will be targeted at the
pre-hospital (EMT and EMS market), the hospital market, and the post-hospital
markets (sub-acute, skilled nursing homes, homecare, and physician offices).
For the Company to emerge from the development stage, it will depend on its
ability to hire additional employees for key operating positions, including
sales and marketing positions. Competition for such employees is intense and
there can be no assurance that the Company will be successful in hiring such
employees on acceptable terms or when required, or in maintaining the services
of its present employees. The Company preliminarily estimates that these
additional employees will increase employee-related expenses in excess of
$400,000 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.
Cash, cash equivalents, and short and long-term investments are being used
primarily to continue clinical testing of the Vasotrac system and Vasotrax
hand-held unit, to continue manufacturing and marketing, to conduct any
additional research and product development efforts that may be necessary, and
to provide working capital. Over the next twelve months, the Company expects to
spend in excess of $1,100,000 for research and development. Specifically the
funds are expected to be used to develop alternative sensors (including sensors
for use on pediatrics) and to sustain engineering support for manufacturing and
for the continued development of the Vasotrax hand-held unit. In addition,
<PAGE>
during the next year the Company expects to spend approximately $200,000 for
equipment, which would include tooling for production manufacturing scale-up.
Even assuming limited sales, the Company believes that the Company's cash, cash
equivalents, and short and long-term investments will allow the Company to meet
its cash requirements for approximately nine months from July 31, 2000. If the
development process for the Company's products does not proceed as expected
because significant product design changes are required to achieve market
acceptance, unexpected difficulties are encountered in attaining cost-effective
manufacturability, the sales and marketing costs are higher than expected, or
the products are not accepted by the market place, the Company may require
additional capital at an earlier date. Such capital may be sought through bank
borrowing, equipment financing, equity financing, and other methods. The
Company's financing needs are subject to change depending on, among other
things, market conditions and opportunities, equipment or other asset-based
financing that may be available, and cash flow from operations. Any material
favorable or unfavorable deviation from its anticipated expense could
significantly affect the timing and amount of additional financing that may be
required. However, additional financing may not be available when needed or, if
available, may not be on terms that are favorable to the Company or its security
holders. In addition, any such financing could result in substantial dilution to
then existing security holders.
Results of Operations
The results of operations compares the three months ended July 31, 2000 and
1999, respectively. The analysis of liquidity and capital resources compares
July 31, 2000 to April 30, 2000.
Operating revenue was $84,500 and $40,200 for the quarter ended July 31, 2000
and 1999, respectively. The operating revenue increase was attributed to the
Company's focus on increasing its sales channels in the U.S. and
internationally, and selling demonstration equipment to these channels.
Cost of sales and product development was $126,500 and $53,500 for the quarter
ended July 31, 2000 and 1999, respectively. The cost of sales and product
development increase was attributed to increased unit sales and the cost of
gearing up production of the Vasotrac system.
The Company incurred $260,000 and $298,700 for research and development expenses
for the quarter ended July 31, 2000 and 1999, respectively. The research and
development expense decrease was attributed to the Company's completing research
and development of an enhanced Vasotrac system in October of 1999. However, the
Company still is incurring research and development costs for its Vasotrax
hand-held product and for pediatric use of the Vasotrac system.
The Company incurred $244,600 and $135,000 for sales and marketing expenses for
the quarter ended July 31, 2000 and 1999, respectively. The sales and marketing
expense increase was primarily attributable to an increase in the number of
sales personnel employed by the Company as the Company focuses on increasing its
sales channel in the U.S. and internationally.
The Company incurred $172,700 and $199,800 for general and administrative
expenses for the quarter ended July 31, 2000 and 1999, respectively. The
decrease in general and administrative expenses was primarily attributable to
fees paid to outside consultants in 1999.
Interest income was $50,200 and $66,300 for the quarter ended July 31, 2000 and
July 31, 1999, respectively. The decrease reflects lower cash, cash equivalents,
and short and long-term investments as the Company uses its investment accounts
to fund operations.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and short- and long-term investments were
$2,441,196 and $3,240,765 at July 31, 2000 and April 30, 2000, respectively. The
Company incurred cash expenditures of $798,934 for operations for the quarter
ended July 31, 2000.
<PAGE>
With the Company's cash, cash equivalents, and short and long-term investments,
the Company believes that sufficient liquidity is available to satisfy its
working capital needs for approximately nine months from July 31, 2000. The
Company has no significant capital expenditure commitments.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Statements made in this report that are stated as expectations, plans,
anticipations, prospects or future estimates or which otherwise look forward in
time are considered "forward-looking statements" and involve a variety of risks
and uncertainties, known and unknown, which are likely to affect the actual
results. The following factors, among others, as well as factors discussed in
the Company's other filings with the SEC, have affected and, in the future,
could affect the Company's actual results: resistance to the acceptance of new
medical products, the market acceptance of the Vasotrac system, the Vasotrax
hand-held unit or other products of the Company, hospital budgeting cycles, the
possibility of adverse or negative commentary from clinical researchers or other
users of the Company's products, the Company's success in creating effective
distribution channels for its products, the Company's ability to scale up its
manufacturing process, and delays in product development or enhancement or
regulatory approval. Consequently, no forward-looking statement can be
guaranteed and actual results may vary materially.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
27 Financial data schedule
(B) REPORTS ON FORM 8K:
No reports on Form 8-K were filed by the Company during
the quarter ended July 31, 2000
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 13, 2000 Medwave, Inc.
By: /s/ Timothy J. O'Malley
Timothy J. O'Malley
President and Chief Executive Officer
/s/ Mark T. Bakko
Mark T. Bakko
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
MEDWAVE, INC.
FORM 10-Q
FOR QUARTER ENDED
JULY 31, 2000
Exhibit No. Description
27 Financial Data Schedule (filed in electronic format only)
