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 October 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 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 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 November 30, 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 October 31, 2000 2
Statements of Operations - Three Months Ended October 31, 2000 3
and 1999, Six Months Ended October 31, 2000 and 1999, and
Period from June 27, 1984 (Inception) to October 31, 2000
Statements of Cash Flows - Three Months Ended October 31, 2000 4
and 1999, Six Months Ended October 31, 2000 and 1999 and
Period from June 27, 1984 (Inception) to October 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 And Use Of Proceeds 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, October 31,
2000 2000
--------------------------------
(see note 2) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,155,924 $ 986,829
Short term investments 1,684,841 702,613
Accounts receivable 99,188 116,715
Inventories 257,877 548,843
Prepaid expenses 76,596 31,687
------------ ------------
Total current assets 3,274,426 2,386,687
Investments 400,000 --
Property and equipment:
Research and development equipment 216,464 218,292
Office Equipment 109,898 113,086
Manufacturing and engineering equipment 126,652 258,684
Sales and marketing equipment 51,536 51,536
Leasehold improvements 31,613 31,613
------------ ------------
536,163 673,211
Accumulated depreciation (453,805) (487,596)
------------ ------------
82,358 185,615
Patents, net 10,005 4,691
------------ ------------
Total Assets $ 3,766,789 $ 2,576,993
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 216,067 $ 316,404
Accrued payroll 51,057 36,214
Deferred revenue -- 138,415
------------ ------------
Total current liabilities 267,124 491,033
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) (4,590)
Deficit accumulated during the development stage (12,926,765) (14,346,320)
------------ ------------
Total shareholders' equity 3,499,665 2,085,960
------------ ------------
Total liabilities and shareholders' equity $ 3,766,789 $ 2,576,993
============ ============
</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
Three months ended October 31 Six months ended October 31 (Inception)
----------------------------- ----------------------------- to
2000 1999 2000 1999 October 31, 2000
----------------------------- ----------------------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net Sales $ 95,250 $ 80,016 $ 179,730 $ 120,199 $ 1,841,346
Operating expenses:
Cost of sales and product development 105,694 112,660 232,152 166,139 2,020,255
Research and development 303,088 290,383 563,091 589,060 8,536,287
Sales and marketing 323,558 152,950 568,162 287,901 3,986,745
General and administrative 146,089 180,785 318,773 380,592 4,222,885
----------------------------- ----------------------------- ------------
Operating loss (783,179) (656,762) (1,502,448) (1,303,493) (16,924,826)
Other income:
Interest income 32,692 36,748 82,894 103,045 1,705,265
Other income -- -- -- -- 1,500,000
----------------------------- ----------------------------- ------------
Net Loss ($ 750,487) ($ 620,014) ($ 1,419,554) ($ 1,200,448) ($13,719,561)
============================= ============================= ============
Net loss per share - basic and diluted ($ 0.14) ($ 0.11) ($ 0.26) ($ 0.22) ($ 4.79)
============================= ============================= ============
Weighted average number of common and
common equivalent shares outstanding 5,499,596 5,468,166 5,499,596 5,452,300 2,864,863
============================= ============================= ============
</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 October 31 Six months ended October 31 to
--------------------------------------------------------------- October 31,
2000 1999 2000 1999 2000
--------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $ (750,487) $ (620,014) $ (1,419,554) $ (1,200,448) $(13,719,561)
Adjustments to reconcile net loss to
net cash provided (used) in operating activities:
Depreciation 16,747 12,160 34,050 23,067 717,775
Amortization 2,657 6,350 5,314 12,700 131,326
Loss on sale of equipment -- -- -- -- 7,375
Issuance of Common Stock for consulting
services -- -- -- -- ---3,413
Changes in operating assets and liabilities:
Accounts receivable (42,070) (23,090) (17,527) (14,904) (116,715)
Inventories 1,408 (54,148) (290,966) (66,996) (548,843)
Prepaid expenses 15,334 27,563 44,909 58,973 (31,687)
Accounts payable and accrued expenses 10,145 (11,580) 100,337 (49,022) 316,404
Accrued payroll and related taxes (13,077) 5,446 (14,843) (9,909) 36,214
Deferred income 138,415 -- 138,415 -- 138,415
--------------------------------------------------------------- -------------
Net cash used in operating activities (620,928) (657,313) (1,419,865) (1,246,539) (13,065,884)
Investing activities
Patent expenditures -- -- -- -- (136,017)
Purchase of investments -- (388,464) -- (868,964) (38,908,724)
Sales and maturity of investments 919,902 775,405 1,388,271 2,312,758 38,203,545
Purchase of property and equipment (135,662) (59,701) (137,501) (67,646) (931,806)
Proceeds from sale of equipment -- -- -- -- 21,663
--------------------------------------------------------------- -------------
Net cash provided (used) in investing activities 784,240 327,240 1,250,770 1,376,148 (1,751,339)
Financing activities
Net proceeds from issuance of
Convertible Preferred Stock -- -- -- -- 4,848,258
Net proceeds from issuance of Common Stock -- 142,250 -- 142,250 10,955,794
--------------------------------------------------------------- -------------
Net cash provided by financing activities -- 142,250 -- 142,250 15,804,052
--------------------------------------------------------------- -------------
(Decrease) increase in cash and cash equivalents 163,312 (187,823) (169,095) 271,859 986,829
Cash and cash equivalents at beginning of period 823,517 1,635,438 1,155,924 1,175,756 --
--------------------------------------------------------------- -------------
Cash and cash equivalents at end of period $ 986,829 $ 1,447,615 $ 986,829 $ 1,447,615 $ 986,829
=============================================================== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
October 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 October 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 seventeen 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.
<PAGE>
The Company has incurred an accumulated deficit of $14,346,320 from its
inception through October 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.
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.
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.
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 for distribution of the Vasotrac
205A System 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.
In September 2000, the Company signed what it hopes to be the first of many OEM
agreements. This first OEM agreement is with Nihon Kohden and calls for the
Company to develop and produce a Vasotrac module which will be integrated into
the Nihon Kohden patient monitoring product family. As a part of this agreement,
Nihon Kohden placed an initial order for Vasotrac OEM modules, to be delivered
over the next 18 months, and paid the Company a down payment of $125,000, which
was received in October 2000. This payment has been treated as deferred revenue
on the balance sheet.
During November 2000, the Company continued its distribution expansion by
finalizing an agreement exclusive for distribution of the Vasotrac 205A System
in the Canadian market, with Medicana Inc, of Montreal. The Company is in the
process of receiving Canadian regulatory approval for the sale of the Vasotrac
205A System, and expects to receive approval in the next several months.
At the end of November 2000, the Company began shipments of its Vasotrax hand
held unit. The Company continues to receive a tremendous amount of interest in
the Vasotrax, and intends over the next several months to introduce numerous
accessory products for the Vasotrax, such as more options for battery charging,
carrying cases, and data downloading software. The company is presently in
discussions with several companies regarding distribution possibilities with the
Vasotrax, in a variety of market segments and geographic locations.
<PAGE>
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
$200,000 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-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. No significant amount of equipment
is expected to be required. The Company believes that the Company's cash, cash
equivalents, and short-term investments will allow the Company to meet its cash
requirements for approximately six months from October 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 and six months ended October
31, 2000 and 1999, respectively. The analysis of liquidity and capital resources
compares October 31, 2000 to April 30, 2000.
Operating revenue was $95,300 and $80,000 for the quarter ended October 31, 2000
and 1999, respectively. Operating revenue was $180,000 and $120,200 for the six
months ended October 31, 2000 and 1999, respectively. The operating revenue
increase was attributed to the increase in unit sales of the Vasotrac(R) 205A
System.
Cost of sales and product development was $105,700 and $112,700 for the quarter
ended October 31, 2000 and 1999, respectively. Cost of sales and product
development was $232,200 and $166,100 for the six months ended October 31, 2000
and 1999, respectively. The cost of sales and product development decrease was
attributed to a slight decrease in per unit cost for the quarter ended October
31, 2000. The increase for six months ended October 31, 2000 was attributed to
an increase in unit sales during the first quarter and the cost of gearing up
production of the Vasotrac.
<PAGE>
The Company incurred $303,100 and $290,400 for research and development expenses
for the quarter ended October 31, 2000 and 1999 respectively. The Company
incurred $563,100 and $589,100 for research and development expenses for the six
months ended October 31, 2000 and 1999, respectively. The research and
development expense increase for the quarter was attributed to the research and
development of the Vasotrac OEM module. The research and development expense
decrease for the six months was attributed to the Company completing research
and development of an enhanced Vasotrac system in first quarter, 1999.
The Company incurred $323,600 and $153,000 for sales and marketing expenses for
the quarter ended October 31, 2000 and 1999, respectively. The Company incurred
$568,200 and $287,900 for sales and marketing expenses for the six months ended
October 31, 2000 and 1999, respectively. The sales and marketing expense
increase was attributable to the increase in the number of sales representatives
employed by the Company.
The Company incurred $146,100 and $180,800 for general and administrative
expenses for the quarter ended October 31, 2000 and 1999, respectively. The
Company incurred $318,800 and $380,500 for the six months ended October 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 $32,700 and $36,700 for the quarter ended October 31, 2000
and October 31, 1999, respectively. Interest income was $82,900 and $103,000 for
the six months ended October 31, 2000 and 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
$1,689,442 and $3,240,765 at October 31, 2000 and April 30, 2000, respectively.
With the cash and cash equivalents, and short and long-term investments, the
Company believes that sufficient liquidity is available to satisfy its working
capital needs for approximately six months from October 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.
<PAGE>
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 October 31, 2000
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: December 15, 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
