<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
________________.
Commission file number 333-4772-LA
MASIMO CORPORATION
(exact name of small business issuer as specified in its charter)
Delaware 33-0368882
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
23361 Madero Street, Suite 100, Mission Viejo, California 92691
(Address of principal executive offices)
(714) 586-6022
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 NO X
___ ___
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at October 31, 1996
-----
<S> <C>
Common Stock, $.001 par value 2,824,498
</TABLE>
<PAGE> 2
MASIMO CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C>
Item 1. Financial Statements
Balance Sheets as of March 31, 1996 (audited)
and September 30,1996 (unaudited)....................................................... 3
Statements of Operations (unaudited) for the three
months ended September 30, 1995 and 1996,
and for the six months ended September 30, 1995 and 1996................................ 4
Statements of Cash Flows (unaudited) for the six months ended
September 30, 1995 and 1996............................................................. 5
Notes to Financial Statements.......................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................ 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........................................ 11
Item 6. Exhibits and Reports on Form 8-K............................................................ 11
SIGNATURE ................................................................................................ 13
</TABLE>
2
<PAGE> 3
MASIMO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,719,152 $ 9,940,915
Accounts receivable -- 14,528
Inventories 115,088 191,389
Other current assets 28,484 71,895
------------ ------------
Total current assets 2,862,724 10,218,727
Fixed assets, net 398,223 459,817
Intangible assets, net 353,269 421,288
Deposits 10,426 10,426
------------ ------------
Total assets $ 3,624,642 $ 11,110,258
============ ============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK, AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 42,119 $ 160,687
Accrued liabilities 298,456 311,094
Current portion of capital lease obligations 6,817 1,793
Current portion of deferred revenue -- 45,455
------------ ------------
Total current liabilities 347,392 519,029
Deferred revenue 1,046,000 1,046,000
------------ ------------
Total liabilities 1,393,392 1,565,029
------------ ------------
Commitments and contingencies
Mandatorily redeemable preferred stock:
Convertible Redeemable Series B Preferred Stock, 1,125,000
shares issued and outstanding 2,460,364 2,547,634
Convertible Redeemable Series C Preferred Stock, 1,848,238
shares issued and outstanding 6,656,738 6,930,470
Convertible Redeemable Series D Preferred Stock, 1,500,000
shares issued and outstanding -- 9,234,599
------------ ------------
Total mandatorily redeemable preferred stock 9,117,102 18,712,703
------------ ------------
Stockholders' equity (deficit):
Preferred stock; no par value ($0.001 par value at
September 30, 1996), 9,000,000 shares authorized:
Convertible Series A Preferred Stock, 805,302
and 814,847 shares issued and outstanding at
March 31, 1996 and September 30, 1996, respectively 1,007,702 815
Common stock, no par value ($0.001 par value at
September 30, 1996), 21,000,000 shares authorized,
2,745,998 and 2,824,498 shares issued and outstanding at
March 31, 1996 and September 30, 1996, respectively 772,425 2,825
Additional paid-in capital -- 1,889,446
Unearned compensation (249,493) (217,136)
Deficit accumulated during the development stage (8,416,486) (10,843,424)
------------ ------------
Total stockholders' equity (deficit) (6,885,852) (9,167,474)
------------ ------------
Total liabilities, mandatorily redeemable preferred stock,
and stockholders' equity (deficit) $ 3,624,642 $ 11,110,258
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
MASIMO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
FOR THE FOR THE (MAY 1, 1989)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1996
------------------------------ ------------------------------ --------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 32,128 $ -- $ 74,771 $ 74,771
Cost of goods sold -- 83,669 -- 201,478 201,478
----------- ----------- ----------- ----------- -----------
Gross margin -- (51,541) -- (126,707) (126,707)
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and
development 461,970 466,027 873,717 1,043,418 5,707,862
Selling, general and
administrative 362,386 347,294 598,653 834,952 3,792,242
----------- ----------- ----------- ----------- -----------
Total operating
expenses 824,356 813,321 1,472,370 1,878,370 9,500,104
----------- ----------- ----------- ----------- -----------
Loss from operations (824,356) (864,862) (1,472,370) (2,005,077) (9,626,811)
Interest income, net (70,169) (66,426) (166,118) (93,741) (494,984)
----------- ----------- ----------- ----------- -----------
Loss before provision
for income taxes (754,187) (798,436) (1,306,252) (1,911,336) (9,131,827)
Provision for income taxes 800 -- 800 -- 5,400
----------- ----------- ----------- ----------- -----------
Net loss $ (754,987) $ (798,436) $(1,307,052) $(1,911,336) $(9,137,227)
=========== =========== =========== =========== ===========
Net loss applicable to
common
stockholders $ (935,488) $(1,133,537) $(1,668,054) $(2,426,938)
=========== =========== =========== ===========
Net loss per common
share $ (.34) $ (.40) $ (.61) $ (.87)
=========== =========== =========== ===========
Weighted average
common shares
outstanding 2,717,566 2,812,085 2,717,532 2,799,531
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
MASIMO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
SIX MONTHS ENDED INCEPTION
SEPTEMBER 30, (MAY 1, 1989)
-------------------------------- THROUGH
1995 1996 SEPTEMBER 30, 1996
------------ ------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,307,052) $ (1,911,336) $ (9,137,227)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 46,713 69,124 416,547
Compensation related to stock options 31,753 32,357 95,864
Compensation paid by issuance of common stock -- -- 20,975
Gain on sale of fixed assets -- -- (167)
Loss on retirement of fixed assets -- -- 34,065
Writeoff of capitalized software development costs -- -- 210,649
Changes in operating assets and liabilities:
Inventories -- (76,301) (191,389)
Accounts receivable -- (14,528) (14,528)
Other current assets (111,711) (43,411) (71,895)
Deposits (4,717) -- (10,426)
Accounts payable (86,054) 148,567 190,686
Accrued liabilities 596 12,638 311,094
Deferred revenue 500,000 45,455 1,091,455
------------ ------------ ------------
Net cash used by operating activities (930,472) (1,737,435) (7,054,297)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of short-term investments available for sale (87,900) -- (4,797,200)
Proceeds from maturity of short-term investments 1,942,406 -- 4,797,200
Purchases of fixed assets (173,308) (125,513) (796,677)
Proceeds from sale of fixed assets -- -- 850
Increase in software development costs -- -- (210,649)
Increase in intangible assets (42,226) (73,224) (445,649)
------------ ------------ ------------
Net cash provided (used) by investing
activities 1,638,972 (198,737) (1,452,125)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable -- -- 20,000
Collection of note receivable from stockholder -- -- 150
Proceeds from issuance of preferred stock, net -- 9,102,908 18,039,187
Proceeds from issuance of common stock -- 60,051 463,351
Principal payments of capital lease obligations (711) (5,024) (75,351)
------------ ------------ ------------
Net cash provided (used) by financing
activities (711) 9,157,935 18,447,337
------------ ------------ ------------
Net increase in cash and cash equivalents 707,789 7,221,763 9,940,915
Cash and cash equivalents at beginning of period 954,300 2,719,152 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,662,089 $ 9,940,915 $ 9,940,915
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
MASIMO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles to be presented for complete financial statements. The
accompanying unaudited interim financial statements include all adjustments
(consisting of adjustments that are of a normal recurring nature) which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods presented. Operating results for the three and six month
periods ended September 30, 1996 and 1995 are not necessarily indicative of the
results that may be expected for a full year.
The financial statements and related disclosures have been prepared
with the presumption that users of the interim financial information have read
or have access to the audited financial statements for the preceding fiscal
year. Accordingly, these financial statements should be read in conjunction with
the audited financial statements and the related notes thereto included in the
Registrant's Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on May 10, 1996 (SEC File No. 333-4772-LA, effective
August 19, 1996), and the Prospectus filed pursuant to Rule 424(b)(3) with the
Securities and Exchange Commission on August 20, 1996.
(2) NET LOSS PER SHARE
Net loss per share is determined by dividing reported net loss,
increased by additions to the carrying value of mandatorily redeemable preferred
stock, by the weighted average number of common shares outstanding during the
period. Common equivalent shares and convertible securities have been excluded
from the computation because their effect would be anti-dilutive.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a development stage enterprise. Since its inception in
1989, the Company has been engaged in the design, development and licensing of
advanced medical technology for the noninvasive monitoring of certain
physiological parameters. The Company's first products, based on its proprietary
digital signal processing and sensor technology, are designed to improve the
effectiveness of pulse oximetry by overcoming the inability of current monitors
to precisely measure arterial blood oxygen saturation levels in the presence of
certain "noise" interference and low perfusion. The Company is designing and
developing monitoring instruments for a variety of other applications, including
peripheral venous oximetry, fetal oximetry and noninvasive blood glucose
measurement.
Masimo licenses its technology to companies with existing installed
customer bases, permitting the Company to leverage the sales and distribution
channels of each of its OEM licensees without requiring the Company to allocate
financial resources to develop its own sales force. The Company is currently
working with its OEM licensees to incorporate Masimo SET into certain of their
products. To date, only one of the Company's OEM licensees is marketing products
incorporating Masimo SET.
Since its inception, the Company has experienced significant operating
losses and, as of September 30, 1996, had an accumulated deficit of $10.8
million. The Company expects to incur substantial additional losses due to
increased operating expenses primarily attributable to research and development
and the expansion of manufacturing activities. The Company generated a limited
amount of revenue in the first and second quarters of fiscal 1997. Results of
operations may fluctuate significantly from quarter to quarter and will depend
upon numerous factors, including the extent to which the Company's technology
and products gain market acceptance, the timing and volume of sales by the
Company's OEM licensees, introduction of new monitoring technology and products
by the Company's competitors, pricing of competitive products and royalty
fluctuations due to changes in currency exchange ratios. Further, the timing of
FDA approvals which must be obtained by the Company's licensees will affect the
Company's ability to generate revenues from its technology.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Revenue was approximately $32,000 in the three months ended September
30, 1996. Of this amount, approximately $27,000 was attributable to the
amortization of prepaid licensing fees received from one of the Company's OEM
licensees. The remaining approximately $5,000 of revenue recognized in this
period was attributable to sales of product to two of the Company's OEM
licensees. There was no revenue recognized in the three months ended September
30, 1995.
7
<PAGE> 8
Cost of goods sold were approximately $84,000 in the three months ended
September 30, 1996. These costs were primarily attributable to the development
of manufacturing capabilities and production of certain products which were
shipped during this period. There was no cost of goods sold recorded in the
three months ended September 30, 1995.
Research and development expenses remained relatively constant at
approximately $466,000 in the three months ended September 30, 1996, compared to
approximately $462,000 in the three months ended September 30, 1995. Although
payroll costs were higher in the three months ended September 30, 1996, these
costs were offset by higher consulting fees associated with various projects in
the three months ended September 30, 1995.
Selling, general and administrative expenses decreased 4% to
approximately $347,000 in the three months ended September 30, 1996 from
approximately $362,000 in the three months ended September 30, 1995. The
decrease was primarily due to less legal fees associated with license agreements
partially offset by higher payroll costs due to increased staffing.
Net interest income decreased 6% to approximately $66,000 in the three
months ended September 30, 1996 from approximately $70,000 in the three months
ended September 30, 1995. The decrease was due to slightly lower interest rates
during the three months ended September 30, 1996 as compared to the three months
ended September 30, 1995.
Six Months Ended September 30, 1996 and 1995
Revenue was approximately $75,000 in the six months ended September 30,
1996. Of this amount, approximately $54,000 was attributable to the amortization
of prepaid licensing fees received from one of the Company's OEM licenses. The
remaining approximately $21,000 of revenue recognized in this period was
attributable to sales of product to two of the Company's OEM licensees. There
was no revenue recognized in the six months ended September 30, 1995.
Cost of goods sold were approximately $201,000 in the six months ended
September 30, 1996. These costs were primarily attributable to the development
of manufacturing capabilities and production of certain products which were
shipped during this period. There was no cost of goods sold recorded in the six
months ended September 30, 1995.
Research and development costs increased 19% to approximately $1.0
million for the six months ended September 30, 1996 from approximately $874,000
for the six months ended September 30, 1995. The increase was due primarily to
increased development efforts on the Company's Masimo SET LNOP family of sensors
and Masimo SET MS-1 printed circuit boards.
8
<PAGE> 9
Selling, general and administrative expenses increased 56% to
approximately $835,000 for the six months ended September 30, 1996 from
approximately $599,000 for the six months ended September 30, 1995. The increase
was due to additional staffing, legal fees, insurance and other costs related to
the commercial introduction of the Company's products to its OEM licensees in
fiscal 1997.
Net interest income decreased 44% to approximately $94,000 for the six
months ended September 30, 1996 from approximately $166,000 for the six months
ended September 30, 1995. The decrease was primarily due to lower average cash
balances during fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through the
private sale of equity securities. From its inception through September 30,
1996, the Company raised $18.5 million in net proceeds through private equity
financing and stock option exercises. During the three months ended September
30, 1996, the Company consummated the sale of 1,500,000 shares of its Series D
Preferred Stock and received net proceeds of approximately $9,080,000. The
proceeds have been invested in short-term interest bearing Treasury Securities.
To date, the Company has not made any commitments for material capital equipment
acquisitions. The Company anticipates making capital equipment acquisitions of
approximately $1.0 million in fiscal 1997, primarily for the development of a
commercial manufacturing capability. The remaining proceeds of the sale of the
Series D Preferred Stock are expected to be used to fund future research and
development and for working capital and other general corporate purposes.
During fiscal 1997 and 1998, the Company plans to increase its level of
operations substantially, and in particular plans to develop a commercial
manufacturing capability and expand its research and development, business
development and marketing activities. Although the Company believes that the
cash on hand and cash generated from the future sale of products will be
sufficient to meet the Company's operating and capital requirements through
fiscal 1998, there can be no assurance that the Company will not require
additional financing prior to the end of fiscal 1998. If the Company's OEM
licensees fail to sell sufficient quantities of either pulse oximeter systems
incorporating the Masimo SET MS-1 printed circuit boards or LNOP sensors, the
Company may require additional capital prior to the end of fiscal 1998. In
addition, the Company may require additional capital in the future to fund
growth of the Company. Any additional required financings may not be available
on terms satisfactory to the Company, if at all.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the mean of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include statements regarding (i) future
research plans, expenditures and results, (ii) the
9
<PAGE> 10
potential utility of the Company's proposed products, and (iii) the need for,
and availability of, additional financing.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions regarding the Company's
business and technology, which involve judgments with respect to, among other
things, future scientific, economic and competitive conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
actual results may differ materially from those set forth in the forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as representation by the Company or any other person that
the objectives or plans of the Company will be achieved.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about July 17, 1996, the Company solicited the approval of its
security holders, via written consent, of (i) the adoption of its Amended and
Restated Certificate of Incorporation, and (ii) the issuance and sale of up to
1,500,000 shares of Series D Preferred Stock. The Amended and Restated
Certificate of Incorporation authorized the issuance of up to 1,500,000 shares
of Series D Preferred Stock, $0.001 par value, and set forth the rights,
preferences and privileges of the Series D Preferred Stock. The approval of the
issuance and sale of the Series D Preferred Stock authorized the issuance and
sale of up to 1,500,000 shares of such stock at a price not less than $6.00 per
share. The Amended and Restated Certificate of Incorporation and the issuance
and sale of the Series D Preferred Stock were approved by a majority of each
class of securities, voting as a single class.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
No. Description
11.1 Statement re: computation of per share earnings
27.1 Financing Data Schedule
12
<PAGE> 13
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MASIMO CORPORATION
Date: November 12, 1996 By: /S/ Joe E. Kiani
------------------
Joe E. Kiani
President and Chief Executive Officer
13
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $ (754,987) $ (798,436) $(1,307,052) $(1,911,336)
Accretion of redemption value on
Preferred Stock (180,501) (335,101) (361,002) (515,602)
----------- ----------- ----------- -----------
Net loss applicable to common
stockholders $ (935,488) $(1,133,537) $(1,668,054) $(2,426,938)
=========== =========== =========== ===========
Net loss per common share $ (.34) $ (.40) $ (.61) $ (.87)
=========== =========== =========== ===========
Weighted average common shares
outstanding 2,717,566 2,812,085 2,717,532 2,799,531
=========== =========== =========== ===========
</TABLE>
Primary and fully diluted net loss per common share do not differ.
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 9940915
<SECURITIES> 0
<RECEIVABLES> 14528
<ALLOWANCES> 0
<INVENTORY> 191389
<CURRENT-ASSETS> 10218727
<PP&E> 786422
<DEPRECIATION> 326605
<TOTAL-ASSETS> 11110258
<CURRENT-LIABILITIES> 519029
<BONDS> 0
18712703
1030610
<COMMON> 862476
<OTHER-SE> (217136)
<TOTAL-LIABILITY-AND-EQUITY> 11110258
<SALES> 4855
<TOTAL-REVENUES> 32128
<CGS> 3363
<TOTAL-COSTS> 83669
<OTHER-EXPENSES> 813321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372
<INCOME-PRETAX> (798436)
<INCOME-TAX> 0
<INCOME-CONTINUING> (798436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (798436)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
