<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 DECEMBER 31, 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 Identification Number)
of incorporation or organization)
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.
Class Outstanding at January 31, 1997
----- -------------------------------
Common Stock, $.001 par value 2,824,498
1
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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 December 31,1996 (unaudited)................................................ 3
Statements of Operations (unaudited) for the three
months ended December 31, 1995 and 1996,
and for the nine months ended December 31, 1995 and 1996........................ 4
Statements of Cash Flows (unaudited) for the nine months ended
December 31, 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 6. Exhibits and Reports on Form 8-K................................................ 11
SIGNATURE .................................................................................... 13
</TABLE>
2
<PAGE> 3
MASIMO CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1996
------------------ --------------------
ASSETS (UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents......................................... $ 2,719,152 $ 9,253,554
Accounts receivable............................................... 37,456
Inventories....................................................... 115,088 218,408
Other current assets.............................................. 28,484 54,257
----------------- ------------------
Total current assets........................................ 2,862,724 9,563,675
Fixed assets, net................................................. 398,223 624,245
Intangible assets, net............................................ 353,269 434,787
Deposits.......................................................... 10,426 23,280
----------------- ------------------
Total assets $ 3,624,642 $ 10,645,987
================= ==================
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................. $ 42,119 $ 148,206
Accrued liabilities............................................... 298,456 432,783
Current portion of capital lease obligations...................... 6,817 733
Current portion of deferred revenue............................... 18,182
----------------- ------------------
Total current liabilities................................... 347,392 599,904
Deferred revenue..................................................... 1,046,000
----------------- ------------------
Total liabilities........................................... 1,393,392 599,904
----------------- ------------------
Commitments and contingencies
Mandatorily redeemable preferred stock:
Convertible Redeemable Series B Preferred Stock, 1,125,000
shares issued and outstanding .................................. 2,460,364 2,591,269
Convertible Redeemable Series C Preferred Stock, 1,848,238
shares issued and outstanding................................... 6,656,738 7,067,336
Convertible Redeemable Series D Preferred Stock, 1,500,000
shares issued and outstanding .................................. 9,578,154
---------------- ------------------
Total mandatorily redeemable preferred stock............. 9,117,102 19,236,759
----------------- ------------------
Stockholders' equity (deficit):
Preferred stock; no par value ($0.001 par value at
December 31, 1996), 9,000,000 shares authorized:
Convertible Series A Preferred Stock, 805,302 and
966,362 shares issued and outstanding at March 31, 1996
and December 31, 1996, respectively........................... 1,007,702 966
Common stock, no par value ($0.001 par value at
December 31, 1996), 21,000,000 shares authorized,
2,745,998 and 2,824,498 shares issued and outstanding at
March 31, 1996 and December 31, 1996, respectively.............. 772,425 2,825
Additional paid-in capital........................................ 2,252,931
Unearned compensation............................................. (249,493) (200,816)
Accumulated deficit............................................... (8,416,486) (11,246,582)
------------ -------------------
Total stockholders' equity (deficit)........................ (6,885,852) (9,190,676)
------------------ -------------------
Total liabilities, mandatorily redeemable preferred stock,
and stockholders' equity (deficit) $ 3,624,642 $ 10,645,987
================= ==================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
MASIMO CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------- ----------------------------------------
1995 1996 1995 1996
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Revenue................................. $ $ 66,862 $ $ 141,633
Cost of goods sold...................... 144,975 346,453
---------------- ----------------- ----------------- -----------------
Gross margin..................... (78,113) (204,820)
---------------- ----------------- ----------------- -----------------
Operating expenses:
Research and development........... 592,122 489,144 1,465,839 1,532,562
Selling, general and
administrative................. 314,747 436,176 913,400 1,271,128
---------------- ----------------- ----------------- -----------------
Total operating expenses........... 906,869 925,320 2,379,239 2,803,690
---------------- ----------------- ----------------- -----------------
Non-recurring income.................... 1,000,000 1,000,000
---------------- ----------------- ----------------- -----------------
Loss from operations............... (906,869) (3,433) 2,379,239) (2,008,510)
Interest income, net.................... (57,729) (125,131) (223,847) (218,872)
---------------- ------------------ ------------------ ----------------
Income (loss) before provision
for income taxes................. (849,140) 121,698 (2,155,392) (1,789,638)
Provision for income taxes.............. 800 800 800
---------------- ------------------ ------------------ ----------------
Net income (loss).................. $ (849,140) $ 120,898 $ (2,156,192) $ (1,790,438)
================ ================== ================== ================
Net loss applicable to
common stockholders.............. $ (1,029,641) $ (403,158) $ (2,697,695) $ (2,830,096)
================ ================== ================== ================
Net loss per common share.......... $ (.38) $ (.14) $ (.99) $ (1.01)
================ ================== ================== ================
Weighted average
common shares
outstanding.................... 2,723,533 2,824,498 2,719,539 2,807,598
================ ================== ================== ================
</TABLE>
See accompanying notes to financial statements.
4
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MASIMO CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................................. $(2,156,192) $(1,790,438)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization ........................................................ 76,377 110,846
Compensation related to stock options ................................................ 47,630 48,677
Changes in operating assets and liabilities:
Inventories....................................................................... (62,409) (103,320)
Accounts receivable............................................................... (37,456)
Other current assets.............................................................. (129,801) (25,773)
Accounts payable.................................................................. (14,792) 106,086
Accrued liabilities .............................................................. 55,190 88,327
Deferred revenue ................................................................. 500,000 (981,818)
----------- -----------
Net cash used by operating activities........................................... (1,683,997) (2,584,869)
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments available for sale ................................... (130,515)
Proceeds from maturity of short-term investments ......................................... 1,942,406
Purchases of fixed assets ................................................................ (261,159) (326,481)
Increase in deposits ..................................................................... (5,443) (12,854)
Increase in intangible assets ............................................................ (92,889) (91,905)
----------- -----------
Net cash provided (used) by investing activities................................ 1,452,400 (431,240)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net ........................................... 9,496,544
Proceeds from issuance of common stock ................................................... 16,750 60,051
Principal payments of capital lease obligations .......................................... (1,869) (6,084)
----------- -----------
Net cash provided by financing activities ...................................... 14,881 9,550,511
----------- -----------
Net increase (decrease) in cash and cash equivalents ........................... (216,716) 6,534,402
Cash and cash equivalents at beginning of period ............................................. 954,300 2,719,152
----------- -----------
Cash and cash equivalents at end of period ................................................... $ 737,584 $ 9,253,554
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
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MASIMO CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
In previous periods, the Company was in the development stage.
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 nine month
periods ended December 31, 1995 and 1996 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 COMMON SHARE
Net loss per common share is determined by dividing reported net income
(loss), decreased (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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In previous periods, the Company was in the development stage. 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 December 31, 1996, had an accumulated deficit of $11.2
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 and commenced
principal operations during the third quarter 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, and pricing of competitive products. 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 December 31, 1996 and 1995
Revenue was approximately $67,000 in the three months ended December
31, 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 $40,000 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 December
31, 1995.
7
<PAGE> 8
In addition, the Company's product development and licensing agreement
with Baxter Healthcare Corporation was terminated by mutual consent by both
parties. Baxter had intended to use the Company's core technology for a new,
unproven application unrelated to pulse oximetry, but was unable to demonstrate
to its satisfaction the feasibility of Masimo's technology for the intended
application.
Cost of goods sold was approximately $145,000 in the three months ended
December 31, 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 December 31, 1995.
Research and development expenses decreased 17% to approximately
$489,000 in the three months ended December 31, 1996 from approximately $592,000
in the three months ended December 31, 1995. Although payroll costs were higher
in the three months ended December 31, 1996, these costs were offset by higher
consulting fees and engineering supplies associated with various projects in the
three months ended December 31, 1995.
Selling, general and administrative expenses increased 39% to
approximately $436,000 in the three months ended December 31, 1996 from
approximately $315,000 in the three months ended December 31, 1995. The increase
was primarily due to higher payroll costs as a result of increased staffing and
other costs related to the commerical introduction of the Company's products to
its OEM licensees in fiscal 1997.
Non-recurring income of $1 million in the three months ended December
31, 1996 was attributable to the termination of a license agreement with one of
the Company's OEM licensees and subsequent forfeiture by such OEM licensee of
non-refundable prepaid royalties.
Net interest income increased 117% to approximately $125,000 in the
three months ended December 31, 1996 from approximately $58,000 in the three
months ended December 31, 1995. The increase was due to higher average cash
balances during the three months ended December 31, 1996 as compared to the
three months ended December 31, 1995.
Nine Months Ended December 31, 1996 and 1995
Revenue was approximately $142,000 in the nine months ended December
31, 1996. Of this amount, approximately $82,000 was attributable to the
amortization of prepaid licensing fees received from one of the Company's OEM
licenses. The remaining approximately $60,000 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 nine months ended December 31,
1995.
8
<PAGE> 9
Cost of goods sold was approximately $346,000 in the nine months ended
December 31, 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 nine months
ended December 31, 1995.
Research and development costs increased 5% to approximately $1.53
million for the nine months ended December 31, 1996 from approximately $1.47
million for the nine months ended December 31, 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.
Selling, general and administrative expenses increased 39% to
approximately $1.3 million for the nine months ended December 31, 1996 from
approximately $913,000 for the nine months ended December 31, 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.
Non-recurring income of $1 million in the nine months ended December
31, 1996 was attributable to the termination of a license agreement with one of
the Company's OEM licensees and subsequent forfeiture by such OEM licensee of
non-refundable prepaid royalties.
Net interest income decreased 2% to approximately $219,000 for the nine
months ended December 31, 1996 from approximately $224,000 for the nine months
ended December 31, 1995. The decrease was primarily due to lower interest rates
in 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 December 31, 1996,
the Company raised $18.9 million in net proceeds through private equity
financing and stock option exercises. During the second quarter of fiscal 1997,
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. Through
December 31, 1996, the Company has made capital equipment acquisitions of
approximately $340,000, primarily for the development of a commercial
manufacturing capability, and anticipates making an additional $360,000 of
capital equipment acquisitions in the fourth quarter of fiscal 1997. The
remaining proceeds from the sale of the Series D Preferred Stock have been and
will continue to be used to fund 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
9
<PAGE> 10
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 meaning 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 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 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
December 31, 1996.
11
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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: February 12, 1997 By: /s/ Joe E. Kiani
----------------------------
Joe E. Kiani
President and Chief Executive Officer
12
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
13
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) .............. $ (849,140) $ 120,898 $(2,156,192) $(1,790,438)
Accretion of Redemption value on
Preferred Stock ............. (180,501) (524,056) (541,503) (1,039,658)
----------- ----------- ----------- -----------
Net loss applicable to common
stockholders ................ $(1,029,641) $ (403,158) $(2,697,695) $(2,830,096)
=========== =========== =========== ===========
Net loss per common share ...... $ (.38) $ (.14) $ (.99) $ (1.01)
=========== =========== =========== ===========
Weighted average common shares
outstanding ................. 2,723,533 2,824,498 2,719,539 2,807,598
=========== =========== =========== ===========
</TABLE>
Primary and fully diluted net loss per common share do not differ.
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,253,554
<SECURITIES> 0
<RECEIVABLES> 37,456
<ALLOWANCES> 0
<INVENTORY> 218,408
<CURRENT-ASSETS> 9,563,675
<PP&E> 987,390
<DEPRECIATION> 363,145
<TOTAL-ASSETS> 10,645,987
<CURRENT-LIABILITIES> 599,904
<BONDS> 0
19,236,759
1,394,247
<COMMON> 862,475
<OTHER-SE> (200,816)
<TOTAL-LIABILITY-AND-EQUITY> 10,645,987
<SALES> 59,815
<TOTAL-REVENUES> 141,633
<CGS> 346,453
<TOTAL-COSTS> 346,453
<OTHER-EXPENSES> 2,803,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,789,638)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,790,438)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,790,438)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
