Back to GetFilings.com
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, 2002; 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 October 31, 2002, the issuer had 7,250,916 shares of Common Stock
outstanding.
Medwave, Inc.
Form 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - April 30, 2002 and October 31, 2002 2
Statements of Operations - Three Months Ended October 31, 2002 3
and 2001, Six Months Ended October 31, 2002 and 2001, and
Period from June 27, 1984 (Inception) to October 31, 2002
Statements of Cash Flows - Three Months Ended October 31, 2002 4
and 2001, Six Months Ended October 31, 2002 and 2001 and
Period from June 27, 1984 (Inception) to October 31, 2002
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
Item 4. Controls and Procedures 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 9
Signatures 9
Sarbanes-Oxley Act of 2002 Section 302 Certification 10
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
April 30, October 31,
2002 2002
------------------------------------------
(see note 2) (unaudited)
Assets
Current Assets:
Cash and cash equivalents $3,048,051 $2,002,154
Accounts receivable 283,114 282,397
Inventories 252,498 268,124
Prepaid expenses 143,297 48,033
------------------------------------------
Total current assets 3,726,960 2,600,708
Property and equipment:
Research and development equipment 210,633 210,633
Office Equipment 100,048 101,981
Manufacturing and engineering equipment 282,158 282,158
Sales and marketing equipment 109,895 109,895
Leasehold improvements 31,613 31,613
------------------------------------------
734,347 736,280
Accumulated depreciation (661,691) (686,337)
------------------------------------------
72,656 49,943
------------------------------------------
Total Assets $3,799,616 $2,650,651
==========================================
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 252,727 $ 337,103
Accrued payroll 81,097 43,074
Deferred revenue 149,625 157,300
------------------------------------------
Total current liabilities 483,449 537,477
Shareholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000
Issued and outstanding shares - 7,250,916 21,752,105 21,752,105
Deficit accumulated during the development stage (18,435,938) (19,638,931)
------------------------------------------
Total shareholders' equity 3,316,167 2,113,174
------------------------------------------
Total liabilities and shareholders' equity $3,799,616 $2,650,651
==========================================
The accompanying notes are an integral part of these financial statements.
2
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Period from
June 27, 1984
Three months ended October 31 Six months ended October 31 (Inception)
----------------------------- --------------------------- to
2002 2001 2002 2001 October 31, 2002
----------------------- ---------------------------- ----------------
Revenue:
Net Sales $ 301,577 $ 124,949 $ 511,192 $ 297,840 $ 3,518,640
Operating expenses:
Cost of sales and product development 200,480 125,887 361,360 283,782 3,354,729
Research and development 195,893 161,599 334,057 295,516 10,123,790
Sales and marketing 353,020 410,867 741,278 823,048 5,957,459
General and administrative 153,590 172,083 293,661 343,855 6,467,137
------------------------- --------------------------- --------------
Operating loss (601,406) (745,487) (1,219,164) (1,448,361) (22,384,475)
Other income:
Interest income 7,298 47,840 16,171 85,651 1,872,304
Other income -- -- -- -- 1,500,000
------------------------- --------------------------- --------------
Net loss $ (594,108) $ (697,647) $(1,202,993) $(1,362,710) $ (19,012,171)
========================= =========================== ==============
Net loss per share - Basic and diluted $ (0.08) $ (0.10) $ (0.17) $ (0.20) $ (5.83)
========================= =========================== ==============
Weighted average number of common and
common equivalent shares outstanding 7,250,916 6,942,286 7,250,916 6,653,157 3,260,078
========================= =========================== ==============
The accompanying notes are an integral part of these financial statements.
3
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
Period from
June 27, 1984
Six months ended October 31 (Inception)
-------------------------------- to
2002 2001 October 31, 2002
-------------------------------- ----------------
OPERATING ACTIVITIES
Net loss $(1,202,993) $(1,362,710) $(19,012,171)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 24,646 62,865 945,675
Amortization -- -- 136,017
Loss on sale of equipment -- -- 7,375
Issuance of Common Stock for consulting services -- -- 3,413
Changes in operating assets and liabilities:
Accounts receivable 717 69,434 (282,397)
Inventories (15,626) 49,132 (268,124)
Prepaid expenses 95,264 130,750 (48,033)
Accounts payable and accrued expenses 84,376 (139,355) 337,103
Accrued payroll and related taxes (38,023) 7,255 43,074
Deferred Revenue 7,675 (765) 157,300
-------------------------------- -------------
Net cash used in operating activities (1,043,964) (1,183,394) (17,980,768)
INVESTING ACTIVITIES
Patent expenditures -- -- (136,017)
Purchase of investments -- -- (38,908,724)
Sales and maturity of investments -- -- 38,908,724
Purchase of property and equipment (1,933) (55,375) (1,022,011)
Proceeds from sale of equipment -- -- 21,663
-------------------------------- -------------
Net cash used in investing activities (1,933) (55,375) (1,136,365)
FINANCING ACTIVITIES
Net proceeds from issuance of Convertible Preferred Stock -- -- 4,848,258
Net proceeds from issuance of Common Stock -- 4,366,148 16,271,029
-------------------------------- -------------
Net cash provided by financing activities -- 4,366,148 21,119,287
-------------------------------- -------------
(Decrease) increase in cash and cash equivalents (1,045,897) 3,127,379 2,002,154
Cash and cash equivalents at beginning of period 3,048,051 1,116,589 --
-------------------------------- -------------
Cash and cash equivalents at end of period $ 2,002,154 $ 4,243,968 $ 2,002,154
================================ =============
The accompanying notes are an integral part of these financial statements.
4
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
October 31, 2002
(Unaudited)
1. 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, and in the development of related technology and products.
2. BASIS OF PRESENTATION
The financial information presented as of October 31, 2002 has been
prepared from the books and records without audit. Financial information
as of April 30, 2002 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, 2002.
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 and two part-time employees. Since our
inception, we have been engaged exclusively in the development and marketing of
devices for monitoring and devices for measuring blood pressure. Utilizing our
proprietary technology, we developed the Vasotrac(R) APM205A system which
monitors blood pressure, providing new readings approximately every fifteen
heartbeats. We believe that the continual blood pressure readings, non-invasive
qualities, pediatric capability, interfacing ability, and performance under
difficult conditions such as motion make the Vasotrac the most advanced approach
to blood pressure monitoring. In February 1995, we received clearance from the
US Food and Drug Administration (FDA) to market the Vasotrac system. We have
also developed a hand-held blood pressure monitor, the Vasotrax(R). This
hand-held monitor is based on the technology used in the Vasotrac system. In
August 2000, we received FDA clearance, which has allowed us to begin marketing
the Vasotrax in the United States for use on adult patients by trained medical
personnel. In addition, pursuant to an agreement with Nihon Kohden of Japan, we
have developed an OEM module of our Vasotrac continual non-invasive blood
pressure monitor. The module is designed to be integrated into Nihon Kohden's,
as well as other company's larger, more comprehensive systems. The Ministry of
Health and Welfare in Japan has recently approved the MJ23 OEM Module for use
with Nihon Kohden monitoring systems in Japan, and as a result, shipments to
Nihon Kohden have begun.
We have incurred an accumulated deficit of $19,638,931 from our inception
through October 31, 2002. We expect to incur additional losses from development,
testing, regulatory compliance, sales, marketing and other expenses at least
until we emerge from the development stage.
5
Our success is dependent upon the successful development and marketing of the
Vasotrac system, the Vasotrac module, and the Vasotrax hand-held monitor as well
as related technology. However, there can be no assurance that our products or
related technology will be successfully marketed or sold in sufficient
quantities and at margins necessary to achieve and/or maintain profitability.
We are currently adding our own sales employees to work with dealers in order to
provide better product support. We currently anticipate a direct sales force of
approximately 10 employees that will work to penetrate geographically dense
areas, and when appropriate, work with regional dealers to expand overall
coverage. We are also currently looking for a distribution partner for the
Vasotrax hand-held monitor outside the hospital market. The success of our
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.
The initial response regarding our Vasotrax hand-held monitor from focus groups
and limited showings has been favorable. However, we may need to establish
additional distribution arrangements, and complement those arrangements with a
number of Medwave employees who will act as "in-house" experts. The Vasotrax
hand-held monitor 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).
We are using cash and cash equivalents primarily to increase our sales and
marketing efforts and increase awareness of Medwave and our technology in the
market, to continue clinical testing of the Vasotrac system, the Vasotrax
hand-held monitor and related technologies, to continue to validate our
technology against traditionally used blood pressure monitoring devices, to
create peer-to-peer consensus regarding Medwave's technology, and to provide
working capital. Over the next twelve months, we will also continue research and
development. Specifically, we expect to use funds to develop alternative sensors
(including sensors for use on infants, and disposable sensors), to sustain
engineering support for manufacturing, to continue development of the Vasotrax
hand-held monitor. During the next year, we do not expect to spend any material
amount on equipment in connection with these initiatives. Even assuming only
limited sales, we believe that our cash and cash equivalents should allow us to
meet our cash requirements for approximately twelve months from October 31,
2002. We may seek additional capital through bank borrowing, equipment
financing, equity financing, and other methods. Our 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 our
anticipated expense could significantly affect the timing and amount of
additional financing that we may require. However, additional financing may not
be available when needed or, if available, may not be on terms that are
favorable to us or our security holders. In addition, any such financing could
result in substantial dilution to our existing security holders.
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.
6
RESULTS OF OPERATIONS
The results of operations compares the three months and six months ended October
31, 2002 and 2001, respectively. The analysis of liquidity and capital resources
compares October 31, 2002 to April 30, 2002.
Operating revenue was $301,577 and $124,949 for the quarter ended October 31,
2002 and 2001, respectively, an increase of 141%. Operating revenue was $511,192
and $297,840 for the six month period ended October 31, 2002 and 2001,
respectively, an increase of 72%. The operating revenue increase was attributed
to the increase of both direct sales employees and regional specialty
distribution companies, as well as a result of shipments of our MJ23 Module.
Cost of sales and product development increased to $200,480 vs. $125,887 for the
quarters ended October 31, 2002 and 2001, respectively. Cost of sales and
product development increased to $361,360 vs. $283,782 for the six month period
ended October 31, 2002 and 2001, respectively. This is attributed to higher cost
associated with the release and shipment of the MJ23 module.
The Company incurred $195,893 and $161,599 for research and development expenses
for the quarters ended October 31, 2002 and 2001, respectively. The Company
incurred $334,058 and $295,516 for research and development expenses for the six
month period ended October 31, 2002 and 2001, respectively. The increase was
primarily due to the final requirements for the MJ23 module.
The Company incurred $353,020 and $410,867 for sales and marketing expenses for
the quarter ended October 31, 2002 and 2001, respectively. The Company incurred
$741,278 and $823,048 for sales and marketing expenses for the six month period
ended October 31, 2002 and 2001, respectively. The decrease was a result of
hiring sales professionals who have a lower fixed and higher variable cost, and
who are also focussing on smaller geographic territories.
The Company incurred $153,590 and $172,083 for general and administrative
expenses for the quarter ended October 31, 2002 and 2001, respectively. The
Company incurred $293,661 and $343,855 for general and administrative expenses
for the six month period ended October 31, 2002 and 2001, respectively. The
decrease in general and administrative expenses was attributable to a reduction
in legal costs and as a result of transferring our accounting functions to our
Danvers, Massachusetts office.
Interest income was $7,298 and $47,840 for the quarter ended October 31, 2002
and 2001, respectively. Interest income was $16,171 and $85,651 for the six
month period ended October 31, 2002 and 2001, respectively The decrease reflects
the reduction in cash, and cash equivalents balances and declining interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, and cash equivalents were $2,002,154 and $3,048,051 at
October 31, 2002 and April 30, 2002, respectively reflecting the continued
investment in sales and marketing.
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 twelve months from October 31, 2002. The Company
has no significant capital expenditure commitments.
Cash flows used in operations decreased to $1,043,964 for the six months ended
October 31, 2002 from $1,183,394 for the six months ended October 31, 2001, a
decrease of $139,430. In both periods, we used cash flows primarily to fund
operating losses, which were partially offset by non-cash expense for
depreciation. The primary use of cash in operations for the six month period
ended October 31, 2002 was for decreases in accounts receivable and prepaid
expenses. The primary use of cash in operations for the six month ended October
31, 2001 was for decreases in accounts payable and prepaid expenses.
7
Financing activities provided nothing for the quarter ended October 31, 2002,
and nothing for the quarter ended October 31, 2001.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires the Company to make estimates
and judgments that affect amounts reported in the financial statements. The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of the financial
statements.
Revenue Recognition
The Company recognizes revenue from the sale of products at the time of shipment
of the product. Amounts received from customers in advance of the shipment of
the products are recorded as deferred revenue.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based on historical
collections of accounts receivable. The Company continually monitors its
accounts receivable balances. If the financial condition of customers
deteriorate, additional allowances may be required.
Deferred Taxes
The Company has recorded a full valuation allowance on deferred tax assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, an evaluation was carried
out under the supervision and with the participation of the Company's
management, including its Chief Executive Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's periodic SEC filings. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of his evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
Not applicable
8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBITS DESCRIPTION
99.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350
(B) REPORTS ON FORM 8K:
No reports on Form 8-K were filed by the Company during
the quarter ended October 31, 2002.
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 10, 2002 Medwave, Inc.
By: /s/ Timothy J. O'Malley
-----------------------------
Timothy J. O'Malley
President and Chief Executive
Officer
(Principle Executive Officer
and Principle Financial
Officer)
9
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy J. O'Malley, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medwave, Inc.
(the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filling date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 10, 2002 By: /s/ Timothy J. O'Malley
-----------------------------
President and Chief Executive
Officer
(Principle Executive Officer
and Principle Financial
Officer)
10