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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 December 31, 2003; 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)
41-1493458
Delaware (IRS employer
(State or other jurisdiction of identification
incorporation or organization) number)
435 Newbury Street
Danvers, MA 01923
(Address of principal executive offices,
zip code)
(978) 762-8999
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of February 11, 2004 the issuer had 9,801,416 shares of Common Stock
outstanding.
Medwave, Inc.
Form 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Balance Sheets - September 30, 2003 and December 31, 2003 2
Statements of Operations - Three Months Ended December 31, 2003 3
and 2002
Statements of Cash Flows - Three Months Ended December 31, 2003 4
and 2002
Notes to Unaudited Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities And Use Of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters To A Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Exhibits 13-14
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Medwave, Inc.
Balance Sheets
DECEMBER 31 SEPTEMBER 30
2003 2003
------------------------------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 936,631 $ 1,694,648
Accounts receivable, net 284,680 232,676
Inventories, net 456,199 404,306
Prepaid expenses 128,816 54,016
------------------------------------
Total current assets 1,806,326 2,385,646
------------------------------------
Property and equipment:
Research and development equipment 31,747 31,535
Office equipment 79,088 76,836
Manufacturing and engineering equipment 277,989 247,824
Sales and marketing equipment 62,365 62,365
Leasehold improvements 31,613 31,613
Demonstration equipment - 25,302
------------------------------------
482,802 475,475
Accumulated depreciation and amortization (406,496) (398,715)
------------------------------------
76,306 76,760
------------------------------------
Patents, net 1,462 -
------------------------------------
------------------------------------
Total assets $ 1,884,094 $ 2,462,406
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 336,559 $ 380,380
Accrued expenses 74,519 66,794
Deferred revenue 47,239 38,085
------------------------------------
Total current liabilities 458,317 485,259
------------------------------------
Stockholders' equity:
Common Stock, .01 par value:
Authorized shares--50,000,000
Issued and outstanding shares -
September 30, 2003 - 8,744,666
December 31, 2003 - 8,766,416 87,664 87,447
Additional Paid In Capital 23,457,482 23,440,704
Accumulated deficit (22,119,369) (21,551,004)
------------------------------------
Total stockholders' equity 1,425,777 1,977,147
------------------------------------
Total liabilities and stockholders' equity $ 1,884,094 $ 2,462,406
====================================
The accompanying notes are an integral part of these unaudited financial
statements.
2
Medwave, Inc.
Statements of Operations
(Unaudited)
Three months ended December 31
------------------------------------------
2003 2002
------------------------------------------
Revenue:
Net Sales $ 224,927 $ 309,874
Operating expenses:
Cost of sales and product development 97,810 138,068
Research and development 98,554 153,246
Sales and marketing 358,725 353,211
General and administrative 214,901 157,871
------------------------------------------
Operating loss (545,063) (492,522)
Other income (expense):
Interest income 2,000 5,159
Loss on disposal of equipment (25,302) -
------------------------------------------
Net loss $ (568,365) $ (487,363)
==========================================
Net loss per share - Basic and diluted $ (0.06) $ (0.07)
==========================================
Weighted average number of common and
common equivalent shares outstanding - basic and diluted 8,762,707 7,250,916
==========================================
The accompanying notes are an integral part of these unaudited financial
statements.
3
Medwave, Inc.
Statements of Cash Flows
(Unaudited)
Three months ended December 31
------------------------------
2003 2002
------------------------------
OPERATING ACTIVITIES
Net loss $ (568,365) $ (487,363)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 7,777 8,431
Loss on disposal of equipment 25,302
Changes in operating assets and liabilities:
Accounts receivable (52,004) 9,466
Inventories (51,893) (113,373)
Prepaid expenses (74,800) (111,673)
Accounts payable (43,822) 96,103
Accrued expenses 7,725 1,790
Deferred revenue 9,154 3,710
-----------------------------
Net cash used in operating activities (740,926) (592,909)
INVESTING ACTIVITIES
Purchase of patent (1,462)
Purchase of property and equipment (32,624) (9,323)
-----------------------------
Net cash used in investing activities (34,086) (9,323)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 16,995
-----------------------------
Cash provided by financing activities 16,995
-----------------------------
Decrease in cash and cash equivalents (758,017) (602,232)
Cash and cash equivalents at beginning of period 1,694,648 2,219,851
-----------------------------
Cash and cash equivalents at end of period $ 936,631 $1,617,619
=============================
The accompanying notes are an integral part of these unaudited financial
statements.
4
Medwave, Inc.
Notes To Unaudited Financial Statements
December 31, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Medwave, Inc.
have been prepared in accordance with accounting principles generally
accepted in the United States of America ("United States ") for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X promulgated under the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and disclosures
required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information have been included for the
interim periods presented. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. Operating results for interim
periods are not necessarily indicative of results that may be expected for
the entire fiscal year. Accordingly, these interim period condensed
financial statements should be read in conjunction with the financial
statements contained in the Company's Annual Report on Form 10-K, for the
year ended April 30, 2003.
In May of 2003, the board of directors changed the Company's fiscal year
from May 1- April 30 to October 1- September 30. In addition, on August 1,
2003, the Company completed a reorganization in which the Company's state of
incorporation was changed from Minnesota to Delaware.
2. STOCKHOLDERS' EQUITY
A summary of changes in stockholders' equity for the three months ended
December 31, 2003 is as follows:
-----------------------------------------------------------------------------------------------------
COMMON STOCK
.01 PAR VALUE ADDITIONAL ACCUMULATED
-----------------------------------------------------------------------------------------------------
SHARES AMOUNT PAID IN CAPITAL DEFICIT TOTAL
-----------------------------------------------------------------------------------------------------
Balance at September
30, 2003 8,744,666 $ 87,447 $ 23,440,704 (21,551,004) 1,977,147
-----------------------------------------------------------------------------------------------------
Exercise of Stock
Options 21,750 217 16,778 - 16,995
-----------------------------------------------------------------------------------------------------
Net Loss - - (568,365) (568,365)
-----------------------------------------------------------------------------------------------------
Balance at December 31,
2003 8,766,416 $ 87,664 $ 23,457,482 $(22,119,369) $1,425,777
-----------------------------------------------------------------------------------------------------
Shareholder Rights Agreement
On September 29, 2003, the Company adopted a shareholder rights agreement
in order to obtain maximum value for shareholders in the event that a
person or group of affiliated persons obtain 15% or more of the outstanding
shares of common stock. To implement the agreement, Medwave issued a
dividend of one right for each share of its common stock held by
shareholders of record as of the close of business on September 30, 2003.
Each right initially entitles shareholders to purchase one share of
Medwave's common stock for $50. However, the rights are not immediately
exercisable and will become exercisable only if certain events occur as
discussed above. The rights expire September 30, 2013. The Company, at its
option, also holds certain redemption privileges related to the rights as
described in the agreement.
5
3. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity" ("SFAS 150"). SFAS No. 150 provides guidance on how an entity
classifies and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset
in some circumstances), because that instrument represents an obligation.
Many of these instruments were previously classified as equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company does not believe the
adoption of SFAS 150 will have a material effect on the Company's
operations, financial position or cash flows.
4. NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common shares
outstanding in each year. Diluted earnings per share (EPS) is similar to
basic EPS, except that the weighted average of common shares outstanding is
increased to include the additional common shares that would have been
outstanding if the potential dilutive common shares, consisting of shares
of those stock options and warrants for which market price exceeds exercise
price, had been issued. Such common equivalent shares are excluded from the
calculation of diluted EPS in loss years, as the impact is antidilutive.
Therefore, there was no difference between basic and diluted EPS for each
period presented. The number of common equivalent shares excluded from the
calculation was 3,319,950 as of December 31, 2003.
5. REINCORPORATION
In August of 2003, the Company completed its reincorporation into the State
of Delaware. All assets and liabilities of the Company as originally
organized in the state of Minnesota have been assumed by the newly formed
Delaware Corporation. Each share of common stock issued and outstanding
immediately prior to the re-incorporation was converted into one share of
common stock of the newly formed corporation. The Company's name remains
Medwave, Inc.
6. SUBSEQUENT EVENT
On January 8, 2004, the Company entered into a Stock Purchase Agreement
with certain investors. Under the terms of the agreement, the Company
issued or will issue 1,110,000 shares of common stock for $5.00/share
yielding $5,550,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains certain
safe harbors regarding forward-looking statements. From time to time,
information provided by the Company or statements made by our directors,
officers or employees may contain" "forward-looking" information subject to
numerous risks and uncertainties. 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
6
enhancement or regulatory approval. Consequently, no forward-looking statement
can be guaranteed and actual results may vary materially.
This discussion summarizes the significant accounting policies, accounting
estimates and other significant factors affecting the liquidity, capital
resources and results of operations of the Company for the three-month periods
ended December 31, 2003 and 2002. This discussion should be read in conjunction
with the financial statements and other financial information included in our
April 30, 2003 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
OVERVIEW
Operating revenue decreased 27% from the prior quarter, mainly due to our
inability to ship OEM Modules due to delays by our Japanese partner. At December
31, 2003, we had approximately $936,631 of cash and cash equivalents on hand. On
January 8, 2004, we raised an additional $5,550,000 through the sale of our
common stock.
GENERAL
Medwave currently employs twenty-three (23) employees, three of whom are part
time. Since our inception, we have been engaged exclusively in the development
of devices for monitoring and measuring blood pressure.
Blood pressure or, more precisely, arterial pressure, is the pressure that the
blood exerts against the interior of the arterial walls. The level of the
pressure depends upon the strength of the heart's contraction, the volume of
blood in the circulatory system, the elasticity of the arteries, and the degree
of capillary constriction impeding circulation. During the heart's relaxation
phase, (the diastole), blood pressure falls. When the heart muscle contracts,
(the systole), blood pressure rises. Clinically, blood pressure is commonly
reported as three different values. Systolic and diastolic pressures are the
maximum and minimum pressures during a single cardiac cycle, respectively.
Systolic pressure is also often referred to as contracting pressure, when the
heart muscle is contracting and pumping blood through the blood vessels of the
body. Diastolic pressure is also often referred to as the resting or relaxation
pressure of the heart muscle. Mean pressure is the average pressure during the
cardiac cycle.
Blood pressure and changes in blood pressure are critical indicators of the
health and performance of the body's cardiovascular system. Blood pressure
varies with age and by gender, such that young adults tend to have lower blood
pressures than older adults, and men tend to have higher blood pressures than
women of the same age. Even in healthy bodies, blood pressure normally
fluctuates during the day. For example, exercise, emotion, and exposure to the
cold tend to cause blood pressure to rise, while it falls in instances of
warmth, fainting, hemorrhage, and certain diseases. All hospital patients
require measurement of their blood pressure and many surgical or critically ill
patients require frequent or continual monitoring of their blood pressure.
Continual monitoring of blood pressure is important for patients in operating
rooms, surgical recovery rooms, intensive care units, emergency departments and
other critical care sites because of the acuteness of these patients' conditions
and rapidity with which their conditions can deteriorate. Trend information
obtained from successive blood pressure measurements plays an important role in
the diagnosis, prognosis, and treatment of diseases. Blood pressure is one vital
sign that is measured in every clinical location of the healthcare spectrum,
including a patient's own home environment. It is estimated that approximately
25 million people in the United States are measuring their personal blood
pressure each day.
Medwave Inc. develops, manufactures, and distributes non-invasive blood pressure
products. Its Vasotrax(R) Hand Held Monitor, the Vasotrac(R) APM205A NIBP
Monitor, and the MJ23 OEM Module are new approaches to non-invasive blood
pressure monitoring. Medwave has received the necessary regulatory clearances to
market its technology in Europe, Asia, and the United States. Medwave is
ISO13485/ISO9001/MDD93/42/EEC certified, and all of its products are CE marked.
7
RECENT DEVELOPMENTS
In September, 2003, Medwave signed an agreement with Novation, the leading
supply chain management company in healthcare, to offer our sensor-based blood
pressure measurement solutions to the more than 2,300 health care organizations
that purchase supplies through Novation. This one-year contract covers our
Vasotrac and Vasotrax technology. In addition, during December, 2003, the
Company signed a corporate purchasing agreement with the Mayo Foundation
Hospital and its 35 affiliate hospitals. As a result of this agreement,
Medwave's technology is now listed as an alternative for the 35 Mayo Foundation
hospitals. Several Mayo hospitals currently use Medwave's technology. Prior to
signing the agreement, the Mayo Foundation Hospital in Rochester, MN performed
an 18-month clinical study comparing the Vasotrac system to an invasive
catheter.
Over the past few quarters, the Company has been finalizing the clinical
validation of a single-patient use disposable sensor. The validation was
completed in December, 2003, and as a result, the Company initiated production
of these sensors in an effort to satisfy the requirements of the first customer
sites that order the disposable sensors in conjunction with the Vasotrac blood
pressure monitor. Also, the Company has accumulated additional inventory in
anticipation of the product release during the second quarter.
The Company has continued to focus on building its direct sales organization,
adding hospital based sales professionals in Texas and New Jersey. In addition,
the Company began hiring Sales Representatives who will focus on "pre" and
"post" hospital sales. As of December, 2003, the Company has hired two of these
Sale Representatives, one in southern California and another in the Chicago
area. Currently, the Company employs ten hospital based Sales Specialists, one
Marketing / International Sales Manager, and two "pre" and "post" hospital
(alternative care) Sales Representatives. Over the next few months, the Company
plans to hire several more hospital and alternative care sales professionals.
This past quarter, the Company was unable to ship additional OEM modules to its
Japanese partner, Nihon Kohden. Nihon Kohden had some internal delays in
executing its product launch plans for the MJ23 Module. In early February, 2004,
representatives of Medwave's sales and marketing team began to work with Nihon
Kohden in Japan in an effort to execute a complete product launch in the
Japanese market. This effort will continue in the months ahead. The Company has
an exclusive agreement with Nihon Kohden for the Japanese market, therefore
certain business volumes are expected from this agreement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Medwave's financial statements and accompanying notes are prepared in accordance
with accounting principles generally accepted in the United States of America
(U.S. GAAP). Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by management's application of accounting policies. Critical accounting policies
for Medwave include revenue recognition, stock-based compensation, impairment of
long-lived assets, and allowance for doubtful accounts.
Revenue Recognition
The Company recognizes revenue upon product shipment, provided there exists
persuasive evidence of an arrangement, the fee is fixed or determinable, and
collectibility of the related receivable is reasonably assured.
Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), and related interpretations in accounting
for its stock options. Under APB 25,
8
when the exercise price of stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
As discussed above, the Company has elected to follow APB No. 25, and related
Interpretations in accounting for employee stock options and has adopted the
disclosure provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation (Statement 123), relating to the fair value method of accounting
for stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for 2003 and
2002: risk-free interest rates of 3.96% and 5.60% for the periods ending
December 31, 2003 and 2002, respectively; dividend yield of 0%; volatility
factor of the expected market price of the Company's common stock of 1.60 and
..64, respectively, and a weighted average expected life of the option of five
years.
The Company granted options to purchase 48,000 shares and 42,000 shares during
the periods ended December 31, 2003 and 2002 respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
DECEMBER 31
2003 2002
------------------------------
Net loss as reported $(568,365) $(487,363)
Add: Stock-based employee compensation expense
included in reported net loss - -
Deduct: Total stock-based employee compensation
determined under fair value method for all awards (202,968) (204,640)
------------------------------
Pro forma net loss $(771,333) $(692,003)
==============================
Basis and diluted loss per share
As reported $(0.06) $(0.07)
Pro forma $(0.09) $(0.10)
Impairment of Long-Lived Assets
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms. The
Company reviews accounts receivable on a monthly basis to determine if any
receivables will potentially be uncollectible. The Company includes any reserves
for specific accounts receivable balances that are determined to be
uncollectible, along with a general reserve, in the overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on the information
available, the Company believes the allowance for doubtful accounts as of
December 31, 2003 is adequate. However, actual write-offs may exceed the
recorded allowance.
RESULTS OF OPERATIONS
The results of operations compares the three months ended December 31, 2003 and
2002. The analysis of liquidity and capital resources compares December 31, 2003
to September 30, 2003.
9
Operating revenue was $224,900 and $309,900 for the quarters ended December 31,
2003 and 2002, respectively, a decrease of 27%. This decrease is due to the
inability to ship additional OEM modules to the Company's Japanese partner,
Nihon Kohden. This was a result of some internal delays in Nihon Kohden's
product launch plans.
Cost of sales and product development was $97,800 and $138,100 for the quarters
ended December 31, 2003 and 2002, respectively, a decrease of 29%. The gross
margin related to sales remained consistent.
The Company incurred $98,600 and $153,200 for research and development expenses
for the quarters ended December 31, 2003 and 2002 respectively, a decrease of
36%. The decrease continues to reflect the shift in focus from research and
development to sales and marketing, resulting in a decrease for the need of
outside consulting services, which had cost the Company approximately $40,000
for the three months ending December 31, 2002.
The Company incurred $358,700 and $353,200 for sales and marketing expenses for
quarters ended December 31, 2003 and 2002, respectively, an increase of 2%.
Salaries increased due to the increase in sales employees. This increase was
offset by a decrease in outside consulting services.
The Company incurred $214,900 and $157,900 for general and administrative
expenses for quarters ended December 31, 2003 and 2002, respectively, an
increase of 36%. The increase in general and administrative expenses was
attributable to an increase in legal costs associated with the adoption of the
shareholder rights plan and an increase in salaries due to an increase in
general and administrative employees. Also, the Company's increased general and
administrative costs reflect the need for additional outside professionals, such
as accountants and attorneys. This is due to the increased requirements
associated with the Sarbanes-Oxley Act of 2002. In addition, general insurance,
as well as employee health insurance, has increased substantially in the past 12
months.
Interest income was $2,000 and $5,200 for the quarters ended December 31, 2003
and 2002, 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 $936,631 and $1,694,648 at December
31, 2003 and September 30, 2003, respectively reflecting the continued
investment in sales and marketing as well as the increase in General and
Administrative expenses due to an increase in legal costs. The company closed on
additional capital on January 8, 2004 for the amount of $5,550,000.
With the cash and cash equivalents, along with the $5,550,000 of capital raised
on January 8, 2004, the Company believes that sufficient liquidity is available
to satisfy its working capital needs through December 31, 2004. The Company is
planning on some capital expenditures in the upcoming months. The current
accounting software, Great Plains, will be upgraded, and additional modules that
are currently not being utilized will be activated. The total cost of the above
upgrades, including training, will be approximately $30,000. Some computer
hardware will require upgrading as well.
The Company will need to raise additional capital to fund its long-term
operations if it does not begin to realize an operating profit. There can be no
assurance that we will be able to receive such funds on acceptable terms.
Cash flows used in operations increased to $740,900 for the quarter ended
December 31, 2003 from $592,900 for the quarter ended December 31, 2002, an
increase of $148,000. In both periods, we used cash flows to fund operating
losses, which were partially offset by non-cash expense for depreciation. The
use of cash in operations for the three-month period ended December 31, 2003
included increases in accounts receivable, inventory and prepaids as well as a
decrease in accounts payable. The use of cash in operations for the three month
period ending December 31, 2002 included increases in inventory and prepaids
offset by an increase in accounts payable.
10
Financing activities provided $16,995 from the exercise of stock options for the
quarter ended December 31, 2003, and nothing for the quarter ended December 31,
2002.
OFF-BALANCE SHEET ARRANGEMENTS
Our only off-balance sheet arrangements are non-cancelable operating leases
entered into in the ordinary course of business. The table below under the
caption "Contractual Obligations" shows the amount of our operating lease
payments by year.
CONTRACTUAL OBLIGATIONS
The following summarizes our contractual obligations at December 31, 2003 and
the effect these contractual obligations are expected to have on our liquidity
and cash flows in future periods.
PAYMENTS DUE BY PERIOD
-------------------------------
TOTAL 1 YEAR OR LESS 1-3 YEARS
----- -------------- ---------
Operating lease commitments........... $53,211 $50,876 $2,335
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934,
the Company has evaluated, with the participation of management, including the
Chief Executive Officer (who is also the Company's acting Chief Financial
Officer), the effectiveness of its disclosure controls and procedures as of the
end of the period covered by this report. Based on such evaluation, the Chief
Executive Officer has concluded that such disclosure controls and procedures are
effective in ensuring that material information relating to the Company is made
known to the certifying officer by others within the Company during the period
covered by this report.
From time to time, the Company reviews the disclosure controls and procedures,
and may from time to time make changes aimed at enhancing their effectiveness
and to ensure that the Company's systems evolve with its business. There was no
change in the Company's internal control over financial reporting that occurred
during the three-month period ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
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.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit
Number Description
- ------- -----------
31.1 Certification of the principal executive officer and principal financial officer, pursuant to rule
13a - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
(B) REPORTS ON FORM 8K:
(1) Form 8-K filed on October 3, 2003 relating to the adoption of
a Shareholder's Rights Plan.
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: February 17, 2004 Medwave, Inc.
By: /s/ Timothy J. O'Malley
-------------------------
Timothy J. O'Malley
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
12