**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.   20549**

 

**FORM 10-Q**

 

| **(Mark One)** |
|----------------|
|           |   |
| **ý**     | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   |
|           | **For the Quarterly Period Ended July 31,  2003; or** |
|           |   |
| **o**          | **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 ofregistrant as specified in its charter)

 

| **Delaware**                                                    |   | **41-1493458**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (IRS employer  identification number) |

 

**435 Newbury StreetDanvers, MA 01923**

(Address of principal executive offices,zip code)

 

**(978) 762-8999**

(Registrant’s telephone number, includingarea code)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period as the registrant was requiredto file such reports) and (2) has been subject to such filing requirements forthe past 90 days.

Yes ý   No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  ý

 

As of September 10, 2003, the issuer had 8,679,666 shares of CommonStock outstanding.

 

 

----

 

Medwave, Inc.

 

Form 10-Q

 

INDEX

 
| PART I.        | FINANCIAL INFORMATION                                                                       |
|----------------|---------------------------------------------------------------------------------------------|
|           |                                                                                        |
| Item 1.        | Financial  Statements                                                                       |
|           |                                                                                        |   |
|           |                                                                                        | Balance  Sheets - April 30, 2003 and July 31, 2003 |
|           |                                                                                        |   |
|           |                                                                                        | Statements  of Operations - Three Months Ended July 31, 2003 and 2002 |
|           |                                                                                        |   |
|           |                                                                                        | Statements  of Cash Flows - Three Months Ended July 31, 2003 and 2002 |
|           |                                                                                        |   |
|           |                                                                                        | Notes to Unaudited Financial Statements |
|           |                                                                                        |   |
| Item 2.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|           |                                                                                        |
| Item 3.        | Quantitative  and Qualitative Disclosures About Market Risk                                 |
|           |                                                                                        |
| Item 4.        | Controls  and Procedures                                                                    |
|           |                                                                                        |
| PART  II.      | OTHER  INFORMATION                                                                          |
|           |                                                                                        |
| Item 1.        | Legal Proceedings                                                                           |
|           |                                                                                        |
| Item 2.        | Changes in Securities And Use Of Proceeds                                                   |
|           |                                                                                        |
| Item 3.        | Defaults Upon Senior Securities                                                             |
|           |                                                                                        |
| Item 4.        | Submission of Matters To A Vote of Security  Holders                                        |
|           |                                                                                        |
| Item 5.        | Other Information                                                                           |
|           |                                                                                        |
| Item 6.        | Exhibits and Reports on Form 8-K                                                            |
|           |                                                                                        |
| Signatures     |
|           |
| Certifications |

 

1

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**PARTI - FINANCIAL INFORMATION**

 

**ITEM 1.****                                                  Financial Statements**

 

Medwave, Inc.

 

Balance Sheets

 
|                                            |   | **July 31,  2003** |      | **April 30,  2003**   |       |
|-------------------------------------------------|--------|--------------------|-----------|-----------------------|------------|
|                                            |   | **(unaudited)**    |      | **(see note  1****)** | ** ** |
| **Assets**                                      |   |               |      |                  |       |
| Current Assets:                                 |   |               |      |                  |       |
| Cash and cash equivalents                       |   | $                  | 1,951,972 |                  | $          | 2,597,649 |   |
| Accounts receivable, net                        |   | 335,619            |      | 294,791               |       |
| Inventories, net                                |   | 416,148            |      | 270,118               |       |
| Prepaid expenses                                |   | 72,423             |      | 103,899               |       |
| Total current assets                            |   | 2,776,162          |      | 3,266,457             |       |
|                                            |   |               |      |                  |       |
| Property and equipment:                         |   |               |      |                  |       |
| Research and development equipment              |   | 31,535             |      | 31,535                |       |
| Office equipment                                |   | 76,836             |      | 76,836                |       |
| Manufacturing and engineering equipment         |   | 247,824            |      | 247,824               |       |
| Sales and marketing equipment                   |   | 62,365             |      | 62,365                |       |
| Leasehold improvements                          |   | 31,613             |      | 31,613                |       |
|                                            |   | 450,173            |      | 450,173               |       |
| Accumulated depreciation and amortization       |   | (394,168           | )         | (387,323              | )          |
| Property and equipment, net                     |   | 56,005             |      | 62,850                |       |
|                                            |   |               |      |                  |       |
| Total assets                                    |   | $                  | 2,832,167 |                  | $          | 3,329,307 |   |
|                                            |   |               |      |                  |       |
| **Liabilities and stockholders’ equity**   |   |               |      |                  |       |
| Current liabilities:                            |   |               |      |                  |       |
| Accounts payable                                |   | $                  | 215,119   |                  | $          | 310,180 |   |
| Accrued expenses                                |   | 66,699             |      | 101,303               |       |
| Deferred revenue                                |   | 37,419             |      | 38,850                |       |
| Total current liabilities                       |   | 319,237            |      | 450,333               |       |
|                                            |   |               |      |                  |       |
| Stockholders’ equity:                      |   |               |      |                  |       |
| Common Stock, no par value:                     |   |               |      |                  |       |
| Authorized  shares—50,000,000              |   |               |      |                  |       |
| Issued  and outstanding shares -                |   | 23,464,401         |      | 23,449,114            |       |
| April  30, 2003 - 8,650,916                     |   |               |      |                  |       |
| July  31, 2003 - 8,659,666                      |   |               |      |                  |       |
| Accumulated deficit                             |   | (20,951,471        | )         | (20,570,140           | )          |
| Total stockholders’ equity                 |   | 2,512,930          |      | 2,878,974             |       |
|                                            |   |               |      |                  |       |
| Total liabilities and stockholders’ equity |   | $                  | 2,832,167 |                  | $          | 3,329,307 |   |

 

*Theaccompanying notes are an integral part of these unaudited financialstatements.*

 

2

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Medwave, Inc.

 

Statements of Operations

*(Unaudited)*

 
|                                                              |   | **Three  months ended July 31,** |     |
|-------------------------------------------------------------------|--------|----------------------------------|----------|
|                                                              |   | **2003**                         |     | **2002** |   |
| Revenue:                                                          |   |                             |     |   |   |
| Net Sales                                                         |   | $                                | 365,015  |   | $ | 209,615 |   |
|                                                              |   |                             |     |   |   |
| Operating expenses:                                               |   |                             |     |   |   |
| Cost of sales and product development                             |   | 154,561                          |     | 160,880 |   |
| Research and development                                          |   | 85,872                           |     | 138,164 |   |
| Sales and marketing                                               |   | 324,039                          |     | 388,258 |   |
| General and administrative                                        |   | 185,969                          |     | 140,071 |   |
| Operating loss                                                    |   | (385,426                         | )        | (617,758 | ) |
|                                                              |   |                             |     |   |   |
| Other income:                                                     |   |                             |     |   |   |
| Interest income                                                   |   | 4,095                            |     | 8,873 |   |
| Net loss                                                          |   | $                                | (381,331 | ) | $ | (608,885 | ) |
|                                                              |   |                             |     |   |   |
| Net loss per share - Basic and diluted                            |   | $                                | (0.04    | ) | $ | (0.08 | ) |
| Weighted average number of shares outstanding - basic and diluted |   | 8,653,076                        |     | 7,250,916 |   |

 

*Theaccompanying notes are an integral part of these unaudited financial statements.*

 

3

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Medwave, Inc.

 

Statements of Cash Flows

*(Unaudited)*

 
|                                                                         |   | **Three  months ended July 31,** |      |
|------------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                         |   | **2003**                         |      | **2002** |   |
|                                                                         |   |                             |      |   |   |
| **Operating activities**                                                     |   |                             |      |   |   |
| Net loss                                                                     |   | $                                | (381,331  | ) | $ | (608,885 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |   |                             |      |   |   |
| Depreciation and amortization                                                |   | 6,845                            |      | 12,944 |   |
| Changes in operating assets and liabilities:                                 |   |                             |      |   |   |
| Accounts receivable                                                          |   | (40,828                          | )         | 47,553 |   |
| Inventories                                                                  |   | (146,030                         | )         | 12,535 |   |
| Prepaid expenses                                                             |   | 31,476                           |      | 67,988 |   |
| Accounts payable                                                             |   | (95,061                          | )         | (54,388 | ) |
| Accrued expenses                                                             |   | (34,604                          | )         | (37,939 | ) |
| Deferred revenue                                                             |   | (1,431                           | )         | 2,719 |   |
| Net cash used in operating activities                                        |   | (660,964                         | )         | (557,473 | ) |
|                                                                         |   |                             |      |   |   |
| **Financing activities**                                                     |   |                             |      |   |   |
| Proceeds from issuance of common stock                                       |   | 15,287                           |      | — |   |
| Cash provided by financing activities                                        |   | 15,287                           |      | — |   |
|                                                                         |   |                             |      |   |   |
| Decrease in cash and cash equivalents                                        |   | (645,677                         | )         | (557,473 | ) |
| Cash and cash equivalents at beginning of period                             |   | 2,597,649                        |      | 3,048,051 |   |
| Cash and cash equivalents at end of period                                   |   | $                                | 1,951,972 |   | $ | 2,490,578 |   |

 

*Theaccompanying notes are an integral part of these unaudited financialstatements.*

 

4

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Medwave, Inc.

 

Notes To Unaudited Financial Statements

July 31, 2003

 

1.               **Basis of Presentation**

 

The accompanying unaudited condensed financial statements of Medwave,Inc. have been prepared in accordance with accounting principles generallyaccepted in the United States of America (“United States ”) for interimfinancial information and with the instructions to Form 10-Q and Article 10 ofRegulation S-X of the Securities Exchange Act of 1934. Accordingly, they do notinclude all of the information and disclosures required by accountingprinciples generally accepted in the United States for complete financialstatements.  In the opinion ofmanagement, all adjustments, consisting only of normal recurring adjustments,necessary for a fair presentation of the financial information have beenincluded for the interim periods presented. The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reported period. Actualresults could differ from those estimates. Operating results for interimperiods are not necessarily indicative of results that may be expected for theentire fiscal year. Accordingly, these interim period condensed financialstatements should be read in conjunction with the financial statementscontained in the Company’s Annual Report on Form 10-K, for the year ended April30, 2003.

 

In May of 2003, the board of directors approved a change in the fiscalyear from May 1- April 30, to October 1- September 30. In addition, on August1, 2003, the Company completed a reorganization in which the Company’s state ofincorporation was changed from Minnesota to Delaware.

 

2.               **Stockholders’ Equity**

 

A summary of changes in stockholders’ equity for the three months endedJuly 31, 2003 is as follows:

 
|                       |   | **Common Stock** |       | **Accumulated  Deficit** |           | **Total**   |   |
|----------------------------|--------|------------------|------------|--------------------------|----------------|-------------|--------|
|                       |   | **Shares**       |       | **Amount**               |           |        |   |
|                       |   |             |       |                     |           |        |   |   |   |
| Balance at  April 30, 2003 |   | 8,650,916        |       | 23,449,114               |           | (20,570,140 | )      | 2,878,974 |   |
| Exercise of  Stock Options |   | 8,750            |       | 15,287                   |           | —      |   | 15,287 |   |
| Net Loss                   |   | —           |       | —                   |           | (381,331    | )      | (381,331 | ) |
| Balance at  July 31, 2003  |   | **8,659,666**    | ** ** | **$**                    | **23,464,401** | ** **  | **$**  | **(20,951,471** | **)** | **2,512,930** | ** ** |
|                            |        |                  |            |                          |                |             |        |  |  |  |  |

 

3.               **Recent Accounting Pronouncements**

 

In May 2003, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 150, “Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity” (“SFAS 150”). SFAS No. 150 provides guidance on how an entityclassifies and measures certain financial instruments with characteristics ofboth liabilities and equity. It requires that an issuer classify a financialinstrument that is within its scope as a liability (or an asset in somecircumstances), because that instrument represents an obligation. Many of theseinstruments were previously classified as equity. SFAS 150 is effective forfinancial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003. The Company does not believe the adoption of SFAS 150will have a material effect on the Company’s operations, financial position orcash flows.

 

5

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4.               **Net Loss Per Share**

 

Net loss per share is based on the weighted average number of commonshares outstanding in each year. Diluted earnings per share (EPS) is similar tobasic EPS, except that the weighted average of common shares outstanding isincreased to include the additional common shares that would have beenoutstanding if the potential dilutive common shares, consisting of shares ofthose stock options and warrants for which market price exceeds exercise price,had been issued. Such common equivalent shares are excluded from thecalculation of diluted EPS in loss years, as the impact is antidilutive.Therefore, there was no difference between basic and diluted EPS for each periodpresented. The number of common equivalent shares excluded from the calculationwas 3,408,700 as of July 31, 2003.

 

5.               **Subsequent Event**

 

In August of 2003, the Company completed its reincorporation into theState of Delaware. All assets and liabilities of the Company as originallyorganized in the state of Minnesota have been assumed by the newly formedDelaware Corporation. Each share of common stock issued and outstandingimmediately prior to the re-incorporation shall be converted into one share of commonstock of the newly formed corporation. The company’s name will remain Medwave,Inc.

 

 

**ITEM 2.****                                                     Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

The Private Securities Litigation Reform Act of 1995 contains certain safeharbors regarding forward-looking statements. From time to time, informationprovided by the Company or statements made by our directors, officers oremployees may contain” “forward-looking” information subject to numerous risksand uncertainties. Statements made in this report that are stated asexpectations, plans, anticipations, prospects or future estimates or whichotherwise look forward in time are considered “forward-looking statements” andinvolve a variety of risks and uncertainties, known and unknown, which arelikely to affect the actual results. The following factors, among others, as well as factors discussed in theCompany’s other filings with the SEC, have affected and, in the future, couldaffect the Company’s actual results: resistance to the acceptance of new medical products, the marketacceptance of the Vasotrac system, the Vasotrax hand-held unit, or otherproducts of the Company, hospital budgeting cycles, the possibility of adverseor negative commentary from clinical researchers or other users of theCompany’s products, the Company’s success in creating effective distributionchannels for its products, the Company’s ability to scale up its manufacturingprocess, and delays in product development or enhancement or regulatory approval.  Consequently, no forward-looking statementcan 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 periodsended July 31, 2003 and 2002. This discussion should be read in conjunctionwith the financial statements and other financial information included in ourApril 30, 2003 Annual Report on Form 10-K filed with the Securities andExchange Commission.

 

**General**

 

Medwave currently employstwenty-two (22) employees, three of whom are part time.  Since our inception, we have been engagedexclusively in the development of devices for monitoring and measuring bloodpressure.

 

Blood pressure or, more precisely, arterial pressure, is the pressurethat the blood exerts against the interior of the arterial walls. The level ofthe pressure depends upon the strength of the heart’s contraction, the volumeof blood in the circulatory system, the elasticity of the arteries, and thedegree of capillary constriction impeding circulation. During the heart’srelaxation phase, (the diastole), blood

 

6

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pressure falls. When the heart muscle contracts, (the systole), bloodpressure rises.  Clinically, bloodpressure is commonly reported as three different values.  Systolic and diastolic pressures are themaximum and minimum pressures during a single cardiac cycle, respectively.Systolic pressure is also often referred to as contracting pressure, when theheart muscle is contracting and pumping blood through the blood vessels of thebody. Diastolic pressure is also often referred to as the resting or relaxationpressure of the heart muscle.  Meanpressure is the average pressure during the cardiac cycle.

 

Blood pressure and changes in blood pressure are critical indicators ofthe health and performance of the body’s cardiovascular system.  Blood pressure varies with age and bygender, such that young adults tend to have lower blood pressures than olderadults, and men tend to have higher blood pressures than women of the sameage.  Even in healthy bodies, bloodpressure normally fluctuates during the day. For example, exercise, emotion, and exposure to the cold tend to causeblood pressure to rise, while it falls in instances of warmth, fainting,hemorrhage, and certain diseases.  Allhospital patients require measurement of their blood pressure and many surgicalor critically ill patients require frequent or continual monitoring of theirblood pressure.  Continual monitoring ofblood pressure is important for patients in operating rooms, surgical recoveryrooms, intensive care units, emergency departments and other critical caresites because of the acuteness of these patients’ conditions and rapidity withwhich their conditions can deteriorate. Trend information obtained from successive blood pressure measurementsplays an important role in the diagnosis, prognosis, and treatment of diseases.Blood pressure is one vital sign that is measured in every clinical location ofthe healthcare spectrum, including a patient’s own home environment. It isestimated that approximately 25 million people in the United States aremeasuring their personal blood pressure each day.

 

Recently, Medwave signed an agreement with Novation, theleading supply chain management company in healthcare, tooffer our sensor-based blood pressure measurement solutions to themore than 2,300 health care organizations that purchase supplies throughNovation. The one-year contract covers our Vasotrac and Vasotraxtechnology.

 

In 2002, Medwave received the prestigious Seal of Acceptance from theAlliance of Children’s Hospitals. This award is presented only to thoseproducts that are considered more efficacious than others for the treatment ofchildren. The Alliance of Children’s Hospitals is an alliance of 40 of thelargest, most prestigious children’s hospitals in the U.S. and Canada. Inaddition, Medwave was honored with Frost and Sullivan’s Technology InnovationAward. This award is presented each year to the companies that havedemonstrated excellence in technology innovation in the market. The awardrecognizes the ability of a company to successfully develop and introduce a newtechnology, formulate a well-designed product family, and make significantproduct performance contributions to the industry.

 

**Critical AccountingPolicies and Estimates**

 

Medwave’s financial statements and accompanying notes are prepared inaccordance with accounting principles generally accepted in the United Statesof America (U.S. GAAP).  Preparingfinancial statements requires management to make estimates and assumptions thataffect the reported amounts of assets, liabilities, revenue, and expenses.  These estimates and assumptions are affectedby management’s application of accounting policies.  Critical accounting policies for Medwave include revenue recognition,stock-based compensation, impairment of long-lived assets, and allowance fordoubtful accounts.

 

*Revenue Recognition*

 

The Company recognizes revenue upon product shipment, provided thereexists persuasive evidence of an arrangement, the fee is fixed or determinable,and collectibility of the related receivable is reasonably assured.

 

7

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*Stock-BasedCompensation*

 

The Company follows Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (APB 25), and related interpretationsin accounting for its stock options. Under APB 25, when the exercise price ofstock options equals the market price of the underlying stock on the date ofgrant, no compensation expense is recognized.

 

As discussed above, the Company has elected to follow APB No. 25, andrelated Interpretations in accounting for employee stock options and hasadopted the disclosure provisions of FASB Statement No. 123, Accounting forStock-Based Compensation (Statement 123), relating to the fair value method ofaccounting for stock options.

 

Pro forma information regarding net loss and loss per share is requiredby Statement 123, and has been determined as if the Company had accounted forits employee stock options under the fair value method of Statement 123. Thefair value for these options was estimated at the date of grant using theBlack-Scholes option pricing model with the following assumptions for 2003 and2002: risk-free interest rates of 3.98% and 4.65% for the periods ending July31, 2003 and 2002, respectively; dividend yield of 0%; volatility factor of theexpected 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 500,500 and 242,000 options during the periodsended July 31, 2003 and 2002 respectively.

 

For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the options’ vesting period. The Company’spro forma information is as follows:

 
|                                                                                                      |   | **July 31** |     |
|-----------------------------------------------------------------------------------------------------------|--------|-------------|----------|
|                                                                                                      |   | **2003**    |     | **2002** |   |
| Net loss as reported                                                                                      |   | $           | (381,331 | ) | $ | (608,885 | ) |
| 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 |   | (129,721    | )        | (115,491 | ) |
| Pro forma net loss                                                                                        |   | $           | (511,052 | ) | $ | (724,376 | ) |
|                                                                                                      |   |        |     |   |   |
| Basis and diluted loss per share                                                                          |   |        |     |   |   |
| As reported                                                                                               |   | $           | (0.04    | ) | $ | (0.08 | ) |
| Pro forma                                                                                                 |   | $           | (0.06    | ) | $ | (0.10 | ) |

 

*Impairment ofLong-Lived Assets*

 

The Company will record impairment losses on long-lived assets used in operationswhen indicators of impairment are present and the undiscounted cash flowsestimated to be generated by those assets are less than the assets’ carryingamount.

 

*Accounts Receivable*

 

Accounts receivable are customer obligations due under normal tradeterms. The Company reviews accounts receivable on a monthly basis to determineif any receivables will potentially be uncollectible. The Company includes anyreserves for specific accounts receivable balances that are determined to beuncollectible, along with a general reserve, in the overall allowance fordoubtful accounts. After all attempts to collect a receivable have failed, thereceivable is written off against the allowance. Based on the informationavailable, the Company believes the allowance for doubtful accounts as of July31, 2003 is adequate. However, actual write-offs may exceed the recordedallowance.

 

8

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**Results of Operations**

 

The results of operationscompares the three months ended July 31, 2003 and 2002.  The analysis of liquidity and capitalresources compares July 31, 2003 to April 30, 2003.

 

Operating revenue was $365,000and $209,600 for the quarters ended July 31, 2003 and 2002, respectively, anincrease of 74%. The operating revenue increase was attributed to the increaseof direct sales employees. In addition, we shipped and generated sales from ourMJ23 OEM Module. Also, during the quarter ended July 31, 2003, we received onelarge order from our distributor representing Kuwait and other Gulf CooperativeCountries. This order was for 30 Vasotrac monitors and several Vasotraxhand-held monitors sold to the Kuwait Ministry of Health.

 

Cost of sales and productdevelopment was  $154,600 and $160,900for the quarters ended July 31, 2003 and 2002, respectively, a decrease of 4%.This decrease is primarily due to a different product mix and more efficientinventory management.

 

The Company incurred $85,900and $138,200 for research and development expenses for the quarters ended July31, 2003 and 2002 respectively, a decrease of 38%. The decrease continues toreflect the shift in focus from research and development to sales andmarketing, resulting in a decrease for the need of outside consulting services,which had cost the Company approximately $70,000 for the quarter ending July31, 2002.

 

The Company incurred $324,000and $388,300 for sales and marketing expenses for the quarter ended July 31,2003 and 2002, respectively, a decrease of 17%. The decrease was a result ofhiring sales professionals who have a lower fixed and higher variable cost.Travel expenses decreased by approximately $40,000, and tradeshow expensesdecreased by approximately $10,000 due to attending fewer but more prominentshows.

 

The Company incurred $186,000and $140,100 for general and administrative expenses for the quarter ended July31, 2003 and 2002, respectively, an increase of 33%. The increase in generaland administrative expenses was attributable to an increase in legal costsassociated with activity surrounding our re-incorporation into Delaware, aswell as increasing the number of administrative employees.

 

Interest income was $4,100 and$8,900 for the quarter ended July 31, 2003 and 2002, respectively. The decreasereflects the reduction in cash, and cash equivalents balances and declininginterest rates.

 

**Liquidity and Capital Resources**

 

The Company’s cash, and cashequivalents were $1,951,972 and $2,597,649 at July 31, 2003 and April 30, 2003,respectively reflecting the continued investment in sales and marketing.

 

With the cash and cashequivalents, the Company believes that sufficient liquidity is available tosatisfy its working capital needs for approximately twelve months from July 31,2003.  As of the date of this report,the Company has no significant capital expenditure commitments.

 

Cash flows used in operationsincreased to $661,000 for the quarter ended July 31, 2003 from $557,500 for thequarter ended July 31, 2002, an increase of $103,500.  In both periods, we used cash flows to fund operating losses,which were partially offset by non-cash expense for depreciation. The use ofcash in operations for the quarter ended July 31, 2003 included an increase ininventory and a decrease in accounts payable. The use of cash in operations forthe quarter ended July 31, 2002 included decreases in accounts payable andprepaid expenses.

 

Financing activities provided$15,287 from the exercise of stock options for the quarter ended July 31, 2003,and nothing for the quarter ended July 31, 2002.

 

9

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**Contractual Obligations**

 

The following summarizes ourcontractual obligations at July 31, 2003 and the effect these contractualobligations are expected to have on our liquidity and cash flows in futureperiods.

 
|                        |   | **PAYMENTS DUE BY PERIOD** |   |
|-----------------------------|--------|----------------------------|--------|
|                        |   | **TOTAL**                  |   | **1 YEAR OR LESS** | ** ** | **1-3 YEARS** | ** ** |
|                        |   |                       |   |   |   |   |   |
| Operating lease commitments |   | $                          | 67,925 |   | $ | 53,915 |   | $ | 14,010 |   |
|                             |        |                            |        |  |  |  |  |  |  |  |

 

**ITEM3.****                                                     Quantitative and QualitativeDisclosures About Market Risk**

Not applicable.

 

**ITEM4.****                                                  Controls and Procedures**

 

Based upon an evaluation as of a date within 90 days of the filing dateof this Quarterly Report on Form 10-Q, the Company’s President and ChiefExecutive Officer has concluded that the Company’s disclosure controls andprocedures (as defined in rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) are effective as of July 31, 2003.

 

There were no changes in our internal control over financial reportingidentified in connection with the evaluation required by paragraph (d) ofExchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscalquarter that have materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

 

**PART II.****                                                OTHERINFORMATION**

 

 

**ITEM 1.****                                                     Legal Proceedings**

Not applicable.

 

**ITEM 2.****                                                     Changes In Securities And Use OfProceeds**

Not applicable.

 

**ITEM 3.****                                                     Defaults Upon Senior Securities**

Not applicable.

 

**ITEM 4.****                                                     Submission Of Matters To A Vote OfSecurity Holders**

Not applicable.

 

**ITEM 5.****                                                     Other Information**

Not applicable.

 

10

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**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)                                REPORTSON FORM 8K:

 

(1)                Form 8-K were filed on May 21, 2003relating to change in the Company’s independent accountant.

(2)                Form 8-K/A filed on May 27, 2003relating to a change in the Company’s independent accountant.

(3)                Form 8-K filed on May 30, 2003 relatingto a change in the Company’s fiscal year end.

 

 

**SIGNATURES**

 

 

In accordance with the requirements of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
| Date:   September 12, 2003 | Medwave, Inc. |
|---------------------------------|---------------|
|                            |          |   |
|                            |          |   |
|                            | By:           | /s/ Timothy J. O’Malley |   |
|                            |          | Timothy J. O’Malley |
|                            |          | President and Chief Executive Officer |
|                            |          | (Principal Executive Officer and |
|                            |          | Principal Financial Officer) |

 

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