<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 2000
-------------
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: 000-21001
---------
NMT Medical, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4090463
-------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification
or Organization) No.)
27 Wormwood Street, Boston, Massachusetts 02210
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 617-737-0930
------------
Not Applicable
--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
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 that 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 August 17, 2000, there were 10,941,721 shares of Common Stock, $.001 par
value per share, outstanding.
<PAGE>
NMT Medical, Inc.
INDEX
-----
<TABLE>
<CAPTION>
Page Number
----------
<S> <C>
Part I. Financial Information
--------------------
Item 1. Financial Statements.
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 24
Part II. Other Information
-----------------
Item 1. Legal Proceedings. 25
Item 3. Defaults Upon Senior Securities. 26
Item 5. Other Information. 26
Item 6. Exhibits and Reports on Form 8-K. 26
Signatures 28
</TABLE>
2
<PAGE>
NMT Medical, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
At At
June 30, December 31,
2000 1999
----------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,652,827 $ 3,533,475
Accounts receivable, net of allowances for doubtful accounts
of $998,000 and $934,000 as of June 30, 2000 and
December 31, 1999, respectively 6,626,408 7,900,099
Inventories 3,853,604 4,634,348
Prepaid expenses and other current assets 2,404,119 2,429,016
----------------------------
Total current assets 18,536,958 18,496,938
----------------------------
Property, plant and equipment, at cost:
Land and Buildings 4,220,566 4,650,000
Laboratory and computer equipment 3,762,576 3,284,294
Office furniture and equipment 1,018,982 1,062,228
Leasehold improvements 3,181,856 3,268,897
Equipment under capital lease 2,350,512 2,258,982
----------------------------
14,534,492 14,524,401
Less- Accumulated depreciation and amortization 12,701,307 3,506,354
----------------------------
1,833,185 11,018,047
----------------------------
Other assets 441,724 839,733
Net assets from discontinued operations - 8,392,448
----------------------------
$ 20,811,867 $38,747,166
============================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,954,364 $ 4,100,081
Accrued expenses 3,746,672 4,629,366
Current portion of debt obligations 1,103,609 1,002,877
Net liabilities from discontinued operations 2,616,572 -
----------------------------
Total current liabilities 10,421,217 9,732,324
----------------------------
Long-term debt obligations, net of current portion 5,149,751 13,570,355
Deferred tax liability - 1,283,008
Commitments and contingencies (Note 13)
Stockholders' equity
Preferred stock, $.001 par value-
Authorized-3,000,000 shares
Issued and outstanding-none - -
Common stock, $.001 par value-
Authorized-30,000,000 shares
Issued and outstanding-10,921,721 and 10,783,278 shares
at June 30, 2000 and December 31,1999, respectively 10,922 10,784
Addditional paid-in capital 41,964,675 41,439,959
Cumulative translation adjustment (1,520,592) (708,253)
Accumulated deficit (35,214,106) (26,581,011)
----------------------------
Total stockholders' equity 5,240,899 14,161,479
----------------------------
$ 20,811,867 $38,747,166
============================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE>
NMT Medical, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------------------- -------------------------
<S> <C> <C>
Revenues:
Product sales $ 9,000,572 $ 8,791,308 $ 18,756,399 $ 16,107,767
License fees 192,857 418,693 442,090 868,938
---------------------------- -------------------------
9,193,429 9,210,001 19,198,489 16,976,705
---------------------------- -------------------------
Expenses:
Cost of product sales 3,611,941 4,111,730 7,640,972 7,009,487
Research and development 1,372,265 1,137,478 2,646,891 2,097,670
General and administrative 2,135,121 2,039,424 4,548,231 4,227,361
Selling and marketing 2,483,248 1,553,693 4,501,792 3,658,068
Impairment of long-lived assets (Note 4) 7,054,106 - 7,054,106 -
---------------------------- -------------------------
16,656,681 8,842,325 26,391,992 16,992,586
---------------------------- -------------------------
Income (loss) from operations (7,463,252) 367,676 (7,193,503) (15,881)
---------------------------- -------------------------
Equity in net loss of Image Technologies Corporation - (165,421) - (299,550)
Currency transaction gain 117,735 26,282 251,149 227,044
Interest expense (480,177) (682,269) (839,828) (1,414,521)
Interest income 57,089 165,554 66,833 333,161
---------------------------- -------------------------
(305,353) (655,854) (521,846) (1,153,866)
---------------------------- -------------------------
Loss before provision (benefit) for
income taxes (7,768,605) (288,178) (7,715,349) (1,169,747)
Provision (benefit) for income taxes - 95,300 (14,850) (84,400)
---------------------------- -------------------------
Net loss from continuing operations (7,768,605) $ (383,478) $ (7,700,499) $(1,085,347)
Net income (loss) from discontinued operations, net of
income taxes (932,596) 66,000 (932,596) 233,000
---------------------------- -------------------------
Net Loss $ (8,701,201) $ (317,478) $ (8,633,095) $ (852,347)
============================ =========================
Basic and diluted net income (loss) per common share:
Continuing operations $ (0.71) $ (0.04) $ (0.71) $ (0.10)
============================ =========================
Discontinued operations $ (0.09) $ 0.01 $ (0.09) $ 0.02
============================ =========================
Net loss $ (0.80) $ (0.03) $ (0.79) $ (0.08)
============================ =========================
Basic and diluted weighted average common shares 10,919,187 10,766,852 10,870,577 10,725,542
outstanding ============================ =========================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE>
NMT Medical, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
2000 1999
------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,633,095) $ (852,347)
Net income (loss) from discontinued operations (932,596) 233,000
----------- ----------
Net loss from continuing operations (7,700,499) (1,085,347)
Adjustments to reconcile net loss to net cash used in
operating activities-
Equity in net loss of Image Technologies Corporation - 299,550
Depreciation and amortization 775,868 773,517
Noncash tax provision - 403,000
Noncash interest expense 394,472 362,722
Increase in accounts receivables reserves 64,239 228,760
Impairment of long-lived assets 7,054,106 -
Changes in assets and liabilities-
Accounts receivable 945,968 1,139,653
Inventories 610,656 (2,210,932)
Prepaid expenses and other current assets 19,473 (1,157,959)
Accounts payable (1,395,316) (2,587,785)
Accrued expenses (1,074,993) 195,390
----------- ----------
Net cash used in operating activities (306,026) (3,639,431)
----------- ----------
Net cash provided by (used in) discontinued
operations (1,555,575) 1,388,000
----------- ----------
Cash flows from investing activities:
Maturities of marketable securities - 2,268,870
Purchases of property, plant and equipment (10,091) 71,750
Increase in investment in Image Technologies Corporation - (62,000)
Decrease in other assets 133,099 129,336
Proceeds from sale of the UK operations 11,632,000 -
----------- ----------
Net cash provided by investing activities 11,755,008 2,407,956
----------- ----------
Cash flows from financing activities:
Payments of capital lease obligations (160,329) (105,808)
Proceeds from issuance of common stock 524,855 135,298
Payments made under financing arrangements (8,207,134) -
----------- ----------
Net cash provided by (used in) financing activities (7,842,608) 29,490
----------- ----------
Effect of exchange rate changes on cash 68,553 (499,844)
----------- ----------
Net increase (decrease) in cash and cash equivalents 2,119,352 (313,829)
Cash and cash equivalents, beginning of period 3,533,475 4,007,014
----------- ----------
Cash and cash equivalents, end of period $ 5,652,827 $3,693,185
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 569,854 $1,141,373
=========== ==========
Taxes $ 50,000 $ 98,148
=========== ==========
Noncash investing and financing activities:
Issuance of warrants in connections with debt waiver $ - $ 50,000
=========== ==========
Purchase of fixed assets under capital lease $ 89,847 $ -
=========== ==========
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Operations
NMT Medical, Inc. (the Company) designs, develops and markets innovative
medical devices that utilize advanced technologies and are delivered by
minimally invasive procedures. The Company's products are designed to offer
alternative approaches to existing complex treatments, thereby reducing
patient trauma, shortening procedure, hospitalization and recovery times
and lowering overall treatment costs. The Company's patented medical
devices include self-expanding stents, vena cava filters and septal repair
devices (the CardioSeal Septal Occluder). The Company's stents have been
commercially launched in Europe and in the United States (U.S.) for certain
indications, its vena cava filters are marketed in the U.S. and abroad and
the CardioSEAL Septal Occluder is sold commercially in the U.S. for certain
humanitarian uses only, and in Europe and other international markets.
Through its NMT Neurosciences division, the Company develops, manufactures,
markets and sells specialty implants and instruments for neurosurgery
including cerebral spinal fluid shunts, the Spetzler Titanium Aneurysm Clip
and endoscopes and instrumentation for minimally invasive surgery. On April
5, 2000, the Company sold the U.K. operations of its NMT Neurosciences
division, including the Selector Ultrasonic Aspirator, Ruggles Surgical
Instruments and cryosurgery product lines and certain assets and
liabilities for approximately $12 million cash (see Note 3). The results of
these discontinued operations have been included in the accompanying
financial statements for the three- and six-month periods ended June 30,
2000 and 1999, respectively.
As of June 30, 2000, the Company was not in compliance with certain of the
debt covenants contained in the subordinated note agreement discussed in
Note 5. The Company obtained a waiver of default from the debtholder.
2. Interim Financial Statements
The accompanying Consolidated Financial Statements as of June 30, 2000 and
for the three and six-month periods then ended are unaudited. In
management's opinion, these unaudited Consolidated Financial Statements
have been prepared on the same basis as the audited Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, as amended by Amendment No. 1 thereto
6
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
2. Interim Financial Statements--(continued)
on Form 10K/A, and include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results for
such interim periods. The results of operations for the three- and six-
month periods ended June 30, 2000 are not necessarily indicative of the
results expected for the fiscal year ending December 31, 2000.
3. Sale of the U.K. Operations of the NMT Neurosciences Division
On April 5, 2000, the Company sold the U.K. operations of its NMT
Neurosciences division, including the Selector Ultrasonic Aspirator,
Ruggles Surgical Instruments and cryosurgery product lines and certain
assets and liabilities for $12.0 million in cash. The Company recorded a
$3.4 million loss on this sale, comprised of net proceeds of approximately
$12.0 million less estimated transaction and other costs of $3.9 million,
and net assets sold of $11.4 million. The transaction costs consisted
principally of legal and accounting fees, severance arrangements with
certain employees and other estimated costs associated with discontinuing
the operation and consummating the sale. The net assets sold consisted of
the following:
Current assets $ 6,807,000
Property and equipment, net 1,203,000
Goodwill and other intangible assets, net 5,495,000
Total assets 13,505,000
Current liabilities assumed by the buyer (2,089,000)
------------
$ 11,416,000
============
The consolidated financial statements of the Company have been restated to
reflect the financial results of the U.K. operations as a discontinued
operation for the three months ended June 30, 1999 and the six months ended
June 30, 2000 and 1999, respectively, and as of December 31, 1999. Reported
revenues, expenses, and cash flows exclude the operating results of the
discontinued operations. The Company did not allocate interest expense
associated with the senior secured debt and subordinated note discussed in
Notes 5(a) and 5(b) to discontinued operations.
7
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
3. Sale of the U.K. Operations of the NMT Neurosciences Division--(continued)
The Company used approximately $7.3 million of the proceeds from this sale
to fully pay down its senior secured debt agreement and related interest
and $500,000 to pay down its subordinated note agreement as discussed in
Note 5. During the second quarter the Company revised its estimate for the
Company's net loss from discontinued operations by approximately $933,000
and as such has recorded a loss for the discontinued operation of $933,000
in the quarter ended June 30, 2000.
4. Impairment of Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 addresses
accounting and reporting requirements for impairment of long-lived assets
based on their fair market values. In accordance with SFAS No. 121, the
carrying value of long-lived assets is periodically reviewed by the Company
based on the expected future undiscounted cash flows. The NMT Neurosciences
division has continued to incur operating losses which has caused
management and the Board of Directors of the Company to consider various
strategic alternatives for that division. Based upon these considerations
and an analysis of the undiscounted cash flows, the Company determined that
there was an impairment of the long-lived assets of the NMT Neurosciences
division. In the second quarter of 2000, the Company recorded a $7.1
million impairment charge to reduce the carrying value of the long-lived
assets of the NMT Neurosciences division to their estimated fair value. The
long-lived assets which are impaired consist primarily of a building and
other fixed assets located in the Company's Biot, France Neurosciences
facility. The Company's estimates of fair value for such assets was based
upon discounted cash flows and was corroborated by outside parties. This
asset impairment charge recorded in the quarter ended June 30, 2000 was
based upon estimates and does not include losses which may occur upon the
decision to sell or liquidate the NMT Neurosciences division including exit
costs, transaction costs and additional losses on the sale or disposition
of the assets. These additional charges could be significant.
8
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
5. Debt
(a) Subordinated Note Payable
In July 1998, the Company financed a significant portion of the acquisition
of the neurosurgical instruments business of Elekta AB (PUBL) with $20
million of subordinated debt borrowed from an affiliate of a significant
stockholder of the Company. On September 13, 1999, the Company entered into
a $10 million senior secured debt facility with a bank (See Note 5(b)), $8
million of the proceeds of which was used to reduce the principal amount of
the subordinated note. The Company also used $6 million of its own cash to
further reduce the principal amount of this note. The Company paid down
$500,000 of this note from the proceeds obtained in connection with the
sale of the U.K. operations of its NMT Neurosciences division (see Note 3).
The remaining $4.9 million of the subordinated debt on the balance sheet as
of June 30, 2000 is due September 30, 2003 with quarterly interest payable
at 10.101% per annum and is subject to certain covenants, as amended. As of
June 30, 2000, the Company was not in compliance with certain of the debt
covenants of the subordinated note payable and has obtained a waiver of
default from the holder of the note.
(b) Senior Secured Debt
On September 13, 1999, the Company entered into a $10 million senior
secured debt facility with a bank, $8 million of the proceeds of which was
used to reduce the principal amount of the Company's subordinated note
payable (See Note 5(a)). The remaining $2 million of the senior secured
debt facility was available to be drawn down by the Company for working
capital purposes. The Company has not made any borrowings under this $2
million facility and the bank terminated the availability of this facility
subsequent to June 30, 2000. On April 5, 2000, the Company paid down this
note and related interest in its entirety from the proceeds obtained in
connection with the sale of the U.K. operations of its NMT Neurosciences
division (see Note 3).
6. Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
9
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
7. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
June 30, December 31,
2000 1999
---- ----
Components $ 2,014,482 $ 2,379,474
Finished Goods 1,839,122 2,254,874
----------- -----------
$ 3,853,604 $ 4,634,348
=========== ===========
8. Net Income (Loss) per Common and Common Equivalent Share
The Company applies SFAS No. 128, Earnings per Share. SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common
stock. Diluted loss per share is the same as basic loss per share for the
three- and six-month periods ended June 30, 2000 and 1999 as the effects of
the Company's potential common stock (2,265,317 shares and 2,285,991 shares
for the periods ended June 30, 2000 and 1999, respectively) are
antidilutive.
9. Foreign Currency
The accounts of the Company's subsidiaries are translated in accordance
with SFAS No. 52, Foreign Currency Translation. Accordingly, the accounts
of the Company's foreign subsidiaries are translated from their local
currency, which is the functional currency, into U.S. dollars, the
reporting currency, using the exchange rate at the balance sheet date.
Income and expense accounts are translated using an average rate of
exchange during the period.
Cumulative foreign currency translation gains or losses are reflected as a
separate component of consolidated stockholders' equity and amounted to a
cumulative loss of approximately $1.5 million and $708,000 for the six
month period ended June 30, 2000 and the year ended December 31, 1999,
respectively. Additionally, the Company had foreign currency transaction
gains of approximately $118,000 and $26,000 during the three months ended
June 30, 2000 and 1999, respectively. During the six months ended June 30,
2000 and 1999, the Company recorded foreign currency transaction gains of
$251,000 and $227,000, respectively.
10
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
9. Foreign Currency--(continued)
Foreign currency transaction gains and losses result from differences in
exchange rates between the functional currency and the currency in which a
transaction is denominated and are included in the consolidated statement
of operations in the period in which the exchange rate changes.
10. Comprehensive Loss
The only components of comprehensive loss reported by the Company are net
loss and foreign currency translation adjustments.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (8,701,201) $ (317,478) $ (8,633,095) $ (852,347)
Foreign currency translation adjustments ( 197,382) (542,000) (812,342) (1,554,000)
------------ ---------- ------------ ------------
Comprehensive loss $ (8,898,583) $ (859,478) $ (9,445,437) $ (2,406,347)
============ ========== ============ ============
</TABLE>
11. Accrued Expenses
Accrued expenses consist of the following at:
June 30, December 31,
2000 1999
---- ----
Payroll and payroll related $ 1,582,135 $ 1,607,773
Sales taxes 373,000 560,000
Inventory 590,985 --
Royalties 429,807 390,900
Other accrued expenses 770,745 2,070,693
----------- -----------
$ 3,746,672 $ 4,629,366
=========== ===========
12. Segment Reporting
The Company applies the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 established
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services
and geographic areas.
11
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
12. Segment Reporting--(continued)
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief
operating decision making group includes members of Senior Management and
the Board of Directors. The operating segments are managed separately
because each represents specific types of medical devices for specific
markets (i.e., the core technologies segment includes minimally-invasive
medical devices that were the Company's primary products prior to the
acquisition of its Neurosciences division while the neurosurgical segment
includes primarily neurosurgical medical devices that were the primary
products of the Neurosciences division). The Company's operating segments
include the core technologies product line and the neurosurgical product
line. Revenues for the core technologies product line are derived from
sales of the Simon Nitinol Filter (SNF) and the CardioSEAL Septal Occluder,
as well as from licensing revenues from the Company's self-expanding
stents. Revenues for the neurosurgical product line are derived from sales
of cerebral spinal fluid shunts, the Spetzler Titanium Aneurysm Clip and
endoscopes and instrumentation for minimally invasive surgery.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on stand-alone operating segment net income. Revenues are
attributed to geographic areas based on where the customer is located.
Segment information is presented as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment Revenues:
Core technologies products $ 4,806,429 $ 3,708,001 $ 9,940,489 $ 6,718,705
Neurosurgical products 4,387,000 5,502,000 9,258,000 10,258,000
------------- ------------ ------------- -------------
Total revenues $ 9,193,429 $ 9,210,001 $ 19,198,489 $ 16,976,705
============= ============ ============= =============
Segment Interest Income:
Core technologies products $ 57,089 $ 165,554 $ 66,833 $ 331,161
Neurosurgical products -- -- -- --
------------- ------------ ------------- -------------
Total $ 57,089 $ 165,554 $ 66,833 $ 331,161
============= ============ ============= =============
</TABLE>
12
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
12. Segment Reporting--(continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment Interest Expense:
Core technologies products $ (473,177) $ (679,269) $ (770,828) $ (1,403,521)
Neurosurgical products (7,000) (3,000) (69,000) (11,000)
------------ ------------ -------------- --------------
Total $ (480,177) $ (682,269) $ (839,828) $ (1,414,521)
============ ============ ============== ==============
Segment Income Tax Provision (Benefit):
Core technologies products $ -- $ 168,300 $ -- $ (107,400)
Neurosurgical products -- (73,000) (14,850) 23,000
------------ ------------ -------------- --------------
Total $ -- $ 95,300 $ (14,850) $ (84,400)
============ ============ ============== ==============
Segment Depreciation and Amortization:
Core technologies products $ 158,351 $ 154,312 $ 305,777 $ 307,301
Neurosurgical products 243,000 172,000 470,091 466,216
------------ ------------ -------------- --------------
Total $ 401,351 $ 326,312 $ 775,868 $ 773,517
============ ============ ============== ==============
Segment Equity in Net Loss of Investee:
Core technologies products $ -- $ (165,421) $ -- $ (299,550)
Neurosurgical products -- -- -- --
------------ ------------ -------------- --------------
Total $ -- $ (165,421) $ -- $ (299,550)
============ ============ ============== ==============
Segment Income (Loss):
Core technologies products $ (511,225) $ (666,478) $ (363,427) $ (1,741,347)
Neurosurgical products (8,189,976) 349,000 (8,269,668) 889,000
------------ ------------ -------------- --------------
Total $ (8,701,201) $ (317,478) $ (8,633,095) $ (852,347)
============ ============ ============== ==============
</TABLE>
Segment balance sheet information is as follows as of June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
June, December 31,
Segment Long-Lived Tangible Assets: 2000 1999
---- ----
<S> <C> <C>
Core technologies products $ 4,305,492 $ 3,963,402
Neurosurgical products 10,832,000 10,560,999
------------- --------------
Total $ 15,137,492 $ 14,524,401
============= ==============
</TABLE>
13
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
13. Contingencies
The Company is a party to the following legal proceedings which could have
a material adverse impact on the Company's results of operations or
liquidity if there were an adverse outcome. Although the Company intends to
pursue its rights in each of these matters vigorously, it cannot predict
the ultimate outcomes.
. In December 1998, the Company filed a patent infringement suit in the
United States District Court for the District of Massachusetts against
AGA Medical Corp. ("AGA"), claiming that AGA's Amplatzer aperture
occlusion devices infringe U.S. Patent No. 5,108,420, which is
licensed exclusively to the Company. The Company is seeking an
injunction to prevent further infringement as well as monetary
damages. In April 1999, AGA served its Answer and Counterclaims
denying liability and alleging that the Company has engaged in false
or misleading advertising and in unfair or deceptive business
practices. AGA's counterclaims seek an injunction and an unspecified
amount of damages. In May 1999, the Company answered AGA's
counterclaims denying liability. The case is currently in discovery.
. In papers dated November 24, 1999, Elekta AB (publ) filed a request
for arbitration in the London Court of International Arbitration
("LCIA") alleging that the Company breached its payment obligation
under the Sale and Purchase Agreement between the parties dated May 8,
1998 pursuant to which the Company purchased certain assets from
Elekta. Elekta seeks approximately $1.6 million in damages. On January
14, 2000, the Company filed its response with the LCIA in which the
Company denied Elekta's claims and indicated that it would assert a
counterclaim for Elekta's breach of the same contract. On February 17,
2000 an arbitrator was appointed, and a Statement of the Case was sent
to the LCIA by Elekta on March 23, 2000. On May 15, 2000, the Company
filed a statement of defenses and counterclaims asserting defenses and
counterclaims in the amount of approximately $2.3 million. On July 7,
2000, Elekta submitted a reply pleading that asserted approximately
$400,000 in additional claims against the Company. The parties are
currently in the pleadings stage.
14
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
13. Contingencies--(continued)
. On January 21, 2000, a personal injury suit was filed in the Supreme
Court of the State of New York, County of New York by Martin B. Levi,
et. al. against Johnson & Johnson, Inc., et. al., including a
subsidiary of the Company, claiming damages from placement of a
defective Palmaz-Schatz coronary stent during a cardiac catherization
procedure. Plaintiffs seek damages in excess of $31 million. The
Company has requested that plaintiffs dismiss the Company's subsidiary
from the action on the basis that the subsidiary never manufactured
and/or distributed the stent product.
. On July 17, 2000, Sodem Diffusion SA ("Sodem") filed a claim with the
Tribunal de Premiere Instance in Geneva, Switzerland, alleging that
NMT NeuroSciences Implants (France), a wholly owned subsidiary of the
Company ("NMT France"), breached its obligations under an exclusive
distribution agreement, dated as of November 10, 1998, pursuant to
which NMT France is acting as the exclusive worldwide distributor of
Sodem's products. Sodem seeks approximately $18 million in damages
in addition to costs and fees of their attorneys.
. On August 11, 2000, the Company filed a demand for arbitration before
the American Arbitration Association in Boston, Massachusetts to
obtain a determination that its Recovery Filter(TM) is not covered by
the 1992 Agreement giving C.R. Bard, Inc. exclusive distribution
rights to the Company's Simon Nitinol Filter (TM).
15
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
14. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative and Hedging Activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters beginning
with the quarter ending September 30, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The Company will adopt SFAS No. 133 in its quarter ending
September 30, 2000 and does not expect such adoption to have a material
impact on the Company's results of operations, financial position or cash
flows.
In March 2000, the FASB issued Interpretation No. 44, Accounting For
Certain Transactions Involving Stock Compensation - An Interpretation of
APB Opinion No. 25. The Interpretation clarifies the application of Opinion
25 in certain situations, as defined. The Interpretation is effective July
1, 2000, but covers certain events that occur after December 15, 1998. The
effects of applying this interpretation should be applied on a prospective
basis from the effective date. The Company does not expect the adoption of
the Interpretation during the third quarter to have a material effect on
the results of the Company.
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
This Quarterly Report on Form 10-Q, other than the historical financial
information, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other factors which
may cause actual results, performance or achievement of the Company to be
materially different from any future results, performance, or achievement
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include uncertainties in market demand and acceptance,
government regulation and approvals, and intellectual property rights and
litigation; the impact of healthcare reform programs and competitive products
and pricing; risks associated with technology and product development and
commercialization, potential product liability, management of growth, and
dependence on significant corporate relationships, and other risks detailed in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999 as
amended by Amendment No.1 thereto on Form 10-K/A.
Certain footnote disclosures normally included in financial statements prepared
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures in these financial statements are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
for the year ended December 31, 1999. The results of operations for the three-
and six-month periods ended June 30, 2000 are not necessarily indicative of the
results for a full fiscal year.
Results of Operations
Three months ended June 30, 2000 compared with three months ended June 30, 1999
Revenues. Revenues for the three months ended June 30, 2000 remained relatively
constant at $9.2 million for the three months ended June 30, 2000 and 1999.
Product sales increased to $9.0 million for the three months ended June 30, 2000
from $8.8 million for the three months ended June 30, 1999. The Company had a
57% and 108% increase in the unit sales and dollar sales, respectively of
CardioSEAL Septal Occluders during the three months ended June 30, 2000 as
compared with the three months ended June 30, 1999 offset by a 20% decrease in
dollar sales of the Company's neurosurgical products. License fees for the three
months ended June 30, 2000 amounted to $193,000 and consist of minimum quarterly
royalty payments of $157,000 and cost-sharing payments from Boston Scientific of
approximately $36,000. License fees for the three months ended June 30, 1999
amounted to $419,000 consisting of minimum quarterly royalty payments of
$375,000 and cost-sharing payments from Boston Scientific of approximately
$44,000. This decrease in the royalty payments during the quarter ended June 30,
2000 as compared with the quarter ended June 30, 1999 is attributable to the
expiration of the Company's guaranteed minimum license agreement with Boston
Scientific as of the beginning of 2000
17
<PAGE>
whereby the royalty revenue is currently being recorded by the Company on an
actual, rather than guaranteed, basis.
Cost of Product Sales. Cost of product sales decreased to $3.6 million for the
three months ended June 30, 2000 from $4.1 million for the three months ended
June 30, 1999. The decrease is primarily due to decreased sales of the Company's
neurosurgical products, which have a higher cost of product sales as a percent
of sales than do the CardioSEAL Septal Occluders and vena cava filters. The
Company had increased sales of CardioSEAL Septal Occluders, which have lower
cost of product sales as a percent of sales than the vena cava filters. As a
result, cost of product sales, as a percent of product sales, decreased to 40%
for the three months ended June 30, 2000 from 47% for the three months ended
June 30, 1999.
Research and Development. Research and development expenses increased to $1.4
million for the three months ended June 30, 2000 from $1.1 million for the three
months ended June 30, 1999. The increase reflects increased regulatory and
clinical trial expenses relating to clinical trials of the CardioSEAL and
STARFlex Septal Occluder as well as pending product enhancements. In addition,
the Company increased its development activity for vena cava filters, including
regulatory support for its removable vena cava filter, and for other products
under development.
General and Administrative. General and administrative expenses increased
slightly to $2.1 million for the three months ended June 30, 2000 from $2.0
million for the three months ended June 30, 1999 primarily due to increased
legal and professional fees resulting from the Company's defense of patents and
other legal proceedings (see Liquidity and Capital Resources and Part II, Item
1, "Legal Proceedings").
Selling and Marketing. Selling and marketing expenses increased to $2.5 million
for the three months ended June 30, 2000 from $1.6 million for the three months
ended June 30, 1999. The increase is primarily attributable to increased
marketing activities related to the U.S. commercialization of theCardioSEAL
Septal Occluder for which the Company received FDA approval under HUD
regulations late in the third quarter and the beginning of the fourth quarter of
1999.
Impairment of Long-Lived Assets. In the second quarter of 2000, the Company
recorded a $7.1 million impairment charge to reduce the carrying value of the
long-lived assets of the NMT Neurosciences division to their estimated fair
value. The long-lived assets which are impaired consist primarily of a building
and other fixed assets located in the Company's Biot, France Neurosciences
facility. The Company's estimates of fair value for such assets were based upon
discounted cash flows and was corroborated by outside parties. This asset
impairment charge recorded in the quarter ended June 30, 2000 was based upon
estimates and does not include losses which may occur upon the decision to sell
or liquidate the NMT Neurosciences division including exit costs, transaction
costs and additional losses on the sale or disposition of the assets. These
additional charges could be significant.
Interest Expense. Interest expense was $480,000 for the three months ended June
30, 2000 as compared to $682,000 for the three months ended June 30, 1999. The
decrease was primarily
18
<PAGE>
the result of the Company having lower debt balances during the three months
ended June 30, 2000 as compared with the three months ended June 30, 1999 due to
the reduction of its $20 million subordinated note payable to $6 million on
September 13, 1999 (see Note 5 in the accompanying Notes to Consolidated
Financial Statements). Additionally, on April 5, 2000, the Company further
reduced this subordinated note payable by $500,000 to $5.5 million with certain
of the proceeds from the sale of the U.K. operations of its NMT Neurosciences
division (see Note 3 in the accompanying Notes to Consolidated Financial
Statements). This note accrues interest at 10.101% per annum. In addition, the
amortization of original issue discount related to the subordinated note of
$37,000 and $118,000, for the three months ended June 30, 2000 and 1999,
respectively, is included in interest expense in the accompanying consolidated
statements of operations.
Interest Income. Interest income was $57,000 for the three months ended June 30,
2000 as compared to $166,000 for the three months ended June 30, 1999. The
decrease was due to the Company's lower cash resulting from the Company using $6
million and $500,000 in September 1999 and April 2000, respectively, to reduce
the principal amount of its $20 million subordinated note payable (see Note 5 in
the accompanying Notes to Consolidated Financial Statements).
Six months ended June 30, 2000 compared with six months ended June 30, 1999
Revenues. Revenues for the six months ended June 30, 2000 increased to $19.2
million from $17.0 million for the six months ended June 30, 1999. Product sales
increased to $18.8 million for the six months ended June 30, 2000 from $16.1
million for the six months ended June 30, 1999. The Company had a 105% and 146%
increase in unit sales and dollar sales, respectively of CardioSEAL Septal
Occluders during the six months ended June 30, 2000 as compared to the six
months ended June 30, 1999 offset by a 10% decrease in dollar sales of the
Company's neurosurgical products. License fees for the six months ended June 30,
2000 amounted to approximately $442,000 and consist of minimum quarterly royalty
payments of $403,000 and cost-sharing payments from Boston Scientific of
approximately $39,000. License fees for the six months ended June 30, 1999
amounted to $869,000 and consist of minimum quarterly royalty payments of
$750,000 and cost-sharing payments from Boston Scientific of approximately
$119,000. This decrease in the royalty payments during the six months ended June
30, 2000 as compared with the six months ended June 30, 1999 is attributable to
the expiration of the Company's guaranteed minimum license agreement with Boston
Scientific as of the beginning of 2000 whereby the royalty revenue is currently
being recorded by the Company on an actual, rather than guaranteed, basis.
Cost of Product Sales. Cost of product sales increased to $7.6 million for the
six months ended June 30, 2000 from $7.0 million for the six months ended June
30, 1999 primarily due to increases in unit sales of CardioSEAL Septal Occluders
and vena cava filters during the six months ended June 30, 2000 as compared with
the six months ended June 30, 1999 partially offset by decreased sales of the
Company's neurosurgical products, which have a higher cost of product sales as a
percent of sales than the CardioSEAL Septal Occluders and vena cava filters. As
a result, cost of product sales, as a percent of product sales, decreased to 40%
for the six months ended June 30, 2000 from 43% for the six months ended June
30, 1999. This decrease is
19
<PAGE>
due to increased sales of the CardioSEAL Septal Occluder, which has a lower cost
of product sales as a percent of sales than do the vena cava filter and
neurosurgical products.
Research and Development. Research and development expenses increased to $2.6
million for the six months ended June 30, 2000 from $2.1 million for the six
months ended June 30, 1999. The increase reflects increased regulatory and
clinical trial expenses relating to clinical trials of the CardioSEAL and
STARFlex Septal Occluder as well as pending product enhancements. In addition,
the Company increased its development activity for vena cava filters, including
regulatory support for its removable vena cava filter, and for other products
under development.
General and Administrative. General and administrative expenses increased to
$4.6 million for the six months ended June 30, 2000 from $4.2 million for the
six months ended June 30, 1999 primarily due to increased legal and professional
fees resulting from the Company's defense of patents and other legal proceedings
(see Liquidity and Capital Resources and Part II, Item 1, "Legal Proceedings").
Selling and Marketing. Selling and marketing expenses increased to $4.5 million
for the six months ended June 30, 2000 from $3.7 million for the six months
ended June 30, 1999. The increase is primarily attributable to increased
marketing activities related to the U.S. commercialization of the CardioSEAL
Septal Occluder for which the Company received FDA approval under HUD
regulations late in the third quarter and the beginning of the fourth quarter of
1999.
Impairment of Long-Lived Assets. In the second quarter of 2000, the Company
recorded a $7.1 million impairment charge to reduce the carrying value of the
long-lived assets of the NMT Neurosciences division to their estimated fair
value. The long-lived assets which are impaired consist primarily of a building
and other fixed assets located in the Company's Biot, France Neurosciences
facility. The Company's estimates of fair value for such assets were based upon
discounted cash flows and was corroborated by outside parties. This asset
impairment charge recorded in the quarter ended June 30, 2000 was based upon
estimates and does not include losses which may occur upon the decision to sell
or liquidate the NMT Neurosciences division including exit costs, transaction
costs and additional losses on the sale or disposition of the assets. These
additional charges could be significant.
Interest Expense. Interest expense was $840,000 for the six months ended June
30, 2000 as compared to $1.4 million for the six months ended June 30, 1999.
The decrease was primarily the result of the Company having lower debt balances
during the six months ended June 30, 2000 as compared with the six months ended
June 30, 1999 due to the reduction of its $20 million subordinated note payable
to $6 million on September 13, 1999 (see Note 5 in the accompanying Notes to
Consolidated Financial Statements). Additionally, on April 5, 2000, the Company
further reduced this subordinated note payable by $500,000 to $5.5 million with
certain of the proceeds from the sale of the U.K. operations of its NMT
Neurosciences division (see Note 3 in the accompanying Notes to Consolidated
Financial Statements). This note accrues interest at 10.101% per annum. In
addition, the amortization of original issue discount related to the
subordinated note of $77,000 and $231,000, for the six months ended June 30,
2000 and 1999, respectively, is included in interest expense in the accompanying
statements of operations.
20
<PAGE>
Interest Income. Interest income was $67,000 for the six months ended June 30,
2000 as compared to $333,000 for the three months ended June 30, 1999. The
decrease was due to the Company's lower cash balances resulting from the Company
using $6 million and $500,000 in September 1999 and April 2000, respectively, to
reduce the principal amount of its $20 million subordinated note payable (see
Note 5 in the accompanying Notes to Consolidated Financial Statements).
Liquidity and Capital Resources
The Company had cash and cash equivalents and marketable securities equal to
$5.7 million at June 30, 2000 as compared to $3.5 million at December 31, 1999.
During the six months ended June 30, 2000, the Company's operations utilized
cash of approximately $306,000 which consists of approximately $7.7 million
of cash generated by operations prior to approximately $8.3 million of noncash
charges and before changes in working capital items.
In July 1998, the Company financed a portion of the acquisition of the NMT
Neurosciences division with $16.1 million of the Company's cash and a $20
million subordinated note issued to an affiliate of a significant stockholder of
the Company. The subordinated note is due September 30, 2003 with quarterly
interest payable at 10.101% per annum. The subordinated debt includes certain
covenants relating to maintenance of certain ratios and cash levels. On
September 13, 1999, the Company entered into a $10 million senior secured debt
facility with a bank, $8 million of the proceeds of which was used to reduce the
principal amount of the $20 million subordinated note. The Company also used $6
million of its own cash to further reduce the principal amount of the $20
million subordinated note. The bank terminated the availability of this facility
subsequent to June 30, 2000 (see Note 5 in the accompanying Notes to
Consolidated Financial Statements).
On April 5, 2000, the Company used the proceeds from the sale of the U.K.
operations of its NMT Neurosciences division (see Note 3 of the Notes to
Consolidated Financial Statements in the accompanying financial statements) to
reduce the subordinated note payable and the senior secured debt, including its
related interest, by $500,000 and $7.3 million, respectively, leaving
approximately $3.8 million from the proceeds for working capital purposes. The
balance outstanding under the subordinated note at June 30, 2000 was
approximately $4.9 million. As of June 30, 2000, the Company was not in
compliance with certain of the debt covenants contained in the subordinated note
agreement and negotiated a waiver of default with the debtholder.
The Company is a party to several legal proceedings which could have a material
adverse impact on the Company's results of operations or liquidity if there were
and adverse outcome. Although
21
<PAGE>
the Company intends to pursue its rights in each of these matters vigorously, it
cannot predict the ultimate outcomes (see Note 13 in the accompanying Notes to
Consolidated Financial Statements and Part II, Item 1, "Legal Proceedings").
The Company is a party to various contractual arrangements including royalty
arrangements and employment and consulting agreements for current employees and
consultants which are likely to increase as additional agreements are entered
into and additional personnel are retained. On April 8, 2000, Thomas M. Tully,
President and Chief Executive Officer, resigned from the Company. The amount of
his severance of approximately $300,000 and related recruiting fees for his
replacement were charged to operations during the three months ended March 31,
2000.
The Company also has committed to purchase certain minimum quantities of the
vena cava filter from a supplier through June 2001. The aggregate minimum
purchases under the agreement are approximately $2.6 million. All of these
arrangements require cash payments by the Company over varying periods of time.
Certain of these arrangements are cancelable on short notice and certain require
termination or severance payments as part of any early termination.
In addition to the above, the Company may require additional funds for its
research and product development programs, preclinical and clinical testing,
operating expenses, regulatory processes, manufacturing and marketing programs
and potential licenses and acquisitions. Any additional equity financing, if
available, may be dilutive to stockholders, and any additional debt financing,
if available, may involve restrictive covenants. The Company's capital
requirements will depend on numerous factors, including the outcome of the
Company's strategic review of the NMT Neurosciences business, the outcome of
pending legal proceedings, the sales of its products, the progress of its
research and development programs, the progress of clinical testing, the time
and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, developments
and changes in the Company's existing research, licensing and other
relationships and the terms of any collaborative, licensing and other similar
arrangements that the Company may establish.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union
adopted the "euro" as their national currency unit and irrevocably established
fixed conversion rates between their existing sovereign currencies and the euro.
During the three-year transition period between January 1, 1999 and January 1,
2002, the euro will be a "cashless" currency, existing only as a unit of
account. Payments made to accounts in these member states may be made either in
the denominated legacy currency unit of the account or in euros. Beginning on
January 1, 2002, euro banknotes and coins will be introduced, and legacy
currency banknotes and coins will be withdrawn from circulation. No later than
July 1, 2002, the euro will be the sole national currency unit in these member
states, and the legacy currency banknotes and coins will no longer be accepted
as legal tender.
The Company conducts a substantial portion of its business within the member
countries of the European Union, and accordingly its existing systems are
generally capable of accommodating multiple currencies, including the euro.
22
<PAGE>
The Company is assessing the potential impact from the euro conversion in a
number of areas, including the following: (1) the competitive impact of cross-
border price transparency, which may make it more difficult for businesses to
charge different prices for the same products on a country-by-country basis; (2)
the impact on currency exchange costs and currency exchange rate risk; and (3)
the impact on existing contracts.
As of June 30, 2000, the impact of the euro conversion has not had a material
impact on the operations of the Company.
23
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The Company is subject to market risk in the form of interest rate risk and
foreign currency risk. Interest rate risk is immaterial to the Company.
Although the Company has diminished its international operations following the
recent sale of the UK operations of its Neurosciences division and concomitantly
reduced its foreign currency exposure, it remains an international concern.
Accordingly, the Company faces exposure to adverse movements in foreign currency
exchange rates. See Note 9 to the Notes to Consolidated Financial Statements.
These exposures may change over time and could have a material adverse impact on
the Company's financial condition.
The Company's most significant foreign currency exposures relate to its
manufacturing activities and assets in France. The Company translates the
accounts of its foreign subsidiaries in accordance with SFAS No. 52, "Foreign
Currency Translation." In translating these foreign currency accounts into U.S.
dollars, assets and liabilities are translated at the rate of exchange in effect
at the end of each reporting period, while stockholders' equity is translated at
historical rates. Revenue and expense accounts are translated using the
weighted average exchange rate in effect during the year. The Company records
the effects of changes in balance sheet items (i.e., cumulative foreign currency
translation gains and losses) as a component of consolidated stockholders'
equity. Other than as described above, the Company does not believe that there
have been material changes in reported market risks faced by it since December
31, 1999, as reported in its Annual Report on Form 10-K (as amended).
24
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
-----------------
The Company is a party to the following legal proceedings that could have a
material adverse impact on the Company's results of operations or liquidity if
there were an adverse outcome. Although the Company intends to pursue its
rights in each of these matters vigorously, it cannot predict the ultimate
outcomes.
. In December 1998, the Company filed a patent infringement suit in the
United States District Court for the District of Massachusetts against AGA
Medical Corp. ("AGA"), claiming that AGA's Amplatzer aperture occlusion
devices infringe U.S. Patent No. 5,108,420, which is licensed exclusively
to the Company. The Company is seeking an injunction to prevent further
infringement as well as monetary damages. In April 1999, AGA served its
Answer and Counterclaims denying liability and alleging that the Company
has engaged in false or misleading advertising and in unfair or deceptive
business practices. AGA's counterclaims seek an injunction and an
unspecified amount of damages. In May 1999, the Company answered AGA's
counterclaims denying liability. The case is currently in discovery.
. In papers dated November 24, 1999, Elekta AB (publ) filed a request for
arbitration in the London Court of International Arbitration ("LCIA")
alleging that the Company breached its payment obligation under the Sale
and Purchase Agreement between the parties dated May 8, 1998 pursuant to
which the Company purchased certain assets from Elekta. Elekta seeks
approximately $1.6 million in damages. On January 14, 2000, the Company
filed its response with the LCIA in which the Company denied Elekta's
claims and indicated that it would assert a counterclaim for Elekta's
breach of the same contract. On February 17, 2000 an arbitrator was
appointed, and a Statement of the Case was sent to the LCIA by Elekta on
March 23, 2000. On May 15, 2000, the Company filed a statement of defenses
and counterclaims asserting defenses and counterclaims in the amount of
approximately $2.3 million. On July 7, 2000, Elekta submitted a reply
pleading that asserted approximately $400,000 in additional claims against
the Company. The parties are currently in the pleadings stage.
. On January 21, 2000, a personal injury suit was filed in the Supreme Court
of the State of New York, County of New York by Martin B. Levi, et. al.
against Johnson & Johnson, Inc., et. al., including a subsidiary of the
Company, claiming damages from placement of a defective Palmaz-Schatz
coronary stent during a cardiac catherization procedure. Plaintiffs seek
damages in excess of $31 million. The Company has requested that plaintiffs
dismiss the Company's subsidiary from the action on the basis that the
subsidiary never manufactured and/or distributed the stent product.
. On July 17, 2000, Sodem Diffusion SA ("Sodem") filed a claim with the
Tribunal de Premiere Instance in Geneva, Switzerland, alleging that NMT
NeuroSciences Implants (France), a wholly owned subsidiary of the Company
("NMT France"), breached its obligations under an exclusive distribution
agreement, dated as of November 10, 1998, pursuant to which NMT France is
acting as the exclusive worldwide distributor of Sodem's products. Sodem
seeks approximately US$18 million in damages in addition to costs and
25
<PAGE>
fees of their attorneys.
. On August 11, 2000, the Company filed a demand for arbitration before the
American Arbitration Association in Boston, Massachusetts to obtain a
determination that its Recovery Filter(TM) is not covered by the 1992
Agreement giving C.R. Bard, Inc. exclusive distribution rights to the
Company's Simon Nitinol Filter (TM).
Item 3. Defaults Upon Senior Securities.
--------------------------------
(a) Material Default with Respect to Indebtedness. As of June 30, 2000,
---------------------------------------------
the Company was not in compliance with certain covenants contained in its
subordinated note agreement with certain entities affiliated with Whitney & Co.
("Whitney"). The Company obtained a waiver of default from Whitney. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources, and Note 5(a) of the Notes to
Consolidated Financial Statements in the accompanying financial statements. The
waiver of default is filed as an exhibit to this Quarterly Report on Form 10-Q.
Item 5. Other Information.
-----------------
On June 28, 2000, the Board of Directors of the Company approved amendments
to the then outstanding option agreements, granting options under each of the
Company's 1996 Stock Option Plan and 1998 Stock Incentive Plan, to provide for
automatic acceleration of vesting upon any merger, reorganization, liquidation
or similar event involving the Company.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
--------
Exhibit No. Description of Exhibit
---------- ----------------------
10.1 Waiver, made as of August 17, 2000, by and between NMT Medical,
Inc. and Whitney Subordinated Debt Fund, L.P.
27 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
. On April 12, 2000, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission (the "SEC") reporting the resignation,
effective as of April 8, 2000, of Thomas M. Tully as Chief Executive
Officer and President and as a member of the Board of Directors of the
Company.
. On April 19, 2000, the Company filed a Current Report on Form 8-K with the
SEC reporting that on April 5, 2000, the Company completed the sale of the
Selector(R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instruments and
cryosurgery product lines, including
26
<PAGE>
certain assets and liabilities, to Integra LifeSciences Holdings
Corporation, a Delaware corporation (the "Sale"). The audited consolidated
financial statements of the Company as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999
reflecting the Sale were filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K (incorporated by reference from the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31,
1999.
. On May 12, 2000, the Company filed a Current Report on Form 8-K with the
SEC reporting that on May 10, 2000, the Board of Directors of the Company
expanded the Company's interim management team.
27
<PAGE>
SIGNATURES
Pursuant to 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.
NMT MEDICAL, INC.
Date: August 21, 2000 By: /s/ Randall W. Davis
--------------------
Randall W. Davis
Acting President
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
---------- ----------------------
10.1 Waiver, made as of August 17, 2000, by and between NMT Medical,
Inc. and Whitney Subordinated Debt Fund, L.P.
27 Financial Data Schedule
