<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 September 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 (I.R.S. Employer
of Incorporation or Organization) Identification 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 November 8, 2000, there were 10,954,462 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 September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 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. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 17
Part II. Other Information
Item 1. Legal Proceedings. 18
Item 3. Defaults Upon Senior Securities. 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K. 20
Signature 21
</TABLE>
2
<PAGE>
NMT Medical, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
At At
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,519,148 $ 3,533,475
Accounts receivable, net of reserves
of $1,227,000 and $934,000 as of September 30, 2000 and
December 31, 1999, respectively 5,473,556 7,900,099
Inventories 3,061,908 4,634,348
Prepaid expenses and other current assets 1,995,041 2,429,016
------------ ------------
Total current assets 16,049,653 18,496,938
------------ ------------
Property, plant and equipment, at cost:
Land and Buildings 4,650,000 4,650,000
Laboratory and computer equipment 3,474,951 3,284,294
Office furniture and equipment 1,020,662 1,062,228
Leasehold improvements 3,111,897 3,268,897
Equipment under capital lease 2,350,512 2,258,982
------------ ------------
14,608,022 14,524,401
Less - Accumulated depreciation and amortization 12,862,532 3,506,354
------------ ------------
1,745,490 11,018,047
------------ ------------
Other assets 276,472 839,733
Net assets from discontinued operations - 8,392,448
------------ ------------
$ 18,071,615 $ 38,747,166
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,202,111 $ 4,100,081
Accrued expenses 4,714,225 4,629,366
Current portion of debt obligations 947,230 1,002,877
Net liabilities from discontinued operations 2,198,031 -
------------ ------------
Total current liabilities 10,061,597 9,732,324
------------ ------------
Long-term debt obligations, net of current portion 5,139,182 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-10,941,721 and 10,783,278 shares
at September 30, 2000 and December 31,1999, respectively 10,942 10,784
Additional paid-in capital 42,007,655 41,439,959
Cumulative translation adjustment (1,726,595) (708,253)
Accumulated deficit (37,421,166) (26,581,011)
------------ ------------
Total stockholders' equity 2,870,836 14,161,479
------------ ------------
$ 18,071,615 $ 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 8,992,108 $ 8,883,630 $ 27,748,507 $24,991,642
License fees 202,184 425,000 644,274 1,293,693
----------- ----------- ------------ -----------
9,194,292 9,308,630 28,392,781 26,285,335
----------- ----------- ------------ -----------
Expenses:
Cost of product sales 4,263,164 3,606,845 11,904,136 10,616,332
Research and development 1,333,965 1,199,464 3,980,856 3,297,134
General and administrative 3,496,523 2,245,872 8,044,754 6,473,234
Selling and marketing 2,366,876 2,121,700 6,868,668 5,779,768
Write-down of note
receivable from Image
Technologies Corporation - 1,364,369 - 1,364,369
Impairment of long-lived
assets (Note 4) - - 7,054,106 -
----------- ----------- ------------ -----------
11,460,528 10,538,250 37,852,520 27,530,837
----------- ----------- ------------ -----------
Loss from operations (2,266,236) (1,229,620) (9,459,739) (1,245,502)
----------- ----------- ------------ -----------
Other Income (Expense):
Equity in net loss of Image
Technologies Corporation - (188,979) - (488,529)
Currency transaction gain (loss 189,188 (220,902) 440,337 6,142
Interest expense (199,058) (622,193) (1,038,886) (2,036,714)
Interest income 69,046 116,462 135,879 449,623
----------- ----------- ------------ -----------
59,176 (915,612) (462,670) (2,069,478)
----------- ----------- ------------ -----------
Loss before benefit for
income taxes (2,207,060) (2,145,232) (9,922,409) (3,314,980)
Benefit for income taxes - (23,700) (14,850) (108,100)
----------- ----------- ------------ -----------
Loss before extraordinary
loss on early extinguishment
of debt (2,207,060) (2,121,532) (9,907,559) (3,206,880)
Extraordinary loss on early
extinguishment of debt - (2,618,428) - (2,618,428)
----------- ----------- ------------ -----------
Net loss from continuing
operations (2,207,060) (4,739,960) (9,907,559) (5,825,308)
Net income (loss) from
discontinued operations,
net of income taxes - 70,000 (932,596) 303,000
----------- ----------- ------------ -----------
Net Loss $(2,207,060) $(4,669,960) $(10,840,155) $(5,522,308)
=========== =========== ============ ===========
Basic and diluted net income
(loss) per common share:
Continuing operations
before extraordinary item $ (0.20) $ (0.20) $ (0.91) $ (0.30)
=========== =========== ============ ===========
Extraordinary item - $ (0.24) - $ (0.24)
=========== =========== ============ ===========
Discontinued operations $ - $ 0.01 $ (0.09) $ 0.03
=========== =========== ============ ===========
Net loss $ (0.20) $ (0.43) $ (1.00) $ (0.52)
=========== =========== ============ ===========
Basic and diluted weighted
average common shares
outstanding 10,939,330 10,769,239 10,893,663 10,710,234
=========== =========== ============ ===========
</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 Nine Months Ended
September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,840,155) $ (5,522,308)
Net income (loss) from discontinued operations (932,596) 303,000
------------ ------------
Net loss from continuing operations (9,907,559) (5,825,308)
Adjustments to reconcile net loss to net cash used in
operating activities-
Equity in net loss of Image Technologies Corporation - 488,529
Write down of note receivable from Image Technologies Corporation - 1,364,369
Depreciation and amortization 952,094 1,285,948
Deferred tax benefit - (390,000)
Noncash tax provision - 330,000
Noncash interest expense related to early extinguishment of debt - 2,358,940
Noncash interest expense 433,232 504,722
Increase (decrease) in accounts receivables reserves 389,239 (422,109)
Impairment of long-lived assets 7,054,106 -
Changes in assets and liabilities-
Accounts receivable 1,625,547 1,340,963
Inventories 1,254,636 (1,816,061)
Prepaid expenses and other current assets 346,265 (308,328)
Accounts payable (2,281,568) (2,338,531)
Accrued expenses 102,010 675,166
------------ ------------
Net cash used in operating activities (31,998) (2,751,700)
------------ ------------
Net cash (used in) provided by discontinued
operations (1,974,117) 1,384,000
------------ ------------
Cash flows from investing activities:
Maturities of marketable securities - 6,135,921
Purchases of property, plant and equipment (83,619) (564,682)
Increase in investment in Image Technologies Corporation, net - (62,000)
Decrease (increase) in other assets 283,349 (152,699)
Proceeds from sale of the UK operations 11,632,000 -
------------ ------------
Net cash provided by investing activities 11,831,730 5,356,540
------------ ------------
Cash flows from financing activities:
Payments of capital lease obligations (366,037) (156,436)
Proceeds from issuance of common stock 567,855 135,299
Payments of subordinated debt, net (500,000) (14,000,000)
(Payments of) borrowings under senior debt, net (7,707,134) 7,504,881
------------ ------------
Net cash used in financing activities (8,005,316) (6,516,256)
------------ ------------
Effect of exchange rate changes on cash 165,374 (219,674)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,985,673 (2,747,090)
Cash and cash equivalents, beginning of period 3,533,475 4,007,014
------------ ------------
Cash and cash equivalents, end of period $ 5,519,148 $ 1,259,924
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 634,993 $ 1,705,955
============ ============
Taxes $ 50,000 $ 121,148
============ ============
Noncash investing and financing activities:
Issuance of warrants in connections with debt waiver $ - $ 50,000
============ ============
Purchase of fixed assets under capital lease $ 89,847 $ 22,988
============ ============
</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 devices for neurosurgery including cerebral
spinal fluid shunts on the Spetzler Titanium Aneurysm Clip. 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 in cash (see Note 3). The results of these
discontinued operations have been included in the accompanying financial
statements for the three months ended September 30, 1999 and the nine months
ended September 30, 2000 and 1999, respectively.
The accompanying consolidated financial statements include accounts of the
Company and its wholly owned subisdiaries. All intercompany transactions and
balances have been eliminated in consolidation.
As of September 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 September 30, 2000
and for the three and nine-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 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 nine- month
periods ended September 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 incurred 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 September 30, 1999 and the nine months
ended September 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. Revenues from discontinued
operations were approximately $2,778,000 and $9,644,000 for the nine months
ended September 30, 2000 and 1999, respectively. 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. 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 nine months ended September 30, 2000.
6
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
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 quarter ended June 30, 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 a
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, if incurred, could be significant.
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
September 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
September 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 on August 12, 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.
7
<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:
September 30, December 31,
2000 1999
------------- ------------
Components $1,714,977 $2,379,474
Finished Goods 1,346,931 2,254,874
---------- ----------
$3,061,908 $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 nine-month periods ended September 30, 2000 and 1999 as the
effects of the Company's potential common stock (2,482,302 shares and
2,283,353 shares for the periods ended September 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 $1.7 million and $708,000 as of September
30, 2000 and December 31, 1999, respectively. Additionally, the Company had
foreign currency transaction gains (losses) of approximately $189,000 and
$(221,000) during the three months ended September 30, 2000 and 1999,
respectively. During the nine months ended September 30, 2000 and 1999, the
Company recorded foreign currency transaction gains of approximately
$440,000 and $6,000, respectively.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net loss $(2,207,060) $(4,669,960) $(10,840,155) $(5,522,308)
Foreign currency
translation adjustments (206,003) 728,000 (1,018,342) (826,000)
----------- ----------- ------------ -----------
Comprehensive loss $(2,413,063) $(3,941,960) $(11,858,497) $(6,348,308)
=========== =========== ============ ===========
</TABLE>
8
<PAGE>
NMT Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
11. Accrued Expenses
Accrued expenses consist of the following at:
September 30, December 31,
2000 1999
------------- ------------
Payroll and payroll related $2,232,119 $1,607,773
Sales taxes 523,555 560,000
Other accrued expenses 1,958,551 2,461,593
---------- ----------
$4,714,225 $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. 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 on the Spetzler Titanium
Aneurysm Clip.
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Segment Revenues:
Core technologies products $4,997,292 $4,035,630 $14,937,781 $10,754,335
Neurosurgical products 4,197,000 5,273,000 13,455,000 15,531,000
---------- ---------- ----------- -----------
Total revenues $9,194,292 $9,308,630 $28,392,781 $26,285,335
========== ========== =========== ===========
Segment Interest Income:
Core technologies products $ 69,046 $ 116,462 $ 135,879 $ 449,623
Neurosurgical products -- -- -- --
---------- ---------- ----------- -----------
Total $ 69,046 $ 116,462 $ 135,879 $ 449,623
========== ========== =========== ===========
</TABLE>
9
<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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Segment Interest Expense:
Core technologies products $ (199,058) $ (606,193) $ (969,886) $(2,009,714)
Neurosurgical products -- (16,000) (69,000) (27,000)
------------ ----------- ------------ -----------
Total $ (199,058) $ (622,193) $ (1,038,886) $(2,036,714)
============ =========== ============ ===========
Segment Income Tax Provision (Benefit):
Core technologies products $ -- $ (49,700) $ -- $ (157,100)
Neurosurgical products -- 26,000 (14,850) 49,000
------------ ----------- ------------ -----------
Total $ -- $ (23,700) $ (14,850) $ (108,100)
============ =========== ============ ===========
Segment Depreciation and Amortization:
Core technologies products $ 176,226 $ 341,383 $ 482,003 $ 648,684
Neurosurgical products -- 171,048 470,091 637,264
------------ ----------- ------------ -----------
Total $ 176,226 $ 512,431 $ 952,094 $ 1,285,948
============ =========== ============ ===========
Segment Equity in Net Loss of
and Write-Down of Note Receivable
from Investee:
Core technologies products $ -- $ 1,553,348 $ -- $ 1,852,898
Neurosurgical products -- -- -- --
------------ ----------- ------------ -----------
Total $ -- $ 1,553,348 $ -- $ 1,852,898
============ =========== ============ ===========
Segment Income (Loss):
Core technologies products $ (1,007,060) $(4,982,960) $ (1,370,487) $(6,724,308)
Neurosurgical products (1,200,000) 313,000 (9,469,668) 1,202,000
------------ ----------- ------------ -----------
Total $ (2,207,060) $(4,669,960) $(10,840,155) $(5,522,308)
============ =========== ============ ===========
</TABLE>
Segment balance sheet information is as follows as of September 30, 2000 and
December 31, 1999:
September 30, December 31,
2000 1999
------------- ------------
Segment Long-Lived Tangible Assets:
Core technologies products $ 4,364,023 $ 3,963,402
Neurosurgical products 10,243,999 10,560,999
----------- -----------
Total $14,608,022 $14,524,401
=========== ===========
10
<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 (the
"Court") 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. There is pending before the Court a motion
by AGA for summary judgment. 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. 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. On July 7, 2000, Elekta submitted a reply
pleading. On October 9, 2000, the Company filed a Statement of Reply. The
arbitration hearing is scheduled to begin on January 15, 2001. As currently
pleaded, Elekta's claim seeks approximately $2 million in damages and NMT's
counterclaim seeks approximately $2 million in damages.
. 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 fees
of their attorneys. The Company must file its response to the claim by
December 21, 2000.
. 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). C.R. Bard, Inc. has filed a
counterclaim seeking a contrary declaration and an indeterminate amount of
damages.
. 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 sought
damages in excess of $31 million. The claim has been discontinued as
against the Company and its subsidiary.
11
<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 has adopted SFAS No. 133 in its quarter ending
September 30, 2000 and such adoption did not 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 became 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. For the quarter ended September
30, 2000 application of this Interpretation had no effect on the Company's
results of operations.
12
<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 nine-month periods ended September 30, 2000 are not necessarily indicative
of the results for a full fiscal year.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenues of $9.2 million for the three months ended September 30, 2000
decreased 1% from $9.3 million for the three months ended September 30, 1999.
Product sales increased to $9.0 million for the three months ended September 30,
2000 from $8.9 million for the three months ended September 30, 1999. The
Company had a 28% and 62% increase in the unit sales and dollar sales,
respectively of CardioSEAL Septal Occluders during the three months ended
September 30, 2000 as compared with the three months ended September 30, 1999
partially offset by a 20% decrease in dollar sales of the Company's
neurosurgical products. License fees for the three months ended September 30,
2000 amounted to $202,000 consisting of quarterly royalty payments of $148,000
and cost-sharing payments of approximately $54,000 from Boston Scientific.
License fees for the three months ended September 30, 1999 amounted to $425,000
consisting of guaranteed minimum quarterly royalty payments of $375,000 and
cost-sharing payments of approximately $50,000 from Boston Scientific. This
decrease in the royalty payments during the quarter ended September 30, 2000 as
compared with the quarter ended September 30, 1999 is attributable to the
expiration of the Company's guaranteed minimums under the license agreement with
Boston Scientific as of the beginning of 2000.
Cost of Product Sales. Cost of product sales increased to $4.3 million or 47% of
product sales for the three months ended September 30, 2000 from $3.6 million or
41% for the three months ended September 30, 1999. The lower gross margin
percentage on product sales is primarily due to decreased sales of the Company's
neurosurgical products, resulting in a higher overhead absorption rate.
Additionally, these products have a higher cost of product sales as a percent of
sales than do the CardioSEAL Septal Occluders and vena cava filters.
Research and Development. Research and development expenses increased by
$100,000 or 11% to $1.3 million for the three months ended September 30, 2000
from $1.2 million for the three months ended September 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 spending on existing
product line improvements and for new products under development.
General and Administrative. General and administrative expenses increased by
$1.3 million or 56% to $3.5 million for the three months ended September 30,
2000 from $2.2 million for the three months ended September 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") and increased allowance for
overdue accounts receivable and other reserves.
13
<PAGE>
Selling and Marketing. Selling and marketing expenses increased by $245,000 or
12% to $2.4 million for the three months ended September 30, 2000 from $2.1
million for the three months ended September 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.
Interest Expense. Interest expense was $199,000 for the three months ended
September 30, 2000 as compared to $622,000 for the three months ended September
30, 1999. The decrease was primarily due to the use of $7.8 million of the
proceeds from the April 5, 2000 sale of the U.K. operations of its NMT
Neurosciences division (see Note 3 in the accompanying Notes to Consolidated
Financial Statements) to retire the remaining $7.3 million outstanding senior
secured debt and reduce the subordinated note payable by $500,000 to $5.5
million (see Note 5 in the accompanying Notes to Consolidated Financial
Statements). The subordinated note accrues interest at 10.101% per annum. In
addition, the amortization of original issue discount related to the
subordinated note of $39,000 and $106,000, for the three months ended September
30, 2000 and 1999, respectively, is included in interest expense in the
accompanying consolidated statements of operations.
Interest Income. Interest income was $69,000 for the three months ended
September 30, 2000 as compared to $116,000 for the three months ended September
30, 1999. The decrease was due to the Company's lower cash balances resulting
from its use of $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).
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenues for the nine months ended September 30, 2000 increased by
$2.1 million or 8% to $28.4 million from $26.3 million for the nine months ended
September 30, 1999. Product sales increased by $2.8 million or 11% to $27.7
million for the nine months ended September 30, 2000 from $25.0 million for the
nine months ended September 30, 1999. The Company had a 77% and 115% increase in
unit sales and dollar sales, respectively of CardioSEAL Septal Occluders during
the nine months ended September 30, 2000 as compared to the nine months ended
September 30, 1999 offset by a 13% decrease in dollar sales of the Company's
neurosurgical products. License fees for the nine months ended September 30,
2000 amounted to approximately $644,000 consisting of minimum quarterly royalty
payments of $551,000 and cost-sharing payments of approximately $93,000 from
Boston Scientific. License fees for the nine months ended September 30, 1999
amounted to $1,294,000 consisting of guaranteed minimum royalty payments of
$1,125,000 and cost-sharing payments of approximately $169,000 from Boston
Scientific. This decrease in the royalty payments during the nine months ended
September 30, 2000 as compared with the nine months ended September 30, 1999 is
attributable to the expiration of the Company's guaranteed minimums under the
license agreement with Boston Scientific as of the beginning of 2000 after which
the license fees are being recorded by the Company on an actual, rather than
guaranteed, basis.
Cost of Product Sales. Cost of product sales increased to $11.9 million or 43%
of product sales for the nine months ended September 30, 2000 from $10.6 million
or 42% for the nine months ended September 30, 1999 primarily due to decreased
sales of the Company's neurosurgical products, partially offset by increased
unit sales of CardioSEAL Septal Occluders and vena cava filters which have a
lower cost of product sales as a percent of sales than the neurosurgical
products. Cost of product sales as a percentage of product sales remained
constant for the nine months ended September 30, 2000 and 1999 due to the
offsetting effects of 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 by
$700,000 or 21% to $4.0 million for the nine months ended September 30, 2000
from $3.3 million for the nine months ended September 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 spending on existing
product line improvements and for new products under development.
General and Administrative. General and administrative expenses increased by
$1.6 million or 24% to $8.0 million for the nine months ended September 30, 2000
from $6.5 million for the nine months ended September 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") and increased allowances for overdue
accounts receivable and other reserves.
14
<PAGE>
Selling and Marketing. Selling and marketing expenses increased by $1.1 million
or 19% to $6.9 million for the nine months ended September 30, 2000 from $5.8
million for the nine months ended September 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 were impaired consisted 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 nine months ended September 30,
2000 was based upon estimates and does not include losses which may occur upon
any 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, if incurred, could be significant.
Interest Expense. Interest expense was $1.0 million for the nine months ended
September 30, 2000 as compared to $2.0 million for the nine months ended
September 30, 1999. The decrease was primarily due to the use of $6 million
available cash on September 13, 1999 to reduce the Company's then $20 million
subordinated note payable and the use of $7.8 million of the proceeds from the
April 5, 2000 sale of the U.K. operations of its NMT Neurosciences division to
retire the remaining $7.3 million outstanding senior secured debt and to further
reduce the subordinated note payable by $500,000 to $5.5 million (see Notes 3
and 5 in the accompanying Notes to Consolidated Financial Statements). The
subordinated note accrues interest at 10.101% per annum. In addition, the
amortization of original issue discount related to the subordinated note of
$115,000 and $338,000, for the nine months ended September 30, 2000 and 1999,
respectively, is included in interest expense in the accompanying statements of
operations.
Interest Income. Interest income was $136,000 for the nine months ended
September 30, 2000 as compared to $450,000 for the nine months ended September
30, 1999. The decrease was due to the Company's lower cash balances resulting
from its use of $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 of $5.5 million at September 30, 2000
as compared to $3.5 million at December 31, 1999. During the nine months ended
September 30, 2000, the Company's operations utilized cash of approximately
$32,000 which consists of approximately $9.9 million of cash used by operations
offset by approximately $8.8 million of noncash operating charges and a net
reduction of approximately $1.1 million 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 the senior
secured debt facility on August 12, 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 in the accompanying
Notes to Consolidated 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 September 30, 2000 was approximately $4.9 million, net of
unamortized original issue discount of $591,000. As of September 30, 2000, the
Company was not in compliance with certain of the debt covenants contained in
the subordinated note agreement and obtained a waiver of default with the
debtholder.
15
<PAGE>
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
an adverse outcome. Although 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").
Purchases and capitalized leases of property and equipment for use in the
Company's research and development and general and administrative activities
amounted to $173,000 for the nine months ended September 30, 2000. The Company
received $568,000 in cash proceeds from the exercise of common stock options and
warrants for the nine months ended September 30, 2000.
The Company is a party to various contractual arrangements including royalty
arrangements and employment and consulting agreements for current employees and
consultants. 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 subsequent to September 30, 2000 are approximately
$540,000. 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.
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 September 30, 2000, the impact of the euro conversion has not had a
material impact on the operations of the Company.
16
<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 decreased 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).
17
<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 (the "Court")
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. There is pending before the Court a motion by AGA for
summary judgment. 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. 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. On
July 7, 2000, Elekta submitted a reply pleading. On October 9, 2000, the
Company filed a Statement of Reply. The arbitration hearing is scheduled to
begin on January 15, 2001. As currently pleaded, Elekta's claim seeks
approximately $2 million in damages and NMT's counterclaim seeks
approximately $2 million in damages.
. 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 fees of
their attorneys. The Company must file its response to the claim by December
21, 2000.
. 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
18
<PAGE>
rights to the Company's Simon Nitinol Filter (TM). C.R. Bard, Inc. has filed
a counterclaim seeking a contrary declaration and an indeterminate amount of
damages.
. 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 sought damages in excess
of $31 million. The claim has been discontinued as against the Company and
its subsidiary.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
(a) Material Default with Respect to Indebtedness. As of September 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 2000 Annual Meeting of Stockholders of the Company was held on August 18,
2000 (the "Meeting"). Present at the Meeting in person or through
representation by proxy were a total of 9,244,405 shares of Common Stock out of
a total of 10,921,721 shares entitled to vote, thereby making a quorum. The
action taken at the Meeting consisted of the election of six members of the
Board of Directors of the Company, each to serve for a one-year term. The
results of the voting on the matter presented to the stockholders at the Meeting
are as follows:
VOTES VOTES
DIRECTORS FOR WITHHELD
--------- ----------- --------
Morris Simon, M.D. 6,705,975 2,538,430
C. Leonard Gordon 6,705,975 2,538,430
R. John Fletcher 9,145,220 99,185
Jeffrey R. Jay, M.D. 9,019,295 225,110
Jeffrey F. Thompson 9,123,520 120,885
Robert A. Van Tassel, M.D. 9,215,485 28,920
There were no abstentions and broker non-votes as to this matter.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
Exhibit
No. Description of Exhibit
---------- ----------------------
10.1 Employment Agreement, dated as of September 21, 2000, by and between
John E. Ahern and NMT Medical, Inc.
10.2 Waiver and Amendment No. 4, made as of November 13, 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 July 7, 2000, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission (the "SEC") announcing the date, time and
place of the 2000 Annual Meeting of Stockholders of the Company, in addition
to deadlines for submission of stockholder proposals and the anticipated
mailing date of the Company's 1999 Annual Report to Stockholders and Notice
and Proxy Statement of the 2000 Annual Meeting of Stockholders.
. On July 19, 2000, the Company filed a Current Report on Form 8-K with the
SEC reporting that the Board of Directors of the Company had restructured the
Company's management team so as to allow the Office of the President, with
William J. Knight and Rudy Davis as Acting Co-Presidents, to have more of the
day-to-day operating responsibilities, and that, accordingly, Jeffrey R. Jay,
M.D. and R. John Fletcher had each resigned as Acting Co-Chief Executive
Officer.
. On August 2, 2000, the Company filed a Current Report on Form 8-K with the
SEC reporting that William J. Knight had resigned, effective August 15, 2000,
as Vice President of Finance and Administration, Chief Financial Officer and
Acting Co-President of the Company.
. On August 28, 2000, the Company filed a Current Report on Form 8-K with the
SEC reporting that John E. Ahern had been appointed, effective as of
September 21, 2000, as President and Chief Executive Officer of the Company.
20
<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: November 14, 2000 By: /s/ John E. Ahern
-------------------------------------
John E. Ahern
President and Chief Executive Officer
21
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
-------- ----------------------
10.1 Employment Agreement, dated as of September 21, 2000, by and between
John E. Ahern and NMT Medical, Inc.
10.2 Waiver and Amendment No. 4 made as of November 13, 2000, by and between
NMT Medical, Inc. and Whitney Subordinated Debt Fund, L.P.
27 Financial Data Schedule
