UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO. 0-17019
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
ANGEION CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1579150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7601 NORTHLAND DRIVE, MN 55428-1088
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 315-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 24, 1999, 40,051,569 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common Stock
of the Registrant as of that date (based upon the last reported sale price of
the Common Stock at that date as reported by the NASDAQ National Market),
excluding outstanding shares beneficially owned by directors and executive
officers and 10% shareholders, was approximately $23,954,224.
<PAGE>
The Registrant is filing this Form 10-K/A (Amendment No. 1) for the purpose of
amending and restating Item 8 (Financial Statements and Supplementary Data) of,
and Exhibit 23.1 (Independent Auditor's Consent) to, its Annual Report on Form
10-K for the fiscal year ended December 31, 1998. The amendment corrects several
typographical errors in Item 8 and corrects references to a footnote in Exhibit
23.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Angeion Corporation:
We have audited the accompanying consolidated balance sheets of Angeion
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year ended December 31, 1998, the five-month transition period
ended December 31, 1997 and the years ended July 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Angeion
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the year ended December 31, 1998,
the five-month transition period ended December 31, 1997, and the years ended
July 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a shareholders' deficit that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 23, 1999, except as
to Note 18(c) which
is as of March 16, 1999
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,827,637 $ 14,052,115
Accounts Receivable:
Trade, less allowance for doubtful accounts of
$294,775 for 1998 and $0 for 1997 1,587,669 241,136
Other 102,426 167,450
Inventories 6,377,359 6,889,144
Prepaid expenses and other current assets 623,573 291,475
- -------------------------------------------------------------------------------------------------------------------
Total current assets 10,518,664 21,641,320
Property and equipment, net 6,880,822 6,523,820
Investment in joint venture, net 3,221,003 --
Other assets, net 2,272,918 718,411
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 22,893,407 $ 28,883,551
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 2,459,294 893,996
Current portion long-term debt 500,461 --
Accrued payroll, vacation, and related costs 983,060 1,015,119
Other accrued expenses 1,882,268 1,186,941
Deferred income 1,198,021 36,550
-------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,023,104 3,132,606
Long-term debt 22,150,000 --
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 29,173,104 3,132,606
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity
(deficit):
Common stock, $.01 par value. Authorized 75,000,000
shares; issued and outstanding 38,796,555 shares
in 1998 and 32,998,443 shares in 1997 387,966 329,984
Additional paid-in capital 116,530,671 109,682,282
Unamortized value of restricted stock (118,066) (50,716)
Cumulative translation adjustment (24,650) 6,903
Accumulated deficit (123,055,618) (84,217,508)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) (6,279,697) 25,750,945
Commitments and contingencies (notes 11, 14 and 17)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $ 22,893,407 $ 28,883,551
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Five Month Periods
Years Ended December 31, Ended December 31, Years Ended July 31,
--------------------------- --------------------------- ---------------------------
1998 1997 1997 1996 1997 1996
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 4,566,768 3,094,159 864,775 2,275,901 4,505,285 2,948,729
Operating expenses:
Manufacturing 12,394,194 10,812,042 4,180,198 2,677,881 9,309,726 4,456,152
Research and development 21,636,666 19,790,050 7,213,832 5,905,774 16,953,294 11,049,462
Selling, general and
administrative 7,185,581 7,465,643 4,609,807 2,232,852 6,617,386 3,665,156
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 41,216,441 38,067,735 16,003,837 10,816,507 32,880,406 19,170,770
- ---------------------------------------------------------------------------------------------------------------------------------
Operating loss (36,649,673) (34,973,576) (15,139,062) (8,540,606) (28,375,121) (16,222,041)
- ---------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Equity in net loss of joint
venture (2,778,996) 0 0 0 0 0
Revenue from sale of patents and
technology 2,050,000 0 0 0 0 0
Interest income 668,750 918,502 203,059 854,451 1,569,895 1,156,885
Interest expense (2,128,191) (59,855) (4,893) (48,674) (103,635) (116,863)
- ---------------------------------------------------------------------------------------------------------------------------------
Other income (expense) (2,188,437) 858,647 198,166 805,777 1,466,260 1,040,022
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss $(38,838,110) (34,114,929) (14,940,896) (7,734,829) (26,908,861) (15,182,019)
=================================================================================================================================
Net loss per common $ (1.12) (1.14) (0.48) (0.27) (0.93) (0.66)
share
=================================================================================================================================
Weighted average number of common shares
outstanding 34,595,068 30,026,211 30,997,656 28,678,276 29,064,994 22,898,538
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock
-------------------------------------------------
Number Par Number
of shares value of shares Par value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at July 31, 1995 875,000 8,750 17,500,529 175,005
Shares issued at $6.50 per share,
net of issuance costs 0 0 3,400,000 34,000
Shares issued at $7.00 per share,
net of issuance costs 0 0 4,200,000 42,000
Stock options exercised 0 0 525,828 5,259
Warrants exercised 0 0 2,991,500 29,915
Director stock issued 0 0 11,530 115
Compensation expense on grant
of stock and stock options 0 0 12,320 123
Net loss 0 0 0 0
- --------------------------------------------------------------------------------------
Balance at July 31, 1996 875,000 8,750 28,641,707 286,417
Preferred stock
converted
into common stock (875,000) (8,750) 875,000 8,750
Notes payable converted
into common stock 0 0 250,000 2,500
Restricted Stock Grant 0 0 33,333 333
Stock options exercised 0 0 59,567 596
Warrants exercised 0 0 662,499 6,625
Director stock issued 0 0 36,027 360
Compensation expense on grant
of stock and stock options 0 0 0 0
Cumulative translation adjustment 0 0 0 0
Net loss 0 0 0 0
- --------------------------------------------------------------------------------------
Balance at July 31, 1997 0 0 30,558,133 305,581
Restricted Stock Grant 0 0 15,000 150
Stock options exercised 0 0 33,834 338
Warrants exercised
Director stock issued 0 0 40,068 401
Compensation expense on grant
of stock and stock options 0 0 0 0
Amortization of
restricted stock 0 0 0 0
Promethian Stock Grant 0 0 100,000 1,000
Synthelabo Investment 0 0 2,251,408 22,514
Cumulative translation adjustment 0 0 0 0
Net loss 0 0 0 0
- --------------------------------------------------------------------------------------
Balance at December 31, 1997 0 0 32,998,443 329,984
Restricted Stock Grant 0 0 210,000 2,100
Stock options exercised 0 0 94,500 945
Director stock issued 0 0 5,607 56
Compensation expense on grant
of stock and stock options 0 0 0 0
Amortization of
restricted stock 0 0 0 0
Rose Glen 0 0 25,000 250
Warrants on convertible debenture
Synthelabo Investment 0 0 5,208,551 52,086
Short swing profit
Employee stock purchase plan 0 0 254,454 2,545
Cumulative translation adjustment 0 0 0 0
Net loss 0 0 0 0
- --------------------------------------------------------------------------------------
Balance at December 31, 1998 0 0 38,796,555 387,966
======================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Unamortized Cumulative
Additional value of translation Accumulated
paid-in capital restricted stock adjustment deficit Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1995 29,982,127 0 0 (27,185,732) 2,980,150
Shares issued at $6.50 per share,
net of issuance costs 20,293,045 0 0 0 20,327,045
Shares issued at $7.00 per share,
net of issuance costs 27,359,887 0 0 0 27,401,887
Stock options exercised 1,324,853 0 0 0 1,330,112
Warrants exercised 11,911,421 0 0 0 11,941,336
Director stock issued 87,885 0 0 0 88,000
Compensation expense on grant
of stock and stock options 577,038 0 0 0 577,161
Net loss 0 0 0 (15,182,019) (15,182,019)
- -----------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996 91,536,256 0 0 (42,367,751) 49,463,672
Preferred stock
converted into common stock 0 0 0 0 0
Notes payable converted
into common stock 1,415,500 0 0 0 1,418,000
Restricted Stock Grant 124,667 (72,917) 0 0 52,083
Stock options exercised 156,317 0 0 0 156,913
Warrants exercised 1,318,373 0 0 0 1,324,998
Director stock issued 111,640 0 0 0 112,000
Compensation expense on grant
of stock and stock options 426,938 0 0 0 426,938
Cumulative translation adjustment 0 0 1,777 0 1,777
Net loss 0 0 0 (26,908,861) (26,908,861)
- -----------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1997 95,089,691 (72,917) 1,777 (69,276,612) 26,047,520
Restricted Stock Grant 79,538 (29,883) 0 0 49,805
Stock options exercised 87,011 0 0 0 87,349
Warrants exercised 0 0 0 0 0
Director stock issued 48,932 0 0 0 49,333
Compensation expense on grant
of stock and stock options 88,098 0 0 0 88,098
Amortization of
restricted stock 0 52,084 0 0 52,084
Promethian Stock Grant (20,810) 0 0 0 (19,810)
Synthelabo Investment 14,309,822 0 0 0 14,332,336
Cumulative translation adjustment 0 0 5,126 0 5,126
Net loss 0 0 0 (14,940,896) (14,940,896)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 109,682,282 (50,716) 6,903 (84,217,508) 25,750,945
Restricted Stock Grant 508,846 (112,509) 0 0 398,437
Stock options exercised 149,366 0 0 0 150,311
Director stock issued 157,944 0 0 0 158,000
Compensation expense on grant
of stock and stock options 207,598 0 0 0 207,598
Amortization of
restricted stock 0 45,159 0 0 45,159
Rose Glen Warrants 311,089 0 0 0 311,339
Warrants on convertible debenture 286,202 0 0 0 286,202
Synthelabo Investment 4,899,241 0 0 0 4,951,327
Short swing profit 12,445 0 0 0 12,445
Employee stock purchase plan 315,658 0 0 0 318,203
Cumulative translation adjustment 0 0 (31,553) 0 (31,553)
Net loss 0 0 0 (38,838,110) (38,838,110)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 116,530,671 (118,066) (24,650) (123,055,618) (6,279,697)
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ANGEION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Five Month Periods
Ended Ended
December 31, December 31,
-------------------------- -------------------------
1998 1997 1997 1996
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(38,838,110) (34,114,929) (14,940,896) (7,734,829)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 2,027,156 1,730,928 809,319 563,983
Amortization expense 1,168,008 367,428 116,858 116,858
Compensation expense on grant of stock and
stock options 809,194 528,188 239,320 220,670
Loss on disposal of fixed assets 498,630 0 0 0
Equity in net loss of joint venture 2,778,996 0 0 0
Changes in operating assets and liabilities:
Accounts receivable (1,281,509) 534,538 1,109,617 1,534,307
Inventories 511,785 921,903 272,833 (3,861,697)
Prepaid expenses and other current assets (332,098) (77,734) (53,888) (54,803)
Accounts payable 1,565,299 (141,863) (1,355,452) (1,934,248)
Accrued expenses 663,268 794,032 332,071 894,344
Deferred Income 1,161,471 (694,700) (694,700) 0
- ------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (29,267,910) (30,152,209) (14,164,918) (10,255,415)
- ------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of marketable securities 0 (325,074) 0 (31,206,636)
Proceeds from maturities of marketable securities 0 29,500,000 8,050,181 9,400,000
Investments in joint venture (5,561,595) 0 0 0
Payments for purchases of property and equipment (2,523,805) (2,741,644) (611,219) (1,251,539)
Purchase of other assets 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (8,085,400) 26,433,282 7,438,962 (23,058,175)
- ------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from issuance of debt and warrants 25,025,027 0 0 0
Proceeds from issuance of common stock and warrants 4,951,327 15,713,643 14,334,292 0
Proceeds from exercise of stock options and warrants 480,959 0 65,583 167,625
Payments under capital lease obligations (296,928) 0 0 0
Repayments of debt (5,000,000) 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 25,160,385 15,713,643 14,399,875 167,625
- ------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate on Cash and Cash Equivalents (31,553) 19,445 6,077 0
Net increase (decrease) in cash and cash equivalents (12,224,478) 12,014,161 7,679,996 (33,145,965)
Cash and cash equivalents:
Beginning of year 14,052,115 2,037,954 6,372,119 35,183,919
- ------------------------------------------------------------------------------------------------------------------
End of year $ 1,827,637 14,052,115 14,052,115 2,037,954
==================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 945,218 59,855 4,893 3,924
==================================================================================================================
Supplemental disclosure of non-cash investing and
financing activities:
Property and equipment acquired under capital lease
obligations $ 797,389 0 0 0
Transfer of property and equipment to joint venture 438,405 0 0 0
Notes payable converted to common stock 0 0 0 0
Issuance of 3,846,153 shares of common stock to
Synthelabo 38,462 0 0 0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Years
Ended
July 31,
--------------------------
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss (26,908,861) (15,182,019)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 1,520,181 726,416
Amortization expense 280,460 279,429
Compensation expense on grant of stock and
stock options 591,022 665,161
Loss on disposal of fixed assets 0 0
Equity in net loss of joint venture 0 0
Changes in operating assets and liabilities:
Accounts receivable 1,050,194 (2,494,751)
Inventories (3,202,462) (3,550,562)
Prepaid expenses and other current assets 14,770 13,843
Accounts payable (721,614) 2,133,936
Accrued expenses 618,983 818,934
Deferred Income 731,250 0
- ---------------------------------------------------------------------------------------
Net cash used in operating activities (26,026,077) (16,589,613)
- ---------------------------------------------------------------------------------------
Investing activities:
Purchase of marketable securities (31,581,891) (20,368,290)
Proceeds from maturities of marketable securities 30,900,000 13,000,000
Investments in joint venture 0 0
Payments for purchases of property and equipment (3,432,601) (3,943,462)
Purchase of other assets 0 (279,170)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (4,114,492) (11,590,922)
- ---------------------------------------------------------------------------------------
Financing activities:
Net proceeds from issuance of debt and warrants 0 0
Proceeds from issuance of common stock and warrants 0 47,728,932
Proceeds from exercise of stock options and warrants 1,326,993 13,271,448
Payments under capital lease obligations 0 0
Repayments of debt 0 (3,690)
- ---------------------------------------------------------------------------------------
Net cash provided by financing
activities 1,326,993 60,996,690
- ---------------------------------------------------------------------------------------
Effect of Exchange Rate on Cash and Cash Equivalents 1,776 0
Net increase (decrease) in cash and cash equivalents (28,811,800) 32,816,155
Cash and cash equivalents:
Beginning of year 35,183,919 2,367,764
- ---------------------------------------------------------------------------------------
End of year 6,372,119 35,183,919
=======================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest 103,635 116,813
=======================================================================================
Supplemental disclosure of non-cash investing and
financing activities:
Property and equipment acquired under capital lease
obligations 0 0
Transfer of property and equipment to joint venture 0 0
Notes payable converted to common stock 1,500,000 0
Issuance of 3,846,153 shares of common stock to
Synthelabo 0 0
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
Angeion (the "Company") develops, manufactures and distributes products
for the treatment of cardiac arrhythmia patients.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND INVESTMENT IN JOINT VENTURE
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and its 50 percent-owned joint venture,
ELA*Angeion, LLC ("ELA*Angeion"). Angeion Europe Ltd. ("Angeion Europe"),
established November 1, 1995 and Angeion GmbH, established October 31, 1996 were
founded to facilitate clinical studies of the Company's ICDs and expand its
European business operations. All inter-company transactions and balances are
eliminated in consolidation. On January 1, 1998, ELA*Angeion began operations. A
proportional amount of the income (loss) from the joint venture are accounted
for under the Equity Method and appear as a component of Other Income (Loss) on
the Company's Consolidated Statements of Operations. Angeion's proportional
share of sales, cost of sales and any resultant gain or loss related to assets
sold to the joint venture still remaining on the books of the joint venture at
the end of the applicable reporting period have been eliminated.
CASH EQUIVALENTS
Cash equivalents consist of temporary cash investments with maturities
of three months or less from the date of purchase. At December 31, 1998, cash
equivalents consisted of checking accounts and money market funds.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on a first in, first out basis.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Equipment and furniture and
fixtures are depreciated using the straight-line method over the estimated
useful lives of the assets that range from three to seven years. Leasehold
improvements are depreciated using the straight-line method over the shorter of
the lease term, or the estimated useful life of the asset. Expenditures for
repairs and maintenance are charged to expense as incurred.
OTHER ASSETS
Other assets consist primarily of intangible assets representing
completed technology and other assets resulting from the sale of convertible
debentures. The intangible assets are amortized using the straight-line method
over four years and the debt issuance costs are amortized ratably over the term
of the notes.
INCOME TAXES
Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
<PAGE>
REVENUE RECOGNITION
Revenues from direct sales of products are recognized at the date of
patient implant when delivered directly to hospitals and at date of shipment for
sales to distributors. Revenues generated through ELA*Angeion are recognized
upon shipment to the joint-venture and Angeion's proportional share of sales and
cost of sales related to assets sold to the joint venture still remaining on the
books of the joint venture at the end of the applicable reporting period have
been eliminated.
NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings per Share, basic EPS is
calculated by dividing net earnings (loss) by the weighted average common shares
outstanding during the period. Diluted EPS reflects the potential dilution to
basic EPS that could occur upon conversion or exercise of securities, options,
or other such items, to common shares using the treasury stock method based upon
the weighted average fair value of the Company's common shares during the
period. For each period presented, basic and diluted loss per share amounts are
identical, as the effect of potential common shares is anitdilutive.
FOREIGN CURRENCY TRANSLATION
The functional currency and denomination of all sales transactions of
Angeion Europe are the U.S. dollar. Accordingly, the financial statements of
Angeion Europe, which are maintained in the local currency, are remeasured into
U.S. dollars in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, FOREIGN CURRENCY TRANSLATION. All exchange gains or losses from
remeasurement of monetary assets and liabilities that are not denominated in
U.S. dollars are recognized currently in income.
The assets and liabilities for Angeion GmbH are translated into U.S.
dollars at year-end exchange rates while elements of the statement of operations
are translated at average exchange rates in effect during the year. The
resulting translation adjustments are recorded as a component of shareholders'
equity.
SHORT-TERM MARKETABLE SECURITIES
As of December 31, 1998, the Company's marketable debt securities are
classified as available-for-sale. However, because the maturities of the
Company's debt securities are less than one year, they are reported at amortized
cost that approximates fair value.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that subject the Company to concentration of
credit risk consist principally of cash investments and trade accounts
receivable. Cash in excess of current operating needs is invested in accordance
with the Company's investment policy that emphasizes principal preservation. At
year end, the majority of investments consisted of checking and money market
account balances.
The Company grants credit primarily to ELA Medical and the Company's
50% owned joint venture, ELA*Angeion, for product sales in the normal course of
business. During the year ended December 31, 1998,
<PAGE>
$2,445,090, or 54%, of the Company's sales were from sales to ELA*Angeion. ELA
Medical represented $774,550, or 17% of sales for the year ended December 31,
1998. At December 31, 1998, ELA*Angeion and ELA Medical represented 29% and 40%
of the Company's accounts receivable, respectively.
STOCK-BASED COMPENSATION
The Company applies the intrinsic value method as prescribed under
Accounting Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES and related interpretations to account for the issuance of stock
incentives to employees and directors and, accordingly, no compensation expense
related to employees' and directors' stock incentives has been recognized in the
financial statements. Effective fiscal 1997, in accordance with the provisions
of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has
presented pro forma information reflecting compensation cost for such issuances.
See Note 7 "Shareholder's Equity".
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cast flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The statement requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company plans to adopt the new standard in 1999.
The Company is currently evaluating SFAS No. 133, but does not expect that it
will have a material effect on its financial statements.
In 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1 ("SOP 98-1"), ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1
<PAGE>
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and does not require additional disclosures. The
Company intends to adopt SOP 98-1 in 1999. Costs incurred prior to the initial
application of the SOP will not be adjusted to conform to SOP 98-1. The adoption
is not expected to have a material impact on the Company's financial position or
results of operations.
(3) LIQUIDITY
The Company has incurred substantial losses from operations since its
inception, which have been recurring and amounted to $123,055,618 on a
cumulative basis through December 31, 1998. These losses, which include the
costs for research and development, have been funded primarily from the sale of
equity securities, including preferred stock and warrants, and debt (see Notes
7, 8 and 9 with respect to financing transactions of the Company).
The Company had cash and cash equivalents of $1,827,637 at December 31,
1998. Management believes that currently available funds may not be sufficient
to sustain the Company for the next 12 months. Such funds consist of available
cash and cash equivalents, any funds received from the Company's catheter
ablation technology licensing agreement, product sales and any funds received
with respect to the Company's litigation against CPI. Reducing operating
expenses and capital expenditure alone may not be sufficient to address the
Company's liquidity needs, and continuation as a going concern is dependent upon
product sales, the Company's litigation against CPI and the Company's ability to
raise funds through equity investment, asset sales or the licensing or sales of
all or part of its intellectual property. There is no assurance any such
financing is or would become available.
In the event that the Company cannot generate or otherwise obtain
funding, the Company would have to substantially cut back its level of
operations. These reductions could have a material adverse effect on the
Company's relations with its strategic partners and customers. Uncertainty
exists with respect to the adequacy of current funds to support the Company's
activities until positive cash flow from operations can be achieved, and with
respect to the availability of financing from other sources to fund any cash
deficiencies (see note 18 with respect to recent financing).
The Company has begun a comprehensive review of its short and long term
options to help improve its financial condition and increase shareholder value.
In December 1998, the Company announced that it had retained Raymond James and
Associates, Inc. as a financial advisor to assist in this process. The Company,
together with its financial advisor, is currently evaluating all of its
alternatives in this process, including: potential sources of financing; further
reorganization of the Company's operations (in addition to the reorganization
discussed below); sale or license of some or all of the Company's technology,
product lines, and assets; settlements of its lawsuit with CPI, the possibility
of entering into new businesses and/or exiting its current business, and
transactions by which the Company would be acquired of another entity.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates continuity of
operations, realization of assets and satisfaction of liabilities in the
ordinary course of business. The propriety of using the going concern basis is
dependent upon, among other things, the achievement of future profitable
operations and the ability to generate sufficient cash from operations, public
and private financing and other funding sources to meet its obligations. The
uncertainties described in the preceding paragraphs raise substantial doubt at
December 31, 1998 about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to
the recoverability of the carrying amount of recorded assets or the amount of
liabilities that might result from the outcome of these uncertainties. If the
Company is unable to continue as a going concern, the values realized from the
Company's assets may be less than the carrying amounts reported in its financial
statements.
<PAGE>
(4) INVENTORIES
Inventories consisted of the following at December 31:
1998 1997
- ------------------------------------------------------------------------------
Raw Materials $3,243,555 $3,647,071
Work-in-Process 1,573,124 1,373,697
Finished Goods 1,560,680 1,868,376
- ------------------------------------------------------------------------------
$6,377,359 $6,889,144
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1998 1997
- ------------------------------------------------------------------------------
Furniture and fixtures 1,120,518 831,491
Equipment 9,517,664 8,930,522
Leasehold improvements 1,020,911 595,827
- ------------------------------------------------------------------------------
11,659,093 10,357,840
Less accumulated depreciation and (4,778,271) (3,834,020)
amortization
- ------------------------------------------------------------------------------
$ 6,880,822 $ 6,523,820
- ------------------------------------------------------------------------------
(6) OTHER ASSETS
Other assets consist of the following at December 31:
1998 1997
- ------------------------------------------------------------------------------
Debt issuance costs, net $1,923,635 $ -
Patents, net 349,283 697,371
Other - 21,040
- ------------------------------------------------------------------------------
$2,272,918 $718,411
- ------------------------------------------------------------------------------
(7) ALLIANCE AND LONG-TERM DEBT
On February 4, 1993, Angeion and Siemens Pacesetter Inc. (Pacesetter),
which was subsequently acquired by St. Jude Medical (St. Jude), entered into an
agreement which provided for an investment by Pacesetter in Angeion and the
grant by Angeion of certain licensing, manufacturing, and marketing rights with
respect to certain of the products being developed by the Company. The
investment by Pacesetter consisted of the purchase of 875,000 shares of Angeion
preferred stock, class A, at $4.00 per share. The preferred stock was converted
on a one-for-one basis into Angeion common stock on May 30, 1997. Pacesetter's
investment also included the purchase of a $1,500,000 convertible subordinated
debenture with an interest rate of 7.16%, interest payable semi-annually, which
was convertible at any time into Angeion common stock at $6.00 per share. On
June 19, 1997, this Debenture net of unamortized debt issuance costs, was
converted into 250,000 shares of common stock.
On November 20, 1996, the Company delivered to St. Jude a formal notice
of recission and termination of the OEM Marketing Agreements and the License
Agreement between the Company and Pacesetter, Inc. In April 1997, the Company
signed a royalty-free cross license agreement with St. Jude and its
subsidiaries, Pacesetter, Ventritex and Telectronics. This agreement terminates
the OEM Marketing Agreement and supersedes the earlier License Agreement. St.
Jude's suit against the Company in U.S. District Court, concerning the 1993
License and OEM Marketing Agreement and Pacesetter's claim for overpayment was
dismissed in July 1997.
(8) NOTES PAYABLE
On March 11, 1998, the Company borrowed $5,000,000 from RGC
International Investors, IDC ("Rose Glen") pursuant to a Convertible Senior Note
(the "Interim Financing"). In connection with the Interim Financing, the Company
issued Rose Glen warrants to purchase an aggregate of 970,000 shares of the
<PAGE>
Company's Common Stock at an exercise price of $2.92. On April 15, 1998, the
Company repaid the Interim Financing together with accrued interest, in full. In
consideration of early payment, warrants for an aggregate of 242,500 shares of
Common Stock were canceled. The remaining warrant for 727,500 shares of Common
Stock (the "Rose Glen Warrant") is exercisable until March 11, 2003.
On April 14, 1998, the Company completed a private placement of
$22,150,000 principal amount of 7 1/2 percent Senior Convertible Notes due 2003
(the "Notes"), which resulted in net proceeds to the Company of approximately
$20,000,000. The Notes were issued pursuant to an indenture between the Company
and U.S. Bank National Association, as trustee (the "Indenture"). Interest on
the Notes is payable semi-annually on April 15 and October 15 of each year,
commencing on October 15, 1998. The Notes are convertible into Common Stock at
any time after July 13, 1998, and prior to maturity, unless previously redeemed.
These Notes had an initial conversion price ("Conversion Price") of $3.0516 per
share subject to adjustment upon the occurrence of certain events ("Events").
These events stipulated that the Conversion Price will be adjusted on December
18, 1998 to the lower of: (a) the previously applicable Conversion Price or (b)
the average of the last reported sale price of the Common Stock as reported by
the NASDAQ National Market, for the five consecutive business days ending on the
last full trading day prior to December 18, 1998; provided, however, that in no
event will the Conversion Price be reduced below $1.5258. On December 18, 1998
the Conversion Price was adjusted to $1.5258.
On or after April 14, 2001, the Notes will be redeemable at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60 days
prior written notice at a redemption price equal to 100 percent of the principal
amount thereof, together with accrued and unpaid interest and liquidated
damages, if any, up to the redemption date. Upon the occurrence of a "change in
control" or the delisting of the Common Stock from the NASDAQ National Market
System, each holder of the Notes has the right to require the Company to
repurchase all or any part of such holder's Notes at a repurchase price equal to
101 percent of the principal amount thereof, together with accrued and unpaid
interest and liquidated damages, if any. Upon the occurrence of an "Event of
Default" under the Indenture, the Trustee or the holders of at least 25 percent
in principal amount of the then outstanding Notes may declare all the Notes to
be due and payable immediately.
(9) SHAREHOLDERS' EQUITY
COMMON STOCK
In October 1997, the Company entered into an Investment and Master
Strategic Relationship Agreement (the "Agreement") with Synthelabo which, in
addition to creating the ELA*Angeion joint venture, resulted in net equity
investments of $14,332,336 in 1997 and $4,951,327 in 1998. Total shares of
common stock and warrants issued in 1997 were 2,251,408 and 1,350,845,
respectively, and in 1998 were 1,362,398 and 817,439, respectively. The
Agreement included a repricing provision which automatically repriced the
original shares of common stock and warrants as if this investment had been made
at a price based on the average Company stock price for the fifteen day trading
period prior to the one year anniversary of the initial investment. Pursuant to
the Agreement, on October 9, 1998, the initial 2,251,408 shares of common stock
and 1,350,845 warrants were repriced to reflect the repricing provision of the
Agreement resulting in an additional 3,846,153 shares of common stock and an
additional 2,307,692 warrants being issued to Synthelabo. The new totals for the
initial investment are: 6,097,561 shares of common stock issued at $2.46 per
share and warrants which allow Synthelabo to purchase an additional 3,658,537
shares of the Company's common stock at a price of $2.46 per share with an
expiration date of October 9, 2001. The 1,362,398 shares of common stock issued
in 1998 were
<PAGE>
issued at $3.67 per share and the warrants allow Synthelabo to purchase an
additional 817,439 shares of the Company's common stock at a price of $3.67 per
share with an expiration date of September 1, 2001.
On September 2, 1997 the Company entered into an equity line of credit
agreement with an investment group that allows the Company to access up to
$25,000,000, under certain conditions, through sales of its common stock. The
equity line terminates on September 2, 1999. As of December 31, 1998, the
Company did not meet the conditions required to access the equity line of
credit.
STOCK OPTIONS
The Company's shareholders have approved the 1993, 1991, 1989, and 1988
Stock Incentive Plans (the "Plans"). The Plans provide that incentive stock
options and nonqualified stock options to purchase shares of common stock may be
granted at prices determined by the Compensation Committee, except that the
purchase price of incentive stock options may not be less than 100% of the fair
market value of the stock at date of grant. All options expire no later than ten
years from date of grant.
Shares Weighted average
under option price per share
- ---------------------------------------------------------------
Balance at July 31, 1995 2,062,303 $ 2.95
Granted 750,251 8.00
Exercised (347,933) 2.38
Forfeited (265,873) 5.60
- ---------------------------------------------------------------
Balance at July 31, 1996 2,198,748 $ 4.45
Granted 1,862,775 3.50
Exercised (35,567) 2.26
Forfeited (1,105,125) 6.79
- ---------------------------------------------------------------
Balance at July 31, 1997 2,920,831 $ 2.94
Granted 129,800 5.00
Exercised (17,834) 2.26
Forfeited (56,600) 3.76
- ---------------------------------------------------------------
Balance at December 31, 1997 2,976,197 $ 3.02
Granted 911,584 2.13
Exercised (94,500) 1.59
Forfeited (332,575) 3.48
- ---------------------------------------------------------------
Balance at December 31, 1998 3,460,706 $ 2.78
===============================================================
As of December 31, 1998, the outstanding options in the 1993, 1991,
1989 and 1988 Stock Incentive Plans had exercise prices ranging from $1.44 to
$10.00 with a weighted average contractual life of 3.7 years. At December 31,
1998 1,949,720 options were exercisable, with a weighted-average exercise price
of $2.84. The following table summarizes information concerning options
outstanding and exercisable at December 31, 1998:
<PAGE>
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisble Price
--------------------------------------------------------------
$1.44 - $2.17 244,800 1.79 $1.78 77,400 $2.08
$2.19 - $2.20 1,182,584 2.39 2.20 500,000 2.19
$2.31 - $3.09 455,923 3.43 2.56 383,823 2.54
$3.13 - $3.16 321,302 5.01 3.15 193,527 3.15
$3.18 - $3.19 967,697 4.91 3.19 670,458 3.19
$3.22 - $4.31 140,350 5.02 3.88 82,125 3.89
$4.38 - $10.00 148,050 6.23 5.18 42,387 5.59
--------------------------------------------------------------
Totals 3,460,706 3.70 $2.78 1,949,720 $2.84
During the year ended December 31, 1998, the five month transition
period ended December 31, 1997, the years ended July 31, 1997 1996, the Company
granted options, outside the Plans, to purchase 818,416, 0, 225,000 and 300,000
shares, respectively, of common stock at a weighted average price of $2.20,
$0.00, $3.19 and $8.14 per share, respectively. During 1998, none of these
options were exercised. At December 31, 1998, 282,498 of these options were
exercisable at a weighted average exercise price of $3.33.
Under the Non-Employee Director Option Plan, options for 1,500, 18,000,
18,767 and 12,500 shares were granted at a weighted average price of $2.14,
$3.59, $3.58 and $6.94 during the year ended December 31, 1998, the five month
transition period ended December 31, 1997, the years ended July 31, 1997 and
1996, respectively. Options for 0, 16,000, 24,000 and 2,500 shares at a weighted
average price of $0.00, $2.94, $3.19 and $2.44 were exercised during the same
respective periods. At December 31, 1998, 60,767 shares at a weighted average
price of $4.02 were outstanding and exercisable under this plan.
On November 25, 1996, the Board of Directors reviewed the exercise
price of the options then outstanding, current market conditions, as well as
other factors, and offered to re-price all of the outstanding options that had
exercise prices above market value. The new option price reflected the market
value on December 18, 1996. The total number of re-priced options was 1,231,375.
These re-priced options cannot be exercised for twelve months from the election
date and then vest pursuant to the original terms.
WARRANTS
In connection with the Investment and Master Strategic Relationship
Agreement (the "Investment Agreement") with Synthelabo in October 1997, the
Company issued 1,350,845 warrants. As allowed for in the Investment Agreement
and as discussed above, these 1,350,845 warrants were subject to repricing
provisions, which resulted in the issuance of additional warrants totaling
2,307,692 in October 1998. These warrants will allow Synthelabo to purchase
3,658,537 shares of common stock at $2.46 per share and expire on October 9,
2001. In addition, in connection with the additional $5,000,000 investment
received from Synthelabo in August 1998, additional 817,439 warrants were
issued. These warrants allow Synthelabo to purchase 817,439 shares of common
stock at $3.67 per and expire on September 1, 2001.
In connection with the private placement of $22,150,000 principle of 7
1/2 percent Senior Convertible Notes due 2003 (the "Notes"), the Company issued
181,462 warrants each to HSBC Securities, Inc. ("HSBC") and Prudential
Securities, Inc. ("Prudential"), respectively. These warrants allow both HSBC
and Prudential to purchase 181,462 shares of common stock at a price of $1.5258
per share. These warrants expire on April 15, 2003. The fair value of the
warrants at the time of issuance was determined to be $286,202. This value is
being ratably amortized over the term of the debt. The warrants' unamortized
value at December 31, 1998, of $245,657, is included in other assets.
<PAGE>
In connection with $5,000,000 Convertible Senior Note agreement the
Company entered into with RGC International Investors, IDC ("Rose Glen"), the
Company issued Rose Glen warrants to purchase an aggregate of 970,000 shares of
the Company's Common Stock at an exercise price of $2.92. On April 15, 1998, the
Company repaid the Interim Financing together with accrued interest, in full. In
consideration of early payment, warrants for an aggregate of 242,500 shares of
Common Stock were canceled. The remaining warrants for 727,500 shares of Common
Stock (the "Rose Glen Warrant") are exercisable until March 11, 2003. The fair
value of the warrants at the time of issuance was determined to be $244,949. The
remaining value was expensed upon the repayment of the note.
In connection with the issuance of a note payable to a shareholder in
Fiscal 1992, the Company issued a warrant to such shareholder to purchase 75,000
shares of common stock at $2.50 per share. This warrant expires on July 27,
1999.
In connection with Bridge Financing, warrants to purchase 834,999
shares of common stock were issued at an exercise price of $2.00 per share.
During 1997 and 1996, warrants for 662,499 and 155,500 shares of common stock,
respectively, were exercised. At December 31, 1998, 17,000 shares were
outstanding and scheduled to expire on July 29, 1999.
PRO FORMA OPTION INFORMATION
In 1997, the company adopted SFAS No. 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION which encourages, but does not require companies to recognize
compensation cost for stock-based compensation plans over the term of option
based upon the fair value of awards on the date of grant. However, the statement
allows the alternative of the continued use of the intrinsic value method as
prescribed in APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Therefore,
as permitted, no compensation expense has been recognized by the Company for its
stock options to employees.
<TABLE>
<CAPTION>
Five Month
Year Ended Period Ended
December 31, December 31, Year Ended Year Ended
1998 1997 July 31, 1997 July 31, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss):
As reported $(38,838,110) (14,940,896) (26,908,861) (15,182,019)
Pro forma (40,983,370) (15,489,736) (27,963,861) (15,872,019)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
As reported $ (1.12) (0.48) (0.93) (0.66)
Pro forma (1.18) (0.50) (0.96) (0.69)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The estimated per share weighted-average fair value of all stock
options granted during the fiscal year ending December 31, 1998, the five month
transition period ending December 31, 1997 and the fiscal years ending July
31,1997 and 1996 was $1.43, $3.24, $1.51 and $2.71, respectively, as of the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions for the same periods:
<TABLE>
<CAPTION>
Five Month
Year Ended Period Ended
December 31, December 31, Year Ended Year Ended
1998 1997 July 31, 1997 July 31, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-free interest rate 5.50% 5.80% 6.20% 6.00%
Annualized volatility factor .77 .74 .60 .60
Expected option term 5 years 5 years 5 years 5 years
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Pro-forma net income excludes options granted in fiscal 1995 and prior.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented because compensation cost is reflected over the term of the option and
compensation cost for options granted prior to August 1, 1995 is not considered.
NON-CASH COMPENSATION
During the year ended December 31, 1998, the five month transition
period ended December 31, 1997, and the years ended July 31, 1997 and 1996, the
Company granted in-the-money stock options and stock grants to employees,
directors and consultants in lieu of cash compensation, which amounted to
$809,194, $239,319, $591,022 and $665,161, respectively. For securities issued
to employees, expense was recognized for the stock and stock option grants based
on the intrinsic value method in accordance with APB Opinion 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES. For stock issued to non-employees, expense was
recognized based on fair value of securities granted.
RESTRICTED STOCK GRANTS
The Company's 1993 Stock Option Plan allows for issuance of restricted
stock grants. During the year ended December 31, 1998, the five month transition
period ended December 31, 1997 and the years ended July 31, 1997 and 1996, the
Company issued 210,000, 15,000, 33,333 and 0 shares of restricted stock,
respectively, in lieu of cash compensation totaling $510,946, $79,688, $125,000
and $0. The value of such stock was established by the market price on the date
of the grant. Unearned compensation is shown as a reduction of shareholders'
equity in the accompanying consolidated financial statements and is being
amortized ratably over the restricted period.
SHAREHOLDER RIGHTS PLAN
On April 8, 1996, the Board of Directors declared a dividend
distribution on one common stock purchase right (a "Right") for each share of
the Company's common stock outstanding on April 30, 1996, and one Right for each
common stock into which Series A preferred stock are convertible. Each Right
would entitle shareowners to buy one-thousandth share of a new series of
preferred stock at an exercise price of $70.00 per share, subject to adjustment.
The Rights will not be exercisable or separable from the common stock until a
party, other than Synthelabo, acquires beneficial ownership of 15 percent or
more (or as low as 10 percent as the Board of Directors may determine) of the
Company's common stock or after a person or group announces an offer, the
consummation of which would result in such party owning 15 percent or more of
the common stock. The Rights expire on April 7, 2006, unless redeemed or
exchanged by the Company earlier.
(10) INVESTMENT IN JOINT VENTURE
Investments in joint venture consist of 50 percent of the common stock
of ELA*Angeion, a sales and marketing company formed to be the U.S. distributors
for Angeion and ELA Medical, Inc. products. The joint venture commenced
operations on January 1, 1998. Angeion's investments in and advances to the
joint venture have totaled $6,000,000 at December 31, 1998. Net sales to the
joint venture and net accounts receivable due from the joint venture were
$2,445,090 and $457,630, respectively, at December 31, 1998, net of elimination
of proportional share of sales, cost of sales and any resultant gain or loss
related to assets sold to the joint venture
<PAGE>
still remaining on the books of the joint venture at year end. A summary of the
financial information for the joint venture as of, and for, the year ended
December 31, 1998 follows:
1998
------------
Current assets $ 9,278,504
Current liabilities 5,515,951
============
Working capital 3,762,553
Plant, property & equipment, net 2,486,509
Other assets 0
Long-term debt 0
============
Stockholders' equity $ 6,249,062
============
Sales 16,282,810
============
Net income (loss) $ (5,750,938)
============
(11) LEASES
The Company leases office and production space under an operating
lease. The lease provides for executory costs that are subject to escalation
based on increases in the lessor's underlying costs. In addition, the Company
leases certain equipment under cancelable operating leases. Rent expense for
office and production space was approximately $572,000, $176,000, $404,000 and
$246,000, for the year ended December 31, 1998, the five month transition period
ended December 31, 1997, the years ended July 31, 1997 and 1996, respectively.
Future minimum lease payments under the operating leases are
approximately $722,328, $714,987, $671,605, $592,881, $634,443 and $2,691,819
for the years ended December 31, 1999, 2000, 2001, 2002, 2003 and thereafter,
respectively.
The Company also rents office furniture and equipment under capital
leases with the last lease expiring in February 2000. The total outstanding
balance at December 31, 1998 is $500,461.
(12) INCOME TAXES
The Company has a net operating loss carry-forward at December 31,
1998, of approximately $116,000,000 which is available to reduce income taxes
payable in future years. If not used, this carry-forward will begin to expire in
2004. Under the Tax Reform Act of 1986, the utilization of these carry-forwards
may be limited as a result of significant changes in ownership.
The actual tax expense differs from the expected tax expense (benefit)
computed by applying the U.S. federal corporate income tax rate of 34% to the
net loss as follows:
<TABLE>
<CAPTION>
Five Month
Year Ended Period Ended
December 31, December 31, Year Ended Year Ended
1998 1997 July 31, 1997 July 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory rate (34.0%) (34.0%) (34.0%) (34.0%)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
State income taxes, net (7.3) (6.0) (6.0) (6.0)
Miscellaneous (0.2) (0.2) 0.0 (0.0)
Change in valuation allowance 41.5 40.2 40.0 40.0
- ----------------------------------------------------------------------------------------------------
Effective income tax rate 0.0% 0.0% 0.0% 0.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Deferred taxes, calculated using an effective tax rate of 40% as of
December 31 consist of the following:
<TABLE>
<CAPTION>
Five Month
Year Ended Period Ended
December 31, December 31, Year Ended Year Ended
1998 1997 July 31, 1997 July 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating loss carry-forwards $ 46,651,000 $ 32,167,000 $ 27,693,000 $ 17,200,000
Other 3,425,000 2,118,000 (240,000) (32,000)
- ----------------------------------------------------------------------------------------------------
Total net deferred tax assets 50,076,000 34,285,000 27,453,000 17,168,000
- ----------------------------------------------------------------------------------------------------
Less valuation allowance (50,076,000) (34,285,000) (27,453,000) (17,168,000)
- ----------------------------------------------------------------------------------------------------
Deferred Income Taxes $ 0 $ 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------
</TABLE>
The net deferred assets at December 31, 1998 and 1997 and July 31, 1997
and 1996 are fully offset by a valuation allowance. The amount of the valuation
allowance will be reviewed annually.
(13) RETIREMENT SAVINGS PLAN
The Angeion Corporation Tax Deferred Savings and Employee Stock
Ownership Plan (the Plan) provides for contributions in the form of a salary
reduction cash or deferred arrangement, discretionary matching employer
contribution, discretionary supplemental employer contributions, and voluntary
after-tax contributions by participating employees. Generally, all employees of
the Company who have completed six months of service with the Company are
eligible to participate in the Plan. Contribution expense was immaterial in all
years presented.
(14) ROYALTY COMMITMENTS
On August 13, 1998, the Company agreed to pay royalties to Children's
Medical Center Corporation for sales related to specified identified patents.
Royalty rates related to this agreement are as follows: 2 1/2 percent of the
first $2,000,000 of net product sales after market release; 5 percent of all net
product sales over and above the first $2,000,000; and 10 percent on all
third-party income. The Company has incurred $34,000 in royalties as of December
31, 1998 related to the above commitment.
The Company acquired the technology for its continuous-wave laser
catheter system. As part of this acquisition, the Company agreed to pay a
royalty of 5% on sales of patented products incorporating this technology for
the life of any patent on this technology. Additionally, in exchange for a
doctor's efforts in connection with the laser catheter ablation system, the
Company has agreed to pay the doctor and Carolinas Medical Center a royalty,
when certain conditions are met, of 2% and 3%, respectively, on all paid sales
of tachycardia devices. The Company has incurred no royalty expense through
December 31, 1998 related to this commitment.
<PAGE>
(15) REPORTING COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING
COMPREHENSIVE INCOME. SFAS 130 does not change the reporting of net income
(loss). However, it requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a separate financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 also requires that an enterprise display
the accumulated balance of other comprehensive income separately from retained
earning and paid-in-capital in the equity section of the statement of financial
position. The Company adopted SFAS 130 on January 1, 1998, however, because
components of comprehensive income consist only of immaterial foreign currency
translation adjustments, the Company's net loss and comprehensive loss are
substantially equivalent and are not presented separately.
(16) SEGMENT REPORTING
In the current year, the Company adopted SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which establishes
standards for disclosure about operating segments, products, geography and major
customers.
The Company operates in a single industry segment: cardiovascular
medical products. For management purposes, the Company is segmented into two
geographic areas. Information regarding operations in these two geographies for
the year ended December 31, 1998, the five-month transition period ending
December 31, 1997 and the years ended July 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Five Month
Year Ended Period Ended
December 31, December 31, Year Ended Year Ended
1998 1997 July 31, 1997 July 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers
United States $2,976,366 758,525 3,063,766 2,610,729
Europe 1,345,318 33,350 1,441,519 338,000
All other foreign countries 245,084 72,900 0 0
-----------------------------------------------------------
$4,566,768 864,775 4,505,285 2,948,729
- ----------------------------------------------------------------------------------------------------
Net long-lived assets
United States $6,878,438 6,436,925 6,623,990 4,819,820
Europe 2,384 86,895 98,086 0
-----------------------------------------------------------
$6,880,822 6,523,820 6,722,076 4,819,820
- ----------------------------------------------------------------------------------------------------
</TABLE>
Sales attributed to geographic area are based upon customer location.
Long-lived assets consist of property and equipment located at the Company's
facilities in the United States, United Kingdom and Germany.
<PAGE>
(17) CONTINGENCIES
The Company has an ongoing patent lawsuit against CPI which was begun
in 1996 and is expected to begin trial in May of 1999. The Company's lawsuit
involves four U.S. patents of the Company which have been asserted against
certain ICD devices manufactured by CPI. These four patents relate to inventions
by the Company with respect to reduced capacitance of the high voltage
capacitors in an ICD, decreased size of the ICD and the ability to use the
housing of the ICD as an electrode in combination with a subcutaneous electrode,
It is not known whether the Company's lawsuit against CPI will be successful
and, if so, what damages or other outcomes may result. The inability of the
Company to prevail in the lawsuit could result in one or more of the patents of
the Company to be declared invalid, unenforceable or not infringed, which could
have a material adverse effect on the ability of the Company to obtain a
satisfactory resolution of this matter, if at all, with CPI, as well as to
obtain satisfactory resolutions with other competitors in the industry.
On September 15, 1998, CPI sued the Company for infringement of three
patents assigned to Michelle Mirowski. The Company firmly believes it does not
infringe any of the patents asserted in the lawsuit and as a precaution had
obtained a patent clearance opinion for its 2010 product prior to PMA approval.
The Company has answered the complaint by asserting that its' products do not
infringe the Mirowski patents, that the Mirowski patents are not valid or
enforceable, that CPI is not the proper party to be asserting the Mirowksi
patents, and that CPI is estopped by virtue of latches and estoppel to claim
infringement by the Company. Moreover, the Company filed a Request for
Reexamination of each of the three Mirowski patents with the U.S. Patent Office
alleging that each patent is invalid. The Patent Office has agreed to consider
all three of these Requests.
The Company is also subject to certain claims and lawsuits that have
been filed in the ordinary course of business. It is management's opinion that
the settlement of all litigation would not have a material adverse effect on the
financial position of the Company.
<PAGE>
(18) SUBSEQUENT EVENTS
(a) In January 1999, the Company announced a restructuring plan to
improve the Company's ability to market the ICD product line while helping to
reduce the cash flow burn rate. As a result of this restructuring, the Company
reduced approximately 20% of the total employee base, including 40% of the
Company's senior management team. Although the restructuring included employees
from throughout the entire organization, it is the Company's opinion that this
action will not have a material impact on the Company's ability to meet any
research and development schedules nor will it prevent compliance with any
regulatory agencies. In addition, a small sales and marketing organization was
established within the Company that will help educate and coordinate the sales
efforts with the Company's joint venture, ELA*Angeion, LLC. Approximately
$750,000 in expenses were incurred related to the reorganization, severance and
other employee benefits associated with the reduction in force. No material
future expenses related to this restructuring are expected.
(b) In January 1999, the Company entered into financing agreements
between the Company and Norwest Business Credit (the "Bank") in which the Bank
made two term loans (the "Loans") to the Company in the amount of $4,000,000 and
$2,000,000. The loans have a term of nine months from the date of advance and
bear an initial interest rate of 5.75% per annum, adjusted based upon changes in
the prime rate, and paid on a monthly basis to the Bank. The loans are
guaranteed by individual investors (the "Investors"), including a director of
the Company, who, upon maturity of the Loans, will be paid guarantee fees of
approximately 5.05% per annum. In addition, the Investors received a one time
commitment fee from the Company equal to 2% of the loan amount. The Loans are
secured by a security interest in all of the Company's intellectual property
that the Company is free to pledge for such purpose.
(c) On March 16, 1999, the Company received an equity investment of
$10,000,000 from the Company's strategic partner, Synthelabo, as a result of the
Company receiving PMA approval for its 2020 ICD and lead systems. This payment
was in accordance with the Investment and Master Strategic Relationship
Agreement (the "Investment Agreement") between Synthelabo and the Company
entered into in October 1997. As a result of the equity investment, Synthelabo
received warrants to purchase 9,090,171 and 5,405,405 shares of the Company's
common stock at prices of $0.01 and $1.11 per share, respectively. These
warrants expire on March 12, 2009 and March 12, 2002, respectively.
(19) QUARTERLY FINANCIAL DATA
(unaudited)
Following is a summary of quarterly financial results in the years
ended December 31:
(in thousands except
per share amounts) First Second Third Fourth
- ------------------------------------------------------------------------------
1998
Total revenue $ 355 $ 1,113 $ 1,614 $ 1,485
Net income (loss) (9,675) (8,723) (7,133) (13,307)
Loss per common share (0.29) (0.26) (0.21) (0.35)
Weighted average shares 33,091 33,178 33,815 38,247
1997
Total revenue $ 716 $ 985 $ 1,214 $ 179
Net income (loss) (6,880) (7,935) (10,109) (9,191)
Loss per common share (0.24) (0.27) (0.33) (0.29)
Weighted average shares 28,802 29,433 30,599 31,246
Loss per common share is computed based upon the weighted average
number of shares outstanding during each period.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 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.
ANGEION CORPORATION
Dated: April 22, 1999 By /s/ James B. Hickey, Jr.
------------------------------------------
James B. Hickey, Jr.
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant on April 22, 1999 in the capacities indicated.
/s/ Whitney A. McFarlin Chairman
- ------------------------------
Whitney A. McFarlin
/s/ James B. Hickey, Jr. Director, Chief Executive Officer and
- ------------------------------ President (principal executive officer
James B. Hickey, Jr. and acting principal financial officer)
Director
- ------------------------------
Joseph C. Kiser, M.D.
/s/ Lyle D. Joyce, M.D., Ph.D. Director
- ------------------------------
Lyle D. Joyce, M.D., Ph.D.
/s/ Arnold A. Angeloni Director
- ------------------------------
Arnold A. Angeloni
Director
- ------------------------------
Dennis E. Evans
/s/ Donald D. Maurer Director
- ------------------------------
Donald D. Maurer
/s/ Steven Wilson Director
- ------------------------------
Steven Wilson
/s/ Glen Taylor Director
- ------------------------------
Glen Taylor
<PAGE>
23.1 Independent Auditors' Consent Filed herewith electronically.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Angeion Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
333-04189, 33-88882, 33-56784, 33-81594 and 333-42931) on Form S-8, Registration
Statements (Nos. 333-36005, 333-03007, 333-04993, 33-45600, 33-85902, and
33-80274) on Form S-3, and Registration Statement (No. 33-82084) on Form S-2 of
Angeion Corporation of our report dated February 23, 1999, except as to note
18(c) which is as of March 16, 1999, relating to the consolidated balance sheets
of Angeion Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the year ended December 31, 1998, the five-month
transition period ended December 31, 1997, and for each of the years ended July
31, 1997 and 1996, which report is incorporated by reference in the December 31,
1998, annual report on Form 10-K of Angeion Corporation.
Our report dated February 23, 1999, except as to note 18(c) which is as of March
16, 1999, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations and has a shareholders' deficit, which
raise substantial doubt about its ability to continue as a going concern. The
Consolidated Financial Statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 26, 1999
