===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NO. 0-18602
ATS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1595629
(state or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3905 ANNAPOLIS LANE, SUITE 105 55447
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 553-7736
Former name, if changed since last report: N/A
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 _____
The number of shares outstanding of each of the registrant's classes of
common stock as of November 1, 1996 was:
Common Stock $.01 par value 15,166,151 shares
===============================================================================
ATS MEDICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Statements of Financial Position - 3
September 30, 1996 (unaudited) and
December 31, 1995
Statements of Operations - 4
Three Months and Nine Months Ended
September 30, 1996 and 1995 (unaudited)
Statements of Cash Flows - 5
Nine Months Ended September 30, 1996 and
1995 (unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 11
Signatures 12
<TABLE>
<CAPTION>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash & cash equivalents $ 4,198,671 $ 2,213,632
Marketable securities 7,852,698 10,770,979
------------ ------------
12,051,369 12,984,611
Accounts receivable, less allowance of $187,500
in 1996 and $150,000 in 1995 2,498,727 3,014,957
Other receivables 66,875 210,150
Prepaid expenses 228,431 440,682
Inventory 16,671,237 13,421,745
------------ ------------
TOTAL CURRENT ASSETS 31,516,639 30,072,145
FURNITURE, MACHINERY & EQUIPMENT 1,981,571 1,849,120
Less accumulated depreciation 1,105,101 961,571
------------ ------------
876,470 887,549
OTHER ASSETS 380,601 369,434
------------ ------------
TOTAL ASSETS $ 32,773,710 $ 31,329,128
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,471,251 $ 1,988,189
Accrued payroll and expenses 112,889 281,518
------------ ------------
TOTAL CURRENT LIABILITIES 1,584,140 2,269,707
LONG-TERM DEBT 0 0
SHAREHOLDERS' EQUITY Common Stock, $.01 par value
Authorized 40,000,000 shares; Issued and
outstanding 15,166,151 & 14,963,604 at
Sept 30, 1996 and Dec 31, 1995, respectively 151,661 149,636
Additional paid-in capital 51,989,141 50,777,154
Other equity 33,656 48,154
Retained earnings (deficit) (20,984,888) (21,915,523)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 31,189,570 29,059,421
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 32,773,710 $ 31,329,128
============ ============
</TABLE>
<TABLE>
<CAPTION>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 2,758,825 $ 2,236,980 $ 8,425,525 $ 6,689,340
Less cost of goods sold 1,654,064 1,572,340 5,209,100 4,398,709
------------ ------------ ------------ ------------
GROSS PROFIT 1,104,761 664,640 3,216,425 2,290,631
OPERATING EXPENSES
Research, development and engineering 137,618 178,956 466,632 537,678
Selling, general and administrative 746,986 598,401 2,313,818 1,781,774
------------ ------------ ------------ ------------
TOTAL EXPENSES 884,604 777,357 2,780,450 2,319,452
Interest income 164,686 252,279 494,660 555,060
Interest expense 0 0 0 (31,224)
------------ ------------ ------------ ------------
164,686 252,279 494,660 523,836
NET INCOME $ 384,843 $ 139,562 $ 930,635 $ 495,015
============ ============ ============ ============
Net income per share $ 0.02 $ 0.01 $ 0.06 $ 0.03
============ ============ ============ ============
Weighted average number of shares
outstanding during the period 16,065,511 16,039,182 16,485,741 14,572,270
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 930,635 $ 495,015
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 174,232 171,399
Loss on disposal of equipment 14,996 916
Compensation expense on stock options 0 13,666
Changes in operating assets and liabilities:
Accounts receivable 516,230 19,495
Prepaid expenses and other assets 355,526 (150,032)
Other assets (11,167) 259,698
Inventory (3,249,492) (1,246,396)
Accounts payable and accrued expenses (685,567) 1,046,049
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,954,607) 609,810
INVESTING ACTIVITIES
Purchase of marketable securities (6,611,381) (14,348,753)
Sale of marketable securities 9,516,810 2,929,753
Purchases of property, plant and equipment (178,149) (137,880)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,727,280 (11,556,880)
FINANCING ACTIVITIES
Notes payable 0 (1,250,000)
Net proceeds from sale of common stock 1,214,012 15,424,735
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,214,012 14,174,735
Effect of exchange rate changes on cash (1,646) 6,930
INCREASE IN CASH AND CASH EQUIVALENTS 1,985,039 3,234,595
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,213,632 628,368
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,198,671 $ 3,862,963
============ ============
</TABLE>
ATS MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
Note A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month and nine month periods ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ATS Medical, Inc. (the "Company") is engaged in the manufacturing and marketing
of a pyrolytic carbon bileaflet mechanical heart valve. The Company sells the
ATS Open Pivot TM valve (the "ATS Valve" or the "Valve") in international
markets and is in the process of pursuing regulatory approval for sales in the
United States.
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1996 increased 23% to $2,758,825
compared to $2,236,980 for the quarter ended September 30, 1995. Unit sales
increased 1% in the third quarter 1996 compared to 1995. More valves were sold
into developed markets than price sensitive markets during the quarter ended
September 30, 1996 versus 1995. Following approval of the Shonin by the Japanese
Ministry of Health the Company was able to ship valves to Japan both in June and
during the third quarter of 1996.
Net sales for the nine months ended September 30, 1996 totaled $8,425,525
compared to $6,689,340 for the nine months ended September 30, 1995. Revenue
increased approximately 26% and unit sales increased approximately 12% for the
nine months ended September 30, 1996 compared to the nine months ended September
30, 1995. International pricing of heart valves is very competitive. The Company
sells to independent specialty medical products distributors, who are
responsible for specific geographic territories. These distributors sell the
Valve to doctors, hospitals and health systems. Effective January 1, 1996 the
Company raised the price of the Valve an average of 5%, and, combined with
changes in geographic mix, the average selling price of the Valve has increased
13% during the first nine months of 1996 compared to the first nine months of
1995.
Cost of sales for the third quarter of 1996 totaled $1,654,064 or 60% of sales
compared to $1,572,340 or 70% of sales for the third quarter of 1995. Cost of
sales for the nine months ended September 30, 1996 totaled $5,209,100 or 62% of
sales compared to $4,398,709 or 66% of sales for the nine months ended September
30, 1995. The price of the carbon components increased 11% for the quarter and
nine months ended September 30, 1996 as compared to the cost of carbon
components contained in the Valves sold in the quarter and nine months ended
September 30, 1995. Based upon the Company's internal sales projections, the
price of the carbon contained in valves sold during the fourth quarter of 1996
will be 13% higher than in 1995.
Gross profit totaled $1,104,761 for the quarter ended September 30, 1996 or 40%
of sales, compared to gross profit of $664,640 or 30% for the quarter ended
September 30, 1995. Gross profit totaled $3,216,425 or 38% of sales for the nine
months ended September 30, 1996 compared to $2,290,631 or 34% of sales for the
nine months ended September 30, 1995. The increase in the average selling prices
in 1996 over 1995 has exceeded the increase in the cost of carbon components.
Research, development and engineering expenses totaled $137,618 for the quarter
ended September 30, 1996 versus $178,956 for the quarter ended September 30,
1995. For the nine months ended September 30, 1996 research, development and
engineering expenses totaled $466,632 compared to $537,678 for the nine months
ended September 30, 1995. Approximately 49% and 32% of research and development
expenses for the quarters ended September 30, 1996 and 1995, respectively, were
for testing and outside consulting services related to the Valve. The primary
focus of the Company's development efforts in the first nine months of 1996 was
for new packaging for the Valve.
Selling, general and administrative expenses totaled $746,986 for the quarter
ended September 30, 1996, an increase over the $598,401 reported for the quarter
ended September 30, 1995. The Company is planning the Second Symposium on the
ATS Valve for the fourth quarter of 1996. Anticipated expenses associated with
this meeting have resulted in accruals of $100,000 in the third quarter of 1996
and $300,000 in the first nine months of 1996. There was no symposium or
comparable expense in 1995, as a result, this is the majority of the year to
year increase. Headcount additions and salary increases were another factor in
the increase in selling, general and administrative expenses in 1996.
There was no interest expense incurred in the quarters ended September 30, 1996
and 1995. At the beginning of 1995, the Company had borrowed the entire limit of
its $1,250,000 line of credit. The Company repaid its entire line of credit on
March 13, 1995. For the nine months ended September 30, 1995 the company paid
$31,224 in interest expense.
Interest income totaled $164,686 for the quarter ended September 30, 1996
compared to $252,279 for the quarter ended September 30, 1995. For the first
nine months of 1996 interest income totaled $494,660 compared to $555,060 for
the first nine months of 1995. The decrease in interest income for the first
nine months of 1996 was the result of less cash on hand to invest for the nine
months of 1996 than the first nine months of 1995. Cash on hand at September 30,
1996 is below the amount on hand September 30, 1995, so interest income for the
fourth quarter of 1996 is expected to be lower than the fourth quarter of 1995.
Net income totaled $384,843 for the quarter ended September 30, 1996 versus net
income of $139,562 for the quarter ended September 30, 1995. Net income totaled
$930,635 for the nine months ended September 30, 1996 compared to $495,015 for
the nine months ended September 30, 1995. The increase in gross profit in the
1996 periods was greater than the increase in operating expenses, which resulted
in operating income and increased net income compared to the 1995 periods.
Earnings per share totaled $.02 for the quarter ended September 30, 1996
compared to $.01 for the quarter ended September 30, 1995. Earnings per share
for the first nine months of 1996 totaled $.06 and earnings per share for the
first nine months of 1995 totaled $.03. The weighted average number of shares
outstanding increased 13% for the nine months ended September 30, 1996 over 1995
primarily due to the issuance of 3,600,000 shares in the March, 1995 common
stock offering.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities decreased by $933,242 from
$12,984,611 at December 31, 1995 to $12,051,369 at September 30, 1996. Inventory
purchases, accounts receivable growth and a $516,938 reduction in accounts
payable caused the company to have negative cashflow. The Company collected
$1,214,012 during the first nine months of 1996 from the exercise of stock
options and warrants.
During 1996 the Company is required to purchase $9.6 million of heart valve
components in accordance with terms of a long term supply agreement with
CarboMedics, Inc. (the "Supply Agreement"). There are four contract years after
1996 during which the Company is obligated to purchase an aggregate total of
approximately $60 million of components. The minimum purchases under the
contract are not tied to sales of the Company's valve and the Company does not
expect sales of the Valve to exceed the minimum purchase requirements until the
Valve is approved for sale in the United States by the Food and Drug
Administration. Deliveries under the terms of the contract are expected to
increase during the final quarter of 1996 which will cause cash, cash
equivalents and marketable securities to decline.
Accounts receivable decreased from $3,014,957 at December 31, 1995 to $2,498,727
at September 30, 1996. All of the Company's sales have been to customers in
international markets and while the Company attempts to set standard 60 day
terms for receivables, competitive pressures and geographical economic
situations have caused the Company to selectively extend the terms for payment.
Accounts payable decreased from $1,988,189 at December 31, 1995 to $1,471,251 at
September 30, 1996. The Company scheduled and received a large quantity of
components from its carbon supplier in the fourth quarter of 1995 and a lesser
quantity in each of the first three quarters of 1996. The majority of the
decrease in accounts payable is related to the amount owing CMI.
Based upon the Company's current rate of sales, its expected obligations under
the supply agreement with CMI and its expected expenses, the Company anticipates
that existing cash, cash equivalents and short-term investments will be
sufficient to satisfy its capital requirements through 1997. Beyond 1997, given
the substantial minimum purchase requirements under the Supply Agreement and the
costs associated with obtaining FDA approval in the United States, the Company
must continue to substantially increase revenues to meet its capital
requirements. Should revenues not increase sufficiently, the Company may be
required to raise additional equity capital. There can be no assurance that
equity would be available to the Company at favorable terms, if at all.
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their business, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. ATS Medical, Inc.
desires to take advantage of the safe harbor provisions with respect to any
forward-looking statements it may make in this filing, other filings with the
Securities and Exchange Commission and any public oral statements or written
releases. The words or phrases "will likely," "is expected," "will continue,"
"is anticipated," "estimate," "projected," "forecast," or similar expressions
are intended to identify forward-looking statements within the meaning of the
Act. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
In accordance with the Act, the Company identifies the following important
general factors which if altered from the current status could cause the
Company's actual results to differ from those described in any forward-looking
statements: the continued acceptance of the Company's mechanical heart valve in
international markets, the acceptance by the U.S. FDA of the Company's
regulatory submissions, the continued performance of the Company's mechanical
heart valve without structural failure, the actions of the Company's competitors
including pricing changes and new product introductions, the continued
performance of the Company's independent distributors in selling the valve, and
the actions of the Company's supplier of pyrolitic carbon components for the
valve. This list is not exhaustive, and the Company may supplement this list in
any future filing or in connection with the making of any specific
forward-looking statement.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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.
Date: November 6, 1996 ATS MEDICAL, INC.
By: /s/ John H. Jungbauer
-------------------------------------
John H. Jungbauer, Vice President/CFO
(Principal Financial Officer and
Authorized Signatory)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,198,671
<SECURITIES> 7,852,698
<RECEIVABLES> 2,686,227
<ALLOWANCES> 187,500
<INVENTORY> 16,671,237
<CURRENT-ASSETS> 31,516,639
<PP&E> 1,981,571
<DEPRECIATION> 1,105,101
<TOTAL-ASSETS> 32,773,710
<CURRENT-LIABILITIES> 1,584,140
<BONDS> 0
0
0
<COMMON> 151,661
<OTHER-SE> 31,037,909
<TOTAL-LIABILITY-AND-EQUITY> 32,773,710
<SALES> 8,425,525
<TOTAL-REVENUES> 8,425,525
<CGS> 5,209,100
<TOTAL-COSTS> 5,209,100
<OTHER-EXPENSES> 2,285,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 930,635
<INCOME-TAX> 0
<INCOME-CONTINUING> 930,635
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 930,635
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
