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 JUNE 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
incorporation or organization) Identification No.)
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 August 1, 1996 was:
Common Stock, $.01 par value 15,151,351
ATS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Statements of Financial Position - 3
June 30, 1996 (unaudited) and
December 31, 1995
Statements of Operations - 4
Three Months and Six Months Ended
June 30, 1996 and 1995 (unaudited)
Statements of Cash Flows - 5
Six Months Ended June 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)
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash & cash equivalents $ 3,981,202 $ 2,213,632
Marketable securities 7,857,895 10,770,979
------------ ------------
11,839,097 12,984,611
Accounts receivable, less allowance of $25,000
in 1996 and $150,000 in 1995 3,174,861 3,014,957
Other receivables 50,000 210,150
Prepaid expenses 302,650 440,682
Inventory 15,407,322 13,421,745
------------ ------------
TOTAL CURRENT ASSETS 30,773,930 30,072,145
FURNITURE, MACHINERY & EQUIPMENT 1,945,632 1,849,120
Less accumulated depreciation 1,072,026 961,571
------------ ------------
873,606 887,549
OTHER ASSETS 375,919 369,434
------------ ------------
TOTAL ASSETS $ 32,023,455 $ 31,329,128
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,194,778 $ 1,988,189
Accrued payroll and expenses 149,520 281,518
------------ ------------
TOTAL CURRENT LIABILITIES 1,344,298 2,269,707
LONG-TERM DEBT 0 0
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value:
Authorized 40,000,000 shares; Issued and
outstanding 15,237,976 & 14,963,604 at
June 30, 1996 and Dec 31, 1995, respectively 152,380 149,636
Additional paid-in capital 51,863,797 50,777,154
Other equity 32,712 48,154
Retained earnings (deficit) (21,369,732) (21,915,523)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 30,679,157 29,059,421
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 32,023,455 $ 31,329,128
============ ============
</TABLE>
<TABLE>
<CAPTION>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 3,069,820 $ 2,134,055 $ 5,666,700 $ 4,452,360
Less cost of goods sold 1,880,751 1,331,042 3,555,036 2,826,369
----------- ----------- ----------- -----------
GROSS PROFIT 1,189,069 803,013 2,111,664 1,625,991
OPERATING EXPENSES
Research, development and engineering 166,628 203,683 329,014 358,722
Selling, general and administrative 815,185 578,022 1,566,832 1,183,373
----------- ----------- ----------- -----------
TOTAL EXPENSES 981,813 781,705 1,895,846 1,542,095
Interest income 146,365 228,944 329,974 302,781
Interest expense 0 (1,463) 0 (31,224)
----------- ----------- ----------- -----------
146,365 227,481 329,974 271,557
NET INCOME $ 353,621 $ 248,789 $ 545,792 $ 355,453
=========== =========== =========== ===========
Net income per share $ 0.02 $ 0.02 $ 0.03 $ 0.03
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 16,661,302 15,884,954 16,707,101 13,830,902
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 545,792 $ 355,453
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 113,384 114,079
Loss on disposal of equipment 0 916
Compensation expense on stock options 0 11,466
Changes in operating assets and liabilities:
Accounts receivable (159,904) 18,118
Prepaid expenses and other assets 298,182 (113,667)
Other assets (6,485) 363,297
Inventory (1,985,577) 642,966
Accounts payable and accrued expenses (925,409) 826,673
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,120,017) 2,219,301
INVESTING ACTIVITIES
Purchase of marketable securities (3,739,207) (10,530,401)
Sale of marketable securities 6,639,438 0
Purchases of property, plant and equipment (99,441) (71,280)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,800,790 (10,601,681)
FINANCING ACTIVITIES
Notes payable 0 (1,250,000)
Net proceeds from sale of common stock 1,089,387 14,965,944
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,089,387 13,715,944
Effect of exchange rate changes on cash (2,590) 10,081
INCREASE IN CASH AND CASH EQUIVALENTS 1,767,570 5,343,645
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,213,632 628,368
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,981,202 $ 5,972,013
============ ============
</TABLE>
ATS MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 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 six month periods ended June 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 June 30, 1996 increased 44% to $3,069,820
compared to $2,134,055 for the quarter ended June 30, 1995. Unit sales also
increased 44% in the second quarter 1996 compared to 1995. While more valves
were sold into price sensitive markets during the quarter ended June 30, 1996
than in 1995, the average selling price per valve decreased less than 1 %.
Following approval of the Shonin by the Japanese Ministry of Health the Company
was able to ship valves to Japan in June.
Net sales for the six months ended June 30, 1996 totaled $5,666,700 compared to
$4,452,360 for the six months ended June 30, 1995. Revenue increased about 27%
and unit sales increased about 18% for the six months ended June 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 over 7% during the
first half of 1996 compared to the first half of 1995.
Cost of sales for the second quarter of 1996 totaled $1,880,751 or 61 % of sales
compared to $1,331,042 or 62 % of sales for the second quarter of 1995. Cost of
sales for the six months ended June 30, 1996 totaled $3,555,036 or 63% of sales
compared to $2,826,369 or 63% of sales for the six months ended June 30, 1995.
The price of the carbon components increased 11% for the quarter and six months
ended June 30, 1996 as compared to the cost of carbon components contained in
the Valves sold in the quarter and six months ended June 30, 1995. Based upon
the Company's internal sales projections the price of the carbon contained in
valves sold during the quarter ending September 30, 1996 will also be 11% higher
than in 1995.
Gross profit totaled $1,189,069 for the quarter ended June 30, 1996 or 39 % of
sales, compared to gross profit of $803,013 or 38 % for the quarter ended June
30, 1995. Gross profit totaled $2,111,664 or 37% of sales for the six months
ended June 30, 1996 compared to $1,625,991 or 37% of sales for the six months
ended June 30, 1995. The increase in the average selling prices in 1996 over
1995 for the most part has been offset by the increase in the cost of carbon
components.
Research, development and engineering expenses totaled $166,628 for the quarter
ended June 30, 1996 versus $203,683 for the quarter ended June 30, 1995. For the
six months ended June 30, 1996 research, development and engineering expenses
totaled $329,014 compared to $358,722 for the six months ended June 30, 1995.
Approximately 39% and 43% of research and development expenses for the quarters
ended June 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 half of 1996 was for new packaging for the
Valve.
Selling, general and administrative expenses totaled $815,185 for the quarter
ended June 30, 1996, an increase over the $578,022 reported for the quarter
ended June 30, 1995. During the second half of 1995 the Company added personnel
in sales and marketing which, combined with other salary increases, accounted
for a large portion of the year to year increase. 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 $50,000 in
the first quarter of 1996 and $150,000 in the second quarter. Additional monies
will be accrued in the third and fourth quarters as information on projected
expenses is available.
Interest expense totaled $1,463 for the quarter ended June 30, 1995. There was
no interest expense incurred in the quarter ended June 30, 1996. 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 six months ended June 30, 1995 the company paid $31,224 in interest
expense.
Interest income totaled $146,365 for the quarter ended June 30, 1996 compared to
$228,944 for the quarter ended June 30, 1995. For the first half of 1996
interest income totaled $329,974 compared to $302,781 for the first six months
of 1995. The increase in interest income for the first half of 1996 was the
result of having cash on hand to invest for the entire six months of 1996 and
only four months of 1995. Cash on hand at June 30, 1996 is below the amount on
hand during the last six months of 1995, so interest income for the third and
fourth quarters of 1996 is expected to be lower than in the comparable quarters
of 1995.
Net income totaled $353,621 for the quarter ended June 30, 1996 versus net
income of $248,789 for the quarter ended June 30, 1995. Net income totaled
$545,792 for the six months ended June 30, 1996 compared to $355,543 for the six
months ended June 30, 1995. The increase in gross profit in the 1996 periods
were greater than the increase in operating expenses, which resulted in
increased net income compared to the 1995 periods.
Earnings per share for both quarters totaled $.02. Earnings per share for the
first six months of both 1996 and 1995 totaled $.03. The weighted average number
of shares outstanding increased 21% for the six months ended June 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 $1,145,514 from
$12,984,611 at December 31, 1995 to $11,839,097 at June 30, 1996. Inventory
purchases, accounts receivable growth and a $793,411 reduction in accounts
payable caused the company to have negative cashflow. The Company collected
$1,089,387 during the first six months of 1996 from the exercise of stock
options and warrants.
During 1996 the Company is required to buy $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 second half of 1996 which will cause cash, cash equivalents
and marketable securities to decline.
Accounts receivable increased from $3,014,957 at December 31, 1995 to $3,174,861
at June 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 $1,194,778 at
June 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 two 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 habor" 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: August 5, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,981,202
<SECURITIES> 7,857,895
<RECEIVABLES> 3,349,861
<ALLOWANCES> 175,000
<INVENTORY> 15,407,322
<CURRENT-ASSETS> 30,773,930
<PP&E> 1,945,632
<DEPRECIATION> 1,072,026
<TOTAL-ASSETS> 32,023,455
<CURRENT-LIABILITIES> 1,344,298
<BONDS> 0
0
0
<COMMON> 152,380
<OTHER-SE> 30,526,777
<TOTAL-LIABILITY-AND-EQUITY> 32,023,455
<SALES> 5,666,700
<TOTAL-REVENUES> 5,666,700
<CGS> 3,555,036
<TOTAL-COSTS> 3,555,036
<OTHER-EXPENSES> 1,565,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 545,792
<INCOME-TAX> 0
<INCOME-CONTINUING> 545,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 545,792
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
