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 MARCH 31, 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 May 1, 1996 was:
Common Stock, $.01 par value 15,102,039 shares
ATS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Statements of Financial Position - 3
March 31, 1996 (unaudited) and
December 31, 1995
Statements of Operations - 4
Three Months Ended March 31, 1996
and 1995 (unaudited)
Statements of Cash Flows - 5
Three Months Ended March 31, 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 10
Signatures 11
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
ASSETS ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash & cash equivalents $ 2,901,507 $ 2,213,632
Marketable securities 8,853,680 10,770,979
------------ ------------
11,755,187 12,984,611
Accounts receivable, less allowance of $12,500
in 1996 and $150,000 in 1995 3,327,146 3,014,957
Other receivables 108,500 210,150
Prepaid expenses 357,023 440,682
Inventory 14,316,339 13,421,745
------------ ------------
TOTAL CURRENT ASSETS 29,864,195 30,072,145
FURNITURE, MACHINERY & EQUIPMENT 1,902,291 1,849,120
Less accumulated depreciation 1,018,846 961,571
------------ ------------
883,445 887,549
OTHER ASSETS 370,885 369,434
------------ ------------
TOTAL ASSETS $ 31,118,525 $ 31,329,128
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 889,951 $ 1,988,189
Accrued payroll and expenses 168,115 281,518
------------ ------------
TOTAL CURRENT LIABILITIES 1,058,066 2,269,707
LONG-TERM DEBT 0 0
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value:
Authorized 40,000,000 shares; Issued and
outstanding 15,101,539 & 14,963,604 at
March 31, 1996 and Dec 31, 1995, respectively 151,015 149,636
Additional paid-in capital 51,600,750 50,777,154
Other equity 32,046 48,154
Retained earnings (deficit) (21,723,352) (21,915,523)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 30,060,459 29,059,421
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 31,118,525 $ 31,329,128
============ ============
</TABLE>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
---------------------------
1996 1995
------------ ------------
REVENUES
Net sales $ 2,596,880 $ 2,318,305
Less cost of goods sold 1,674,285 1,495,327
------------ ------------
GROSS PROFIT 922,595 822,978
OPERATING EXPENSES
Research, development and engineering 162,386 155,039
Selling, general and administrative 751,647 605,351
------------ ------------
TOTAL EXPENSES 914,033 760,390
Interest income 183,609 73,837
Interest expense 0 (29,761)
------------ ------------
183,609 44,076
NET INCOME $ 192,171 $ 106,664
============ ============
Net income per share $ 0.01 $ 0.01
============ ============
Weighted average number of shares
outstanding during the period 16,685,411 12,673,470
============ ============
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 192,171 $ 106,664
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 57,275 57,447
Loss on disposal of equipment 0 712
Compensation expense on stock options 0 9,266
Changes in operating assets and liabilities:
Accounts receivable (312,189) 47,585
Prepaid expenses and other assets 185,308 97,066
Other assets (1,451) (21,613)
Inventory (894,594) 986,405
Accounts payable and accrued expenses (1,211,641) 122,435
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,985,121) 1,405,967
INVESTING ACTIVITIES
Purchase of marketable securities (928,650) (8,639,860)
Sale of marketable securities 2,833,097 0
Purchases of property, plant and equipment (53,171) 0
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,851,276 (8,639,860)
FINANCING ACTIVITIES
Notes payable 0 (1,250,000)
Net proceeds from sale of common stock 824,975 14,814,027
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 824,975 13,564,027
Effect of exchange rate changes on cash (3,255) 18,038
INCREASE IN CASH AND CASH EQUIVALENTS 687,875 6,348,172
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,213,632 628,368
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,901,507 $ 6,976,540
============ ============
</TABLE>
ATS MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 periods ended March 31, 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 March 31, 1996 totalled $2,596,880 compared to
$2,318,305 for the quarter ended March 31, 1995. Revenue increased 12 % in the
first quarter 1996 compared to 1995, but unit sales declined 4 %. More valves
were sold into price sensitive markets during the quarter ended March 31, 1995
than in 1996. The average selling price per valve increased 11 % for the quarter
ended March 31, 1996 compared to 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%.
Cost of sales for the first quarter of 1996 totaled $1,674,285 or 65 % of sales
compared to $1,495,327 or 65 % of sales for the first quarter of 1995. Although
the mix of sales shifted to fewer units in low priced markets, the price of the
carbon components increased 11% for the quarter ended March 31, 1996 as compared
to the cost of carbon components contained in the Valves sold in the quarter
ended March 31, 1995.
Gross profit totaled $922,595 for the quarter ended March 31, 1996 or 35 % of
sales, compared to gross profit of $822,978 or 35 % for the quarter ended March
31, 1995. The increase in the average selling price in the first quarter of 1996
over 1995 was offset by the increase in the cost of carbon components.
Research, development and engineering expenses totalled $162,386 for the quarter
ended March 31, 1996 versus $155,039 for the quarter ended March 31, 1995.
Approximately 47 % and 40 % of research and development expenses for the
quarters ended March 31, 1996 and 1995, resectively, were for testing and
outside consulting services related to the valve. The primary focus of the
Company's development efforts in the first quarter of 1996 was for new packaging
for the Valve.
Selling, general and administrative expenses totaled $751,647 for the quarter
ended March 31, 1996, an increase over the $605,351 reported for the quarter
ended March 31, 1995. During the second half of 1995 the Company added personnel
in sales and marketing which combined with other salary increases accounted for
most 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 are being accrued at a rate of $50,000 per quarter starting
with the first quarter of 1996.
Interest expense totaled $29,761 for the quarter ended March 31, 1995. There was
no interest expense incurred in the quarter ended March 31, 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.
Interest income totaled $183,609 for the first quarter of 1996 compared to
$73,837 for the first quarter of 1995. The increase in interest income was the
result of having more cash on hand to invest in 1996 than in 1995.
The Company recorded net income of $192,171 for the quarter ended March 31, 1996
versus net income of $106,664 for the quarter ended March 31, 1995. The
increased amount of interest income, the absence of interest expense and the
increase in gross profit were greater than the increase in operating expenses,
which resulted in increased net income.
Earnings per share for both quarters totaled $.01. The weighted average number
of shares outstanding increased 32% in the 1996 first quarter over the 1995
first quarter 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 $1,229,424 from
$12,984,611 at December 31, 1995 to $11,755,187 at March 31, 1996. Inventory
purchases, accounts receivable growth and a $1,098,238 reduction in accounts
payable caused the company to have negative cashflow.
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. Accounts receivable increased from $3,014,957 at December 31,
1995 to $3,327,146 at March 31, 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 by $1,098,238 from $1,988,189 at December 31, 1995 to
$889,951 at March 31, 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 the first quarter of 1996. The majority of the decrease 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.
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
At the Company's Annual Meeting of Shareholders held on May 2, 1996,
the share-holders re-elected each of the Company's four directors by
the following votes:
Director Votes For Withheld Not Voting
Manuel A. Villafana 11,914,692 71,525 3,113,572
Richard W. Kramp 11,914,692 71,525 3,113,572
Charles F. Cuddihy, Jr. 11,912,072 74,145 3,113,572
James F. Lyons 11,905,242 80,975 3,113,572
A. Jay Graf 11,912,117 74,100 3,113,572
In addition, the shareholders ratified the selection of Ernst & Young
as the Company's independent auditors for 1996 by the following vote:
Votes For Votes Against Abstentions Not Voted
11,967,475 10,232 8,510 3,113,572
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
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: May 14, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,901,507
<SECURITIES> 8,853,680
<RECEIVABLES> 3,489,646
<ALLOWANCES> 162,500
<INVENTORY> 14,316,339
<CURRENT-ASSETS> 29,864,195
<PP&E> 1,902,291
<DEPRECIATION> 1,018,846
<TOTAL-ASSETS> 31,118,525
<CURRENT-LIABILITIES> 1,058,066
<BONDS> 0
0
0
<COMMON> 151,015
<OTHER-SE> 29,909,444
<TOTAL-LIABILITY-AND-EQUITY> 31,118,525
<SALES> 2,596,880
<TOTAL-REVENUES> 2,596,880
<CGS> 1,674,285
<TOTAL-COSTS> 1,674,285
<OTHER-EXPENSES> 730,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 192,171
<INCOME-TAX> 0
<INCOME-CONTINUING> 192,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,171
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
