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, 1997
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 April 28, 1997 was:
Common Stock $.01 par value 17,558,606 shares
ATS MEDICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Statements of Financial Position - 3
March 31, 1997 (unaudited) and
December 31, 1996
Statements of Operations - 4
Three Months Ended March 31, 1997 and
1996 (unaudited)
Statements of Cash Flows - 5
Three Months Ended March 31, 1997 and
1996 (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
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
ASSETS ------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash & cash equivalents $ 5,237,684 $ 2,320,010
Marketable securities 22,497,334 7,867,619
------------ ------------
27,735,018 10,187,629
Accounts receivable, less allowance of $215,000
in 1997 and $200,000 in 1996 4,469,401 3,139,559
Inventories 19,647,514 18,242,066
Prepaid expenses 345,390 468,249
------------ ------------
TOTAL CURRENT ASSETS 52,197,323 32,037,503
FURNITURE, MACHINERY & EQUIPMENT 2,026,455 2,014,439
Less accumulated depreciation 1,179,247 1,119,875
------------ ------------
847,208 894,564
OTHER ASSETS 391,117 388,233
------------ ------------
TOTAL ASSETS $ 53,435,648 $ 33,320,300
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,334,339 $ 1,190,958
Accrued payroll and expenses 140,311 202,603
------------ ------------
TOTAL CURRENT LIABILITIES 1,474,650 1,393,561
LONG-TERM DEBT 0 0
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value:
Authorized 40,000,000 shares; Issued and
outstanding 17,558,606 & 15,288,042 at
March 31, 1997 and Dec 31, 1996, respectively 175,586 152,880
Additional paid-in capital 71,764,462 52,313,315
Other equity 37,832 54,465
Retained earnings (deficit) (20,016,882) (20,593,921)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 51,960,998 31,926,739
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 53,435,648 $ 33,320,300
============ ============
</TABLE>
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
----------- -----------
1997 1996
----------- -----------
REVENUES
Net sales $ 3,444,650 $ 2,596,880
Less cost of goods sold 2,172,088 1,674,285
----------- -----------
GROSS PROFIT 1,272,562 922,595
OPERATING EXPENSES
Research, development and engineering 235,494 162,386
Selling, general and administrative 719,419 751,647
----------- -----------
TOTAL EXPENSES 954,913 914,033
Interest income 259,390 183,609
NET INCOME $ 577,039 $ 192,171
=========== ===========
Net income per share $ 0.03 $ 0.01
=========== ===========
Weighted average number of shares
outstanding during the period 17,139,668 16,685,411
=========== ===========
ATS MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 577,039 $ 192,171
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 60,501 57,275
Changes in operating assets and liabilities:
Accounts receivable (1,329,842) (312,189)
Prepaid expenses 122,858 185,308
Other assets (2,884) (1,451)
Inventory (1,405,448) (894,594)
Accounts payable and accrued expenses 81,089 (1,211,641)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,896,687) (1,985,121)
INVESTING ACTIVITIES
Purchase of marketable securities (18,512,062) (928,650)
Sale of marketable securities 3,876,756 2,833,097
Purchases of property, plant and equipment (13,145) (53,171)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (14,648,451) 1,851,276
FINANCING ACTIVITIES
Net proceeds from sale of common stock 19,473,853 824,975
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,473,853 824,975
Effect of exchange rate changes on cash (11,041) (3,255)
INCREASE IN CASH AND CASH EQUIVALENTS 2,917,674 687,875
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,320,010 2,213,632
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,237,684 $ 2,901,507
============ ============
</TABLE>
ATS MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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 period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Note B - NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding and dilutive common stock equivalents, if applicable. In
February 1997, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the
presentation of primary earnings per share (EPS) with basic EPS and also
requires dual presentation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year ended
December 31, 1997. For the quarter ended March 31, 1997, the basic net income
per share under Statement 128 is $.04 per share on 16,406,453 weighted average
shares outstanding for the period.
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 has recently initiated a clinical study in the United States for the
purpose of obtaining regulatory approval.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1997 increased 33% to $3,444,650
compared to $2,596,880 for the quarter ended March 31, 1996. Unit sales
increased 35% in the first quarter 1997 compared to 1996. Sales growth can be
attributed to continued implant growth in Europe and other Asia Pacific
countries as well as strong purchases by the Company's Japanese distributor. The
Shonin (Japanese regulatory approval) for the ATS Medical, Inc. heart valve was
received late in the second quarter of 1996, so there were no sales to Japan in
the first quarter of 1996.
Cost of sales for the first quarter of 1997 totaled $2,172,088 or 63 % of sales
compared to $1,674,285 or 64% of sales for the first quarter of 1996. The price
of the carbon components increased 3% for the quarter ended March 31, 1997 as
compared to the cost of carbon components contained in the Valves sold in the
quarter ended March 31, 1996. Based upon the Company's internal sales
projections, the price of the carbon contained in Valves sold during the
remainder of 1997 will be 3% higher than in 1996.
Gross profit totaled $1,272,562 for the quarter ended March 31, 1997 or 37 % of
sales, compared to gross profit of $922,595 or 36 % of sales for the quarter
ended March 31, 1996. The Company achieved manufacturing efficiencies in the
quarter ending March 31, 1997 sufficient to offset a slight decline in the
average selling prices and the increase in the cost of carbon components
compared to the quarter ended March 31, 1996.
Research, development and engineering expenses totaled $235,494 for the quarter
ended March 31, 1997 versus $162,386 for the quarter ended March 31, 1996.
Approximately 42% and 47% of research and development expenses for the quarters
ended March 31, 1997 and 1996, respectively, were for testing and outside
consulting services related to the Valve. The Company began implants under an
Investigational Device Exemption ("IDE") in January 1997. The Company sells the
Valves to the hospitals involved in the study and is eligible for reimbursement
by Medicare and most private pay insurance companies. The Company is responsible
for reimbursing the hospital for certain additional tests and procedures
required by the clinical protocol and accrues the estimated total cost of
followup at the time the sale is recorded as research and development expense.
Selling, general and administrative expenses totaled $719,419 for the quarter
ended March 31, 1997, a decrease from the $751,647 reported for the quarter
ended March 31, 1996. The Company held the Second Symposium on the ATS Valve in
the fourth quarter of 1996. This decrease is attributable to anticipated
expenses associated with that meeting and accrued at $50,000 in the first
quarter of 1996. There is no symposium or comparable expense expected in 1997.
There was no interest expense incurred in the quarters ended March 31, 1997 and
1996.
Interest income totaled $259,390 for the quarter ended March 31, 1997 compared
to $183,609 for the quarter ended March 31, 1996. The increase in interest
income for the first three months of 1997 was the result of more cash on hand to
invest for the first quarter of 1997 than the first quarter of 1996. Cash on
hand at March 31, 1997 is significantly greater than the amount on hand during
1996, due primarily to the sale of equity and exercise of warrants in the first
quarter of 1997. Interest income for the remainder of 1997 is expected to be
greater than the last three quarters of 1996.
Net income totaled $577,039 for the quarter ended March 31, 1997 versus net
income of $192,171 for the quarter ended March 31, 1996. The $349,967 increase
in gross profit in the first quarter, 1997 as compared to the first quarter,
1996 was greater than the $40,880 increase in operating expenses, which resulted
in $317,649 operating income for the three months ended March 31, 1997 and
increased net income compared to the first three months 1996.
Earnings per share totaled $.03 for the quarter ended March 31, 1997 compared to
$.01 for the quarter ended March 31, 1996. The weighted average number of shares
outstanding increased 3% for the three months ended March 31, 1997 over 1996
primarily due to the issuance of shares in the February, 1997 private sale of
common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities increased by $17,547,389 from
$10,187,629 at December 31, 1996 to $27,735,018 at March 31, 1997. Inventory
purchases, and accounts receivable growth caused the company to have negative
cashflow from operations. On February 10, 1997 the Company announced the sale of
1,568,940 shares of common stock to ITOCHU Corporation of Japan raising $14.75
million in new cash. The Company also collected $5,203,818 during the first
quarter of 1997 from the exercise of warrants.
During 1997 the Company is required to purchase $11.4 million of heart valve
components in accordance with terms of a long term supply agreement with
CarboMedics, Inc. (the "Supply Agreement"). During the three contract years
after 1997 the Company is obligated to purchase an aggregate total of
approximately $50 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 1997 which will cause cash, cash equivalents
and marketable securities to decline.
Accounts receivable increased from $3,139,559 at December 31, 1996 to $4,469,401
at March 31, 1997. Most 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 increased from $1,190,958 at December 31, 1996 to $1,334,339 at
March 31, 1997. The majority of the increase 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 2000. Beyond 2000, 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
On February 7, 1997 the Company sold 1,568,940 shares of ATS
Medical, Inc. common stock to ITOCHU Corporation of Japan for
total proceeds totalling $14,750,000. This sale to a single
accredited investor was exempt from registration under Section
4(2) of the Securities Act of 1933.
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
Exhibit 27 - Financial Data Schedule
Item 10.1 Stock Purchase Agreement dated February 3, 1997
between ITOCHU Corporation and the Company
(Incorporated by reference to Exhibit 1 to
Schedule 13D filed with respect to the Company by
ITOCHU Corporation in February, 1997).
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 9, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,237,684
<SECURITIES> 22,497,334
<RECEIVABLES> 4,684,401
<ALLOWANCES> 215,000
<INVENTORY> 19,647,514
<CURRENT-ASSETS> 52,197,323
<PP&E> 2,026,455
<DEPRECIATION> 1,179,247
<TOTAL-ASSETS> 53,435,648
<CURRENT-LIABILITIES> 1,474,650
<BONDS> 0
0
0
<COMMON> 175,586
<OTHER-SE> 51,785,412
<TOTAL-LIABILITY-AND-EQUITY> 53,435,648
<SALES> 3,444,650
<TOTAL-REVENUES> 3,444,650
<CGS> 2,172,088
<TOTAL-COSTS> 2,172,088
<OTHER-EXPENSES> 695,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 577,039
<INCOME-TAX> 0
<INCOME-CONTINUING> 577,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577,039
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
