U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ___________
COMMISSION FILE NUMBER 0-19467
MEDAMICUS, INC.
(Exact name of small business issuer in its charter)
MINNESOTA 41-1533300
(State of Incorporation) (IRS Employer Identification No.)
15301 HIGHWAY 55 WEST, PLYMOUTH, MN 55447
(Address of principal executive office, including zip code)
(612) 559-2613
(Registrant's telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Shares, $.01 Par Value
Check whether the Issuer (1) 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 requirement for the past 90
days. Yes __X__ No ____
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB __X__
The issuer's revenues for its most recent fiscal year were $5,294,880
The aggregate market value of the Common Shares held by nonaffiliates of the
issuer as of February 29, 1996 was approximately $11,399,496 (based on the
average of the closing bid and asked prices of the issuer's Common Shares on
such date which was $4.00/share).
Common Shares outstanding at February 29, 1996: 3,444,774 shares
Documents incorporated by reference:
Portions of the issuer's Proxy Statement for the Annual Meeting of Shareholders
scheduled for April 25, 1996 are incorporated by reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
MedAmicus, Inc. (the "Company") is a medical products company engaged in the
following:
* The manufacture and marketing of a percutaneous vessel introducer and the
design and development of related vascular access products.
* The manufacture of medical devices and components for other medical product
companies on a contract basis.
* The design, development, manufacture and marketing of a pressure
measurement system utilizing a proprietary fiber optic transducer for
measuring and monitoring physiological pressures in the human body,
referred to herein as the LuMax(TM) System.
The Company was organized under the laws of the State of Minnesota on August 24,
1981 under the name "MNM Enterprises, Inc." In March 1988, the Company changed
to its current name. The Company was inactive from its incorporation until
October 1985, when it commenced operations.
During the first four years thereafter, the Company devoted the majority of its
activities to research and development. In 1990, the Company's first proprietary
product was launched, a percutaneous vessel introducer. Exclusive distribution
arrangements were negotiated with Medtronic, Inc., Minneapolis, Minnesota
("Medtronic"), a manufacturer and marketer of pacemakers and pacing leads, and
with Bard Access Systems ("Bard"), a subsidiary of C.R. Bard, Inc., a
manufacturer and marketer of infusion catheter and implantable port procedural
kits, for the sale of the introducer into their respective markets.
In September 1991, the Company completed its initial public stock offering,
raising approximately $3,400,000, net of expenses. With these resources,
manufacturing capabilities and capacity were expanded and a number of contract
manufacturing jobs were secured. The influx of capital also allowed the Company
to significantly accelerate its development efforts on a second proprietary
product, the LuMax Fiber Optic Cystometry System. In January 1993, marketing
clearance on the fiber optic system was received from the Food and Drug
Administration.
In November 1993, the Company signed an Investment Agreement with Empi, Inc.
("Empi") whereby Empi purchased $250,000 of common stock and warrants from the
Company and agreed to conduct a market evaluation of the transducer system for
use in the incontinence diagnostic market. If the evaluation proved successful,
the Company and Empi agreed they would attempt to negotiate an exclusive
distribution agreement. Although the evaluation results were encouraging, the
time period to complete such negotiations expired on October 30, 1994 and the
Company and Empi elected to terminate their relationship. The Company then made
the decision to launch a direct sales effort to market its product domestically.
In January 1994, the Company completed a private placement of common stock and
warrants, resulting in net proceeds to the Company of approximately $1,000,000,
net of offering expenses. In July 1994, the Company entered into loan agreements
aggregating $500,000 with two unaffiliated private investors and subsequently
amended the agreements in December 1994 to extend the maturity of the loans to
June 1996. In October 1994, a private investor purchased 200,000 shares of
common stock from the Company for $500,000 and the same investor purchased
266,667 shares for $500,000 in January 1995.
In 1995, the Company embarked upon a direct sales strategy to distribute the
LuMax System into the gynecology and urology office markets. A sales and
marketing staff was hired and, in mid-1995, the Company began contracting with
independent sales representatives to market the product into the gynecology
office market. As of February 1996, a total of twenty-two groups had been
engaged, consisting of over fifty individuals, and the Company is currently
searching for independent representation in order to launch the LuMax System
into the urology office market.
On February 9, 1995, Richard L. Little, the Company's founder and its President
and Chief Executive Officer since the Company's inception, retired for medical
reasons and James D. Hartman was elected President. Mr. Hartman joined the
Company in January 1991 and has served as its Executive Vice President, Chief
Financial Officer and Secretary and is a member of the Board of Directors.
INTRODUCER PRODUCTS
Introducer Description
The Company manufactures and markets a proprietary disposable percutaneous
vessel introducer which allows physicians to insert infusion catheters,
implantable ports and pacemaker leads into a blood vessel.
In order to introduce a catheter or pacemaker lead into a vein, a hypodermic
needle is first used to access the vessel. A guide wire is inserted through the
hypodermic needle. The needle is then removed and a vessel introducer,
consisting of a hollow sheath and a dilator, is inserted over the guide wire to
expand the opening. The guide wire and dilator are then removed, leaving only
the hollow sheath through which the catheter or pacemaker lead is introduced.
Once the catheter or pacemaker lead is in place, the vessel introducer sheath is
usually removed.
To the Company's knowledge, all vessel introducer sheaths currently marketed in
competition with the Company's vessel introducer are manufactured with small
handles on either side of the sheath at the proximal end, and use what is
referred to as the "peel-away" method of sheath removal. As the physician pulls
the handles, the sheath tears apart and can then be removed.
The Company's vessel introducer, which includes the standard dilator and sheath,
also incorporates a proprietary slitting device, resulting in what management
believes to be an improved method of removing the sheath. The slitter clamps
onto the catheter or lead and has a recessed blade. The physician draws the
sheath onto the slitter, which cuts the entire length of the sheath, permitting
easy removal. The removal of the sheath can be performed by one physician,
unlike the peel-away method which typically requires two people. To the best of
the Company's knowledge, there are no other companies marketing vessel
introducers which use a slitting method of sheath removal.
In 1993, the Company entered into an agreement with Medtronic to package a
"peel-away" introducer into a kit. While the Company believes the slitter
introducer is superior to the "peel-away", studies indicate that a significant
percentage of physicians will continue to utilize the "peel-away" technology. In
August 1994, the Company commenced shipments of "peel-away" introducer kits to
Medtronic. The dilator and "peel-away" sheath for the kit are purchased from
Medtronic. The Company is now the sole supplier to Medtronic of introducer kits
for pacing lead applications.
Markets and Marketing
The Company estimates that there are more than 1,000,000 procedures performed
worldwide each year in which venous vessel introducers are used. Because the
majority of vessel introducers are sold in combination with the sale of infusion
catheters, implantable ports or pacing leads, the Company's management
determined that it is advantageous for the Company to enter into distribution
agreements with medical device manufacturers who will market the Company's
vessel introducer with their catheters, implantable ports or pacing leads.
Accordingly, the Company entered into such agreements with Medtronic and with
Bard Access Systems for the sale of the introducer into their respective
markets.
Medtronic, which the Company believes has the largest worldwide market share of
pacing leads, is currently purchasing complete sterilized introducer kits, which
include a syringe, hypodermic needle and guide wire, as well as the vessel
introducer, packaged by the Company in boxes designed by Medtronic. Medtronic
markets the Company's vessel introducer with the slitting device worldwide under
its own trade name, "SOLO-TRAK(TM)". Medtronic has indicated that over 40% of
their introducer sales consist of SOLO-TRAK, and that such percentage continues
to increase, while the remainder of the sales are "peel-away" introducers.
Shipments of "peel-away" introducer kits to Medtronic, which commenced in August
1994, resulted in $1,280,000 of additional annual revenue to the Company in
fiscal 1995.
The Company's distribution agreement with Medtronic was executed in May 1991 and
amended in August 1994. Under the terms of the agreement, Medtronic is obligated
to purchase certain specified annual quantities of both slitter introducers and
"peel-away" introducers in order to retain exclusive rights in the pacing lead
market. The agreement has an indefinite term, but Medtronic may terminate the
agreement any time after May 1, 1995, upon 180 days prior written notice.
Bard, which is reported to have the largest combined market share of infusion
catheters and implantable ports, is primarily purchasing vessel introducers and
slitters, which Bard packages in procedural trays with its catheters and ports.
Bard markets the vessel introducer under its trade name, "INTRO-EZE(TM)".
The Company's distribution agreement with Bard, as amended in June 1991, and
again in March 1993, calls for minimum purchases of kits or introducer
components in order to maintain the exclusive right to market the Company's
vessel introducer in their respective market, although under the March 1993
revision such quantities and prices are subject to negotiation. The agreement
terminates in December 1997, with four additional option years. Bard may
terminate the agreement at any time with 180 days prior written notice.
The introducer currently represents approximately 15% of Bard's total sales of
introducers. These quantities are significantly less than those contemplated in
the 1991 agreement. Therefore, Bard and the Company have agreed to reduced
purchase quantity requirements and higher prices in order to allow Bard to
retain exclusive rights to sell the introducer in the catheter and port market.
Infusion catheter, implantable port and pacing lead applications represent an
estimated 85% of the market applications for the introducer. The Company does
not anticipate significant sales from other applications; consequently, the
Company's relationship with both Medtronic and Bard will be important to the
success of the Company.
For the years ended December 31, 1995 and 1994, Medtronic accounted for 72% and
61%, respectively, and Bard accounted for 7% and 14%, respectively, of sales.
The loss of either one of these customers would have a material adverse effect
on the Company.
Manufacturing
The vessel introducer is manufactured by the Company and packaged in a "kit"
with other components for Medtronic, or sold as a component set consisting of a
sheath, dilator and slitter to Bard. The sheath and dilator for the Company's
proprietary introducer are manufactured from polyethylene tubing which is
acquired from outside sources and fabricated by the Company, while the slitter
is injection molded by the Company. The sheath and dilator which make up the
"peel-away" introducer, packaged for Medtronic by the Company, is purchased by
Medtronic from another supplier. It is anticipated that the Company will be
manufacturing the sheath and dilator for the "peel-away" by the middle of 1996,
but no assurance can be given that such will be the case. The Company has
designed and constructed a number of pieces of its production and packaging
equipment, and has purchased the remainder from outside sources. The vessel
introducer kits are packaged in the Company's clean room facility. The Company
manufactures and packages vessel introducers in 25 different sizes. The Company
presently obtains several of its components, raw materials and sterilization
services from sole suppliers, but believes that all components, raw materials
and sterilization services are readily available from several sources. The
Company believes any one of such sources would be acceptable, although Medtronic
and Bard each has the right to approve suppliers.
Competition
The Company's vessel introducers compete with other vessel introducers, all of
which utilize the peel-away method. The Company believes that the three major
competitors in the venous vessel introducer market are Cook Incorporated,
Bloomington, Indiana; Daig Corporation, Minnetonka, Minnesota (recently acquired
by St. Jude Medical, St. Paul, Minnesota); and B. Braun of America Company,
Plymouth, Minnesota (in the process of moving to Pennsylvania). Both Daig and B.
Braun market their vessel introducers primarily by establishing distribution
arrangements with established companies in the medical field, the same strategy
the Company follows. Cook markets a variety of vessel introducer kits through
distributors and with a direct sales force. Each of these competitors has
significantly greater financial, personnel and other resources than the Company.
VASCULAR ACCESS RESEARCH AND DEVELOPMENT
The Company's development activities are focused primarily on improved vessel
introducers including work on a proprietary "peel-away" introducer. In 1995, the
Company and Medtronic entered into an agreement whereby the Company would
develop an improved vessel introducer which would reduce kinking, using
technology acquired by Medtronic. The Company will continue work on that project
until the second half of 1996. The Company's management believes that, with the
trend towards less invasive percutaneous surgical procedures, there will be
increasing demand for vessel introducers in a variety of medical procedures and
the Company intends to devote some portion of its development activities to
understanding the needs of this market and designing products to meet those
needs. There can be no assurance that the Company's development efforts will
result in additional revenue. The Company's research and development activities
have been coordinated primarily by employees of the Company, although the
Company has utilized outside specialists on a contract basis, and expects to
continue to do so.
For the years ended December 31, 1995 and 1994, the Company expended $216,551
and $244,257, respectively, on research and development activities directly
related to vascular access products.
CONTRACT MANUFACTURING
Since October 1985, the Company has performed contract manufacturing services
for a variety of medical device companies in the Minneapolis and St. Paul,
Minnesota ("Twin Cities") metropolitan area, and currently manufactures five
medical products for two companies, compared to eleven products for six
companies two years ago. The Company has adopted a contract sales strategy
oriented towards fewer customers, longer contractual arrangements and larger
volume commitments to more effectively utilize manufacturing capacity and reduce
development and support time.
The Company's services include product design, silicone rubber and plastic
molding, precision machining, thermoforming, clean room processing, electronic
and mechanical assembly, and packaging for a variety of medical products.
Most of the Company's contract manufacturing business is obtained as a result of
the Company's reputation in the Twin Cities area. The Company's management is
aware of several competitors which are engaged in contract manufacturing in the
Twin Cities metropolitan area which have significantly greater name recognition
and personnel resources than the Company. For the years ended December 31, 1995,
and 1994, contract manufacturing revenues were approximately 7% and 22%
respectively, of the Company's total revenues.
FIBER OPTIC PRESSURE TRANSDUCER (LUMAX SYSTEM)
Background and Product Description
Since the completion of its initial public offering in September 1991, the
Company has devoted a substantial portion of its research and development
efforts to the design and development of the LuMax Cystometry System, a fiber
optic pressure transducer system designed to measure physiological pressures
within the human body. Measurement of physiological pressures is a frequently
used procedure in the diagnosis and treatment of disorders in the
cardiovascular, respiratory, neurological and urinary systems. The Company's
fiber optic pressure transducer system received marketing clearance from the U.
S. Food and Drug Administration in January 1993.
The Company's LuMax system consists of a monitor and catheter. The catheter
contains optical fibers which transmit light in both directions within the
catheter. The distal end of the catheter includes a stainless steel housing with
an opening covered by a flexible membrane. The membrane is designed to move into
the light path in response to the pressure exerted. An external monitor emits
the light and then measures the amount of light returned through the catheter
for conversion into a pressure reading. In addition to reading pressure, the
monitor calibrates the catheter, records pressures over time and alerts the user
to pressure readings outside of a specified range.
The Company manufactures two different catheters in several sizes and two
separate monitors, which are designed to be used for urological diagnostic
procedures. Both catheters have one sensor, are designed for single use with the
difference being one has an infusion lumen and one does not. An infusion lumen
allows the physician to infuse liquid through the catheter during the procedure.
The sensor is located at the site where the pressure is measured. In May 1996,
the Company intends to introduce and market catheters which can be sterilized
and reused up to as many as twenty times by the physician. The Company received
Food and Drug Administration marketing clearance for the reusable catheter in
February 1996.
Each of the two monitors addresses separate urological market segments. One of
the monitors is a stand alone system (the LuMax Cystometry System) which is
designed to conduct tests necessary for a physician to diagnose and treat the
incontinent patient. Its primary market focus is the office-based gynecology
practice. The second monitor is an interface unit (the LuMax Interface System)
designed to be connected to an existing urodynamic testing system allowing a
hospital or urology clinic, with such testing equipment already in place, to use
the Company's fiber optic catheters.
In May 1996, the Company intends to commence marketing a uroflow accessory to
the LuMax Cystometry System which will allow urologists to conduct pressure flow
studies, a common procedure in the diagnosis of prostate conditions. A uroflow
measures volume of urine flow over time to determine severity of blockages
caused by an enlarged prostate or other factors. The Company received Food and
Drug Administration marketing clearance for this accessory in January 1996.
The most commonly used pressure measuring device now on the market is the
disposable external strain gauge transducer. Over 7.5 million such devices are
used annually in the U. S. An external strain gauge transducer measures internal
body fluid pressures through a series of saline solution-filled tubes connected
to a catheter which has been inserted into the body. The pressure of the body
fluid is conducted through the tubing to the externally located transducer. The
transducer then converts that pressure into an electrical signal which is
displayed as a pressure reading.
The Company believes that the disposable external strain gauge transducer has a
number of disadvantages when compared to its fiber optic pressure transducer:
* The disposable external strain gauge must be level with the pressure
monitoring site on the patient.
* A leak anywhere in the tubing system could result in inaccurate readings.
* The fluid column connecting the catheter to the external transducer must
remain bubble free.
* There are delays in response times as pressure is "piped" from the point of
measurement to the external transducer which may cause inaccuracies.
* A strain gauge device can be affected by electromagnetic interference from
other patient monitors.
A more recent development in pressure measurement devices is the micro-tipped
catheter, which is comprised of a miniaturized strain gauge transducer on the
tip of a catheter. While the micro-tipped catheter offers many of the same
advantages as the fiber optic catheter, it is sold at a substantially higher
cost than the Company's current disposable catheter.
Markets and Marketing
The Company has evaluated various markets for the application of its fiber optic
pressure transducer, including hemodynamic testing, ventilator monitoring,
neurological pressure monitoring and urodynamic testing. The Company has
initially focused its efforts on the urodynamic testing market because
management believes it provides the greatest immediate opportunity for market
acceptance and revenue growth. It is estimated that over 12 million Americans
suffer from some form of incontinence, a problem that is just beginning to be
discussed openly and for which a number of treatments have recently been
introduced. In order to prescribe the most appropriate therapy, clinicians
usually rely on urodynamic testing, which includes several pressure measurement
procedures which the Company's LuMax System is designed to perform.
The urodynamic testing market in the United States consists of three segments:
approximately 2,300 urology practices primarily utilizing hospital-based
urodynamic monitoring systems; uro-gynecology practices, a small but emerging
market primarily focused on incontinence, which generally have sophisticated
urodynamic systems located in their offices, and; 19,000 gynecology practices of
which only a small percentage are currently equipped to conduct urodynamic
testing and, thus, effectively treat the incontinent patient.
In October 1994, after the Company and Empi, Inc. elected to terminate
negotiations with respect to an exclusive distribution arrangement, the Company
decided to launch a direct sales effort to market its stand-alone LuMax
Cystometry System domestically and to develop distributor relationships
internationally. As a result, the Company hired a National Sales manager, a
Marketing Manager and two sales representatives, located in Texas and Illinois.
All of these individuals were former Empi employees. In mid-1995, the Company
elected to broaden its sales coverage by contracting with independent sales
representatives who were primarily focused on the gynecology market. In
September 1995, the first group was trained and today, the Company has
agreements with twenty-two groups totaling over fifty sales personnel covering
all fifty states.
The Company is now engaging sales representatives to market the LuMax Cystometry
System with the uroflow accessory into the urology office-based market. At the
time this product is released in May 1996, the Company expects to have entered
into agreements with up to twenty-five independent representatives focused on
the urology market. It is anticipated that this independent sales group will
also market the LuMax Interface System but the Company will continue to explore,
as well, potential corporate partnering relationships for the Interface. There
is no assurance that the Company will be able to secure relationships with
enough representatives to adequately cover the U. S. market.
As of February 28, 1996, the Company had 132 stand-alone LuMax Cystometry
monitors in the field.
In February 1995, the Company entered into an agreement with NICOLAI, a German
medical products distribution company, for the exclusive rights to distribute
the Company's LuMax Cystometry System in Germany. Over the five-year term of the
agreement, which commenced January 1, 1995, NICOLAI committed, in order to
retain exclusive distribution rights, to purchase over $3,000,000 of monitors,
and an amount of catheters yet to be determined. To date the sales which were
anticipated in Germany have not materialized, and the Company does not
anticipate any significant amount of revenue from this arrangement in 1996. No
decision has been made at this time as to whether the agreement with NICOLAI
will be terminated. The Company has no other plans at this time for
international distribution agreements.
Manufacturing
The Company currently manufactures its catheters in its existing facility and
expects that adequate space will be available to meet the Company's needs during
the next several years. As of March 1996, the Company has the capacity to
manufacture approximately 2,200 catheters per month on a single shift using
semi-automated equipment designed by the Company. The Company expects such
equipment will be adequate to meet production requirements until automated
equipment is required to increase capacity. The Company is conducting ongoing
studies related to the feasibility and cost of automated manufacturing
equipment.
As of March 1996, the Company has the capacity to assemble approximately 40
monitors per month on one shift. It is believed that the Company has adequate
capacity to meet monitor requirements for the foreseeable future.
The Company has identified suppliers for all materials necessary to manufacture
the monitors and catheters and believes that other acceptable suppliers exist
for these materials.
Competition
The Company's LuMax System competes with both the traditional external strain
gauge transducer, and with transducers that incorporate new designs such as
fiber optic transducers and micro-tipped catheter transducers.
Companies that market disposable external strain gauge transducers for use in
the urological testing markets include Cobe Laboratories, Inc., Lakewood,
Colorado; Spectramed Inc., Critical Care Division, Oxnard, California; and
Baxter Healthcare Corporation, Edwards Division, Santa Ana, California.
Companies which are applying fiber optic technology to pressure sensing devices
include Camino Laboratories, San Diego, California, which markets a device used
primarily for application in neurological procedures; Fiber Optic Sensor
Technologies, Inc., Ann Arbor, Michigan, which markets a device for application
in urological monitoring and has been acquired by Bard Urological, a subsidiary
of C. R. Bard, Inc.; and Radi Medical Systems, Sweden, which markets its device
in Europe for hemodynamic testing and possibly urological monitoring. Bard
Urological is aggressively marketing their fiber optic system through a network
of direct sales personnel into the U. S. urology office market. Management
believes that each of the companies mentioned above may have significantly
greater financial and other resources than the Company. The Company believes
that the primary bases of competition will be product performance, price and
marketing.
While the Company has obtained patents relating to its transducer, such patents
may not prevent the above described companies or any other companies from
developing competing fiber optic devices for the urodynamic testing market or
for any other pressure measurement applications which the Company may pursue.
FIBER OPTIC TRANSDUCER RESEARCH AND DEVELOPMENT
With the capital made available from its initial public stock offering, the
Company established a research and development staff devoted to the transducer
project. For the years ended December 31, 1995, and 1994, $583,044 and
$1,039,192 respectively, was expended on the transducer development effort. Upon
completion of the development of the transducer for the urodynamic testing
market, which is expected to occur in 1996, the research and development group
will continue work on enhancing the transducer for this market and begin efforts
to apply the technology to other potential applications.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by the FDA and, in some instances, by state and foreign authorities.
Pursuant to the Medical Device Amendments of 1976 to the Federal Food, Drug and
Cosmetic Act, and regulations promulgated thereunder, medical devices intended
for human use are classified into three categories (Classes I, II and III),
depending upon the degree of regulatory control to which they will be subject.
Both the transducer and the introducer are considered Class II devices.
If a Class II device is substantially equivalent to an existing device that has
been continuously marketed since the effective date of the 1976 Amendments, FDA
requirements may be satisfied through a Premarket Notification Submission (a
"510(k) Submission"), under which the applicant provides product information
supporting its claim of substantial equivalence. In a 510(k) Submission, the FDA
may also require that it be provided with clinical test results demonstrating
the safety and efficacy of the device.
The Company submitted a 510(k) Submission to the FDA with respect to the
transducer in February 1992 and received approval to market the transducer in
January 1993. The Company has obtained 510(k) approval to market its introducer
in the United States.
As a manufacturer of medical devices, the Company is also subject to certain
other FDA regulations, and its manufacturing processes and facilities are
subject to continuing review by the FDA to ensure compliance with Good
Manufacturing Practices regulations. The Company believes that its manufacturing
and quality control procedures substantially conform to the requirements of FDA
regulation.
The Company's devices may also be subject to regulation in foreign countries.
Medtronic and Bard are responsible for obtaining approval from the foreign
countries in which they desire to sell the vessel introducers manufactured by
the Company. Depending upon the distribution relationships established to market
the transducer, the Company may be responsible for obtaining approval to sell
the transducer in foreign countries. The Company has made application for
approval to market its LuMax System in the European Common Market countries, but
such approval has not yet been received.
INTELLECTUAL PROPERTY
The Company has made and continues to make, when appropriate, efforts to obtain
patents, including additional patents on existing products. Certain aspects of
the vessel introducer and the fiber optic pressure transducer are the subject of
United States Patent Numbers 4,997,424 and 5,005,584, respectively, issued on
March 5, 1991 and April 9, 1991, respectively.
The introducer patent covers a means for attaching a slitter with a recessed
blade to a catheter or pacing lead for the purpose of removing a sheath from the
catheter or pacing lead. The Company has applied for additional patent
protection on features of the vessel introducer.
The Company's transducer patent covers a means for incorporating one or more
transducers onto a guide wire. The Company has applied for additional patent
protection on technical features of the transducer which have evolved during the
development to date.
The Company has also received correspondence from a competitor in the fiber
optic transducer market informing the Company of patents it holds relating to
fiber optic transducers, specifically referencing a patent on a technique to
calibrate the fiber optic system. The correspondence indicated that the
competitor has not reviewed the Company's technology and currently makes no
infringement allegations. The Company has been aware of this patent and has
specifically designed the calibration associated with its transducer so as not
to infringe the competitor's patent. The Company has also received an opinion of
counsel that its design does not infringe such patent.
Both patents discussed above have been assigned to the Company by the inventor,
Richard L. Little, the Company's former President and Chief Executive Officer,
and both expire in the year 2008.
Due to the rapid technological changes experienced in the medical device
industry, the Company's management believes that the improvement of existing
products, reliance upon trade secrets and unpatented proprietary know-how and
the development of new products are generally as important as patent protection
in establishing and maintaining a competitive advantage.
EMPLOYEES
As of March 20, 1996, the Company employed 63 persons, consisting of 6 in
research and development including two part-time, 46 in manufacturing including
two part-time, 5 in sales and marketing and 6 in general and administrative
functions.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative, manufacturing and research and development
facilities are located at 15301 Highway 55 West, Plymouth, Minnesota 55447,
consisting of approximately 21,600 square feet. The Company leases these
facilities pursuant to a lease that expires April 30, 1997, but can be extended
with two one-year options. The lease calls for rent payments of $16,442 per
month, which includes base rent, a portion of the operating expenses and real
estate taxes plus payment on capitalized leasehold improvements performed by the
landlord. The base rent escalates yearly based on the consumer price index.
ITEM 3. LEGAL PROCEEDINGS
The Company's management is not aware of any litigation pending against the
Company or its properties.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded on Nasdaq SmallCap Market under the
symbol MEDM since September 1991. The following bid quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
- ----------------- ---------------- --------------- ---------------- --------------- ----------------
1993 HIGH LOW 1995 HIGH LOW
- ----------------- ---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
First Quarter $5.375 $4.000 First Quarter $2.750 $1.875
Second Quarter 5.375 3.250 Second Quarter 3.250 2.250
Third Quarter 5.250 3.250 Third Quarter 4.000 3.000
Fouth Quarter 5.375 4.500 Fouth Quarter 3.875 2.875
- ----------------- ---------------- --------------- ---------------- --------------- ----------------
1994 HIGH LOW 1996 HIGH LOW
- ----------------- ---------------- --------------- ---------------- --------------- ----------------
First Quarter $4.750 $4.250 Thru Feb 29 $3.750 $3.000
Second Quarter 4.250 3.750
Third Quarter 3.875 2.375
Fouth Quarter 2.625 1.625
</TABLE>
As of February 29, 1996, the Company had approximately 1,400 record holders of
its common stock. The Company has not paid cash dividends in the past and does
not expect to do so in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company commenced operations in 1985 and during the first three years of its
existence, devoted the majority of its activities to research and development
projects. In 1990, the Company's first proprietary product was announced, a
percutaneous venous vessel introducer. Exclusive distribution arrangements were
negotiated with Medtronic, Inc. and Bard Access Systems (a division of Davol,
Inc.)for the sale of the introducer into their respective markets.
In September 1991, the Company completed its initial public stock offering
raising approximately $3,400,000, net of expenses. With these resources,
manufacturing capabilities and capacity were expanded and a number of contract
manufacturing jobs were secured. The influx of capital also allowed the Company
to significantly accelerate its development efforts on a second proprietary
product, the LuMax Fiber Optic Cystometry System. In January 1993, marketing
clearance on the fiber optic system was received from the Food and Drug
Administration.
In January 1994, the Company completed a private placement of its common stock
and warrants resulting in net proceeds to the Company of approximately
$1,000,000. In July 1994, the Company secured a $500,000 loan from two private
lenders and in October 1994, a private investor purchased 200,000 shares of the
Company's stock for $500,000, and the same investor purchased and additional
266,667 shares for $500,000 in January 1995.
In 1995, the Company embarked upon a direct sales strategy to distribute the
LuMax System into the gynecology and urology office markets. A sales and
marketing staff was hired and, in mid-1995, the Company began contracting with
independent sales representatives to market the product into the gynecology
office market. As of February 1996, a total of twenty-two groups had been
engaged, consisting of over fifty individuals, and the Company is currently
searching for independent representation in order to launch the LuMax System
into the urology office market.
SALES
Net sales for 1995 were $5,294,880 compared to $3,010,710 in 1994, an increase
of 75.9%. Sales of vessel introducers, primarily to Medtronic and Bard under
exclusive distribution arrangements, were $4,139,066 in 1995 compared to
$2,197,914 in 1994. In August 1994, the Company commenced sales of "peel-away"
introducer kits to Medtronic in addition to sales of its proprietary slitter
introducer. Approximately $1,280,000 of additional annual revenue resulted from
the sale of "peel-away" introducer kits to Medtronic. The Company also benefited
from a build-up of introducer inventory by Medtronic in the first half of 1995
in support of the release of Medtronic's new defibrillator and pacemaker
products.
Contract manufacturing sales were $409,670 in 1995 compared to $678,276 in 1994,
a decrease of $268,606 or 39.6%. One of the Company's two contract manufacturing
customers built inventory at the end of 1994 in anticipation of a plant
conversion and did not resume orders until mid-1995.
In the second quarter of 1994, the Company recognized its first sales of the
LuMax System into the urological and gynecological markets. Virtually all sales
in 1994, totaling $134,520, were shipped to Empi, Inc. under an Investment
Agreement between Empi and the Company. The Company terminated its relationship
with Empi on October 30, 1994. In January 1995, the Company launched a direct
sales effort related to the LuMax System. During fiscal 1995, sales of the LuMax
System, including monitors and catheters, totaled $746,144.
While the Company has only minimal experience to date in selling medical
equipment, such as the LuMax monitor, management believes that the largest
percentage of these sales typically materialize in the fourth quarter.
GROSS PROFIT ON SALES
Gross profit as a percent of sales by category for the years need December 31,
1995 and 1994 was as follows:
1995 1994
- --------------------------------------------- ------------- ------------
Introducers and contract manufacturing 48.1% 36.9%
Fiber optic products 2.3 0.0
- --------------------------------------------- ------------- ------------
Total gross profit percent 41.7% 35.2%
============================================= ============= ============
The Company realized significant improvement in gross profit dollars and percent
related to its vessel introducer and contract manufacturing business during
1995, due to a combination of increased sales, which resulted in improved
efficiencies and better utilization of the Company's available capacity, and
also to several key process improvements which improved yields, decreased
inspection time and resulted in reduced inventory investment.
In 1994, the Company was developing the LuMax System and sold a small number of
prototype systems to Empi, Inc. for market evaluation purposes. The Company
recorded as the cost of sales, an amount equal to sales, thus recognizing zero
gross profit on such sales. All other costs related to the development of the
LuMax System were reflected as research and development expenditures.
As of January 1995, the primary activities of the LuMax System manufacturing
operation transitioned from development work to finished goods production.
Because the Company has made significant investments in fixturing, space and
management personnel, it is not anticipated that gross margins on the sale of
catheters and monitors will achieve the Company's targeted goals until volume
reaches a point where efficiencies can be realized and excess capacity costs can
be minimized. As a result, for the year ended December 31, 1995, the Company
realized a gross profit on sales of catheters and monitors of 2.3%. For the
fourth quarter of 1995, when LuMax sales totaled $320,000, gross profit reached
38.5%, and the Company anticipates gross profit percents will increase further
as sales levels grow.
RESEARCH AND DEVELOPMENT
Total research and development expenditures were $799,595, or 15.1% of sales in
1995, compared to $1,283,449, or 42.6% of sales in 1994. Approximately 73% and
81% of the 1995 and 1994 expenditures, respectively, were devoted to the
development of the Company's LuMax System and the remainder to introducer
products. Research and development expenditures decreased in 1995 as the Company
transitioned the LuMax System from development to manufacturing.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $1,697,915 or 32.1% of
sales in 1995 compared to $961,609 or 31.9% of sales in 1994. The Company
elected to pursue a direct sales effort in marketing its LuMax System into the
urological and gynecological community. As a result, the Company hired a sales
and marketing administrative staff, engaged an independent representative sales
force and conducted marketing campaigns to generate product leads and promote
product awareness, all of which contributed to the overall increase in selling,
general and administrative expenses. While the Company anticipates increased
selling expenses in 1996 to support our independent representative network,
these expenses should decline as percentage of sales if LuMax System sales
materialize as expected.
NET LOSS
As a result, the Company incurred a net loss of $358,854 or $.11 per share in
1995 compared to a net loss of $1,212,212 or $.43 per share in 1994. The
Company's net loss during the first three quarters of 1995 were $219,329,
$78,406 and $75,107, respectively, while the Company attained a net profit of
$13,988 in the fourth quarter of 1995.
Inflation has not had a material impact on the Company's revenues or earnings.
The Company has engaged a large independent sales force to distribute its LuMax
System into the gynecology market and is now developing a parallel organization
to distribute the LuMax into the urology market. In support of this network of
independent representatives, the Company intends to make significant investments
in marketing activities in the first half of 1996 to generate leads, promote
product awareness and provide training and literature to the sales personnel. As
a result, the Company expects losses to resume at least through the first
quarter of 1996.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123) ACCOUNTING FOR STOCK-BASED
COMPENSATION which is effective for the year ending December 31, 1996. The
Company has decided to continue to measure compensation cost using APB Opinion
No. 25, but will provide the pro forma disclosures required under SFAS 123.
LIQUIDITY AND CAPITAL RESOURCES
On July 29, 1994, the Company entered into loan agreements with two private
investors resulting in proceeds to the Company of $500,000. In December 1994,
the terms of the loans were extended from April 1995 to June 30, 1996.
On October 7, 1994, the Company sold 200,000 shares of its common stock to a
private investor for $500,000. On January 27, 1995, the same investor acquired
266,667 shares of stock, also for $500,000.
As of December 31, 1995, the Company had unrestricted cash and cash equivalents
and investments of $1,039,418, compared to $622,036 as of December 31, 1994, not
including the sale of stock to the private investor which occurred in January
1995. Net cash provided by operating activities during the year ended December
31, 1995 was $110,052, consisting primarily of a net loss of $358,854, less
adjustments for depreciation and amortization of $292,089 and net changes in
operating assets and liabilities of $147,248. Favorable vendor terms and
improved inventory management contributed to positive cash generated from
operating activities in 1995. It is anticipated that receivable and inventory
will increase significantly in 1996 if sales of the LuMax System materialize as
expected.
Net cash used in investing activities in 1995 was $603,302, consisting primarily
of the net purchase of investments totaling $262,609, the acquisition of
property and equipment for $321,548, and the addition to patent rights of
$19,145.
Net cash provided to the Company from financing activities totaled $633,517,
consisting of the sale of common stock in private offerings of $477,193, net of
offering expenses, $229,384, in proceeds from the exercise of employee stock
options, offset by payments on the Company's capital lease obligations and note
payable to a customer of $73,060.
As of December 31, 1995, the Company's current assets exceeded current
liabilities by $1,201,371, with a current ratio of 1.9 to 1 compared to working
capital of $1,408,663 or a current ratio of 4.3 to 1 as of December 31, 1994.
The reduction of the current ratio in 1995 compared to 1994 is primarily the
result of the reclassification of notes payable to private investors from
long-term to a current liability.
In March 1996, the Company entered into a fifteen month agreement with a
financial institution for a $1,200,000 revolving line of credit. The
availability under the line is subject to borrowing base requirements, and
advances are at the discretion of the lender. The agreement calls for interest
at the rate of 3% over the financial institution's base rate with minimum
interest due over the term of the agreement of $75,000. The line is secured by
substantially all of the Company's assets. The Company believes this borrowing
availability will provide adequate capital to allow the Company to satisfy the
$500,000 note payable due June 30, 1996, and to fund its 1996 operations and
capital expenditures. Depending on the level of cash flows generated from
operating activities in 1997, if any, additional capital may be required to fund
1997 operations and capital expenditure requirements. Sources of additional
capital may include additional debt financing and/or the sale of debt or equity
securities.
As of December 31, 1995, the Company had income tax carryforwards of net
operating losses and research and development credits of $4,800,000 and
$156,000, respectively. The carryforwards, subject to Internal Revenue Code
utilization limitations, are available to offset future taxable income and thus
reduce future income tax payments which might otherwise be payable. At December
31, 1995, the Company's net deferred tax assets, totaling approximately
$2,101,000, have been fully offset by a valuation allowance due to their
uncertainty of realization. Realization of these deferred tax assets is
dependent upon sufficient future taxable income during the period the deductible
temporary differences and carryforwards are expected to be available to reduce
taxable income.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX
- --------------------------------------------------------------------------------- ------------
PAGE #
- --------------------------------------------------------------------------------- ------------
<S> <C>
Independent Auditor's Report for the year ended December 31, 1994 Incorporated by reference to Exhibit 23.3 attached hereto
Independent Auditor's Report for the year ended December 31, 1995 Incorporated by reference to Exhibit 23.4 attached hereto
Balance Sheets for the years ended December 31, 1995 and 1994 14
Statements of Operations for the years ended December 31, 1995 and 1994 15
Statements of Shareholders' Equity for the years ended December 31, 1994 and 1995 16
Statements of Cash Flows for the years ended December 31, 1995 and 1994 17
Notes to financial statements 18 - 24
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $143,273 $3,006
Marketable securities (note 2) 896,145 619,030
Accounts receivable 734,926 432,944
Inventories (note 3) 785,768 748,053
Prepaid expenses and other assets 23,637 33,778
- ------------------------------------------------------------------------------------------------------
Total current assets 2,583,749 1,836,811
- ------------------------------------------------------------------------------------------------------
Property and equipment (note 7):
Equipment 1,433,357 1,202,751
Office furniture, fixtures and computers 237,207 198,304
Leasehold improvements 326,211 296,368
- ------------------------------------------------------------------------------------------------------
1,996,775 1,697,423
Less accumulated depreciation and amortization (1,100,723) (854,384)
- ------------------------------------------------------------------------------------------------------
Net property and equipment 896,052 843,039
- ------------------------------------------------------------------------------------------------------
Certificate of deposit, restricted (note 6) 100,000 100,000
Patent rights, net of accumulated amortization of
$77,296 and $53,742, respectively 53,198 57,607
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $3,632,999 $2,837,457
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $640,478 $290,032
Accrued expenses (note 4) 209,928 83,570
Notes payable to private investors (note 6) 477,963 0
Current installments of note payable to customer (note 6) 14,400 14,400
Current installments of capital lease obligations (note 7) 39,609 40,146
- ------------------------------------------------------------------------------------------------------
Total current liabilities 1,382,378 428,148
- ------------------------------------------------------------------------------------------------------
Long-term liabilities:
Notes payable to private investors (note 6) 0 433,888
Note payable to customer, less current installments (note 6) 17,222 49,600
Capital lease obligations, less current installments (note 7) 12,508 52,653
- ------------------------------------------------------------------------------------------------------
Total long-term liabilities 29,730 536,141
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total liabilities 1,412,108 964,289
- ------------------------------------------------------------------------------------------------------
Shareholders' equity (notes 6 and 8):
Preferred stock-undesignated, authorized 1,000,000
shares, no shares issued or outstanding 0 0
Common stock-$.01 par value, authorized 9,000,000
shares, issued and outstanding 3,434,774 and 2,991,207
shares, respectively 34,348 29,912
Additional paid-in capital 6,871,803 6,169,662
Accumulated deficit (4,685,260) (4,326,406)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,220,891 1,873,168
- ------------------------------------------------------------------------------------------------------
Commitments (notes 7, 10 and 11)
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,632,999 $2,837,457
- ------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATMENTS
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Sales (note 9) $5,294,880 $3,010,710
Cost of sales 3,087,741 1,950,656
- ----------------------------------------------------------------------------------------
Gross profit 2,207,139 1,060,054
- ----------------------------------------------------------------------------------------
Operating expenses:
Research and development 799,595 1,283,449
Selling, general and administrative 1,697,915 961,609
- ----------------------------------------------------------------------------------------
Total operating expenses 2,497,510 2,245,058
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Operating loss (290,371) (1,185,004)
- ----------------------------------------------------------------------------------------
Other income (expense):
Interest expense (126,821) (59,323)
Interest income 50,535 30,249
Other 7,803 1,866
- ----------------------------------------------------------------------------------------
Total other income (expense) (68,483) (27,208)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Net loss ($358,854) ($1,212,212)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Net loss per share ($0.11) ($0.43)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Weighted average shares outstanding 3,294,921 2,833,506
- ----------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional
--------------------- Paid In Accumulated
YEARS ENDED DECEMBER 31, 1994 AND 1995 Shares Amount Capital Deficit Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993 2,717,697 $27,177 $5,372,592 ($3,114,194) $2,285,575
Common stock issued for cash in private offering,
net of offering costs (note 8) 72,790 728 238,257 0 238,985
Common stock issued as employee bonuses 720 7 3,413 0 3,420
Issuance of common stock warrants in connection
with debt issuance (note 6) 0 0 80,000 0 80,000
Common stock issued for cash to private investor,
net of offering costs 200,000 2,000 473,000 0 475,000
Excess of fair market value over option price on
stock options granted 0 0 2,400 0 2,400
Net loss for the year ended December 31, 1994 0 0 0 (1,212,212) (1,212,212)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1994 2,991,207 29,912 6,169,662 (4,326,406) 1,873,168
Common stock issued for cash to private investor,
net of offering costs 266,667 2,667 474,526 0 477,193
Exercise of stock options 176,900 1,769 227,615 0 229,384
Net loss for the year ended December 31, 1995 0 0 0 (358,854) (358,854)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 3,434,774 $34,348 $6,871,803 ($4,685,260) $2,220,891
- ---------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($358,854) ($1,212,212)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 292,089 302,665
Interest accretion on notes payable to private investors 44,075 13,888
Interest added to investments (14,506) (25,805)
Common stock granted to employees 0 3,420
Excess of fair market value over option price on stock options granted 0 2,400
Changes in operating assets and liabilities:
Accounts receivable (301,982) (147,100)
Inventories (37,715) (451,587)
Prepaid expenses and other assets 10,141 (12,897)
Accounts payable 350,446 61,326
Accrued expenses 126,358 (15,777)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 110,052 (1,481,679)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of retirements (321,548) (212,458)
Additions to patent rights (19,145) (20,051)
Purchase of available-for-sale marketable securities, including reinvestment
of securities which matured (4,067,492) (1,983,456)
Sale of available-for-sale marketable securities, including sales of securities
which matured 3,804,883 2,499,016
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (603,302) 283,051
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (40,682) (36,225)
Proceeds from sales of stock, net of offering costs 477,193 713,985
Proceeds from exercise of stock options 229,384 0
Proceeds from notes payable to private investors 0 500,000
Payments on note payable to customer (32,378) (14,400)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 633,517 1,163,360
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 140,267 (35,268)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,006 38,274
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $143,273 $3,006
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $82,746 $53,010
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS Medamicus, Inc. "The company" is a medical products company
engaged in the following:
* The manufacture and marketing of a percutaneous vessel introducer and the
design and development of related vascular access products.
* The manufacture of medical devices and components for other medical product
companies as a contract manufacturer.
* The design, development, manufacture and marketing of a pressure
measurement system utilizing a proprietary fiber optic transducer for
measuring and monitoring physiological pressures in the human body.
REVENUE RECOGNITION The Company recognizes revenue upon shipment of the product
to the customer.
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 period.
Actual results could differ from those estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 1995, the
Company adopted statement of financial accounting standards No. 107, Disclosures
about fair value of financial instruments. The following methods and assumptions
were used to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value:
* CASH EQUIVALENTS AND CERTIFICATES OF DEPOSIT: the carrying amount
approximates fair value because of the short maturity of those instruments.
* MARKETABLE SECURITIES: the fair values of these investments are estimated
based on quoted market prices for those or similar instruments. At December
31, 1995, the fair value of the Company's marketable securities
approximated its current value.
* NOTES PAYABLE: the fair value of the Company's notes payable is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the company for debt of the same remaining
maturities with similar collateral requirements. At December 31, 1995, the
fair value of the Company's notes payable approximated its current value.
CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with an
original maturity of three months or less. The Company maintains its cash in
bank accounts which, at times, exceed federally insured limits. The Company has
not experienced any losses in such accounts.
MARKETABLE SECURITIES The Company follows statement of financial accounting
standards No. 115, Accounting for certain investments in debt and equity
securities (SFAS 115). Under SFAS 115, the Company classifies its marketable
debt securities as available-for-sale and records these securities at fair
market value. Net realized and unrealized gains and losses are determined on the
specific identification cost basis. Unrealized gains and losses are reflected as
a separate component of shareholders' equity. A decline in the market value of
any available-for-sale or held-to-maturity security below cost that is deemed
other than temporary, results in a charge to operations resulting in the
establishment of a new cost basis for the security.
INVENTORIES inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated
and amortized on a straight-line basis over a period of three to seven years.
Leasehold improvements are amortized over the term of the lease. Repair and
maintenance costs are charged to operations as incurred.
The Company periodically reviews the utilization of its long-lived assets in its
business for impairment. To date, management had determined that no impairment
of long-lived assets exists.
PATENT RIGHTS Patent rights, which are amortized over a five-year period,
include costs incurred by the Company to secure patents for technology that the
Company has developed.
RESEARCH AND DEVELOPMENT EXPENDITURES The Company's research and development
expenditures are expensed as incurred.
LOSS PER SHARE Loss per common share is determined by dividing the net loss by
the weighted average number of shares of common stock outstanding. Common stock
equivalents have been excluded from the calculation of the net loss per share
since they are antidilutive.
ACCOUNTING PRONOUNCEMENTS In October 1995, the financial accounting standards
board issued statement of financial accounting standards No. 123 (SFAS 123)
accounting for stock-based compensation. SFAS 123 establishes financial
accounting and reporting standards for stock-based compensation plans. SFAS 123
encourages the adoption of a fair value based method of accounting for
stock-based compensation plans, but also allows entities to continue to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees.
Entities electing to remain with the accounting in opinion No. 25 Must make pro
forma disclosures of net income and earnings per share as if the fair value
based method had been applied.
SFAS 123 is effective for the year ending December 31, 1996. The Company has
decided to continue to measure compensation cost using APB Opinion No. 25, But
will provide the pro forma disclosures required under SFAS 123.
In 1996, the Company will be required to adopt Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, which will require the
Company to review its long-lived assets periodically to determine potential
impairment by comparing the carrying value of the long-lived assets with
estimated future cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
cash flows be less than the carrying value, the Company would recognize an
impairment loss. An impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value of the long-lived asset. The
Company believes the adoption of SFAS No. 121 will have no impact on its
financial position or results of operations.
2. MARKETABLE SECURITIES
Investments consist of U.S. Treasury bills which, as of December 31, 1995,
mature in January, February, and March of 1996. Investments are recorded at cost
plus accrued interest earned. The Company recognizes interest income on U.S.
Treasury bills on a straight-line basis over the term of the securities. Due to
the short-term maturity of the Company's marketable securities, the market value
approximates their carrying value. Therefore, no unrealized gains or losses for
available-for-sale marketable securities have been recorded in 1995 and 1994.
3. INVENTORIES
Inventories at December 31, 1995 and 1994 consist of the following:
1995 1994
- -------------------------------------------- ------------ ------------
Purchased parts and subassemblies $419,314 $448,057
Work in process 170,353 148,172
Finished goods 196,101 151,824
- -------------------------------------------- ------------ ------------
$785,768 $748,053
============================================ ============ ============
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1995 and 1994 consist of the following:
1995 1994
- -------------------------------------------- ------------ ----------
Payroll and commissions $107,103 $18,191
Vacation and sick pay 46,187 41,571
Other 56,638 23,808
- -------------------------------------------- ------------ ----------
$209,928 $83,570
============================================ ============ ==========
5. INCOME TAXES
At December 31, 1995, the Company had income tax carryforwards of net operating
losses of approximately $4,800,000 and research and development credit
carryforwards of approximately $156,000. These carryforwards, subject to
Internal Revenue Code utilization limitations, are available to offset future
taxable income and related income taxes, and expire as follows:
Net Research And
Year of Expiration Operating Development Tax
Losses Credits
- --------------------------- ---------------------- ----------------------
2002 $70,000 $1,000
2003 90,000 3,000
2004 200,000 5,000
2005 285,000 3,000
2006 275,000 10,000
2007 670,000 28,000
2008 1,300,000 55,000
2009 1,160,000 36,000
2010 750,000 15,000
- --------------------------- ---------------------- ----------------------
$4,800,000 $156,000
=========================== ====================== ======================
Deferred tax assets (net of any valuation allowance) and liabilities resulting
from temporary differences, net operating loss carryforwards and tax credit
carryforwards are recorded using an asset and liability method. Deferred taxes
relating to temporary differences and loss carryforwards are measured using the
enacted tax rate expected to be in effect when they are reversed or are
realized.
The appropriate tax effect of each type of temporary difference and carryforward
is:
1995 1994
- ---------------------------------------------- -------------- ---------------
Deferred tax assets:
Net operating loss carryforwards $1,816,000 $1,500,000
Depreciation 87,000 100,000
Vacation accrual 15,000 16,000
Other 27,000 17,000
Tax credit carryforwards 156,000 92,000
- ---------------------------------------------- -------------- ---------------
2,101,000 1,725,000
Valuation allowance (2,101,000) (1,725,000)
- ---------------------------------------------- -------------- ---------------
Net deferred tax asset $0 $0
============================================== ============== ===============
Due to the uncertainty surrounding the timing of realizing the benefits of its
favorable tax attributes in future tax returns, the Company has placed a
valuation allowance against its otherwise recognizable deferred tax assets. A
reconciliation of the valuation allowance for deferred tax assets is as follows:
1995 1994
- --------------------------------------------------- ------------- --------------
Valuation at beginning of the year $1,725,000 $1,250,000
Addition to allowance 376,000 475,000
- --------------------------------------------------- ------------- --------------
Valuation allowance at end of the year $2,101,000 $1,725,000
=================================================== ============= ==============
Total tax expense (benefit) differs from the expected tax expense (benefit),
computed by applying the federal statutory rate as follows:
1995 1994
- -------------------------------------------------------- ----------- -----------
Expected income tax (benefit) $(126,000) $(412,000)
Increase in valuation allowance for deferred taxes 376,000 475,000
State income taxes (20,000) (63,000)
Benefit provided from permanent differences and other (230,000) 0
- -------------------------------------------------------- ----------- -----------
$0 $0
======================================================== =========== ===========
6. NOTES PAYABLE
BANK LINE OF CREDIT At December 31, 1995, the Company had a $100,000 line of
credit promissory note agreement with a bank which expires on March 31, 1996 and
bears interest at 6.9% per annum. Borrowings under the agreement are secured by
a $100,000 certificate of deposit which bears interest at 4.9% per annum and
matures on March 31, 1996.
NOTE PAYABLE TO CUSTOMER On May 14, 1991, the Company entered into a $100,000
non-interest bearing note payable agreement with a customer. The agreement
called for quarterly payments commencing May 1, 1992. In February 1993, the
customer agreed to defer payments for one year. On January 1, 1994, the Company
commenced payments at the rate of $1,200 per month. Future principal payments as
of December 31, 1995 are $14,400 per annum until the loan is retired in
February, 1998.
NOTE PAYABLE TO PRIVATE INVESTORS On July 29, 1994, the Company entered into
loan agreements aggregating $500,000 with two private unaffiliated investors and
subsequently amended the agreements on December 30, 1994. The amended
agreements, which expire on June 30, 1996 call for monthly interest payments at
the greater of the prime rate plus 6% at any time the prime rate equals or
exceeds 10%, or 15% per annum, and is secured by accounts receivable, inventory,
and manufacturing equipment related to the Company's vascular access business
(introducers and contract manufacturing). In connection with securing the loans,
the Company issued warrants to purchase 50,000 shares of the Company's common
stock for a period of five years at $3.625 per share. In connection with
amending the loans, the Company issued warrants to the note holders to purchase
30,000 additional shares of the Company's common stock for a period of five
years at an option price of $1.50 per share. The Company also agreed to re-price
the existing warrants granted in July 1994 at the same price. The warrants to
acquire 80,000 shares of the Company's common stock were valued at $80,000,
which is reflected as a discount on the $500,000 notes and is being amortized as
interest expense over the terms of the notes payable.
In connection with these loans and the extensions thereof, the Company granted
warrants to an investment advisor to purchase 10,000 shares of the Company's
common stock under the same terms as those received by the note holders.
7. LEASES
The Company is obligated under capital lease agreements for equipment and
leasehold improvements. Future minimum payments under capital leases are as
follows:
Years Ending December 31,
- ----------------------------------------------------------- --------
1996 $43,284
1997 12,797
- ----------------------------------------------------------- --------
Total minimum lease payments 56,081
Less amounts representing interest imputed at 12% to 15.8% 3,964
- ----------------------------------------------------------- --------
Present value of net minimum lease payments 52,117
Less current installments 39,609
- ----------------------------------------------------------- --------
$12,508
=========================================================== ========
Equipment and leasehold improvements under capital leases as of December 31,
1995 and 1994 are as follows:
1995 1994
- --------------------------------------------- ---------- ----------
Equipment $35,969 $35,969
Leasehold improvement 152,451 152,451
Less accumulated amortization (183,624) (166,267)
- --------------------------------------------- ---------- ----------
$4,796 $22,153
============================================= ========== ==========
The Company leases its office and manufacturing facility under an operating
lease that expires in April 1997 with a monthly base rent of $9,793, which
escalates yearly based on the consumer price index. Operating expenses and real
estate taxes are paid by the Company.
Rent expense, including operating expenses and real estate taxes, charged to
operations for the years ended December 31, 1995 and 1994 was $175,231 and
$102,312, respectively.
8. SHAREHOLDERS' EQUITY
WARRANTS In connection with the Company's initial public offering, the
underwriter received warrants to purchase 110,000 shares of the Company's common
stock at $3.90 per share exercisable through September 1996.
In connection with the Company's investment agreement with EMPI, Inc. which
expired on October 30, 1994, EMPI received warrants to purchase 66,845 shares of
the Company's common stock at $5.61 per share exercisable through November 1998.
PRIVATE PLACEMENT The Company sold a total of 309,555 units, consisting of one
share of common stock and a warrant to purchase a second share of common stock
at $3.74 per unit in a private offering which closed in December 1993 and
January 1994. Net proceeds to the Company totaled $998,884, net of underwriters
commissions and other offering expenses.
The warrant is exercisable for five years after the offering completion date. It
carries an exercise price of $5.61 per share and is callable by the Company
anytime that the Company's per share bid price exceeds 140% of the exercise
price for more than ten consecutive trading days. In the event the Company calls
the warrants, it is required to file a registration statement with the
Securities and Exchange Commission causing the shares issued, pursuant to the
warrants, to be freely tradable.
In connection with this offering, the underwriter received warrants to purchase
30,313 shares of the Company's common stock at $4.49 per share exercisable for a
period of five years after the closing date.
PRIVATE STOCK PURCHASE On October 7, 1994, the Company sold 200,000 shares of
its common stock for $500,000 to a private investor. On January 27, 1995, the
Company sold an additional 266,667 shares to the same investor for $500,000
In connection with these private transactions, the Company issued, to an
investment advisor, warrants to purchase 8,000 shares of common stock at $2.50
per share and 10,667 shares of common stock at $1.875 per share. The warrants
expire five years from the date of each of the transactions.
STOCK OPTIONS The Company has three stock option plans: the 1989 Incentive Plan,
the 1991 Non-Qualified Plan and the 1992 Non-employee Director Plan. In April
1994, the Shareholders approved increasing the number of options available under
the Incentive Plan from 100,000 to 200,000. Under the three plans, a maximum of
505,000 options were designated for grant at prices not less than 85% of fair
market value at date of grant if a non-qualified option, or 100% if a qualified
option as defined under the Internal Revenue Code. Options vest over periods
ranging from two years to five years and the options expire over periods ranging
from six to fifteen years after the date of grant.
In addition, the Company has outstanding non-qualified stock options to
non-employee consultants and investors to purchase an aggregate of 69,166 shares
of common stock. These options expire on various dates in 1997 and 1998.
Additional information relating to all outstanding options as of December 31,
1995 and 1994 is as follows:
1995 1994
- ------------------------------------------------------ ------------ ------------
Options outstanding at January 1 428,291 432,091
Options granted 62,000 13,000
Options exercised (176,900) 0
Options surrendered (34,850) (16,800)
- ------------------------------------------------------ ------------ ------------
Options outstanding at December 31 278,541 428,291
Options available for grant at December 31 108,175 135,375
- ------------------------------------------------------ ------------ ------------
Total reserved shares 386,716 563,666
- ------------------------------------------------------ ------------ ------------
Options exercisable at December 31 204,666 364,616
- ------------------------------------------------------ ------------ ------------
Option prices per share:
Granted $2.44-$3.44 $2.63-$4.63
Exercised $1.28-$2.44 -
Surrendered $1.28-$5.25 $1.28-$5.38
====================================================== ============ ============
In February 1995, the Board of Directors agreed to cancel and reissue
outstanding non-officer employee stock options to acquire an aggregate of 52,125
shares of the Company's common stock with existing exercise prices ranging from
$2.62 to $5.25 per share. The exercise price for the reissued grants is $2.44
per share.
In January 1996, the Board of Directors adopted the 1996 Non-Employee Director
and Medical Advisory Board Stock Option Plan, subject to shareholder approval.
The Plan makes up to 100,000 options available and, if ratified, would
discontinue the 1992 Non-Employee Director Plan.
9. SIGNIFICANT CUSTOMERS
The Company extends unsecured credit to customers primarily in the United
States.
For the years ended December 31, 1995 and 1994, two customers accounted for 72%
and 7%, and 61% and 14% of sales, respectively. These two customers accounted
for 50% of accounts receivable as of December 31, 1995 and 64% as of December
31, 1994.
10. EMPLOYEE AGREEMENTS
The Company has employment agreements with two key members of senior management
providing for minimum annual base salary commitments aggregating $187,500. The
employment agreements include non-compete provisions and are currently effective
through January 1, 1997.
11. RETIREMENT PLAN
The Company has a profit sharing plan (the Plan) classified as a defined
contribution plan and qualifying under Section 401(k) of the Internal Revenue
Code. The Plan allows employees to defer a portion of their annual compensation
through pre-tax contributions to the Plan. The Company matches 10% of an
employee's contribution provided the employee's contribution does not exceed 5%
of the employee's compensation. Matching contributions for the years ended
December 31, 1995 and 1994 were $5,034 and $5,993, respectively. The Company's
Board of Directors may approve discretionary contributions to the Plan. No
discretionary contribution has been made since the Plan's inception.
12. SUBSEQUENT EVENT
Subsequent to year end, the Company obtained a revolving line of credit with a
financial institution. The line of credit availability is $1,200,000, subject to
borrowing base requirements, bears interest at 3% over the financial
institution's base rate, is secured by substantially all assets and expires in
May, 1997. Advances under the line are at the discretion of the lender. The line
of credit also contains a net worth covenant to which the company will have to
adhere. The Company believes this borrowing availability will provide adequate
capital to allow the Company to satisfy the $500,000 note payable due June 30,
1996 (See Note 6) and to fund its 1996 operations and capital expenditures.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Previously reported, as defined in Rule 12b-2 under the Exchange Act, on Form
8-K filed September 25, 1995.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by Item 9 concerning the executive officers and
directors of the Company is incorporated herein by reference to pages 3 through
5 and page 7 of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference to pages
5 and 6 of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference to pages
2 and 3 of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
A. Documents filed as part of this report
(1) Exhibits. See "Exhibit Index" on page following signatures
B. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized:
MedAmicus, Inc.
Date: December 18, 1996 By: /s/ James D. Hartman
President and Chief Financial Officer
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 in
the capacities and on the dates indicated:
/s/ Richard L. Little Director 12/18/96
/s/ James D. Hartman Director 12/18/96
President and Chief Executive Officer
Principal Financial and Accounting Officer
/s/ Richard W. Kramp Director 12/18/96
Richard F. Sauter Director
Ted Schwarzrock Director
EXHIBIT INDEX
Exhibit
# Description Page
- ------- --------------------------------------------------------- ----------
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-18 [File No. 33-42112C]).
3.2 Articles of Amendment of Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-18 [File No.
33-42112C]).
3.3 By-laws of the Company (incorporated by reference to Exhibit
3.3 to the Company's Registration Statement on Form S-18 [File
No. 33-42112C]).
10.1 Employment Agreement, dated January 1, 1993, between the
Company and Richard L. Little (incorporated by reference to
Exhibit 10.1 to the Company's annual report on Form 10-KSB for
the year ended December 31, 1993).
10.2* Employment Agreement, dated February 19, 1996, between the
Company and Dennis S. Madison (incorporated by reference to
Exhibit 10.2 to the Company's annual report on Form 10-KSB for
the year ended December 31, 1995).
10.3* Employment Agreement, dated February 19, 1996, between the
Company and James D. Hartman (incorporated by reference to
Exhibit 10.3 to the Company's annual report on Form 10-KSB for
the year ended December 31, 1995).
10.4* MedAmicus, Inc. 1991 Non-Statutory Stock Option Plan, restated
to reflect amendments dated December 18, 1991 (incorporated by
reference to Exhibit 10.7 to the Company's annual report on
Form 10-K for the year ended December 31, 1991).
10.5* MedAmicus, Inc. Stock Option Incentive Plan, restated to
reflect amendments dated December 18, 1991 and amendments
approved by shareholders on April 21, 1994 (incorporated by
reference to Exhibit 10.5 to the Company's annual report on
Form 10-KSB for the year ended December 31, 1994).
10.6 Supply and Distribution Agreement, dated July 31, 1990,
between the Company, Davol Inc. and Sigma Medical U.S.A., Ltd.
(incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-18 [File No. 33-42112C]).
10.7 Supply and Distribution Agreement, dated October 1, 1990,
between the Company, Sigma Medical U.S.A., Ltd. and Davol Inc.
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-18 [File No. 33-42112C]).
10.8 Amendment No. 2 to Supply and Distribution Agreement, dated
January 10, 1991, between the Company, Sigma Medical U.S.A.,
Ltd. and Davol Inc. (incorporated by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-18
[File No. 33-42112C]).
10.9 Supply and Distribution Agreement Amendment No. 3, dated June
4, 1991 and June 6, 1991, between the Company and Davol Inc.
(incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-18 [File No. 33-42112C]).
10.10 Supply Agreement, dated May 3, 1991, between the Company and
Medtronic, Inc. (incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-18 [File No.
33-42112C]).
10.11 Promissory Note, dated May 14, 1991, to Davol Inc.
(incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-18 [File No. 33-42112C]).
10.12 Lease Agreement, dated February 2, 1990, between the Company
and Jagodzinski Properties, including First Amendment to Lease
Agreement, dated May 1, 1991 (incorporated by reference to
Exhibit 10.18 to the Company's Registration Statement on Form
S-18 [File No. 33-42112C] ).
10.13 Form of Agreement Restricting Sale of Stock (incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-18 [File No. 33-42112C]).
10.14 Second Amendment to Lease Agreement, dated December 3, 1991,
between Jagodzinski Properties and the Company (incorporated
by reference to Exhibit 10.16 to the Company's annual report
on Form 10-K for the year ended December 31, 1991).
10.15 MedAmicus, Inc. 1992 Non-Employee Director Plan (incorporated
by reference to Exhibit 10.22 to the Company's annual report
on Form 10-K for the year ended December 31, 1991).
10.16 Investment Agreement, dated November 9, 1993, between the
Company and Empi, Inc. (incorporated by reference to the
Exhibit to the Company's report on Form 10-QSB for the quarter
ended September 30, 1993).
10.17 Form of Bridge Loan Agreement (incorporated by reference to
the Exhibit to the Company's quarterly report on Form 10-QSB
for the quarter ended June 30, 1994).
10.18 Form of Bridge Warrant (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-3 [File
No. 33-86292]).
10.19 Form of Advisor's Warrant (incorporated by reference to Exhibit
10.2 to the Company's Registration Statement on Form S-3 [File
No. 33-86292]).
10.20 Form of Bridge Loan Extension Agreement, dated as of December
30, 1994 (incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-3 [File No.
33-86292]).
10.21 Form of Bridge Warrant pursuant to Extension Agreement
(incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-3 [File No. 33-86292]).
10.22 Subscription Agreement, Letter of Investment Intent and
Investor Rights Agreement, between the Company and Rudiger
Dahle, dated as of January 27, 1995 (incorporated by reference
to Exhibit 10.22 to the Company's annual report on Form 10-KSB
for the year ended December 31, 1994).
10.23 International Distribution Agreement, by and between the
Company and NICOLAI, dated as of January 1, 1995 (incorporated
by reference to Exhibit 10.23 to the Company's annual report
on Form 10-KSB for the year ended December 31, 1994).
10.24 Addendum to Supply Agreement, dated August 1, 1994, by and
between the Company and Medtronic, Inc. (incorporated by
reference to Exhibit 10.24 to the Company's annual report on
Form 10-KSB for the year ended December 31, 1994).
10.25 Credit and Security Agreement, dated March 5, 1996, by and
between the Company and Norwest Credit, Inc. (incorporated by
reference to Exhibit 10.25 to the Company's annual report on
Form 10-KSB for the year ended December 31, 1995).
10.26 Revolving Note, dated March 26, 1996 to Norwest Credit, Inc.
(incorporated by reference to Exhibit 10.26 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1995).
10.27 Collateral Account Agreement, dated March 26, 1996, by and
between the Company and Norwest Credit, Inc. (incorporated by
reference to Exhibit 10.27 to the Company's annual report on
Form 10-KSB for the year ended December 31, 1995).
10.28 Lockbox Agreement, dated March 26, 1996 by and among the
Company, Norwest Credit, Inc. and Norwest Bank Minnesota.
(incorporated by reference to Exhibit 10.28 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1995).
10.29 Management Support Agreement, dated March 26, 1996 by and
among the Company, James Hartman and Norwest Credit, Inc.
(incorporated by reference to Exhibit 10.29 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1995).
10.30* MedAmicus, Inc. 1996 Non-Employee Director and Medical
Advisory Board Stock Option Plan. (incorporated by reference
to Exhibit 10.30 to the Company's annual report on Form 10-KSB
for the year ended December 31, 1995).
22.1 Subsidiaries of the Registrant. None.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Independent Auditor's Report for the year ended December 31,
1994.
23.4 Independent Auditor's Report for the year ended December 31,
1995.
* Indicates management agreement.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
MedAmicus, Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-94534 on Form S-8 and No 33-86292 on Form S-3 of MedAmicus, Inc. of our
report dated February 17, 1995, relating to the balance sheet of MedAmicus, Inc.
as of December 31, 1994, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended, which report appears in the
December 31, 1995 annual report on Form 10-KSB/A of MedAmicus, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 20, 1996
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
MedAmicus, Inc.
Minneapolis, Minnesota
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 related to the Stock Option Incentive Plan, 1991
Non-Statutory Stock Option Plan and the 1992 Non-Employee Director Plan
(Commission File No. 33-94524) and on Form S-3 relating to the registration of
1,061,734 shares of common stock (Commission File No. 33-86292) of our report,
dated February 1, 1996, except for Note 12 as to which the date is March 8,
1996, with respect to the financial statements of MedAmicus, Inc., which appears
in the Annual Report on Form 10-KSB/A for the year ended December 31, 1995.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
December 20, 1996
The Board of Directors and Stockholders
MedAmicus, Inc.:
We have audited the accompanying balance sheet of MedAmicus, Inc. (the Company)
as of December 31, 1994 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MedAmicus, Inc. as of December
31, 1994, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 17, 1995
Exhibit 23.4
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
MedAmicus, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheet of MedAmicus, Inc. as of December
31, 1995, and the related statements of operations, shareholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MedAmicus, Inc. as of December
31, 1995, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 1, 1996, except for Note 12 as to
which the date is March 8, 1996
