U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 1996
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.
(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 ____
The issuer's revenues for its most recent fiscal year were $5,659,522
The aggregate market value of the Common Shares held by nonaffiliates of the
issuer as of March 12, 1997 was approximately $9,605,437(based on the average of
the closing bid and asked prices of the issuer's Common Shares on such date
which was $2.56/share).
Common Shares outstanding at March 12, 1997: 4,066,774 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the issuer's Proxy Statement for the Annual Meeting of Shareholders
scheduled for April 24, 1997 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 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 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 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 LuMax 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 LuMax 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 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.
With these additional resources, the Company embarked upon a direct sales
strategy in January 1995 to distribute the LuMax System into the gynecology
office-based 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. In mid-1995, a sales and marketing staff was hired
and the Company began contracting with independent sales representatives to sell
into this market.
The Company also developed a sales strategy to distribute the LuMax System into
the urology office-based market. In order to sell into this market, the LuMax
System needed to be upgraded to allow it to perform pressure flow studies in
addition to the cystometry tests that were already being done. Development on
this upgraded LuMax System was started in July 1995 with a scheduled completion
date of May 1996. The development process was slowed, due in part to problems
with the compiler that was being used to translate the programming code to the
chip, and the upgraded LuMax System was not completed until September 1996. The
Company has contracted with independent sales representative groups to market
the LuMax System into the gynecology and urology office-based markets.
Currently, forty groups are under contract totaling seventy-three individuals.
Twenty-six of these representatives call specifically on gynecologists, thirty
call specifically on urologists and seventeen represent the Company's product in
both markets.
In March 1996, the Company obtained a revolving line of credit (up to
$1,200,000) with a financial institution. The Company used the line of credit to
pay off the $500,000 notes with the two unaffiliated private investors. In May
1996, the Company completed a private placement of common stock, resulting in
proceeds to the Company of approximately $1,620,000, net of offering expenses.
INTRODUCER PRODUCTS
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 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.
The Company's distribution agreement with Medtronic was executed in May 1991,
and amended in August 1994, August 1995 and again in August 1996. 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 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. 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 INTRO-EZE introducer currently represents approximately 15% of Bard's total
sales of introducers. These quantities are significantly less than those
contemplated in the distribution agreement. It is the opinion of the Company
that Bard no longer holds exclusive rights to the introducer due to not
maintaining minimum purchase requirements although the Company has no current
plans to sell the introducer to other companies in the infusion catheter and
implantable port markets.
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 is important to the success
of the Company.
For the years ended December 31, 1996, 1995 and 1994, Medtronic accounted for
58%, 72% and 61%, respectively, and Bard accounted for 6%, 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, was purchased by
Medtronic from another supplier. Beginning in the fourth quarter of 1996, the
Company began manufacturing some sizes of the sheath and dilator for the
"peel-away" and it is anticipated that all sizes will be manufactured by the
Company by mid-1997. 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,
Allentown, 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.
RESEARCH & DEVELOPMENT
The Company's development activities are focused primarily on improved vessel
introducers. 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 continues
work on that project which is currently in market testing. 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, 1996, 1995 and 1994, the Company expended
$235,733, $216,551 and $244,257, respectively, on research and development
activities directly related to introducer 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, but currently manufactures only
four medical products for one company, compared to eleven products for six
companies three years ago. The Company no longer actively pursues contract
manufacturing revenue.
For the years ended December 31, 1996, 1995, and 1994, contract manufacturing
revenues were approximately 9%, 7% and 22% respectively, of the Company's total
revenues.
FIBER OPTIC PRESSURE TRANSDUCER (LUMAX SYSTEM)
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, 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. The Company markets both single use
disposable catheters and catheters which can be sterilized and reused 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
patients with urological disorders including incontinence and benign prostatic
hyperplasia (BPH). Its primary market focus is the office-based gynecology and
urology 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. The Company has not completed
final development on the Interface System and is not currently marketing the
product.
In September 1996, the Company began marketing a uroflow accessory to the LuMax
Cystometry System which allows 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 and is reusable, it is sold at a
substantially higher cost than the Company's current reusable 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.
An enlarged prostate or benign prostatic hyperplasia (BPH) is a condition that
affects half of all men over age 55. A pressure flow study is a urodynamic test
designed to measure the severity of the blockage and determine if intervention
is appropriate. The Company's new LuMax System with uroflow is designed to
perform this study.
The urodynamic testing market in the United States consists of three segments:
approximately 2,300 urology practices having access to 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. In September 1996, the Company
engaged independent sales representatives to market the LuMax Cystometry System
with Uroflow into the urology office-based market.
Today the Company has contractual relationships with forty independent sales
groups totaling seventy-three individuals. Twenty-six representatives call
exclusively on gynecologists, thirty on urologists and seventeen representatives
market the LuMax System to both gynecologists and urologists.
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 undetermined amount of catheters. The sales which were anticipated in
Germany did not materialize, and the Company terminated the agreement with
NICOLAI in October 1996. 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 1997, the Company has the capacity to
manufacture approximately 3,300 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 1997, the Company has the capacity to assemble approximately 50
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; Radi Medical Systems,
Sweden, which markets its device in Europe for hemodynamic testing and possibly
urological monitoring and Bard Urological, a subsidiary of C. R. Bard, Inc.
which markets a urodynamic system similar to the Company's LuMax System. 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.
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, 1996, 1995 and 1994, the Company
expended $563,196, $583,044 and $1,039,192, respectively, on the transducer
development effort. The research and development group intends to continue work
on enhancing the transducer for the gynecology and urology markets 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. In addition, the Company's sales and marketing practices are subject
to regulation by the U.S. Department of Health and Human Services pursuant to
federal anti-kickback laws, and are also subject to similar state laws.
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. Both patents 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.
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 received 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 received additional patent
protection on technical features of the transducer which have evolved during the
development to date.
The Company has received correspondence from a competitor in the fiber optic
transducer market regarding patents it holds relating to fiber optic
transducers, specifically referencing a patent on a technique to calibrate the
fiber optic system and requesting additional information regarding the Company's
calibration technique and why such technique does not infringe the competitor's
patent. The Company has been aware of this patent and has specifically designed
the calibration system associated with its transducer so as not to infringe the
competitor's patent. In addition, the Company has been issued a United States
patent on its calibration technique. The Company has also received an opinion of
counsel that its calibration system does not infringe such patent.
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 10, 1997, the Company employed 69 persons, consisting of 65
full-time and 4 part-time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative, manufacturing and research and development
facilities, consisting of approximately 21,665 square feet, are located at 15301
Highway 55 West, Plymouth, Minnesota 55447,. 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. The Company
has elected to extend the lease until April 30, 1998.
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 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded on the 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.
High Low
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1995
First Quarter 2.750 1.875
Second Quarter 3.250 2.250
Third Quarter 4.000 3.000
Fourth Quarter 3.875 2.875
1996
First Quarter 4.250 3.000
Second Quarter 4.750 3.750
Third Quarter 4.250 2.750
Fourth Quarter 3.750 2.125
1997
Through March 6 3.250 2.000
As of March 6, 1997, the Company had approximately 1,600 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 OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. ("Medtronic") and Bard Access
Systems, a division of C.R. Bard, Inc. ("Bard") 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. The same investor purchased an 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. The Company planned to release an upgraded LuMax System for the
urology market in May 1996, but several development problems delayed the release
until the end of September 1996. Upon the release, the Company began contracting
with independent sales representatives focused on the urology office market. The
Company currently has 73 independent sales representatives under contract
selling to the two markets.
In March 1996, the Company entered into a fifteen month agreement with a
financial institution for a $1,200,000 revolving line of credit. In May 1996,
the Company completed a private placement of its common stock, resulting in net
proceeds to the Company of $1,622,103.
SALES
Net sales for 1996 were $5,659,522 compared to $5,294,880 in 1995, an increase
of $364,642 or 6.9%. Sales of vessel introducers, primarily to Medtronic and
Bard under exclusive distribution arrangements, were $3,445,704 in 1996 compared
to $4,139,066 in 1995, a decrease of $693,362 or 16.7%. During 1995, the Company
benefited from a build-up of introducer inventory by Medtronic in support of the
release of Medtronic's new defibrillator and pacemaker products, as well as
additional revenue from the sale of "peel-away" introducer kits which commenced
in late 1994.
Contract manufacturing sales were $513,814 in 1996 compared to $355,696 in 1995,
an increase of $158,118 or 44.4%. The increase was primarily due to lower sales
in 1995 to one of the Company's two contract manufacturing customers which
placed orders on hold in the second quarter of 1995 in order to deplete excess
inventory and to convert to new manufacturing facilities. This same customer was
recently purchased by Boston Scientific and the Company was informed in
September 1996 that Boston Scientific will be manufacturing this product
internally. The final orders for this customer were shipped during the fourth
quarter of 1996. In September 1996, the Company's other contract manufacturing
customer indicated that it intends to significantly increase the size of its
orders over the next two years. These two events should result in a slight
decline in the contract manufacturing sales for the foreseeable future.
The Company also does some contract research and development work periodically
for Medtronic and realized sales of $190,341 in 1996 compared to $53,974 in
1995. While the Company has generated revenue from this type of work over the
past two years, it does not expect it to be a continuous source of revenue.
Sales of the Company's fiber optic pressure sensing catheter and monitor
transducer products were $1,509,663 in 1996, compared to $746,144 in 1995, an
increase of $763,519 or 102.3%. Monitor sales increased from $667,431 in 1995 to
$1,213,894 in 1996, an increase of 81.9%. Catheter sales increased from $78,713
in 1995 to $295,769 in 1996, an increase of 275.8%. The Company continued to
actively market the LuMax System into the gynecology office market, and
officially launched an upgraded version of its LuMax System to the urology
market in late September. The Company had originally planned to launch the
upgraded version of its LuMax System in May, but was delayed due to development
issues. The Company is now focusing on ramping up its manufacturing capacity for
these upgraded systems in order to supply customer demand for the product, as
well as provide the sales representatives with demo systems. While the Company
has only minimal experience to date in selling the LuMax System, management
believes that the largest percentage of these sales typically occurs in the
fourth quarter.
GROSS PROFIT ON SALES
Gross profit as a percentage of sales by category for the years ended December
31, 1996 and 1995 was as follows:
1996 1995
- --------------------------------------------------------
Introducers and contract manufacturing 46.9% 48.1%
Fiber optic products 13.5 2.3
- --------------------------------------------------------
Total gross profit percent 38.0% 41.7%
========================================================
The Company saw a slight decline in its gross profit percentage related to its
vessel introducer and contract manufacturing business in 1996, primarily due to
decreased introducer sales to Medtronic which affected the Company's utilization
of available capacity. The Company expects gross profit in the introducer and
contract business to decline slightly in the future as it reduces pricing to
Medtronic for introducers in order to respond to competitive pressures.
The Company realized improvement in gross profit dollars and percent related to
its fiber optic business during 1996, due to a combination of increased sales,
which resulted in improved efficiencies and better utilization of the Company's
available capacity, and process improvements which improved yields and reduced
the cost of the Company's catheters. The Company expects gross profits in the
fiber optic business to increase in the future as the Company increases sales
and better utilizes its capacity.
RESEARCH AND DEVELOPMENT
Total research and development expenditures were $798,929, or 14.1% of sales in
1996, compared to $799,595, or 15.1% of sales in 1995. Approximately 70% and 73%
of the 1996 and 1995 expenditures, respectively, were devoted to the development
of the Company's LuMax System and the remainder to introducer products. The
Company had expected to reduce research and development spending in 1996, but
due to the development problems related to the upgraded LuMax System, the
Company spent heavily during the second and third quarters in order to complete
the project. The Company expects to spend less in research and development in
1997 as it focuses on sales and marketing activities related to the LuMax
System.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $2,385,953 or 42.2% of
sales in 1996, compared to $1,697,915 or 32.1% of sales in 1995. Sales and
marketing expenses increased $572,544 in 1996 over 1995 as the Company
introduced its upgraded LuMax System into the urology market. The Company is now
supporting approximately 73 independent sales representatives, attending a
significant number of shows and conventions, and advertising in several key
publications relating to the Ob/Gyn and urology markets. The Company also hired
a vice president of sales and marketing in July 1996, as well two additional
employees during 1996, which has increased salary expense over 1995 levels.
General and administrative expenses increased $115,494 in 1996 over 1995. This
increase is primarily due to additional spending on outside consultants,
investor relations and salaries. The Company contracted with an outside
consulting firm to provide MIS support for the Company in 1996 and intends to
continue the contract in 1997. The Company also hired a public relations firm to
assist with investor relations during 1996, but the relationship has since been
terminated. Salary expense increased in 1996 compared to 1995 because of one
additional person in the accounting department and general salary increases from
the prior year.
NET LOSS
As a result, the Company incurred a net loss of $1,071,115 or $.28 per share in
1996 compared, to a net loss of $358,854 or $.11 per share in 1995. The
Company's net losses during the first three quarters of 1996 were $333,228,
$424,265 and $318,779, respectively, while the Company attained a net profit of
$5,157 in the fourth quarter of 1996.
Inflation has not had a material impact on the Company's revenues or earnings.
The Company currently has 73 independent sales representatives under contract to
distribute its LuMax System into both the gynecology and urology markets. In
order to support this network of independent representatives, the Company
intends to hire several regional sales managers and invest in significant
promotional activities in the first quarter of 1997. As a result, the Company
expects losses to resume at least through the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had unrestricted cash and cash equivalents
and investments of $1,205,783, compared to $1,039,418 as of December 31, 1995.
Net cash used in operating activities during the year ended December 31, 1996
was $1,279,315, consisting primarily of a net loss of $1,071,115, less
adjustments for depreciation and amortization of $402,148 and net changes in
operating assets and liabilities of $631,997. As expected, the Company saw
significant increases in its inventory and receivables in 1996, as the sales of
the fiber optic products continued to ramp up. The Company anticipates inventory
and receivables to increase in 1997 if sales of the fiber optic products
materialize as expected.
Net cash provided by investing activities in 1996 was $473,106, consisting
primarily of the net sale of investments totaling $967,645, the acquisition of
property and equipment for $488,199, and the addition to patent rights of
$6,340.
Net cash provided to the Company from financing activities totaled $1,868,719,
consisting of proceeds from the sale of common stock in a private offering of
$1,622,103, net of offering expenses, $782,783 of borrowings on the Company's
line of credit and $28,050 in proceeds from the exercise of stock options,
offset by payments on the Company's capital lease obligations of $49,817, a note
payable to a customer of $14,400 and notes payable to private investors of
$500,000.
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 anticipates that it will
be able to extend the line of credit when it expires in June 1997. If the
financial institution decides not to extend the agreement, 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. If the Company is
unable to obtain financing when required, the Company could be forced to curtail
its operations.
As of December 31, 1996, the Company's current assets exceeded current
liabilities by $1,685,731, with a current ratio of 1.8 to 1, compared to working
capital of $1,201,371 or a current ratio of 1.9 to 1 as of December 31, 1995.
Accounts receivable increased from $734,926 as of December 31, 1995 to
$1,346,289 as of December 31, 1996, an increase of $611,363. Inventory increased
from $785,768 as of December 31, 1995 to $1,203,372 as of December 31, 1996, an
increase of $417,604. The Company expected both inventory and accounts
receivable to increase in 1996 as it began to ramp up its LuMax sales efforts.
Accounts payable increased from $640,478 as of December 31, 1995 to $1,109,640
as of December 31, 1996, an increase of $469,162 which primarily offset the
increase in inventory. Finally, the Company had additional borrowings on
short-term notes of $304,820 which represents the difference between the note
payable under its credit line and the notes payable to private investors. The
Company has chosen to use the line of credit instead of available cash as
working capital because it is committed to paying a minimum of $75,000 in
interest over the term of the agreement on the line of credit with the bank.
At December 31, 1996, the Company had income tax carryforwards of net operating
losses (NOL's) of approximately $5,690,000 and research and development credit
carryforwards of approximately $170,000. Of the total NOL's, a portion of the
NOL's expiring between 2002 and 2006, totaling approximately $850,000, are
subject to Internal Revenue Code utilization limitations due to prior ownership
changes. The annual limitation with respect to these NOL's is approximately
$135,000. At December 31, 1996, the Company's net deferred tax assets, totaling
approximately $2,503,000, 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. Forward-looking statements contained in this annual report on
Form 10-KSB, including without limitation in Management's Discussion and
Analysis, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Certain important factors could cause
results to differ materially from those anticipated by some statements made
herein. You are cautioned that all forward-looking statements involve risks and
uncertainties. Among the factors that could cause results to differ materially
are the following: delays in new product launches; lack of market acceptance of
the Company's products; introduction of competitive products; competitive
pricing developments; lack of performance by the Company's distribution network;
challenges to the Company's intellectual property rights; and government
regulation matters. Reference is also made to the risk factors contained in the
Company's report on Form 8-K as filed with the Securities and Exchange
Commission on November 15, 1996.
ITEM 7. FINANCIAL STATEMENTS
The Independent Auditor's Report for the years ended December 31, 1995 and 1996
is included as Exhibit 23.2 attached hereto.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------------
<S> <C> <C>
ASSETS (Note 6)
CURRENT ASSETS:
Cash and cash equivalents $ 1,205,783 $ 143,273
Marketable securities (Note 2) 0 896,145
Accounts receivable, less allowance for doubtful accounts of $8,250
in 1996 (Note 9) 1,346,289 734,926
Inventories (Note 3) 1,203,372 785,768
Prepaid expenses and other assets 60,300 23,637
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,815,744 2,583,749
- ------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT: (Note 7)
Equipment 1,819,901 1,433,357
Office furniture, fixtures and computers 437,053 237,207
Leasehold improvements 362,759 326,211
- ------------------------------------------------------------------------------------------------------------
2,619,713 1,996,775
Less accumulated depreciation and amortization (1,477,554) (1,100,723)
- ------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 1,142,159 896,052
- ------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS, RESTRICTED (Notes 2 and 7) 28,888 100,000
PATENT RIGHTS, NET OF ACCUMULATED AMORTIZATION OF
$102,613 AND $77,296, RESPECTIVELY 34,221 53,198
============================================================================================================
TOTAL ASSETS $ 5,021,012 $ 3,632,999
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (Note 6) $ 782,783 $ 0
Accounts payable 1,109,640 640,478
Accrued expenses (Note 4) 174,399 209,928
Notes payable to private investors (Note 6) 0 477,963
Current installments of note payable to customer (Note 6) 14,400 14,400
Current installments of capital lease obligations (Note 7) 48,791 39,609
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,130,013 1,382,378
- ------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Note payable to customer, less current installments (Note 6) 2,822 17,222
Capital lease obligations, less current installments (Note 7) 88,248 12,508
- ------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 91,070 29,730
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,221,083 1,412,108
- ------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 10)
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 4,066,774 and 3,434,774
shares, respectively 40,668 34,348
Additional paid-in capital 8,515,636 6,871,803
Accumulated deficit (5,756,375) (4,685,260)
- ------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,799,929 2,220,891
============================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,021,012 $ 3,632,999
============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATMENTS
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------
Net sales (Note 9) $ 5,659,522 $ 5,294,880
Cost of sales 3,509,497 3,087,741
- ----------------------------------------------------------------------
GROSS PROFIT 2,150,025 2,207,139
- ----------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 798,929 799,595
Selling, general and administrative 2,385,953 1,697,915
- ----------------------------------------------------------------------
TOTAL OPERATING EXPENSES 3,184,882 2,497,510
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
OPERATING LOSS (1,034,857) (290,371)
- ----------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (89,165) (126,821)
Interest income 55,689 50,535
Other (2,782) 7,803
- ----------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (36,258) (68,483)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET LOSS $(1,071,115) $ (358,854)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET LOSS PER SHARE $ (0.28) $ (0.11)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 3,836,271 3,294,921
- ----------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional
----------------------- Paid-In Accumulated
YEARS ENDED DECEMBER 31, 1996 AND 1995 Shares Amount Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 2,991,207 $ 29,912 $ 6,169,662 $(4,326,406) $ 1,873,168
Common stock purchased by private investor,
net of offering costs 266,667 2,667 474,526 0 477,193
Stock options exercised 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
Stock options exercised 22,000 220 27,830 0 28,050
Common stock purchased by private investors,
net of offering costs 610,000 6,100 1,616,003 0 1,622,103
Net loss for the year ended December 31, 1996 0 0 0 (1,071,115) (1,071,115)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 4,066,774 $ 40,668 $ 8,515,636 $(5,756,375) $ 2,799,929
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,071,115) $ (358,854)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 402,148 292,089
Interest accretion on notes payable to private investors 22,037 44,075
Interest added to investments (388) (14,506)
Changes in operating assets and liabilities:
Accounts receivable (611,363) (301,982)
Inventories (417,604) (37,715)
Prepaid expenses and other assets (36,663) 10,141
Accounts payable 469,162 350,446
Accrued expenses (35,529) 126,358
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,279,315) 110,052
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (488,199) (321,548)
Additions to patent rights (6,340) (19,145)
Purchase of available-for-sale marketable securities, including reinvestment
of securities which matured (28,500) (4,067,492)
Sale of available-for-sale marketable securities, including sales of securities
which matured 996,145 3,804,883
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 473,106 (603,302)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (49,817) (40,682)
Proceeds from sales of stock, net of offering costs 1,622,103 477,193
Proceeds from exercise of stock options 28,050 229,384
Payments on notes payable to private investors (500,000) 0
Proceeds from note payable to bank 782,783 0
Payments on note payable to customer (14,400) (32,378)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,868,719 633,517
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,062,510 140,267
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 143,273 3,006
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,205,783 $ 143,273
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 60,073 $ 82,746
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases incurred on purchase of equipment $ 134,739 $ 0
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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 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.
* 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.
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 The following methods and
assumptions were used to estimate the fair value of each class of certain
financial instruments for which it is practicable to estimate that value:
* CASH EQUIVALENTS: 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, 1996 the fair value of the Company's
marketable securities approximated its carrying value.
* NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS: The fair value of the
Company's notes payable and capital lease obligations 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, 1996
the fair value of the Company's notes payable and capital lease
obligations approximated its carrying 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.
NET LOSS PER SHARE Net 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.
- --------------------------------------------------------------------------------
2. MARKETABLE SECURITIES
- --------------------------------------------------------------------------------
Long-term investments, as of December 31, 1996, consist of a U.S. Treasury bill
which matures in September 1997. The Treasury bill is recorded as long-term
because it is pledged as collateral to a capital lease through November 1999
(See note 7). 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 either 1996 or 1995.
- --------------------------------------------------------------------------------
3. INVENTORIES
- --------------------------------------------------------------------------------
INVENTORIES AT DECEMBER 31, 1996 AND 1995 CONSIST OF THE FOLLOWING:
1996 1995
- ----------------------------------------------------------------------
Purchased parts and subassemblies $ 655,584 $ 419,314
Work in process 412,520 170,353
Finished goods 135,268 196,101
- ----------------------------------------------------------------------
$1,203,372 $ 785,768
======================================================================
- --------------------------------------------------------------------------------
4. ACCRUED EXPENSES
- --------------------------------------------------------------------------------
ACCRUED EXPENSES AT DECEMBER 31, 1996 AND 1995 CONSIST OF THE FOLLOWING:
1996 1995
- ----------------------------------------------------------------------
Payroll and commissions $ 34,475 $107,103
Vacation and sick pay 59,112 46,187
Other 80,812 56,638
- ----------------------------------------------------------------------
$174,399 $209,928
======================================================================
- --------------------------------------------------------------------------------
5. INCOME TAXES
- --------------------------------------------------------------------------------
At December 31, 1996, the Company had income tax carryforwards of net operating
losses (NOL's) of approximately $5,690,000 and research and development credit
carryforwards of approximately $170,000. Of the total NOL's, a portion of the
NOL's expiring between 2002 and September 2006, totaling approximately $850,000,
are subject to Internal Revenue Code utilization limitations due to prior
ownership changes. The annual limitation with respect to these NOL's is
approximately $135,000. These carryforwards are available to offset future
taxable income and related income taxes, and expire as follows:
Net Research And
Operating Development Tax
Year of Expiration 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 1,170,000 36,000
2010 664,000 13,000
2011 966,000 16,000
============================================================
$5,690,000 $ 170,000
============================================================
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:
1996 1995
- -------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 2,162,000 $ 1,816,000
Depreciation 115,000 87,000
Vacation accrual 18,000 15,000
Inventory 69,000 0
Other 38,000 27,000
Tax credit carryforwards 170,000 156,000
...................................................................
2,503,000 2,101,000
Valuation allowance (2,503,000) (2,101,000)
- -------------------------------------------------------------------
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:
1996 1995
- ----------------------------------------------------------------
Valuation at beginning of the year $2,101,000 $1,725,000
Addition to allowance 402,000 376,000
- ----------------------------------------------------------------
Valuation allowance at end of the year $2,503,000 $2,101,000
================================================================
Total tax benefit differs from the expected tax benefit, computed by applying
the federal statutory rate of 35% as follows:
1996 1995
- ----------------------------------------------------------------------------
Expected income tax benefit $(375,000) $(126,000)
Increase in valuation allowance for deferred taxes 402,000 376,000
State income taxes (42,000) (14,000)
Benefit provided from permanent differences (2,000) (155,000)
Other 17,000 (85,000)
- ----------------------------------------------------------------------------
$ 0 $ 0
============================================================================
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
- --------------------------------------------------------------------------------
NOTE PAYABLE TO BANK During 1996, the Company obtained a $1,200,000 line of
credit with a financial institution expiring June 30, 1997. Advances under the
agreement are at the discretion of the lender and are subject to borrowing base
requirements and bear interest at 3% over the financial institution's base rate
(8.25% at December 31, 1996). Borrowings under the agreement are secured by
substantially all assets of the Company. The agreement also requires the Company
to meet certain financial covenants. Outstanding borrowings under the agreement
were $782,783 at December 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 calls
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, 1996 are $14,400 per annum until the loan is retired in February
1998.
NOTES 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. In connection with
securing and amending the loans, the Company issued warrants to purchase 80,000
shares of the Company's common stock for a period of five years at $1.50 per
share. The warrants to acquire 80,000 shares of the Company's common stock were
valued at $80,000, which was reflected as a discount on the $500,000 notes and
was amortized as interest expense over the terms of the notes payable. The notes
were repaid in full in 1996. 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,
- ----------------------------------------------------------------------
1997 $66,282
1998 50,157
1999 42,458
2000 3,720
2001 620
- ----------------------------------------------------------------------
Total minimum lease payments 163,237
Less amounts representing interest imputed at 11% to 17.9% 26,198
- ----------------------------------------------------------------------
Present value of net minimum lease payments 137,039
Less current installments 48,791
======================================================================
$88,248
Capital leases are secured by the equipment under lease. In addition, one of the
capital leases is also secured by the Company's investment in U.S. Treasury
bills at December 31, 1996 (See note 2)
Equipment and leasehold improvements under capital leases as of December 31,
1996 and 1995 are as follows:
1996 1995
- -------------------------------------------------------
Equipment $ 134,739 $ 35,969
Leasehold improvements 152,451 152,451
Less accumulated amortization (169,326) (183,624)
- -------------------------------------------------------
$ 117,864 $ 4,796
=======================================================
The Company leases its office and manufacturing facility under an operating
lease that expires in April 1998 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, 1996 and 1995 was $158,908 and
$175,231, respectively.
- --------------------------------------------------------------------------------
8. SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
WARRANTS In connection with the Company's investment agreement with EMPI, Inc.
which expired on October 30, 1994, EMPI received warrants to purchase 66,485
shares of the Company's common stock at $5.61 per share exercisable through
January 1999.
In connection with a private placement that closed in 1994, the investors were
issued warrants to purchase 309,555 shares of common stock at $5.61 per share
exercisable through January 1999. The warrants are 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, registering the shares issuable pursuant to
the warrants. In connection with this offering, the placement agent received
warrants to purchase 30,313 shares of the Company's common stock at $4.49 per
share exercisable through January 1999.
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.
PRIVATE PLACEMENT The Company sold 610,000 shares of its common stock at $3.00
per share in a private offering which closed in May 1996. Net proceeds to the
Company totaled $1,622,103, net of commissions and other offering expenses. In
connection with this offering, the Company issued a warrant to purchase 107,000
shares of the Company's common stock at $3.90 per share exercisable through
January 1999.
STOCK OPTIONS The Company has three stock option plans: the 1989 Incentive Plan,
the 1991 Non-Qualified Plan and the 1996 Non-Employee Director and Medical
Advisory Board Plan. In April 1994, the Shareholders approved increasing the
number of options available under the Incentive Plan from 100,000 to 200,000. In
August 1996, the Board of Directors voted to increase the number of options
available under the Incentive Plan from 200,000 to 400,000, subject to
shareholder approval. Under the three plans, a maximum of 780,000 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 an incentive 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 warrants to non-employee consultants
and investors to purchase an aggregate of 71,166 shares of common stock. These
warrants expire on various dates in 1997, 1998 and 1999. 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.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS
123). Accordingly, no compensation expense has been recognized for the stock
option plans. Had compensation expense for the Company's three stock option
plans been determined based on the fair value at the grant date for awards in
1996 and 1995 consistent with the provisions of SFAS No. 123, the Company's net
loss and net loss per share would have been increased to the pro forma amounts
indicated below:
1996 1995
- ------------------------------------------------------------
Net loss - as reported $(1,071,115) $(358,854)
Net loss - pro forma $(1,103,575) $(366,295)
Net loss per share - as reported $ (.28) $ (.11)
Net loss per share - pro forma $ (.29) $ (.11)
- ------------------------------------------------------------
The above pro forma effects on net loss and net loss per share are not likely to
be representative of the effects on reported net income (loss) for future years
because options vest over several years and additional awards generally are made
each year.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995:
1996 1995
- ----------------------------------------------------------
Expected dividend yield $ 0 $ 0
Expected stock price volatility 57.3% 58.3%
Risk-free interest rate 6.3% 7.1%
Expected life of options (years) 5 5
- ----------------------------------------------------------
Additional information relating to all outstanding options as of December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
-------------------------------- ------------------------------
1996 1995
-------------------------------- ------------------------------
WEIGHTED AVG WEIGHTED AVG
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 278,541 $ 1.99 428,291 $ 1.65
Options granted 135,000 3.46 62,000 2.76
Options exercised (22,000) 1.28 (176,900) 1.30
Options surrendered (15,250) 3.10 (34,850) 2.74
- --------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 376,291 $ 2.51 278,541 $ 1.99
Options available for grant at end of year 265,475 108,175
- --------------------------------------------------------------------------------------------------------------
Total reserved shares 641,766 386,716
- --------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year $ 1.96 $ 1.55
==============================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
- ------------------------------------- --------------------------------------- ---------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------- --------------------------------------- ---------------------------------------
Weighted Avg
Number Remaining Number
Range of Exercise Outstanding Contractual Life Weighted Avg Exercisable at Weighted Avg
Prices at 12/31/96 (Yrs) Exercise Price 12/31/96 Exercise Price
- --------------------- --------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$1.25 - $1.50 133,333 5.55 $1.29 133,333 $1.29
- --------------------- --------------- ------------------- ------------------- ------------------- -------------------
$2.13 - $3.00 89,458 3.14 $2.50 42,508 $2.41
- --------------------- --------------- ------------------- ------------------- ------------------- -------------------
$3.19 - $4.00 143,500 5.78 $3.48 14,742 $3.58
- --------------------- --------------- ------------------- ------------------- ------------------- -------------------
$4.88 - $5.25 10,000 .14 $5.06 10,000 $5.06
- --------------------- --------------- ------------------- ------------------- ------------------- -------------------
$1.25 - $5.25 376,291 4.92 $2.51 200,583 $1.88
- --------------------- --------------- ------------------- ------------------- ------------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
9. SIGNIFICANT CUSTOMERS
- --------------------------------------------------------------------------------
The Company extends unsecured credit to customers primarily in the United
States.
For the years ended December 31, 1996 and 1995, one customer accounted for 58%
and 72% of sales, respectively. The customer accounted for 50% of accounts
receivable as of December 31, 1996 and 46% as of December 31, 1995.
- --------------------------------------------------------------------------------
10. 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, 1996 and 1995 were $6,372 and $5,034, 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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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
6 of the Registrant's Proxy Statement for its 1997 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
6 and 7 of the Registrant's Proxy Statement for its 1997 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 1997 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
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
(1) The Registrant filed a report on Form 8-K on November 15, 1996
under Item 5 of such Form, reporting the risk factors contained in its
recently filed Form S-3.
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: March 17, 1997 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:
Richard L. Little Director
/s/ James D. Hartman Director 03/17/97
President and Chief Executive Officer
Principal Financial and Accounting Officer
/s/ Richard W. Kramp Director 03/18/97
/s/ Richard F. Sauter Director 03/18/97
//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 10.2 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 10.2 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 10.2 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 10.2 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 10.2 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 10.2 to the Company's annual report
on Form 10-KSB for the year ended December 31, 1995).
21.1 Subsidiaries of the Registrant. None.
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Independent Auditor's Report for the years ended December
31, 1995 and 1996
27 Financial Data Schedule
* Indicates a management contract or compensatory plan or arrangement.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements 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), on Form S-3 relating to the registration of
1,061,734 shares of common stock (Commission File No. 33-86292), and on Form S-3
relating to the registration of 610,000 shares of common stock (Commission File
No. 333-16035) of our report, dated January 31, 1997, with respect to the
financial statements of MedAmicus, Inc., which appears in the Annual Report on
Form 10-KSB for the year ended December 31, 1996.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 17, 1997
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
MedAmicus, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of MedAmicus, Inc. (the Company)
as of December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for the years 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 audits 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 audits provide 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, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
January 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,205,783
<SECURITIES> 0
<RECEIVABLES> 1,354,539
<ALLOWANCES> 8,250
<INVENTORY> 1,203,372
<CURRENT-ASSETS> 3,815,744
<PP&E> 2,619,713
<DEPRECIATION> 1,477,554
<TOTAL-ASSETS> 5,021,012
<CURRENT-LIABILITIES> 2,130,013
<BONDS> 91,070
0
0
<COMMON> 40,668
<OTHER-SE> 2,759,261
<TOTAL-LIABILITY-AND-EQUITY> 5,021,012
<SALES> 5,659,522
<TOTAL-REVENUES> 5,659,522
<CGS> 3,509,497
<TOTAL-COSTS> 3,509,497
<OTHER-EXPENSES> 798,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,165
<INCOME-PRETAX> (1,071,115)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,071,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,071,115)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
