SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ___________
COMMISSION FILE NUMBER 0-19467
MEDAMICUS, INC.
(Exact name of small business issuer in its charter)
MINNESOTA 41-1533300
(State of Incorporation) (IRS Employer Identification No.)
15301 HIGHWAY 55 WEST, PLYMOUTH, MN 55447
(Address of principal executive office, including zip code)
(612) 559-2613
(Registrant's telephone number, including area code)
N/A
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
The number of shares of Registrant's Common Stock outstanding on March 31, 1997
was 4,066,774
Transitional Small Business Disclosure Format. Yes ___ No _X_
MEDAMICUS, INC.
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1997 and December 31, 1996 3
Statements of Operations for the three months ended March 31, 1997 and 1996 4
Statement of Shareholders' Equity for the three months ended March 31, 1997 4
Statements of Cash Flows for the three months ended March 31, 1997 and 1996 5
Condensed Notes to the Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-8
PART II. OTHER INFORMATION
ITEM 6(b). REPORTS ON FORM 8-K 8
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MEDAMICUS, INC.
BALANCE SHEETS
(UNAUDITED)
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MARCH 31, 1997 DECEMBER 31, 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,068,986 $ 1,205,783
Accounts receivable 1,038,593 1,346,289
Inventories 1,180,525 1,203,372
Prepaid expenses and other assets 53,494 60,300
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TOTAL CURRENT ASSETS 3,341,598 3,815,744
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PROPERTY AND EQUIPMENT:
Equipment 1,812,492 1,819,901
Office furniture, fixtures and computers 467,393 437,053
Leasehold improvements 363,950 362,759
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2,643,835 2,619,713
Less accumulated depreciation and amortization (1,588,601) (1,477,554)
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NET PROPERTY AND EQUIPMENT 1,055,234 1,142,159
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LONG-TERM INVESTMENTS, RESTRICTED 29,265 28,888
PATENT RIGHTS, NET OF ACCUMULATED AMORTIZATION OF
$107,963 AND $102,613, RESPECTIVELY 31,996 34,221
==============================================================================================
TOTAL ASSETS $ 4,458,093 $ 5,021,012
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 738,755 $ 782,783
Accounts payable 556,087 1,109,640
Accrued expenses 224,343 174,399
Current installments of note payable to customer 13,622 14,400
Current installments of capital lease obligations 38,670 48,791
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TOTAL CURRENT LIABILITIES 1,571,477 2,130,013
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LONG-TERM LIABILITIES:
Note payable to customer, less current installments 0 2,822
Capital lease obligations, less current intallments 79,572 88,248
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TOTAL LONG-TERM LIABILITIES 79,572 91,070
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TOTAL LIABILITIES 1,651,049 2,221,083
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SHAREHOLDERS' EQUITY:
Preferred stock-undesignated, authorized 1,000,000 0 0
shares, no shares issued or outstanding
Common stock-$.01 par value, authorized 9,000,000 40,668 40,668
shares, issued and outstanding 4,066,774 and 4,066,774
shares, respectively
Additional paid-in capital 8,515,636 8,515,636
Accumulated deficit (5,749,260) (5,756,375)
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TOTAL SHAREHOLDERS' EQUITY 2,807,044 2,799,929
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,458,093 $ 5,021,012
==============================================================================================
See accompanying condensed notes to financial statements
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MEDAMICUS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
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Sales $ 1,797,803 $ 1,233,946
Cost of sales 986,751 775,957
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GROSS PROFIT 811,052 457,989
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OPERATING EXPENSES:
Research and development 119,488 196,113
Selling, general and administrative 665,850 559,234
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TOTAL OPERATING EXPENSES 785,338 755,347
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OPERATING INCOME (LOSS) 25,714 (297,358)
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OTHER INCOME (EXPENSE):
Interest expense (24,611) (42,962)
Interest income 12,914 8,844
Other (6,902) (1,752)
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TOTAL OTHER INCOME (EXPENSE) (18,599) (35,871)
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NET INCOME (LOSS) $ 7,115 $ (333,228)
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NET INCOME (LOSS) PER SHARE $ 0.00 $ (0.10)
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WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 4,177,246 3,444,620
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See accompanying condensed notes to financial statements
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MEDAMICUS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
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Common Stock Additional
----------------------- Paid In Accumulated
Shares Amount Capital Deficit Total
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BALANCES AT DECEMBER 31, 1996 4,066,774 $40,668 $8,515,636 $(5,756,375) $2,799,929
Net income for the three month period ended 3/31/97 0 0 0 7,115 7,115
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BALANCES AT MARCH 31, 1997 4,066,774 $40,668 $8,515,636 $(5,749,260) $2,807,044
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See accompanying condensed notes to financial statements
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MEDAMICUS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,115 $ (333,228)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 116,397 84,346
Interest accretion on notes payable to private investors 0 22,037
Interest added to investments (377) 0
Changes in operating assets and liabilities:
Accounts receivable 307,696 (215,129)
Inventories 22,847 (181,685)
Prepaid expenses and other assets 6,806 6,114
Accounts payable (553,553) 284,378
Accrued expenses 49,944 (26,047)
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NET CASH USED IN OPERATING ACTIVITIES (43,125) (359,214)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of retirements (24,122) (119,263)
Additions to patent rights (3,125) (910)
Sale of available-for-sale marketable securities, including sales of securities
which matured 0 996,145
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (27,247) 875,972
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (18,797) (13,078)
Proceeds from exercise of stock options 0 20,400
Payments on notes payable to private investors 0 (500,000)
Proceeds from note payable to bank (44,028) 506,545
Payments on note payable to customer (3,600) (3,600)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (66,425) 10,267
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (136,797) 527,025
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,205,783 143,273
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,068,986 $ 670,298
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 24,611 $ 20,925
See accompanying condensed notes to financial statements
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CONDENSED NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements included in this Form 10-QSB have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to such rules and
regulations, although management believes the disclosures are adequate to make
the information presented not misleading. These statements should be read in
conjunction with the Company's annual report on Form 10-KSB for the year ended
December 31, 1996, filed by the Company with the Securities and Exchange
Commission.
The financial statements presented herein as of March 31, 1997 and for the three
months ended March 31, 1997 and 1996 reflect, in the opinion of management, all
material adjustments consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position, results of operations and
cash flows for these interim periods.
2. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out
(FIFO) basis, or market. Inventories consist of the following:
MARCH 31, 1997 DECEMBER 31, 1996
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Purchased parts and subassemblies $ 679,024 $ 655,584
Work in process 324,667 412,520
Finished goods 176,834 135,268
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$ 1,180,525 $ 1,203,372
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3. NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is determined by dividing the net loss by the
weighted average number of shares of common stock outstanding and the dilutive
effect of common stock equivalents. Common stock equivalents have been excluded
from the 1996 calculation of net loss per share since they are antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information that
the Company's management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition. This discussion
should be read in conjunction with the accompanying financial statements and
footnotes.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Total revenues were $1,797,803 for the three months ended March 31, 1997
compared to $1,233,946 for the three months ended March 31, 1996, representing a
45.7% increase. The increase was primarily due to increased vessel introducer
sales to Medtronic, and less so to increased sales of transducer products. Sales
of vessel introducers, primarily to Medtronic and Bard Access Systems under
exclusive distribution arrangements, were $1,153,980 for the three months ended
March 31, 1997, compared to $854,967 for the three months ended March 31, 1996.
This increase is primarily due to Medtronic rebuilding its inventories of
introducers which were depleted during the third quarter of 1996 because of a
component supply problem. Medtronic has been supplying this component to the
Company, purchased from another supplier, for use in the introducer kits sold to
Medtronic. The Company has developed its own version of the component and
Medtronic has approved full market release on all sizes of the component which
will give the Company full control over all component purchases in the future.
The Company expects introducer sales to decline in the second quarter of 1997,
as compared to the first quarter, to levels consistent with Medtronic's normal
sell-through to end user customers.
Contract manufacturing sales were $187,240 for the three months ended March 31,
1997, compared to $119,749 for the three months ended March 31, 1996. One of the
Company's contract manufacturing customers placed larger orders than expected in
the first quarter of 1997. However, this customer also informed the Company that
its sales of the product have not met forecast and that they will not be placing
any additional orders for product until the third quarter at the earliest. The
Company expects to see contract manufacturing sales drop significantly in the
second and third quarters.
Sales of the Company's fiber optic pressure sensing catheter and monitor
transducer products were $456,583 for the three months ended March 31, 1997,
compared to $259,230 for the three months ended March 31, 1996. Monitor sales
increased 50.8% or $107,725 and catheter and accessory sales increased 290.0% or
$89,629 over the comparable period. The Company has continued to actively market
the upgraded version of its LuMax(TM) System into the gynecology and urology
office markets by adding sales management and attending major trade shows.
Total gross profit increased from $457,989 for the three months ended March 31,
1996, to $811,052 for the three months ended March 31, 1997, an increase of
77.1%. Total gross profit as a percent of sales increased from 37.1% to 45.1% in
such periods. The gross profit percentage on vessel introducers and contract
manufacturing totaled 57.5% for the three months ended March 31, 1997, compared
to 42.7% for the three months ended March 31, 1996. The increase in the gross
profit percentage on vessel introducers and contract manufacturing was primarily
due to increased sales to Medtronic, which resulted in the existing overhead
being allocated over more units. Additionally, the Company benefited from
increased profit margins on its sales to Medtronic as it transitioned from using
components supplied by Medtronic to using its own components. The Company will
be lowering prices to Medtronic in May 1997 which will result in lower gross
margin percentages to the Company in the second quarter.
For fiber optic products, the gross profit percentage totaled 8.6% or $39,422
for the three month period ended March 31, 1997 compared to 16.2% or $42,077 for
the three month period ended March 31, 1996. This decrease is due to several
factors. First, the Company has increased its manufacturing capacity and
spending in anticipation of increased LuMax sales which have developed more
slowly than expected. Second, the Company has been experiencing some catheter
manufacturing yield issues which have resulted in a larger than anticipated
amount of scrap during the first quarter of 1997. The Company is focusing its
efforts on resolving these yield issues, but does not expect to see improvement
until the third quarter of 1997. Finally, margins have decreased due to
refurbishing costs on demo 4114 LuMax Systems for sale in the marketplace as
used equipment. The Company expects to refurbish additional systems in the
second quarter which will negatively impact gross profit. The Company expects
gross profit in the fiber optic business to improve in the future as the Company
increases sales and better utilizes its capacity.
Total research and development expenditures were $119,488 or 6.6% of sales for
the three months ended March 31, 1997, compared to $196,113 or 15.9% of sales
for the three months ended March 31, 1996. This decrease is due to lower
spending on the development of the LuMax system during the first quarter of 1997
compared to the first quarter of 1996.
Selling, general and administrative expenses increased from $559,234 for the
three months ended March 31, 1996, to $665,850 for the three months ended March
31, 1997. Sales and marketing expenses increased $89,984 for the three months
ended March 31, 1997 over the comparable period in 1996 primarily because of
increased salary and commission expense. The Company hired a Vice President of
Sales and Marketing and a regional sales manager which were not in place during
the first quarter of 1996. Commission expense increased during the comparable
periods due to increased sales activity. General and administrative expenses
increased $16,632 for the first three months of 1997 over the comparable period
in 1996. This increase is primarily due to additional spending on outside
consultants to provide MIS support for the Company.
Interest expense decreased from $42,962 for the three months ended March 31,
1996 to $24,611 for the three months ended March 31, 1997. This decrease can be
attributed to the fact that the Company prepaid the $500,000 notes payable to
private investors in the first quarter of 1996 which resulted in the
recognition, as interest expense, of the remaining unamortized discount related
to the notes.
As a result, the Company achieved net income of $7,115 or $.00 per share for the
three months ended March 31, 1997, compared to a net loss of $333,228 or $.10
per share for the three months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three months ended March 31, 1997
was $43,125, consisting primarily of a decrease in accounts payable of $553,553,
offset by a decrease in accounts receivable of $307,696 and non-cash expenses of
$116,397. The Company saw a decrease in accounts receivable during the first
quarter of 1997 primarily due to increased collections from its LuMax customers
and increased sales to Medtronic which resulted in faster payments. The Company
used the cash from accounts receivable and a portion of its money market account
to pay down accounts payable during the quarter. The Company still anticipates
inventory and receivables to increase in 1997 if sales of the fiber optic
products materialize as expected.
Net cash used in investing activities for the three months ended March 31, 1997
was $27,247. Equipment was purchased totaling $24,122 and the Company had
additions to patent rights totaling $3,125 during the period.
Net cash used in financing activities for the three months ended March 31, 1997
was $66,425. The Company made principal debt payments of $22,397 during the
period and had additional borrowings on the line of credit totaling $44,028.
As a result, the Company's cash and cash equivalents and marketable securities
were $1,068,986 as of March 31, 1997 compared to $1,205,783 at December 31,
1996. Working capital increased from $1,685,731 as of December 31, 1996 to
$1,770,121 as of March 31, 1997.
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.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation 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; patent and government regulation matters and the Risk Factors included
in Form 8-K filed with the Securities and Exchange Commission on November 13,
1996.
PART II - OTHER INFORMATION
ITEM 6(b) - REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized:
MEDAMICUS, INC.
Date: May 2, 1997 By: /s/ James D. Hartman
President, Chief Executive Officer and
Chief Financial Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-30-1997
<CASH> 1,068,986
<SECURITIES> 0
<RECEIVABLES> 1,045,360
<ALLOWANCES> 6,767
<INVENTORY> 1,180,525
<CURRENT-ASSETS> 3,341,598
<PP&E> 2,643,835
<DEPRECIATION> 1,588,601
<TOTAL-ASSETS> 4,458,093
<CURRENT-LIABILITIES> 1,571,477
<BONDS> 79,572
0
0
<COMMON> 40,668
<OTHER-SE> 2,766,376
<TOTAL-LIABILITY-AND-EQUITY> 4,458,093
<SALES> 1,797,803
<TOTAL-REVENUES> 1,797,803
<CGS> 986,751
<TOTAL-COSTS> 986,751
<OTHER-EXPENSES> 119,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,611
<INCOME-PRETAX> 7,115
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,115
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
