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, 1998
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, 1998
was 4,112,274
Transitional Small Business Disclosure Format. Yes ____ No __X__
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MEDAMICUS, INC.
INDEX
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Page #
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1998 and December 31, 1997 3
Statements of Operations for the three months ended March 31, 1998 and 1997 4
Statement of Shareholders' Equity for the three months ended March 31, 1998 4
Statements of Cash Flows for the three months ended March 31, 1998 and 1997 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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<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,038,109 $ 1,102,490
Accounts receivable 937,546 1,004,939
Inventories 1,218,168 1,170,289
Prepaid expenses and other assets 76,237 96,423
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TOTAL CURRENT ASSETS 3,270,060 3,374,141
PROPERTY AND EQUIPMENT:
Equipment 2,029,627 1,942,072
Office furniture, fixtures and computers 508,949 502,806
Leasehold improvements 363,950 363,950
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2,902,526 2,808,828
Less accumulated depreciation and amortization (2,052,264) (1,940,914)
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NET PROPERTY AND EQUIPMENT 850,262 867,914
LONG-TERM INVESTMENTS, RESTRICTED 19,539 19,296
PATENT RIGHTS, NET OF ACCUMULATED AMORTIZATION OF
$129,866 AND $124,319, RESPECTIVELY 13,705 18,202
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TOTAL ASSETS $ 4,153,566 $ 4,279,553
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 710,058 $ 659,240
Accounts payable 480,609 607,029
Accrued expenses 319,634 208,112
Current installments of note payable to customer 0 2,822
Current installments of capital lease obligations 37,836 37,836
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TOTAL CURRENT LIABILITIES 1,548,137 1,515,039
LONG-TERM LIABILITIES:
Capital lease obligations, less current intallments 37,313 47,190
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TOTAL LONG-TERM LIABILITIES 37,313 47,190
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TOTAL LIABILITIES 1,585,450 1,562,229
SHAREHOLDERS' EQUITY:
Preferred stock-undesignated, authorized 1,000,000 shares 0 0
Common stock-$.01 par value, authorized 9,000,000 shares 41,123 41,123
Additional paid-in capital 8,578,142 8,578,142
Accumulated deficit (6,051,149) (5,901,941)
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TOTAL SHAREHOLDERS' EQUITY 2,568,116 2,717,324
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,153,566 $ 4,279,553
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
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MEDAMICUS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
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Sales $ 1,751,752 $ 1,797,803
Cost of sales 1,053,772 986,751
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GROSS PROFIT 697,980 811,052
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OPERATING EXPENSES:
Research and development 122,524 119,488
Selling, general and administrative 708,716 665,850
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TOTAL OPERATING EXPENSES 831,240 785,338
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OPERATING INCOME (LOSS) (133,260) 25,714
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OTHER INCOME (EXPENSE):
Interest expense (23,339) (24,611)
Interest income 13,328 12,914
Other (5,937) (6,902)
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TOTAL OTHER INCOME (EXPENSE) (15,948) (18,599)
NET INCOME (LOSS) $ (149,208) $ 7,115
NET INCOME (LOSS) PER SHARE
Basic $ (0.04) $ 0.00
Diluted $ (0.04) $ 0.00
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
Basic 4,112,274 4,066,774
Diluted 4,112,274 4,177,246
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
MEDAMICUS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
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Common Stock Additional
------------------------- Paid In Accumulated
Shares Amount Capital Deficit Total
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BALANCES AT DECEMBER 31, 1997 4,112,274 $ 41,123 $ 8,578,142 $(5,901,941) $ 2,717,324
Net loss for the three month period ended 3/31/98 0 0 0 (149,208) (149,208)
BALANCES AT MARCH 31, 1998 4,112,274 $ 41,123 $ 8,578,142 $(6,051,149) $ 2,568,116
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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, 1998 MARCH 31, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (149,208) $ 7,115
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 116,897 116,397
Interest added to investments (243) (377)
Changes in operating assets and liabilities:
Accounts receivable 67,393 307,696
Inventories (47,879) 22,847
Prepaid expenses and other assets 20,186 6,806
Accounts payable (126,420) (553,553)
Accrued expenses 111,522 49,944
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NET CASH USED IN OPERATING ACTIVITIES (7,752) (43,125)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of retirements (93,698) (24,122)
Additions to patent rights (1,050) (3,125)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (94,748) (27,247)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (9,877) (18,797)
Proceeds from note payable to bank 50,818 (44,028)
Payments on note payable to customer (2,822) (3,600)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 38,119 (66,425)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (64,381) (136,797)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,102,490 1,205,783
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,038,109 $ 1,068,986
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 21,529 $ 24,611
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
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CONDENSED NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998
(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, 1997, filed by the Company with the Securities and Exchange
Commission.
The financial statements presented herein as of March 31, 1998 and for the three
months ended March 31, 1998 and 1997 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, 1998 DECEMBER 31, 1997
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Purchased parts and subassemblies $ 702,261 $ 638,542
Work in process 243,428 238,042
Finished goods 272,479 293,705
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$ 1,218,168 $ 1,170,289
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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 1998 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, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total revenues were $1,751,752 for the three months ended March 31, 1998
compared to $1,797,803 for the three months ended March 31, 1997, representing a
2.6% decrease. Sales of vessel introducers, primarily to Medtronic and Bard
Access Systems under exclusive distribution arrangements, were $961,257 for the
three months ended March 31, 1998, compared to $1,153,980 for the three months
ended March 31, 1997, representing a 16.7% decrease. This decrease was primarily
due to the fact that Medtronic rebuilt its inventories of introducers during the
first quarter of 1997 which were depleted at the end of 1996 because of a
component supply problem. The Company expects vessel introducer sales in the
second quarter of 1998 to be consistent with those in the first quarter of 1998.
Contract manufacturing sales were $115,005 for the three months ended March 31,
1998, compared to $187,240 for the three months ended March 31, 1997,
representing a 38.6% decrease. This decrease is primarily due to reduced orders
from the Company's existing contract manufacturing customer which has ordered
lesser quantities of product due to an overstocking problem. While this customer
has resumed placing orders with the Company, the orders are smaller than those
experienced in the past. The Company has procured another contract manufacturing
job with
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another company and its existing customer has increased its orders which should
result in an increase in contract manufacturing revenues during the second
quarter. The Company also does some contract research and development work
periodically for Medtronic and realized sales of $25,549 for the three months
ended March 31, 1998 compared to $0 for the three months ended March 31, 1997.
This contract research and development work is not expected to be a continuous
revenue item for the Company.
Sales of the Company's fiber optic pressure sensing catheter and monitor
transducer products were $649,941 for the three months ended March 31, 1998,
compared to $456,583 for the three months ended March 31, 1997, representing a
42.4% increase. Monitor sales increased 19.9% or $63,692 and catheter sales
increased 97.0% or $123,461 over the comparable period. The Company also saw
increases in its accessory and service sales totaling $6,205.
Total gross profit decreased from $811,052 for the three months ended March 31,
1997, to $697,980 for the three months ended March 31, 1998, a decrease of
13.9%. Total gross profit as a percent of sales decreased from 45.1% to 39.8% in
such periods. The gross profit percentage on vessel introducers and contract
manufacturing totaled 49.0% for the three months ended March 31, 1998, compared
to 57.5% for the three months ended March 31, 1997. The decrease in the gross
profit percentage on vessel introducers and contract manufacturing was primarily
due to two factors. First, the Company passed along price concessions to
Medtronic in the second and third quarters of 1997 in order to respond to
competitive pressures they were experiencing in the market place. Additionally,
because Medtronic placed larger orders in the first quarter of 1997 compared to
1998 to build their inventories, the Company was better able to absorb its
existing overhead costs in the first quarter of 1997 compared to 1998.
For fiber optic products, the gross profit percentage totaled 24.5% or $159,003
for the three month period ended March 31, 1998 compared to 8.6% or $39,422 for
the three month period ended March 31, 1997. This increase was primarily due to
better utilization of existing capacity during the first quarter of 1998 over
1997. The Company expects gross profit in the fiber optic business to improve in
the future as the Company increases sales and catheter yields, and better
utilizes its capacity.
Total research and development expenditures were $122,524 or 7.0% of sales for
the three months ended March 31, 1998, compared to $119,488 or 6.7% of sales for
the three months ended March 31, 1997. The Company does expect research and
development expenditures to increase both in amount and as a percentage of sales
during the second quarter as it continues to work on catheter yield improvements
and product line extensions.
Selling, general and administrative expenses increased from $665,850 for the
three months ended March 31, 1997, to $708,716 for the three months ended March
31, 1998. Sales and marketing expenses increased $39,511 for the three months
ended March 31, 1998 over the comparable period in 1997 primarily due to
increased commission expense due to increased sales activity. General and
administrative expenses, interest expense, interest income and other expenses
remained unchanged during the comparable periods.
As a result, the Company showed a net loss of $149,208 or $.04 per share for the
three months ended March 31, 1998, compared to a net income of $7,115 or $.00
per share for the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three months ended March 31, 1998
was $7,752, consisting of a net loss of $149,208, adjusted for non-cash items of
depreciation and amortization of $116,897, plus a net change in operating assets
and liabilities of $24,559.
Net cash used in investing activities for the three months ended March 31, 1998
was $94,748. Equipment was purchased totaling $93,698 and the Company had
additions to patent rights totaling $1,050 during the period.
Net cash provided by financing activities for the three months ended March 31,
1998 was $38,119. The Company made principal debt payments of $9,877, payments
on a note payable to a customer of $2,822 and had additional borrowings on the
line of credit totaling $50,818.
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As a result, the Company's cash and cash equivalents were $1,038,109 as of March
31, 1998 compared to $1,102,490 at December 31, 1997. Working capital decreased
from $1,859,102 as of December 31, 1997 to $1,721,923 as of March 31, 1998.
In March 1996, the Company obtained a $1,200,000 revolving line of credit with a
financial institution and on June 24, 1997, signed a one year extension through
June 30, 1998. 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 2.25% over the financial institution's base
rate with minimum interest due over the term of the agreement of $70,000. The
line is secured by substantially all of the Company's assets. On April 27, 1998,
the financial institution agreed to waive the book net worth covenant in the
revolving line agreement and reset the covenant for the remainder of the current
agreement. The Company anticipates that it will be able to extend the line of
credit when it expires in June 1998. If the financial institution decides not to
extend the agreement, depending on the level of cash flows generated from
operating activities in 1998, if any, additional capital may be required to fund
1998 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 contained in this quarterly report on Form 10-QSB,
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.
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.
By: /s/ James D. Hartman
Date: May 8, 1997 President, Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 1,038,109
<SECURITIES> 0
<RECEIVABLES> 940,080
<ALLOWANCES> 2,534
<INVENTORY> 1,218,168
<CURRENT-ASSETS> 3,270,060
<PP&E> 2,902,526
<DEPRECIATION> 2,052,264
<TOTAL-ASSETS> 4,153,566
<CURRENT-LIABILITIES> 1,548,137
<BONDS> 37,313
<COMMON> 41,123
0
0
<OTHER-SE> 2,526,993
<TOTAL-LIABILITY-AND-EQUITY> 4,153,566
<SALES> 1,751,752
<TOTAL-REVENUES> 1,751,752
<CGS> 1,053,772
<TOTAL-COSTS> 1,053,772
<OTHER-EXPENSES> 122,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,339
<INCOME-PRETAX> (149,208)
<INCOME-TAX> 0
<INCOME-CONTINUING> (149,208)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,208)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
