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 June 30, 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 June 30, 1998
was 4,112,274
Transitional Small Business Disclosure Format. Yes ____ No __X__
<PAGE>
MEDAMICUS, INC.
INDEX
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Page#
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1998 and December 31, 1997 3
Statements of Operations for the three and six months ended June 30,
1998 and 1997 4
Statement of Shareholders' Equity for the six months ended June 30, 1998 4
Statements of Cash Flows for the six months ended June 30, 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 6-9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 6(a). EXHIBITS 10
ITEM 6(b). REPORTS ON FORM 8-K 10
<PAGE>
MEDAMICUS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 880,889 $ 1,102,490
Accounts receivable 1,195,999 1,004,939
Inventories 1,299,099 1,170,289
Prepaid expenses and other assets 182,682 96,423
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TOTAL CURRENT ASSETS 3,558,669 3,374,141
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PROPERTY AND EQUIPMENT:
Equipment 2,094,384 1,942,072
Office furniture, fixtures and computers 539,195 502,806
Leasehold improvements 363,950 363,950
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2,997,529 2,808,828
Less accumulated depreciation and amortization (2,167,301) (1,940,914)
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NET PROPERTY AND EQUIPMENT 830,228 867,914
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LONG-TERM INVESTMENTS, RESTRICTED 19,786 19,296
PATENT RIGHTS, NET OF ACCUMULATED AMORTIZATION OF
$135,502 AND $124,319, RESPECTIVELY 9,702 18,202
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TOTAL ASSETS $ 4,418,385 $ 4,279,553
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 1,172,420 $ 659,240
Accounts payable 520,416 607,029
Accrued expenses 182,828 208,112
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 1,913,500 1,515,039
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LONG-TERM LIABILITIES:
Capital lease obligations, less current intallments 27,111 47,190
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TOTAL LONG-TERM LIABILITIES 27,111 47,190
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TOTAL LIABILITIES 1,940,611 1,562,229
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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 (6,141,491) (5,901,941)
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TOTAL SHAREHOLDERS' EQUITY 2,477,774 2,717,324
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,418,385 $ 4,279,553
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</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
<PAGE>
MEDAMICUS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,939,203 $ 1,771,095 $ 3,690,955 $ 3,568,898
Cost of sales 1,125,470 985,307 2,179,242 1,972,058
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GROSS PROFIT 813,733 785,788 1,511,713 1,596,840
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OPERATING EXPENSES:
Research and development 128,757 115,970 251,281 235,458
Selling, general and administrative 758,717 718,775 1,467,433 1,384,625
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TOTAL OPERATING EXPENSES 887,474 834,745 1,718,714 1,620,083
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OPERATING LOSS (73,741) (48,957) (207,001) (23,243)
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OTHER INCOME (EXPENSE):
Interest expense (25,680) (22,792) (49,019) (47,403)
Interest income 11,192 11,793 24,520 24,707
Other (2,113) (5,820) (8,050) (12,722)
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TOTAL OTHER INCOME (EXPENSE) (16,601) (16,819) (32,549) (35,418)
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NET LOSS $ (90,342) $ (65,776) $ (239,550) $ (58,661)
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BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.02) $ (0.06) $ (0.01)
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WEIGHTED AVERAGE SHARES OUTSTANDING 4,112,274 4,078,798 4,112,274 4,072,819
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</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
MEDAMICUS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid In Accumulated
Shares Amount Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1997 4,112,274 $ 41,123 $ 8,578,142 $(5,901,941) $ 2,717,324
Net loss for the six month period ended 06/30/98 0 0 0 (239,550) (239,550)
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BALANCES AT JUNE 30, 1998 4,112,274 $ 41,123 $ 8,578,142 $(6,141,491) $ 2,477,774
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</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
<PAGE>
MEDAMICUS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (239,550) $ (58,661)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 237,570 246,013
Interest added to investments (490) (759)
Common stock issued as sales incentive 0 3,028
Changes in operating assets and liabilities:
Accounts receivable (191,060) 216,895
Inventories (128,810) (976)
Prepaid expenses and other assets (86,259) 29,485
Accounts payable (86,613) (508,048)
Accrued expenses (25,284) 30,295
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (520,496) (42,728)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of retirements (188,701) (109,982)
Additions to patent rights (2,683) (3,126)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (191,384) (113,108)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (20,079) (31,747)
Proceeds from exercise of stock options 0 50,000
Proceeds from (payments on) note payable to bank 513,180 (145,901)
Payments on note payable to customer (2,822) (7,200)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 490,279 (134,848)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (221,601) (290,684)
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,102,490 1,205,783
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 880,889 $ 915,099
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 45,988 $ 41,614
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
<PAGE>
CONDENSED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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 June 30, 1998 and for the three
and six months ended June 30, 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:
June 30, 1998 December 31, 1997
------------------------------------
Purchased parts and subassemblies $ 738,400 $ 638,542
Work in process 211,001 238,042
Finished goods 349,698 293,705
------------------------------------
$ 1,299,099 $ 1,170,289
====================================
3. NET INCOME (LOSS) PER SHARE
The Company computed net loss per common share by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period.
Common stock equivalents, consisting of stock options and warrants, have been
excluded from the calculation as their inclusion would have an antidilutive
effect. Therefore, basic and diluted loss per share are the same in each period
presented.
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
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Total revenues were $3,690,955 for the six months ended June 30, 1998 compared
to $3,568,898 for the six months ended June 30, 1997, representing a 3.4%
increase. Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $1,984,364 for the six months ended June 30,
1998, compared to $2,118,063 for the six months ended June 30, 1997,
representing a 6.3% decrease. This decrease was primarily due to Medtronic's
inventory build during the first quarter of 1997 and price concessions passed
along to Medtronic in the second and third quarters of 1997 which have continued
in 1998.
Contract manufacturing sales were $330,901 for the six months ended June 30,
1998, compared to $272,504 for the six months ended June 30, 1997, representing
a 21.4% increase. This increase is primarily due to the Company's existing
customer increasing the size of its orders and the addition of another contract
manufacturing customer during the second quarter of 1998. The Company also does
some contract research and development work periodically for Medtronic and
realized sales of $40,786 for the six months ended June 30, 1998 compared to
<PAGE>
$14,467 for the six months ended June 30, 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 $1,334,904 for the six months ended June 30, 1998,
compared to $1,163,864 for the six months ended June 30, 1997, representing a
14.7% increase. Monitor sales decreased 6.3% or $53,234, catheter sales
increased 69.2% or $208,304 and accessory and service sales increased 70.7% or
$15,970 over the comparable period. Monitor sales for both the three and six
month period ending June 30, 1998 were down primarily because the Company did
not get its normal boost in monitor sales during the second quarter of 1998 from
its two largest shows of the year (ACOG, AUA). Normally these shows are held in
mid to late April which allows for time to follow up on leads and close sales
before the end of the quarter. In 1998, these shows were held in mid May and
early June which left little time to close sales before the end of the quarter.
The Company collected a greater number of leads from both of these shows in 1998
over 1997 and expects to benefit from increased monitor sales in the third
quarter as a result.
Total gross profit decreased from $1,596,840 for the six months ended June 30,
1997, to $1,511,713 for the six months ended June 30, 1998, a decrease of 5.3%.
Total gross profit as a percent of sales decreased from 44.7% to 41.0% in such
periods. The gross profit percentage on vessel introducers and contract
manufacturing totaled 54.6% for the six months ended June 30, 1997, compared to
48.4% in the six months ended June 30, 1998. The decrease in the gross profit
percentage on vessel introducers and contract manufacturing was primarily due to
Medtronic's inventory build during the first quarter of 1997 and the price
concessions passed along to Medtronic in the second and third quarters of 1997,
which have continued in 1998, in order to respond to competitive pressures they
were experiencing in the market place. For fiber optic products, the gross
profit percent totaled 27.8% for the six month period ended June 30, 1998
compared to 24.5% for the six month period ended June 30, 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 $251,281 or 6.8% of sales for
the six months ended June 30, 1998, compared to $235,458 or 6.6% of sales for
the six months ended June 30, 1997. The Company expects research and development
expenditures to increase both in amount and as a percentage of sales during the
third quarter as it continues to work on catheter enhancements and product line
extensions.
Selling, general and administrative expenses increased from $1,384,625 for the
six months ended June 30, 1997 to $1,467,433 for the six months ended June 30,
1998. Sales and marketing expenses increased $88,821 for the six months ended
June 30, 1998 over the comparable period in 1997 primarily because of increased
spending on salaries, travel and conventions. The Company hired two regional
sales managers in 1997 and saw increases in salaries and travel which were not
present during the full six-month period in 1997. The Company has also attended
a greater number of trade shows in 1998 compared to 1997. General and
administrative expenses, interest expense, interest income and other expenses
remained relatively unchanged during the comparable periods.
As a result, the Company incurred a net loss of $239,550 or $.06 per share for
the six months ended June 30, 1998, compared to a net loss of $58,661 or $.01
per share for the six months ended June 30, 1997.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Total revenues were $1,939,203 for the three months ended June 30, 1998 compared
to $1,771,095 for the three months ended June 30, 1997, representing a 9.5%
increase. Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $1,023,107 for the three months ended June 30,
1998, compared to $964,083 for the three months ended June 30, 1997,
representing a $59,024 increase. This increase was primarily due to increased
kit orders from Medtronic in 1998 over 1997. The Company expects to see
increased kit orders from Medtronic in the third quarter of 1998, as compared to
the third quarter of 1997.
Contract manufacturing sales were $215,896 for the three months ended June 30,
1998, compared to $85,264 for the three months ended June 30, 1997, representing
a $130,632 increase. This increase was primarily due to the factors discussed
above. The Company also does some contract research and development work
periodically for Medtronic
<PAGE>
and realized sales of $15,237 for the three months ended June 30, 1998 compared
to $14,467 for the three months ended June 30, 1997.
Sales of the Company's fiber optic pressure sensing catheter and monitor
transducer products were $684,963 for the three months ended June 30, 1998,
compared to $707,281 for the three months ended June 30, 1997, representing a
3.2% decrease. Monitor sales decreased 22.5% or $116,926, catheter sales
increased 48.9% or $84,843 and accessory and service sales increased 73.7% or
$9,765 in the three months ended June 30, 1998 over the comparable period in
1997, primarily due to the factors discussed above.
Total gross profit increased from $785,788 for the three months ended June 30,
1997, to $813,733 for the three months ended June 30, 1998, an increase of 3.6%.
Total gross profit as a percent of sales decreased from 44.4% in the three
months ended June 30, 1997 to 42.0% in the comparable period in 1998. The gross
profit percentage on vessel introducers and contract manufacturing totaled 48.0%
in the second quarter of 1998, compared to 50.8% in the second quarter of 1997,
primarily due to the factors discussed above. For fiber optic products, the
gross profit percent totaled 31.0% in the second quarter of 1998 compared to
34.7% in the second quarter of 1997, primarily due to the lower monitor sales in
the second quarter of 1998 which affected the gross profit dollars.
Total research and development expenditures were $128,757 or 6.6% of sales for
the three months ended June 30, 1998, compared to $115,970 or 6.6% of sales for
the three months ended June 30, 1997. The Company expects research and
development expenditures to increase both in amount and as a percentage of sales
during the third quarter as it continues to work on catheter enhancements and
product line extensions.
Selling, general and administrative expenses increased from $718,775 for the
three months ended June 30, 1997 to $758,717 for the three months ended June 30,
1998. Sales and marketing expenses increased $49,310 and general and
administrative expenses decreased $9,368 in the second quarter of 1998 compared
to the second quarter of 1997 primarily for the reasons discussed above.
Interest expense, interest income and other expenses remained relatively
unchanged during the comparable periods.
As a result, the Company incurred a net loss of $90,342 or $.02 per share for
the three months ended June 30, 1998, compared to a net loss of $65,776 or $.02
per share for the three months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30, 1998 was
$520,496, consisting of a net loss of $239,550 less adjustments for depreciation
and amortization of $237,570 and interest accretion of $490. In addition, cash
was used to fund net changes in operating assets and liabilities of $518,026.
The Company saw an increase in accounts receivable during the first six months
of 1998 primarily due to a larger percentage of sales being made to customers
purchasing the Company's fiber optic pressure sensing products. These customers
typically take longer to pay their bills compared to Medtronic which has led to
the increase in accounts receivable. The Company also saw an increase in
inventory during the first six months of 1998 primarily due to the Company's
response to Medtronic's increased orders and lower than expected monitor sales
in the second quarter. The Company also utilized its line of credit to pay down
payables and prepay some items in order to help meet the minimum interest
requirement under its line of credit.
Net cash used in investing activities for the six months ended June 30, 1998 was
$191,384. The Company purchased $188,701 of equipment during the period and had
additions to patent rights of $2,683.
Net cash provided by financing activities for the six months ended June 30, 1998
was $490,279. The Company increased its usage on the credit line by $513,180
during the period and had a balance due on the line of $1,172,420 as of June 30,
1998. The Company used the line of credit aggressively during the first six
months of 1998 in order to meet the minimum interest requirement. The Company
also made principal debt payments totaling $22,901.
As a result, the Company's cash and cash equivalents were $880,889 as of June
30, 1998 compared to $1,102,490 at December 31, 1997. Working capital decreased
from $1,859,102 as of December 31, 1997 to $1,645,169 as of June 30, 1998.
<PAGE>
On June 17, 1998, the Company signed a one year extension through June 30, 1999
on its revolving line of credit with a financial institution. The line was
increased from $1,200,000 to $1,500,000 and the agreement calls for interest at
the rate of 1.00% over the financial institution's base rate with no minimum
interest due. The availability under the line is subject to borrowing base
requirements, and advances are at the discretion of the lender. The line is
secured by substantially all of the Company's assets.
If sales estimates and working capital needs meet the Company's projections, the
Company believes its available cash and investments, along with borrowing
availability under its line of credit will be sufficient to meet the Company's
anticipated operating expenses and cash requirements for the foreseeable future.
If the sales estimates are not realized or working capital requirements exceed
those projected, the Company may need to secure additional capital or, if
capital is not available, to curtail its marketing efforts.
The Company has investigated the impact of the Year 2000 issue on both its own
internal information systems and the products it develops, markets and sells.
During 1997, the Company purchased, from a world-wide supplier and developer of
information systems, an enterprise-wide information system with written
assurance from the developer that the system will correctly function across the
year 2000. During 1997, the Company also reviewed all of the products it
develops, markets and sells, as well as the raw materials and subassemblies
required to manufacture them, and believes that there are no Year 2000 issues.
The Company has not investigated its suppliers progress in dealing with the Year
2000 issue. The Company does not conduct any business with its suppliers using
EDI technology, so the primary risk associated with its suppliers is in their
ability to deliver materials to the Company in a timely manner. Because of the
diversity of sources available for the Company's raw materials and
subassemblies, the Company believes that the Year 2000 issue will not have a
material adverse effect on the Company's financial position, operations or cash
flow, however there can be no assurance that that will be the case.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a). The Company held its annual meeting of shareholders on April 30,
1998.
(b). The Company solicited proxies from its shareholders to vote on
the following two items:
* To set the number of directors at five and elect five
directors for a term of one year
* To ratify the appointment of independent auditors for the
current fiscal year
The vote counts were as follows (4,112,274 shares outstanding):
- ---------------------- ----------- ---------- ----------- ----------- ----------
FOR WITHHOLD AGAINST ABSTAIN NO VOTE
- ---------------------- ----------- ---------- ----------- ----------- ----------
ELECTION OF DIRECTORS
- ---------------------- ----------- ---------- ----------- ----------- ----------
James D. Hartman 3,282,701 25
- ---------------------- ----------- ---------- ----------- ----------- ----------
Richard W. Kramp 3,278,751 3,975
- ---------------------- ----------- ---------- ----------- ----------- ----------
Richard L. Little 3,278,751 3,975
- ---------------------- ----------- ---------- ----------- ----------- ----------
Richard F. Sauter 3,278,751 3,975
- ---------------------- ----------- ---------- ----------- ----------- ----------
Ted K. Schwarzrock 3,278,751 3,975
- ---------------------- ----------- ---------- ----------- ----------- ----------
- ---------------------- ----------- ---------- ----------- ----------- ----------
RATIFY AUDITORS 3,282,201 525
- ---------------------- ----------- ---------- ----------- ----------- ----------
<PAGE>
ITEM 6(a) - EXHIBITS
10.1 Second Amendment to Credit and Security Agreement
10.2 Third Amendment to Credit and Security Agreement
10.3 Revolving Note Agreement
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: August 4, 1998 By: /s/ James D. Hartman
President, Chief Executive Officer and
Chief Financial Officer
EXHIBIT INDEX
- --------------- ------------------------------------------------------ ---------
EXHIBIT # DESCRIPTION PAGE
- --------------- ------------------------------------------------------ ---------
10.1 Second amendment to credit and security agreement,
dated May 21, 1998, between the Company and Norwest
Credit, Inc.
- --------------- ------------------------------------------------------ ---------
10.2 Third amendment to credit and security agreement,
dated June 17, 1998, between the Company and Norwest
Credit, Inc.
- --------------- ------------------------------------------------------ ---------
10.3 Revolving note agreement, dated June 17, 1998, between
the Company and Norwest Credit, Inc.
- --------------- ------------------------------------------------------ ---------
EXHIBIT 10.1
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Second Amendment, dated as of May 21, 1998, is made by and
between MEDAMICUS, INC., a Minnesota corporation (the "Borrower"), and NORWEST
CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and Security
Agreement dated as of March 5, 1996, as amended by First Amendment to Credit and
Security Agreement dated as of June 24, 1997 (as amended, the "Credit
Agreement"). Capitalized terms used in these recitals have the meanings given to
them in the Credit Agreement unless otherwise specified.
The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Second Amendment
which are defined in the Credit Agreement shall have the same meanings as
defined therein, unless otherwise defined herein. In addition, Section 1.1 of
the Credit Agreement is amended by adding or amending, as the case may be, the
following definitions:
"'Second Amendment' means that certain Second Amendment to Credit
and Security Agreement, dated as of May 21, 1998."
2. Book Net Worth Covenant. Section 6.7 of the Credit Agreement is
hereby amended in its entirety and replaced with the following:
"Section 6.7 Minimum Book Net Worth. The Borrower will at all times
maintain during each period described below, its Book Net Worth (on an
unconsolidated, Borrower-only basis), determined as of the end of each
month, of at least the amount set forth opposite such period:
------------------------------ ------------------------------
PERIOD MINIMUM BOOK NET WORTH
------------------------------ ------------------------------
April 1, 1998 through
June 30, 1998 $2,400,000
------------------------------ ------------------------------
3. New Compliance Certificate. Attached hereto as Exhibit A is the
revised form of Compliance Certificate.
<PAGE>
4. No Other Changes. Except as explicitly amended by this Second
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
5. Conditions Precedent. This Second Amendment shall be effective
when the Lender shall have received an executed original hereof, together with
such other matters as the Lender may require, each in substance and form
acceptable to the Lender in its sole discretion.
6. Representations and Warranties. The Borrower hereby represents
and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to execute
this Second Amendment and to perform all of its obligations hereunder, and
this Second Amendment has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Second Amendment have been duly authorized by all necessary corporate
action and do not (i) require any authorization, consent or approval by
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the articles
of incorporation or by-laws of the Borrower, or (iii) result in a breach
of or constitute a default under any indenture or loan or credit agreement
or any other agreement, lease or instrument to which the Borrower is a
party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
7. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
8. No Waiver. The execution of this Second Amendment and acceptance
of any documents related hereto shall not be deemed to be a waiver of any
Default or Event of Default under the Credit Agreement or breach, default or
event of default under any
<PAGE>
Security Document or other document held by the Lender, whether or not known to
the Lender and whether or not existing on the date of this Second Amendment.
9. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Second Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
10. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Second Amendment and the documents and instruments incidental hereto. The
Borrower hereby agrees that the Lender may, at any time or from time to time in
its sole discretion and without further authorization by the Borrower, make a
loan to the Borrower under the Credit Agreement, or apply the proceeds of any
loan, for the purpose of paying any such fees, disbursements, costs and
expenses.
11. Miscellaneous. This Second Amendment may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the date first written above.
NORWEST CREDIT, INC. MEDAMICUS, INC.
By By
----------------------------------- ----------------------------------
Roger A. Pfiffner James Hartman
Its Assistant Vice President Its President
<PAGE>
Exhibit A to Second Amendment to Credit
and Security Agreement
COMPLIANCE CERTIFICATE
To: Diane G. Conley
Norwest Credit, Inc.
Date: __________________, 199___
Subject: MedAmicus, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of
March 5, 1996, as amended by First Amendment to Credit and Security Agreement
dated as of June 24, 1997 (as amended, the "Credit Agreement"), attached are the
financial statements of MedAmicus, Inc. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Book Net Worth. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________, which |_| satisfies |_| does not satisfy the requirement
that such amount be not less than $_____________ on the Reporting Date as
set forth in table below:
<PAGE>
PERIOD MINIMUM BOOK NET WORTH
------ ----------------------
April 1, 1998 through
June 30, 1998 $2,400,000
Attached hereto are all relevant facts in reasonable
detail to evidence, and the computations of the financial covenants
referred to above. These computations were made in accordance with
GAAP.
MEDAMICUS, INC.
By
-------------------------------
Its Chief Financial Officer
EXHIBIT 10.2
THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Third Amendment, dated as of June 17, 1998, is made by and
between MEDAMICUS, INC., a Minnesota corporation (the "Borrower"), and NORWEST
CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and Security
Agreement dated as of March 5, 1996, as amended by First Amendment to Credit and
Security Agreement dated as of June 27, 1997 and by Second Amendment to Credit
and Security Agreement dated as of May __, 1998 (as amended, the "Credit
Agreement"). Capitalized terms used in these recitals have the meanings given to
them in the Credit Agreement unless otherwise specified.
The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein. In addition, Section 1.1 of the Credit
Agreement is amended by adding or amending, as the case may be, the following
definitions:
"'Borrowing Base' means, at any time and subject to change from time
to time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) the sum of
(i) 85% of Eligible Accounts, and
(ii) the lesser of (i) the Fixed Asset Percentage of Eligible
Fixed Assets or (ii) $233,000."
"'Eligible Fixed Assets' means the forced liquidation value of the
Borrower's Equipment, except that Equipment not subject to a duly
perfected security interest in favor of the Lender or which is subject to
any lien, security interest or claim in favor
<PAGE>
of any Person other than the Lender, shall not in any event be deemed
Eligible Fixed Assets."
"'Fixed Asset Percentage' means (i) 75% from the date of the Third
Amendment to January 30, 1999; and (ii) beginning on January 31, 1999 and
on the last day of each month thereafter the percentage will decrease by
1% each month.
"'Floating Rate' means an annual rate equal to the sum of the Base
Rate plus one percent (1.0%) which annual rate shall change when and as
the Base Rate changes."
"'Maturity Date' means June 30, 1999."
"'Maximum Line' means $1,500,000."
"'Note' means the Borrower's Revolving Note dated as of the date of
the Third Amendment, in the form attached as Exhibit A to the Third
Amendment."
"'Third Amendment' means that certain Third Amendment to Credit and
Security Agreement, dated as of June 17, 1998, by and between the Borrower
and the Lender."
2. Liquid Asset Requirement. Section 6.10 of the Credit Agreement is
hereby amended in its entirety and replaced with the following:
"Section 6.10 Liquid Asset Requirement.
(a) The Borrower shall at all times own and maintain in an
account or accounts with Norwest Investment Services, Inc. ("NISI"),
unencumbered Liquid Assets, free and clear of any right of set off
and of any related margin account debt. The fair market value of
such Liquid Assets must be at least $250,000.
(b) To facilitate the monitoring of the status of the Liquid
Asset requirement, the Borrower shall deliver to the Lender the
monthly statements for such NISI accounts for the prior month
stating the respective fair market values of the securities in the
accounts upon receipt thereof, and shall deliver such other
information on the Borrower's accounts at NISI as the Lender may
request. The Borrower hereby authorizes the Lender to directly
contact NISI in order to obtain information on the Borrower's
accounts at NISI."
<PAGE>
3. No Other Changes. Except as explicitly amended by this Amendment,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.
4. Conditions Precedent. This Amendment shall be effective when the
Lender shall have received an executed original hereof, together with each of
the following, each in substance and form acceptable to the Lender in its sole
discretion:
(a) The replacement note substantially in the form of Exhibit A
hereto, duly executed on behalf of the Borrower (the "Replacement Note").
(b) A Certificate of the Secretary of the Borrower certifying as to
(1) the resolutions of the board of directors of the Borrower approving
the execution and delivery of this Third Amendment and the Replacement
Note, (2) the fact that the Articles of Incorporation and Bylaws of the
Borrower, which were certified and delivered to the Lender pursuant to the
Certificate of the Borrower's Secretary dated as of March 26, 1996,
continue in full force and effect and have not been amended or otherwise
modified except as set forth in Certificates previously delivered or the
Certificate to be delivered, and (3) certifying that the officers and
agents of the Borrower who have been certified to the Lender, pursuant to
the Certificate of Authority of the Borrower's Secretary dated as of March
26, 1996, as being authorized to sign and to act on behalf of the Borrower
continue to be so authorized or setting forth the sample signatures of
each of the officers and agents of the Borrower authorized to execute and
deliver this Third Amendment and all other documents, agreements and
certificates on behalf of the Borrower.
(c) Such other matters as the Lender may require.
5. Representations and Warranties. The Borrower hereby represents
and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and the Replacement Note and to perform all of its
obligations hereunder, and this Amendment and the Replacement Note have
been duly executed and delivered by the Borrower and constitute the legal,
valid and binding obligation of the Borrower, enforceable in accordance
with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Replacement Note have been duly authorized by all
necessary corporate action and do not (i) require any authorization,
consent or approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation or of any
<PAGE>
order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or by-laws
of the Borrower, or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected.
(c) All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
6. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby. Upon the
satisfaction of each of the conditions set forth in paragraph 4 hereof, the
definition of "Note" and all references thereto in the Credit Agreement shall be
deemed amended to describe the Replacement Note, which Note shall be issued by
the Borrower to the Lender in replacement, renewal and amendment, but not in
repayment, of the Note.
7. No Waiver. The execution of this Amendment and acceptance of the
Replacement Note and any documents related hereto shall not be deemed to be a
waiver of any Default or Event of Default under the Credit Agreement or breach,
default or event of default under any Security Document or other document held
by the Lender, whether or not known to the Lender and whether or not existing on
the date of this Amendment.
8. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
9. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all
<PAGE>
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrower specifically agrees to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrower, make a loan to the Borrower under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.
10. Miscellaneous. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the date first written above.
NORWEST CREDIT, INC. MEDAMICUS, INC.
By By
----------------------------------- ----------------------------------
Roger A. Pfiffner James D. Hartman
Its Vice President Its President
EXHIBIT 10.3
Exhibit A to
Third Amendment to
Credit and Security Agreement
REVOLVING NOTE
$1,500,000
Minneapolis, Minnesota
June 17, 1998
For value received, the undersigned, MEDAMICUS, INC., an Minnesota
corporation (the "Borrower"), hereby promises to pay ON DEMAND, or if demand is
not sooner made, as provided under the Credit Agreement (defined below) to the
order of NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of One Million Five Hundred
Thousand Dollars ($1,500,000) or, if less, the aggregate unpaid principal amount
of all Advances made by the Lender to the Borrower under the Credit and Security
Agreement dated as of March 5, 1996 by and between the Lender and the Borrower
(as the same may be amended, supplemented or restated from time to time, the
"Credit Agreement") together with interest on the principal amount hereunder
remaining unpaid from time to time (computed on the basis of actual days elapsed
in a 360-day year) from the date of the initial Advance until this Note is fully
paid at the rate from time to time in effect under the Credit Agreement.
This Note is issued in replacement of and in substitution for, but not in
payment of, that certain Revolving Note of the Borrower dated March 26, 1996,
payable to the order of the Lender in the principal amount of $1,200,000.
This Note is the Revolving Note as defined in the Credit Agreement
and is subject to the Credit Agreement.
MEDAMICUS, INC.
By
------------------------------------
------------------------------------
Its
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 880,889
<SECURITIES> 0
<RECEIVABLES> 1,198,214
<ALLOWANCES> 2,215
<INVENTORY> 1,299,099
<CURRENT-ASSETS> 3,558,669
<PP&E> 2,997,529
<DEPRECIATION> 2,167,301
<TOTAL-ASSETS> 4,418,385
<CURRENT-LIABILITIES> 1,913,500
<BONDS> 27,111
0
0
<COMMON> 41,123
<OTHER-SE> 2,436,651
<TOTAL-LIABILITY-AND-EQUITY> 4,418,385
<SALES> 3,690,955
<TOTAL-REVENUES> 3,690,955
<CGS> 2,179,242
<TOTAL-COSTS> 2,179,242
<OTHER-EXPENSES> 251,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,019
<INCOME-PRETAX> (239,550)
<INCOME-TAX> 0
<INCOME-CONTINUING> (239,550)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,550)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
