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 September 30, 1999
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 September 30,
1999 was 4,112,274
Transitional Small Business Disclosure Format. Yes ___ No _X_
1
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MEDAMICUS, INC.
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of September 30, 1999 and December 31, 1998 3
Statements of Operations for the three and nine months ended September 30, 1999 and 1998 4
Statement of Shareholders' Equity for the nine months ended September 30, 1999 4
Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 5
Condensed Notes to the Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6(a). EXHIBITS 12
ITEM 6(b). REPORTS ON FORM 8-K 12
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2
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PART I. - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BALANCE SHEETS (UNAUDITED)
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SEPTEMBER 30, 1999 DECEMBER 31, 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 895,104 $ 1,022,055
Accounts receivable 1,342,538 1,141,302
Inventories 1,481,596 1,314,726
Prepaid expenses and other assets 63,745 53,945
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TOTAL CURRENT ASSETS 3,782,983 3,532,028
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PROPERTY AND EQUIPMENT:
Equipment 2,312,501 2,130,171
Office furniture, fixtures and computers 627,541 566,191
Leasehold improvements 365,800 363,950
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3,305,842 3,060,312
Less accumulated depreciation and amortization (2,660,491) (2,382,686)
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NET PROPERTY AND EQUIPMENT 645,351 677,626
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PATENT RIGHTS, net of accumulated amortization of
$149,476 and $147,313, respectively 14,255 10,146
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TOTAL ASSETS $ 4,442,589 $ 4,219,800
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 1,122,528 $ 934,909
Accounts payable 424,142 394,385
Accrued expenses 365,355 273,458
Current installments of capital lease obligations 6,599 39,247
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TOTAL CURRENT LIABILITIES 1,918,624 1,641,999
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LONG-TERM LIABILITIES:
Capital lease obligations, less current installments 2,066 4,276
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TOTAL LIABILITIES 1,920,690 1,646,275
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock-undesignated, authorized 1,000,000 shares 0 0
Common stock-$.01 par value, authorized 9,000,000 shares; issued and
outstanding 4,112,274 shares in 1999 and 1998 41,123 41,123
Additional paid-in capital 8,578,142 8,578,142
Accumulated deficit (6,097,366) (6,045,740)
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TOTAL SHAREHOLDERS' EQUITY 2,521,899 2,573,525
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,442,589 $ 4,219,800
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
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STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
09/30/99 09/30/98 09/30/99 09/30/98
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Sales $ 2,275,999 $ 2,109,510 $ 6,762,654 $ 5,800,465
Cost of sales 1,310,234 1,207,234 3,578,177 3,386,476
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GROSS PROFIT 965,765 902,276 3,184,477 2,413,989
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OPERATING EXPENSES:
Research and development 254,793 187,802 698,108 439,083
Selling, general and administrative 779,162 673,774 2,489,515 2,141,207
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TOTAL OPERATING EXPENSES 1,033,955 861,576 3,187,623 2,580,290
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OPERATING INCOME (LOSS) (68,190) 40,700 (3,146) (166,301)
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OTHER INCOME (EXPENSE):
Interest expense (26,201) (26,187) (63,848) (75,206)
Interest income 9,583 9,986 27,369 34,506
Other (4,098) 663 (12,001) (7,387)
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TOTAL OTHER INCOME (EXPENSE) (20,716) (15,538) (48,480) (48,087)
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NET INCOME (LOSS) $ (88,906) $ 25,162 $ (51,626) $ (214,388)
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NET INCOME (LOSS) PER SHARE
Basic $ (0.02) $ 0.01 $ (0.01) $ (0.05)
Diluted $ (0.02) $ 0.01 $ (0.01) $ (0.05)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Basic 4,112,274 4,112,274 4,112,274 4,112,274
Diluted 4,112,274 4,124,175 4,112,274 4,112,274
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
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Common Stock Additional
------------------------- Paid-In Accumulated
NINE MONTHS ENDED SEPTEMBER 30, 1999 Shares Amount Capital Deficit Total
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BALANCES AT DECEMBER 31, 1998 4,112,274 $ 41,123 $ 8,578,142 $(6,045,740) $ 2,573,525
Net income for the nine month period ended 9/30/99 0 0 0 (51,626) (51,626)
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BALANCES AT SEPTEMBER 30, 1999 4,112,274 $ 41,123 $ 8,578,142 $(6,097,366) $ 2,521,899
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
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STATEMENTS OF CASH FLOWS (UNAUDITED)
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NINE MONTHS ENDED
09/30/99 09/30/98
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (51,626) $ (214,388)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 279,968 351,727
Interest added to investments 0 (704)
Changes in operating assets and liabilities:
Accounts receivable (201,236) (119,551)
Inventories (166,870) (79,432)
Prepaid expenses and other assets (9,800) 15,365
Accounts payable 29,757 (143,806)
Accrued expenses 91,897 83,270
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NET CASH USED IN OPERATING ACTIVITIES (27,910) (107,519)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of retirements (245,530) (167,446)
Additions to patent rights (6,272) (4,457)
Sale of available-for-sale marketable securities, including sales of securities
which matured 0 20,000
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NET CASH USED IN INVESTING ACTIVITIES (251,802) (151,903)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (34,858) (30,618)
Proceeds from (payments on) note payable to bank 187,619 25,339
Payments on note payable to customer 0 (2,822)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 152,761 (8,101)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (126,951) (267,523)
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,022,055 1,102,490
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 895,104 $ 834,967
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 59,578 $ 73,493
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SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
5
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CONDENSED NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(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, 1998, filed by the Company with the Securities and Exchange
Commission.
The financial statements presented herein as of September 30, 1999 and for the
three and nine months ended September 30, 1999 and 1998 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:
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SEPTEMBER 30, 1999 DECEMBER 31, 1998
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Purchased parts and subassemblies $ 891,478 $ 737,375
Work in process 256,445 274,289
Finished goods 333,673 303,062
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TOTAL INVENTORY $1,481,596 $1,314,726
================================================================================================================
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3. NET INCOME (LOSS) PER SHARE
Basic per-share amounts are computed, generally, by dividing net income or loss
by the weighted-average number of common shares outstanding. Diluted per-share
amounts assume the conversion, exercise, or issuance of all potential common
stock instruments unless the effect is anti-dilutive, thereby reducing the loss
or increasing the income per common share.
4. SEGMENT AND RELATED INFORMATION
The Company has two primary business units that comprise the internal reporting
structure for its management. These business units are the Vascular Delivery
Systems business unit and the Fiber Optic business unit which are defined below.
The Company allocates its general and administrative expenses, as well as
interest income, interest expense and other expenses evenly across both business
units.
VASCULAR DELIVERY SYSTEMS: This business segment consists of business activities
related to the development, manufacture and sale of vascular delivery products,
on an OEM basis, primarily to Medtronic and several other contract manufacturing
customers.
FIBER OPTIC: This business segment consists of business activities related to
the development, manufacture and sale of the Company's LuMax(TM) Cystometry
System and related supplies and accessories.
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Summarized financial information concerning the Company's reportable segments is
shown in the following table.
VASCULAR DELIVERY
QUARTER ENDED 9/30/99 SYSTEMS FIBER OPTIC TOTAL
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Revenues $ 1,450,508 $ 825,491 $ 2,275,999
Segment profit (loss) 400,366 (489,272) (88,906)
Total assets 2,136,574 2,306,015 4,442,589
Capital expenditures 56,256 8,170 64,426
Depreciation and amortization 25,359 70,784 96,143
Interest expense 13,101 13,100 26,201
Interest income 4,793 4,790 9,583
VASCULAR DELIVERY
QUARTER ENDED 9/30/98 SYSTEMS FIBER OPTIC TOTAL
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Revenues $ 1,410,638 $ 698,872 $ 2,109,510
Segment profit (loss) 507,059 (481,897) 25,162
Total assets 1,787,741 2,208,787 3,996,528
Capital expenditures 16,615 (37,870) (21,255)
Depreciation and amortization 33,916 80,241 114,157
Interest expense 13,094 13,093 26,187
Interest income 4,993 4,993 9,986
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
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
OVERVIEW
Total revenues were $6,762,654 for the nine months ended September 30, 1999
compared to $5,800,465 for the nine months ended September 30, 1998,
representing a 16.6% increase. Total gross profit increased from $2,413,989 for
the nine months ended September 30, 1998, to $3,184,477 for the nine months
ended September 30, 1999, representing a 31.9% increase. Total gross profit as a
percent of sales increased from 41.6% to 47.1% in such periods. Total research
and development expenditures were $698,108 or 10.3% of sales for the nine months
ended September 30, 1999, compared to $439,083 or 7.6% of sales for the nine
months ended September 30, 1998. Sales and marketing expenses increased from
$1,428,083 for the nine month period ended September 30, 1998 to $1,721,985 for
the nine month period ended September 30, 1999. General and administrative
expenses increased from $713,124 for the nine months ended September 30, 1998 to
$767,530 for the nine months ended September 30, 1999. The increase in general
and administrative expenses was primarily due to increased spending on MIS and
investor-relations activities. Interest income, interest expense and other
expenses remained relatively unchanged in total during the comparable periods.
As a result, the Company had a net loss of $51,626 or $.01 per share for the
nine months ended September 30, 1999, compared to a net loss of $214,388 or $.05
per share for the nine months ended September 30, 1998.
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VASCULAR DELIVERY SYSTEMS
Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $3,940,103 for the nine months ended September
30, 1999, compared to $3,223,891 for the nine months ended September 30, 1998,
representing a 22.2% increase. This increase was due to several factors. First,
Medtronic placed significant orders for product during the first four months of
1999 in order to build their inventories and their normal ordering levels have
been higher in 1999 compared to 1998. Second, the Company started shipping Left
Heart Delivery System kits to Medtronic during the third quarter. These kits,
co-developed by Medtronic and the Company, are used to deliver a pacing lead to
the left side of the heart. Finally, the Company shipped its first order of
coaxial dilator micro-introducers to a substantial new customer during the third
quarter. The Company recently received FDA clearance to market this new product.
The Company expects strong introducer sales to continue in the fourth quarter.
Contract manufacturing sales were $356,300 for the nine months ended September
30, 1999, compared to $474,946 for the nine months ended September 30, 1998.
This decrease was due to one of the Company's contract customers ordering lower
quantities of product during the comparable period. The Company expects this
customer to continue to order smaller quantities of goods for the balance of
1999. The Company also does some contract research and development work
periodically for Medtronic and realized sales of $86,600 for the nine months
ended September 30, 1999 compared to $67,852 for the nine months ended September
30, 1998.
The gross profit percentage on vessel introducers and contract manufacturing
totaled 51.2% for the nine months ended September 30, 1999, compared to 49.5%
for the nine months ended September 30, 1998. The increase in the gross profit
percentage on vessel introducers and contract manufacturing was primarily due to
the efficiencies realized with the larger volume of product during 1999.
Total research and development expenditures were $345,013 or 7.9% of sales for
the nine months ended September 30, 1999, compared to $128,345 or 3.4% of sales
for the nine months ended September 30, 1998. The Company increased its
engineering staff and has been working on a number of projects for Medtronic and
is also working on several new introducer product concepts. The Company expects
research and development expenditures in the fourth quarter to be consistent
with the first three quarters of 1999.
Selling expenses increased from $34,762 for the nine months ended September 30,
1998 to $93,570 for the nine months ended September 30, 1999. This increase was
due to several factors. First, commission expense has increased due to the
increase in sales. Second, the Company contracted with a second sales person for
the balance of 1999 to help with new sales of introducer products into the
non-pacing marketplace. Finally, the Company has attended more trade shows in
1999 and developed a brochure to help increase awareness of its product
offerings. The Company is intending to expand its customer base for these
products and has received a number of inquiries from customers attending these
shows. Any revenues related to these potential new customers would be minimal in
1999.
FIBER OPTIC
Sales of the Company's fiber optic pressure sensing products were $2,379,651 for
the nine months ended September 30, 1999, compared to $2,033,776 for the nine
months ended September 30, 1998, representing a 17.0% increase. Monitor sales
remained relatively flat and catheter sales increased 33.8% or $275,481 over the
comparable period. The Company also saw increases in its accessory and service
sales totaling $59,136.
Monitor sales remained flat, primarily due to the following: First, the Company
terminated its relationships with its indirect sales force on December 31, 1998
and started selling with a new ten person direct sales force in January 1999
which negatively impacted the comparable monitor sales during the first half of
1999. Second, the Company launched the LuMax Interface System late in the second
quarter. While the Company was successful placing the Interface in a number of
major institutions, sales of the LuMax Standalone System suffered due to the
time spent by the sales force learning the Interface. Finally, the Company
experienced some turnover in its direct sales force, which was resolved by
quarter end, leaving several territories with only minimal sales coverage for
portions of the quarter. The Company hopes to achieve more balanced LuMax sales
results in the fourth quarter.
8
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The gross profit percentage on fiber optic products totaled 39.5% or $939,650
for the nine month period ended September 30, 1999 compared to 27.1% or $550,063
for the nine month period ended September 30, 1998. While the Company was
pleased with the improvement in its gross profit percentage and dollars, the
percentage and dollars were less than expected due to the costs associated with
launching the new S-Series catheter. In order to accommodate the new catheter,
each LuMax System needs to be upgraded. The Company spent over $70,000 to
upgrade 285 systems during the quarter. Unfortunately, the result of taking 285
systems out of the field for several weeks each was a decrease in third quarter
catheter sales compared to second quarter 1999. The Company also incurred
additional costs associated with ramping up production of the new S-Series
catheter. These activities should lead to improved catheter margins in the
quarters ahead. The Company expects gross profit in the fiber optic business to
improve in the future as the Company increases sales, improves catheter yields,
and better utilizes its capacity.
Total research and development expenditures were $353,095 or 14.8% of sales for
the nine months ended September 30, 1999, compared to $310,738 or 15.3% of sales
for the nine months ended September 30, 1998. The Company has completed
development of the LuMax Interface System, as well as a new lower cost catheter.
However, the Company continues to explore product enhancements and new
technologies and expects research and development expenditures in the fourth
quarter to be consistent with the first three quarters of 1999.
Selling expenses increased from $1,393,321 for the nine months ended September
30, 1998 to $1,628,415 for the nine months ended September 30, 1999. The
increase was due to salaries and travel for the direct sales force of
approximately $375,000, offset by a reduction in commissions expense of
approximately $140,000 due to the direct sales force receiving a lower
commission percentage on sales than the indirect sales force.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
OVERVIEW
Total revenues were $2,275,999 for the three months ended September 30, 1999
compared to $2,109,510 for the three months ended September 30, 1998,
representing a 7.9% increase. Total gross profit increased from $902,276 for the
three months ended September 30, 1998 to $965,765 for the three months ended
September 30, 1999, representing a 7.0% increase. Total gross profit as a
percent of sales decreased from 42.8% to 42.4% in such periods. Total research
and development expenditures were $254,793 or 11.2% of sales for the three
months ended September 30, 1999, compared to $187,802 or 8.9% of sales for the
three months ended September 30, 1998. Sales and marketing expenses increased
from $450,252 for the three month period ended September 30, 1998 to $528,797
for the three month period ended September 30, 1999. General and administrative
expenses increased from $223,522 for the three months ended September 30, 1998
to $250,365 for the three months ended September 30, 1999, primarily due to the
factors discussed above. Interest income, interest expense and other expenses
remained relatively unchanged during the comparable periods.
As a result, the Company had a net loss of $88,906 or $.02 per share for the
three months ended September 30, 1999, compared to a net income of $25,162 or
$.01 per share for the three months ended September 30, 1998.
VASCULAR DELIVERY SYSTEMS
Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $1,318,437 for the three months ended September
30, 1999, compared to $1,239,527 for the three months ended September 30, 1998,
representing a 6.4% increase. This increase was primarily due to the new product
introductions discussed above. Medtronic orders for introducers remained
relatively flat during the comparable periods.
Contract manufacturing sales were $81,217 for the three months ended September
30, 1999, compared to $144,045 for the three months ended September 30, 1998,
due to the factors discussed above. The Company also does some contract research
and development work periodically for Medtronic and realized sales of $50,854
for the three months ended September 30, 1999 compared to $27,066 for the three
months ended September 30, 1998.
9
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The gross profit percentage on vessel introducers and contract manufacturing
totaled 47.9% for the three months ended September 30, 1999, compared to 51.3%
for the three months ended September 30, 1998. This decrease was primarily due
to costs associated with ramping up production on the new introducer products.
Total research and development expenditures were $136,217 or 9.4% of sales for
the three months ended September 30, 1999, compared to $83,451 or 5.9% of sales
for the three months ended September 30, 1998, due to the factors discussed
above.
Selling expenses increased from $13,247 for the three months ended September 30,
1998 to $22,980 for the three months ended September 30, 1999, due to the
factors discussed above.
FIBER OPTIC
Sales of the Company's fiber optic pressure sensing products were $825,491 for
the three months ended September 30, 1999, compared to $698,872 for the three
months ended September 30, 1998, representing an 18.1% increase. Monitor sales
increased 16.2% or $56,241 and catheter sales increased 14.7% or $45,024 over
the comparable period. The Company also saw increases in its accessory and
service sales totaling $25,354. The increase in monitor sales was primarily
driven by a higher average selling price compared to 1998. Catheter sales were
slowed somewhat in the third quarter due to the S-Series upgrade process, which
resulted in a large number of monitors out of the field during the quarter. The
Company anticipates that monitor and catheter sales will improve in the fourth
quarter, now that it has resolved its sales representative turnover issue and
has the bulk of the S-Series catheter conversion completed.
The gross profit percentage on fiber optic products totaled 32.8% or $270,663
for the three month period ended September 30, 1999 compared to 25.6% or
$178,989 for the three month period ended September 30, 1998, due to the factors
discussed above.
Total research and development expenditures were $118,576 or 14.4% of sales for
the three months ended September 30, 1999, compared to $104,351 or 14.9% of
sales for the three months ended September 30, 1998, due to the factors
discussed above.
Selling expenses increased from $437,005 for the three months ended September
30, 1998 to $505,817 for the three months ended September 30, 1999. The increase
is primarily due to salaries and travel for the direct sales force of
approximately $117,000. Commissions expense decreased approximately $48,000, due
to the direct sales force receiving a lower commission percentage on sales than
the indirect sales force.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended September 30,
1999 was $27,910, consisting of a net loss of $51,626, adjusted for non-cash
items of depreciation and amortization of $279,968, less a net change in
operating assets and liabilities of $256,252. The Company saw an increase in
inventory during the first nine months of 1999 primarily due to larger catheter
inventories as the Company begins its transition to its S-series catheter. The
Company also saw an increase in accounts receivable during the first nine months
of 1999 primarily due to higher sales compared to 1998.
Net cash used in investing activities for the nine months ended September 30,
1999 was $251,802. Equipment was purchased totaling $245,530 and the Company had
additions to patent rights totaling $6,272 during the period.
Net cash provided by financing activities for the nine months ended September
30, 1999 was $152,761. The Company made principal debt payments of $34,858 and
borrowed an additional $187,619 on its line of credit.
As a result, the Company's cash and cash equivalents were $895,104 as of
September 30, 1999 compared to $834,967 at December 31, 1998. Working capital
decreased from $1,890,029 as of December 31, 1998 to $1,864,359 as of September
30, 1999.
10
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On April 29, 1999, the Company signed an extension through September 30, 2000 on
its revolving line of credit with a financial institution. The line was
increased from $1,500,000 to $2,000,000 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 and working capital needs meet the Company's estimates, 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
anticipated, the Company may need to secure additional capital or, if capital is
not available, to curtail its marketing efforts.
YEAR 2000 DISCLOSURE
The Company has investigated the Year 2000 (Y2K) issue and how it will impact
the Company. The following is a summary of the investigation and progress to
date.
INFORMATION TECHNOLOGY SYSTEMS
* During 1997, the Company purchased, from a worldwide supplier and
developer of information systems, an enterprise-wide software information
system with written assurance from the developer that the system will
correctly function across the year 2000. The system cost $115,000 and was
purchased primarily because the Company needed a much stronger information
system to run its business. Y2K compliance was a required criteria of the
decision making process.
* The Company regularly budgets 10-15 new computer purchases each year in
order to keep its computers current. The new computers typically replace
the oldest computers and the old computers are discarded. The Company has
purchased 10 new computers during 1999 at a total cost of approximately
$25,000. The Company believes that with the purchase of these 10
computers, substantially all of its computers will be Y2K compliant. To
the extent that one or several computers are not Y2K compliant, the
Company believes that it will not have a material adverse effect on
operations.
* The Company upgraded all of its computer users to Microsoft Office 97 in
1998. According to Microsoft, the Microsoft Office 97 products are all Y2K
compliant. The total cost of this upgrade was approximately $3,000.
INTERNAL EQUIPMENT/MACHINES
* The Company has compiled a list of internal equipment and machines that
may have embedded chips which could be subject to the Y2K problem.
Approximately 95% of the list has been investigated and no Y2K issues were
discovered. The remaining portion of the list should be completed by
November and the Company believes that no significant Y2K issues will be
discovered.
COMPANY PRODUCTS
* During 1998, the Company reviewed all of the products it develops, markets
and sells and believes that its products are Y2K compliant.
MATERIAL THIRD PARTIES
* The Company has sent out Y2K compliance letters to all of its suppliers.
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 any Y2K issues will not have a
material impact. If the Company's suppliers have difficulty overcoming the
Y2K issue and are unable to ship supplies in a timely manner, the Company
may have to build higher inventories at the end of the year or risk slower
deliveries in the first quarter of 2000.
* The Company conducts all of its banking (disbursements, lockbox,
investments, credit line) with Norwest Bank Minnesota, N.A. (Now merged
with Wells Fargo). The Company has been assured that the Bank is ready for
the year 2000.
11
<PAGE>
Overall the Company believes that Y2K issues will not have a material adverse
effect on the Company's financial position, operations or cash flow; however,
there can be no assurance that such will be the case.
This filing on form 10-QSB contains forward-looking statements as defined by 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: attracting and retaining key personnel;
lack of market acceptance of the Company's products; introduction of competitive
products; patent and government regulatory matters; performance of the Company's
sales representatives and ability to attract effective sales representatives;
economic conditions; the ability to raise capital, and the Risk Factors included
in Form 8-K filed with the Securities and Exchange Commission on November 13,
1996. All such forward-looking statements whether written or oral, and whether
made by or on behalf of the Company are expressly qualified by these cautionary
statements. In addition, the Company disclaims any obligation to update
forward-looking statements to reflect events or circumstances after the date
hereof.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6(a) - EXHIBITS
None
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: October 28, 1999 President, Chief Executive Officer and
Chief Financial Officer
12
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