U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 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.
(Name of small business issuer in its charter)
MINNESOTA 41-1533300
(State of Incorporation) (IRS Employer Identification No.)
15301 HIGHWAY 55 WEST, PLYMOUTH, MN 55447
(Address of principal executive office, including zip code)
(612) 559-2613
(Registrant's telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Shares, $.01 Par Value
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes _X_ No ___
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB _X_
The issuer's revenues for its most recent fiscal year were $9,013,473
The aggregate market value of the Common Shares held by nonaffiliates of the
issuer as of February 29, 2000 was approximately $7,520,787.
Common Shares outstanding at February 29, 2000: 4,114,774 shares
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the issuer's Proxy Statement for the Annual Meeting of Shareholders
scheduled for April 27, 2000 are incorporated by reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
MedAmicus, Inc. (the "Company") is a medical products company that consists of
two distinct business units: The Fiber Optic business unit and the Vascular
Delivery Systems business unit.
The Fiber Optic business unit is engaged in the following activities:
* The design, development, manufacture and marketing of a pressure
measurement system utilizing a proprietary fiber optic transducer for
measuring and monitoring physiological pressures in the human body,
referred to herein as the LuMax(TM) System.
The Vascular Delivery Systems business unit is engaged in the following
activities:
* The manufacture and marketing of a percutaneous vessel introducer and the
design and development of related vascular delivery products.
* The manufacture of medical devices and components for other medical product
companies on a contract basis.
FIBER OPTIC BUSINESS UNIT
DESCRIPTION
The Company has designed and developed the LuMax Cystometry System, a fiber
optic pressure transducer system designed to measure physiological pressures
within the human body. Measurement of physiological pressures is a frequently
used procedure in the diagnosis and treatment of disorders in the
cardiovascular, respiratory, neurological and urological systems. The Company
elected to pursue the urological market place where the Company believed the
prevalence of female incontinence and prostate obstruction offered the greatest
opportunity for future revenue growth. The Company's fiber optic pressure
transducer system received marketing clearance from the U. S. Food and Drug
Administration in January 1993.
The Company's LuMax system consists of a monitor and catheter. The catheter
contains optical fibers that transmit light in both directions within the
catheter. The distal end of the catheter includes a stainless steel housing with
an opening covered by a flexible membrane. The membrane is designed to move into
the light path in response to the pressure exerted. An external monitor emits
the light and then measures the amount of light returned through the catheter
for conversion into a pressure reading. In addition to reading pressure, the
monitor calibrates the catheter, records pressures over time and alerts the user
to pressure readings outside of a specified range.
The Company manufactures two different catheters in several sizes and two
separate monitors, which are designed to be used for urological diagnostic
procedures. Both catheters have one sensor, the difference being one has an
infusion lumen and one does not. An infusion lumen allows the physician to
infuse liquid through the catheter during the procedure. The Company markets
both single use disposable catheters and catheters which can be sterilized and
reused twenty times by the physician. The Company received Food and Drug
Administration marketing clearance for the reusable catheter in February 1996.
Each of the two monitors addresses separate urological market segments. One of
the monitors is a stand alone system (the LuMax Cystometry System) which is
designed to conduct tests necessary for a physician to diagnose and treat
patients with urological disorders including incontinence and benign prostatic
hyperplasia (BPH). Its primary market
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focus is the office-based gynecology and urology practice. The second monitor is
an interface unit (the LuMax Interface System) designed to be connected to an
existing urodynamic testing system allowing a hospital or urology clinic, with
such testing equipment already in place, to use the Company's fiber optic
catheters. The Company completed final development of the Interface System and
began marketing the product in the second quarter of 1999.
The Company also markets a uroflow accessory to the LuMax Cystometry System that
allows urologists to conduct pressure flow studies, a common procedure in the
diagnosis of prostate conditions. A uroflow measures volume of urine flow over
time to determine severity of blockages caused by an enlarged prostate or other
factors. The Company received Food and Drug Administration marketing clearance
for this accessory in January 1996.
MARKETS AND MARKETING
The Company markets the LuMax Cystometry System and the LuMax Interface System
into the urology, gynecology and hospital markets for the diagnosis of female
incontinence and prostate obstruction as well as other urological disorders. It
is estimated that over 18 million Americans suffer from some form of
incontinence, a problem that is just beginning to be discussed openly and for
which a number of treatments have recently been introduced. In order to
prescribe the most appropriate therapy, clinicians usually rely on urodynamic
testing, which includes several pressure measurement procedures that the
Company's LuMax Cystometry System is designed to perform.
An enlarged prostate or benign prostatic hyperplasia (BPH) is a condition that
affects half of all men over age 55. A pressure flow study is a urodynamic test
designed to measure the severity of the blockage and determine if intervention
is appropriate. The Company's LuMax Cystometry System with Uroflow is designed
to perform this study.
The urodynamic testing market in the United States consists of four segments:
approximately 2,300 urology practices; hospital-based urodynamic testing centers
with sophisticated urodynamic systems; uro-gynecology practices, a small but
emerging market primarily focused on incontinence; and 19,000 gynecology
practices of which only a small percentage are currently equipped to conduct
urodynamic testing and, thus, effectively provide the services necessary to
treat the incontinent patient.
In January 1995, the Company began marketing its stand-alone LuMax Cystometry
System domestically. The Company elected to achieve national sales coverage by
contracting with independent sales representatives who were primarily focused on
the office-based gynecology market. In September 1996, upon the completion of
the uroflow accessory, the Company also engaged independent sales
representatives to market the LuMax Cystometry System with Uroflow into the
urology office-based market.
In January 1999, the Company completed the transition to a direct sales force.
The Company terminated its contracts with its independent sales representatives
effective December 31, 1999 and hired ten experienced sales representatives as
full time employees. This direct sales force calls on gynecology and urology
practices but does not typically call on the hospital-based urodynamic labs.
These urodynamic labs generally utilize high-end urodynamic equipment and the
LuMax Interface System was designed to attach to this equipment to allow the
customers to use the Company's fiber optic catheters. The Company attempted to
sell the Interface System to the hospital-based urodynamic labs during the
second and third quarters of 1999 with its direct sales force. While the Company
was successful in selling a number of systems into this marketplace, the time
involved in selling into this marketplace negatively impacted the LuMax
Cystometry System results. The Company is currently exploring alternative
options for distributing its LuMax Interface System.
The Company has no plans at this time for international distribution agreements.
MANUFACTURING
The Company currently manufactures its catheters in its existing facility and
expects that adequate space will be available to meet the Company's needs during
the next several years. As of February 2000, the Company has the capacity to
manufacture approximately 7,500 catheters per month on a single shift using
semi-automated equipment designed by the Company. The Company expects such
equipment will be adequate to meet production requirements
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until automated equipment is required to increase capacity. The Company is
conducting ongoing studies related to the feasibility and cost of automated
manufacturing equipment.
As of February 2000, the Company has the capacity to assemble approximately 50
monitors per month on one shift. It is believed that the Company has adequate
capacity to meet monitor requirements for the foreseeable future.
The Company has approved suppliers for all materials necessary to manufacture
the monitors and catheters and believes that other acceptable suppliers exist
for these materials.
COMPETITION
The Company's LuMax System competes with both the traditional external strain
gauge transducer, and with transducers that incorporate new designs such as
fiber optic transducers and micro-tipped catheter transducers.
The most commonly used pressure-measuring device now on the market is the
disposable external strain gauge transducer. Over 7.5 million such devices are
used annually in the U. S. An external strain gauge transducer measures internal
body fluid pressures through a series of saline solution-filled tubes connected
to a catheter that has been inserted into the body. The pressure of the body
fluid is conducted through the tubing to the externally located transducer. The
transducer then converts that pressure into an electrical signal, which is then
displayed as a pressure reading.
The Company believes that the disposable external strain gauge transducer has a
number of disadvantages when compared to its fiber optic pressure transducer:
* The disposable external strain gauge must be level with the pressure
monitoring site on the patient;
* A leak anywhere in the tubing system could result in inaccurate readings;
* The fluid column connecting the catheter to the external transducer must
remain bubble free;
* There are delays in response times as pressure is "piped" from the point of
measurement to the external transducer, which may cause inaccuracies; and
* A strain gauge device can be affected by electromagnetic interference from
other patient monitors.
Another pressure measurement devices is the micro-tipped catheter, which is
comprised of a miniaturized strain gauge transducer on the tip of a catheter.
While the micro-tipped catheter, which is reusable, offers many of the same
advantages as the fiber optic catheter, it is sold at a substantially higher
cost than the Company's current reusable catheter.
Companies that market disposable external strain gauge transducers for use in
the urological testing markets include Cobe Laboratories, Inc., Lakewood,
Colorado; Spectramed Inc., Critical Care Division, Oxnard, California; and
Baxter Healthcare Corporation, Edwards Division, Santa Ana, California.
Companies that are utilizing fiber optic technology in the manufacture of
pressure sensing devices include Camino Laboratories, San Diego, California,
which markets a device used primarily for neurological procedures; Radi Medical
Systems, Sweden, which markets its device in Europe for hemodynamic testing and
possibly urological monitoring, and; Bard Urological, a subsidiary of C. R.
Bard, Inc., which markets a urodynamic system similar to the Company's LuMax
System. Bard Urological is aggressively marketing their fiber optic system
through a network of direct sales personnel into the U. S. urology office
market. Management believes that each of the companies mentioned above may have
significantly greater financial and other resources than the Company. The
Company believes that the primary bases of competition will be product
performance, price and marketing.
While the Company has obtained patents relating to its transducer, such patents
may not prevent the above described companies or any other companies from
developing competing fiber optic devices for the urodynamic testing market or
for any other pressure measurement applications which the Company may pursue.
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RESEARCH AND DEVELOPMENT
Research and development expenditures for the Fiber Optic business were $443,771
for 1999, compared to $432,319 in 1998, representing an increase of $11,452 or
2.6%. The Company is near completion on the development of the LuMax Interface
System as well as a new lower cost fiber optic catheter. The Company continues
to explore product enhancements and new technologies and expects to increase
research and development spending in 2000.
VASCULAR DELIVERY SYSTEMS BUSINESS UNIT
DESCRIPTION
The Company manufactures and markets traditional percutaneous venous vessel
introducers as well as its own proprietary introducer. Vessel introducers allow
physicians to insert infusion catheters, implantable ports and pacemaker leads
into a blood vessel.
In order to introduce a catheter or pacemaker lead into a vein, a hypodermic
needle is first used to access the vessel. A guide wire is inserted through the
hypodermic needle. The needle is then removed and a vessel introducer,
consisting of a hollow sheath and a dilator, is inserted over the guide wire to
expand the opening. The guide wire and dilator are then removed, leaving only
the hollow sheath through which the catheter or pacemaker lead is introduced.
Once the catheter or pacemaker lead is in place, the vessel introducer sheath is
usually removed.
To the Company's knowledge, all vessel introducer sheaths currently marketed,
with the exception of the Company's proprietary vessel introducer, are
manufactured with small handles on either side of the sheath at the proximal
end, and use what is referred to as the "peel-away" method of sheath removal. As
the physician pulls the handles, the sheath tears apart and can then be removed.
The Company's proprietary vessel introducer, which includes the standard dilator
and sheath, incorporates a slitting device, resulting in what management
believes to be an improved method of removing the sheath. The slitter clamps
onto the catheter or lead and has a recessed blade. The physician draws the
sheath onto the slitter, which cuts the entire length of the sheath, permitting
easy removal. The removal of the sheath can be performed by one physician,
unlike the peel-away method, which typically requires two people.
The Company manufactures and markets both "peel-away" introducers and its own
proprietary slitter introducer. While the Company believes the slitter
introducer is superior to the "peel-away", studies indicate that a significant
percentage of physicians will continue to utilize the "peel-away" technology.
Both introducers are manufactured in a variety of sizes and are marketed either
in a kit, containing the disposable devices necessary to do catheter or lead
implant procedure, or in bulk which are then packaged by the customer with its
own devices.
MARKETS AND MARKETING
The Company estimates that there are more than 1,000,000 procedures performed
worldwide each year in which venous vessel introducers are used. Because the
majority of vessel introducers are sold in combination with the sale of infusion
catheters, implantable ports or pacing leads, the Company's management
determined that it would be advantageous for the Company to enter into
distribution agreements with medical device manufacturers that will market the
Company's vessel introducer with their catheters, implantable ports or pacing
leads. Accordingly, the Company entered into such agreements with Medtronic,
Inc. and with Bard Access Systems ("Bard"), a subsidiary of C. R. Bard, Inc. for
the sale of introducers into their respective markets.
Medtronic, which the Company believes has the largest worldwide market share of
pacing leads, is currently purchasing sterilized introducer kits, which include
a syringe, hypodermic needle and guide wire, as well as the vessel introducer,
packaged by the Company in boxes designed by Medtronic. Medtronic markets the
Company's vessel introducer with the slitting device worldwide under its own
trade name, "SOLO-TRAKTM". Medtronic has indicated that approximately 40% of
their introducer sales consist of SOLO-TRAK, and the remainder of the sales are
"peel-away" introducers. The Company also packages a "peel-away" introducer in
similar kits for Medtronic.
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The Company's distribution agreement with Medtronic was executed in May 1991,
and amended in August 1994, August 1995 and again in August 1996. Under the
terms of the agreement, Medtronic is obligated to purchase certain specified
annual quantities of both slitter introducers and "peel-away" introducers in
order to retain exclusive rights for the slitter introducer in the pacing lead
market. The agreement has an indefinite term, but Medtronic may terminate the
agreement any time, upon 180 days prior written notice.
For the years ended December 31, 1999 and 1998, Medtronic accounted for 56% and
55% of total Company sales, respectively. The loss of Medtronic as a customer
would have a material adverse effect on the Company. Sales to Bard represent
less than 5% of total Company sales.
MANUFACTURING
Vessel introducers manufactured by the Company are either packaged in a "kit"
with other components, as is the case with Medtronic, or sold as a component set
consisting of a sheath, dilator and slitter for the Company's proprietary
introducer, or a sheath and dilator if the customer orders a "peel-away"
introducer. The sheath and dilator for the Company's proprietary introducer and
the "peel-away" introducer are manufactured from polyethylene tubing which is
acquired from outside sources and fabricated by the Company, while the slitter
is injection molded by the Company. The Company has designed and constructed a
number of pieces of its production and packaging equipment, and has purchased
the remainder from outside sources. The vessel introducer kits are packaged in
the Company's clean room facility. The Company manufactures and packages vessel
introducers in 38 different kit combinations. The Company presently obtains
several of its components, raw materials and sterilization services from sole
suppliers, but believes that all components, raw materials and sterilization
services are readily available from several sources. The Company believes any
one of such sources would be acceptable, although Medtronic has the right to
approve suppliers.
COMPETITION
The Company's vessel introducers compete with other vessel introducers, all of
which utilize the peel-away method. The Company believes that the four major
competitors in the venous vessel introducer market are Cook Incorporated,
Bloomington, Indiana; Daig Corporation, Minnetonka, Minnesota (owned by St. Jude
Medical, St. Paul, Minnesota); B. Braun of America Company, Allentown,
Pennsylvania; and TFX Medical, a subsidiary of Teleflex Incorporated, Jaffrey,
New Hampshire. Daig, B. Braun and TFX Medical market their vessel introducers
primarily by establishing distribution arrangements with existing companies in
the medical field, the same strategy the Company follows. Cook markets a variety
of vessel introducer kits through distributors and with a direct sales force.
Each of these competitors has significantly greater financial, personnel and
other resources than the Company.
RESEARCH & DEVELOPMENT
Over the past year, the Company has significantly increased its product
development activities in order to broaden and improve its venous vessel
introducer product offering and to expand its customer base. The Company's
management believes that, with the trend towards less invasive surgical
procedures, there will be increasing demand for vessel introducers and delivery
systems. The Company intends to continue to devote resources at a similar or
increased level to 1999 for the purposes of understanding the needs of this
market and designing innovative products to meet those needs. There can be no
assurance that the Company's development efforts will result in additional
revenue. The Company's research and development activities have been coordinated
primarily by employees of the Company, although the Company has utilized outside
specialists on a contract basis, and expects to continue to do so. For years
ended December 31, 1999 and 1998, the Company expended $469,958 and $199,973,
respectively, on research and development activities directly related to
introducer and delivery system products.
CONTRACT MANUFACTURING
Since October 1985, the Company has performed contract manufacturing services
for a variety of medical device companies in the Minneapolis and St. Paul,
Minnesota metropolitan area, but currently manufactures four medical products
for one company and one medical product for another company. For the years ended
December 31, 1999 and 1998, contract manufacturing revenues were approximately
5% and 7% respectively, of the Company's total revenues.
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GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by the FDA and, in some instances, by state and foreign authorities.
Pursuant to the Medical Device Amendments of 1976 to the Federal Food, Drug and
Cosmetic Act, and regulations promulgated thereunder, medical devices intended
for human use are classified into three categories (Classes I, II and III),
depending upon the degree of regulatory control to which they will be subject.
Both the transducer and the introducer are considered Class II devices.
If a Class II device is substantially equivalent to an existing device that has
been continuously marketed since the effective date of the 1976 Amendments, FDA
requirements may be satisfied through a Premarket Notification Submission (a
"510(k) Submission"), under which the applicant provides product information
supporting its claim of substantial equivalence. In a 510(k) Submission, the FDA
may also require that it be provided with clinical test results demonstrating
the safety and efficacy of the device.
The Company has obtained 510(k) approval to market its introducers and its fiber
optic pressure measurement system in the United States.
As a manufacturer of medical devices, the Company is also subject to certain
other FDA regulations, and its manufacturing processes and facilities are
subject to continuing review by the FDA to ensure compliance with Good
Manufacturing Practices regulations. The Company believes that its manufacturing
and quality control procedures substantially conform to the requirements of FDA
regulation. In addition, the Company's sales and marketing practices are subject
to regulation by the U.S. Department of Health and Human Services pursuant to
federal anti-kickback laws, and are also subject to similar state laws.
The Company's devices may also be subject to regulation in foreign countries,
including ISO9000 certification, in order to conduct business in the European
Community. Medtronic, and any other entity with which the Company would develop
a distribution relationship, are responsible for obtaining approval from the
foreign countries in which they desire to sell the vessel introducers
manufactured by the Company. On March 11, 1999, the Company received its ISO
9000 certification and also received an EC certificate, allowing the Company to
CE Mark its fiber optic products for sale in Europe. Depending upon the
distribution relationships established to market the fiber optic products in
countries outside the European Community, the Company may be responsible for
obtaining approval to sell in those countries.
INTELLECTUAL PROPERTY
The Company has made and continues to make, when appropriate, efforts to obtain
patents, including additional patent protection on existing products. Certain
aspects of the vessel introducer and the fiber optic pressure transducer are the
subjects of United States Patent Numbers 4,997,424 and 5,005,584, respectively,
issued on March 5, 1991 and April 9, 1991, respectively. Both patents have been
assigned to the Company by the inventor, Richard L. Little, the Company's former
President and Chief Executive Officer, and both expire in the year 2008.
The introducer patent covers a means for attaching a slitter with a recessed
blade to a catheter or pacing lead for the purpose of removing a sheath from the
catheter or pacing lead. The Company has received additional patent protection
on features of the vessel introducer.
The Company's transducer patent covers a means for incorporating one or more
transducers onto a guide wire. The Company has received additional patent
protection on technical features of the transducer, which have evolved during
the development to date.
On several occasions beginning in 1993, and as recently as February 1998, the
Company has received correspondence or inquiries from a competitor in the fiber
optic transducer market regarding patents it holds relating to fiber optic
transducers. The correspondence specifically references a patent on a technique
to calibrate the fiber optic system and requesting additional information
regarding the Company's calibration technique and why such technique does not
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infringe the competitor's patent. The Company has responded to such inquiries
each time they have been received. The Company has been aware of this patent and
has specifically designed the calibration system associated with its transducer
so as not to infringe the competitor's patent. In addition, the Company has been
issued a United States patent on its calibration technique. The Company has also
received an opinion of counsel that its calibration system does not infringe
such patent. While the Company is not aware of the competitor's intentions with
respect to this matter, the Company will continue to respond to such inquiries
as necessary.
Due to the rapid technological changes experienced in the medical device
industry, the Company's management believes that the improvement of existing
products, reliance upon trade secrets and unpatented proprietary know-how and
the development of new products are generally as important as patent protection
in establishing and maintaining a competitive advantage.
EMPLOYEES
As of February 29, 2000, the Company employed 86 persons, consisting of 82
full-time and 4 part-time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative, manufacturing and research and development
facilities, consisting of approximately 21,665 square feet, are located at 15301
Highway 55 West, Plymouth, Minnesota 55447. The Company leases these facilities
pursuant to a lease that expired April 30, 1997. The lease provides for up to
five one-year extensions that are automatic if the Company does not give a
six-month notice of evacuation. The lease calls for rent payments of $13,242 per
month, which includes base rent, a portion of the operating expenses and real
estate taxes. The base rent can escalate yearly based on the consumer price
index.
The Company is currently negotiating a new lease with the landlord, which will
include expansion into an additional 8,950 square feet of space in the existing
building, beginning June 1, 2000. The proposed terms of the agreement call for
the Company to sign a new five-year lease for a total of 30,570 square feet. As
part of the agreement, the landlord would provide financing in the amount of
$150,000 for leasehold improvements which can be used for both the new space, as
well as the existing space. The new monthly lease payments would be
approximately $19,400 per month, which includes base rent, a portion of the
operating expenses and real estate taxes. The base rent can escalate yearly
based on the consumer price index.
ITEM 3. LEGAL PROCEEDINGS
The Company's management is not aware of any litigation pending against the
Company or its properties.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded on The Nasdaq Stock Market(SM) under
the symbol MEDM since September 1991. The table below shows the high and low
closing sales prices for the quarters indicated.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------------------------------------------------------------------------------------
YEAR LOW HIGH LOW HIGH LOW HIGH LOW HIGH
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 2.250 3.125 1.938 3.063 1.000 2.063 0.813 1.250
- -----------------------------------------------------------------------------------------------------
1999 .969 1.438 1.063 1.813 1.438 2.250 1.125 1.813
- -----------------------------------------------------------------------------------------------------
2000* 1.500 2.688
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Through February 29
As of February 29, 2000, the Company had approximately 156 record holders and
1,200 beneficial holders of its common stock. The Company has not paid cash
dividends in the past and does not expect to do so in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL INFORMATION
The Company was incorporated under the laws of the state of Minnesota in 1981
and commenced operations in 1985. During the first three years of its existence,
the Company devoted the majority of its activities to research and development
projects. In 1990, the Company's first proprietary product was announced, a
percutaneous venous vessel introducer. Exclusive distribution arrangements were
negotiated with Medtronic and Bard for the sale of the introducer into their
respective markets.
In September 1991, the Company completed its initial public stock offering,
raising approximately $3,400,000, net of expenses. With these resources,
manufacturing capabilities and capacity were expanded and a number of contract
manufacturing jobs were secured. The influx of capital also allowed the Company
to significantly accelerate its development efforts on a second proprietary
product, the LuMax Fiber Optic Cystometry System.
In January 1994, the Company completed a private placement of common stock and
warrants, resulting in proceeds to the Company of approximately $1,000,000, net
of offering expenses. In October 1994, a private investor purchased 200,000
shares of common stock from the Company for $500,000 and the same investor
purchased 266,667 shares for $500,000 in January 1995. In March 1996, the
Company obtained a $1,200,000 revolving line of credit with a financial
institution. The Company used the line of credit to pay off $500,000 of notes
payable with two unaffiliated private investors. In May 1996, the Company
completed a private placement of its common stock, resulting in net proceeds to
the Company of $1,622,103. In June 1999, the Company increased its revolving
line of credit to $2,000,000 and extended it through June 2000.
The Company completed work on the first design of the LuMax System and embarked
upon a sales strategy in January 1995 to distribute the LuMax System into the
gynecology office market through the use of independent sales representatives.
In November 1996, the Company completed development of an upgraded version of
the LuMax System, which made it attractive to the urology office market. The
Company then contracted with additional independent sales representatives to
call into this market
In December 1998, the Company terminated its relationships with its independent
sales representatives and hired a ten-person direct sales force that markets the
LuMax System to both gynecologists and urologists.
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OVERVIEW
Total revenues were $9,013,473 for 1999 compared to $8,031,770 for 1998,
representing a 12.2% increase. Total gross profit increased from $3,460,273 for
1998, to $4,169,305 for 1999, representing a 20.5% increase. Total gross profit
as a percent of sales increased from 43.1% to 46.3% in such periods. Total
research and development expenditures were $913,729 or 10.1% of sales for 1999,
compared to $632,292 or 7.9% of sales for 1998, representing a 44.5% increase.
Sales and marketing expenses increased from $1,923,035 for 1998 to $2,327,020
for 1999. General and administrative expenses increased from $990,169 for 1998
to $1,030,632 for 1999. The increase in general and administrative expenses was
primarily due to increased spending on MIS activities and a larger allocation of
rent compared to the previous year. 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 $174,664 or $.04 per share for 1999,
compared to a net loss of $143,799 or $.03 per share for 1998.
VASCULAR DELIVERY SYSTEMS
Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $5,307,451 for 1999, compared to $4,644,577 for
1998, representing a 14.3% 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 inventories of the Company's new kink-resistant
slitter introducer. Second, the Company started shipping Left Heart Delivery
System kits to Medtronic during the third quarter of 1999. 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 of 1999. The Company recently received FDA clearance to market this new
product. The Company expects introducer sales to increase in 2000 as it
continues to roll out its new product offerings to Medtronic and other potential
customers.
Contract manufacturing sales were $472,982 for 1999, compared to $568,003 for
1998, representing a 16.7% decrease. This decrease was due to one of the
Company's contract customers ordering lower quantities of product during the
comparable periods. The Company expects 2000 contract manufacturing sales to be
comparable to those achieved in 1999. The Company also does some contract
research and development work periodically for Medtronic and realized sales of
$101,560 for 1999 compared to $110,151 for 1998.
The gross profit percentage on vessel introducers and contract manufacturing
totaled 51.2% for 1999, compared to 49.7% for 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.
Research and development expenditures were $469,958 or 8.0% of Vascular Delivery
System sales for 1999, compared to $199,973 or 3.8% of Vascular Delivery System
sales for 1998. The Company increased its engineering staff, 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 2000 to be comparable to 1999.
Sales activities are conducted primarily by two independent sales
representatives. Selling expenses increased from $51,535 for 1998 to $118,441
for 1999. This increase was due to several factors. First, commission expense
increased due to the increase in sales. Second, the Company contracted with a
second sales person in May 1999 to help with sales of new introducer products
into the non-pacing marketplace. Finally, the Company attended more trade shows
in 1999 and developed a brochure to increase awareness of its product offerings.
The Company expects selling expenses to increase in 2000 as it continues to work
at building its customer base and increases sales.
FIBER OPTIC
Sales of the Company's fiber optic pressure sensing products were $3,131,480 for
1999, compared to $2,709,039 for 1998, representing a 15.6% increase. Monitor
sales remained relatively flat and catheter sales increased 30.9%
10
<PAGE>
or $351,588 over the comparable period. The Company also saw increases in its
accessory and service sales totaling $76,088.
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 in placing the Interface in a number
of major institutions, sales of the LuMax Cystometry System suffered due to the
time spent by the sales force learning the Interface. The Company discontinued
selling the Interface System through its sales force in the fourth quarter of
1999 and is currently exploring other distribution options. Finally, the Company
experienced some turnover in its direct sales force during the third quarter,
leaving several territories with only minimal sales coverage. The Company has
hired replacement sales people and enters 2000 with a full sales force. The
Company expects to see increases in its monitor sales in 2000.
The gross profit percentage on fiber optic products totaled 36.9% or $1,155,508
for 1999 compared to 30.1% or $815,795 for 1998. While the Company was pleased
with the improvement in its gross profit percentage and dollars, the percentage
and dollars were impacted by the costs associated with launching the new
S-Series catheter. The Company spent approximately $100,000 in the second half
of 1999 to upgrade existing LuMax systems in the field in order to accommodate
the new catheter. Unfortunately, the result of taking systems out of the field
for several weeks each was a decrease in catheter sales for the second half of
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 year 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 $443,771 or 14.2% of Fiber
Optic sales for 1999, compared to $432,319 or 16.0% of Fiber Optic sales for
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 to increase in 2000.
Selling expenses increased from $1,871,500 in 1998 to $2,208,579 for 1999. The
increase was due to salaries and travel for the direct sales force of
approximately $510,000, offset by a reduction in commissions expense of
approximately $175,000 due to the direct sales force receiving a lower
commission percentage on sales than the indirect sales force.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had unrestricted cash and cash equivalents
and investments of $1,006,695, compared to $1,022,055 as of December 31, 1998.
Net cash provided by operating activities during the year ended December 31,
1999 was $46,538, consisting primarily of a net loss of $174,664, adjusted for
non-cash items of depreciation and amortization of $371,196, less a net change
in operating assets and liabilities of $149,994.
Net cash used in investing activities in 1999 was $336,422, consisting of
acquisition of property and equipment for $312,092, and the addition to patent
rights of $24,330.
Net cash provided by financing activities was $274,524, consisting primarily of
payments on the Company's capital lease obligations of $42,780 and additional
borrowings on the line of credit of $317,304.
On April 29, 1999, the Company signed an extension through June 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% 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. The agreement also requires the
Company to meet certain financial covenants. The Company anticipates that it
will be able to extend the line of credit when it expires in June 2000. If the
11
<PAGE>
financial institution decides not to extend the agreement, additional capital
may be required to fund 2000 operations and capital expenditure requirements.
Sources of additional capital may include additional debt financing and/or the
sale of debt or equity securities. If the Company is unable to obtain financing
when required, the Company could be forced to curtail its operations.
As of December 31, 1999, the Company's current assets exceeded current
liabilities by $1,724,862, with a current ratio of 1.9 to 1, compared to working
capital of $1,890,029 or a current ratio of 2.2 to 1 as of December 31, 1998.
Accounts receivable increased from $1,141,302 as of December 31, 1998 to
$1,229,665 as of December 31, 1999, an increase of $88,363. This increase was
primarily due to higher sales levels in 1999 over 1998. Receivables, as a
percentage of sales, remained constant at about 14% for both periods. Inventory
increased from $1,314,726 as of December 31, 1998 to $1,407,189 as of December
31, 1999, an increase of $92,463. This increase is primarily due to increased
inventory levels for introducers and catheters as the Company continues to see
sales growth of these two products. Accounts payable remained relatively
unchanged during the comparable periods. Finally, notes payable to bank
increased from $934,909 as of December 31, 1998 to $1,252,213 as of December 31,
1999, an increase of $317,304.
At December 31, 1999, the Company had income tax carryforwards of net operating
losses (NOL's) of approximately $5,655,000 and research and development credit
carryforwards of approximately $259,000. At December 31, 1999, the Company's net
deferred tax assets, totaling approximately $2,752,000, have been fully offset
by a valuation allowance due to their uncertainty of realization. Realization of
these deferred tax assets is dependent upon sufficient future taxable income
during the period the deductible temporary differences and carryforwards are
expected to be available to reduce taxable income.
Forward-looking statements contained in this annual report on Form 10-KSB,
including without limitation in Management's Discussion and Analysis and in Mr.
Hartman's letter to shareholders, 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: inability to
attract and retain key personnel; delays in new product launches; lack of market
acceptance of the Company's products; failure of the interface box to perform as
expected; introduction of competitive products; patent and government regulatory
matters; inability to attract effective sales representatives and/or
unsatisfactory performance by sales representatives; and the Risk Factors
included in Form 8-K filed with the Securities and Exchange Commission on
November 13, 1996.
ITEM 7. FINANCIAL STATEMENTS
The Independent Auditor's Report for the years ended December 31, 1999 and 1998
is included as Exhibit 23.2 attached hereto.
12
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------
<S> <C> <C>
ASSETS (Note 5)
CURRENT ASSETS:
Cash and cash equivalents $ 1,006,695 $ 1,022,055
Accounts receivable, less allowance for doubtful accounts of
$22,837 and $25,231, respectively (Note 8) 1,229,665 1,141,302
Inventories (Note 2) 1,407,189 1,314,726
Prepaid expenses and other assets 72,915 53,945
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,716,464 3,532,028
- -----------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT: (Note 6)
Equipment 2,401,566 2,130,171
Office furniture, fixtures and computers 673,338 566,191
Leasehold improvements 365,800 363,950
- -----------------------------------------------------------------------------------------------------------------
3,440,704 3,060,312
Less accumulated depreciation and amortization (2,750,073) (2,382,686)
- -----------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 690,631 677,626
- -----------------------------------------------------------------------------------------------------------------
PATENT RIGHTS, net of accumulated amortization of
$151,122 and $147,313, respectively 30,667 10,146
=================================================================================================================
TOTAL ASSETS $ 4,437,762 $ 4,219,800
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (Note 5) $ 1,252,213 $ 934,909
Accounts payable 383,280 394,385
Accrued expenses (Note 3) 334,365 273,458
Current installments of capital lease obligations (Note 6) 21,744 39,247
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,991,602 1,641,999
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Capital lease obligations, less current installments (Note 6) 47,299 4,276
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,038,901 1,646,275
- -----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY: (Note 7)
Preferred stock-undesignated, authorized 1,000,000 shares 0 0
Common stock-$.01 par value, authorized 9,000,000 shares; issued and
outstanding 4,114,774 and 4,112,274 shares, respectively 41,148 41,123
Additional paid-in capital 8,578,117 8,578,142
Accumulated deficit (6,220,404) (6,045,740)
- -----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,398,861 2,573,525
=================================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,437,762 $ 4,219,800
=================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATMENTS
13
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Note 8) $ 9,013,473 $ 8,031,770
Cost of sales 4,844,168 4,571,497
- -----------------------------------------------------------------------------------
GROSS PROFIT 4,169,305 3,460,273
- -----------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 913,729 632,292
Selling, general and administrative 3,357,652 2,913,204
- -----------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 4,271,381 3,545,496
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
OPERATING LOSS (102,076) (85,223)
- -----------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (95,442) (92,976)
Interest income 37,713 43,845
Other (14,859) (9,445)
- -----------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (72,588) (58,576)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
NET LOSS $ (174,664) $ (143,799)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.04) $ (0.03)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,112,479 4,112,274
- -----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated
YEARS ENDED DECEMBER 31, 1999 AND 1998 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 year ended December 31, 1998 -- -- -- (143,799) (143,799)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 4,112,274 $ 41,123 $ 8,578,142 $ (6,045,740) $ 2,573,525
Warrants exercised (cashless) 2,500 25 (25) -- --
Net loss for the year ended December 31, 1999 -- -- -- (174,664) (174,664)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999 4,114,774 $ 41,148 $ 8,578,117 $ (6,220,404) $ 2,398,861
===============================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (174,664) $ (143,799)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 371,196 464,766
Interest added to investments 0 (704)
Changes in operating assets and liabilities:
Accounts receivable (88,363) (136,363)
Inventories (92,463) (144,437)
Prepaid expenses and other assets (18,970) 42,478
Accounts payable (11,105) (212,644)
Accrued expenses 60,907 65,346
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 46,538 (65,357)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (312,092) (251,484)
Additions to patent rights (24,330) (14,938)
Sales of available-for-sale marketable securities, including sales of securities
which matured 0 20,000
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (336,422) (246,422)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (42,780) (41,503)
Borrowings on note payable to bank 317,304 275,669
Payments on note payable to customer 0 (2,822)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 274,524 231,344
- -----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,360) (80,435)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,022,055 1,102,490
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,006,695 $ 1,022,055
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 90,749 $ 92,133
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases incurred on purchase of equipment $ 68,300 $ --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
NATURE OF BUSINESS MedAmicus, Inc. (the "Company") is a medical products company
that consists of two distinct business units: The Fiber Optic business unit and
the Vascular Delivery Systems business unit.
The Fiber Optic business unit is engaged in the following activities:
* The design, development, manufacture and marketing of a pressure
measurement system utilizing a proprietary fiber optic transducer for
measuring and monitoring physiological pressures in the human body,
referred to herein as the LuMax(TM) System.
The Vascular Delivery Systems business unit is engaged in the following
activities:
* The manufacture and marketing of a percutaneous vessel introducer and the
design and development of related vascular delivery products.
* The manufacture of medical devices and components for other medical product
companies on a contract basis.
REVENUE RECOGNITION The Company recognizes revenue upon shipment of the product
to the customer.
ESTIMATES The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and
assumptions were used to estimate the fair value of each class of certain
financial instruments for which it is practicable to estimate that value:
* CASH EQUIVALENTS: The carrying amount approximates fair value because of
the short maturity of these instruments.
* NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS: The fair value of the
Company's notes payable and capital lease obligations is estimated based on
the quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same remaining maturities with
similar collateral requirements. At December 31, 1999 and 1998, the fair
value of the Company's notes payable and capital lease obligations
approximated their carrying value.
CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with an
original maturity of three months or less. The Company maintains its cash in
bank accounts, which, at times, exceed federally insured limits. The Company has
not experienced any losses in such accounts.
INVENTORIES Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated
or amortized on a straight-line basis over a period of three to seven years.
Leasehold improvements are amortized over the term of the lease. Repair and
maintenance costs are charged to operations as incurred. The Company
periodically reviews the utilization of its long-lived assets in its business
for impairment. To date, management has determined that no impairment of
long-lived assets exists.
PATENT RIGHTS Patent rights, which are amortized over a five-year period,
include costs incurred by the Company to secure patents for technology that the
Company has developed.
16
<PAGE>
INCOME TAXES Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carry-forwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
RESEARCH AND DEVELOPMENT EXPENDITURES The Company's research and development
expenditures are expensed as incurred.
BASIC AND DILUTED NET 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. As described in Note 7, at December 31, 1999 and 1998, the Company
had options and warrants outstanding to purchase a total of 924,742 and
1,022,550 shares of common stock, respectively, at a weighted average exercise
price of approximately $3.23 and $3.73, respectively. However, because the
Company has incurred a loss in all periods presented, the inclusion of those
potential common shares in the calculation of diluted loss per-share would have
an anti-dilutive effect. Therefore, basic and diluted loss per-share amounts are
the same in each period presented.
- --------------------------------------------------------------------------------
2. INVENTORIES
- --------------------------------------------------------------------------------
INVENTORIES AT DECEMBER 31, 1999 AND 1998 CONSISTED OF THE FOLLOWING:
1999 1998
- --------------------------------------------------------------------------
Purchased parts and subassemblies $ 844,775 $ 737,375
Work in process 268,439 274,289
Finished goods 293,975 303,062
- --------------------------------------------------------------------------
$ 1,407,189 $ 1,314,726
==========================================================================
- --------------------------------------------------------------------------------
3. ACCRUED EXPENSES
- --------------------------------------------------------------------------------
ACCRUED EXPENSES AT DECEMBER 31, 1999 AND 1998 CONSISTED OF THE FOLLOWING:
1999 1998
- --------------------------------------------------------------------------
Compensation $ 264,110 $ 166,980
Other 70,255 106,478
- --------------------------------------------------------------------------
$ 334,365 $ 273,458
==========================================================================
17
<PAGE>
- --------------------------------------------------------------------------------
4. INCOME TAXES
- --------------------------------------------------------------------------------
At December 31, 1999, the Company had carry-forwards of net operating losses
(NOL's) of approximately $5,655,000 and research and development credit
carry-forwards of approximately $259,000 for income tax purposes. These
carry-forwards are available to offset future taxable income and related income
taxes, respectively, and expire as follows:
NET RESEARCH AND
OPERATING DEVELOPMENT TAX
YEAR OF EXPIRATION LOSSES CREDITS
- --------------------------------------------------------------------------
2002 $15,000 $1,000
2003 90,000 3,000
2004 200,000 5,000
2005 285,000 3,000
2006 275,000 10,000
2007 670,000 28,000
2008 1,300,000 55,000
2009 1,170,000 36,000
2010 664,000 13,000
2011 966,000 16,000
2012 0 23,000
2018 0 26,000
2019 20,000 40,000
- --------------------------------------------------------------------------
$5,655,000 $259,000
==========================================================================
The appropriate tax effect of each type of temporary difference and
carry-forward is:
1999 1998
- --------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carry-forwards $2,152,000 $2,141,000
Depreciation 210,000 197,000
Vacation accrual 38,000 26,000
Inventory 31,000 22,000
Other 62,000 57,000
Tax credit carry-forwards 259,000 219,000
- --------------------------------------------------------------------------
$2,752,000 $2,662,000
Less valuation allowance (2,752,000) (2,662,000)
- --------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $0 $0
==========================================================================
Due to the uncertainty surrounding the realization and timing of the benefits
resulting from its favorable tax attributes in future tax returns, the Company
has placed a valuation allowance against its otherwise recognizable deferred tax
assets. A reconciliation of the valuation allowance for deferred tax assets is
as follows:
1999 1998
- ------------------------------------------------------------------------------
Valuation allowance at beginning of the year $2,662,000 $2,587,000
Addition to allowance 90,000 75,000
- ------------------------------------------------------------------------------
VALUATION ALLOWANCE AT END OF THE YEAR $2,752,000 $2,662,000
==============================================================================
18
<PAGE>
The total tax benefit differs from the expected tax benefit, computed by
applying the federal statutory rate to the Company's net loss as follows:
1999 1998
- --------------------------------------------------------------------------------
Expected income tax benefit $(61,000) $(50,000)
Effect of net operating loss and tax credit carryforwards
with no current benefit 90,000 73,000
State income taxes (5,000) (4,000)
Income tax credits (40,000) (26,000)
Non-deductible expenses 16,000 7,000
- --------------------------------------------------------------------------------
NET TAX BENEFIT $0 $0
================================================================================
- --------------------------------------------------------------------------------
5. NOTES PAYABLE
- --------------------------------------------------------------------------------
NOTE PAYABLE TO BANK On April 29, 1999, the Company signed an extension through
June 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% 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. The agreement also
requires the Company to meet certain financial covenants. Outstanding borrowings
under the agreement were $1,252,213 at December 31, 1999.
NOTE PAYABLE TO CUSTOMER On May 14, 1991, the Company entered into a $100,000
non-interest bearing note payable agreement with a customer. The agreement
called for quarterly payments commencing May 1, 1992. In February 1993, the
customer agreed to defer payments for one year. On January 1, 1994, the Company
commenced payments at the rate of $1,200 per month that continued until the loan
was retired in February 1998.
- --------------------------------------------------------------------------------
6. LEASES
- --------------------------------------------------------------------------------
The Company is obligated under capital lease agreements for equipment. Future
minimum payments under capital leases are as follows:
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------- ------
2000 $30,275
2001 27,175
2002 22,129
- ----------------------------------------------------------------------------
Total minimum lease payments 79,579
Less amounts representing interest imputed at 10.3% to 12.8% 10,536
- ----------------------------------------------------------------------------
Present value of net minimum lease payments 69,043
Less current installments 21,744
- ----------------------------------------------------------------------------
$47,299
============================================================================
Capital leases are secured by the equipment underlying the lease.
Equipment under capital leases as of December 31, 1999 and 1998 are as follows:
1999 1998
- ----------------------------------------------------------------------------
Equipment $201,137 $132,768
Less accumulated amortization (136,907) (99,069)
- ----------------------------------------------------------------------------
$64,229 $33,699
============================================================================
19
<PAGE>
The Company leases its office and manufacturing facility under an operating
lease that expires in April 2000. The Company is currently leasing 21,665 square
feet with a monthly base rent of approximately $9,025. The Company intends to
sign a contract extension on its existing space, as well as expand into
additional space within the same building beginning June 1, 2000. The Company
also leases certain office equipment under operating leases. Future minimum
payments under operating leases are as follows:
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------- ------
2000 $34,021
2001 6,940
2002 6,940
2003 6,940
2004 2,892
- -----------------------------------------------------------------------------
TOTAL MINIMUM LEASE PAYMENTS $57,733
=============================================================================
Total rent expense, including operating expenses and real estate taxes, was
approximately $159,000 for the years ended December 31, 1999 and 1998.
- --------------------------------------------------------------------------------
7. SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
WARRANTS In connection with both stock and debt offerings, as well as several
consulting arrangements, the Company has issued warrants to purchase the
Company's common stock. On November 16, 1998, the Company extended the
expiration date on the warrants associated with the investment agreement with
Empi and the 1994 private placement (376,395 shares) for three years. The
warrants outstanding as of December 31, 1998 are summarized in the table below:
EVENT # SHARES PRICE EXPIRE
- --------------------------------------------------------------------------------
Private stock purchase 1995 (investment advisor) 10,667 $1.875 01/27/00
Investment agreement with Empi 66,845 $5.610 01/20/02
Private placement 1994 309,555 $5.610 01/20/02
Non-employee consultant 7,500 $2.560 02/25/02
Non-employee consultant 10,000 $1.030 02/25/02
- --------------------------------------------------------------------------------
TOTAL OUTSTANDING 404,567
- --------------------------------------------------------------------------------
STOCK OPTIONS The Company has three stock option plans: the 1989 Incentive Plan,
the 1991 Non-Qualified Plan and the 1996 Non-Employee Director and Medical
Advisory Board Plan. Under the three plans, a maximum of 780,000 options have
been designated for grant at prices not less than 85% of fair market value at
date of grant if a non-qualified option, or 100% if an incentive option as
defined under the Internal Revenue Code. Options vest over periods ranging from
two years to five years and the options expire over periods ranging from six to
fifteen years after the date of grant. On November 18, 1998, the Board of
Directors voted to re-price options outstanding under the Incentive Plan that
were priced over $1.50 per share down to $1.50 per share. The market price of
the stock on November 18, 1998 was $1.00 per share. The Company re-priced a
total of 236,175 options.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
Accordingly, no compensation expense has been recognized for the stock option
plans. Had compensation expense for the Company's three stock option plans been
determined based on the fair value at the grant date for awards in 1999 and 1998
consistent with the provisions of SFAS No. 123, the Company's net loss and basic
and diluted net loss per share would have been increased to the pro forma
amounts indicated below:
20
<PAGE>
1999 1998
- -------------------------------------------------------------------------------
Net loss - as reported $ (174,664) $ (143,799)
Net loss - pro forma $ (207,242) $ (195,895)
Basic and diluted net loss per share - as reported $ (.04) $ (.03)
Basic and diluted net loss per share - pro forma $ (.05) $ (.05)
- -------------------------------------------------------------------------------
The above pro forma effects on net loss and net loss per share are not likely to
be representative of the effects on reported net income (loss) for future years
because options vest over several years and additional awards generally are made
each year.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999 and 1998:
1999 1998
- --------------------------------------------------------------------------------
Expected dividend yield 0% 0%
Expected stock price volatility 46.1% 41.8%
Risk-free interest rate 5.5% 5.4%
Expected life of options (years) 6 7
- --------------------------------------------------------------------------------
Weighted average fair value of options granted/re-
priced $.51 $.29
- --------------------------------------------------------------------------------
Additional information relating to all outstanding options as of December 31,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------
1999 1998
-------------------------------------------------------
WEIGHTED AVG WEIGHTED AVG
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 390,675 $1.66 371,233 $1.72
Options granted 169,200 1.45 147,075 1.53
Options exercised 0 0.00 0 0.00
Options surrendered (39,700) 1.76 (127,633) 1.61
- -------------------------------------------------------------------------------------------------
Options outstanding, end of year 520,175 $1.58 390,675 $1.66
Options available for grant at end of year 63,850 185,350
- -------------------------------------------------------------------------------------------------
Total reserved shares 584,025 576,025
- -------------------------------------------------------------------------------------------------
</TABLE>
Of the options outstanding at December 31, 1998, 183,284 exercisable at a
weighted average price of $1.78 per share.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -----------------------------------------------------------------------------------------------------------------
Weighted Avg.
Number Remaining Number
Range of Exercise Outstanding at Contractual Life Weighted Avg Exercisable at Weighted Avg.
Prices 12/31/99 (Yrs) Exercise Price 12/31/99 Exercise Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .81 - $1.49 177,900 5.5 $1.18 96,600 $1.23
$1.50 - $2.25 296,275 5.7 $1.58 113,467 $1.57
$2.26 - $4.00 46,000 4.6 $3.17 41,200 $3.16
- -----------------------------------------------------------------------------------------------------------------
$ .81 - $4.00 520,175 5.6 $1.58 251,267 $1.70
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
8. SIGNIFICANT CUSTOMER
- --------------------------------------------------------------------------------
The Company extends unsecured credit to customers primarily in the United
States. For the years ended December 31, 1999 and 1998, one customer accounted
for 56% and 55% of sales, respectively. This customer accounted for 52% of
accounts receivable as of December 31, 1999 and 62% as of December 31, 1998.
- --------------------------------------------------------------------------------
9. RETIREMENT PLAN
- --------------------------------------------------------------------------------
The Company has a profit sharing plan (the Plan) classified as a defined
contribution plan and qualifying under Section 401(k) of the Internal Revenue
Code. The Plan allows employees to defer a portion of their annual compensation
through pre-tax contributions to the Plan. The Company matches 10% of an
employee's contribution provided the employee's contribution does not exceed 5%
of the employee's compensation. Matching contributions for the years ended
December 31, 1999 and 1998 were $8,969 and $7,910, respectively. The Company's
Board of Directors may approve discretionary contributions to the Plan. No
discretionary contribution has been made since the Plan's inception.
- --------------------------------------------------------------------------------
10. 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 Cystometry System
and related supplies and accessories.
Summarized financial information concerning the Company's reportable segments is
shown in the following table.
VASCULAR DELIVERY
1999 SYSTEMS FIBER OPTIC TOTAL
- --------------------------------------------------------------------------------
Revenues $5,881,993 $3,131,480 $9,013,473
Segment profit (loss) 1,873,788 (2,048,452) (174,664)
Total assets 2,228,951 2,208,811 4,437,762
Capital expenditures 221,016 159,376 380,392
Depreciation and amortization 100,479 270,718 371,197
Interest expense 47,721 47,721 95,442
Interest income 18,857 18,856 37,713
VASCULAR DELIVERY
1998 SYSTEMS FIBER OPTIC TOTAL
- --------------------------------------------------------------------------------
Revenues $5,322,731 $2,709,039 $8,031,770
Segment profit (loss) 1,868,597 (2,012,396) (143,799)
Total assets 2,028,191 2,191,609 4,219,800
Capital expenditures 95,398 156,086 251,484
Depreciation and amortization 141,654 323,112 464,766
Interest expense 46,488 46,488 92,976
Interest income 21,923 21,922 43,845
22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by Item 9 concerning the executive officers and
directors of the Company is incorporated herein by reference to the following
sections of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed:
* Ownership of Voting Securities by Principal Holders and Management
* Proposal 1 - Election of Board of Directors
* Nominees for Election to Board of Directors
* Board of Directors and Committees
* Remuneration of Members of the Board of Directors
* Executive Officers of the Company
* Executive Compensation
* Section 16(a) Beneficial Ownership Reporting Compliance
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference to the
following sections of the Registrant's Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the close of the
fiscal year for which this report is filed:
* Executive Compensation
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference to the
following sections of the Registrant's Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the close of the
fiscal year for which this report is filed:
* Ownership of Voting Securities by Principal Holders and Management
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
A. Documents filed as part of this report
(1) Exhibits. See "Exhibit Index" on page following signatures
B. Reports on Form 8-K
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized:
MEDAMICUS, INC.
Date: March 2, 2000 By: /s/ James D. Hartman
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
- --------------------------------------------------------------------------------
NAME TITLE DATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/s/ James D. Hartman President and Chief Executive Officer 03/02/00
Principal Financial and Accounting Officer
Director
- --------------------------------------------------------------------------------
/ / Thomas L. Auth Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/ / Richard L. Little Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/s/ Richard F. Sauter Director 03/02/00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/s/ Michael M. Selzer Director 03/02/00
- --------------------------------------------------------------------------------
24
<PAGE>
EXHIBIT INDEX
EXHIBIT # DESCRIPTION PAGE
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-18 [File No. 33-42112C] ).
3.2 Articles of Amendment of Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-18 [File No.
33-42112C] ).
3.3 By-laws of the Company (incorporated by reference to Exhibit
3.3 to the Company's Registration Statement on Form S-18
[File No. 33-42112C] ).
*10.1 Employment Agreement, dated February 19, 1996, between the
Company and Dennis S. Madison (incorporated by reference to
Exhibit 10.2 to the Company's annual report on Form 10-KSB
for the year ended December 31, 1995).
*10.2 Employment Agreement, dated February 19, 1996, between the
Company and James D. Hartman (incorporated by reference to
Exhibit 10.3 to the Company's annual report on Form 10-KSB
for the year ended December 31, 1995).
*10.3 MedAmicus, Inc. 1991 Non-Statutory Stock Option Plan,
restated to reflect amendments dated December 18, 1991
(incorporated by reference to Exhibit 10.7 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1991).
*10.4 MedAmicus, Inc. Stock Option Incentive Plan, restated to
reflect amendments dated December 18, 1991, amendments
approved by shareholders on April 21, 1994, and amendments
approved by shareholders on April 24, 1997 (incorporated by
reference to Exhibit 10.5 to the Company's annual report on
Form 10-KSB for the year ended December 31, 1997).
10.5 Supply Agreement, dated May 3, 1991, between the Company and
Medtronic, Inc. (incorporated by reference to Exhibit 10.13
to the Company's Registration Statement on Form S-18 [File
No. 33-42112C] ).
10.6 Lease Agreement, dated February 2, 1990, between the Company
and Jagodzinski Properties, including First Amendment to
Lease Agreement, dated May 1, 1991 (incorporated by
reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-18 [File No. 33-42112C] ).
10.7 Second Amendment to Lease Agreement, dated December 3, 1991,
between Jagodzinski Properties and the Company (incorporated
by reference to Exhibit 10.16 to the Company's annual report
on Form 10-K for the year ended December 31, 1991).
10.8 Addendum to Supply Agreement, dated August 1, 1994, by and
between the Company and Medtronic, Inc. (incorporated by
reference to Exhibit 10.24 to the Company's annual report on
Form 10-KSB for the year ended December 31, 1994).
10.9 Credit and Security Agreement, dated March 5, 1996, by and
between the Company and Norwest Credit, Inc. (incorporated
by reference to Exhibit 10.2 to the Company's annual report
on Form 10-KSB for the year ended December 31, 1995).
25
<PAGE>
EXHIBIT # DESCRIPTION PAGE
- --------------------------------------------------------------------------------
10.10 Revolving Note, dated March 26, 1996 to Norwest Credit, Inc.
(incorporated by reference to Exhibit 10.2 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1995).
10.11 Collateral Account Agreement, dated March 26, 1996, by and
between the Company and Norwest Credit, Inc. (incorporated
by reference to Exhibit 10.2 to the Company's annual report
on Form 10-KSB for the year ended December 31, 1995).
10.12 Lockbox Agreement, dated March 26, 1996 by and among the
Company, Norwest Credit, Inc. and Norwest Bank Minnesota
(incorporated by reference to Exhibit 10.2 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1995).
10.13 Management Support Agreement, dated March 26, 1996 by and
among the Company, James Hartman and Norwest Credit, Inc.
(incorporated by reference to Exhibit 10.2 to the Company's
annual report on Form 10-KSB for the year ended December 31,
1995).
*10.14 MedAmicus, Inc. 1996 Non-Employee Director and Medical
Advisory Board Stock Option Plan (incorporated by reference
to Exhibit 10.2 to the Company's annual report on Form
10-KSB for the year ended December 31, 1995).
10.15 First Amendment to Credit and Security Agreement, dated June
24, 1997, by and between the Company and Norwest Credit,
Inc. (incorporated by reference to Exhibit 10.1 to the
Company's quarterly report on Form 10-QSB for the quarter
ended June 30, 1997).
10.16 Second amendment to credit and security agreement, dated May
21, 1998, between the Company and Norwest Credit, Inc
(incorporated by reference to Exhibit 10.1 to the Company's
quarterly report on Form 10-QSB for the quarter ended June
30, 1998)
10.17 Third amendment to credit and security agreement, dated June
17, 1998, between the Company and Norwest Credit, Inc
(incorporated by reference to Exhibit 10.2 to the Company's
quarterly report on Form 10-QSB for the quarter ended June
30, 1998)
10.18 Revolving note agreement, dated June 17, 1998, between the
Company and Norwest Credit, Inc (incorporated by reference
to Exhibit 10.3 to the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1998)
10.19 Fourth amendment to credit and security agreement, dated
April 29, 1999, between the Company and Wells Fargo Credit,
Inc. (incorporated by reference to Exhibit 10.1 to the
Company's quarterly report on Form 10-QSB for the quarter
ended June 30, 1999)
10.20 Revolving note agreement, dated April 29, 1999, between the
Company and Wells Fargo Credit, Inc. (incorporated by
reference to Exhibit 10.2 to the Company's quarterly report
on Form 10-QSB for the quarter ended June 30, 1999) 21.1
Subsidiaries of the Registrant. None.
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Independent Auditor's Report for the years ended December
31, 1998 and 1999
27 Financial Data Schedule
* Indicates a management contract or compensatory plan or
arrangement
26
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANT
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 related to the Stock Option Incentive Plan, 1991
Non-Statutory Stock Option Plan and the 1992 Non-Employee Director Plan
(Commission File No. 33-94524) and on Form S-3 relating to the registration of
1,061,734 shares of common stock (Commission File No. 33-86292) of our report
dated January 21, 2000, with respect to the financial statements of MedAmicus,
Inc., included in this annual report on Form 10-KSB for the year ended December
31, 1999.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 2, 2000
EXHIBIT 23.2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
MedAmicus, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of MedAmicus, Inc., as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MedAmicus, Inc., as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
January 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,006,695
<SECURITIES> 0
<RECEIVABLES> 1,252,502
<ALLOWANCES> 22,837
<INVENTORY> 1,407,189
<CURRENT-ASSETS> 3,716,464
<PP&E> 3,440,704
<DEPRECIATION> 2,750,073
<TOTAL-ASSETS> 4,437,762
<CURRENT-LIABILITIES> 1,991,602
<BONDS> 47,299
0
0
<COMMON> 41,148
<OTHER-SE> 2,357,713
<TOTAL-LIABILITY-AND-EQUITY> 4,437,762
<SALES> 9,013,473
<TOTAL-REVENUES> 9,013,473
<CGS> 4,844,168
<TOTAL-COSTS> 4,844,168
<OTHER-EXPENSES> 913,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,442
<INCOME-PRETAX> (174,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> (174,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174,664)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
