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, 2000
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,
2000 was 4,157,899
Transitional Small Business Disclosure Format. Yes ___ No _X_
1
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MEDAMICUS, INC.
INDEX
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Page #
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of September 30, 2000 and December 31, 1999 3
Statements of Operations for the three and nine months ended September 30, 2000 and 1999 4
Statement of Shareholders' Equity for the nine months ended September 30, 2000 4
Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 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
</TABLE>
2
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BALANCE SHEETS
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<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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<S> <C> <C>
ASSETS Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 908,701 $ 1,006,695
Accounts receivable, net of allowance for doubtful accounts of
$52,130 and $22,837, respectively 1,579,120 1,229,665
Inventories 1,465,875 1,407,189
Prepaid expenses and other assets 302,023 72,915
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TOTAL CURRENT ASSETS 4,255,719 3,716,464
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PROPERTY AND EQUIPMENT:
Equipment 2,541,166 2,401,566
Office furniture, fixtures and computers 593,977 673,338
Leasehold improvements 374,705 365,800
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3,509,848 3,440,704
Less accumulated depreciation and amortization (2,843,158) (2,750,073)
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NET PROPERTY AND EQUIPMENT 666,690 690,631
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PATENT RIGHTS, net of accumulated amortization of
$159,374 and $151,122, respectively 59,002 30,667
===================================================================================================================
TOTAL ASSETS $ 4,981,411 $ 4,437,762
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 1,476,708 $ 1,252,213
Accounts payable 400,925 383,280
Accrued expenses 395,937 334,365
Current installments of capital lease obligations 20,515 21,744
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TOTAL CURRENT LIABILITIES 2,294,085 1,991,602
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LONG-TERM LIABILITIES:
Capital lease obligations, less current installments 30,595 47,299
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TOTAL LIABILITIES 2,324,680 2,038,901
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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 4,157,899 and 4,114,774 shares, respectively 41,579 41,148
Additional paid-in capital 8,639,101 8,578,117
Accumulated deficit (6,023,949) (6,220,404)
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TOTAL SHAREHOLDERS' EQUITY 2,656,731 2,398,861
===================================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,981,411 $ 4,437,762
===================================================================================================================
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
3
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STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
09/30/00 09/30/99 09/30/00 09/30/99
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Sales $ 2,578,440 $ 2,275,999 $ 7,994,295 $ 6,762,654
Cost of sales 1,308,898 1,310,234 4,003,864 3,578,177
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GROSS PROFIT 1,269,542 965,765 3,990,431 3,184,477
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OPERATING EXPENSES:
Research and development 230,896 254,793 719,706 698,108
Selling, general and administrative 903,811 779,162 2,989,835 2,489,515
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TOTAL OPERATING EXPENSES 1,134,707 1,033,955 3,709,541 3,187,623
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OPERATING INCOME (LOSS) 134,835 (68,190) 280,890 (3,146)
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OTHER INCOME (EXPENSE):
Interest expense (34,002) (26,201) (105,496) (63,848)
Interest income 13,206 9,583 36,679 27,369
Other (3,825) (4,098) (15,618) (12,001)
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TOTAL OTHER INCOME (EXPENSE) (24,621) (20,716) (84,435) (48,480)
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NET INCOME (LOSS) $ 110,214 $ (88,906) $ 196,455 $ (51,626)
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NET INCOME (LOSS) PER SHARE
Basic $ 0.03 $ (0.02) $ 0.05 $ (0.01)
Diluted $ 0.03 $ (0.02) $ 0.05 $ (0.01)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Basic 4,145,096 4,112,274 4,130,273 4,112,274
Diluted 4,402,895 4,112,274 4,302,596 4,112,274
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- Paid-In Accumulated
NINE MONTHS ENDED SEPTEMBER 30, 2000 Shares Amount Capital Deficit Total
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<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1999 4,114,774 $ 41,148 $ 8,578,117 $ (6,220,404) $ 2,398,861
Options exercised 33,125 331 48,900 0 49,231
Warrants exercised 10,000 100 10,200 0 10,300
Warrants issued to consultant for services 0 0 1,884 0 1,884
Net income for the nine month period ended 9/30/00 0 0 0 196,455 196,455
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BALANCES AT SEPTEMBER 30, 2000 4,157,899 $ 41,579 $ 8,639,101 $ (6,023,949) $ 2,656,731
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</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
4
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STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
09/30/00 09/30/99
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 196,455 $ (51,626)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 228,014 279,968
Warrants issued for compensation 1,884 0
Changes in operating assets and liabilities:
Accounts receivable (349,455) (201,236)
Inventories (58,686) (166,870)
Prepaid expenses and other assets (229,108) (9,800)
Accounts payable 17,645 29,757
Accrued expenses 61,572 91,897
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NET CASH USED IN OPERATING ACTIVITIES (131,679) (27,910)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of retirements (195,821) (245,530)
Additions to patent rights (36,587) (6,272)
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NET CASH USED IN INVESTING ACTIVITIES (232,408) (251,802)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (17,933) (34,858)
Proceeds from note payable to bank 224,495 187,619
Proceeds from exercise of stock options 49,231 0
Proceeds from exercise of warrants 10,300 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES 266,093 152,761
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NET DECREASE IN CASH AND CASH EQUIVALENTS (97,994) (126,951)
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,006,695 1,022,055
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 908,701 $ 895,104
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 103,040 $ 59,578
</TABLE>
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, 1999, filed by the Company with the Securities and Exchange
Commission.
The financial statements presented herein as of September 30, 2000 and for the
three and nine months ended September 30, 2000 and 1999 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:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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<S> <C> <C>
Purchased parts and subassemblies $ 982,729 $ 844,775
Work in process 261,128 268,439
Finished goods 222,018 293,975
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TOTAL INVENTORY $ 1,465,875 $ 1,407,189
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</TABLE>
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.
4. INCOME TAXES
No income tax provision has been presented in the Statements of Operations due
to the utilization of net operating loss carryforwards.
5. REVENUE RECOGNITION
In 1999, the staff of the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". SAB
No. 101 summarizes some of the staff's interpretations of the application of
generally accepted accounting principles to revenue recognition. The Company
will adopt SAB No. 101 when required in the fourth quarter of 2000. Management
believes the adoption of SAB No. 101 will not have a significant affect on its
financial statements.
6. SEGMENT AND RELATED INFORMATION
The Company has two divisions that comprise the internal reporting structure for
its management. These divisions are the Percutaneous Delivery Solutions (PDS)
division and the Gynecology (GYN) division 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 divisions.
PERCUTANEOUS DELIVERY SOLUTIONS DIVISION: This division consists of business
activities related to the development, manufacture and sale of vascular delivery
products, primarily on an OEM basis to medical device companies such as
Medtronic and several other contract manufacturing customers.
6
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GYNECOLOGY DIVISION: This division consists of business activities related to
the development, manufacture and sale of the Company's LuMax(TM) Cystometry
System incorporating proprietary fiber optic pressure sensing technology along
with related supplies and accessories.
Summarized financial information concerning the Company's reportable segments is
shown in the following table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED 9/30/00 PDS GYN TOTAL
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<S> <C> <C> <C>
Revenues $ 1,845,499 $ 732,941 $ 2,578,440
Segment profit (loss) 593,492 (483,278) 110,214
Total assets 2,717,459 2,263,952 4,981,411
Capital expenditures (43,202) (27,644) (70,846)
Depreciation and amortization (27,528) (19,657) (47,185)
Interest expense 17,002 17,000 34,002
Interest income 6,603 6,603 13,206
NINE MONTHS ENDED 9/30/00 PDS GYN TOTAL
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Revenues $ 5,428,159 $ 2,566,136 $ 7,994,295
Segment profit (loss) 1,705,273 (1,508,818) 196,455
Total assets 2,717,459 2,263,952 4,981,411
Capital expenditures 29,397 39,747 69,144
Depreciation and amortization 25,628 75,709 101,337
Interest expense 52,750 52,746 105,496
Interest income 18,340 18,339 36,679
THREE MONTHS ENDED 9/30/99 PDS GYN 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
NINE MONTHS ENDED 9/30/99 PDS GYN TOTAL
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Revenues $ 4,383,003 $ 2,379,651 $ 6,762,654
Segment profit (loss) 1,398,239 (1,449,865) (51,626)
Total assets 2,136,574 2,306,015 4,442,589
Capital expenditures 152,538 92,992 245,530
Depreciation and amortization 73,984 205,984 279,968
Interest expense 31,925 31,923 63,848
Interest income 13,686 13,683 27,369
</TABLE>
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.
7
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RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
OVERVIEW
--------
Total revenues were $7,994,295 for the nine months ended September 30, 2000,
compared to $6,762,654 for the nine months ended September 30, 1999,
representing an 18.2% increase. Total gross profit increased from $3,184,477 for
the nine months ended September 30, 1999, to $3,990,431 for the nine months
ended September 30, 2000, representing a 25.3% increase. Total gross profit as a
percent of sales increased from 47.1% to 49.9% in such periods. Total research
and development expenditures were $719,706 or 9.0% of sales for the nine months
ended September 30, 2000, compared to $698,108 or 10.3% of sales for the nine
months ended September 30, 1999. Sales and marketing expenses increased from
$1,721,985 for the nine month period ended September 30, 1999 to $2,047,467 for
the nine month period ended September 30, 2000. General and administrative
expenses increased from $767,530 for the nine months ended September 30, 1999 to
$942,368 for the nine months ended September 30, 2000. The increase in general
and administrative expenses was primarily due to increased spending on salaries,
increased matching costs on the Company's 401K program, registration costs
associated with maintaining ISO 9000 certification, investor relations
activities and a $39,000 charge to bad debts during the period related to two
customers. Additionally, the Company incurred $23,500 in consulting costs
related to business evaluation during the period. Interest income and other
expenses remained relatively unchanged in total during the comparable periods.
Interest expense increased $41,648 between the comparable periods primarily due
to larger outstanding borrowings on the line of credit and higher interest
rates.
As a result, the Company had net income of $196,455 or $.05 per share for the
nine months ended September 30, 2000, compared to a net loss of $51,626 or $.01
per share for the nine months ended September 30, 1999.
PERCUTANEOUS DELIVERY SOLUTIONS DIVISION
----------------------------------------
Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $4,742,459 for the nine months ended September
30, 2000, compared to $3,940,103 for the nine months ended September 30, 1999,
representing a 20.4% increase. This increase was primarily due to shipments of
the Left Ventricle Lead Delivery System (LVLDS) to Medtronic. Medtronic built
some inventory of these kits during the first quarter of 2000 which helped to
impact the comparable results. This sophisticated kit, which began shipping
during the third quarter of 1999, allows physicians access to the left ventricle
of the heart in order to provide stimulation for the effective treatment of
patients with congestive heart failure. The division is following a strategy of
expanding its product offering and customer base for introducer products. The
introducer customer base now totals twelve customers compared to three at the
beginning of 1999. The Company is in the ramp-up stage with a number of these
customers, so future sales are expected to be favorably influenced by these new
relationships. The Company expects to see strong introducer sales to continue in
the fourth quarter.
Contract manufacturing sales were $644,561 for the nine months ended September
30, 2000, compared to $356,300 for the nine months ended September 30, 1999.
This increase was primarily due to one of the Company's contract customers
ordering higher quantities of product during the current period. The Company
expects contract manufacturing sales in the fourth quarter to be consistent with
those seen in the third quarter. The Company also does some contract research
and development work periodically for Medtronic and realized sales of $41,139
for the nine months ended September 30, 2000, compared to $86,600 for the nine
months ended September 30, 1999.
The gross profit percentage on vessel introducers and contract manufacturing
totaled 50.6% for the nine months ended September 30, 2000, compared to 51.2%
for the nine months ended September 30, 1999. The decrease in the gross profit
percentage on vessel introducers and contract manufacturing was primarily due to
two factors. First, the Company increased spending on overhead as it ramped up
production for the LVLDS product, as well as other new product introductions.
Second, the mix of introducer products sold during the first half of 2000
changed with the introduction of several new customers, negatively impacting the
gross profit.
Total research and development expenditures were $376,274 or 6.9% of sales for
the nine months ended September 30, 2000, compared to $345,013 or 7.9% of sales
for the nine months ended September 30, 1999. The Company
8
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increased its engineering staff and has been working on a number of projects for
Medtronic. The Company is also working on several new introducer product
concepts.
Selling expenses increased from $93,570 for the nine months ended September 30,
1999 to $153,648 for the nine months ended September 30, 2000. This increase was
primarily due to two factors. First, commission expense increased due to the
increase in sales. Second, the Company hired a sales consultant in May 1999 to
help expand the customer base for its products. The costs associated with this
sales consultant, including attending trade shows during the current period were
not incurred during the full nine month period in 1999.
GYNECOLOGY DIVISION
-------------------
Sales of the Company's fiber optic pressure sensing products were $2,566,136 for
the nine months ended September 30, 2000, compared to $2,379,651 for the nine
months ended September 30, 1999, representing a 7.8% increase. Monitor sales
increased 3.5% or $39,914 and catheter sales increased 17.2% or $187,577 over
the comparable period. The increase in monitor sales was primarily due to
selling systems at a higher average selling price during the comparable periods.
The average selling price per system increased significantly from the previous
year, primarily due to the introduction of the LuMax Pro, a next generation
version of the LuMax System which provides enhanced study management, reporting
and record keeping capabilities for clinicians. The Company also continues to be
pleased with the steady growth in its catheter sales. Accessory and service
sales were down slightly during the current period.
The gross profit percentage on fiber optic products totaled 48.4% or $1,241,834
for the nine month period ended September 30, 2000, compared to 39.5% or
$939,650 for the nine month period ended September 30, 1999. This increase was
primarily due to a higher average selling price on the LuMax Pro System, better
catheter yields, and improved catheter margins related to the launch of the
S-Series catheter in the third quarter of 1999. The Company expects gross profit
in the gynecology division to improve in the future as the Company increases
sales and better utilizes its capacity.
Total research and development expenditures were $343,432 or 13.4% of sales for
the nine months ended September 30, 2000, compared to $353,095 or 14.8% of sales
for the nine months ended September 30, 1999. The Company completed development
on the next generation LuMax System, the LuMax Pro in March 2000. This product
was launched in March at the Company's sales meeting. The Company continues to
explore product enhancements and new technologies and expects research and
development expenditures in the fourth quarter to be consistent with those seen
in the third quarter.
Selling expenses increased from $1,628,415 for the nine months ended September
30, 1999 to $1,893,819 for the nine months ended September 30, 2000. The
increase was primarily due to a marketing campaign kicked off in the first
quarter of 2000 to help generate leads for the Company's direct sales force and
heighten awareness of the LuMax System. Other reasons for the increase included
increased spending on salaries, commissions, and samples related to the launch
of the S-Series catheter and LuMax Pro.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
OVERVIEW
--------
Total revenues were $2,578,440 for the three months ended September 30, 2000,
compared to $2,275,999 for the three months ended September 30, 1999,
representing a 13.3% increase. Total gross profit increased from $965,765 for
the three months ended September 30, 1999 to $1,269,542 for the three months
ended September 30, 2000, representing a 31.5% increase. Total gross profit as a
percent of sales increased from 42.4% to 49.2% in such periods. Total research
and development expenditures were $230,896 or 9.0% of sales for the three months
ended September 30, 2000, compared to $254,793 or 11.2% of sales for the three
months ended September 30, 1999. Sales and marketing expenses increased from
$528,797 for the three month period ended September 30, 1999 to $605,178 for the
three month period ended September 30, 2000. General and administrative expenses
increased from $250,365 for the three months ended September 30, 1999 to
$298,633 for the three months ended September 30, 2000, primarily due to the
factors discussed above. Interest income and other expenses remained relatively
9
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unchanged during the comparable periods. Interest expense increased $7,801
between the comparable periods primarily due to larger outstanding borrowings on
the line of credit and higher interest rates.
As a result, the Company had net income of $110,214 or $.03 per share for the
three months ended September 30, 2000, compared to a net loss of $88,906 or $.02
per share for the three months ended September 30, 1999.
PERCUTANEOUS DELIVERY SOLUTIONS DIVISION
----------------------------------------
Sales of vessel introducers, primarily to Medtronic under an exclusive
distribution arrangement, were $1,565,930 for the three months ended September
30, 2000, compared to $1,318,437 for the three months ended September 30, 1999,
representing a 18.8% increase. This increase was due to the factors stated
above. The Company expects introducer sales in the fourth quarter to be
consistent with third quarter results.
Contract manufacturing sales were $237,360 for the three months ended September
30, 2000, compared to $81,217 for the three months ended September 30, 1999, due
to the factors discussed above. The Company also does some contract research and
development work periodically for Medtronic and realized sales of $42,209 for
the three months ended September 30, 2000, compared to $50,854 for the three
months ended September 30, 1999.
The gross profit percentage on vessel introducers and contract manufacturing
totaled 49.6% for the three months ended September 30, 2000, compared to 47.9%
for the three months ended September 30, 1999. This increase was primarily due
to the increased contract manufacturing sales between quarters which carried a
higher gross profit percentage.
Total research and development expenditures were $123,071 or 6.7% of sales for
the three months ended September 30, 2000, compared to $136,217 or 9.4% of sales
for the three months ended September 30, 1999, due to the factors discussed
above.
Selling expenses increased from $22,980 for the three months ended September 30,
1999 to $37,197 for the three months ended September 30, 2000, due to the
factors discussed above.
GYNECOLOGY DIVISION
-------------------
Sales of the Company's fiber optic pressure sensing products were $732,941 for
the three months ended September 30, 2000, compared to $825,491 for the three
months ended September 30, 1999, representing an 11.2% decrease. Monitor sales
decreased 29.7% or $118,849 and catheter sales increased 19.2% or $67,347 over
the prion period. The decrease in monitor sales was primarily driven by lower
sales quantities in the current third quarter compared to the third quarter last
year. While the Company was disappointed with the monitor sales results during
the quarter, the Company expects monitor sales to rebound in the fourth quarter
because of the number of active leads currently in the system. The Company
continues to be pleased with the increases in its catheter sales and expects to
see additional increases in the fourth quarter due to a price increase effective
October 15.
The gross profit percentage on fiber optic products totaled 48.3% or $345,155
for the three month period ended September 30, 2000, compared to 32.8% or
$270,663 for the three month period ended September 30, 1999, due to the factors
discussed above.
Total research and development expenditures were $107,825 or 17.7% of sales for
the three months ended September 30, 2000, compared to $118,576 or 14.4% of
sales for the three months ended September 30, 1999, due to the factors
discussed above.
Selling expenses increased from $505,817 for the three months ended September
30, 1999 to $567,981 for the three months ended September 30, 2000. The increase
was primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended September 30,
2000 was $131,679, consisting of net income of $196,455, adjusted for non-cash
items of depreciation and amortization of $228,014 and a warrant issued for
compensation of $1,884, less a net change in operating assets and liabilities of
$558,032. The Company saw an
11
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increase in accounts receivable during the first nine months of 2000 primarily
due to higher sales compared to 1999. The Company also saw an increase in
prepaid expenses in the amount of $229,108. The bulk of the increase was related
to costs associated with leasehold improvements which currently stand at
approximately $210,000. The Company recently expanded into an additional 10,000
square feet of space and is in the process of upgrading its entire facility.
Once all of the costs have been incurred, the balance will be pulled from
prepaid expenses and capitalized as a leasehold improvement and expensed over a
5 year period consistent with the term of the Company's facility lease.
Additionally, the landlord will be financing $150,000 of the leasehold
improvement costs with a repayment term of 5 years, which will result in a
$150,000 cash infusion to the Company during the fourth quarter.
Net cash used in investing activities for the nine months ended September 30,
2000 was $232,408. Equipment was purchased totaling $195,821 and the Company had
additions to patent rights totaling $36,587 during the period. The Company
disposed of $126,677 worth of fully depreciated computer equipment, software and
equipment during the third quarter as part of the move into the new space.
Net cash provided by financing activities for the nine months ended September
30, 2000 was $266,093. The Company made principal debt payments of $17,933 and
borrowed an additional $224,495 on its line of credit. The Company also received
cash of $59,531 from the exercise of options and warrants.
As a result, the Company's cash and cash equivalents were $908,701 as of
September 30, 2000 compared to $1,006,695 at December 31, 1999. Working capital
increased from $1,724,862 as of December 31, 1999 to $1,961,634 as of September
30, 2000.
On May 26, 2000, the Company signed an extension through June 30, 2001 on its
revolving line of credit with a financial institution. The line was increased
from $2,000,000 to $2,500,000 and the agreement calls for interest at the rate
of 1.00% over the financial institution's base rate with no minimum interest
due. The availability under the line is subject to borrowing base requirements,
and advances are at the discretion of the lender. The line is secured by
substantially all of the Company's assets.
On August 25, 2000, the Company signed two development and licensing agreements
with Med-Design Corporation. The first one relates to a safety "Seldinger"
needle device and the second relates to a safety introducer (see the Company's
Report on Form 8K filed on September 19, 2000). These agreements have the
potential to significantly increase sales beginning in 2001. The Company will
need to expend capital in order to begin ramping up its production capacity for
these products beginning in 2001. Depending on the level of demand for these
products, the Company may need to raise additional capital in the future in
order to fully take advantage of the potential opportunity associated with these
products.
Except for the capital needs associated with such products, 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.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Reform Litigation Act of 1995. Certain
important factors could cause results to differ materially from those
anticipated by some statements made herein. You are cautioned that all
forward-looking statements involve risks and uncertainties. Among the factors
that could cause results to differ materially are those discussed in our Annual
Report on Form 10-KSB and other recent filings with the Securities and Exchange
Commission, as well as, and without limitation, failure of the Med-Design
products to meet sales expectations and/or higher than anticipated costs in
launching and marketing such products; attracting and retaining key personnel;
lack of market acceptance of the Company's products; introduction of competitive
products; the availability of third party reimbursement; changes in government
regulations; difficulties protecting the Company's intellectual property rights;
exposure to product liability claims; performance of the Company's sales
representatives and ability to attract and retain
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effective sales representatives; and the Risk Factors included in Form 10-QSB
filed with the Securities and Exchange Commission on May 11, 2000.
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
* Development and licensing agreement for safety "Seldinger" needle device
between Med-Design Corporation and MedAmicus, Inc., dated August 25, 2000
(incorporated by reference to Exhibit 10.1 to the Company's report on Form
8-K dated August 25, 2000)
* Development and licensing agreement for safety introducer between
Med-Design Corporation and MedAmicus, Inc., dated August 25, 2000
(incorporated by reference to Exhibit 10.2 to the Company's report on Form
8-K dated August 25, 2000)
* Press Release announcing execution of development and licensing agreements,
dated August 28, 2000 (incorporated by reference to Exhibit 10.3 to the
Company's report on Form 8-K dated August 25, 2000).
* Financial Data Schedule - Exhibit 27
ITEM 6(b) - REPORTS ON FORM 8-K
Form 8-K dated August 25, 2000, reporting agreements with Med-Design
Corporation.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized:
MEDAMICUS, INC.
Date: October 25, 2000 By: /s/ James D. Hartman
President, Chief Executive Officer and
Chief Financial Officer
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