-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H/bTJcrtGEkyjSDZXpYxOYD75YTptDoAL5ChKuzBLnJJ7K3kaK8BsuY/FGiXkMSd VQ7DNPtBVa8PmrUDOmeEzA== 0000897101-98-000544.txt : 19980514 0000897101-98-000544.hdr.sgml : 19980514 ACCESSION NUMBER: 0000897101-98-000544 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATS MEDICAL INC CENTRAL INDEX KEY: 0000824068 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 411595629 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18602 FILM NUMBER: 98618806 BUSINESS ADDRESS: STREET 1: 3905 ANNAPOLIS LA STREET 2: SUITE 105 CITY: MINNEAPOLIS STATE: MN ZIP: 55447 BUSINESS PHONE: 6125537736 MAIL ADDRESS: STREET 1: 3905 ANNAPOLIS LANE STREET 2: SUITE 105 CITY: MINNEAPOLIS STATE: MN ZIP: 55447 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 COMMISSION FILE NO. 0-18602 ATS MEDICAL, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1595629 (state or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3905 ANNAPOLIS LANE, SUITE 105 55447 MINNEAPOLIS, MINNESOTA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (612) 553-7736 Former name, if changed since last report: N/A 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 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 outstanding of each of the registrant's classes of common stock as of May 1, 1998 was: Common Stock $.01 par value 17,769,579 shares ================================================================================ ATS MEDICAL, INC. INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Statements of Financial Position - 3 March 31, 1998 (unaudited) and December 31, 1997 Statements of Operations - 4 Three Months Ended March 31, 1998 and 1997 (unaudited) Statements of Cash Flows - 5 Three Months Ended March 31, 1998 and 1997 (unaudited) Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of 8 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 11 Market Risk PART II. OTHER INFORMATION 12 Signatures 13 Item 1 Financial Statements ATS MEDICAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
MARCH 31, DECEMBER 31, 1998 1997 ASSETS ------------ ------------ (Unaudited) (Note) CURRENT ASSETS Cash & cash equivalents $ 3,985,692 $ 4,568,332 Marketable securities 20,964,907 20,982,176 ------------ ------------ 24,950,599 25,550,508 Accounts receivable, less allowance of $265,000 in 1998 and $260,000 in 1997 4,507,293 4,446,834 Inventories 24,093,113 22,686,273 Prepaid expenses 591,522 555,570 ------------ ------------ TOTAL CURRENT ASSETS 54,142,527 53,239,185 FURNITURE, MACHINERY & EQUIPMENT 1,979,925 2,023,646 Less accumulated depreciation 1,235,964 1,247,459 ------------ ------------ 743,961 776,187 OTHER ASSETS 375,259 370,659 ------------ ------------ TOTAL ASSETS $ 55,261,747 $ 54,386,031 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,443,517 $ 621,708 Accrued payroll and expenses 242,067 241,584 ------------ ------------ TOTAL CURRENT LIABILITIES 1,685,584 863,292 LONG-TERM DEBT 0 0 SHAREHOLDERS' EQUITY Common Stock, $.01 par value: Authorized 40,000,000 shares; Issued and outstanding 17,768,079 & 17,589,058 at March 31, 1998 and Dec 31, 1997, respectively 177,681 175,891 Additional paid-in capital 71,153,592 71,797,797 Other equity 41,529 40,306 Retained earnings (deficit) (17,796,639) (18,491,255) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 53,576,163 53,522,739 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 55,261,747 $ 54,386,031 ============ ============
Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed financial statements. ATS MEDICAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, -------------------------------- 1998 1997 ----------- ----------- REVENUES Net sales $ 4,248,720 $ 3,444,650 Less cost of goods sold 2,639,975 2,172,088 ----------- ----------- GROSS PROFIT 1,608,745 1,272,562 OPERATING EXPENSES Research, development and engineering 357,278 235,494 Selling, general and administrative 924,045 719,419 ----------- ----------- TOTAL EXPENSES 1,281,323 954,913 Interest income 367,195 259,390 NET INCOME $ 694,617 $ 577,039 =========== =========== Net income per share: Basic $ 0.04 $ 0.04 =========== =========== Diluted $ 0.04 $ 0.03 =========== =========== Weighted average number of shares outstanding during the period: Basic 17,622,319 16,406,453 =========== =========== Diluted 18,160,979 17,139,668 =========== =========== ATS MEDICAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 1998 1997 ------------ ------------ OPERATING ACTIVITIES Net income $ 694,617 $ 577,039 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 61,596 60,501 Loss on disposal of equipment 800 0 Changes in operating assets and liabilities: Accounts receivable (60,459) (1,329,842) Prepaid expenses (35,952) 122,858 Other assets (4,600) (2,884) Inventories (1,406,840) (1,405,448) Accounts payable and accrued expenses 822,292 81,089 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 71,454 (1,896,687) INVESTING ACTIVITIES Purchase of marketable securities (22,692,308) (18,512,062) Sale of marketable securities 22,709,577 3,876,756 Purchases of property, plant and equipment (30,171) (13,145) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (12,902) (14,648,451) FINANCING ACTIVITIES Net proceeds from sale of common stock (642,415) 19,473,853 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES (642,415) 19,473,853 Effect of exchange rate changes on cash 1,223 (11,041) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (582,640) 2,917,674 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,568,332 2,320,010 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,985,692 $ 5,237,684 ============ ============
ATS MEDICAL, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) March 31, 1998 Note A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. Note B - NET INCOME PER SHARE Net income per share is computed using the weighted average number of common shares outstanding and dilutive common stock equivalents, if applicable. In February 1997, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces the presentation of primary earnings per share (EPS) with basic EPS and also requires dual presentation of basic and diluted EPS for entities with complex capital structures. This Statement is effective for the fiscal year ended December 31, 1998. For the quarter ended March 31, 1998, the basic net income per share under Statement 128 is $.04 per share on 17,622,319 weighted average shares outstanding for the period. Note C - SEGMENT REPORTING In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (Statement 131), which is effective for years beginning after December 15, 1997. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997, and therefore the company will adopt the new requirement retroactively in 1998. Management has not completed its review of Statement 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's reported segments. The Company's only product is a prosthetic heart valve. "Segments" would involve tabulation of geographically significant customers which tend to follow worldwide market distribution for replacement heart valves. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ATS Medical, Inc. ("ATS" or the "Company") is engaged in the manufacturing and marketing of a pyrolytic carbon bileaflet mechanical heart valve. The Company sells the ATS Open Pivot TM valve (the "ATS Valve" or the "Valve") in international markets and is conducting a clinical study in the United States for the purpose of obtaining regulatory approval. RESULTS OF OPERATIONS Net sales for the quarter ended March 31, 1998 increased 23% to $4,248,720 compared to $3,444,650 for the quarter ended March 31, 1997. Unit sales increased 22% in the first quarter 1998 compared to the first quarter 1997. Sales growth can be attributed to continued implant growth in select European countries and Japan. For the first quarter of 1998 this sales growth over the corresponding 1997 period was achieved in spite of significant price competition from other valve manufacturers and the increased strength of the U.S. dollar relative to almost all international currencies. ATS sells the Valve to distributors throughout the world in U.S. dollars. Cost of sales for the first quarter of 1998 totaled $2,639,975 or 62% of sales compared to $2,172,088 or 63% of sales for the first quarter of 1997. The price of the carbon components contained in the Valves sold in the three months ended March 31, 1998 decreased 4% as compared to the cost of carbon components contained in the Valves sold in the three months ended March 31, 1997. Based upon the Company's internal sales projections, the price of the carbon contained in Valves sold during the remainder of 1998 is expected to be 4% lower than in 1997. Gross profit totaled $1,608,745 for the quarter ended March 31, 1998 or 38% of sales, compared to gross profit of $1,272,562 or 37% of sales for the quarter ended March 31, 1997. The modest (2%) increase in average selling prices was the key factor in the improvement in gross profit. Research, development and engineering expenses totaled $357,278 for the quarter ended March 31, 1998 versus $235,494 for the quarter ended March 31, 1997. Approximately 23% and 42% of research and development expenses for the quarters ended March 31, 1998 and 1997, respectively, were for testing and outside consulting services related to the Valve. The Company began human implants in the United States under an Investigational Device Exemption ("IDE") in January 1997. The Company sells the Valves to the hospitals involved in the study and is eligible for reimbursement by Medicare and most private insurance companies. The Company is responsible for reimbursing the hospital for certain additional tests and procedures required by the clinical protocol and accrues the estimated total cost of follow-up at the time the sale is recorded as research and development expense. Approximately 77% and 58% of research and development expenses for the quarters ended March 31, 1998 and 1997, respectively, were for clinical costs. Selling, general and administrative expenses totaled $924,045 for the quarter ended March 31, 1998, an increase from the $719,419 reported for the quarter ended March 31, 1997. Most of the increase was for salaries, benefits and related payroll expenses. The Company had 63 employees at March 31, 1998 compared to 56 employees at March 31, 1997. In September, 1997 the Company announced the closing of its Glasgow, Scotland facility, so all expenses were incurred by the Company in its Minneapolis, MN facility. There was no interest expense incurred in the quarters ended March 31, 1998 and 1997. Interest income totaled $367,195 for the quarter ended March 31, 1998 compared to $259,390 for the quarter ended March 31, 1997. Cash on hand during the first quarter is significantly greater than the average amount on hand during the first quarter of 1997, due primarily to the sale of equity and exercise of warrants in the first quarter of 1997. Interest income for the remainder of 1998 is expected to be less than the interest income for the corresponding periods of 1997 as cash balances decline relative to 1997. Net income totaled $694,617 for the quarter ended March 31, 1998 versus net income of $577,039 for the quarter ended March 31, 1997. Earnings per share totaled $.04 for the quarter ended March 31, 1998 compared to $.03 for the quarter ended March 31, 1997. The weighted average number of shares of common stock outstanding increased 6% for the three months ended March 31, 1998 over March 31, 1997 primarily due to the issuance of shares in a February 1997 private sale of common stock. YEAR 2000 SITUATION The Company has been assessing the software and hardware used in daily operations so that all systems will function properly with respect to dates in the Year 2000 and beyond. Until recently, computer programs were written to store only two digits of date-related information in order to more efficiently handle and store data. Thus, some software programs are unable to distinguish between the year 1900 and the year 2000. This is frequently referred to as the "Year 2000 Problem." Utilizing internal and external resources, the Company determined that modification or replacement of various programs would be necessary so that all software, hardware and instrumentation systems are Year 2000 compliant. Business applications and data for the Company are stored on a local area network and accessed by personal computers when necessary. In 1997, a significant number of employee workstations and manufacturing hardware were upgraded and are now Year 2000 compliant. All future hardware purchases are required to be Year 2000 compliant. The Company has purchased "off the shelf" manufacturing and accounting software supported by vendors who provide updated versions of the software program. These vendors have indicated that the software upgrades available will be Year 2000 compliant. The Company also has custom software programs and databases that are used for manufacturing. These programs are being reviewed and tested for Year 2000 issues. As a part of this process, the Company has been negotiating conversion of these programs. Requirements of the software programming include testing and revision for Year 2000 issues. While the Company believes that its planning efforts are adequate to address Year 2000 concerns, there is no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have a material effect on the Company. Costs of the Year 2000 initiatives are not expected to be material to the Company's results of operations or financial position. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and marketable securities decreased by $599,909 from $25,550,508 at December 31, 1997 to $24,950,599 at March 31, 1998. Inventory increased by $1,406,840 from $22,686,273 at December 31, 1997 to $24,093,113 at March 31, 1998. During 1998 the Company is required to purchase $13.9 million of heart valve components under its long term supply agreement with CarboMedics, Inc. (the "Supply Agreement"). During the two contract years after 1998 the Company is obligated to purchase an aggregate of approximately $33 million of components. The minimum purchases under the Supply Agreement are not tied to sales of the Company's Valve and the Company does not expect sales of the Valve to exceed the minimum purchase requirements under the Supply Agreement prior to the time that the Valve is approved for sale in the United States by the Food and Drug Administration. Accounts receivable increased from $4,446,834 at December 31, 1997 to $4,507,293 at March 31, 1998. Most of the Company's sales have been to customers in international markets and while the Company attempts to set standard 60 day terms for receivables, competitive pressures and geographical economic situations have caused the Company to selectively extend the terms for payment. Average Days Sales Outstanding at March 31, 1998 were 96 compared to 112 days sales outstanding at December 31, 1997. Accounts payable increased from $863,292 at December 31, 1997 to $1,685,584 at March 31, 1998. The majority of the increase in accounts payable is related to the amount owing to CarboMedics, Inc. under the Supply Agreement. Based upon the Company's current rate of sales, its expected obligations under the Supply Agreement and its expected expenses, the Company anticipates that existing cash, cash equivalents and short-term investments will be sufficient to satisfy its capital requirements through 2000. Beyond 2000 the Company must continue to substantially increase revenues to meet its capital requirements. Should revenues not increase sufficiently, the Company may be required to raise additional equity capital. There can be no assurance that equity would be available to the Company at favorable terms, if at all. CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their business, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. The Company desires to take advantage of the safe harbor provisions with respect to any forward-looking statements it may make in this filing, other filings with the Securities and Exchange Commission and any public oral statements or written releases. The words or phrases "will likely," "is expected," "will continue," "is anticipated," "estimate," "projected," "forecast," or similar expressions are intended to identify forward-looking statements within the meaning of the Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. In accordance with the Act, the Company identifies the following important general factors which if altered from the current status could cause the Company's actual results to differ from those described in any forward-looking statements: the continued acceptance of the Company's mechanical heart Valve in international markets, the acceptance by the U.S. FDA of the Company's regulatory submissions, the continued performance of the Company's mechanical heart valve without structural failure, the actions of the Company's competitors including pricing changes and new product introductions, the continued performance of the Company's independent distributors in selling the Valve, and the actions of the Company's supplier of pyrolytic carbon components for the Valve. This list is not exhaustive, and the Company may supplement this list in any future filing or in connection with the making of any specific forward-looking statement. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. Not Applicable PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities and Use of Proceeds None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Number Description ------ ------------------------ 27.1 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements 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. Date: May 13, 1998 ATS MEDICAL, INC. By: /s/ John H. Jungbauer John H. Jungbauer, Vice President/CFO (Principal Financial Officer and Authorized Signatory) EXHIBIT INDEX Number Description ------ ------------------------ 27.1 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 MAR-31-1998 3,985,692 20,964,907 4,772,293 265,000 24,093,113 54,142,527 1,979,925 1,235,964 55,261,747 1,685,584 0 0 0 177,681 53,398,482 55,261,747 4,248,720 4,248,720 2,639,975 2,639,975 914,128 0 0 694,617 0 694,617 0 0 0 694,617 .04 .04
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