-----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, FbndnZbscT9tpLaQIXLlZWP4hHmx1sVS3FYS1NtIEW9ztoB6eXoGAkqNE7yXPKyJ 1Sry/RuirpTvYqq4G10AEQ== 0000897101-98-000783.txt : 19980810 0000897101-98-000783.hdr.sgml : 19980810 ACCESSION NUMBER: 0000897101-98-000783 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDAMICUS INC CENTRAL INDEX KEY: 0000833140 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411533300 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19467 FILM NUMBER: 98679006 BUSINESS ADDRESS: STREET 1: 15301 HGHWY 55 W CITY: PLYMOUTH STATE: MN ZIP: 55447 BUSINESS PHONE: 6125592613 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ___________ COMMISSION FILE NUMBER 0-19467 MEDAMICUS, INC. (Exact name of small business issuer in its charter) MINNESOTA 41-1533300 (State of Incorporation) (IRS Employer Identification No.) 15301 HIGHWAY 55 WEST, PLYMOUTH, MN 55447 (Address of principal executive office, including zip code) (612) 559-2613 (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ The number of shares of Registrant's Common Stock outstanding on June 30, 1998 was 4,112,274 Transitional Small Business Disclosure Format. Yes ____ No __X__ MEDAMICUS, INC. INDEX - -------------------------------------------------------------------------- ----- Page# - -------------------------------------------------------------------------- ----- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets as of June 30, 1998 and December 31, 1997 3 Statements of Operations for the three and six months ended June 30, 1998 and 1997 4 Statement of Shareholders' Equity for the six months ended June 30, 1998 4 Statements of Cash Flows for the six months ended June 30, 1998 and 1997 5 Condensed Notes to the Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-9 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 ITEM 6(a). EXHIBITS 10 ITEM 6(b). REPORTS ON FORM 8-K 10 MEDAMICUS, INC. BALANCE SHEETS (UNAUDITED)
JUNE 30, 1998 DECEMBER 31, 1997 ---------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 880,889 $ 1,102,490 Accounts receivable 1,195,999 1,004,939 Inventories 1,299,099 1,170,289 Prepaid expenses and other assets 182,682 96,423 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 3,558,669 3,374,141 - ----------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT: Equipment 2,094,384 1,942,072 Office furniture, fixtures and computers 539,195 502,806 Leasehold improvements 363,950 363,950 - ----------------------------------------------------------------------------------------------- 2,997,529 2,808,828 Less accumulated depreciation and amortization (2,167,301) (1,940,914) - ----------------------------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 830,228 867,914 - ----------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS, RESTRICTED 19,786 19,296 PATENT RIGHTS, NET OF ACCUMULATED AMORTIZATION OF $135,502 AND $124,319, RESPECTIVELY 9,702 18,202 - ----------------------------------------------------------------------------------------------- TOTAL ASSETS $ 4,418,385 $ 4,279,553 - ----------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank $ 1,172,420 $ 659,240 Accounts payable 520,416 607,029 Accrued expenses 182,828 208,112 Current installments of note payable to customer 0 2,822 Current installments of capital lease obligations 37,836 37,836 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,913,500 1,515,039 - ----------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES: Capital lease obligations, less current intallments 27,111 47,190 - ----------------------------------------------------------------------------------------------- TOTAL LONG-TERM LIABILITIES 27,111 47,190 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,940,611 1,562,229 - ----------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Preferred stock-undesignated, authorized 1,000,000 shares 0 0 Common stock-$.01 par value, authorized 9,000,000 shares 41,123 41,123 Additional paid-in capital 8,578,142 8,578,142 Accumulated deficit (6,141,491) (5,901,941) - ----------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 2,477,774 2,717,324 - ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,418,385 $ 4,279,553 - -----------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS MEDAMICUS, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 ------------------------------ ------------------------------ Sales $ 1,939,203 $ 1,771,095 $ 3,690,955 $ 3,568,898 Cost of sales 1,125,470 985,307 2,179,242 1,972,058 - -------------------------------------------------------------------------- ----------------------------- GROSS PROFIT 813,733 785,788 1,511,713 1,596,840 - -------------------------------------------------------------------------- ----------------------------- OPERATING EXPENSES: Research and development 128,757 115,970 251,281 235,458 Selling, general and administrative 758,717 718,775 1,467,433 1,384,625 - -------------------------------------------------------------------------- ----------------------------- TOTAL OPERATING EXPENSES 887,474 834,745 1,718,714 1,620,083 - -------------------------------------------------------------------------- ----------------------------- - -------------------------------------------------------------------------- ----------------------------- OPERATING LOSS (73,741) (48,957) (207,001) (23,243) - -------------------------------------------------------------------------- ----------------------------- OTHER INCOME (EXPENSE): Interest expense (25,680) (22,792) (49,019) (47,403) Interest income 11,192 11,793 24,520 24,707 Other (2,113) (5,820) (8,050) (12,722) - -------------------------------------------------------------------------- ----------------------------- TOTAL OTHER INCOME (EXPENSE) (16,601) (16,819) (32,549) (35,418) - -------------------------------------------------------------------------- ----------------------------- - -------------------------------------------------------------------------- ----------------------------- NET LOSS $ (90,342) $ (65,776) $ (239,550) $ (58,661) - -------------------------------------------------------------------------- ----------------------------- - -------------------------------------------------------------------------- ----------------------------- BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.02) $ (0.06) $ (0.01) - -------------------------------------------------------------------------- ----------------------------- - -------------------------------------------------------------------------- ----------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 4,112,274 4,078,798 4,112,274 4,072,819 - -------------------------------------------------------------------------- -----------------------------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS MEDAMICUS, INC. STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
Common Stock Additional ------------------------ Paid In Accumulated Shares Amount Capital Deficit Total - ------------------------------------------------------------------------------------------------------------------------------ BALANCES AT DECEMBER 31, 1997 4,112,274 $ 41,123 $ 8,578,142 $(5,901,941) $ 2,717,324 Net loss for the six month period ended 06/30/98 0 0 0 (239,550) (239,550) - ------------------------------------------------------------------------------------------------------------------------------ BALANCES AT JUNE 30, 1998 4,112,274 $ 41,123 $ 8,578,142 $(6,141,491) $ 2,477,774 - ------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS MEDAMICUS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (239,550) $ (58,661) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 237,570 246,013 Interest added to investments (490) (759) Common stock issued as sales incentive 0 3,028 Changes in operating assets and liabilities: Accounts receivable (191,060) 216,895 Inventories (128,810) (976) Prepaid expenses and other assets (86,259) 29,485 Accounts payable (86,613) (508,048) Accrued expenses (25,284) 30,295 - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (520,496) (42,728) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net of retirements (188,701) (109,982) Additions to patent rights (2,683) (3,126) - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (191,384) (113,108) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (20,079) (31,747) Proceeds from exercise of stock options 0 50,000 Proceeds from (payments on) note payable to bank 513,180 (145,901) Payments on note payable to customer (2,822) (7,200) - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 490,279 (134,848) - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (221,601) (290,684) - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,102,490 1,205,783 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 880,889 $ 915,099 - ------------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 45,988 $ 41,614
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS CONDENSED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) 1. BASIS OF PRESENTATION The financial statements included in this Form 10-QSB have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to such rules and regulations, although management believes the disclosures are adequate to make the information presented not misleading. These statements should be read in conjunction with the Company's annual report on Form 10-KSB for the year ended December 31, 1997, filed by the Company with the Securities and Exchange Commission. The financial statements presented herein as of June 30, 1998 and for the three and six months ended June 30, 1998 and 1997 reflect, in the opinion of management, all material adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for these interim periods. 2. INVENTORIES Inventories are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. Inventories consist of the following: June 30, 1998 December 31, 1997 ------------------------------------ Purchased parts and subassemblies $ 738,400 $ 638,542 Work in process 211,001 238,042 Finished goods 349,698 293,705 ------------------------------------ $ 1,299,099 $ 1,170,289 ==================================== 3. NET INCOME (LOSS) PER SHARE The Company computed net loss per common share by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents, consisting of stock options and warrants, have been excluded from the calculation as their inclusion would have an antidilutive effect. Therefore, basic and diluted loss per share are the same in each period presented. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the accompanying financial statements and footnotes. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Total revenues were $3,690,955 for the six months ended June 30, 1998 compared to $3,568,898 for the six months ended June 30, 1997, representing a 3.4% increase. Sales of vessel introducers, primarily to Medtronic under an exclusive distribution arrangement, were $1,984,364 for the six months ended June 30, 1998, compared to $2,118,063 for the six months ended June 30, 1997, representing a 6.3% decrease. This decrease was primarily due to Medtronic's inventory build during the first quarter of 1997 and price concessions passed along to Medtronic in the second and third quarters of 1997 which have continued in 1998. Contract manufacturing sales were $330,901 for the six months ended June 30, 1998, compared to $272,504 for the six months ended June 30, 1997, representing a 21.4% increase. This increase is primarily due to the Company's existing customer increasing the size of its orders and the addition of another contract manufacturing customer during the second quarter of 1998. The Company also does some contract research and development work periodically for Medtronic and realized sales of $40,786 for the six months ended June 30, 1998 compared to $14,467 for the six months ended June 30, 1997. This contract research and development work is not expected to be a continuous revenue item for the Company. Sales of the Company's fiber optic pressure sensing catheter and monitor transducer products were $1,334,904 for the six months ended June 30, 1998, compared to $1,163,864 for the six months ended June 30, 1997, representing a 14.7% increase. Monitor sales decreased 6.3% or $53,234, catheter sales increased 69.2% or $208,304 and accessory and service sales increased 70.7% or $15,970 over the comparable period. Monitor sales for both the three and six month period ending June 30, 1998 were down primarily because the Company did not get its normal boost in monitor sales during the second quarter of 1998 from its two largest shows of the year (ACOG, AUA). Normally these shows are held in mid to late April which allows for time to follow up on leads and close sales before the end of the quarter. In 1998, these shows were held in mid May and early June which left little time to close sales before the end of the quarter. The Company collected a greater number of leads from both of these shows in 1998 over 1997 and expects to benefit from increased monitor sales in the third quarter as a result. Total gross profit decreased from $1,596,840 for the six months ended June 30, 1997, to $1,511,713 for the six months ended June 30, 1998, a decrease of 5.3%. Total gross profit as a percent of sales decreased from 44.7% to 41.0% in such periods. The gross profit percentage on vessel introducers and contract manufacturing totaled 54.6% for the six months ended June 30, 1997, compared to 48.4% in the six months ended June 30, 1998. The decrease in the gross profit percentage on vessel introducers and contract manufacturing was primarily due to Medtronic's inventory build during the first quarter of 1997 and the price concessions passed along to Medtronic in the second and third quarters of 1997, which have continued in 1998, in order to respond to competitive pressures they were experiencing in the market place. For fiber optic products, the gross profit percent totaled 27.8% for the six month period ended June 30, 1998 compared to 24.5% for the six month period ended June 30, 1997. The Company expects gross profit in the fiber optic business to improve in the future as the Company increases sales and catheter yields, and better utilizes its capacity. Total research and development expenditures were $251,281 or 6.8% of sales for the six months ended June 30, 1998, compared to $235,458 or 6.6% of sales for the six months ended June 30, 1997. The Company expects research and development expenditures to increase both in amount and as a percentage of sales during the third quarter as it continues to work on catheter enhancements and product line extensions. Selling, general and administrative expenses increased from $1,384,625 for the six months ended June 30, 1997 to $1,467,433 for the six months ended June 30, 1998. Sales and marketing expenses increased $88,821 for the six months ended June 30, 1998 over the comparable period in 1997 primarily because of increased spending on salaries, travel and conventions. The Company hired two regional sales managers in 1997 and saw increases in salaries and travel which were not present during the full six-month period in 1997. The Company has also attended a greater number of trade shows in 1998 compared to 1997. General and administrative expenses, interest expense, interest income and other expenses remained relatively unchanged during the comparable periods. As a result, the Company incurred a net loss of $239,550 or $.06 per share for the six months ended June 30, 1998, compared to a net loss of $58,661 or $.01 per share for the six months ended June 30, 1997. THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 Total revenues were $1,939,203 for the three months ended June 30, 1998 compared to $1,771,095 for the three months ended June 30, 1997, representing a 9.5% increase. Sales of vessel introducers, primarily to Medtronic under an exclusive distribution arrangement, were $1,023,107 for the three months ended June 30, 1998, compared to $964,083 for the three months ended June 30, 1997, representing a $59,024 increase. This increase was primarily due to increased kit orders from Medtronic in 1998 over 1997. The Company expects to see increased kit orders from Medtronic in the third quarter of 1998, as compared to the third quarter of 1997. Contract manufacturing sales were $215,896 for the three months ended June 30, 1998, compared to $85,264 for the three months ended June 30, 1997, representing a $130,632 increase. This increase was primarily due to the factors discussed above. The Company also does some contract research and development work periodically for Medtronic and realized sales of $15,237 for the three months ended June 30, 1998 compared to $14,467 for the three months ended June 30, 1997. Sales of the Company's fiber optic pressure sensing catheter and monitor transducer products were $684,963 for the three months ended June 30, 1998, compared to $707,281 for the three months ended June 30, 1997, representing a 3.2% decrease. Monitor sales decreased 22.5% or $116,926, catheter sales increased 48.9% or $84,843 and accessory and service sales increased 73.7% or $9,765 in the three months ended June 30, 1998 over the comparable period in 1997, primarily due to the factors discussed above. Total gross profit increased from $785,788 for the three months ended June 30, 1997, to $813,733 for the three months ended June 30, 1998, an increase of 3.6%. Total gross profit as a percent of sales decreased from 44.4% in the three months ended June 30, 1997 to 42.0% in the comparable period in 1998. The gross profit percentage on vessel introducers and contract manufacturing totaled 48.0% in the second quarter of 1998, compared to 50.8% in the second quarter of 1997, primarily due to the factors discussed above. For fiber optic products, the gross profit percent totaled 31.0% in the second quarter of 1998 compared to 34.7% in the second quarter of 1997, primarily due to the lower monitor sales in the second quarter of 1998 which affected the gross profit dollars. Total research and development expenditures were $128,757 or 6.6% of sales for the three months ended June 30, 1998, compared to $115,970 or 6.6% of sales for the three months ended June 30, 1997. The Company expects research and development expenditures to increase both in amount and as a percentage of sales during the third quarter as it continues to work on catheter enhancements and product line extensions. Selling, general and administrative expenses increased from $718,775 for the three months ended June 30, 1997 to $758,717 for the three months ended June 30, 1998. Sales and marketing expenses increased $49,310 and general and administrative expenses decreased $9,368 in the second quarter of 1998 compared to the second quarter of 1997 primarily for the reasons discussed above. Interest expense, interest income and other expenses remained relatively unchanged during the comparable periods. As a result, the Company incurred a net loss of $90,342 or $.02 per share for the three months ended June 30, 1998, compared to a net loss of $65,776 or $.02 per share for the three months ended June 30, 1997. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the six months ended June 30, 1998 was $520,496, consisting of a net loss of $239,550 less adjustments for depreciation and amortization of $237,570 and interest accretion of $490. In addition, cash was used to fund net changes in operating assets and liabilities of $518,026. The Company saw an increase in accounts receivable during the first six months of 1998 primarily due to a larger percentage of sales being made to customers purchasing the Company's fiber optic pressure sensing products. These customers typically take longer to pay their bills compared to Medtronic which has led to the increase in accounts receivable. The Company also saw an increase in inventory during the first six months of 1998 primarily due to the Company's response to Medtronic's increased orders and lower than expected monitor sales in the second quarter. The Company also utilized its line of credit to pay down payables and prepay some items in order to help meet the minimum interest requirement under its line of credit. Net cash used in investing activities for the six months ended June 30, 1998 was $191,384. The Company purchased $188,701 of equipment during the period and had additions to patent rights of $2,683. Net cash provided by financing activities for the six months ended June 30, 1998 was $490,279. The Company increased its usage on the credit line by $513,180 during the period and had a balance due on the line of $1,172,420 as of June 30, 1998. The Company used the line of credit aggressively during the first six months of 1998 in order to meet the minimum interest requirement. The Company also made principal debt payments totaling $22,901. As a result, the Company's cash and cash equivalents were $880,889 as of June 30, 1998 compared to $1,102,490 at December 31, 1997. Working capital decreased from $1,859,102 as of December 31, 1997 to $1,645,169 as of June 30, 1998. On June 17, 1998, the Company signed a one year extension through June 30, 1999 on its revolving line of credit with a financial institution. The line was increased from $1,200,000 to $1,500,000 and the agreement calls for interest at the rate of 1.00% over the financial institution's base rate with no minimum interest due. The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line is secured by substantially all of the Company's assets. If sales estimates and working capital needs meet the Company's projections, the Company believes its available cash and investments, along with borrowing availability under its line of credit will be sufficient to meet the Company's anticipated operating expenses and cash requirements for the foreseeable future. If the sales estimates are not realized or working capital requirements exceed those projected, the Company may need to secure additional capital or, if capital is not available, to curtail its marketing efforts. The Company has investigated the impact of the Year 2000 issue on both its own internal information systems and the products it develops, markets and sells. During 1997, the Company purchased, from a world-wide supplier and developer of information systems, an enterprise-wide information system with written assurance from the developer that the system will correctly function across the year 2000. During 1997, the Company also reviewed all of the products it develops, markets and sells, as well as the raw materials and subassemblies required to manufacture them, and believes that there are no Year 2000 issues. The Company has not investigated its suppliers progress in dealing with the Year 2000 issue. The Company does not conduct any business with its suppliers using EDI technology, so the primary risk associated with its suppliers is in their ability to deliver materials to the Company in a timely manner. Because of the diversity of sources available for the Company's raw materials and subassemblies, the Company believes that the Year 2000 issue will not have a material adverse effect on the Company's financial position, operations or cash flow, however there can be no assurance that that will be the case. Forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995. Certain important factors could cause results to differ materially from those anticipated by some statements made herein. You are cautioned that all forward-looking statements involve risks and uncertainties. Among the factors that could cause results to differ materially are the following: delays in new product launches; lack of market acceptance of the Company's products; introduction of competitive products; patent and government regulation matters and the Risk Factors included in Form 8-K filed with the Securities and Exchange Commission on November 13, 1996. PART II - OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a). The Company held its annual meeting of shareholders on April 30, 1998. (b). The Company solicited proxies from its shareholders to vote on the following two items: * To set the number of directors at five and elect five directors for a term of one year * To ratify the appointment of independent auditors for the current fiscal year The vote counts were as follows (4,112,274 shares outstanding): - ---------------------- ----------- ---------- ----------- ----------- ---------- FOR WITHHOLD AGAINST ABSTAIN NO VOTE - ---------------------- ----------- ---------- ----------- ----------- ---------- ELECTION OF DIRECTORS - ---------------------- ----------- ---------- ----------- ----------- ---------- James D. Hartman 3,282,701 25 - ---------------------- ----------- ---------- ----------- ----------- ---------- Richard W. Kramp 3,278,751 3,975 - ---------------------- ----------- ---------- ----------- ----------- ---------- Richard L. Little 3,278,751 3,975 - ---------------------- ----------- ---------- ----------- ----------- ---------- Richard F. Sauter 3,278,751 3,975 - ---------------------- ----------- ---------- ----------- ----------- ---------- Ted K. Schwarzrock 3,278,751 3,975 - ---------------------- ----------- ---------- ----------- ----------- ---------- - ---------------------- ----------- ---------- ----------- ----------- ---------- RATIFY AUDITORS 3,282,201 525 - ---------------------- ----------- ---------- ----------- ----------- ---------- ITEM 6(a) - EXHIBITS 10.1 Second Amendment to Credit and Security Agreement 10.2 Third Amendment to Credit and Security Agreement 10.3 Revolving Note Agreement ITEM 6(b) - REPORTS ON FORM 8-K None SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: MEDAMICUS, INC. Date: August 4, 1998 By: /s/ James D. Hartman President, Chief Executive Officer and Chief Financial Officer EXHIBIT INDEX - --------------- ------------------------------------------------------ --------- EXHIBIT # DESCRIPTION PAGE - --------------- ------------------------------------------------------ --------- 10.1 Second amendment to credit and security agreement, dated May 21, 1998, between the Company and Norwest Credit, Inc. - --------------- ------------------------------------------------------ --------- 10.2 Third amendment to credit and security agreement, dated June 17, 1998, between the Company and Norwest Credit, Inc. - --------------- ------------------------------------------------------ --------- 10.3 Revolving note agreement, dated June 17, 1998, between the Company and Norwest Credit, Inc. - --------------- ------------------------------------------------------ --------- EX-10.1 2 SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT EXHIBIT 10.1 SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Second Amendment, dated as of May 21, 1998, is made by and between MEDAMICUS, INC., a Minnesota corporation (the "Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"). Recitals The Borrower and the Lender have entered into a Credit and Security Agreement dated as of March 5, 1996, as amended by First Amendment to Credit and Security Agreement dated as of June 24, 1997 (as amended, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. The Borrower has requested that certain amendments be made to the Credit Agreement, which the Lender is willing to make pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. Defined Terms. Capitalized terms used in this Second Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following definitions: "'Second Amendment' means that certain Second Amendment to Credit and Security Agreement, dated as of May 21, 1998." 2. Book Net Worth Covenant. Section 6.7 of the Credit Agreement is hereby amended in its entirety and replaced with the following: "Section 6.7 Minimum Book Net Worth. The Borrower will at all times maintain during each period described below, its Book Net Worth (on an unconsolidated, Borrower-only basis), determined as of the end of each month, of at least the amount set forth opposite such period: ------------------------------ ------------------------------ PERIOD MINIMUM BOOK NET WORTH ------------------------------ ------------------------------ April 1, 1998 through June 30, 1998 $2,400,000 ------------------------------ ------------------------------ 3. New Compliance Certificate. Attached hereto as Exhibit A is the revised form of Compliance Certificate. 4. No Other Changes. Except as explicitly amended by this Second Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 5. Conditions Precedent. This Second Amendment shall be effective when the Lender shall have received an executed original hereof, together with such other matters as the Lender may require, each in substance and form acceptable to the Lender in its sole discretion. 6. Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows: (a) The Borrower has all requisite power and authority to execute this Second Amendment and to perform all of its obligations hereunder, and this Second Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. (b) The execution, delivery and performance by the Borrower of this Second Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 7. References. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. 8. No Waiver. The execution of this Second Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Second Amendment. 9. Release. The Borrower hereby absolutely and unconditionally releases and forever discharges the Lender, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Second Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 10. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Second Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses. 11. Miscellaneous. This Second Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date first written above. NORWEST CREDIT, INC. MEDAMICUS, INC. By By ----------------------------------- ---------------------------------- Roger A. Pfiffner James Hartman Its Assistant Vice President Its President Exhibit A to Second Amendment to Credit and Security Agreement COMPLIANCE CERTIFICATE To: Diane G. Conley Norwest Credit, Inc. Date: __________________, 199___ Subject: MedAmicus, Inc. Financial Statements In accordance with our Credit and Security Agreement dated as of March 5, 1996, as amended by First Amendment to Credit and Security Agreement dated as of June 24, 1997 (as amended, the "Credit Agreement"), attached are the financial statements of MedAmicus, Inc. (the "Borrower") as of and for ________________, 19___ (the "Reporting Date") and the year-to-date period then ended (the "Current Financials"). All terms used in this certificate have the meanings given in the Credit Agreement. I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present the Borrower's financial condition as of the date thereof. Events of Default. (Check one): |_| The undersigned does not have knowledge of the occurrence of a Default or Event of Default under the Credit Agreement. |_| The undersigned has knowledge of the occurrence of a Default or Event of Default under the Credit Agreement and attached hereto is a statement of the facts with respect to thereto. Financial Covenants. I further hereby certify as follows: 1. Minimum Book Net Worth. Pursuant to Section 6.7 of the Credit Agreement, as of the Reporting Date, the Borrower's Book Net Worth was $____________, which |_| satisfies |_| does not satisfy the requirement that such amount be not less than $_____________ on the Reporting Date as set forth in table below: PERIOD MINIMUM BOOK NET WORTH ------ ---------------------- April 1, 1998 through June 30, 1998 $2,400,000 Attached hereto are all relevant facts in reasonable detail to evidence, and the computations of the financial covenants referred to above. These computations were made in accordance with GAAP. MEDAMICUS, INC. By ------------------------------- Its Chief Financial Officer EX-10.2 3 THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT EXHIBIT 10.2 THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Third Amendment, dated as of June 17, 1998, is made by and between MEDAMICUS, INC., a Minnesota corporation (the "Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"). Recitals The Borrower and the Lender have entered into a Credit and Security Agreement dated as of March 5, 1996, as amended by First Amendment to Credit and Security Agreement dated as of June 27, 1997 and by Second Amendment to Credit and Security Agreement dated as of May __, 1998 (as amended, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. The Borrower has requested that certain amendments be made to the Credit Agreement, which the Lender is willing to make pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following definitions: "'Borrowing Base' means, at any time and subject to change from time to time in the Lender's sole discretion, the lesser of: (a) the Maximum Line; or (b) the sum of (i) 85% of Eligible Accounts, and (ii) the lesser of (i) the Fixed Asset Percentage of Eligible Fixed Assets or (ii) $233,000." "'Eligible Fixed Assets' means the forced liquidation value of the Borrower's Equipment, except that Equipment not subject to a duly perfected security interest in favor of the Lender or which is subject to any lien, security interest or claim in favor of any Person other than the Lender, shall not in any event be deemed Eligible Fixed Assets." "'Fixed Asset Percentage' means (i) 75% from the date of the Third Amendment to January 30, 1999; and (ii) beginning on January 31, 1999 and on the last day of each month thereafter the percentage will decrease by 1% each month. "'Floating Rate' means an annual rate equal to the sum of the Base Rate plus one percent (1.0%) which annual rate shall change when and as the Base Rate changes." "'Maturity Date' means June 30, 1999." "'Maximum Line' means $1,500,000." "'Note' means the Borrower's Revolving Note dated as of the date of the Third Amendment, in the form attached as Exhibit A to the Third Amendment." "'Third Amendment' means that certain Third Amendment to Credit and Security Agreement, dated as of June 17, 1998, by and between the Borrower and the Lender." 2. Liquid Asset Requirement. Section 6.10 of the Credit Agreement is hereby amended in its entirety and replaced with the following: "Section 6.10 Liquid Asset Requirement. (a) The Borrower shall at all times own and maintain in an account or accounts with Norwest Investment Services, Inc. ("NISI"), unencumbered Liquid Assets, free and clear of any right of set off and of any related margin account debt. The fair market value of such Liquid Assets must be at least $250,000. (b) To facilitate the monitoring of the status of the Liquid Asset requirement, the Borrower shall deliver to the Lender the monthly statements for such NISI accounts for the prior month stating the respective fair market values of the securities in the accounts upon receipt thereof, and shall deliver such other information on the Borrower's accounts at NISI as the Lender may request. The Borrower hereby authorizes the Lender to directly contact NISI in order to obtain information on the Borrower's accounts at NISI." 3. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 4. Conditions Precedent. This Amendment shall be effective when the Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Lender in its sole discretion: (a) The replacement note substantially in the form of Exhibit A hereto, duly executed on behalf of the Borrower (the "Replacement Note"). (b) A Certificate of the Secretary of the Borrower certifying as to (1) the resolutions of the board of directors of the Borrower approving the execution and delivery of this Third Amendment and the Replacement Note, (2) the fact that the Articles of Incorporation and Bylaws of the Borrower, which were certified and delivered to the Lender pursuant to the Certificate of the Borrower's Secretary dated as of March 26, 1996, continue in full force and effect and have not been amended or otherwise modified except as set forth in Certificates previously delivered or the Certificate to be delivered, and (3) certifying that the officers and agents of the Borrower who have been certified to the Lender, pursuant to the Certificate of Authority of the Borrower's Secretary dated as of March 26, 1996, as being authorized to sign and to act on behalf of the Borrower continue to be so authorized or setting forth the sample signatures of each of the officers and agents of the Borrower authorized to execute and deliver this Third Amendment and all other documents, agreements and certificates on behalf of the Borrower. (c) Such other matters as the Lender may require. 5. Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows: (a) The Borrower has all requisite power and authority to execute this Amendment and the Replacement Note and to perform all of its obligations hereunder, and this Amendment and the Replacement Note have been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. (b) The execution, delivery and performance by the Borrower of this Amendment and the Replacement Note have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 6. References. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. Upon the satisfaction of each of the conditions set forth in paragraph 4 hereof, the definition of "Note" and all references thereto in the Credit Agreement shall be deemed amended to describe the Replacement Note, which Note shall be issued by the Borrower to the Lender in replacement, renewal and amendment, but not in repayment, of the Note. 7. No Waiver. The execution of this Amendment and acceptance of the Replacement Note and any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Amendment. 8. Release. The Borrower hereby absolutely and unconditionally releases and forever discharges the Lender and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 9. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses. 10. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the date first written above. NORWEST CREDIT, INC. MEDAMICUS, INC. By By ----------------------------------- ---------------------------------- Roger A. Pfiffner James D. Hartman Its Vice President Its President EX-10.3 4 REVOLVING NOTE EXHIBIT 10.3 Exhibit A to Third Amendment to Credit and Security Agreement REVOLVING NOTE $1,500,000 Minneapolis, Minnesota June 17, 1998 For value received, the undersigned, MEDAMICUS, INC., an Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND, or if demand is not sooner made, as provided under the Credit Agreement (defined below) to the order of NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000) or, if less, the aggregate unpaid principal amount of all Advances made by the Lender to the Borrower under the Credit and Security Agreement dated as of March 5, 1996 by and between the Lender and the Borrower (as the same may be amended, supplemented or restated from time to time, the "Credit Agreement") together with interest on the principal amount hereunder remaining unpaid from time to time (computed on the basis of actual days elapsed in a 360-day year) from the date of the initial Advance until this Note is fully paid at the rate from time to time in effect under the Credit Agreement. This Note is issued in replacement of and in substitution for, but not in payment of, that certain Revolving Note of the Borrower dated March 26, 1996, payable to the order of the Lender in the principal amount of $1,200,000. This Note is the Revolving Note as defined in the Credit Agreement and is subject to the Credit Agreement. MEDAMICUS, INC. By ------------------------------------ ------------------------------------ Its -------------------------------- EX-27 5 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JUN-30-1998 880,889 0 1,198,214 2,215 1,299,099 3,558,669 2,997,529 2,167,301 4,418,385 1,913,500 27,111 0 0 41,123 2,436,651 4,418,385 3,690,955 3,690,955 2,179,242 2,179,242 251,281 0 49,019 (239,550) 0 (239,550) 0 0 0 (239,550) (0.06) (0.06)
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