-----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, J1MPJ64/Ol51rKKtbKGenSO4VGpXMCIkzA9Rc2Yk+Ish88m7daOMHSjxC3eJUsmw 3hIxEQjZ74UPVw4qlU4E5w== 0000897101-00-000494.txt : 20000512 0000897101-00-000494.hdr.sgml : 20000512 ACCESSION NUMBER: 0000897101-00-000494 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 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: 625628 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 March 31, 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) (763) 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 March 31, 2000 was 4,126,574 Transitional Small Business Disclosure Format. Yes ___ No _X_ 1 MEDAMICUS, INC. INDEX - -------------------------------------------------------------------------------- Page # - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets as of March 31, 2000 and December 31, 1999 3 Statements of Operations for the three months ended March 31, 2000 and 1999 4 Statement of Shareholders' Equity for the three months ended March 31, 2000 4 Statements of Cash Flows for the three months ended March 31, 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 7-10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 10 ITEM 2. CHANGES IN SECURITIES 10 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 ITEM 5. OTHER INFORMATION 11-12 ITEM 6(a). EXHIBITS 12 ITEM 6(b). REPORTS ON FORM 8-K 12 2 BALANCE SHEETS (UNAUDITED)
MARCH 31, 2000 DECEMBER 31, 1999 ------------------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 915,799 $ 1,006,695 Accounts receivable, net of allowance for doubtful accounts of $50,334 and $22,834, respectively 1,461,102 1,229,665 Inventories 1,445,196 1,407,189 Prepaid expenses and other assets 96,436 72,915 - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 3,918,533 3,716,464 - ----------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT: Equipment 2,453,773 2,401,566 Office furniture, fixtures and computers 698,299 673,338 Leasehold improvements 374,705 365,800 - ----------------------------------------------------------------------------------------------------------------- 3,526,777 3,440,704 Less accumulated depreciation and amortization (2,827,165) (2,750,073) - ----------------------------------------------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 699,612 690,631 - ----------------------------------------------------------------------------------------------------------------- PATENT RIGHTS, net of accumulated amortization of $153,115 and $151,122, respectively 33,316 30,667 ================================================================================================================= TOTAL ASSETS $ 4,651,461 $ 4,437,762 ================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank $ 1,541,012 $ 1,252,213 Accounts payable 438,524 383,280 Accrued expenses 272,052 334,365 Current installments of capital lease obligations 21,744 21,744 - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,273,332 1,991,602 - ----------------------------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES: Capital lease obligations, less current installments 41,479 47,299 - ----------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,314,811 2,038,901 - ----------------------------------------------------------------------------------------------------------------- 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 4,126,574 and 4,114,774 shares, respectively 41,266 41,148 Additional paid-in capital 8,591,012 8,578,117 Accumulated deficit (6,295,628) (6,220,404) - ----------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 2,336,650 2,398,861 ================================================================================================================= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,651,461 $ 4,437,762 =================================================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS 3 STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 MARCH 31, 1999 ------------------------------------- Sales $ 2,610,564 $ 2,287,458 Cost of sales 1,369,953 1,187,713 - -------------------------------------------------------------------------------------------------------- GROSS PROFIT 1,240,611 1,099,745 - -------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Research and development 239,748 217,174 Selling, general and administrative 1,048,615 840,147 - -------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 1,288,363 1,057,321 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (47,752) 42,424 - -------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest expense (33,137) (17,968) Interest income 11,207 8,879 Other (5,542) (6,839) - -------------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME (EXPENSE) (27,472) (15,928) - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (75,224) $ 26,496 - -------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE Basic $ (0.02) $ 0.01 Diluted $ (0.02) $ 0.01 WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Basic 4,116,288 4,112,274 Diluted 4,116,288 4,117,914
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock Additional ------------------------ Paid-In Accumulated THREE MONTHS ENDED MARCH 31, 2000 Shares Amount Capital Deficit Total - -------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1999 4,114,774 $ 41,148 $ 8,578,117 $ (6,220,404) $ 2,398,861 Options exercised 1,800 $ 18 $ 2,695 $ -- 2,713 Warrants exercised 10,000 $ 100 $ 10,200 $ -- 10,300 Net loss for the three month period ended 3/31/00 0 0 0 (75,224) (75,224) - -------------------------------------------------------------------------------------------------------------------------- BALANCES AT MARCH 31, 2000 4,126,574 $ 41,266 $ 8,591,012 $ (6,295,628) $ 2,336,650 - --------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS 4 STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED March 31, 2000 March 31, 1999 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (75,224) $ 26,496 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 79,085 102,239 Interest added to investments 0 0 Changes in operating assets and liabilities: Accounts receivable (231,437) 43,707 Inventories (38,007) (26,941) Prepaid expenses and other assets (23,521) (4,494) Accounts payable 55,244 (103,467) Accrued expenses (62,313) 65,874 - ------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (296,173) 103,414 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net of retirements (86,073) (105,232) Additions to patent rights (4,642) (465) - ------------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (90,715) (105,697) - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (5,820) (11,246) Proceeds from exercise of options 2,713 0 Proceeds from exercise of warrants 10,300 0 Proceeds from (payments on) note payable to bank 288,799 (39,871) - ------------------------------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 295,992 (51,117) - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (90,896) (53,400) - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,006,695 1,022,055 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 915,799 $ 968,655 - ------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 30,957 $ 17,895
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS 5 CONDENSED NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2000 (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 March 31, 2000 and for the three months ended March 31, 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: MARCH 31, 2000 DECEMBER 31, 1999 -------------- ----------------- Purchased parts and subassemblies $ 927,004 $ 844,775 Work in process 303,170 268,439 Finished goods 215,022 293,975 - -------------------------------------------------------------------------------- TOTAL INVENTORY $1,445,196 $1,407,189 ================================================================================ 3. NET INCOME (LOSS) PER SHARE Basic per-share amounts are computed, generally, by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted per-share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive, thereby reducing the loss or increasing the income per common share. 4. SEGMENT AND RELATED INFORMATION The Company has two primary business units that comprise the internal reporting structure for its management. These business units are the Percutaneous Delivery Systems (formerly called Vascular Delivery Systems) business unit and the Fiber Optic business unit which are defined below. The Company allocates its general and administrative expenses, as well as interest income, interest expense and other expenses evenly across both business units. PERCUTANEOUS DELIVERY SYSTEMS: This business segment consists of activities related to the development, manufacture and sale of vascular delivery products, on an OEM basis, primarily to Medtronic and several other contract manufacturing customers. FIBER OPTIC: This business segment consists of activities related to the development, manufacture and sale of the Company's LuMax Cystometry System and related supplies and accessories. 6 Summarized financial information concerning the Company's reportable segments is shown in the following table. PERCUTANEOUS QUARTER ENDED 3/31/00 DELIVERY SYSTEMS FIBER OPTIC TOTAL - -------------------------------------------------------------------------------- Revenues $1,830,370 $ 780,194 $2,610,561 Segment profit (loss) 544,952 (620,176) (75,224) Total assets 2,416,864 2,234,597 4,651,461 Capital expenditures 39,685 46,388 86,073 Depreciation and amortization 25,770 53,315 79,085 Interest expense 16,569 16,568 33,137 Interest income 5,604 5,603 11,207 PERCUTANEOUS QUARTER ENDED 3/31/99 DELIVERY SYSTEMS FIBER OPTIC TOTAL - -------------------------------------------------------------------------------- Revenues $1,583,552 $ 703,906 $2,287,458 Segment profit (loss) 583,532 (557,036) 26,496 Total assets 1,921,679 2,235,907 4,157,586 Capital expenditures 8,188 97,044 105,232 Depreciation and amortization 21,957 80,282 102,239 Interest expense 8,984 8,984 17,968 Interest income 4,440 4,439 8,879 5. COMMITMENTS The Company signed a new five-year lease agreement for space commencing on June 1, 2000. The Company is currently leasing 21,665 square feet of space at a total monthly rate (taxes and CAM included) of approximately $13,242. Beginning June 1, the Company will lease an additional 9,672 square feet of contiguous space (31,337 square feet total) at a total monthly rate of approximately $20,716. In addition to the on-going monthly rent payments, the agreement calls for the Landlord to provide up to $150,000 in funding for leasehold improvements. The Company will reimburse the landlord for the total amount spent on leasehold improvements plus 8% interest on the outstanding balance over the remaining term of the lease through additional monthly payments. 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 THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 OVERVIEW Total revenues were $2,610,564 for the three months ended March 31, 2000 compared to $2,287,458 for the three months ended March 31, 1999, representing a 14.1% increase. Total gross profit increased from $1,099,745 for the three months ended March 31, 1999, to $1,240,611 for the three months ended March 31, 2000, representing a 12.8% increase. Total gross profit as a percent of sales decreased from 48.1% to 47.5% in such periods. Total research and development expenditures were $239,748 or 9.2% of sales for the three months ended March 31, 2000, compared to $217,174 or 9.5% of sales for the three months ended March 31, 1999. Sales and marketing expenses increased from $579,533 for the three month period ended March 31, 1999 to $732,754 for the three month period ended March 31, 2000. General and administrative expenses increased from $260,614 for the three months ended March 31, 1999 to $315,861 for the three months ended March 31, 2000. This increase was primarily due to increased spending on salaries, registration costs associated with maintaining ISO 9000 certification, and a $26,000 7 charge to bad debts during the quarter related to two customers. Interest income and other expenses remained relatively unchanged in total during the comparable periods. Interest expense increased $15,169 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 a net loss of $75,224 or $.02 per share for the three months ended March 31, 2000, compared to net income of $26,496 or $.01 per share for the three months ended March 31, 1999. PERCUTANEOUS DELIVERY SYSTEMS Sales of vessel introducers, primarily to Medtronic under an exclusive distribution arrangement, were $1,655,785 for the three months ended March 31, 2000, compared to $1,451,801 for the three months ended March 31, 1999, representing a 14.1% increase. This increase was primarily due to two factors. First, while the Company continues to anticipate increasing order levels from Medtronic for introducer kits compared to 1999, comparable introducer kit quantities between quarters were lower in 2000 due to Medtronic building their inventories during the first four months of 1999. This difference was off-set by increased shipments of the Left Ventricle Lead Delivery System (LVLDS) to Medtronic. 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. Medtronic built some inventory of these kits during the first quarter, and the Company expects orders for this product to return to normal ordering patterns in the quarters ahead. Overall, the Company expects to see a slight drop in introducer sales during the second quarter compared to the first quarter of 2000. Contract manufacturing sales were $174,585 for the three months ended March 31, 2000, compared to $110,162 for the three months ended March 31, 1999. This increase was primarily due to one of the Company's contract customers ordering higher quantities of product during the comparable periods. The Company expects contract manufacturing sales in the second quarter to be consistent with those in the first quarter. The Company also does some contract research and development work periodically for Medtronic but realized no sales for the three months ended March 31, 2000 compared to $25,549 for the three months ended March 31, 1999. The gross profit percentage on vessel introducers and contract manufacturing totaled 49.2% for the three months ended March 31, 2000, compared to 53.8% for the three months ended March 31, 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 products sold during the first quarter of 2000 changed with the introduction of several new customers, negatively impacting the gross profit margins. Total research and development expenditures were $125,334 or 6.9% of sales for the three months ended March 31, 2000, compared to $95,533 or 6.0% of sales for the three months ended March 31, 1999. The Company increased its engineering staff and has been working on a number of projects for Medtronic and is also working on several new introducer product concepts. The Company expects research and development expenditures in the second quarter to approximate the first quarter. Selling expenses increased from $34,574 for the three months ended March 31, 1999 to $58,050 for the three months ended March 31, 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 and attending shows during the current period were not present in the first quarter of 1999. FIBER OPTIC Sales of the Company's fiber optic pressure sensing products were $780,194 for the three months ended March 31, 2000, compared to $703,906 for the three months ended March 31, 1999, representing an 10.8% increase. Monitor sales increased 5.7% or $18,171 and catheter sales increased 20.5% or $70,193 over the comparable period. The Company also saw decreases in its accessory and service sales totaling $12,076. The increase in monitor sales was primarily due to an increase in the average selling price of a system during the comparable periods. The Company also continues to be pleased with the steady growth in its catheter sales. The decrease in accessory and service sales 8 was primarily due to all of the system upgrades related to the launch of the S-Series catheter that took place during the last half of 1999, which negatively impacted service sales in the current period. The gross profit percentage on fiber optic products totaled 43.7% or $340,608 for the three month period ended March 31, 2000 compared to 35.2% or $247,835 for the three month period ended March 31, 1999. This increase was primarily due to a higher average selling price on the LuMax System, better catheter yields, and improved catheter margins related to the launch of the S-Series catheter last fall. The Company expects gross profit in the fiber optic business to improve in the future as the Company increases sales and better utilizes its capacity. Total research and development expenditures were $114,414 or 14.7% of sales for the three months ended March 31, 2000, compared to $121,641 or 17.3% of sales for the three months ended March 31, 1999. The Company completed development on the next generation LuMax System, the LuMax Pro. 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 second quarter to approximate the first quarter. Selling expenses increased from $544,959 for the three months ended March 31, 1999 to $674,704 for the three months ended March 31, 2000. The increase was primarily due to a marketing campaign kicked off in the first quarter of 2000 to help generate leads for our direct sales force and heighten awareness for 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 System. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the three months ended March 31, 2000 was $296,173, consisting of a net loss of $75,224, adjusted for non-cash items of depreciation and amortization of $79,085, minus a net change in operating assets and liabilities of $300,034. Net cash used in investing activities for the three months ended March 31, 2000 was $90,715. Equipment was purchased totaling $86,073 and the Company had additions to patent rights totaling $4,642 during the period. Net cash provided by financing activities for the three months ended March 31, 2000 was $295,992. The Company made principal debt payments of $5,820, received cash upon the exercise of options and warrants of $13,013 and borrowed an additional $288,799 on its line of credit. As a result, the Company's cash and cash equivalents were $915,799 as of March 31, 2000 compared to $1,006,695 at December 31, 1999. Working capital decreased from $1,724,862 as of December 31, 1999 to $1,645,201 as of March 31, 2000. As of March 31, 2000, approximately 51% of the Company's outstanding accounts receivable balance was related to Medtronic. The Company has not experienced any problems with payments from Medtronic and does not anticipate problems in the future. On April 29, 1999, the Company signed an extension through June 30, 2000 on its revolving line of credit with a financial institution. The line was increased from $1,500,000 to $2,000,000 and the agreement calls for interest at the rate of 1% over the financial institution's base rate with no minimum interest due. The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line is secured by substantially all of the Company's assets. The agreement also requires the Company to meet certain financial covenants. The Company anticipates that it will be able to extend the line of credit when it expires in June 2000. If the financial institution decides not to extend the agreement, additional capital may be required to fund 2000 operations and capital expenditure requirements. Sources of additional capital may include additional debt financing and/or the sale of debt or equity securities. If the Company is unable to obtain financing when required, the Company could be forced to curtail its operations. 9 YEAR 2000 DISCLOSURE The Company has not experienced any Y2K problems to date and does not anticipate any problems associated with it in the future. 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 10KSB and other recent filings with the Securities and Exchange Commission, as well as, and without limitation, 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; protecting the Company's intellectual property rights; exposure to product liability claims; performance of the Company's sales representatives, and; ability to attract effective sales representatives. 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 (a). The Company held its annual meeting of shareholders on April 27, 2000. (b). The Company solicited proxies from its shareholders to vote on the following four items: * To set the number of directors at five and elect five directors for a term of one year * To adopt an amendment to the MedAmicus, Inc. Stock Option Incentive Plan * To adopt the 1999 Non-Employee Director and Medical Advisory Board Stock Option Plan * To ratify the appointment of independent auditors for the current fiscal year A total of 3,962,014 votes were cast by proxy at the annual meeting and the vote counts were as follows (4,116,574 shares outstanding):
- ---------------------------------- ------------ ------------ ------------ ------------ ------------ BROKER FOR WITHHOLD AGAINST ABSTAIN NON-VOTE - ---------------------------------- ------------ ------------ ------------ ------------ ------------ ELECTION OF DIRECTORS - ---------------------------------- ------------ ------------ ------------ ------------ ------------ Thomas L. Auth 3,957,764 4,250 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ James D. Hartman 3,957,764 4,250 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ Richard L. Little 3,957,764 4,250 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ Richard F. Sauter 3,957,764 4,250 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ Michael M. Selzer 3,957,764 4,250 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ - ---------------------------------- ------------ ------------ ------------ ------------ ------------ AMEND INCENTIVE OPTION PLAN 1,903,707 106,501 38,119 1,913,687 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ - ---------------------------------- ------------ ------------ ------------ ------------ ------------ ADOPT 1999 OPTION PLAN 1,878,562 132,531 37,234 1,913,687 - ---------------------------------- ------------ ------------ ------------ ------------ ------------ - ---------------------------------- ------------ ------------ ------------ ------------ ------------ RATIFY AUDITORS 3,915,997 32,333 13,684 - ---------------------------------- ------------ ------------ ------------ ------------ ------------
10 ITEM 5 - OTHER INFORMATION RISK FACTORS In addition to the other information in this 10-QSB, the reader should consider carefully the following factors in evaluating the Company and its business. Actual results could differ significantly from those projected in the forward-looking statements as a result, in part, of the risk factors set forth below in connection with the forward-looking statements which appear in these disclosures. CONTINUING LOSSES The Company became public in 1991 and has had losses in each of the years since that date. For the year ended December 31, 1999, the Company incurred a net loss of $174,664 and a net loss of $75,224 during the first quarter of 2000. The Company has incurred cumulative net losses through March 31, 2000 of $6,295,628. There is no assurance that the Company will ever be able to conduct its operations profitably. LACK OF MARKET FOR THE FIBER OPTIC PRESSURE TRANSDUCER Management's strategy is to market the Lumax fiber optic pressure transducer system primarily to gynecologists for incontinence diagnostic testing. Incontinence testing by gynecologists is a relatively new and undeveloped market. There is no assurance that the incontinence testing and treatment market at the gynecology office will evolve as the Company expects or, if it does evolve, that the Company's product will be widely used or accepted. In addition, there appears to be a trend that purchase decisions relating to medical devices are being made by purchasing groups rather than individual doctors. There can be no assurance that the Company's sales and marketing efforts will appeal to such purchasing groups or that the Company's products will be accepted by such groups. DEPENDENCE ON REIMBURSEMENT FOR INCONTINENCE TESTING Medicare and private insurance companies currently reimburse for incontinence testing. However, in today's medical environment of cost containment, there is no assurance that these entities will continue to provide reimbursement for incontinence testing. The loss of reimbursement for incontinence testing would have a material adverse effect on sales of the Company's Fiber Optic pressure transducer products. HIGHLY COMPETITIVE MARKETS; RISK OF TECHNOLOGICAL OBSOLESCENCE The medical technology industry in which the Company is involved is characterized by rapidly evolving technology and intense competition. The Company is aware of one other company which markets a fiber optic pressure measurement device for use in the urological market. There are two other companies which market fiber optic pressure measurement devices, but for different applications. In addition, there are several large companies which manufacture and market external strain gauge transducer catheters, a product against which the Company's catheter would likely compete. There is no assurance that these companies or any other companies will not develop technology which is more effective and/or available at a lower cost than the product offered by the Company. GOVERNMENT REGULATION The medical products the Company is selling and proposing to sell are subject to regulation by the FDA and by comparable agencies in certain states and foreign countries. The process of complying with requirements of the FDA and other agencies can be costly and time consuming. The Company has received clearance to market its vessel introducer and transducer by the FDA, although the Company will be required to obtain approval for marketing its transducer in other applications if it is necessary to change materials which are in contact with body fluids or to add other measurement parameters. There is no assurance that any such additional clearance will be obtained. In addition, once obtained, these clearances are subject to review, and later discovery of previous unknown problems may result in restrictions on the marketing of a product or withdrawal of the product from the market. The Company is also subject to certain FDA regulations governing manufacturing practices, packaging and labeling. 11 DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY The Company's success may depend on its ability to obtain patent protection for its products and processes, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. Patents covering certain aspects of the Company's vessel introducer and transducer were first issued by the United States Patent and Trademark Office in March and April 1991, respectively. In addition, the Company has applied for patent protection on additional aspects of both the vessel introducer and transducer. There can be no assurance that any future patent protection will be granted, that the scope of any patent protection will exclude competitors or that any of the Company's patents will be held valid if subsequently challenged. The validity and breadth of claims covered in medical technology patents involves complex legal and factual questions and therefore may be highly uncertain. The Company also relies upon unpatented trade secrets, and no assurance can be given that others will not independently develop or otherwise acquire substantially equivalent trade secrets or otherwise gain access to the Company's proprietary technology. DEPENDENCE ON MAJOR CUSTOMER The Company is presently dependent on one major customer which is Medtronic. Medtronic accounted for approximately 56% of the Company's total sales and 52% of the Company's total accounts receivable in 1999. The loss of Medtronic as a customer would have a material adverse effect on the Company. SOURCES OF SUPPLY The Company currently purchases, and will in the future purchase, components and raw materials from outside vendors. Although the Company has identified alternative suppliers for key components and raw materials, at the present time the Company generally uses one source of supply for each component and raw material. Each supplier of raw material for the Company's vessel introducer is subject to the approval of Medtronic and future customers may have a right of approval as well. At present, all of the Company's suppliers have been approved by Medtronic. Should a key supplier be unwilling or unable to supply any such component or raw material in a timely manner, or should approval of a proposed supplier be delayed, withheld or withdrawn, the Company could experience delays in obtaining alternative suppliers which may adversely affect the Company's business. LIMITED PUBLIC MARKET TRADING As of March 31, 2000, the Company had 4,126,574 shares of common stock outstanding, of which approximately 85% was available for public trading. During 1999, the average daily trading volume approximated 14,700 shares per day. As of March 31, 2000, there were only three investment banking firms which make a market in the Company's stock. There can be no assurance that an active market will exist for the Company's shares, or that its shares could be sold without a significant negative impact on the publicly quoted price per share. DEPENDENCE ON LINE OF CREDIT On April 29, 1999, the Company signed an extension through June 30, 2000 on its $2,000,000 revolving line of credit with a financial institution. The Company anticipates that it will be able to extend the line of credit when it expires in June 2000. If the financial institution decides not to extend the agreement, additional capital would be required to fund 2000 operations and capital expenditure requirements. Sources of additional capital may include additional debt financing and/or the sale of debt or equity securities. If the Company is unable to obtain financing when required, the Company could be forced to curtail its operations. ITEM 6(a) - EXHIBITS 10.1 Lease Agreement with Jagodzinski Properties ITEM 6(b) - REPORTS ON FORM 8-K None 12 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: May 10, 2000 By: /s/ James D. Hartman President, Chief Executive Officer and Chief Financial Officer EXHIBIT INDEX - --------------- ---------------------------------------------------------------- EXHIBIT # DESCRIPTION PAGE - --------------- ----------------------------------------------------- ---------- 10.1 Lease Agreement, dated January 31, 2000, between the Company and Jagodzinski Properties. 27 Financial Data Schedule - --------------- ----------------------------------------------------- ---------- 13 EX-10.1 2 LEASE AGREEMENT EXHIBIT 10.1 LEASE AGREEMENT THIS LEASE AGREEMENT, made this 31st day of January, 2000 by and between JAMES JAGODZINSKI d/b/a JAGODZINSKI PROPERTIES ("Landlord") and MEDAMICUS, INC., a Minnesota corporation ("Tenant"); WITNESSETH THAT: 1. DEFINITIONS. For purposes of this Lease Agreement the following words or phrases shall have the following meanings: "Building". That certain office/warehouse building situated at the following described address: 15301 Highway 55 West, Plymouth, Minnesota 55447 (the "Building"). "Leased Premises". That portion of the Building containing approximately 31,337 square feet measured from the exterior surface of the exterior walls to the center of the interior walls. "Rentable Area". Approximately 31,337 square feet, being the sum of the square footage contained in the Leased Premises including Tenant's proportionate share of the common areas such as lobbies, entry ways, toilets, hallways, loading docks and mechanical rooms that Tenant shares in common with other tenants. "Tenant's Percentage". Sixty-eight and six-tenths percent (68.6%) being the percentage of the total area of the Building contained within the Rentable Area. 2. DEMISE AND PREMISES. Subject to the terms and conditions hereof, Landlord leases to Tenant, and Tenant hires and takes of and from Landlord the Leased Premises. 3. TERM. The Term of this Lease shall commence on June 1, 2000, and shall terminate on May 31, 2005, unless earlier terminated as hereinafter provided. 4. BASE RENT. Tenant agrees to pay Landlord, at 15301 Highway 55 West, Plymouth, Minnesota 55447, or such other place as Landlord may from time to time designate in writing, an initial monthly base rent of $14,187.00 per month, subject to adjustment as provided in paragraph 29 below, payable in advance on the first day of each month during the term of this Lease without demand therefore or deduction or set off. In the event the commencement date of this Lease falls on a date other than the first day of the month, the rent payable for the first month shall be adjusted on a pro rata basis and shall be payable on or before the commencement date. 5. ADDITIONAL RENT. Tenant agrees to pay to Landlord as additional rent hereunder payable at the same time and location as the base rent, the following: (a) Taxes and Special Assessments. Tenant's Percentage is sixty-eight and six-tenths percent (68.6%) of combined annual real estate taxes and installments of special assessments payable with respect to the Building and the real estate upon which it is situated (whether or not the same are levied or pending) on the date hereof. Tenant will receive a copy of annual tax and special assessment statement and Tenant shall pay its pro rata share on a monthly basis concurrent with Base Rental Payments. Real estate taxes are currently estimated to be $1.70 per square foot. (b) Common Area Maintenance (Operating Expenses) - The Tenant's Percentage is sixty-eight and six-tenths percent (68.6%) of the total operating expenses for the Building and the real estate upon which it is situated. For purposes of this Lease, operating expenses shall mean all costs which, for federal tax purposes, may be expensed rather than capitalized and which Landlord will incur in owning, maintaining and operating the Building and real estate including, but not by way of limitation, charges for cutting, fertilizing and maintaining grass, shrubbery and trees, roofs, downspouts, sewer, water; management fees, building insurance, scheduled HVAC maintenance, sprinkler alarm system, plumbing and other utility service (gas and electric) to the Building and grounds payable by Landlord; cleaning, maintaining, repairing, resurfacing and snow removal of driveways and parking areas; lighting, sodding, planting,; operating and policing the grounds. Operating expenses shall not include depreciation or interest or principal payments on any mortgage or encumbrance on the Building or real estate. Currently, operating expenses and common area maintenance charges are approximately $.80 per square. Common area maintenance (operating expenses) charges shall be payable monthly concurrent with Base Rental Payments and shall be $25,069.60 or $2,089.13 per month. 6. SERVICE AND UTILITIES. Tenant agrees that it shall pay all costs incurred in operating maintaining and repairing all heating, ventilating, air conditioning, plumbing and other utility systems serving the Leased Premises in as good order and condition as they were at the outset of the Lease, provided that Landlord warrants the condition of and will repair or replace all HVAC, plumbing, electrical and other systems during the first thirty (30) days of the Lease in that area not previously occupied by Tenant prior to the commencement of this lease. Tenant agrees to pay all charges for heat, air conditioning and utility services furnished to the Leased Premises during the term of this Lease including, but not by way of limitation, gas, electric, sewer, water, telephone, sprinkler alarm system and rubbish removal. Payments for utility services shall be paid by Tenant directly to the appropriate utility authorities, when due, if such utility authorities permit or accept direct payment. If any HVAC unit should require replacement due to normal wear and tear or as caused by Acts of God, during the term of the Lease, Landlord shall pay for the cost of such replacement. Landlord's service technician shall determine replacement needs, but in any case in which repair estimates exceed 50% of replacement costs, the unit shall be replaced and the cost shall be Landlords. All payments to be made by Tenant pursuant to this Section 6 shall be in addition to payments for repair, maintenance and utility services furnished to the grounds and common areas and payable by Landlord which are included in the operating expenses to be paid by Tenant. Landlord shall not be liable for failure to furnish, or for delay or suspension in furnishing, lighting, heat, air conditioning, water service or other utilities if such failure or suspension is caused by breakdown, maintenance, repairs, strikes, scarcity of labor or materials, acts of third parties or causes beyond Landlord's control. 7. USE OF PREMISES. Tenant agrees that it will use and occupy the Leased Premises solely for office/warehouse and processing purposes. Tenant will not use or occupy the Leased Premises for any unlawful purpose and will comply with all present and future laws, ordinances, regulations and orders of all governmental units having jurisdiction over the Leased Premises. Tenant shall not cause or permit any unusual noise, odors or nuisance in or about the Leased Premises and the Building and grounds nor shall Tenant permit any debris, property or merchandise of Tenant, its officers, employees or agents to be placed or left upon the grounds. Tenant, its officers and employees shall observe all reasonable rules and regulations adopted by landlord for the general safety, comfort and convenience of landlord, Tenant and other Tenants including the reasonable assignment of parking spaces for the exclusive use of Tenant or other tenants of landlord in the Building. Landlord disclaims any warranty that the premises are suitable for Tenant's use and Tenant acknowledges that it has had full opportunity to make its own determination in this regard. Tenant warrants that the operation of its business will not be harmful to the Building or the mechanical equipment within the Building and Tenant shall be liable in the event of damage arising from such harmful operation. In the event Landlord's insurance premiums are increased above the standard building rate as a result of Tenant's use of the Leased Premises, Tenant will pay to Landlord as additional rent the amount of such increase. In the event Tenant shall cause or permit any unusual noise, odor or nuisance or the storage of any debris, property or merchandise of Tenant, its officers, employees or agents, in or about the Leased Premises, Building or grounds in violation of the terms of this Section 7, and has not corrected the condition within a reasonable time after written notice from the Landlord of the violation, Landlord will be entitled to take any steps it deems reasonably necessary to correct or remove such violation and Tenant shall pay Landlord, as additional rent hereunder, all costs and expenses incurred in such correction or removal including all costs and expenses incurred in ascertaining which Tenant is responsible for such violation. 8. ASSIGNMENT AND SUBLETTING. Tenant will not assign, transfer, mortgage or encumber its interest in this Lease, nor sublet, rent, nor permit occupancy or use of the Leased Premises, or any part thereof by any third party, nor shall any assignment or transfer of this Lease be effectuated by operation of law or otherwise, without in each such case obtaining the prior written consent of Landlord. Landlord's consent will not be unreasonably withheld. Tenant shall seek such consent of Landlord by a written request, setting forth such information as Landlord may deem necessary. The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from the terms of any covenant or obligation under this Lease, nor shall the collection or acceptance of rent from any transferee under an assignment constitute an acceptance of the assignment or a waiver or release of Tenant from any covenant or obligation contained in this Lease, nor shall any assignment be construed to relieve Tenant from the requirement of obtaining the consent in writing of Landlord of any further assignment or subletting. No assignment or sublease or other transfer of this Lease shall be effective unless the assignee, sub-lessee or transferee shall at the time of such assignment, sublease or transfer, assume in writing, all of the terms, covenants and conditions of this Lease to be performed by Tenant. Whether or not Landlord has consented to an assignment or sublease, Tenant shall pay directly to Landlord the amount by which the rent or other payments received by Tenant pursuant to such assignment or sublease exceeds, in any month, the base rent and additional rent payable by Tenant to landlord hereunder. Should the Tenant improve its space (at its own expense) which is then assigned or subleased to a third party at a rental rate higher than tenant is paying landlord under this lease or any future lease or extension of this lease, Tenant shall have the right to keep the difference between rent it pays to Landlord and rent it collects from the third party until tenants expense for improvements are amortized. Tenant shall he allowed to add interest at prime rate plus two (2) percent to its cost of improvements on behalf of such third party. Interest rate shall be prime rate plus 2% (two percent) set on the date of first day of construction of said improvements. 9. SUBORDINATION. Tenant agrees that this Lease is subject and subordinate to the lien of all first mortgages which may now or hereafter encumber the Building or real estate and to all renewals, extensions, modifications or re-financings thereof. Tenant shall, at Landlord's request, promptly execute any reasonable certificate or other document requested by any first mortgagee. Tenant agrees that in the event that any proceedings are brought for the foreclosure of any first mortgage, Tenant shall attorn to the purchaser, at such foreclosure sale, if requested to do so by such purchaser and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event that any such foreclosure proceeding is prosecuted or completed. Notwithstanding anything to the contrary in this Lease, this Lease shall remain in full force and effect and the mortgagee shall not disturb Tenant's possession hereunder. 10. SALE OR MORTGAGE OF THE BUILDING. In the event of a sale of the Building, Landlord shall be relieved of all liability under this Lease accruing from and after the date of sale, provided Landlord has obtained the written agreement of its transferee or assignee to assume and carry out all of the covenants and obligations of the Landlord hereunder. The Tenant agrees at any time and from time to time, upon not less than ten (10) days prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that the Lease is not modified (or if modified, stating the modification) that the Lease is in full force and affect, stating the dates to which the base rent and additional rents have been paid in advance and stating whether the Landlord is in default hereunder. It is intended that any such statement may be relied upon by any prospective purchaser of the fee or mortgagee or assignee of any mortgage upon the Building or real estate. 11. TENANT INSURANCE. Tenant agrees that it shall purchase in advance and carry the following insurance at its own expense: (a) fire and extended coverage insurance insuring Tenant's personal property, furniture, trade fixtures, inventory, business record and leasehold improvements against loss from all insurable events for the full replacement value thereof; (b) insurance against interruption of Tenant's business activities; and (c) comprehensive liability insurance covering all acts of Tenant, its employees, agents, representatives and guests and insuring against all claims arising from injury to persons or damage to property in or about the Leased Premises, Building or real estate in a single limit amount of not less than $500,000.00 for personal injury or death and not less than $100,000.00 for property damage and fire legal liability. All such insurance shall name Landlord as an additional insured and shall provide for thirty (30) days written notice to Landlord prior to cancellation, non-renewal or material modification. Certificates of all such insurance shall be delivered to Landlord prior to occupancy of the premises by Tenant and at least thirty (30) days prior to the termination date of any existing policy. Tenant shall pay to Landlord, upon demand, as additional rent the cost of securing such insurance in the event Tenant fails to furnish certificates of insurance to Landlord. However, it is not Landlord's duty nor obligation to secure such insurance for Tenant. 12. FIRE OR OTHER CASUALTY. If the Leased Premises or the Building shall be damaged or destroyed by fire or other cause, without the fault or neglect of Tenant, Landlord may (taking into account the time necessary to effectuate a satisfactory settlement with any insurance company) undertake to repair such damage at its own expense, provided, however, in the event the Leased Premises or the Building are damaged by fire or other cause to such extent that the damage cannot, in the Landlord's sole judgment, be economically repaired within a reasonable time after the date of such damage, Landlord shall have the option, by notice given to Tenant within ninety (90) days of the date of the damage, to terminate this Lease as of the date of the damage. This Lease shall, unless terminated by Landlord pursuant to this Section 12, remain in full force and effect following such damage, and the Base Rent and additional rent, prorated to the extent that the Leased Premises are rendered untenantable, shall be equitably abated until such repairs are completed. If the destruction or damage was wholly or partially caused by negligence or breach of the terms of this Lease by Tenant, its officers, agents or employees, the rent shall not abate and the Tenant shall remain liable for the same. 13. CONDEMNATION. If the whole or any part of the Leased Premises shall be taken or condemned or purchased under threat of condemnation by any governmental authority, then the Term of this Lease shall cease and terminate as of the date when the interference with possession, enjoyment or value of the Leased Premises occurs and Tenant shall have no claim against the condemning authority, Landlord or otherwise for any portion of the amount that may be awarded as damages as a result of such taking or condemnation or for the value of any unexpired Term of this Lease, provided, however, that Landlord shall not be entitled to any award made to Tenant for loss of business or the fair value of and the cost of removal of stock and trade fixtures. In the event part of the Building, but not the Leased Premises, is condemned to the extent that it cannot, in Landlord's sole judgment, be economically restored within a reasonable time, Landlord shall have the option, by notice given to Tenant within ninety (90) days of the date of interference with possession, to terminate this Lease as of the date of such interference with possession. 14. ALTERATIONS AND SIGNS. Tenant will not make or permit anyone to make any alterations, decorations, additions or improvements, structural or otherwise with a cost in excess of $1,000, in or to the Leased Premises or the Building without the prior written consent of Landlord, except as set forth in Section 29. Any alterations shall be out of identical or improved building materials and construction methods as was used in original structure. As a condition precedent to written consent of Landlord hereunder, Tenant agrees to obtain and deliver to Landlord such security against mechanic's liens as Landlord shall reasonably request. If any mechanic's lien is filed against any part of the Building or real estate for work claimed to have been done for or labor or materials claimed to have been furnished to or authorized by Tenant, such mechanic's lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and expense, by the payment and satisfaction thereof or by filing any bond required or permitted by law. Should Tenant fail to obtain the discharge of any such mechanic's lien within ten (10) days of the filing thereof, Landlord shall be entitled to obtain such discharge by whatever reasonable means Landlord deems expedient, and all costs incurred by Landlord in obtaining such discharge including reasonable attorneys fees, shall be paid by Tenant as additional rent hereunder. All alterations, decorations, additions or improvements in or to the Leased Premises or the Building made by either party shall immediately become the property of Landlord and shall remain upon and be surrendered with the Leased Premises as a part thereof at the end of the term hereof without disturbance, molestation or injury; provided, however, that if Tenant is not in default in the performance of any of its obligations under this Lease, and further provided that if any and all damage resulting therefrom be repaired, Tenant shall have the right to remove at its own expense, prior to the expiration or termination of the term of this lease, all movable furniture, trade fixtures and manufacturing equipment installed in the Leased Premises, provided such removal is completed with no damage to the Leased Premises or the Building. Tenant shall have the right to remodel any existing monument signs at Tenant's expense, subject to the approval by the City of Plymouth, other building tenants, and Landlord. Tenant agrees not to place or maintain any sign, advertisement or notice on any part of the outside or the inside of the Building without Landlord's prior written approval. Any such approved use shall be at the sole expense and cost of Tenant. 15. WAIVER OF SUBROGATION. Notwithstanding any other provision in this Lease to the contrary, Landlord and Tenant hereby release one another, their respective officers, agents, partners and employees, from any and all liability or responsibility (to the other or anyone claiming through or under them by way of subrogation or otherwise) for any loss or damage covered by casualty insurance actually carried or coverable by the insurance required by Section 11 hereof. 16. WAIVER AND INDEMNITY. Tenant agrees that Landlord, its officers, agents, partners and employees shall not be liable to Tenant or those claiming through or under Tenant for any injury, death or property damage occurring in, on or about the Leased Premises, the Building or grounds. Without limitation of the foregoing, Landlord shall not be liable to Tenant for any damage, compensation or claims arising from: loss or damage to books, records, files, money, securities, negotiable instruments or other papers in or about the Leased Premises; the necessity of repairing any portion of the Building; the interruption in the use of the Premises; accident or damage resulting from the use or operation by Landlord, Tenant, or any other person or persons whatsoever of elevators, or heating, cooling, electrical or plumbing equipment or apparatus; the termination of this Lease by reason of the destruction or condemnation of the Leased Premises; any fire, robbery, theft, or any other casualty; any leakage or bursting of pipes or water vessels or any roof or wall leakage, in any part or portion of the leased Premises or the Building; water, rain, snow or underground water that may leak into, flow on, or flow from, any part of the Leased Premises or the Building. Tenant agrees to indemnify and hold harmless Landlord from and against all claims of whatever nature arising or resulting from any act, omission or negligence of Tenant, its officers, employees and agents in or about the Leased Premises, Building or grounds or in connection with its use of the Leased Premises and to indemnify and hold harmless Landlord against all costs, expenses and liabilities, including reasonable attorneys fees, incurred in connection with any such claim or proceeding brought thereon, and the defense thereof. 17. REPAIRS. Tenant shall put, keep, repair and maintain the Leased Premises at all times in a good, neat, clean and sanitary condition and state of repair, reasonable wear and tear excepted, free of debris and other similar obstructions, and shall repair and replace broken plate and window glass and damage caused by the negligence or intentional act of Tenant, its officers, employees and agents. Tenant shall allow Landlord access to the Leased Premises during all reasonable hours to make repairs required to be made by Tenant which Tenant fails or refuses to make, and shall pay Landlord as additional rent the cost of such repairs made for Tenant by Landlord. Landlord shall make all necessary repairs to the outer walls, roof, and structural elements of the Building. Landlord shall keep the plumbing, sewage, heating, air conditioning, electrical and ventilating systems of the Building outside the perimeter of the Leased Premises in good repair, ordinary wear and tear and casualty damage covered by insurance excepted. Landlord shall maintain and keep the common areas, grounds, driveways and parking areas in a neat and clean condition. Notwithstanding the foregoing, any cost of repairs or improvements to the Building, to the Leased Premises or to any common areas which are occasioned by the negligence or default of Tenant, its officers, employees, agents or invitees, or by requirements of law, ordinance or other governmental directive and which arise out of the nature of Tenant's use and occupancy of the Leased Premises or the installations of Tenant in the Leased Premises shall be paid for by Tenant, as additional rent hereunder, immediately upon billing unless covered by Landlord's Insurance. 18. ENTRY AND INSPECTION. Tenant shall permit Landlord, its agents or representatives to enter the Leased Premises to examine and inspect the same or, with Tenant's written permission, to make such alterations, renovations or repairs to the Leased Premises or the Building as Landlord may deem necessary or desirable, or to exhibit the Leased Premises to prospective Tenants during the last ninety (90) days of the term of this Lease or to prospective purchasers at any time during the term, upon reasonable notice during normal business hours. 19. MAINTENANCE. Tenant shall keep the Leased Premises, and the fixtures and equipment therein, in good, safe and sanitary condition, will suffer no waste or injury thereto and will, at the expiration or termination of the term of this Lease, surrender the same with all walls, carpets and other improvements in the same order and condition as on the commencement date of this Lease, ordinary wear and tear and casualty damage covered by insurance excepted. 20. IMPROVEMENTS. Tenant agrees that it has had ample opportunity to inspect the Leased Premises, and agrees to take the same on an "as is" basis and agrees that Landlord shall not be obligated to do any work in the Leased Premises. The taking of possession of the Leased Premises or renewal of this Lease by Tenant shall be conclusive evidence that the Leased Premises and the Building are in good and satisfactory condition at the time of such taking of possession or renewal, (Subject to Paragraph 6). 21. WAIVER. No waiver by either party of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of such covenant, condition, or agreement itself, or of any subsequent breach thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installments of rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent nor shall any endorsement or statement on any check or letter accompanying a check for payment of rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent, to terminate this Lease, to repossess the Leased Premises or to pursue any other remedy provided in this Lease. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of the Lease. 22. COVENANTS OF LANDLORD. Landlord covenants that it has the right to make this Lease for the term aforesaid and covenants that if Tenant shall pay the rent and perform all of the covenants, terms and conditions of this Lease to be performed by Tenant, Tenant shall, during the term of this Lease freely, peaceably and quietly occupy and enjoy the full possession of the Leased Premises without molestation or hindrance. 23. DEFAULT. (a) Any one of the following events shall constitute an Event of Default: (i) Tenant shall fail to pay any monthly installment of Base Rent or additional rent as herein provided (ii) Tenant shall violate or fail to perform any of the other terms, covenants or conditions of this Lease and such default shall continue for thirty (30) days after notice from Landlord; (iii) Tenant shall file or have filed against it or any guarantor of this Lease any bankruptcy or other creditor's action, or make an assignment for the benefit of its creditors. (iv) Tenant shall vacate all or a substantial portion of the Leased Premises, whether or not Tenant is in default of the payments due under this Lease. (b) If an Event of Default shall have occurred and be continuing, Landlord may at its sole option by written notice to Tenant terminate this Lease. Neither the passage of time after the occurrence of the Event of Default nor exercise by Landlord or any other remedy with regard to such Event of Default shall limit Landlord's right under this Paragraph 23 (b). (c) If an Event of Default shall have occurred and be continuing, whether or not Landlord elects to terminate this Lease, Landlord may enter upon and repossess the Leased Premises (said repossession being hereinafter referred to as "Repossession") by force, summary proceedings, ejectment or otherwise, and may remove Tenant and all other persons and property therefrom. (d) From time to time after Repossession of the Leased Premises, whether or not this Lease has been terminated, Landlord may attempt to relet the Leased Premises for the account of Tenant in the name of Landlord or otherwise, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and for such terms (which may include concessions or free rent) and for such uses as Landlord, in its sole and unqualified discretion, may determine, and may collect and receive the rent therefor. Landlord shall not be responsible or liable for any failure to collect any rent due upon any such reletting. (e) No termination of this Lease pursuant to paragraph 23 (b) and no Repossession of the Leased Premises pursuant to paragraph 23(c) or otherwise shall relieve Tenant of its liabilities and obligations under this Lease, all of which shall survive any such termination or Repossession. In the event of any such termination or Repossession, whether or not the Leased Premises shall have been relet, Tenant shall pay to Landlord the Base Rent and other sums and charges to be paid by Tenant up to the time of such termination or Repossession, and thereafter Tenant, until the end of what would have been the term in the absence of such termination or Repossession, shall pay to Landlord, as and for liquidated and agreed current damages for Tenant's default, the equivalent of the amount of the Base Rent, additional rent and such other sums and charges which would be payable under this Lease by Tenant if this Lease were still in effect, less the net proceeds, if any, of any reletting effected pursuant to the provisions of paragraph 23(d) after deducting all of Landlord's expenses in connection with such reletting, including without limitation, all repossession costs, brokerage and management commissions, operating expenses, legal expenses, reasonable attorneys' fees, alteration costs, and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Base Rent would have been payable under this Lease if this Lease were still in effect, and Landlord shall be entitled to recover the same from Tenant on each such day. At any time, after such termination or Repossession, whether or not Landlord shall have collected any current damages as aforesaid, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damage for Tenant's default, an amount equal to the then present worth of the excess of the Base Rent and other sums or charges reserved under this Lease from the day of such termination or Repossession for what would be the then unexpired term if the same had remained in effect, over the then net fair rental value of the Leased Premises for the same period. (f) If an Event of Default shall have occurred and Landlord places in the hands of an attorney the enforcement of all or any of the terms, covenants, agreements or conditions of this Lease, the collection of any rent due or to become due, or the recovery of possession of the Leased Premises, Tenant agrees to reimburse Landlord, as additional rent hereunder, for Landlord's reasonable attorneys fees, together with the actual cost of maintaining any action commenced in law or equity by said attorneys for the services of the attorneys, whether suit is actually filed or not. Such reimbursement shall be payable within thirty (30) days of demand therefor. 24. SURRENDER. Tenant shall surrender the Leased Premises to Landlord upon termination of this Lease, whether such termination occurs at the end of the lease term or sooner, together with all utility systems, improvements, replacements, alterations and decorations thereto and operating bulbs or tubes in all light fixtures, broom clean and in good order, condition and repair except for ordinary wear and tear. Tenant shall remove promptly, upon request by Landlord, alterations, modifications and the like to the Leased Premises made by Tenant, or on behalf of Tenant, and not consented to by Landlord, and shall restore and repair damage caused by such removal. Should Tenant fail to surrender the Leased Premises in the condition required by this section, Landlord shall be entitled to take whatever steps may, in Landlord's sole discretion, be required to restore the Leased Premises to said condition and Tenant agrees that it shall pay to Landlord all costs incurred by Landlord in so restoring the premises. 25. HOLDING OVER. Should the Tenant continue to occupy the Leased Premises, or any part thereof, after the expiration or termination of the Term of this Lease whether with or against the consent of the Landlord, such Tenancy shall be from month to month and Tenant shall pay Landlord the additional rent set forth in Section 5 plus two times the Base Rent set forth in Section 4 during the entire period that Tenant continues to so occupy the Leased Premises after the term of this Lease. 26. LATE PAYMENT. Other remedies for nonpayment of rent notwithstanding and without prejudice to such remedies, if Tenant fails to pay the monthly base rent, additional rent or any other payment due hereunder within the seven days immediately following the date on which such payment is due, Tenant shall pay the following amounts to Landlord as additional rent hereunder: (a) Interest on all such past due payments at the rate of one and one-half % per month or at the maximum rate permitted by law whichever rate is lower. Interest shall accrue from the date each such late-payment became due and shall be payable to the date of payment thereof by Tenant; (b) A service charge equal to the costs actually incurred by Landlord as a result of Tenant's failure to make payments due hereunder including, but not limited to, reasonable attorney's fees and costs incurred in the collection or attempted collection of such past due amounts. 27. HAZARDOUS SUBSTANCES/ENVIRONMENTAL REGULATIONS. Tenant warrants and represents that: (a) its use of the Leased Premises and the operation of its business thereon shall not violate any law, statute, ordinance, rule, regulation, order or determination of any governmental authority pertaining to hazardous substances, toxic waste, asbestos, health or the environment (hereinafter if sometimes collectively called "Environmental Regulations") including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA'1), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA") (collectively "CERCLA/SARA") and the Resource Conservation and Recovery Act of 1976 (1'RCRA") and the Minnesota Environmental Response and Liability Act ("MERLA"); (b) Tenant has obtained and shall continue to maintain all permits, licenses or similar authorizations required by Environmental Regulations to conduct its business on the Leased Premises; and (c) Tenant's use of the Leased Premises will not result in the disposal or release of any hazardous substance, toxic waste, asbestos or other substance regulated by Environmental Regulations on or about the Leased Premises, Building or the real property on which it is situated. In the event Tenant1 its officers, agents or employees shall breach or fail to perform any of the warranties and representations contained in this Section: (d) upon notice from Landlord, Tenant shall remove from the Leased Premises, Building or real property on which it is situated, at Tenant's sole expense, any hazardous substance, toxic waste, asbestos or other substance regulated by Environmental Regulations introduced by Tenant which is not in compliance with Environmental Regulations or this Lease; (e) Landlord and such Environmental Engineers as it may employ shall be entitled to enter upon the Leased Premises for the purpose of conducting such environmental audits or similar tests as Landlord may deem necessary and the cost and expense of such environmental audits or tests incurred by Landlord shall be paid by Tenant as additional rent hereunder with the next installment of base rent; and (e) Tenant shall protect, indemnify and save Landlord harmless from all costs, fines, claims, demands, actions, proceedings, judgments and damages, including court costs and reasonable attorneys' fees, resulting from or arising out of any breach or non-performance by Tenant of the representations and warranties contained in this Section including, without limitation, the cost of removal or remediation of any disposal, release or contamination on or about the Leased Premises, Building or the real property on which it is situated. It is expressly acknowledged by Tenant that all of the terms, covenants and conditions of this paragraph pertaining to Environmental Regulations including, but not by way of limitation, the indemnifications herein provided shall survive the termination of this Lease. 28. BASE RENT ADJUSTMENT On June 1, 2002, and on subsequent yearly anniversary dates of this Lease, including any renewal term thereof, the monthly base rent may be adjusted by the increase in the Consumers Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for All Urban Consumers, Minneapolis-St. Paul Metropolitan Area, "All-Items Index", herein referred to as "C.P.I.U". 29. TENANT IMPROVEMENTS. Landlord will provide Tenant a remodeling allowance up to an amount not to exceed $150,000. The allowance shall be used for, but not limited to: (1) new paint, wallpaper, floor tile replacement and bathroom and office upgrades to Tenant's existing space, and (2) upgrade of new space to Tenant's specifications. Tenant shall use contractors satisfactory to Landlord. Tenant shall provide invoices of completed work to Landlord and Landlord shall promptly pay each invoice according to the terms of the invoice. Tenant agrees to commence repayment to Landlord of all disbursed amounts, with interest on the unpaid balance calculated at 8% per annum, and amortized over the remaining life of the Lease, exclusive of renewal periods. Payments will commence concurrent with the payment of monthly rent on the first of the month following Landlords disbursement. Tenant shall have the right to prepay the outstanding balance of this loan at any time. 30. EXPANSION SPACE. If Tenant is not in default under the terms of this Lease, Tenant shall have an option to lease part or all of any space in the Building which is or becomes available during the Lease term. Should such an expansion space become available for rent, Landlord or Landlord's agent shall notify Tenant in writing and Tenant shall have thirty (30) days to notify Landlord or Landlord's agent in writing whether or not it intends to exercise this option. Should Tenant elect to exercise the option, Tenant and Landlord shall enter into a mutually acceptable agreement for the lease of the expansion space within thirty (30) days after Tenant's notice of its intent to exercise the option. Should Landlord and Tenant be unable to reach an agreement within that thirty (30) day period, Tenant's option shall expire and become null and void. 31. OPTION TO RENEW. If Tenant is not in default under the terms of this Lease, Landlord shall grant Tenant the option to renew the term of this Lease for three (3) successive one-year periods. Tenant shall have deemed to have exercised the next one-year option to extend the term of this lease unless if one hundred eighty (180) days prior to the termination of the initial term of this Lease or the then current extended term of this Lease, as the case may be, Tenant gives written notice to Landlord of its intention to terminate this Lease at the end of the initial term or the then current renewal term, as the case may be. Said extended term shall be upon all of the terms and condition contained herein. 32. MISCELLANEOUS. (a) All notices or other communications hereunder shall be in writing and shall be hand delivered or sent by first class United States mail to the following address: Landlord: Tenant: -------- ------ James Jagodzinski d/b/a Jagodzinski MedAmicus, Inc Properties 15301 Highway 55 W 100 Gideon Point Road Plymouth, Minnesota 55447 Tonka Bay, Minnesota 55331 Mailed notice shall be effective the day following the day of mailing; (b) This Lease Agreement is made and executed in the State of Minnesota, and shall be constructed according to the laws of Minnesota; (c) The invalidity or unenforceability of any provision of this agreement shall not affect or impair the validity of any other provisions; and section titles and captions in this Agreement are for convenience only and do not define, limit or construe the contents of such paragraphs; (d) If more than one person or entity shall sign this Lease as Tenant, the obligations set forth herein shall be deemed joint and several obligations of each such party; (e) This Lease shall be binding upon and inure to the benefit of the parties thereto and, subject to the restrictions and limitations herein contained, their respective heirs, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement as of the day and year so indicated below. JAMES JAGODZINSKI d/b/a MEDAMICUS, INC. JAGODZINSKI PROPERTIES By: - ---------------------------------- ---------------------------------- James Jagodzinski Its: --------------------------------- Date: Date: ---------------------------- -------------------------------- EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 MAR-31-2000 915,799 0 1,511,436 50,334 1,445,196 3,918,533 3,526,777 2,827,165 4,651,461 2,273,332 41,479 0 0 41,266 2,295,384 4,651,461 2,610,564 2,610,564 1,369,953 1,369,953 239,748 0 33,137 (75,224) 0 (75,224) 0 0 0 (75,224) (0.02) (0.02)
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