10QSB 1 medamicus022489_10qsb.txt MEDAMICUS, INC. FORM 10-QSB 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, 2002 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 May 9, 2002 was 4,716,593 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, 2002 and December 31, 2001 3 Statements of Operations for the three months ended March 31, 2002 and 2001 4 Statement of Shareholders' Equity for the three months ended March 31, 2002 5 Statements of Cash Flows for the three months ended March 31, 2002 and 2001 5 Condensed Notes to the Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-10 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 11 ITEM 5. OTHER INFORMATION 11 ITEM 6(a). EXHIBITS 11 ITEM 6(b). REPORTS ON FORM 8-K 11 2 BALANCE SHEETS
UNAUDITED AUDITED MARCH 31, 2002 DECEMBER 31, 2001 ------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,088,879 $ 5,350,477 Accounts receivable, less allowance for doubtful accounts of $25,000 and $22,000, respectively 2,180,695 1,882,750 Inventories, less obsolescence reserve of $69,000 and $91,000, respectively 2,354,600 1,965,241 Prepaid expenses and other assets 54,167 41,906 Deferred income taxes 100,000 175,000 ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 9,778,341 9,415,374 ----------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT: Equipment 3,685,837 2,937,334 Office furniture, fixtures and computers 698,310 674,854 Leasehold improvements 933,210 924,243 ----------------------------------------------------------------------------------------------------------------- 5,317,357 4,536,431 Less accumulated depreciation and amortization (2,251,495) (2,126,558) ----------------------------------------------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 3,065,862 2,409,873 ----------------------------------------------------------------------------------------------------------------- OTHER ASSETS: License agreement at cost, net of accumulated amortization of $104,362 and $41,668, respectively 1,943,531 2,005,810 Patent rights, net of accumulated amortization of $64,198 and $59,982, respectively 111,682 94,750 ----------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 2,055,213 2,100,560 ----------------------------------------------------------------------------------------------------------------- ================================================================================================================= TOTAL ASSETS $ 14,899,416 $ 13,925,807 ================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 715,921 $ 820,682 Accrued expenses 520,430 791,091 Income taxes payable 308,957 80,155 Current maturities of capital lease obligations 72,330 78,478 ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,617,638 1,770,406 ----------------------------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES: Capital lease obligations, less current maturities 203,960 219,290 ----------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,821,598 1,989,696 ----------------------------------------------------------------------------------------------------------------- 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 4,706,593 and 4,601,567 shares, respectively 47,066 46,016 Additional paid-in capital 11,872,709 11,328,818 Retained earnings 1,158,043 561,277 ----------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 13,077,818 11,936,111 ----------------------------------------------------------------------------------------------------------------- ================================================================================================================= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,899,416 $ 13,925,807 =================================================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS 3 STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED 3/31/2002 3/31/2001 ---------------------------------- Net sales $ 4,298,683 $ 2,404,869 Cost of sales 2,329,984 1,165,192 ------------------------------------------------------------------------------------------------- GROSS PROFIT 1,968,699 1,239,677 ------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Research and development 412,299 253,487 Selling, general and administrative 606,270 469,069 ------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 1,018,569 722,556 ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- OPERATING INCOME 950,130 517,121 ------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest expense (6,501) (46,317) Interest income 20,574 11,828 Other (449) (4,558) ------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME (EXPENSE) 13,624 (39,047) ------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 963,754 478,074 Income tax expense (366,988) 0 ------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 596,766 478,074 ------------------------------------------------------------------------------------------------- LOSS FROM OPERATIONS OF DISCONTINUED SEGMENT 0 (28,579) ================================================================================================= NET INCOME $ 596,766 $ 449,495 ================================================================================================= EARNINGS PER SHARE: BASIC Income from continuing operations $ 0.13 $ 0.11 Income (loss) from discontinued operations 0.00 0.00 ================================================================================================= TOTAL EARNINGS PER SHARE $ 0.13 $ 0.11 ================================================================================================= DILUTED Income from continuing operations $ 0.12 $ 0.11 Income (loss) from discontinued operations 0.00 (0.01) ================================================================================================= TOTAL EARNINGS PER SHARE $ 0.12 $ 0.10 ================================================================================================= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: Basic 4,686,300 4,166,206 Diluted 4,993,174 4,448,275
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS 4 STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional -------------------------- Paid-In Retained THREE MONTHS ENDED MARCH 31, 2002 Shares Amount Capital Earnings Total ---------------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 2001 (AUDITED) 4,601,567 $ 46,016 $ 11,328,818 $ 561,277 $ 11,936,111 Options exercised 16,600 166 47,566 0 47,732 Warrants exercised 88,426 884 495,186 0 496,070 Warrants issued to consultant for services 0 0 1,139 0 1,139 Net income for the three month period ended 3/31/02 0 0 0 596,766 596,766 ---------------------------------------------------------------------------------------------------------------------------------- BALANCES AT MARCH 31, 2002 (UNAUDITED) 4,706,593 $ 47,066 $ 11,872,709 $ 1,158,043 $ 13,077,818 ----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED March 31, 2002 March 31, 2001 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 596,766 $ 449,495 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 191,847 89,030 Warrants issued for compensation 1,139 1,503 Changes in operating assets and liabilities: Accounts receivable (297,945) (296,144) Inventories (389,359) (218,314) Prepaid expenses and other assets (12,261) (25,280) Deferred income taxes 75,000 0 Accounts payable (104,761) 252,419 Accrued expenses (270,661) (280,574) Income taxes payable 228,802 0 ---------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 18,567 (27,865) ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net of retirements (780,926) (224,187) Additions to patent rights (21,148) (1,581) Additions to license agreement (415) 0 ---------------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (802,489) (225,768) ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable to bank 0 197,406 Principal payments on capital lease obligations (21,478) (14,944) Proceeds from exercise of options and warrants 543,802 4,835 ---------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 522,324 187,297 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (261,598) (66,336) ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,350,477 1,007,149 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,088,879 $ 940,813 ---------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 6,501 $ 39,685 Cash paid during the period for income taxes $ 63,166 $ --
SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS 5 CONDENSED NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 (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 accounting principles generally accepted in the United States 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, 2001, filed by the Company with the Securities and Exchange Commission. The financial statements presented herein as of March 31, 2002 and for the three months ended March 31, 2002 and 2001 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, 2002 DECEMBER 31, 2001 -------------- ----------------- Purchased parts and subassemblies $ 1,649,728 $ 1,245,457 Work in process 278,049 561,011 Finished goods 426,823 158,773 -------------------------------------------------------------------------------- TOTAL INVENTORY $ 2,354,600 $ 1,965,241 ================================================================================ 3. NET INCOME PER SHARE Basic per-share amounts are computed, generally, by dividing net income by the weighted-average number of common shares outstanding. Diluted per-share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive. 4. INCOME TAXES Income tax expense for the first quarter ended March 31, 2002, was computed using an estimated combined federal and state tax rate of 38%. No income tax provision for the first quarter of 2001 was presented in the Statements of Operations due to the utilization of net operating loss carryforwards for which a valuation allowance had previously been provided. 5. COMMITMENT During the quarter ended March 31, 2002, the Company entered into an agreement to purchase manufacturing equipment for its safety needle products. The total cost of $1.5 million is billed to the Company as its construction progresses. As of March 31, 2002, the Company has been billed approximately $500,000 under the agreement, leaving a remaining commitment of approximately $1,000,000. 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. 6 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 At the beginning of 2001, we were operating in two distinct operating segments: The PDS Division and the Gynecology Division. On April 25, 2001, we sold the Gynecology Division to CooperSurgical, Inc. for approximately $4,700,000. As a result, we have reported the results of the Gynecology Division as discontinued operations for 2001. Total revenues from continuing operations were $4,298,683 for the three months ended March 31, 2002 compared to $2,404,869 for the three months ended March 31, 2001, representing a 78.8% increase. Sales of our core introducer products were $2,445,592 for the three months ended March 31, 2002, compared to $1,799,048 for the three months ended March 31, 2001, representing a 35.9% increase. This increase was primarily due to increased sales to Bard Access Systems under a new supply agreement that was beginning to ramp up one year ago, as well as increased sales to a number of other new customers that were added during 2001. We expect sales of our core introducer products to remain strong for the year 2002 as we continue to ship orders to our new customer base. Sales of Left Ventricle Lead Delivery System procedural kits and related products were $1,491,623 for the three months ended March 31, 2002, compared to $309,350 for the three months ended March 31, 2001. Most of these sales were to Medtronic in support of its launch of the InSyncTM pacing device to treat congestive heart failure. As previously announced, Medtronic has informed us that it intends to transition future packaging of the next generation of these procedural kits to its own facility starting in the second quarter of 2002. We will continue to provide Medtronic several components and demonstration product for the next generation procedural kits and we will also continue to package the current generation procedural kits during the phase out period. Therefore we will participate in this market in the quarters ahead, but not at the same level we have over the last several quarters. In the fourth quarter of 2001, we began marketing our guidewire Introducer Safety Needle which incorporates technology licensed from Med-Design Corporation. We shipped a total of $33,475 worth of safety needles in the three months ended March 31, 2002, primarily to companies for market assessment purposes. We currently have ten companies that are, or have advised us that they will be, conducting market studies. We expect sales of this product to accelerate in the last half of 2002 as we formalize distribution relationships and our automated assembly system comes on line. Contract manufacturing sales were $246,893 for the three months ended March 31, 2002, compared to $279,517 for the three months ended March 31, 2001, representing a 11.7% decrease. This decrease was primarily due to our largest customer ordering less product for delivery in 2002 than in the comparable period of 2001. We expect contract manufacturing sales in the second quarter of 2002 to be similar to those seen in the first quarter of 2002. Other sales, which include freight charges to customers and engineering services, totaled $81,100 for the three months ended March 31, 2002, compared to $16,954 for the three months ended March 31, 2001, primarily as a result of increased engineering services. Total gross profit increased from $1,239,677 for the three months ended March 31, 2001, to $1,968,699 for the three months ended March 31, 2002, representing a 58.8% increase. Total gross profit as a percent of sales dropped from 51.6% to 45.8% between comparable periods. We expected a decrease in gross margin percentages due to building additional infrastructure for new business and we expect our gross profit percentage to remain lower over the next several quarters as we continue to ramp up production of our Safety Needle product, continue to strengthen our infrastructure and continue amortizing the investment in the amended Development and Licensing Agreement for the Safety Needle. Total research and development expenditures were $412,299 or 9.6% of sales for the three months ended March 31, 2002, compared to $253,587 or 10.5% of sales for the three months ended March 31, 2001. This increase was primarily due to increasing our engineering staff in order to develop new introducer and safety needle product concepts. We expect research and development expenditures to approach 11% of sales in the second quarter of 2002 while we complete certain validation activities on new products, and then to fall back to approximately 10% of sales for the remainder of 2002. 7 Selling expenses increased from $65,409 for the three months ended March 31, 2001 to $147,086 for the three months ended March 31, 2002. This increase was primarily due to increased spending on salaries, commissions, trade shows and new marketing materials. The Company hired a new Director of Sales and Marketing at the end of January 2002 to help drive the sales and marketing efforts for the safety needle product General and administrative expenses increased from $403,660 for the three months ended March 31, 2001 to $459,184 for the three months ended March 31, 2002. This increase was primarily due to increased spending on accounting fees (primarily tax return preparation), legal fees (contract work) and investor relations activities. Interest income increased $8,746 and interest expense decreased $39,816 during the comparable periods. This was due to utilizing the cash from the sale of the Gynecology Division to pay off our line of credit and investing the excess cash to earn additional interest income. As a result, we had net income after taxes of $596,766 or $.12 per diluted share for the three months ended March 31, 2002, compared to net income without taxes (due to utilization of net operating tax loss carryforwards) of $449,495 or $.10 per diluted share for the three months ended March 31, 2001 Because we began recognizing income tax expense in the third quarter of 2001, but did not record income tax expense in prior quarters due to the offsetting losses in the Gynecology Division, a more meaningful comparison of our results from continuing operations would be to apply to previous quarters an income tax expense consistent with the rate used in the second half of 2001 and the first quarter of 2002. Ignoring the effects of the income tax benefit, the income from discontinued operations and the gain from disposal of discontinued segment, the results on a quarterly pro forma basis would have been as follows, assuming a 38% tax rate: PRO FORMA SUMMARIZED STATEMENT OF OPERATIONS INFORMATION REFLECTING INCOME FROM CONTINUING OPERATIONS AFTER TAX UTILIZING A 38% TAX RATE
2001 ------------------------------------------------------------------------------------------------------------------ 03/31/01 06/30/01 09/30/01 12/31/01 TOTALS ------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS $ 478,074 $ 725,063 $ 1,017,971 $ 1,264,293 $ 3,485,401 Income tax expense (38%) (181,668) (275,524) (386,829) (480,431) (1,324,452) ------------------------------------------------------------------------------------------------------------------ PRO FORMA NET INCOME $ 296,406 $ 449,539 $ 631,142 $ 783,862 $ 2,160,949 ------------------------------------------------------------------------------------------------------------------ PRO FORMA EPS-DILUTED (1) $ 0.07 $ 0.10 $ 0.13 $ 0.16 $ 0.47 Wtd Avg Shares Outstanding-Diluted 4,448,275 4,557,154 4,765,987 4,860,406 4,625,647
(1) Quarterly EPS numbers do not add up to EPS for the year due to differences in weighted average shares outstanding. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the three months ended March 31, 2002 was $18,567, consisting of net income of $596,766, adjusted for non-cash items of depreciation and amortization of $191,847 and warrants issued for compensation of $1,139, plus a net change in the deferred tax asset of $75,000, minus a net change in operating assets and liabilities of $846,185. Accounts receivable increased $297,945 primarily due to the fact that we classified the $470,000 due from CooperSurgical, Inc. from the sale of the Gynecology Division in our March 31, 2002 accounts receivable balance that was not present on March 31, 2001. This $470,000 was received on April 29, 2002. Accounts receivable from customers actually decreased $172,055 and accounts receivable as a percent of sales decreased from 158% to 133% between periods primarily due to customers in the remaining division paying their bills in a more timely manner. Inventories increased $389,359 between periods primarily due to two reasons. First, we have been building our safety needle infrastructure and have been ramping up our inventory purchases to accommodate our anticipated growth. Second, we recently announced that Medtronic was moving the packaging of its next generation LVLDS procedural kits to its own facility. Due to the timing of this transfer, we have excess inventory on hand related to the LVLDS product line that Medtronic has agreed to either pay for, or have us continue to build current generation LVLDS procedural kits and demonstration product until the excess inventory is used up. 8 Net cash used in investing activities for the three months ended March 31, 2002 was $802,489. Equipment was purchased totaling $780,926, primarily related to the automated safety needle manufacturing equipment and the Company's new ERP software system. The Company also had additions to patent rights totaling $21,148 and additions to its license agreement totaling $415 during the period. Net cash provided by financing activities for the three months ended March 31, 2002 was $522,324. The Company made principal debt payments of $21,478 and received cash upon the exercise of options and warrants of $543,802. As a result, the Company's cash and cash equivalents were $5,088,879 as of March 31, 2002 compared to $5,350,477 at December 31, 2001. Working capital increased from $7,644,968 as of December 31, 2001 to $8,160,703 as of March 31, 2002. Approximately 63% of the Company's outstanding accounts receivable balance as of March 31, 2002 and 68% of the first quarter sales were related to Medtronic. The Company has not experienced any problems with payments from Medtronic and does not anticipate problems in the future. On July 31, 2001, we secured a new $2,000,000 line of credit with a financial institution. The agreement calls for interest at the financial institution's base rate with no minimum interest due. The agreement expires on August 1, 2002, if not renewed. 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 our assets. The agreement also contains certain financial covenants, including minimum profitability and a maximum liabilities to net worth ratio. We had no outstanding borrowings under the new agreement at March 31, 2002 or December 31, 2001. A summary of our contractual cash obligations at March 31, 2002 is as follows:
------------------------------------------------------------------------------- PAYMENTS DUE BY PERIOD ------------------------------------------------------------------------------------------------------------ CONTRACTUAL OBLIGATIONS TOTAL 2002 2003 2004 2005 2006 ------------------------------------------------------------------------------------------------------------ Long-term debt, including interest $ 322,000 $ 77,000 $ 85,000 $ 85,000 $ 70,000 $5,000 ------------------------------------------------------------------------------------------------------------ Operating leases 578,000 133,000 174,000 171,000 100,000 0 ------------------------------------------------------------------------------------------------------------ Purchase agreement for manufacturing equipment 1,000,000 1,000,000 0 0 0 0 ------------------------------------------------------------------------------------------------------------ TOTAL CONTRACTUAL CASH OBLIGATIONS $1,900,000 $1,210,000 $259,000 $256,000 $170,000 $5,000 ------------------------------------------------------------------------------------------------------------
We also have a commercial commitment as described below:
------------------------------------------------------------------------------------------------------------ OTHER COMMERCIAL TOTAL AMOUNT COMMITMENT COMMITTED OUTSTANDING AT 03/31/02 DATE OF EXPIRATION ------------------------------------------------------------------------------------------------------------ Line of credit $2,000,000 $0 August 1, 2002 ------------------------------------------------------------------------------------------------------------
We believe that our cash balance, availability under our line of credit, if needed, and anticipated cash flows from operations will be adequate to fund our cash requirements for fiscal 2002. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are summarized in the footnotes to our financial statements. Some of the most critical policies are also discussed below. As a matter of policy, we review our major assets for impairment. Our major operating assets are accounts receivable, inventory, license agreement and property and equipment. We have not experienced significant bad debts expense and our reserve for doubtful accounts of $25,000 should be adequate for any exposure to loss in our December 31, 2001 accounts receivable. We have also established reserves for slow moving and obsolete inventories and believe the reserve of $69,000 is adequate. We depreciate our property and equipment and license agreement over their estimated useful lives and we have not identified any items that are impaired. 9 RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS Beginning January 1, 2002, the Company adopted FAS 141, BUSINESS COMBINATIONS, and FAS 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These pronouncements provide that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and that goodwill be reviewed for impairment rather than amortized. The adoption of these pronouncements did not have a material effect on our financial statements. Any business combination transactions in the future would be accounted for under this new guidance. Statements included in this Quarterly Report on Form 10-QSB, in future filings by us with the Securities and Exchange Commission, in our press releases, and oral statements made with the approval of an authorized executive officer that are not historical, or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain important factors could cause results to differ materially from those anticipated by some statements made herein. Investors are cautioned that all forward-looking statements involve risks and uncertainties. A number of factors that could cause results to differ materially are those discussed in our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 28, 2002, in our Registration Statement on Form S-3 filed with the Securities and Exchange Commission on October 16, 2001, as amended and other recent filings with the Securities and Exchange Commission. Additional factors that could cause results to differ materially are: our dependence upon a limited number of key customers for our revenue, including 76% of sales from continuing operations in 2001 with one customer; our ability to negotiate and enter into a long term supply agreement with Medtronic; our ability to successfully market and sell our Safety Needles; our dependence upon licensing agreements with third parties for the technology underlying some of our products, especially the safety needle; successful implementation of our Safety Needle production ramp-up schedule; attracting and retaining key personnel; introduction of competitive products; patent and government regulatory matters; economic conditions; and the ability to raise capital. All such forward-looking statements, whether written or oral, and whether made by or on behalf of us are expressly qualified by these cautionary statements. In addition, we disclaim any obligation to update forward-looking statements to reflect events or circumstances after the date hereof. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - CHANGES IN SECURITIES (C) Recent Sales of Unregistered Securities During the period from January 1, 2002 through January 20, 2002, the Company issued a total of 88,426 shares of common stock to private investors upon exercise of Warrants originally issued by the Company in January 1994. The Warrants were exercisable at a price of $5.61 per share. In addition, a total of 20,053 Warrants expired unexercised in January 2002. The Company believes that the issuance of the shares upon exercise of the Warrants was exempt pursuant to Section 4(2) of the Securities Act of 1933. All the shares that were issued bear restrictive legends indicating that the shares could not be resold without registration under the Securities Act of 1933 or an opinion of counsel that such registration was not required. No commissions were paid in connection with the issuance of the common stock. On October 16, 2001, the Company filed a registration statement with the Securities and Exchange Commission covering resale of the shares issued upon exercise of the Warrants. The Registration Statement was declared effective in November, 2001. 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 25, 2002. (b). The Company solicited proxies from its shareholders to vote on the following items: 10 * To elect five directors to serve until the next Annual Meeting of Shareholders or until their successors are duly elected. * To ratify the appointment of McGladrey & Pullen, LLP as independent auditors for the Company for the fiscal year ending December 31, 2002. A total of 4,228,906 votes were cast by proxy at the annual meeting and the vote counts were as follows: -------------------------------------------------------------------------------- FOR WITHHOLD AGAINST ABSTAIN -------------------------------------------------------------------------------- ELECTION OF DIRECTORS -------------------------------------------------------------------------------- Thomas L. Auth 4,191,300 37,606 -------------------------------------------------------------------------------- Michael D. Dale 4,191,180 37,726 -------------------------------------------------------------------------------- James D. Hartman 3,861,885 367,021 -------------------------------------------------------------------------------- Richard F. Sauter 4,200,830 28,076 -------------------------------------------------------------------------------- Michael M. Selzer 4,203,830 25,076 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- RATIFY AUDITORS 4,193,155 17,650 18,101 -------------------------------------------------------------------------------- ITEM 5 - OTHER INFORMATION None ITEM 6(a) - EXHIBITS None 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: May 09, 2002 By: /s/ James D. Hartman President, Chief Executive Officer and Chief Financial Officer 11