-----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, Ho1u4vTOinsfL26MNEZYadxTKAJGOEnAHI7JrdnM5wPzgTwiHCIQ0hfgpuzxwFjl FFeEXzwsrBPJF9RM/qjXWg== 0000897101-97-000790.txt : 19970725 0000897101-97-000790.hdr.sgml : 19970725 ACCESSION NUMBER: 0000897101-97-000790 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970724 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDAMICUS INC CENTRAL INDEX KEY: 0000833140 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411533300 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19467 FILM NUMBER: 97644786 BUSINESS ADDRESS: STREET 1: 15301 HGHWY 55 W CITY: PLYMOUTH STATE: MN ZIP: 55447 BUSINESS PHONE: 6125592613 10QSB 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT - --- OF 1934 For the quarterly period ended June 30, 1997 OR TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT - --- OF 1934 For the transition period from ____________ to ___________ COMMISSION FILE NUMBER 0-19467 MEDAMICUS, INC. (Exact name of small business issuer in its charter) MINNESOTA 41-1533300 (State of Incorporation) (IRS Employer Identification No.) 15301 HIGHWAY 55 WEST, PLYMOUTH, MN 55447 (Address of principal executive office, including zip code) (612) 559-2613 (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ The number of shares of Registrant's Common Stock outstanding on June 30, 1997 was 4,108,199 Transitional Small Business Disclosure Format. Yes ____ No __X__
MEDAMICUS, INC. INDEX - -------------------------------------------------------------------------------------- --------- Page # - -------------------------------------------------------------------------------------- --------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets as of June 30, 1997 and December 31, 1996 3 Statements of Operations for the three and six months ended June 30, 1997 and 1996 4 Statement of Shareholders' Equity for the six months ended June 30, 1997 4 Statements of Cash Flows for the six months ended June 30, 1997 and 1996 5 Condensed Notes to the Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-9 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 ITEM 6(a). EXHIBITS 10 ITEM 6(b). REPORTS ON FORM 8-K 10
MEDAMICUS, INC. BALANCE SHEETS (UNAUDITED) JUNE 30, 1997 DECEMBER 31, 1996 -------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 915,099 $ 1,205,783 Accounts receivable 1,129,394 1,346,289 Inventories 1,204,348 1,203,372 Prepaid expenses and other assets 30,815 60,300 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 3,279,656 3,815,744 - ---------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT: Equipment 1,893,384 1,819,901 Office furniture, fixtures and computers 472,361 437,053 Leasehold improvements 363,950 362,759 - ---------------------------------------------------------------------------------------------------- 2,729,695 2,619,713 Less accumulated depreciation and amortization (1,712,815) (1,477,554) - ---------------------------------------------------------------------------------------------------- NET PROPERTY AND EQUIPMENT 1,016,880 1,142,159 - ---------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS, RESTRICTED 29,647 28,888 PATENT RIGHTS, NET OF ACCUMULATED AMORTIZATION OF $113,365 AND $102,613, RESPECTIVELY 26,595 34,221 ==================================================================================================== TOTAL ASSETS $ 4,352,778 $ 5,021,012 ==================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank $ 636,882 $ 782,783 Accounts payable 601,592 1,109,640 Accrued expenses 204,694 174,399 Current installments of note payable to customer 10,022 14,400 Current installments of capital lease obligations 34,681 48,791 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,487,871 2,130,013 - ---------------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES: Note payable to customer, less current installments 0 2,822 Capital lease obligations, less current intallments 70,611 88,248 - ---------------------------------------------------------------------------------------------------- TOTAL LONG-TERM LIABILITIES 70,611 91,070 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,558,482 2,221,083 - ---------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Preferred stock-undesignated, authorized 1,000,000 0 0 shares, no shares issued or outstanding Common stock-$.01 par value, authorized 9,000,000 41,082 40,668 shares, issued and outstanding 4,108,199 and 4,066,774 shares, respectively Additional paid-in capital 8,568,250 8,515,636 Accumulated deficit (5,815,036) (5,756,375) - ---------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 2,794,296 2,799,929 ==================================================================================================== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,352,778 $ 5,021,012 ==================================================================================================== SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
MEDAMICUS, INC. STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 ------------------------------- ------------------------------- Sales $ 1,771,095 $ 1,323,451 $ 3,568,898 $ 2,557,397 Cost of sales 985,307 883,641 1,972,058 1,659,598 - --------------------------------------------------------------------------- ----------------------------- GROSS PROFIT 785,788 439,810 1,596,840 897,799 - --------------------------------------------------------------------------- ----------------------------- OPERATING EXPENSES: Research and development 115,970 271,205 235,458 467,318 Selling, general and administrative 718,775 594,055 1,384,625 1,153,289 - --------------------------------------------------------------------------- ----------------------------- TOTAL OPERATING EXPENSES 834,745 865,260 1,620,083 1,620,607 - --------------------------------------------------------------------------- ----------------------------- - --------------------------------------------------------------------------- ----------------------------- OPERATING LOSS (48,957) (425,450) (23,243) (722,808) - --------------------------------------------------------------------------- ----------------------------- OTHER INCOME (EXPENSE): Interest expense (22,792) (9,268) (47,403) (52,230) Interest income 11,793 11,822 24,707 20,666 Other (5,820) (1,369) (12,722) (3,121) - --------------------------------------------------------------------------- ----------------------------- TOTAL OTHER INCOME (EXPENSE) (16,819) 1,185 (35,418) (34,685) - --------------------------------------------------------------------------- ----------------------------- - --------------------------------------------------------------------------- ----------------------------- NET LOSS $ (65,776) $ (424,265) $ (58,661) $ (757,493) - --------------------------------------------------------------------------- ----------------------------- - --------------------------------------------------------------------------- ----------------------------- NET LOSS PER SHARE $ (0.02) $ (0.11) $ (0.01) $ (0.21) - --------------------------------------------------------------------------- ----------------------------- - --------------------------------------------------------------------------- ----------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 4,078,798 3,772,532 4,072,819 3,608,576 - --------------------------------------------------------------------------- ----------------------------- SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
MEDAMICUS, INC. STATEMENT OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) Common Stock Additional ------------------------ Paid In Accumulated Shares Amount Capital Deficit Total - --------------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1996 4,066,774 $ 40,668 $ 8,515,636 $(5,756,375) $ 2,799,929 Stock options exercised 40,000 400 49,600 0 50,000 Common stock issued as sales incentive 1,425 14 3,014 0 3,028 Net loss for the six months ended June 30, 1997 0 0 0 (58,661) (58,661) - --------------------------------------------------------------------------------------------------------------------------- BALANCES AT JUNE 30, 1997 4,108,199 $ 41,082 $ 8,568,250 $(5,815,036) $ 2,794,296 - --------------------------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
MEDAMICUS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 ------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (58,661) $ (757,493) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 246,013 173,934 Interest accretion on notes payable to private investors 0 22,037 Interest added to investments (759) 0 Common stock issued as sales incentive 3,028 0 Changes in operating assets and liabilities: Accounts receivable 216,895 (17,047) Inventories (976) (157,026) Prepaid expenses and other assets 29,485 10,810 Accounts payable (508,048) 89,932 Accrued expenses 30,295 (67,491) - --------------------------------------------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (42,728) (702,344) - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net of retirements (109,982) (200,964) Additions to patent rights (3,126) (910) Sale of available-for-sale marketable securities, including sales of securities which matured 0 996,145 - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (113,108) 794,271 - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (31,747) (8,662) Proceeds from sales of stock, net of offering costs 0 1,643,854 Proceeds from exercise of stock options 50,000 20,400 Payments on notes payable to private investors 0 (500,000) Proceeds from (payments on) note payable to bank (145,901) 299,872 Payments on note payable to customer (7,200) (7,200) - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (134,848) 1,448,264 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (290,684) 1,540,191 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,205,783 143,273 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 915,099 $ 1,683,464 - --------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 41,614 $ 30,193 SEE ACCOMPANYING CONDENSED NOTES TO FINANCIAL STATEMENTS
CONDENSED NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1997 (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, 1996, filed by the Company with the Securities and Exchange Commission. The financial statements presented herein as of June 30, 1997 and for the three and six months ended June 30, 1997 and 1996 reflect, in the opinion of management, all material adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for these interim periods. 2. INVENTORIES Inventories are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. Inventories consist of the following: JUNE 30, 1997 DECEMBER 31, 1996 ---------------------------------------- Purchased parts and subassemblies $ 805,425 $ 655,584 Work in process 187,634 412,520 Finished goods 211,289 135,268 ======================================== $ 1,204,348 $ 1,203,372 ======================================== 3. NET INCOME (LOSS) PER SHARE Net income (loss) per common share is determined by dividing the net loss by the weighted average number of shares of common stock outstanding. Common stock equivalents have been excluded from the calculation of net loss per share since they are antidilutive. The FASB has issued Statement No. 128, EARNINGS PER SHARE, which supersedes APB Opinion No. 15. Statement No. 128 requires the presentation of earnings per share by all entities that have common stock or potential common stock, such as option, warrants and convertible securities, outstanding that trade in a public market. Those entities that have only common stock outstanding are required to present basic earnings per-share amounts. All other entities are required to present basic and diluted per-share amounts. Diluted per-share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce a loss or increase the income per common stare from continuing operations. All entities required to present per-share amounts must initially apply Statement No. 128 for annual and interim periods ending after December 15, 1997. Earlier application is not permitted. The adoption of Statement No. 128 would have had no effect on reported earnings (loss) per share. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the accompanying financial statements and footnotes. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 Total revenues were $3,568,898 for the six months ended June 30, 1997 compared to $2,557,397 for the six months ended June 30, 1996, representing a 39.6% increase. Sales of vessel introducers, primarily to Medtronic under an exclusive distribution arrangement, were $2,118,063 for the six months ended June 30, 1997, compared to $1,618,282 for the six months ended June 30, 1996. This increase was primarily due to Medtronic rebuilding its inventories of introducers during the first four months of 1997 which were depleted during the third quarter of 1996 because of a component supply problem. Medtronic has been supplying this component to the Company, purchased from another supplier, for use in the introducer kits sold to Medtronic. The Company has developed its own version of the component and Medtronic has approved full market release on all sizes of the component which will give the Company full control over all component purchases in the future. Although introducer sales declined in the second quarter of 1997 compared to the first quarter of 1997, the Company benefited from overall increased sales to Medtronic compared to the second quarter of 1996. The Company expects introducer sales to decline slightly in the third quarter of 1997, as compared to the second quarter, to levels consistent with Medtronic's normal sell-through to end user customers. Contract manufacturing sales were $272,504 for the six months ended June 30, 1997, compared to $197,533 for the six months ended June 30, 1996. This increase was primarily due to one of the Company's contract manufacturing customers placing larger orders than expected in the first quarter of 1997. However, this customer also informed the Company that its sales of the product have not met forecast and that they will not be placing any new orders for product until the fourth quarter at the earliest. The Company also benefited from some additional orders during the second quarter of 1997 from Boston Scientific which had been manufacturing the product internally. The Company expects to see contract manufacturing sales drop significantly in the third and fourth quarters. The Company also does some contract research and development work periodically for Medtronic and realized sales of $14,467 for the six months ended June 30, 1997 compared to $127,888 for the six months ended June 30, 1996. This contract research and development work is not expected to be a continuous revenue item for the Company. Sales of the Company's fiber optic pressure sensing catheter and monitor transducer products were $1,163,864 for the six months ended June 30, 1997, compared to $613,694 for the six months ended June 30, 1996, representing a 89.7% increase. Monitor sales increased 65.7% or $333,087 and catheter and accessory sales increased 203.9% or $217,083 over the comparable period. The Company has continued to actively market the upgraded version of its LuMax(TM) System into the gynecology and urology office markets by adding sales management, attending major trade shows and conducting various direct mail and telemarketing campaigns. Total gross profit increased from $897,799 for the six months ended June 30, 1996, to $1,596,840 for the six months ended June 30, 1997, an increase of 77.9%. Total gross profit as a percent of sales increased from 35.1% to 44.7% in such periods. The gross profit percentage on vessel introducers and contract manufacturing totaled 54.6% for the six months ended June 30, 1997, compared to 41.7% in the six months ended June 30, 1996. The increase in the gross profit percentage on vessel introducers and contract manufacturing was primarily due to increased sales to Medtronic, which resulted in the existing overhead being allocated over more units. The Company lowered prices to Medtronic in May 1997 on many of the kit sizes that they purchase and will be lowering prices on the remaining kit sizes in September 1997. The Company expects to see lower gross margin percentages in the third quarter as the price reductions take effect. For fiber optic products, the gross profit percent totaled 24.5% or $284,843 for the six month period ended June 30, 1997 compared to 14.2% or $87,324 for the six month period ended June 30, 1996. This increase was primarily due to increased sales which resulted in the existing overhead being allocated over more units. The Company is still addressing some catheter manufacturing yield issues which negatively impacted gross profits during the first six months of 1997 and will impact the third quarter as well. As the Company's revenues increase, the gross profit percent related to fiber optic products should improve as a result of greater efficiencies and more effective utilization of manufacturing capabilities. Total research and development expenditures were $235,458 or 6.6% of sales for the six months ended June 30, 1997, compared to $467,318 or 18.3% of sales for the six months ended June 30, 1996. This decrease is due to lower spending on the development of the LuMax system during the first six months of 1997 compared to the first six months of 1996. The Company does plan to increase spending on research and development in the third quarter as it continues working on improving catheter yields. Selling, general and administrative expenses increased from $1,153,289 for the six months ended June 30, 1996 to $1,384,625 for the six months ended June 30, 1997. Sales and marketing expenses increased $213,472 for the six months ended June 30, 1997 over the comparable period in 1996 primarily because of increased salary and commission expense. The Company hired a Vice President of Sales and Marketing and two regional sales managers which were not in place during the first six months of 1996. Commission expense increased during the comparable periods due to increased sales activity. General and administrative expenses increased $17,864 for the first six months of 1997 over the comparable period in 1996. This increase is primarily due to additional spending on outside consultants to provide MIS support for the Company, as well as general salary increases. Interest expense decreased from $52,230 for the six months ended June 30, 1996 to $47,403 for the six months ended June 30, 1997. This decrease can be attributed to the prepayment of the $500,000 notes payable to private investors in the first quarter of 1996 which resulted in the recognition, as interest expense, of the remaining unamortized discount related to the notes. As a result, the Company incurred a net loss of $58,661 or $.01 per share for the six months ended June 30, 1997, compared to a net loss of $757,493 or $.21 per share for the six months ended June 30, 1996. THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 Total revenues were $1,771,095 for the three months ended June 30, 1997 compared to $1,323,451 for the three months ended June 30, 1996, representing a 33.8% increase. Sales of vessel introducers, primarily to Medtronic under an exclusive distribution arrangement, were $964,083 for the three months ended June 30, 1997, compared to $763,315 for the three months ended June 30, 1996. This increase was primarily due to a continuation of the first quarter inventory build through April 1997, as well as overall increased buying levels from Medtronic during the comparable period. The Company expects introducer sales to decline slightly in the third quarter of 1997, as compared to the second quarter, to levels consistent with Medtronic's normal sell-through to end user customers. Contract manufacturing sales were $85,264 for the three months ended June 30, 1997, compared to $77,784 for the three months ended June 30, 1996. This increase was primarily due to several unexpected orders from Boston Scientific which had been manufacturing the product internally. The Company expects to see a significant drop in contract manufacturing sales during the third and fourth quarters. Contract research and development sales were $14,467 for the three months ended June 30, 1997 compared to $127,888 for the three months ended June 30, 1996. This contract research and development work is not expected to be a continuous revenue item for the Company. Sales of the Company's fiber optic pressure sensing catheter and monitor transducer products were $707,281 for the three months ended June 30, 1997, compared to $354,464 for the three months ended June 30, 1996. Monitor sales increased 76.4% or $225,363 and catheter and accessory sales increased 214.5% or 127,454 in the three months ended June 30, 1997 over the comparable period in 1996, primarily due to the factors discussed above. Total gross profit increased from $439,810 for the three months ended June 30, 1996, to $785,788 for the three months ended June 30, 1997, an increase of 78.7%. Total gross profit as a percent of sales increased from 33.2% in the three months ended June 30, 1996 to 44.4% in the comparable period in 1997. The gross profit percentage on vessel introducers and contract manufacturing totaled 50.8% in the second quarter of 1997, compared to 40.7% in the second quarter of 1996, primarily due to the factors discussed above. For fiber optic products, the gross profit percent totaled 34.7% or $245,421 in the second quarter of 1997 compared to 12.8% or 45,247 in the second quarter of 1996, primarily due to the factors discussed above. Total research and development expenditures were $115,970 or 6.6% of sales for the three months ended June 30, 1997, compared to $271,205 or 20.5% of sales for the three months ended June 30, 1996, primarily due to the factors discussed above. The Company does expect to increase research and development expenditures in the third quarter as it continues to work on improving catheter yields. Selling, general and administrative expenses increased from $594,055 for the three months ended June 30, 1996 to $718,775 for the three months ended June 30, 1997. Sales and marketing expenses increased $123,488 and general and administrative expenses increased $1,232 in the second quarter of 1997 compared to the second quarter of 1996 primarily for the reasons discussed above. Interest expense increased from $9,268 for the three months ended June 30, 1996 to $22,792 for the three months ended June 30, 1997 primarily due to increased borrowing levels on the line of credit during the comparable periods. As a result, the Company incurred a net loss of $65,776 or $.02 per share for the three months ended June 30, 1997, compared to a net loss of $424,265 or $.11 per share for the three months ended June 30, 1996. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the six months ended June 30, 1997 was $42,728, consisting of a net loss of $58,661 less adjustments for depreciation and amortization of $246,013 and interest accretion of $759. The Company also issued 1,425 shares of the Company's common stock to the independent sales rep force as part of a sales incentive program. The market price on the date of issue was $2.125 per share, totaling $3,028. In addition, cash was used to fund net changes in operating assets and liabilities of $232,349. The Company saw a decrease in accounts receivable during the first six months of 1997 primarily due to increased collections from its LuMax customers and increased sales to Medtronic which resulted in faster payments. The Company used the cash from accounts receivable collections and a portion of its money market account to pay down accounts payable during the period. The Company anticipates inventory and receivables to increase during the second half of 1997 if sales of the fiber optic products materialize as expected. Net cash used in investing activities for the six months ended June 30, 1997 was $113,108. The Company purchased $109,982 of equipment during the period and had additions to patent rights of $3,126. Net cash used in financing activities for the six months ended June 30, 1997 was $134,848. The Company paid down the credit line by $145,901 during the period and had a balance due on the line of $636,882 as of June 30, 1997. Additionally, a medical consultant exercised a warrant for 40,000 shares of the Company's common stock at an exercise price of $1.25 per share, totaling $50,000. The Company also made principal debt payments totaling $38,947. As a result, the Company's cash and cash equivalents were $915,099 as of June 30, 1997 compared to $1,205,783 at December 31, 1996. Working capital increased from $1,685,731 as of December 31, 1996 to $1,791,785 as of June 30, 1997. On June 24, 1997, the Company signed a one year extension through June 30, 1998 on its $1,200,000 revolving line of credit with a financial institution. The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. The agreement calls for interest at the rate of 2.25% over the financial institution's base rate with minimum interest due over the term of the agreement of $70,000. The line is secured by substantially all of the Company's assets. If sales estimates and working capital needs meet the Company's projections, the Company believes its available cash and investments, along with borrowing availability under its $1,200,000 line of credit will be sufficient to meet the Company's anticipated operating expenses and cash requirements for the foreseeable future. If the sales estimates are not realized or working capital requirements exceed those projected, the Company may need to secure additional capital or, if capital is not available, to curtail its marketing efforts. Forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995. Certain important factors could cause results to differ materially from those anticipated by some statements made herein. You are cautioned that all forward-looking statements involve risks and uncertainties. Among the factors that could cause results to differ materially are the following: delays in new product launches; lack of market acceptance of the Company's products; introduction of competitive products; patent and government regulation matters and the Risk Factors included in Form 8-K filed with the Securities and Exchange Commission on November 13, 1996. PART II - OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a). The Company held its annual meeting of shareholders on April 24, 1997. (c). The Company solicited proxies from its shareholders to vote on the following three 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 ratify the appointment of independent auditors for the current fiscal year The vote counts were as follows (4,066,774 Shares Outstanding):
- ------------------------------ --------------- --------------- -------------- --------------- --------------- FOR WITHHOLD AGAINST ABSTAIN NO VOTE - ------------------------------ --------------- --------------- -------------- --------------- --------------- ELECTION OF DIRECTORS - ------------------------------ --------------- --------------- -------------- --------------- --------------- James D. Hartman 2,944,945 47,324 - ------------------------------ --------------- --------------- -------------- --------------- --------------- Richard W. Kramp 2,944,945 47,324 - ------------------------------ --------------- --------------- -------------- --------------- --------------- Richard L. Little 2,904,945 87,324 - ------------------------------ --------------- --------------- -------------- --------------- --------------- Richard F. Sauter 2,944,945 47,324 - ------------------------------ --------------- --------------- -------------- --------------- --------------- Ted K. Schwarzrock 2,944,945 47,324 - ------------------------------ --------------- --------------- -------------- --------------- --------------- - ------------------------------ --------------- --------------- -------------- --------------- --------------- OPTION PLAN AMENDMENT 2,738,641 97,219 98,854 57,555 - ------------------------------ --------------- --------------- -------------- --------------- --------------- - ------------------------------ --------------- --------------- -------------- --------------- --------------- RATIFY AUDITORS 2,937,969 7,021 47,279 - ------------------------------ --------------- --------------- -------------- --------------- ---------------
ITEM 6(a) - EXHIBITS 10.1 First Amendment to Credit and Security Agreement ITEM 6(b) - REPORTS ON FORM 8-K None SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: MEDAMICUS, INC. Date: July 22, 1997 By: /s/ James D. Hartman President, Chief Executive Officer and Chief Financial Officer EXHIBIT INDEX - ------------- ------------------------------------------------------------ ----- EXHIBIT # DESCRIPTION PAGE - ------------- ------------------------------------------------------------ ----- 10.1 First amendment to credit and security agreement, dated June 24, 1997, between the Company and Norwest Credit, Inc. - ------------- ------------------------------------------------------------ ----- EX-10.1 2 FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT This Amendment, dated as of June 24, 1997, is made by and between MEDAMICUS, INC., a Minnesota corporation (the "Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"). Recitals The Borrower and the Lender have entered into a Credit and Security Agreement dated as of March 5, 1996 (the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. The Borrower has requested that certain amendments be made to the Credit Agreement, which the Lender is willing to make pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. Defined Terms. Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following definitions: "'Eligible Accounts' means all unpaid Accounts, net of any credits and any reserves for warranty claims or items returned, except the following shall not in any event be deemed Eligible Accounts: (1) That portion of Accounts over 120 days past invoice date; (2) That portion of Accounts that are disputed or subject to a claim of offset or a contra account except the Medtronic Contra Amount; provided, however, that if the fair market value of the Liquid Assets is less than the Medtronic Contra Amount, then that portion of Accounts that is subject to the Medtronic Contra Amount shall only be deemed Eligible Account to the extent of the Liquid Assets; (3) That portion of Accounts not yet earned by the final delivery of goods or rendition of services, as applicable, by the Borrower to the customer; (4) Accounts owed by any unit of government, whether foreign or domestic (provided, however, that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which the Borrower has provided evidence satisfactory to the Lender that (A) the Lender has a first priority perfected security interest and (B) such Accounts may be enforced by the Lender directly against such unit of government under all applicable laws); (5) Accounts owed by an account debtor located outside the United States which are not backed by a bank letter of credit assigned to the Lender, in the possession of the Lender and acceptable to the Lender in all respects, in its sole discretion; (6) Accounts owed by an account debtor that is the subject of bankruptcy proceedings or has gone out of business; (7) Accounts owed by a shareholder, subsidiary, affiliate, officer or employee of the Borrower; (8) Accounts not subject to a duly perfected security interest in favor of the Lender or which are subject to any lien, security interest or claim in favor of any Person other than the Lender; (9) That portion of Accounts that have been extended more than thirty (30) days beyond the original due date, restructured, amended or modified; (10) That portion of Accounts that constitutes finance charges, service charges or sales or excise taxes; (11) Accounts owed by an account debtor, regardless of whether otherwise eligible, if 10% or more of the total amount due under Accounts from such debtor is ineligible under clauses (1), (2) or (9) above; and (12) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its sole discretion." "'First Amendment' means that certain First Amendment to Credit and Security Agreement dated as of June 24, 1997." "'Floating Rate' means an annual rate equal to the sum of the Base Rate plus two and one quarter of one percent (2.25%) which annual rate shall change when and as the Base Rate changes." "'Liquid Assets' means (a) debt or equity securities that are traded on any national securities exchange or on the NASDAQ National Market System, (b) government or municipal obligations for which a public market exists, and (c) cash or the equivalent, all of which must be convertible to cash within 90 days through sales in the public marketplace." "'Maturity Date' means June 30, 1998." "Medtronic Contra Amount" means that portion of Accounts due from Medtronic, Inc., a Minnesota corporation, that are or could be disputed or subject to a claim of offset or a contra account." "'Termination Date' means the earliest of (a) the Maturity Date, (b) the date the Lender terminates this Agreement at any time in its sole discretion, or (c) the date the Borrower terminates this Agreement pursuant to Section 2.6 hereof." 2. Minimum Interest Charge. Section 2.2(b) of the Credit Agreement is hereby amended by deleting the amount of "$75,000" and inserting in place thereof the new amount of "$70,000". 3. Extension of Credit Facility. Section 2.5 of the Credit Agreement is hereby amended by deleting the last sentence thereof and inserting the following new sentence: "This Agreement shall remain in effect until the Termination Date." 4. Book Net Worth Covenant. Section 6.7 of the Credit Agreement is hereby amended in its entirety and replaced with the following: "Section 6.7 Minimum Book Net Worth. The Borrower will at all times maintain during each period described below, its Book Net Worth (on an unconsolidated, Borrower-only basis), determined as of the end of each month, of at least the amount set forth opposite such period: PERIOD MINIMUM BOOK NET WORTH June, July and August, 1997 $2,400,000 September, 1997 through $2,500,000 February, 1998 March, 1998 and thereafter $2,600,000 5. Liquid Asset Requirement. The Credit Agreement is hereby amended by adding the following new Section 6.10: "Section 6.10 Liquid Asset Requirement. So long as the Borrower has outstanding obligations to Medtronic, Inc., a Minnesota corporation, the Borrower shall at all times own and maintain in an account or accounts with Norwest Investment Services, Inc. ("NISI"), unencumbered Liquid Assets, free and clear of any right of set off and of any related margin account debt. The fair market value of such Liquid Assets must be of an amount that is greater than the amount of the Borrower's outstanding obligations owed to Medtronic, Inc. To facilitate the monitoring of the status of the Liquid Asset requirement, the Borrower shall deliver to the Lender the monthly statements for such NISI accounts for the prior month stating the respective fair market values of the securities in the accounts upon receipt thereof, and shall deliver such other information on the Borrower's accounts at NISI as the Lender may request. The Borrower hereby authorizes the Lender to directly contact NISI in order to obtain information on the Borrower's accounts at NISI. In addition, if the fair market value of the Liquid Assets falls below $300,000, the Borrower shall provide the Lender with the Borrower's accounts payable reports on a bi-weekly basis, or more frequently if the Lender so requests." 6. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 7. Amendment Fee. The Borrower shall pay the Lender as of the date hereof a fully earned, non-refundable fee in the amount of $3,000 in consideration of the Lender's execution of this Amendment. 8. Conditions Precedent. This Amendment shall be effective when the Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Lender in its sole discretion: (a) A Certificate of the Secretary of the Borrower certifying as to (i) the resolutions of the board of directors of the Borrower approving the execution and delivery of this Amendment, (ii) the fact that the resolutions of the board of directors of the Borrower, which were certified and delivered to the Lender pursuant to the Certificate of Authority of the Borrower's Secretary dated as of March 26, 1996 in connection with the execution and delivery of the Credit Agreement continue in full force and effect and have not been amended or otherwise modified except as set forth in the Certificate to be delivered, and (iii) certifying that the President, chief executive officer, Chief Financial Officer, Vice President, Secretary and Controller and agents of the Borrower who have been certified to the Lender, pursuant to the Certificate of Authority of the Borrower's Secretary dated as of March 26, 1996, as being authorized to sign and to act on behalf of the Borrower continue to be so authorized or setting forth the sample signatures of each of the officers and agents of the Borrower authorized to execute and deliver this Amendment and all other documents, agreements and certificates on behalf of the Borrower. (b) Payment of the fee described in Paragraph 7. (c) Such other matters as the Lender may require. 9. Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows: (a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 10. References. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. 11. No Waiver. The execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Amendment. 12. Release. The Borrower hereby absolutely and unconditionally releases and forever discharges the Lender, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 13. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses and the fee required under paragraph 7 hereof. 14. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. NORWEST CREDIT, INC. MEDAMICUS, INC. By _________________________________ By________________________________ Warren G. Lindman James Hartman Its Assistant Vice President Its President EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JUN-30-1997 915,099 0 1,136,161 6,767 1,204,348 3,279,656 2,729,695 1,712,815 4,352,778 1,487,871 70,611 0 0 41,082 2,753,214 4,352,778 3,568,898 3,568,898 1,972,058 1,972,058 235,458 0 47,403 (58,661) 0 (58,661) 0 0 0 (58,661) (0.01) (0.01)
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