-----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, WRFPc2MDnz7FDFzxhbFdW3FUgYkpfzhjpn5pSimwBuhJeBWtKznHHfazSU6WEswK Rf0wFREiz+/krHIgxcZj1g== 0001104659-04-020117.txt : 20040720 0001104659-04-020117.hdr.sgml : 20040720 20040720142706 ACCESSION NUMBER: 0001104659-04-020117 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040720 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENPATH MEDICAL 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19467 FILM NUMBER: 04921844 BUSINESS ADDRESS: STREET 1: 15301 HGHWY 55 W CITY: PLYMOUTH STATE: MN ZIP: 55447 BUSINESS PHONE: 7635592613 FORMER COMPANY: FORMER CONFORMED NAME: MEDAMICUS INC DATE OF NAME CHANGE: 19960330 8-K 1 a04-8018_18k.htm 8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (date of earliest event reported): July 20, 2004

 

ENPATH MEDICAL, INC.

(Exact name of Registrant as specified in its charter)

 

Minnesota

 

0-19467

 

41-1533300

(State or other jurisdiction of
incorporation)

 

(Commission File Number)

 

(I.R.S. Employer Identification
No.)

 

 

 

 

 

15301 Highway 55 West
Plymouth, Minnesota

 

55447

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (763) 559-2613

 

 



 

Items 1-6, and 8-11 are not applicable and therefore omitted.

 

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

 

(c)           Exhibits

 

The following are filed or furnished as Exhibits to this Report:

 

Exhibit No.

 

Description of Exhibit

 

 

 

99.1

 

Press release dated July 20, 2004, reporting results for the quarter ended June 30, 2004.

99.2

 

Statement of James D. Hartman, Chief Executive Officer of Enpath Medical, Inc., in connection with the July 20, 2004 Enpath Medical, Inc. conference call

 

ITEM 12.  DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On July 20, 2004, Enpath Medical, Inc. (the “Company”) issued a press release regarding its results of operations for the quarter ended June 30, 2004.  A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.

 

The Company also furnishes with this Form 8-K the statement of James D. Hartman, the Company’s Chief Executive Officer, to be issued in connection with the July 20, 2004 Enpath Medical, Inc. conference call reporting the results of operations for the quarter ended June 30, 2004.

 

The information provided pursuant to Item 12 of this Form 8-K is being furnished and is not “filed” for purposes of Section 18 of the Securities Act of 1934, nor may it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

ENPATH MEDICAL, INC.

 

 

Dated:  July 20, 2004

By:

 /s/  James D. Hartman

 

 

 

James D. Hartman

 

 

Chief Executive Officer

 

2


EX-99.1 2 a04-8018_1ex99d1.htm EX-99.1

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

 

Contact:

 

Jim Hartman

 

 

 

 

Enpath Medical, Inc.

 

 

 

 

(763) 577-2212

 

 

 

 

 

 

 

 

 

EVC Group

 

 

 

 

Doug Sherk  (415) 896-6820

 

 

 

 

Anne Bugge  (206) 926-5220

 

July 20, 2004

 

Enpath Medical Reports Second Quarter Results

 

•   Sales Meet Company Guidance

•   Company Records One-Time Charge Related to Safety Needle Investment

•   Recently Introduced Products Generating Strong Market Interest

•   Conference Call Scheduled for 1:30 PM CDT Today

 

MINNEAPOLIS—Enpath Medical, Inc. (Nasdaq: NPTH) reported sales in the second quarter grew 68% to $7.3 million compared to $4.3 million in the second quarter of 2003.  For the six months ended June 30, 2004, the Company reported sales of $14.6 million, compared to $9.0 million in the same period of 2003, a 62% increase.  Last year’s second quarter and six month comparative results do not include sales or expenses from the BIOMEC Cardiovascular business, now the Lead Technologies Division, that the Company acquired in October 2003.

 

For the second quarter of 2004, the Company reported a net loss of $1.8 million, or $.31 per share, after a non-cash, one-time, impairment adjustment of $2.8 million ($1.9 million after tax) related to the Company’s safety needle investment.  For the second quarter of 2003, the Company reported net income of $474,000, or $.10 per diluted share.  For the six months ended June 30, 2004, the Company reported a net loss of $1.5 million, or $.27 per share, including the $1.9 million after tax safety needle impairment adjustment compared to net income of $1.1 million, or $.22 per diluted share, for the first six months of 2003.

 

“Our sales results were in line with our previously provided guidance for the second quarter,” said James D. Hartman, chairman and CEO. “Our profitability for the quarter was affected by lower than expected gross margins, higher selling, general and administrative expenses and the impairment adjustment.  Gross margins for the quarter were slightly less than anticipated coming in at 37.6%.  Selling, general and administrative costs were 19.5% of sales for the quarter when we expected them to fall in the 15-16% range.”

 

Delivery Systems Division

“Sales at our Delivery Systems Division increased 14% during the quarter to $5.0 million compared to the second quarter of 2003.  This increase was fueled by growth in our core introducer product line as a result of the launch of the FlowGuardTM valved introducer as well as increased orders from our two largest customers,” Hartman stated.  “Our introducer market share continues to grow.  Based on strong initial customer reception, we are very enthusiastic about the revenue potential of the new FlowGuard product.  Normal new product FlowGuard ramp-up challenges plus inefficiencies caused by aging product tooling in our most mature product line and raw material quality issues reduced margins at the Delivery Systems Division early in the quarter.  These issues were addressed and gross margins returned to expected levels in June.  Research and development expenditures at the Delivery System Division were as planned at $621,000, or 12.6% of sales compared to $383,000 one year ago.”

 

Lead Technologies Division

“At our Lead Technologies Division, sales declined by 11% to $2.3 million, compared with the second quarter of 2003.  This decline was due to a reduction in orders from our largest customer who is adjusting an overstock situation as previously disclosed with our first quarter results, as well as the planned elimination of several low margin contract manufacturing projects,” Hartman added.  “Importantly, sales of our proprietary products increased 25% in the quarter compared with prior year’s second quarter and now represent 45% of overall divisional sales compared to approximately 33% last year.  We anticipate orders from our largest customer will return to previous levels by the fourth quarter.”

 



 

Hartman continued, “We were encouraged that gross margins at the Leads Division improved from 21% in the first quarter to 28% this quarter.  We expect margins will improve as sales levels increase in the second half of the year.  Spending on research and development at the Leads Division was $514,000 in the quarter or 22% of its sales, comparable to the first quarter.”

 

Selling, General and Administrative Expenses and Impairment Adjustment

“Selling, general and administrative expenses were 19.5% of sales for the quarter, substantially more than the 15-16% of sales we anticipated in our previously provided guidance,” Hartman stated.  “In part this was due to a decision to increase our participation in several additional physician based trade shows as well as higher than anticipated in the costs of the redesign of our web site and literature to incorporate our new branding and name change.  Most of these activities are now completed.  Documentation and testing requirements related to Sarbanes-Oxley Section 404 compliance also exceeded our expectations.”

 

The Company stated that it is recording a one-time impairment adjustment of its investment in its exclusive safety needle license arrangement as well as a write-down in the value of its automated safety needle assembly equipment.  The Company reduced the combined net book value of the license and equipment by $2.8 million from approximately $3.1 million to $315,000.  The impairment adjustment, after reflecting a tax benefit of $900,000, reduced net income for the quarter by $.33 per share.  As a result of the impairment charge, the Company was in default on a debt to net worth provision of its loan agreement and has received a waiver from the bank.

 

“During the quarter, we analyzed safety needle sales results and future expectations from our two major safety needle distribution partners.  While performance of the product has been positively received, market acceptance to date has been disappointing.  We remain optimistic that the federal mandate requiring the use of safety needles in all health care related procedures will result in a future favorable revenue stream for our Axia RSNTM safety needle, however the market’s slow adoption rate no longer justifies the level of investment the Company has in safety needle equipment and technology,” Hartman said.

 

New Products

“We expect our new product pipeline to begin to generate increased sales in the second half of the year,” Hartman continued.  “Our new Fastac Flex epicardial lead delivery tool should be ready for market early in the fourth quarter in the US and in Europe later in the fourth quarter and we are optimistic that it will be well received by the physician community.  The anti-inflammatory steroid lead is expected to be available in the European market in the fourth quarter and in the US in the first quarter of 2005.  We are scheduled to launch the smaller sizes of FlowGuard in the pacing and port markets in the third quarter.  As previously stated, one of our advanced delivery system customers is moving into a substantial clinical trial and we will be providing product for that effort during the third quarter.”

 

2004 Outlook and Guidance

With the reduction in forecasted safety needle revenue along with another quarter of reduced orders from its largest Lead Technologies customer, the Company stated that its sales guidance for 2004 is now expected to approximate a 60 to 65% increase over 2003.  The Company expects third quarter sales to increase 3 to 5% over the second quarter.  With higher volumes, gross margins are expected to increase to a target range of 42 to 44%.  SG&A expenses should decline to approximately 17 to 18% of revenue in the third quarter and then to the 15 to 16% range or less for the fourth quarter of the year.  Research and development expenses are expected to continue in the range of 15% of sales in the third quarter due to the development and approval process for the steroid epicardial lead, and then begin to decline in the fourth quarter to the 12 to 13% range on the way towards the more historical 10 to 11% level next year.  The Company expects its tax rate to approximate 32% of income as a result of the availability of Research & Development credits.

 

Conference Call Today

The Company will host a conference call today at 1:30 PM, CDT/2:30, EDT to discuss its financial results, outlook for the remainder of 2004 and current corporate developments.  To participate in the call dial (800) 240-2430, provide the Company name and Jim Hartman as the leader’s name.  A live webcast can be accessed on the Enpath Medical website, www.enpathmed.com, by clicking on the Second Quarter 2004 Conference Call window. A taped replay of the call will be available approximately one hour after the conclusion of the call until July 27, 2004, by calling (800) 405-2236 and referencing ID#11003081.  An audio replay of the webcast will be archived on the Enpath website until July 20, 2005.

 

About Enpath Medical

Enpath Medical, Inc., headquartered in Plymouth, Minnesota, is a leader in the design, development, manufacture and marketing of percutaneous delivery systems and stimulation leads technologies.  Its products include venous vessel introducers, epicardial and endocardial stimulation leads, safety needles and other products for use in pacemaker, defibrillator, catheter and infusion port procedures as well as neuromodulation and hearing restoration markets.  Its products are sold worldwide through partnering relationships with other medical device companies.

 



 

Safe Harbor

This news release contains forward-looking statements as defined by 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.  All forward-looking statements involve risks and uncertainties.  A number of factors that could cause results to differ materially are discussed in our Annual Report on Form 10-K for the year ended December 31, 2003, as well as in our quarterly reports on Form 10-Q.  Among the factors that could cause results to differ materially are the following: the ability of Enpath to successfully integrate the BCI operation; Enpath’s dependence upon a limited number of key customers for its revenue; Enpath’s ability to complete development of its Myopore steroid epicardial lead and Fastac Flex delivery tool and obtain FDA and European approval to market these devices; Enpath’s ability to find customers and distribution partners for its steroid lead and delivery tool; Enpath’s dependence upon licensing agreements with third parties for the technology underlying some of its products, including the safety needle; the ability of Enpath to negotiate and enter into safety needle supply agreements with major medical device companies and the ability of Enpath and these customers to achieve market acceptance of the safety needle; Enpath’s ability to effectively manufacture its safety needle using its automated safety needle assembly equipment in anticipated required quantities; Enpath’s ability to develop or acquire new products to increase its revenues; Enpath’s ability to attract and retain key personnel; introduction of competitive products; patent and government regulatory matters; economic conditions; and Enpath’s ability to raise capital.  All forward-looking statements of Enpath, whether written or oral, and whether made by or on behalf of Enpath, are expressly qualified by these cautionary statements.  In addition, Enpath disclaims any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

 

Consolidated Condensed Balance Sheets

 

 

 

Unaudited

 

Audited (1)

 

 

 

06/30/04

 

12/31/03

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

317,230

 

$

1,067,935

 

Inventory, receivables and prepaids

 

8,445,898

 

8,076,800

 

Property, plant and equipment, net

 

5,061,835

 

6,861,747

 

Goodwill

 

9,099,447

 

8,984,824

 

Intangible assets with finite lives, other

 

7,624,818

 

8,569,588

 

Total Assets

 

$

30,549,228

 

$

33,560,894

 

 

 

 

 

 

 

Liabilities & Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

$

3,756,419

 

$

4,842,297

 

Long-term liabilities

 

3,371,947

 

5,728,303

 

Shareholders’ equity

 

23,420,862

 

22,990,294

 

Total Liabilities & Shareholders’ Equity

 

$

30,549,228

 

$

33,560,894

 

 


(1)   Derived from Audited Balance Sheet at 12/31/03.

 



 

Consolidated Income Statements (Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2004

 

June 30, 2003

 

June 30, 2004

 

June 30, 2003

 

Sales

 

$

7,295,113

 

$

4,338,341

 

$

14,592,167

 

$

9,005,664

 

Cost of sales

 

4,549,519

 

2,518,589

 

9,078,339

 

5,115,270

 

Gross profit

 

2,745,594

 

1,819,752

 

5,513,828

 

3,890,394

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

1,135,608

 

383,247

 

2,182,311

 

741,247

 

Selling, general and administrative

 

1,420,817

 

691,291

 

2,696,897

 

1,410,617

 

Safety needle asset impairment

 

2,809,199

 

0

 

2,809,199

 

0

 

Total operating expenses

 

5,365,624

 

1,074,538

 

7,688,407

 

2,151,864

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

(2,620,030

)

745,214

 

(2,174,579

)

1,738,530

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(46,486

)

(4,251

)

(94,151

)

(8,870

)

Interest income

 

213

 

11,897

 

1,608

 

26,979

 

Other

 

(4,315

)

(399

)

(1,032

)

(402

)

Total other income (expense)

 

(50,588

)

7,247

 

(93,575

)

17,707

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

(2,670,618

)

752,461

 

(2,268,154

)

1,756,237

 

Income tax benefit (expense)

 

854,644

 

(278,411

)

725,313

 

(649,808

)

Net Income (loss)

 

$

(1,815,974

)

$

474,050

 

$

(1,542,841

)

$

1,106,429

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.31

)

$

0.10

 

$

(0.27

)

$

0.23

 

Diluted

 

$

(0.31

)

$

0.10

 

$

(0.27

)

$

0.22

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares

 

 

 

 

 

 

 

 

 

Basic

 

5,880,308

 

4,733,950

 

5,799,922

 

4,730,964

 

Diluted

 

5,880,308

 

4,955,311

 

5,799,922

 

4,956,072

 

 


EX-99.2 3 a04-8018_1ex99d2.htm EX-99.2

Exhibit 99.2

 

Second Quarter 2004 Conference Call

Statement of Jim Hartman, Chairman & CEO

Enpath Medical, Inc.

July 20, 2004

 

Welcome to the Enpath Medical second quarter, 2004 conference call.  Thank you for joining us today.  I am Jim Hartman, Chairman and Chief Executive Officer of Enpath Medical.  My comments today will contain forward-looking statements that involve risks and uncertainties.  Any number of factors could cause our results to vary from those that may be anticipated by some statements made today.  You should read our press release issued this morning and our SEC filings, specifically our 2003 Annual Report on Form 10-K filed in March 2004, for a listing of some of the factors that could cause results to differ materially.

 

This is our second full quarter as Enpath Medical and as the merged business of the former Medamicus, Inc. and BIOMEC Cardiovascular, Inc. that occurred on October 23, 2003.  Joining me on the call today is Mark Kraus, who has served as the head of our current business operations since 1999 and Chief Operating Officer since 2001, and is now president of our Delivery Systems business unit.  Jim Mellor, acting President of the Lead Technologies Division and also Sr. VP of Sales and Marketing will not be joining us today due to a prior customer commitment.

 

During my remarks today I will highlight certain aspects of our second quarter financial results that were not covered in our press release issued this morning including our rationale for the one-time write-down of our safety needle investment.  I will then provide our outlook and guidance for the upcoming quarter and remainder of the year.  At the conclusion of my remarks, Mark and I will be available to answer questions.

 



 

I want to preface my comments on our second quarter results by calling attention to the fact that we have combined the results of our newly acquired business with those of our existing business beginning October 23, 2003.  Our second quarter results comparisons reflect both Divisions in 2004 but only the Delivery Systems business in 2003.  As I refer to our two businesses, I will use the name Delivery Systems Division or Delivery group or business to indicate the former Medamicus and the Lead Technologies Division or Leads group or business to refer to the BIOMEC Cardiovascular organization.

 

Second quarter revenues were $7.3 million, compared to $4.3 million in the second quarter of 2003, a 68% increase.  Sales at the Delivery Systems Division increased approximately $613,000 to nearly $5.0 million in the second quarter, or just over 14%, when compared to the previous year.  This was the largest sales quarter in the Division’s history.  Sales of our core introducer product line increased 21% from $3.4 million to $4.1 million, reflecting growth in sales from several of our largest customers plus the launch of the FlowGuard valved introducer.

 

Year-to-date sales at the Delivery Systems Division totaled $9.8 million, a 9% increase over 2003.  Sales of introducer products totaled $7.9 million, a 13% increase over 2003, while our remaining product categories were similar or slightly down compared to 2003.

 

We expect to see increased orders for the FlowGuard introducer and advanced delivery systems in the third quarter.  Physician feedback on FlowGuard has been extremely positive due to its attributes of safety and ease of use.  We are confident this product will continue to gain market share for the placement of dialysis catheters.  We will also be launching the smaller FlowGuard sizes into the port and pacing markets.  Additionally, one of our advanced delivery customers is commencing a substantial clinical trial starting in the third quarter and we will be furnishing product for that effort.

 

2



 

Sales at our Lead Technologies Division declined during the quarter from $2.6 million last year to $2.3 million.  Keep in mind the $2.6 million of revenue from 2003 is not reflected in our comparative numbers presented in our press release.  As we discussed in our first quarter press release, the Division’s largest customer informed us early in the first quarter that they would be reducing their orders for the next several quarters while they adjusted an inventory overstock situation.  We expect orders from the customer to start returning to normal run rates in the fourth quarter.  Additionally, we discontinued several contract manufacturing projects at year-end plus one project in May of this year because they did not meet our gross margin targets and were not consistent with the core focus of our business.  Discontinuing those projects has created space that we have used to expand our clean room in preparation for the launch of the Myopore steroid epicardial lead and Fastac Flex delivery tool.

 

Year-to-date sales at the Leads Division totaled $4.8 million, a 6% increase over sales of 2003.  We are pleased that sales of higher margin proprietary products now make up 45% of the Division’s total sales compared to just 35% a year ago.

 

Second quarter gross margins on a consolidated basis were 37.6% compared to 42.0% a year ago for Medamicus alone, now the Delivery Systems Division.  Gross margins for the Delivery Systems Division were essentially flat with those of a year ago at 42.1%.  This result was below our expectations resulting from some aging production tooling that was rebuilt during the quarter and a raw material failure that resulted in unexpected rework.  After resolving these issues, margins in June rebounded to over 47%.

 

At our Leads Division gross margins increased from 21% in the first quarter to 28% this quarter.  We adjusted our staffing levels to a better balance related to the work load and as previously stated we increased the proportion of sales that were higher margin proprietary products.

 

3



 

Our research and development expenditures, consistent with previous guidance, increased nearly three-fold to over $1.1 million in the quarter compared to $383,000 for the same quarter last year when we had just the one division.  As a percentage of sales, R & D was 15.6%, substantially higher than our business model of 10%.  Year-to-date R & D expenditures were $2.2 million or 15% of sales compared to $741,000, or 8% of sales last year.  These increased expenditures were planned and are vitally important initiatives toward the future success of our company.  The most important and most costly work relates to our epicardial steroid lead and epicardial lead delivery tool.  The epicardial steroid lead requires the more vigorous FDA approval cycle and we are on schedule to complete that program in early 2005.  We are also conducting significant R & D work on steerable introducers for our own family of fixed curve and steerable devices that we intend to submit for FDA approval, as well as continuing our work with other medical device companies providing our delivery system for their particular proprietary therapy.

 

Selling, general and administrative expenses were 19.5% of sales for the quarter, substantially more than the 15-16% of sales we anticipated in our previously provided guidance.  In part this was due to our decision to increase our participation in several additional physician based trade shows in both the US and in Europe where we believe we have the opportunity to gain market share.  Expenditures were also higher than anticipated related to the costs of the redesign of our web site and literature to incorporate our new name and brand image.  Most of these activities are now completed.  Documentation and testing requirements related to Sarbanes-Oxley Section 404 compliance continue to exceed our estimates and will have a negative impact on our expenses for the next several quarters.

 

We recorded a one-time impairment adjustment of our investment in our safety needle license arrangement as well as in the value of our automated safety needle assembly

 

4



 

equipment.  We engaged a professional valuation firm to assess our future estimated cash flow and equipment salvage value and their estimate was that the combined assets had a value of $315,000.  Therefore we reduced the net book value of the combined assets from $3.1 million down to $315,000.  The impairment adjustment, after reflecting a tax benefit of $900,000, reduced net income for the quarter by $.33 per share.

 

We came to this difficult decision after discussions with our two major safety needle customers during the quarter.  We launched the safety needle in all Medtronic kits for US distribution last year.  The initial launch strategy was to place a safety needle in all kits for US distribution and after some time period when all customers were exposed to the safety needle, we would then offer an option of kits with and without needles.  Since then sales of kits with safety needles have dropped precipitously.  Cook launched our needle in February with a substantial inventory.  To date Cook has experienced only modest sales and has indicated that physicians have been generally apathetic toward using safety needles.  We remain cautiously optimistic that the Federal mandate requiring the use of safety needles in all health care related procedures will result in a future favorable revenue stream for our safety needle as we originally expected, but the market’s slow adoption rate no longer justifies the level of investment we have in safety needle intellectual property and equipment.

 

Our cash situation is sound and we have positive cash flow from operations.  The write-down of our safety needle investment is a non-cash charge to expenses.  We have a modest amount borrowed on our $3 million line of credit.

 

5



 

We have a number of new products that will begin to enter the market in the second half of the year and into 2005.  Achievement of our revenue growth goals and meeting the objectives set forth in our guidance today are largely dependent upon reaching the following key milestones:

 

1.     We expect to receive European regulatory approval to commence sales of our anti-inflammatory steroid epicardial lead in the fourth quarter and FDA marketing approval by the end of the year for US release in the first quarter of 2005.

 

2.     Our new Fastac Flex epicardial lead placement tool should be on the market in the US early in the fourth quarter and in Europe by the end of the year.  We were very pleased with the reaction of physicians to both the lead and especially the delivery tool at the Heart Rhythm show in San Francisco in May and the CardioStim trade show in June in Nice, France.  Physician interest will drive acceptance of these devices and our early indications are that the products will be quickly adopted.

 

3.     The smaller sizes of the FlowGuard valved introducer will be on the market in the third quarter.  This version of the product is appropriate for pacing and port procedures, a market in which we have a strong presence.  We expect several of our existing customers to begin offering the product as an alternative to our current introducer.  If successful the incremental price increase will improve sales and margins.  Our launch of the larger sized FlowGuard product has been well received and today, all of the major marketers of dialysis catheters have placed orders for the FlowGuard product.

 

4.     One of our advanced delivery customers will be commencing a critical clinical study and we will be providing product for this important event.  While this shipment does not represent significant dollars, if the study has a successful outcome, the opportunity in 2005 to begin shipping production units for this project would have a favorable impact on our sales.

 

5.     The Heart Rhythm and CardioStim trade shows reinforced our belief that an FDA marketing approval of our own proprietary line of steerable advanced delivery introducer

 

6



 

systems would fill an immediate need in the market for a number of clinical applications.  We expect to have that product line in the market in the first quarter of 2005.

 

Within that framework, let me provide some guidance for the remainder of 2004.  With the expected reduction in safety needle revenue for the remainder of the year and the reduction in orders from our largest Leads customer continuing until the fourth quarter, we now anticipate our 2004 revenues will increase approximately 60-65% over 2003 reported revenues.  I expect third quarter sales to increase approximately 3-5% over the second quarter due primarily to increased sales of FlowGuard.  In the fourth quarter, if we meet the milestones set out above, sales of our steroid lead outside the US and our delivery tool in the US should cause a double digit gain in sales compared to the third quarter.

 

We expect gross margins for the remainder of the year to increase to a range between 42 and 44% compared with 37.5% in the second quarter.  Increasing volume and the elimination of the monthly amortization on much of our safety needle investment will have a positive impact on gross margins going forward.  We expect research and development expenditures to exceed 15% of sales in the third quarter and decline in the fourth quarter to a 12-13% range.  I believe the major name change costs and large show expenditures are behind us and therefore selling, general and administrative costs should range from 17 to 18% of sales in the third quarter and then to the more traditional 15-16% of sales in the fourth quarter.  In summary, while we will be extremely busy bringing our various development projects towards completion, we do expect an improvement in sales, gross margins and a reduction in SG&A expenses in the third quarter which should result in a favorable bottom line improvement.

 

We are steadily tackling the various integration issues that putting two companies together always entails.  That said, we are making steady progress toward achieving our vision for our new

 

7



 

company to be the leading innovator and provider of delivery systems and specialty stimulation leads to the medical device community.  We are developing relationships with an impressive cast of key opinion leaders in the physician community, as a result our new product pipeline is robust and growing, we have the highest commitment to unparalleled customer service delivering quality products on time, and, most importantly, we have a highly dedicated and motivated group of employees that is committed to building a very special and very successful organization.

 

Thank you for listening today.  Mark and I will answer any questions you may have.

 

8


-----END PRIVACY-ENHANCED MESSAGE-----