|United
StatesSecurities and Exchange CommissionWashington, D.C. 20549Form 10-Q
|------------------------------------------------------------------------------

||X| |  | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------------

|For the quarterly
period ended June 30, 2003


Or
|-------------------------------------------------

||_| |  | TRANSITION
REPORT PURSUANT TO 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
registrant as specified in its charter)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minnesota
      
      (State or other jurisdiction of
      incorporation or organization)                        |  | 41-1533300
      
      (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 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 August 4, 2003 was 4,739,793


Indicate by check mark
whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2 of the Exchange Act).


Yes  |_|  No  |X|


1
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Index
|-----

|                                                                                                         
|---------------------------------------------------------------------------------------------------------
|PART
      I. FINANCIAL INFORMATION                                                                      
|                                                                                                         
|Item 1.
      Financial Statements                                                                       
|                                                                                                         
|Item 2.
      Managements Discussion and Analysis of Financial Condition and Results
      of Operations
|                                                                                                         
|Item 3.
      Quantitative and Qualitative Disclosures About Market Risk                                 
|                                                                                                         
|Item 4.
      Controls and Procedures                                                                    
|                                                                                                         
|                                                                                                         
|                                                                                                         
|PART
      II. OTHER INFORMATION                                                                         
|                                                                                                         
|Item 1.
      Legal Proceedings                                                                          
|                                                                                                         
|Item 2.
      Changes in Securities and Use of Proceeds                                                  
|                                                                                                         
|Item 3.
      Defaults Upon Senior Securities                                                            
|                                                                                                         
|Item 4.
      Submission of Matters to a Vote of Security Holders                                        
|                                                                                                         
|Item 5.
      Other Information                                                                          
|                                                                                                         
|Item 6.
      Exhibits and Reports on Form 8-K                                                           
|                                                                                                         
|                                                                                                         
|                                                                                                         
|SIGNATURES                                                                                               
|                                                                                                         
|EXHIBITS                                                                                                 
|                                                                                                         

2

---

Medamicus, Inc.
Balance Sheets

|                                                                             | 6/30/03 | 12/31/02
|---------------------------------------------------------------------------- | ------- | --------
|                                                                            
|ASSETS                                                                       |         |         
|Current assets:                                                              |         |         
|Cash and cash equivalents                                                    |         |         
|Accounts receivable, less allowances for doubtful accounts and returns       |         |         
|of $130,000 and $60,000, respectively                                        |         |         
|Inventories, less obsolescence reserve of $223,000 and $59,000, respectively |         |         
|Prepaid expenses and other assets                                            |         |         
|Deferred income taxes                                                        |         |         
|                                                                            
|Total current assets                                                         |         |         
|                                                                            
|Property and equipment:                                                      |         |         
|Equipment                                                                    |         |         
|Office furniture, fixtures and computers                                     |         |         
|Leasehold improvements                                                       |         |         
|                                                                            
|                                                                             |         |         
|Less accumulated depreciation and amortization                               |         |         
|                                                                            
|Net property and equipment                                                   |         |         
|                                                                            
|Other assets:                                                                |         |         
|License agreement at cost, net of accumulated amortization of                |         |         
|$417,835 and $292,446, respectively                                          |         |         
|Patent rights, net of accumulated amortization of                            |         |         
|$107,774 and $84,560, respectively                                           |         |         
|                                                                            
|Total other assets                                                           |         |         
|                                                                            
|                                                                            
|TOTAL ASSETS                                                                 |         |         
|                                                                            
|LIABILITIES AND SHAREHOLDERS' EQUITY                                         |         |         
|Current liabilities:                                                         |         |         
|Accounts payable                                                             |         |         
|Accrued expenses                                                             |         |         
|Income taxes payable                                                         |         |         
|Current installments of capital lease obligations                            |         |         
|                                                                            
|Total current liabilities                                                    |         |         
|                                                                            
|Long-term liabilities:                                                       |         |         
|Capital lease obligations, less current installments                         |         |         
|Deferred income taxes                                                        |         |         
|                                                                            
|Total long-term liabilities                                                  |         |         
|                                                                            
|                                                                            
|Total liabilities                                                            |         |         
|                                                                            
|Commitments and contingencies                                                |         |         
|Shareholders' equity:                                                        |         |         
|Preferred stock-undesignated, authorized 1,000,000 shares                    |         |         
|Common stock-$.01 par value, authorized 9,000,000 shares; issued and         |         |         
|outstanding 4,737,693 and 4,726,593 shares, respectively                     |         |         
|Additional paid-in capital                                                   |         |         
|Retained earnings                                                            |         |         
|                                                                            
|Total shareholders' equity                                                   |         |         
|                                                                            
|                                                                            
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   |         |         
|                                                                            

See accompanying condensed notes to
financial statements

3

---

Medamicus, Inc. Statements of
Operations (Unaudited)

|                                              | Three Months Ended | Six Months Ended
|--------------------------------------------- | ------------------ | ----------------
|
|                                              |                    |                 
|Sales                                         |                    |                 
|Cost of sales                                 |                    |                 
|                                              |                    |                 
|Gross profit                                  |                    |                 
|                                              |                    |                 
|Operating expenses:                           |                    |                 
|Research and development                      |                    |                 
|Selling, general and administrative           |                    |                 
|                                              |                    |                 
|Total operating expenses                      |                    |                 
|                                              |                    |                 
|Operating income                              |                    |                 
|                                              |                    |                 
|Other income (expense):                       |                    |                 
|Interest expense                              |                    |                 
|Interest income                               |                    |                 
|Other                                         |                    |                 
|                                              |                    |                 
|Total other income (expense)                  |                    |                 
|                                              |                    |                 
|Income before income taxes                    |                    |                 
|Income tax expense                            |                    |                 
|                                              |                    |                 
|Net Income                                    |                    |                 
|                                              |                    |                 
|Earnings per share                            |                    |                 
|Basic                                         |                    |                 
|Diluted                                       |                    |                 
|Weighted average common and common equivalent |                    |                 
|shares outstanding                            |                    |                 
|Basic                                         |                    |                 
|Diluted                                       |                    |                 

See accompanying condensed notes to
financial statements

Medamicus, Inc.
Statements of Shareholders' Equity

|                                                   | Common Stock | Additional
Paid-In
Capital | RetainedEarnings | Total    
|-------------------------------------------------- | ------------ | -------------------------- | ---------------- | ---------
|
|                                                  
|Balances at December 31, 2002 (Audited)            |              |                            |                  | 4,726,593
|Options exercised                                  |              |                            |                  | 11,100   
|Options issued to consultant for services          |              |                            |                  | 0        
|Net income for the six month period ended 06/30/03 |              |                            |                  | 0        
|                                                  
|Balances at June 30, 2003 (Unaudited)              |              |                            |                  | 4,737,693
|                                                  

See accompanying condensed notes to
financial statements

4

---

Medamicus, Inc.
Statements of Cash Flows (Unaudited)

|                                                       | Six Months Ended
|------------------------------------------------------ | ----------------
|
|Net income                                             |                 
|Adjustments to reconcile net income to net cash        |                 
|provided by operating activities:                      |                 
|Depreciation and amortization                          |                 
|Options issued for compensation                        |                 
|Deferred income taxes                                  |                 
|Changes in operating assets and liabilities:           |                 
|Accounts receivable                                    |                 
|Inventories                                            |                 
|Prepaid expenses and other assets                      |                 
|Accounts payable                                       |                 
|Accrued expenses                                       |                 
|Income taxes payable                                   |                 
|                                                      
|Net cash provided by operating activities              |                 
|                                                      
|Cash flows from investing activities:                  |                 
|Purchase of property and equipment, net of retirements |                 
|Additions to patent rights                             |                 
|Additions to license agreement                         |                 
|                                                      
|Net cash used in investing activities                  |                 
|                                                      
|Cash flows from financing activities:                  |                 
|Principal payments on capital lease obligations        |                 
|Proceeds from exercise of stock options and warrants   |                 
|                                                      
|Net cash provided by (used in) financing activities    |                 
|                                                      
|Net decrease in cash and cash equivalents              |                 
|                                                      
|Cash and cash equivalents, beginning of period         |                 
|                                                      
|Cash and cash equivalents, end of period               |                 
|                                                      
|Supplemental disclosure of cash flow information:      |                 
|Cash paid during the period for interest               |                 
|Cash paid during the period for income taxes           |                 

See accompanying condensed notes to
financial statements

5

---

# Medamicus, Inc.Condensed Notes to
Financial StatementsSix Months Ended June
30, 2003(Unaudited)

1. Basis of presentation The
financial statements included in this Form 10-Q 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 accounting principles generally accepted in the United States
have been condensed or omitted pursuant to these 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, 2002.

The
financial statements presented herein as of June 30, 2003 and for the three and six months
ended June 30, 2003 and 2002 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. InventoriesInventories
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, 2003 | December 31, 2002
|--------------------------------- | ------------- | -----------------
|Purchased parts and subassemblies |               |                  
|Work in process                   |               |                  
|Finished goods                    |               |                  
|                                 
|Total Inventory                   |               |                  
|                                 

3. Other Assets Other
assets consist of the following amortizable intangible assets:

|                   
|-------------------
|
|                   
|
|                   
|License agreement  
|Patented technology
|                   
|                   
|                   

Amortization
expense is as follows:

|                              
|------------------------------
|Quarter ended June 30, 2003   
|                              
|Quarter ended June 30, 2002   
|                              
|Six months ended June 30, 2003
|                              
|Six months ended June 30, 2002
|                              
|Year ended December 31, 2002  
|                              

Estimated
amortization expense for the remainder of 2003 and for each of the next four years is
approximately $156,000 and $300,000, respectively.

4. 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 not dilutive.

5. Income Taxes Income
tax expense for the first six months ended June 30, 2003, was computed using an estimated
combined federal and state tax rate of 37%. A combined rate of 38% was used for the first
six months ended June 30, 2002.

6

---

6. Employee Stock Based CompensationAt June 30,
2003, the Company had two stock-based employee compensation plans. The Company accounts
for those plans under the APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.

The
Company also grants options and warrants to non-employees for goods and services and in
conjunction with certain agreements. These grants are accounted for under FASB Statement
No. 123 based on the grant date fair values.

The
following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation.

|                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------
|
|                                                                                                                      
|
|                                                                                                                      
|Net income - as reported                                                                                              
|                                                                                                                      
|Deduct:  Total stock-based employee compensation (Expense determined under the fair value based method for all awards)
|                                                                                                                      
|Pro Forma Net Income                                                                                                  
|                                                                                                                      
|Earnings Per Share                                                                                                    
|                                                                                                                      
|Basic net income per share - as reported                                                                              
|                                                                                                                      
|Basic net income per share - pro forma                                                                                
|                                                                                                                      
|Diluted net income per share - as reported                                                                            
|                                                                                                                      
|Diluted net income per share - pro forma                                                                              
|                                                                                                                      

The
above pro forma effects on net income and net income per share are not likely to be
representative of the effects on reported net income for future years because options vest
over several years and additional awards generally are made each year.

7. Pending Business
AcquisitionOn
July 21, 2003, the Company entered into a definitive agreement to acquire the operating
assets of BIOMEC Cardiovascular Inc. (BCI), a Minneapolis-based developer and
manufacturer of implantable stimulation leads, lead delivery systems and accessories for
cardiac rhythm management and neuromodulation. BCI is a subsidiary of BIOMEC Inc., a
privately held medical technology company headquartered in Cleveland, Ohio. BCI had sales
of approximately $4.2 million during its latest fiscal year ended December 31, 2002.

The
board of directors of Medamicus, Inc. as well as the boards of directors of BCI and BIOMEC
Inc. have approved the acquisition and unanimously recommended approval by their
respective shareholders. Besides requiring approval by the shareholders of Medamicus and
BIOMEC Inc., the transaction is subject to SEC review, the absence of material adverse
events and other customary closing conditions. Under the agreement, Medamicus will be
obligated to pay at closing a total of $18 million with not less than $7 million in cash
and not less than $7 million in newly issued shares of Medamicus common stock, with the
additional $4 million, subject to adjustments, to be paid in either stock or cash at the
option of Medamicus. The agreement also requires Medamicus to make additional payments to
the Seller in 2004 and 2005 if certain levels of sales of BCI products are achieved.
Medamicus could currently finance the transaction by paying $7 million in cash and $11
million in stock using its existing cash and line of credit. Medamicus is currently
negotiating with a number of financial institutions to secure a $5 million term loan in
addition to its $3 million line of credit to allow for the option of paying a larger
portion of the purchase price in cash.

Item 2. Management's Discussion and Analysis
of Financial Condition and Results of OperationsThe
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.

7

---

Overview Our
revenues are primarily derived from the design, development, manufacture and marketing of
medical devices consisting of percutaneous vessel introducers, safety needles and related
vascular delivery products that we sell to other medical device companies.

We
manufacture and market a family of percutaneous venous vessel introducers that include in
part or in whole proprietary features and technologies. Vessel introducers allow
physicians to create a conduit through which they can insert other medical devices such as
infusion catheters, implantable ports, and pacemaker leads into a blood vessel.

In
addition to this core traditional introducer product line, we have developed and
manufacture advanced delivery introducers that have fixed curve or
articulating distal tip sections that can be manipulated to enable the health care
professional to access parts of the patients anatomy (such as the left ventricle of
the heart) that cannot be reached by traditional introducers. These sophisticated advanced
delivery introducers are designed and manufactured to meet the unique needs of each
procedure being performed.

We
also manufacture safety products, primarily a safety needle that can be retracted into a
protective sheath while still in the patient, greatly reducing the possibility of a needle
stick and infection to the health care professional after the needle has been in contact
with a patients blood.

Finally,
we perform contract manufacturing and engineering services under which we design and
manufacture products at our facilities to third party customer specifications.

Results of OperationsThree and six month
periods ended June 30, 2003 and June 30, 2002Total
revenues from continuing operations were $4,338,341 for the three months ended June 30,
2003 compared to $4,382,042 for the three months ended June 30, 2002, and $9,005,664 for
the six months ended June 30, 2003 compared to $8,680,725 for the six months ended June
30, 2002, representing a 1.0% decrease and 3.7% increase respectively.

Sales
of our core introducer products were $3,417,997 for the three months ended June 30, 2003,
compared to $2,583,937 for the three months ended June 30, 2002, and $6,950,095 for the
six months ended June 30, 2003, compared to $5,029,529 for the six months ended June 30,
2002, representing a 32.3% and 38.2% increase, respectively. This increase was primarily
due to continued growth in sales to both new and existing customers. During the quarter we
encountered a design issue with our newly released FlowGuardTM valved
introducer, which caused us to suspend shipments until corrected. In order to rectify the
problem, we will need to qualify a new resin which will defer our resumption of shipments
until late in the fourth quarter or early 2004. Our sales in the second quarter were
modestly affected by our inability to ship this product. Our income, however, was affected
by more than $200,000 of write-offs, consisting primarily of scrapped inventory. We expect
sales of our core introducer products to remain strong in 2003 as we continue to ship
orders to our new customer base, but our sales growth for the balance of 2003 will be
slowed due to the FlowGuard delay.

Sales
of our advanced delivery products were $563,974 for the three months ended June 30, 2003,
compared to $1,562,210 for the three months ended June 30, 2002, and $1,114,345 for the
six months ended June 30, 2003, compared to $3,053,833 for the six months ended June 30,
2002, representing a 63.9% and 63.5% decrease, respectively. Most of the sales in this
category were either procedural kits or components sold to Medtronic in support of its
marketing of the InSync pacing device to treat congestive heart failure. As we
previously reported, Medtronic has transitioned packaging of these procedural kits to its
own facility. We have provided Medtronic with several components for these kits over the
past several quarters, but we saw a significant decline in orders for these components
during the first six months of 2003. We anticipate that our advanced delivery product
sales will be down significantly for the remainder of 2003 when compared to 2002,
primarily due to the reduction in sales to Medtronic. We are currently working on eleven
development projects related to advanced delivery products with a variety of companies. We
are conducting the product development work and incorporating some portions of our own
intellectual property in each of these projects. Each relationship is typically
accompanied by a supply agreement that would provide us an additional revenue stream if
the final product is a commercial success.

Sales
of our safety products were $61,160 for the three months ended June 30, 2003, compared to
$34,494 for the three months ended June 30, 2002, and $209,211 for the six months ended
June 30, 2003, compared to $67,969 for the six months ended June 30, 2002. Most of these
increased sales are the result of the incorporation of the safety needle into

8

---

Medtronic kits for U.S. distribution starting in the second quarter. We believe
that the Medtronic safety needle launch should create increased market demand at
the hospital level. On April 24, 2003, we announced a supply agreement with Cook
Incorporated under which we appointed Cook the exclusive distributor of our
single pack Axia RSN safety needles in the United States. We expect safety
product sales to accelerate late in the third quarter or early in the fourth
quarter of 2003 as we begin to ship safety needles to Cook under the new supply
agreement. We are also engaged in continuing discussions with other companies to
formalize additional distribution relationships related to the safety needle.

Other
sales, consisting of contract manufacturing, engineering services and freight charges were
$295,210 and $732,013 for the three and six month periods ended June 30, 2003, compared to
$201,401 and $529,394 for the three and six month periods ended June 30, 2002. This
increase was primarily due to increased engineering service sales, off-set by decreases in
contract manufacturing sales during the comparable periods.

Gross
profit totaled $1,819,752 for the three months ended June 30, 2003, compared to $2,018,275
for the three months ended June 30, 2002, and $3,890,394 for the six months ended June 30,
2003, compared to $3,986,974 for the six months ended June 30, 2002, representing a 9.8%
and 2.4% decrease, respectively. Gross profit as a percent of sales dropped from 46.1% to
42.0% for the comparable three month period and from 45.9% to 43.2% for the comparable six
month period. The primary cause of this decline in the second quarter was related to the
write-offs associated with the FlowGuard valved introducer which reduced the second
quarter 2003 gross margin by over 4%. Our gross margin was also negatively affected in the
first quarter by manually assembling safety needles prior to our automated system becoming
operational. Additionally, we have relatively high fixed costs related to the amortization
of our investment in obtaining the rights to the arterial safety needle market, as well as
depreciation on the automated safety needle assembly equipment (beginning in April 2003),
as compared to sales of safety needles. We expect these expenses to become less of a
factor as our safety needle sales increase.

Research
and development expenses were $383,247 or 8.8% of sales for the three months ended June
30, 2003, compared to $442,213 or 10.1% of sales for the three months ended June 30, 2002,
and $741,247 or 8.2% of sales for the six months ended June 30, 2003, compared to $854,512
or 9.8% of sales for the six months ended June 30, 2002. These decreases were primarily
due to a greater portion of engineering time being billed to customers as engineering
services when compared to last year. Research and development is an important part of our
continuing efforts to grow our business and we plan to spend approximately 9-10% of sales
on these activities on an on-going basis.

Selling
expenses were $236,629 or 5.5% of sales for the three months ended June 30, 2003, compared
to $144,534 or 3.3% of sales for the three months ended June 30, 2002, and $454,736 or
5.1% of sales for the six months ended June 30, 2003, compared to $291,620 or 3.4% of
sales for the six months ended June 30, 2002. This increase was primarily due to increased
spending on salaries, trade shows and travel, partially off-set by a decrease in
commission expense. We hired a new Director of Sales and Marketing (January 2002), two
Product Marketing Managers (July 2002, January 2003), a Marketing Manager (February 2003)
and a Sales & Marketing Coordinator (July 2002) to help drive the sales and marketing
efforts for our new products. With the addition of these positions, we have attended more
trade shows to build awareness of our products and incurred higher travel costs than in
past years. Additionally, with these new positions, we have been able to reduce the
commission expenses relating to our two independent sales representatives.

General
and administrative expenses were $454,662 or 10.5% of sales for the three months ended
June 30, 2003, compared to $430,404 or 9.8% of sales for the three months ended June 30,
2002, and $955,881 or 10.6% of sales for the six months ended June 30, 2003, compared to
$889,588 or 10.3% of sales for the six months ended June 30, 2002. This increase was
primarily due to increased spending on salaries, depreciation, accounting fees and
insurance. Interest income decreased $6,982 and $12,474, respectively due to lower
interest rates and interest expense decreased $1,733 and $3,615, respectively due to
reduced lease balances during the comparable periods.

As
a result, we had net income after taxes of $474,050 or $.10 per diluted share for the
three months ended June 30, 2003, compared to net income after taxes of $627,750 or $.13
per diluted share for the three months ended June 30, 2002 and $1,106,429 or $.22 per
diluted share for the six months ended June 30, 2003, compared to net income after taxes
of $1,224,516 or $.25 per diluted share for the six months ended June 30, 2002. The
write-offs related to the FlowGuard product affected our second quarter and year-to-date
results by $.03 per diluted share.

Finally,
we regularly grant incentive stock options to our employees pursuant to our
shareholder-approved Medamicus, Inc. Stock Option Incentive Plan. During the six month
period ended June 30, 2003, we granted options from this plan to purchase a total of
102,500 shares of our common stock. Of this total, James D. Hartman (President and Chief
Executive

9

---

Officer) and Mark C. Kraus (Executive Vice President and Chief Operating
Officer) each received grants of 15,000 options on February 13, 2003 at a price of $7.33
per share, which was the last sale price of the stock on that date.

Liquidity and Capital
ResourcesNet
cash provided by operating activities for the six months ended June 30, 2003 was $103,929,
consisting of net income of $1,106,429, adjusted for non-cash items of depreciation and
amortization of $564,438 and options issued for compensation of $7,000, less a net change
in operating assets and liabilities of $1,573,938 consisting of the following: income
taxes payable decreased $1,103,808 due to the payment of our 2002 income taxes and 2003
income tax estimates, accounts receivable decreased $74,397 primarily due to the timing of
invoicing and collections and inventories increased $163,516 during the comparable periods
in support of increased introducer and safety needle sales.

Net
cash used in investing activities for the six months ended June 30, 2003 was $910,111. We
purchased equipment totaling $774,173 and we also had additions to patent rights totaling
$135,938 during the period.

Net
cash used in financing activities for the six months ended June 30, 2003 was $6,616. We
made capital lease payments of $33,810 and received cash upon the exercise of options of
$27,194.

As
a result, our cash and cash equivalents were $6,491,564 as of June 30, 2003 compared to
$7,304,362 at December 31, 2002. Working capital increased from $8,857,648 as of December
31, 2002 to $9,618,788 as of June 30, 2003.

Approximately
38% of our outstanding accounts receivable balance as of June 30, 2003 and 49% of our
year-to-date 2003 sales were related to Medtronic, compared to 61% of accounts receivable
as of June 30, 2002 and 67% of our year-to date sales in 2002. We have not experienced
problems with timely payments from Medtronic and do not anticipate problems in the future.

We
have in place a line of credit with a financial institution with availability on the line
of $3,000,000. The line of credit agreement calls for interest at the financial
institutions base rate with no minimum interest due and expires, if not renewed, on
August 1, 2004. 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 line of credit agreement contains certain financial covenants,
including minimum profitability and a liabilities to net worth ratio limitation. We had no
outstanding borrowings under the agreement at June 30, 2003. This commitment is summarized
as described below:

|              
|--------------
|
|              
|Line of credit
|              

A
summary of our contractual cash obligations at June 30, 2003 is as follows:

|                         
|-------------------------
|
|                         
|Contractual Obligations  
|                         
|Long-term debt, including
|interest                 
|                         
|Operating leases         
|                         
|Total contractual cash   
|obligations              
|                         

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 working capital and
capital resource needs for fiscal 2003. In addition, we expect our working capital
requirements to change as a result of the pending transaction discussed below.

Pending Business
AcquisitionOn
July 21, 2003, the Company entered into a definitive agreement to acquire the operating
assets of BIOMEC Cardiovascular Inc. (BCI), a Minneapolis-based developer and
manufacturer of implantable stimulation leads, lead delivery systems and accessories for
cardiac rhythm management and neuromodulation. BCI is a subsidiary of BIOMEC Inc., a
privately held medical technology company headquartered in Cleveland, Ohio. BCI had sales
of approximately $4.2 million during its latest fiscal year ended December 31, 2002.

10

---

The
board of directors of Medamicus, Inc. as well as the boards of directors of BCI and BIOMEC
Inc. have approved the acquisition and unanimously recommended approval by their
respective shareholders. Besides requiring approval by the shareholders of Medamicus and
BIOMEC Inc., the transaction is subject to SEC review, the absence of material adverse
events and other customary closing conditions. Under the agreement, Medamicus will be
obligated to pay at closing a total of $18 million with not less than $7 million in cash
and not less than $7 million in newly issued shares of Medamicus common stock, with the
additional $4 million, subject to adjustments, to be paid in either stock or cash at the
option of Medamicus. The agreement also requires Medamicus to make additional payments to
the Seller in 2004 and 2005 if certain levels of sales of BCI products are achieved.
Medamicus could currently finance the transaction by paying $7 million in cash and $11
million in stock using its existing cash and line of credit. Medamicus is currently
negotiating with a number of financial institutions to secure a $5 million term loan in
addition to its $3 million line of credit to allow for the option of paying a larger
portion of the purchase price in cash.

Critical Accounting
PoliciesOur significant accounting policies are summarized in the footnotes to our annual financial
statements. The most critical policies are also discussed below.

Revenue
Recognition. We recognize revenue in accordance with Staff Accounting Bulletin
101, Revenue Recognition in Financial Statements. Revenues are recognized when all
of the following criteria are met: when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the selling price is fixed or
determinable and collectability is reasonably assured.

Allowances
for Doubtful Accounts and Product Returns. We establish estimates of the
uncollectibility of accounts receivable. Our management analyzes accounts receivable,
historical write-offs as bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts. We maintain an allowance for doubtful accounts at
an amount that we estimate to be sufficient to provide adequate protection against losses
resulting from collecting less than full payment on receivables. A considerable amount of
judgment is required when assessing the realizability of receivables, including assessing
the probability of collection and the current credit-worthiness of each customer. If the
financial condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, an additional provision for doubtful accounts may be
required. We have not experienced significant bad debt expense to date and we believe our
reserve for doubtful accounts of $50,000 should be adequate for any exposure to loss in
our June 30, 2003 accounts receivable. Additionally, we established an $80,000 reserve for
product returns in June 2003 to cover the recalled FlowGuard product from one of our
customers that had not been returned as of June 30, 2003. Returns of this nature are rare
and we typically do not establish product return reserves.

Allowance
for Excess and Obsolete Inventory. Inventories, which are composed of
purchased parts and subassemblies, work in process and finished goods, are valued at the
lower of cost or market with cost being determined by the first-in, first-out method. On a
periodic basis, we analyze the level of inventory on hand, its cost in relation to market
value and estimated customer requirements to determine whether write-downs for excess or
obsolete inventory are required. Actual customer requirements in any future periods are
inherently uncertain and thus may differ from estimates. If actual or expected
requirements were significantly greater or lower than the established reserves, a
reduction or increase to the obsolescence allowance would be recorded in the period in
which such a determination was made. We have established reserves for slow moving and
obsolete inventories and believe our reserve of $223,000 at June 30, 2003 is adequate. The
increase in this account from $71,000 at the end of the first quarter is intended to cover
inventory related to the recalled FlowGuard product that will have to be scrapped from our
inventory.

Valuation
of Long-Lived and Intangible Assets. As a matter of policy, we review our major
assets for impairment at least annually, and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Our major long-lived and
intangible assets are our license agreement with Med-Design for the Axia RSN Safety Needle
and property and equipment. We depreciate our property and equipment and license agreement
over their estimated useful lives and we have not identified any items that are impaired.

The
realization of our investments in the license agreement and manufacturing equipment
related to the net safety needle investment of approximately $3,542,000 at June 30, 2003
is dependent upon attaining a sustained level of sales of this product. We currently are
comfortable projecting a level of future sales that is sufficient to enable us to fully
realize the investments we have made in the safety needle product. However, if actual
sales fail to reach these levels, our investments made in this product may not be fully
realizable in the future. Please refer to the Risk Factors section of our
Annual

11

---

Report on Form 10-KSB for 2002, filed with the Securities and Exchange Commission
on February 28, 2003 for a discussion of factors that will have an effect on our ability
to attain a sustained level of safety needle sales.

If
we determine that the carrying value of these operating assets may not be recoverable, we
measure any impairment based on a projected discounted cash flow method using a discount
rate determined by management to be commensurate with the risk inherent in the current
business model or another valuation technique.

Recently Issued
Accounting PronouncementThe
Financial Accounting Standards Board (FASB) has issued Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
Statement No. 150 requires that certain freestanding financial instruments be reported as
liabilities in the balance sheet. Depending on the type of financial instrument, it will
be accounted for at either fair value or the present value of future cash flows determined
at each balance sheet date with the change in that value reported as interest expense in
the income statement. Prior to the application of Statement No. 150, either those
financial instruments were not required to be recognized, or if recognized were reported
in the balance sheet as equity and changes in the value of those instruments were normally
not recognized in net income. The Company is required to apply Statement No. 150 for the
quarter beginning on July 1, 2003. The Company does not expect the application of
Statement No. 150 to have a material effect on its financial statements.

Forward Looking
Statements Statements
included in this Quarterly Report on Form 10-Q, in our annual and quarterly reports, in
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 of these statements. 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 for the year ended
December 31, 2002 entitled Risk Factors. All forward-looking statements made
by us, whether written or oral, and whether made by or on behalf of us are expressly
qualified by these cautionary statements. Factors that could cause results to differ
materially include: Our ability to obtain approval of the transaction by Medamicus and
BIOMEC shareholders, our ability to successfully integrate the acquired business, our
dependence upon a limited number of key customers for our revenue; our dependence upon
licensing agreements with third parties for the technology underlying some of our
products, especially the safety needle; our ability to negotiate and enter into safety
needle supply agreements with major medical device companies and the ability of the us and
our customers to achieve market acceptance of the safety needle; our ability to
effectively manufacture our safety needle using our automated safety needle assembly
equipment in anticipated required quantities; our ability to successfully manufacture and
introduce our FlowGuard valved peelable introducer; our ability to design and develop new
advanced delivery products for our existing and new customers; our ability to develop or
acquire new products to increase our revenues; our ability to attract and retain key
personnel; introduction of competitive products; patent and government regulatory matters;
economic conditions; and our ability to raise capital. All forward-looking statements made
by us, 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.

# 

Item 3. Quantitative and
Qualitative Disclosures About Market RiskWe
are exposed to changes in interest rates primarily as a result of our borrowing and
investing activities used to maintain liquidity. Our earnings are not materially affected
by changes in interest rates on our floating interest rate debt because we have not
maintained an outstanding balance on our line of credit agreement. We have invested our
excess funds in a money market fund, comprised of U.S. Government backed securities and do
not believe that a change in interest rates on such money market fund would have a
material effect on our earnings.

Item 4. Controls and
Procedures

(a) Evaluation of
Disclosure Controls and Procedures.The
Companys Chief Executive Officer and Chief Financial Officer, James D. Hartman, has
reviewed the Companys disclosure controls and procedures at the end of the period
covered by this report. Based upon his review, he believes that the Companys
disclosure controls and procedures are effective in ensuring that material information
related to the Company that is required to be disclosed is made known to him by others
within the Company.

12

---

(b) Changes in Internal
Controls Over Financial Reporting. There
were no significant changes in the Companys internal controls over financial
reporting that occurred in the quarter ended June 30, 2003, that have materially affected,
or are reasonably likely to affect, the Companys internal controls over financial
reporting.

PART II  OTHER
INFORMATION

Item 1  Legal
ProceedingsNone

Item 2  Changes in
Securities None

Item 3  Defaults
Upon Senior Securities None

Item 4  Submission
of Matters to a Vote of Security HoldersInformation
called for by this item with respect to the annual meeting of Medamicus shareholders held
on April 24, 2003, is contained in Part II  Item 4 of Medamicuss Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003.

Item 5  Other
Information None

Item 6(a)  Exhibits

|2.1 |  | Asset
Purchase Agreement, dated July 21, 2003 among Medamicus, Inc., Medacquisition, Inc.,
BIOMEC  Inc., and           BIOMEC Cardiovascular, Inc.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|31 |  | Certification
pursuant to Section 302
|-- |  | -------------------------------------

|32 |  | Certification
pursuant to 18 U.S.C. Section 1350
|-- |  | ------------------------------------------------

Item 6(b)  Reports
on Form 8-K

| |  | On
April 15, 2003, the Company filed a Current Report on Form 8-K to furnish under Item 7 a
copy of the first quarter 2003 earnings press release.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On
July 22, 2003, the Company filed a Current Report on Form 8-K to furnish under Item 7 a
copy of the second quarter 2003 earnings press release, a copy of the script for the
second quarter 2003 conference call, a copy of the Medamicus, Inc. press release
announcing the asset purchase agreement and a copy of the BIOMEC Inc. press release
announcing the asset purchase agreement.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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:

|Date: August 4, 2003 |  | MedAmicus,
      Inc.
      By: /s/ James D. Hartman
      President, Chief Executive Officer and Chief Financial Officer
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------------

13

---