##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
 Commission file number: 000-51487
 
 MICROMED CARDIOVASCULAR, INC.
  Delaware
    
    98-0228169(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 8965 Interchange Drive
Houston, Texas 77054
 (713) 838-9210
 þ o
 o þ
 o þ




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##### 



MICROMED CARDIOVASCULAR, INC
 TABLE OF CONTENTS
 Page No.PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements (Unaudited)
    
    
    1Consolidated Balance Sheets as of December 31, 2005 and September 30, 2006
    
    
    1Consolidated Statements of Operations for the period October 6, 1995 (date of inception) to
September 30, 2006 and the three months and nine months ended September 30, 2006 and 2005
    
    
    2Consolidated Statements of Cash Flows for the period October 6, 1995 (date of inception) to
September 30, 2006 and nine months ended September 30, 2006 and 2005
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Controls and Procedures
    
    
    15PART II. OTHER INFORMATION
    
    
    16Item 1. Legal Proceedings
    
    
    16Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds
    
    
    16Item 6. Exhibits
    
    
    16SIGNATURES
    
    
    17Certifications pursuant to Section 13a-14Certifications pursuant to U.S.C. Section 906Certification of CEO Pursuant to Section 13a-14Certification of CFO Pursuant to Section 13a-14Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MICROMED CARDIOVASCULAR, INC.
(A Development Stage Company)
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,958,500
    
    
    $
    2,871,071Accounts receivable
    
    
    545,854
    
    
    
    882,090Inventory
    
    
    2,737,162
    
    
    
    2,770,688Prepaids and other assets
    
    
    363,391
    
    
    
    340,938Total current assets
    
    
    15,604,907
    
    
    
    6,864,787Property and equipment, net
    
    
    401,487
    
    
    
    541,986Other assets
    
    
    13,085
    
    
    
    39,379Total assets
    
    $
    16,019,479
    
    
    $
    7,446,152LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    426,124
    
    
    $
    390,365Accrued liabilities and deferred revenue
    
    
    378,659
    
    
    
    614,774Current portion of long-term debt
    
    
    676,139
    
    
    
    1,021,734Note payable
    
    
    309,497
    
    
    
    461,429Total current liabilities
    
    
    1,790,419
    
    
    
    2,488,302Long-term debt
    
    
    
    
    
    
    409,092Commitments and Contingencies
    
    
    
    
    
    
    Stockholders Equity:Common Stock, $.001 par value, 100,000,000
shares authorized, 39,952,380 shares issued
and 39,915,402 shares outstanding at
September 30, 2006; 100,000,000 shares
authorized, 26,113,495 issued and
26,076,517 outstanding at December 31, 2005
    
    
    39,915
    
    
    
    26,077Additional paid-in capital
    
    
    105,096,429
    
    
    
    90,359,633Deferred compensation
    
    
    
    
    
    
    (470,030
    )Deficit accumulated during development stage
    
    
    (90,907,284
    )
    
    
    (85,366,922
    )Total stockholders equity
    
    
    14,229,060
    
    
    
    4,548,758Total liabilities and stockholders equity
    
    $
    16,019,479
    
    
    $
    7,466,152
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MICROMED CARDIOVASCULAR, INC.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Period fromInception(October 6,Three Months Ended
    
    
    Nine Months Ended
    
    
    1995) ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Revenues:Clinical reimbursements
    
    $
    245,480
    
    
    $
    466,652
    
    
    $
    1,060,659
    
    
    $
    1,458,629
    
    
    $
    17,119,478International product sales
    
    
    179,168
    
    
    
    519,255
    
    
    
    1,357,863
    
    
    
    2,982,616
    
    
    
    9,084,607Total revenues
    
    
    424,648
    
    
    
    985,907
    
    
    
    2,418,522
    
    
    
    4,441,245
    
    
    
    26,204,085Expenses:Research and development
    
    
    2,214,234
    
    
    
    2,593,027
    
    
    
    6,212,794
    
    
    
    8,742,881
    
    
    
    74,424,644General and administrative
    
    
    618,885
    
    
    
    952,049
    
    
    
    1,831,153
    
    
    
    2,703,311
    
    
    
    21,398,734Total operating expenses
    
    
    2,833,119
    
    
    
    3,545,076
    
    
    
    8,043,947
    
    
    
    11,446,192
    
    
    
    95,823,378Loss from operations
    
    
    (2,408,471
    )
    
    
    (2,559,169
    )
    
    
    (5,625,425
    )
    
    
    (7,004,947
    )
    
    
    (69,619,293
    )Interest and other income (expenses)
    
    
    172,040
    
    
    
    (9,203
    )
    
    
    226,330
    
    
    
    (27,728
    )
    
    
    1,827,048Interest expense
    
    
    (39,034
    )
    
    
    (122,227
    )
    
    
    (141,273
    )
    
    
    (420,377
    )
    
    
    (1,246,606
    )Net loss
    
    
    (2,275,465
    )
    
    
    (2,690,599
    )
    
    
    (5,540,368
    )
    
    
    (7,453,052
    )
    
    
    (69,038,851
    )Convertible preferred stock dividends
and accretion
    
    
    
    
    
    
    (1,445,641
    )
    
    
    
    
    
    
    (4,083,838
    )
    
    
    (22,327,217
    )Net loss available to common stockholders
    
    $
    (2,275,465
    )
    
    $
    (4,136,240
    )
    
    $
    (5,540,368
    )
    
    $
    (11,536,890
    )
    
    $
    (91,366,068
    )Basic and diluted net loss per share available to
common stockholders
    
    $
    (0.06
    )
    
    $
    (0.25
    )
    
    $
    (0.17
    )
    
    $
    (0.76
    )Weighted average common shares outstanding
    
    
    39,161,075
    
    
    
    16,761,329
    
    
    
    32,615,102
    
    
    
    15,200,175
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MICROMED CARDIOVASCULAR, INC.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Period fromInception(October 6,Nine Months Ended
    
    
    1995) ThroughSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (5,540,368
    )
    
    $
    (7,453,052
    )
    
    $
    (69,038,850
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    165,121
    
    
    
    202,726
    
    
    
    2,758,657Conversion of accrued interest on Series C and
Series D Preferred
    
    
    
    
    
    
    
    
    
    
    346,866Services contributed by stockholders
    
    
    
    
    
    
    
    
    
    
    300,050Non-employees stock compensation
    
    
    
    
    
    
    11,423
    
    
    
    140,741Employee stock based compensation
    
    
    1,395,202
    
    
    
    
    
    
    
    1,395,202Amortization of deferred compensation
    
    
    
    
    
    
    189,296
    
    
    
    310,179Amortization of warrants
    
    
    75,729
    
    
    
    27,913
    
    
    
    108,427(Gain) loss on disposal of fixed assets
    
    
    
    
    
    
    5,489
    
    
    
    (2,999
    )Changes in assets and liabilities:Accounts receivable
    
    
    336,236
    
    
    
    869,450
    
    
    
    (545,854
    )Inventory
    
    
    33,527
    
    
    
    101,859
    
    
    
    (2,737,162
    )Prepaids and other assets
    
    
    3,842
    
    
    
    (340,695
    )
    
    
    (376,476
    )Accounts payable and accrued liabilities
    
    
    (200,356
    )
    
    
    672,719
    
    
    
    804,783Net cash used in operating activities
    
    
    (3,731,069
    )
    
    
    (5,712,872
    )
    
    
    (66,536,436
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (24,624
    )
    
    
    (57,764
    )
    
    
    (2,918,410
    )Net cash used in investing activities
    
    
    (24,624
    )
    
    
    (57,764
    )
    
    
    (2,918,410
    )Cash flows from financing activities:Proceeds from bridge loan from stockholders
    
    
    
    
    
    
    3,500,001
    
    
    
    16,458,987Repayments of bridge loans from stockholders
    
    
    
    
    
    
    
    
    
    
    (2,015,986
    )Proceeds from issuance of notes payable
    
    
    734,894
    
    
    
    4,090,879
    
    
    
    9,012,351Repayments of notes payable
    
    
    (1,641,513
    )
    
    
    (5,026,396
    )
    
    
    (8,148,150
    )Proceeds from issuance of options, warrants and
preferred stock, net of offering costs
    
    
    
    
    
    
    1,012
    
    
    
    43,398,728Proceeds from issuance of common stock and cash
contributed by stockholders, net of offering costs
    
    
    13,749,739
    
    
    
    4,462,932
    
    
    
    22,707,416Net cash provided by financing activities
    
    
    12,843,120
    
    
    
    7,028,428
    
    
    
    81,413,346Change in cash and cash equivalents
    
    
    9,087,429
    
    
    
    1,257,792
    
    
    
    11,958,500Beginning cash and cash equivalents
    
    
    2,871,071
    
    
    
    687,162
    
    
    
    Ending cash and cash equivalents
    
    $
    11,958,500
    
    
    $
    1,944,954
    
    
    $
    11,958,500
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MICROMED CARDIOVASCULAR, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of Presentation
    2. Reverse Merger
   4




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3. Equity
 Common Stock
     Warrants
   5




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4. Stock-Based Compensation
   Three Months ended
    
    
    Nine Months endedSeptember 30, 2005
    
    
    September 30, 2005Net loss available to common stockholders -As reported
    
    $
    (4,136,240
    )
    
    $
    (11,536,890
    )Add: Stock-based compensation expense
recorded Intrinsic value method
    
    
    189,296
    
    
    
    189,296Deduct: Stock option compensation expense
if the fair value method had been applied
    
    
    (102,579
    )
    
    
    (179,259
    )Pro forma net loss
    
    $
    (4,049,523
    )
    
    $
    (11,526,853
    )Loss per share  Basic and DilutedAs reported
    
    $
    (0.25
    )
    
    $
    (0.76
    )Pro forma
    
    $
    (0.24
    )
    
    $
    (0.76
    )
 5. Options
   6




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WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average Exercise
    
    
    Contractual
    
    
    Intrinsic ValueShares
    
    
    Price
    
    
    Life
    
    
    (In 000s)Outstanding, December 31, 2005
    
    
    1,644,470
    
    
    $
    0.20Granted
    
    
    2,095,000
    
    
    
    1.55Forfeited
    
    
    (307,341
    )
    
    
    1.02Outstanding, September 30, 2006
    
    
    3,432,129
    
    
    $
    1.31
    
    
    
    9.3
    
    
    $
    3,027Exercisable, September 30, 2006
    
    
    1,192,315
    
    
    $
    0.95
    
    
    
    9.6
    
    
    $
    2,190
 6. Inventory
  September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    125,239
    
    
    $
    131,172Work in progress
    
    
    1,954,330
    
    
    
    2,195,834Finished goods
    
    
    657,593
    
    
    
    443,682Total
    
    $
    2,737,162
    
    
    $
    2,770,688
 7. Supplemental Disclosure of Cash Flow Information
  7




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Period fromInceptionNine Months
    
    
    Nine Months
    
    
    (October 6,Ended
    
    
    Ended
    
    
    1995) ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006Cash paid for interest
    
    $
    141,273
    
    
    $
    402,738
    
    
    $
    560,364Supplemental Disclosure of Noncash financing activity:Conversion of notes payable to Series C Preferred Stock
    
    $
    
    
    
    $
    
    
    
    $
    5,000,000Conversion of notes payable to Series D Preferred Stock
    
    $
    
    
    
    $
    
    
    
    $
    5,194,088Dividends and accretion to redeemable convertible
preferred stockholders
    
    $
    
    
    
    $
    4,083,838
    
    
    $
    22,627,219Conversion of Bridge Loans from stockholders to common
stock
    
    $
    
    
    
    $
    4,500,001
    
    
    $
    4,500,001Conversion of Preferred Stock from stockholders to
common stock
    
    $
    
    
    
    $
    76,164,733
    
    
    $
    76,164,733Issuance of options below fair market value
    
    $
    
    
    
    $
    698,540
    
    
    $
    698,540Issuance of warrants in connection with financing
    
    $
    4,173,042
    
    
    $
    2,118,066
    
    
    $
    11,511,541Issuance of common stock into escrow
    
    $
    
    
    
    $
    1,500
    
    
    $
    1,500Cancellation of shares in connection with
Recapitalization
    
    $
    
    
    
    $
    5,077
    
    
    $
    5,077Withholding of stock upon option exercises
    
    $
    
    
    
    $
    49,181
    
    
    $
    49,181Noncash transfer of Rental Assets from Inventory to
Property and Equipment
    
    $
    
    
    
    $
    178,725
    
    
    $
    178,725Exercise of Warrants
    
    $
    3,887
    
    
    $
    
    
    
    $
    2,711
 8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  Risk Factors
  We are going through a period of transition while we search for a chief executive officer and a
chief financial officer and if the interim management structure that we have
established does not stabilize our company, there may be internal disruption and our stock price
and results of operation may decline as a result.
   The maintenance of existing and the establishment of additional relationships with cardiac surgeons
and cardiologists are necessary for us to achieve significant responses.
  9




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Reverse Merger
   Business Overview
    10




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Research and Development
     Critical Accounting Policies
  11




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Revenue Recognition
 Accounts Receivable
 Inventories
 Stock-Based Compensation
 Results of Operations
 Three Months Ended September 30, 2006 versus 2005
 Revenues
  12




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Research and Development
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeProduction
    
    $
    0.8
    
    
    $
    0.7
    
    
    $
    0.1
    
    
    
    14
    %Engineering and
development
    
    
    0.2
    
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    (33
    %)Quality, clinical
and regulatory
    
    
    0.7
    
    
    
    1.2
    
    
    
    (0.5
    )
    
    
    (42
    %)Sales and marketing
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    25
    %Total
    
    $
    2.2
    
    
    $
    2.6
    
    
    $
    (0.4
    )
 
    
    Productionexpenses increased because of a slight increase in purchases of certain
components used in the manufacture of the VAD.
    
    Engineering and developmentexpenses decreased because of a slight decrease in payroll
and benefits.
    
    Quality, clinical, and regulatoryexpenses consist of the expenses associated with
maintaining our quality systems, the costs of our clinical trials, including travel and
fees and expenses of our third-party Clinical Research Organization, or CRO, clinical trial
costs, and the costs associated with dealing with the FDA, as well as other regulatory
agencies around the world. The decrease in expenses was primarily due to termination of our
third-party CRO and a reduction of personnel involved in our clinical/ regulatory
departments in 2006 versus the same period of 2005.
    
    Sales and marketingexpenses increased due to a slight increase in sales and marketing
personnel and participation in additional medical conference and trade shows.
 General and Administrative
  Net Loss
  Nine Months Ended September 30, 2006 versus 2005
 Revenues
  13




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Research and Development
  Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    $
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    ChangeProduction
    
    $
    1.8
    
    
    $
    2.7
    
    
    $
    (0.9
    )
    
    
    (33
    %)Engineering and development
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.0
    
    
    
    Quality, clinical and regulatory
    
    
    1.7
    
    
    
    3.6
    
    
    
    (1.9
    )
    
    
    (53
    %)Sales and marketing
    
    
    1.8
    
    
    
    1.5
    
    
    
    0.3
    
    
    
    20
    %Total
    
    $
    6.2
    
    
    $
    8.7
    
    
    $
    (2.5
    )
 
    
    Productionexpenses declined in connection with lower overall revenues.
    
    Quality, clinical, and regulatoryexpenses decreased primarily due to termination of our
third party CRO and a reduction of personnel involved in our clinical/ regulatory
departments in 2006 versus the same period of 2005.
    
    Sales and marketingexpenses increased due to an increase in deferred compensation costs
for sales and marketing personnel of $0.5 million, partially offset by reduced selling and
marketing expenses of $0.2 million.
 General and Administrative
  Net Loss
  Liquidity and Capital Resources
   14




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Off-Balance Sheet Arrangements
  
 Item 3. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control over financial reporting
  15




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PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.
  
 Item 6. Exhibits
 10.1
    
    Separation Agreement entered into by and between the Company and Travis E. Baugh dated July
28, 2006 (incorporated by reference to the Companys Current Report on Form 8-K dated July 28,
2006)31.1
    
    Certification of the MicroMed Acting Chief Executive Officer pursuant to Section 13a-14 of
the Securities Exchange Act.31.2
    
    Certification of the MicroMed Interim Chief Financial Officer pursuant to Section 13a-14 of
the Securities Exchange Act.32.1
    
    Certification of the MicroMed Acting Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the MicroMed Interim Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 16




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SIGNATURES
  MICROMED CARDIOVASCULAR, INC.By:
    /s/ Clifford zur NiedenName:
    Clifford zur NiedenTitle:
    Acting Chief Executive OfficerBy:
    /s/ Clarice MotterName:
    Clarice MotterTitle:
    Interim Chief Financial Officer  17




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##### Table of Contents



Exhibit Index
 Exhibits
    
    Description of Exhibit10.1
    
    Separation Agreement entered into by and between the Company and Travis E. Baugh dated July
28, 2006 (incorporated by reference to the Companys Current Report on Form 8-K dated July 28,
2006)31.1
    
    Certification of the MicroMed Acting Chief Executive Officer pursuant to Section 13a-14 of
the Securities Exchange Act.31.2
    
    Certification of the MicroMed Interim Chief Financial Officer pursuant to Section 13a-14 of
the Securities Exchange Act.32.1
    
    Certification of the MicroMed Acting Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the MicroMed Interim Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.