##### 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, 2005
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
 Commission file number: 000-51487
 
 MICROMED CARDIOVASCULAR, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    98-0228169
(I.R.S. Employer
Identification No.)
 8965 Interchange Drive
Houston, Texas 77054
 (713) 838-9210
  þ o
 o þ
  Common Stock, par value $0.001 per share
    
    Outstanding as of October 31, 2005
20,111,382
 o þ




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MICROMED CARDIOVASCULAR, INC
 INDEX
 Page No.PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Balance Sheets as of December 31, 2004 and September 30, 2005
    
    
    1Statements of Operations for the three and nine months ended September 30, 2004 and 2005
    
    
    2Statements of Cash Flows for the nine months ended September 30, 2004 and 2005
    
    
    3Notes to Unaudited Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Controls and Procedures
    
    
    18PART II. OTHER INFORMATION
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Certification of CEO and PFO pursuant to Section 302Certification of CEO and PFO pursuant to Section 906
  i




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MICROMED CARDIOVASCULAR, INC.
(A Development Stage Company)
 
 BALANCE SHEETS
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,944,954
    
    
    $
    687,162Accounts receivable
    
    
    746,833
    
    
    
    1,616,283Inventory
    
    
    2,949,280
    
    
    
    3,229,863Prepaids and other assets
    
    
    514,135
    
    
    
    221,897Total current assets
    
    
    6,155,202
    
    
    
    5,755,205Property and equipment, net
    
    
    600,471
    
    
    
    572,198Other assets
    
    
    60,622
    
    
    
    40,078Total assets
    
    $
    6,816,295
    
    
    $
    6,367,481LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    2,196,800
    
    
    $
    1,267,572Accrued liabilities
    
    
    809,410
    
    
    
    1,016,740Current portion of long-term debt
    
    
    927,945
    
    
    
    927,945Note payable
    
    
    736,404
    
    
    
    1,177,472Bridge loans from stockholders
    
    
    
    
    
    
    1,000,000Total current liabilities
    
    
    4,670,559
    
    
    
    5,389,729Long-term debt
    
    
    739,621
    
    
    
    1,234,070Redeemable convertible preferred stock:Series A Preferred stock, $.001 par value, 0 and
1,000,000 shares authorized, issued and outstanding
    
    
    
    
    
    
    6,201,682Series B Preferred stock, $.001 par value, 0 and
2,000,000 shares authorized, issued and outstanding
    
    
    
    
    
    
    12,668,718Series C Preferred stock, $.001 par value, 0 and
3,700,000 shares authorized, 0 and 3,518,153 shares
issued and outstanding
    
    
    
    
    
    
    25,052,402Series D Preferred stock, $.001 par value, 0 and
5,000,000 shares authorized, 0 and 4,593,011 shares
issued and outstanding
    
    
    
    
    
    
    28,158,092Commitments and ContingenciesStockholders Equity (Deficit):Common Stock, $.001 par value, 100,000,000
shares authorized, 20,148,339 issued and
18,611,361 shares outstanding at September
30, 2005; 65,000,000 shares authorized,
14,460,069 issued and outstanding at
December 31, 2004
    
    
    20,111
    
    
    
    5,093Additional paid-in capital
    
    
    85,771,262
    
    
    
    Common stock in escrow, 1,500,000 shares
    
    
    (1,500
    )
    
    
    Deferred compensation
    
    
    (509,644
    )
    
    
    Deficit accumulated during development stage
    
    
    (83,874,114
    )
    
    
    (72,342,305
    )Total stockholders equity (deficit)
    
    
    1,406,115
    
    
    
    (72,337,212
    )Total liabilities and stockholders equity (deficit)
    
    $
    6,816,295
    
    
    $
    6,367,481
  1




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MICROMED CARDIOVASCULAR, INC.
(A Development Stage Company)
 
 STATEMENT OF OPERATIONS
 (Unaudited)
 Period fromInception(October 6, 1995)Three Months Ended
    
    
    Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)Revenues:International product sales
    
    $
    466,652
    
    
    $
    145,532
    
    
    $
    1,458,629
    
    
    $
    1,130,839
    
    
    $
    7,407,713Clinical reimbursements
    
    
    519,255
    
    
    
    814,072
    
    
    
    2,982,616
    
    
    
    3,157,974
    
    
    
    15,660,917Total Revenue
    
    
    985,907
    
    
    
    959,604
    
    
    
    4,441,245
    
    
    
    4,288,813
    
    
    
    23,068,630Expenses:Research and development, including
stock-based compensation of $128,879, $0,
$128,879, $0, and $128,879, respectively
    
    
    2,593,027
    
    
    
    2,775,773
    
    
    
    8,742,881
    
    
    
    9,184,885
    
    
    
    66,941,847General and administrative, including
stock-based compensation of $60,428, $0,
$60,428, $0, and $60,428, respectively
    
    
    952,049
    
    
    
    760,888
    
    
    
    2,703,311
    
    
    
    1,866,248
    
    
    
    18,674,710Total operating expenses
    
    
    3,545,076
    
    
    
    3,536,661
    
    
    
    11,446,192
    
    
    
    11,051,133
    
    
    
    85,616,557Loss from operations
    
    
    (2,559,169
    )
    
    
    (2,577,057
    )
    
    
    (7,004,947
    )
    
    
    (6,762,320
    )
    
    
    (62,547,927
    )Interest and other income (expenses)
    
    
    (9,203
    )
    
    
    10,473
    
    
    
    (27,728
    )
    
    
    35,823
    
    
    
    1,568,560Interest expense
    
    
    (122,227
    )
    
    
    (77,728
    )
    
    
    (420,377
    )
    
    
    (112,215
    )
    
    
    (1,026,310
    )Net loss
    
    
    (2,690,599
    )
    
    
    (2,644,312
    )
    
    
    (7,453,052
    )
    
    
    (6,838,712
    )
    
    
    (62,005,678
    )Convertible preferred stock dividends and accretion
    
    
    (1,445,641
    )
    
    
    (1,334,098
    )
    
    
    (4,083,838
    )
    
    
    (3,982,294
    )
    
    
    (22,627,219
    )Net loss available to common stockholders
    
    $
    (4,136,240
    )
    
    $
    (3,978,410
    )
    
    $
    (11,536,890
    )
    
    $
    (10,821,006
    )
    
    $
    (84,632,897
    )Basic and diluted net loss per share available to
common stockholders
    
    $
    (0.25
    )
    
    $
    (0.28
    )
    
    $
    (0.76
    )
    
    $
    (0.75
    )Weighted average common shares outstanding
    
    
    16,761,329
    
    
    
    14,460,069
    
    
    
    15,200,175
    
    
    
    14,412,769
  2




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MICROMED CARDIOVASCULAR, INC.
(A Development Stage Company)
 
 STATEMENT OF CASH FLOWS
 (Unaudited)
 Period fromInception(October6, 1995)Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005(Restated)Cash flows from operating activities:Net loss
    
    $
    (7,453,052
    )
    
    $
    (6,838,712
    )
    
    $
    (62,005,677
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    202,726
    
    
    
    260,665
    
    
    
    2,529,765Conversion of accrued interest on Series C
Preferred Stock
    
    
    
    
    
    
    
    
    
    
    95,778Conversion of accrued interest on Series D
Preferred Stock
    
    
    
    
    
    
    
    
    
    
    251,088Services contributed by stockholders
    
    
    
    
    
    
    
    
    
    
    300,050Issuance of warrants/options to non-employees
    
    
    11,423
    
    
    
    
    
    
    
    64,773Amortization of deferred compensation
    
    
    189,296
    
    
    
    
    
    
    
    319,746Amortization of warrants
    
    
    27,913
    
    
    
    
    
    
    
    27,913Loss on disposal of fixed assets
    
    
    5,489
    
    
    
    
    
    
    
    7,287Changes in assets and liabilities:Accounts receivable
    
    
    869,450
    
    
    
    554,986
    
    
    
    (746,833
    )Inventory
    
    
    101,859
    
    
    
    (1,311,457
    )
    
    
    (3,128,004
    )Prepaids and other assets
    
    
    (340,695
    )
    
    
    (113,963
    )
    
    
    (662,683
    )Accounts payable and accrued liabilities
    
    
    672,719
    
    
    
    186,211
    
    
    
    3,000,174Net cash used in operating activities
    
    
    (5,712,872
    )
    
    
    (7,262,270
    )
    
    
    (59,946,624
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (57,764
    )
    
    
    (302,458
    )
    
    
    (2,898,787
    )Net cash used in investing activities
    
    
    (57,764
    )
    
    
    (302,458
    )
    
    
    (2,898,787
    )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
    
    
    4,090,879
    
    
    
    2,841,710
    
    
    
    8,306,294Repayments of notes payable
    
    
    (5,026,396
    )
    
    
    (440,778
    )
    
    
    (5,945,466
    )Proceeds from issuance of warrants and preferred stock,
net of offering cost
    
    
    
    
    
    
    
    
    
    
    43,397,713Proceeds from issuance of common stock and cash
contributed by stockholders
    
    
    4,462,932
    
    
    
    
    
    
    
    4,462,932Proceeds from exercise of stock options and issuance of
common stock and cash contributed by stockholders
    
    
    1,012
    
    
    
    
    
    
    
    125,891Net cash provided by financing activities
    
    
    7,028,428
    
    
    
    2,400,932
    
    
    
    64,790,365
 3




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Period fromInception(October6, 1995)Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005(Restated)Change in cash and cash equivalents
    
    
    1,257,792
    
    
    
    (5,163,796
    )
    
    
    1,944,954Beginning cash and cash equivalents
    
    
    687,162
    
    
    
    6,603,129
    
    
    
    Ending cash and cash equivalents
    
    $
    1,944,954
    
    
    $
    1,439,333
    
    
    $
    1,944,954Supplemental Disclosure of Cash Flow InformationCash paid for interest
    
    $
    252,337
    
    
    $
    112,214
    
    
    $
    419,091Supplemental 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
    
    
    $
    3,982,294
    
    
    $
    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
    
    $
    2,118,066
    
    
    $
    
    
    
    $
    855,717Issuance 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
    
    
    $
    
    
    
    $
    49,181
  4




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MICROMED CARDIOVASCULAR, INC.
 
 NOTES TO UNAUDITED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of Presentation
      2. Reverse Merger and Financing
 Completion of Merger
   Principal Terms of the Merger
  5




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The Private Placement
  3. Restatement
  6




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##### Table of Contents



September 30,As Reported
    
    
    Adjustments
    
    
    2004 RestatedLoss from operations
    
    $
    (6,762,320
    )
    
    $
    
    
    
    $
    (6,762,320
    )Interest income
    
    
    35,823
    
    
    
    
    
    
    
    35,823Interest expense
    
    
    (4,094,509
    )
    
    
    4,094,509
    
    
    
    (112,215
    )Net loss
    
    
    (10,821,006
    )
    
    
    4,094,509
    
    
    
    (6,838,712
    )Convertible preferred stock dividends
    
    
    
    
    
    
    (4,094,509
    )
    
    
    (3,982,294
    )Net loss available to common stockholders
    
    $
    (10,821,006
    )
    
    $
    
    
    
    $
    (10,821,006
    )
 4. Net Loss Per Share
  5. Warrant
 Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.
 6. Stock-Based Compensation
    7




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Three Months Ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss available to common stockholders
    
    $
    (4,136,240
    )
    
    $
    (3,978,410
    )
    
    $
    (11,536,890
    )
    
    $
    (10,821,006
    )Add: total compensation expense for options
determined under the intrinsic value based method
for all awards
    
    
    189,296
    
    
    
    
    
    
    
    189,296
    
    
    
    Deduct: total compensation expense for options
determined under fair value based methods for all
awards
    
    
    (102,579
    )
    
    
    (35,323
    )
    
    
    (179,259
    )
    
    
    (112,738
    )Pro forma net loss available to common stockholders
    
    $
    (4,049,523
    )
    
    $
    (4,013,733
    )
    
    $
    (11,526,853
    )
    
    $
    (10,933,744
    )Basic and diluted net loss per share available to
common stockholders
    
    $
    (0.25
    )
    
    $
    (0.28
    )
    
    $
    (0.76
    )
    
    $
    (0.75
    )Pro forma basic and diluted net loss per share
available to common stockholders
    
    $
    (0.24
    )
    
    $
    (0.28
    )
    
    $
    (0.76
    )
    
    $
    (0.76
    )
 7. Subsequent Event
  8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Recent Events
 Completion of Merger
   Principal Terms of the Merger
   9




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The Private Placement
   Overview
      10




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11




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##### Table of Contents



Research and Development
      Critical Accounting Policies
  Revenue Recognition
 Accounts Receivable
 12




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##### Table of Contents



Inventories
 Stock-Based Compensation
 Recent Accounting Pronouncements
   Results of Operations
 Three Months Ended September 30, 2005 and 2004
 Revenues
  Research and Development
  13




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Three Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,
    
    
    $
    
    
    %2005
    
    
    2004
    
    
    Change
    
    
    ChangeProduction
    
    $
    0.7
    
    
    $
    0.7
    
    
    $
    0.0
    
    
    
    0
    %Engineering and development
    
    
    0.3
    
    
    
    0.8
    
    
    
    (0.5
    )
    
    
    (63
    %)Quality, clinical and regulatory
    
    
    1.2
    
    
    
    0.9
    
    
    
    0.3
    
    
    
    33
    %Sales and marketing
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.0
    
    
    
    0
    %Total
    
    $
    2.6
    
    
    $
    2.8
 
    
    Engineering and development costs decreased due to a reduction in engineering projects
in 2005 to conserve cash while the Company attempts to secure additional funding.
    
    Quality, clinical, and regulatory expenses 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, and clinical
trial monitoring costs, and the costs associated with dealing with the FDA, as well as
other regulatory agencies around the world. The increase was due to expanded clinical trial
activity in the U.S., particularly fees and expenses related to our CRO.
 General and Administrative
  Interest Expense
  Net Loss and Net Loss Per Share Available to Common Stockholders
  Nine Months Ended September 30, 2005 and 2004
 Revenues
  Research and Development
  14




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Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    $
    
    
    %2005
    
    
    2004
    
    
    Change
    
    
    ChangeProduction
    
    $
    2.7
    
    
    $
    2.8
    
    
    $
    (0.1
    )
    
    
    (4
    %)Engineering and development
    
    
    0.9
    
    
    
    1.4
    
    
    
    (0.5
    )
    
    
    (36
    %)Quality, clinical and regulatory
    
    
    3.6
    
    
    
    3.6
    
    
    
    0.0
    
    
    
    0
    %Sales and marketing
    
    
    1.5
    
    
    
    1.4
    
    
    
    0.1
    
    
    
    7
    %Total
    
    $
    8.7
    
    
    $
    9.2
 
    
    Engineering and development costs decreased due to a reduction in engineering projects
in 2005 to conserve cash while the Company attempts to secure additional funding.
 General and Administrative
  Interest Expense
  Net Loss and Net Loss Per Share Available to Common Stockholders
  Liquidity and Capital Resources
      15




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16




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Off-Balance Sheet Arrangements
  Forward-Looking Statements
   
    
    Completion of our clinical trials;
    
    Limited sources of liquidity;
    
    MicroMeds ability to obtain additional debt or equity financing;
    
    MicroMeds history of operating losses;
    
    Market acceptance of the DeBakey VAD;
    
    The uncertainty of FDA and other government regulatory requirements may
have a material adverse effect on our ability to commercialize the DeBakey VAD;
    
    The degree and nature of our competition; and
    
    The limited trading market for our common stock.
  17




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Item 3. Controls and Procedures
   18




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
    
 Item 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer and Principal Financial Officer of MicroMed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification of the Chief Executive Officer and the Principal Financial Officer of
MicroMed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 19




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SIGNATURES
  MICROMED CARDIOVASCULAR, INC.By:
    /s/ Travis E. BaughName:
    Travis E. BaughTitle:
    President and Chief Executive Officer  20




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Index to Exhibits
 31.1
    
    Certification of Chief Executive Officer and Principal Financial Officer of MicroMed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification of the Chief Executive Officer and the Principal Financial Officer of
MicroMed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 21