U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(mark one)
X Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1996
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 0-16341
ADVANCED MEDICAL PRODUCTS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 16-1284228
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6 WOODCROSS DRIVE, COLUMBIA, SOUTH CAROLINA 21212
(Address of Principal Executive Offices) (Zip Code)
(803) 407-3044
(Issuer's Telephone Number, Including Area Code)
111 RESEARCH DRIVE, COLUMBIA, SOUTH CAROLINA 29203
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,812,495 shares
at November 6, 1996 .
(1)
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
ADVANCED MEDICAL PRODUCTS, INC.
BALANCE SHEET
SEPT. 30, 1996 JUNE 30, 1996
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 66,163 $ 14,631
Accounts Receivable (net of allowance
for doubtful accounts of $17,699 and
$42,046 respectively) 437,838 547,441
Refundable Income Taxes 82,854 82,854
Inventory (Note 2) 872,216 749,770
Other Current Assets (Note 3) 51,092 34,241
Total Current Assets 1,510,163 1,428,937
Furniture and Equipment, Net 335,221 345,993
Product Software Costs, Net 78,682 77,225
Other Assets - Deposits 1,792 1,792
Total Assets $1,925,858 $1,853,947
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loan From Shareholder (Note 5) $ 150,000 $ -0-
Accounts Payable 537,483 561,753
Current Portion Long-Term Debt (Note 6) 30,065 35,637
Accrued Wages and Commissions 106,534 121,014
Obligation - C. Groff (Note 5) 26,213 56,795
Other Current Liabilities (Note 4) 315,727 334,062
Total Current Liabilities 1,166,022 1,109,261
Dividends Payable 77,000 51,000
Long-Term Liabilities:
Long-Term Debt, Net of Current
Portion (Note 6) 87,069 251,107
Total Liabilities 1,330,091 1,411,368
Stockholders' Equity:
Class A Preferred Stock, no par value;
authorized 4,000 shares; issued and
outstanding 2,273 shares (Note 7) 2,185,410 2,026,247
Common Stock, $0.01 par value;
authorized 5,000,000 shares,
4,812,496 shares issued and
outstanding at September 30,
1996 and 4,837,875 at June
30, 1996 48,125 48,379
Subscription Common Stock (Note 7) 102,000 102,000
Additional Paid In Capital 2,330,990 2,356,729
Accumulated Deficit (4,070,758) (4,090,776)
Total Stockholders' Equity 595,767 442,579
Total Liabilities and
Stockholders' Equity $1,925,858 $1,853,947
========= =========
The accompanying notes are an integral part of these financial statements.
(2)
ADVANCED MEDICAL PRODUCTS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
THREE MONTHS ENDED
SEPT. 30, 1996 SEPT. 29, 1995
(unaudited) (unaudited)
Net Sales $ 793,689 $1,312,879
Cost of Sales 301,314 623,855
Gross Profit 492,375 689,024
Selling, General and Administrative 413,477 567,266
Research and Development 55,153 66,429
Interest Expenses 3,727 1,872
Income Before Income Taxes 20,018 53,457
Provision For Income Taxes -0- -0-
Net Income 20,018 53,457
Accumulated Deficit - Beginning of
Period (4,090,776) ( 914,527)
Accretion of Redeemable Preferred
Stock -0- ( 3,241)
Accumulated Deficit - End of Period $(4,070,758) $( 864,311)
========= =========
Net Income (Loss) Applicable to Common
Shares $( 5,982) $ 25,216
========= =========
Earnings Per Share Data:
Net Income (Loss) $( 0.00) $ 0.01
========= =========
Weighted Average Number of Common
Shares Outstanding 4,812,496 2,667,325
The accompanying notes are an integral part of these financial statements.
(3)
ADVANCED MEDICAL PRODUCTS, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
SEPT. 30, 1996 SEPT. 29, 1995
(unaudited) (unaudited)
Cash Flows from Operating Activities:
Net Income $ 20,018 $ 53,457
Adjustments To Reconcile Net Income
To Net Cash Provided (Used) By
Operating Activities:
Depreciation and Amortization 28,925 24,969
Provision for Doubtful Accounts ( 24,347) ( 24,505)
Change in Assets and Liabilities:
Accounts Receivable 133,956 ( 26,062)
Inventory ( 122,446) 134,903
Other Assets ( 16,851) ( 72,190)
Accounts Payable ( 24,270) ( 55,562)
Other Current Liabilities ( 63,397) ( 18,485)
Total Adjustments ( 88,430) ( 36,932)
Net Cash Provided (Used) By Operating
Activities ( 68,412) 16,525
Cash Flows Used By Investing Activities:
Capital Expenditures ( 11,769) ( 22,867)
Capitalization of Software Costs ( 7,840) ( 7,500)
Net Cash Used by Investing Activities ( 19,609) ( 30,367)
Cash Flows Provided (Used) By Financing
Activities:
Proceeds From Loan From Shareholder 150,000 -0-
Payments on Long-Term Debt ( 10,447) ( 14,796)
Net Cash Provided (Used) By Financing
Activities 139,553 ( 14,796)
Net Increase (Decrease) In Cash 51,532 ( 28,638)
Cash, Beginning Of Period 14,631 32,411
Cash, End Of Period $ 66,163 $ 3,773
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,727 $ 1,872
Income Taxes -0- -0-
The accompanying notes are an integral part of these financial statements.
(4)
ADVANCED MEDICAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principals
for interim financial information and with the instructions to Form
10-QSB and Article 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principals for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended
September 30, 1996 are not necessarily indicative of the results that
may be expected for fiscal year 1997. The unaudited condensed
financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended June 30, 1996.
2. Inventory
Inventory consisted of:
SEPT. 30, 1996 JUNE 30, 1996
(unaudited) (audited)
Raw Materials and Work In Process $ 506,089 $ 453,849
Finished Goods 366,127 295,921
$ 872,216 $ 749,770
========= =========
3. Other Current Assets
Prepaid Expenses $ 38,304
Deposits - Current 12,788
$ 51,092
=========
4. Other Current Liabilities
Accrued Royalties $ 48,097
Accrued Vacation Pay 20,153
Deferred Service Contract Revenue 141,783
Warranty Reserve 31,041
Accrued Sales Tax Liability 74,653
$ 315,727
=========
5. Related Party Transactions
On January 12, 1996, Clarence P. Groff, the Company's former largest
stockholder resigned.At that time Mr. Groff entered into a termination
agreement with the Company whereby he agreed to waive his rights
and terminate a prior employment agreement and the Company agreed to
pay Mr. Groff a severance package.
The Balance on this obligation as of September 30, 1996 was $26,213.
Also as part of the agreement, the Company agreed to indemnify Mr.
Groff for actions as an officer, director, employee, and agent of
the Company to the fullest extent permitted under the General
Corporation Law of Delaware.
In Consideration of the above, Mr. Groff agreed to a Confidentiality
and Non-Disclosure; Non-Compete; No Recruiting Covenant.
(5)
5. Related Party Transactions Continued
Carolina Medical, a stockholder of the Company entered into a
Licensing Agreement to utilize, for a fee the technology embodied
in the Company's Micros QV portable hand-held ultrasound product
line for other applications that will not be directly competitive
with the Company's current applications. Royalties will be paid to
the Company by Carolina Medical on any future sales of Carolina
Medical's products utilizing the Micros QV technology.
Effective July 1, 1996, the Company entered into a 90 day loan
agreement with BIOTEL International, the Company's majority
shareholder, under which the Company borrowed $150,000 at 12
percent annual rate of interest. This note, originally set to
mature September 30, 1996 was extended to December 31, 1996.
6. Long-Term Debt
On March 2, 1996, the Company restructured eight operating leases and
its short-term note with Onbank of Syracuse, New York into one long-
term note. The note will be repaid in 48 monthly installments of
$2,000, accrued interest at 11 percent, and is secured by furniture,
fixtures, and equipment. The balance as of September 30, 1996 was
$70,089.
On June 1, 1996, the Company restructured five operating leases with
Syracuse Supply Company of Syracuse, New York into one short-term
note. The note will be repaid in 12 monthly installments of $913,
accrued interest at 11 percent and is secured by equipment, furniture
and fixtures. The balance as of September 30, 1996 was $6,065.
7. Capital Stock Transactions
On August 29, 1996, the Company was released from a fifteen year lease
with SCANA, the Company's landlord. SCANA received 160 shares of the
Company's Class A Preferred Stock as payment in full of the delinquent
lease payments of approximately $160,000.
Nishimoto Sangyo, one of the Company's preferred stockholder, entered
into an agreement to convert $102,000 of their accrued dividend and
interest into 300,000 shares of common stock at $0.34 per share as of
March 31, 1996 to be issued by December 31, 1996. If the shares are
not issued by December 31, 1996, the Company is obligated to repay in
full the $100,000 dividend that remains unpaid and interest thereon
at 10 percent.
8. Subsequent Events
On October 21, 1996, the Company entered into an asset based credit
agreement with Emergent Financial Corporation of Atlanta, Georgia.
Under this agreement the Company may borrow 80 percent of eligible
accounts receivable (as defined in the agreement) and 30 percent of
eligible inventory (as defined in the agreement) up to a total loan
balance of $750,000 at an annual percentage rate of Prime plus 2%
as defined by NationsBank of Georgia, N.A. and monthly fees as a
percentage of the balance outstanding as follows: .75% of the average
daily balance for the first 60 days, .50% for the next 60 days, and
.375% thereafter. This sliding fee scale is contingent upon certain
performances as defined in the agreement.
(6)
9. Earnings Per Share
Earnings per common share were computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Earnings per share did not include the impact of outstanding
options since it was not significant.
(7)
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales of $793,689 for the three months ended September 30,1996
represent a 40% decrease from sales of $1,312,879 in the comparable quarter
in 1995. This decrease is due principally to lower sales to existing OEM/
International customers, as well as, the delay in the completion of Windows
based software. Current efforts to expand the OEM/International sales are
in process and the Windows based software has been released. It is
expected that these will result in increased future sales.
The Company's gross profit margin increased from 58% of net sales in the
comparable quarter of fiscal 1996 to 62% of net sales for the three months
ended September 30, 1996. This increase is a result of a change to a
standard cost system and efforts to reduce cost of sales.
Selling, general and administrative expenses of $413,477 for the three
months ended September 30, 1996 were 52% of net sales for the period
compared to expenses of $567,266 or 43% of net sales for the same period
last year. Even though these expenses are a higher percentage of net sales
over the comparable quarter, actual expenses were 27% less than they were
in the first quarter of fiscal 1995. This is due to lower commissions and
efforts to cut and control costs company wide.
Research and development costs during the first quarter of fiscal 1997
decreased 17% from last year. This is a result of efforts to decrease
expenses company wide.
Net income for the quarter ended September 30, 1996 was $20,018 down from
$53,457 for the same period last year. The net income for the first
quarter of fiscal 1997 is primarily a result of the increase in gross
margin and decrease in operating expenses. The decrease in net income
compared to the first quarter last year was primarily due to the
substantially lower OEM/International sales.
During the first three months of fiscal 1997, accounts receivable decreased
from $547,441 to $437,838. Inventory increased from $749,770 to $872,216,
primarily due to materials purchased for the new Micros QV product line.
LIQUIDITY AND CAPITAL RESERVES
Operating activities used $68,412 of cash during the quarter ended
September 30, 1996 compared with $16,525 provided during the quarter eended
September 30, 1995. In the first quarter of fiscal 1997, $19,609 was used
for capital expenditures, compared to $30,367 for the same period last
year.
On March 12, 1996 the Company restructured 8 of it's operating leases, as
well as, a long-term unsecured note with a Syracuse, New York bank into one
long-term note. On June 1, 1996 the Company restructured 5 of it's
operating leases with a Syracuse, New York leasing company into a twelve
month note (See Note 6 to the financial statements). The past due lease
payments on these two notes totaling approximately $100,500 were forgiven
and recorded in the Company's audited June 30, 1996 financial statements as
an extraordinary item in accordance with generally accepted accounting
principals.
(8)
On July 1, 1996, BIOTEL International, a shareholder of the Company
provided the Company with a short-term credit facility of $150,000 (See
Note 5 to the financial statements).
On August 29,1996, the Company was released from a fifteen year lease, as
of October 31, 1996, with SCANA, the Company's landlord. The annual lease
payments on the Company's principal place of business under this lease were
$156,100 and were scheduled to escalate over the remaining term of the
lease representing a future long-term lease liability of $1,676,272.
SCANA received 160 shares of the Company's Class A Preferred Stock (See
Note 7 to the financial statements) as payment in full of the delinquent
lease payments of approximately $160,000. At that same time the Company
entered into a five-year lease agreement including an option to purchase
with T & L A Partnership to commence November 1, 1996. The annual lease
payments total approximately $89,000 (an annual savings of approximately
$67,000) and represent a future long-term liability of approximately
$355,000.
Subsequent to quarter end, the Company was released from a factoring
agreement with Global Acceptance Corporation of Ann Arbor, Michigan
and entered into an asset based credit agreement with Emergent Financial
Corporation of Atlanta, Georgia (See Note 8 to the financial statements).
The Company believes that internally generated funds and existing borrowing
resources should provide sufficient working capital to meet present
commitments. However, in order to improve its cash flow position, the
Company has undertaken steps internally to improve gross margins and fixed
costs.
The Company currently does not have specific plans for major capital
expenditures in fiscal 1997. Should needs arise, the Company may consider
additional capital sources to obtain funding.
(9)
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K have been filed
during the quarter for which this report is filed.
(10)
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
ADVANCED MEDICAL PRODUCTS, INC.
(REGISTRANT)
BY:S/ RONALD G. MOYER
RONALD G. MOYER
PRESIDENT
DATED: NOVEMBER 6, 1996
(11)
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
ADVANCED MEDICAL PRODUCTS, INC.
(REGISTRANT)
BY:
RONALD G. MOYER
PRESIDENT
DATED: NOVEMBER 6, 1996
(12)
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2,185,410
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