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 March 31, 1996
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act
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 29212
(Address of Principal Executive Offices) (Zip Code)
(803) 407-3044
Issuer's Telephone Number, Including Area Code
(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: 5,112,495 shares at
May 6, 1997.
(1)
ADVANCED MEDICAL PRODUCTS INC.
BALANCE SHEET
Mar. 31, 1997 June 30, 1996
(unaudited) (audited)
ASSETS
Current Assets:
Cash $ 59,340 $ 14,631
Accounts receivable
(net of allowance for doubtful
accounts of $62,737 and
$42,046 respectively) 403,546 547,441
Refundable income taxes 9,914 82,854
Inventory (Note 2) 730,995 749,770
Other current assets (Note 3) 42,817 34,241
Total current assets 1,246,612 1,428,937
Furniture and equipment, net 319,320 345,993
Product software costs, net 97,143 77,225
Other Assets - Deposits 8,512 1,792
Total Assets $1,671,587 $1,853,947
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit Line Payable (Note 6) $ 229,354 $ -0-
Current Portion Long-Term Debt (Note 6) 24,000 35,637
Accounts payable 628,195 561,753
Accrued wages and commissions 125,530 121,014
Obligation - C. Groff (Note 5) -0- 56,795
Loan From Shareholder (Note 5) 103,000 -0-
Other current liabilities (Note 4) 227,359 334,062
Total current liabilities 1,337,438 1,109,261
Dividends Payable 32,147 51,000
Long-Term Liabilities
Long-term debt, net of current (Note 6) 53,333 251,107
Total long-term liabilities 53,333 251,107
Total liabilities 1,422,918 1,411,368
Stockholders' equity:
Class A preferred stock, no par value; authorized
4,000 shares; issued & outstanding 2,000
shares at June 30, 1996 and 2,377 shares
at March 31, 1997 (Note 7) 2,289,410 2,026,247
Common stock, $.01 par value; authorized
7,000,000 shares, 5,112,495 shares issued
& outstanding at March 31, 1997 & authorized
5,000,000 shares, 4,837,875 issued &
outstanding at June 30, 1996(note 7) 51,125 48,379
Subscription common stock (Note 7) -0- 102,000
Additional paid in capital 2,370,628 2,356,729
Accumulated deficit (4,462,494) (4,090,776)
Total stockholders' equity 248,669 442,579
Total liabilities & stockholders' equity $ 1,671,587 $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
Nine Months Ended
Mar. 31, 1997 Mar. 31 , 1996
(unaudited) (unaudited)
Net sales $2,165,840 $3,259,307
Cost of sales 1,094,840 1,746,985
Gross profit 1,071,000 1,512,322
Selling, general and
administrative 1,248,727 1,907,488
Research and development 160,950 248,128
Total operating expenses 1,409,677 2,155,616
Total operating income ( 338,677) ( 643,294)
Interest expenses 33,041 19,816
Income (loss) before income taxes ( 371,718) ( 663,110)
Provision for income taxes 0 0
Net income (loss) ( 371,718) ( 663,110)
Retained deficit - beginning of period (4,090,776) (3,040,635)
Accretion of redeemable preferred
stock -0- ( 9,723)
Accumulated deficit - end of period $(4,462,494) $(3,713,468)
========== ==========
Net income (loss) applicable to
common shares $( 456,256) $( 747,833)
========== ==========
Earnings per common share data:
Net income (loss) $ (.09) (.22)
========== ==========
Weighted average number of common
shares outstanding 4,912,130 3,376,018
The accompanying notes are an integral part of these financial statements.
(3)
ADVANCED MEDICAL PRODUCTS INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Three Months Ended
Mar. 31, 1997 Mar. 31, 1996
(unaudited) (unaudited)
Net sales $ 656,997 $ 873,571
Cost of sales 336,505 487,139
Gross profit 320,492 386,432
Selling, general and
administrative 343,366 582,656
Research and development 41,458 51,285
Total operating expense 384,824 633,941
Income (Loss) from operations ( 64,332) ( 247,509)
Interest expenses 15,675 16,489
Income (loss) before income taxes ( 80,007) ( 263,998)
Provision for income taxes 0 0
Net income (loss) ( 80,007) ( 263,998)
Retained deficit - beginning of period (4,382,487) (3,446,229)
Accretion of redeemable preferred
stock -0- ( 3,241)
Accumulated deficit - end of period $(4,462,494) $(3,713,468)
========== ==========
Net income (loss) applicable to
common shares $( 109,720) $( 292,239)
========== ==========
Earnings per common share data:
Net income (loss) $ (.02) (.08)
========== ==========
Weighted average number of common
shares outstanding 5,112,495 3,376,018
The accompanying notes are an integral part of these financial statements.
(4)
ADVANCED MEDICAL PRODUCTS INC.
STATEMENT OF CASH FLOWS
Nine Months Ended
Mar. 31, 1997 Mar. 31, 1996
(unaudited) (unaudited)
Cash Flows Used By Operating Activities:
Net Loss $( 371,718) $( 663,110)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 93,491 73,381
Bad Debt Expense -0- 9,892
Loss on disposal of fixed assets 7,813 -0-
Provision for doubtful accounts 20,691 ( 38,049)
Gain on refinancing long-term debt -0- ( 1,037)
Change in assets and liabilities:
Accounts receivable 123,204 ( 53,950)
Inventory 18,775 162,287
Other assets 57,644 88,186
Accounts payable 66,442 ( 82,860)
Other liabilities ( 158,982) 223,818
Total adjustments 229,078 393,294
Net cash used by operating activities ( 142,640) (269,816)
Cash flows used by investing activities:
Capital expenditures ( 54,722) ( 42,016)
Proceeds from sale of equipment 1,500 -0-
Capitalization of software costs ( 41,365) ( 3,880)
Net cash used by investing activities ( 94,587) ( 45,896)
Cash flow used by financing activities:
Payments on long-term debt ( 38,616) ( 20,780)
Proceeds from sale of common stock -0- 430,000
Proceeds from (payments of)loan from
stockholder 100,000 ( 9,375)
Proceeds from credit line 220,552 -0-
Net cash provided (used) by financing
activities 281,936 399,845
Net (decrease) increase in cash and
cash equivalents 44,709 84,133
Cash and cash equivalents at
beginning of period 14,631 32,111
Cash and cash equivalents at
end of period $ 59,340 $ 116,244
========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 33,041 $ 19,816
Income taxes 0 0
The accompanying notes are an integral part of these financial statements.
(5)
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 principles 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 principles 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
nine month period ended March 31, 1997 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:
Mar. 31, 1997 June 30, 1996
(unaudited) (audited)
Raw Material and
work in process $ 447,135 $ 453,849
Finished Goods 283,860 295,921
$ 730,995 $ 749,770
========== ==========
3. Other Current Assets
Prepaid Expenses $ 37,855
Deposits - Current 4,962
$ 42,817
=======
4. Other Current Liabilities
Accrued Royalties $ 49,557
Accrued Vacation Pay 12,404
Obligation - Keshler 6,000
Deferred Service Contract Revenue 113,657
Warranty Reserve 25,294
Accrued Sales Tax Liability 18,658
Note Payable Syracuse Supply 1,789
$227,359
=======
(6)
5. Related Party Transactions
On January 12, 1996, Clarence P. Groff, the Company's former largest
stockholder resigned from all positions with the Company. At that time
Mr. Groff entered into a termination arrangement 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.
This obligation was paid in full December 31, 1996.
Also as part 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.
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 largest shareholder, under
which the Company borrowed $150,000 at 12 percent annual rate of
interest. This note was originally set to mature September 30, 1996.
The Company repaid $50,000 against this note December 31, 1996 and
$100,000 was converted into a long-term note due December 31, 1997. The
balance on this note as of March 31, 1997, including interest due, was
$103,000.
6. Notes Payable
On March 12, 1996 the Company restructured eight operating leases and
it's 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, accrues interest at 11 percent, and is secured by furniture,
fixtures and equipment. The balance on this note at March 31, 1997 was
$58,339.
On July 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, accrues interest at 11 percent and is secured by equipment,
furniture and fixtures. The balance as of March 31, 1997 was $1,789.
(7)
6. Notes Payable - Continued
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
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. The balance on this credit
line at March 31, 1997 was $229,354.
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 stockholders
converted $102,000 of their dividend and interest into 300,000
shares of common stock at $0.34 per share and $104,000 of their
December 31, 1996 dividend into 104 shares of $1,000 face value
preferred stock at December 31, 1996.
8. Earnings Per Share
Earnings per common share were computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the
period. Earnings per share did not include the impact of the
outstanding options since it was not significant.
(8)
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales of $2,165,840 for the nine months ended March 31, 1997 represent a
34% decrease from sales of $3,259,307 in the comparable nine month period
ended March 31, 1996. Net sales of $656,997 for the third quarter of fiscal
1997 represents a 25% decrease in sales from the comparable quarter in 1996.
This decrease is resulted from lower sales to existing OEM/International
customers, particularly Nishimoto Sangyo, due principally to the delay in the
completion of Windows based software. Current efforts to expand the
OEM/International sales are in process and the first marketable version of
the Windows based software has been released. It is expected that these will
result in increased future sales.
For the nine months ended March 31, 1997 the Company's gross profit margin
increased to 49% from 46% of net sales for the period ended March 31, 1996.
The gross profit margin increased to 48% of net sales in the third quarter of
fiscal 1997 from 44% of net sales in the third quarter of fiscal 1996. These
increases are primarily due to efforts to reduce sales discounts and
manufacturing costs.
Selling, general and administrative expenses of $1,248,727 for the nine
months ended March 31, 1997 were 57% of net sales for the period as compared
to expenses of $1,907,488 or 58% of net sales for the same period last year.
These expenses decreased from 66% of net sales in the third quarter of fiscal
1996 to 52% of net sales in the third quarter of fiscal 1997. These expenses
were still a high percentage of sales, but actual expenses were reduced by
35% and 58% from what they were in the first nine months and third quarter of
fiscal 1996 respectively. This is due to lower commissions and efforts to
cut and control fixed costs company wide. The fiscal 1997 figure also
includes $39,362 in write-offs of obsolete sales demonstration equipment
inventory and $21,379 in uncapitalizable moving expenses incurred to move the
business to substantially lower cost facilities. Not including these one
time costs, the comparable selling, general and administrative expenses would
have been 55% of net sales in the nine months ended March 31, 1997.
Research and development costs during the nine months of ended March 31, 1997
decreased 36% over the comparable period in fiscal 1996. During the third
quarter of fiscal 1997, research and development costs decreased 25% from the
third quarter last year. This is a result of efforts to decrease expenses
company wide and was able to be done because of the current stage of
completion of the development of the Company's Micros QV product.
Net loss for the nine months ended March 31, 1997 decreased to $(371,718)
from $(663,110) in the nine months ended March 31, 1996. For the quarter
ended March 31, 1997 the net loss decreased to $(80,007) from $(263,998) for
the same period last year. The net losses for the first nine months and the
third quarter of fiscal 1997 primarily resulted from high fixed operations
(9)
overhead, selling, general and administrative expenses for the lower level of
sales achieved, much lower international sales (which have very low selling
expense and are
therefore more profitable than domestic sales), the differences in gross
margin as explained above, write-offs of obsolete inventory, and expenses
incurred in November 1996 to relocate the company to a new lower cost
facility. The decrease in net loss compared to the first nine months and
third quarter of last year despite the lower sales levels was primarily the
result of lower expenses company wide.
During the first nine months of fiscal 1997, accounts receivable decreased
from $547,441 to $403,546. This decrease is the result of lower sales
levels. Total inventory remained about the same at $730,995; inventory
write-offs and reduction in holter monitor inventory were offset by a buildup
in inventory of nearly $125,000 for the new Micros QV product.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used $142,640 of cash during the nine months ended March
31, 1997 compared with $269,816 used during the first nine months of fiscal
1996. The decrease is due primarily to smaller losses, collections of
accounts receivable and refundable income taxes. In the first nine months of
fiscal 1997, $94,587 was used for capital expenditures, compared to $45,896
for the same period last year. This increase is primarily due to leasehold
improvements of the Company's new facility and capitalized software costs for
the Company's Windows based software.
On March 12, 1996 the Company restructured eight (8) of it's operating leases
as well as a long-term unsecured note with a Syracuse, New York bank. On
June 1, 1996 the Company restructured five (5) operating leases with Syracuse
Supply Company of Syracuse, New York 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.
On July 1, 1996, BIOTEL International, a shareholder of the Company provided
the Company with a credit facility of up to $150,000 (see Note 5 to the
financial statements). The Company currently has available $50,000 on this
credit facility which is secured by accounts receivable and inventory in a
second position after Emergent Financial Corporation as a result of a
February 1997 agreement.
During the first nine months of fiscal 1997 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 6 to the financial statements).
As of October 31, 1996, the Company was released from a fifteen year lease
with SCANA that represented a future long-term lease liability of $1,676,272.
The annual lease payments on the Company's principal place of business under
(10)
this lease were $156,100 and were scheduled to escalate over the remaining
term of the lease. 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. The Company
entered into a five year lease agreement including an option to purchase with
T & LA Partnership which commenced November 1, 1996. These annual lease
payments total approximately $89,000 (an annual savings of approximately
$67,000) and represent a future long-term lease liability of approximately
$355,000, down from $1,676,272.
In January 1997, the Company further downsized resulting in an approximate
annual savings in salaries, wages, and benefits of $336,000. Management
believes that these cuts will bring costs in line with revenues. Now that
Phase I of "Windows" software has been released, and the Micros QV product is
available for sale, the Company expects to see some recovery from the decline
in sales, both domestically and internationally. Higher sales, particularly
more profitable international sales, coupled with lower fixed costs should
enable the Company to operate profitably.
The Company believes that internally generated funds and existing credit
facilities may not provide sufficient working capital to meet present and
future commitments. In order to improve its cash flow position, the Company
has undertaken steps internally to further improve gross margins and reduce
fixed costs. In addition, the Company is actively seeking additional
financing through a private placement sale of its securities.
The Company does not currently have specific plans for major capital
expenditures in fiscal 1997. Should needs arise, the Company may consider
additional capital sources to obtain funding.
(11)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No exhibits were filed during the quarter
for which this report is filed.
(12)
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: May 6, 1997
(13)
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: May 6, 1997
(14)
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<PERIOD-END> MAR-31-1997
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<RECEIVABLES> 466,289
<ALLOWANCES> 62,737
<INVENTORY> 730,995
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<DEPRECIATION> 767,218
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2,289,410
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