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 DECEMBER 31, 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 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 at
January 31, 1997.
(1)
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
ADVANCED MEDICAL PRODUCTS, INC.
BALANCE SHEET
DEC. 31, 1996 JUNE 30, 1996
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 19,204 $ 14,631
Accounts Receivable (net of allowance
for doubtful accounts of $21,421 and
$42,046 respectively) 520,578 547,441
Refundable Income Taxes 23,914 82,854
Inventory (Note 2) 751,669 749,770
Other Current Assets (Note 3) 50,317 34,241
Total Current Assets 1,365,682 1,428,937
Furniture and Equipment, Net 344,693 345,993
Product Software Costs, Net 89,318 77,225
Other Assets - Deposits 6,272 1,792
Total Assets $1,805,965 $1,853,947
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Credit Line Payable (Note 6) $ 304,877 $ -0-
Loan From Shareholder (Note 5) 101,500 -0-
Accounts Payable 546,811 561,753
Current Portion Long-Term Debt (Note 6) 27,927 35,637
Accrued Wages and Commissions 103,433 121,014
Obligation - C. Groff (Note 5) -0- 56,795
Other Current Liabilities (Note 4) 287,805 334,062
Total Current Liabilities 1,372,353 1,109,261
Dividends Payable 2,650 51,000
Long-Term Liabilities:
Long-Term Debt, Net of Current
Portion (Note 6) 72,574 251,107
Total Liabilities 1,447,577 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 7,000,000 shares,
5,112,495 shares issued and
outstanding at December 31,
1996 and authorized 5,000,000 shares,
4,837,875 issued and outstanding at
June 30, 1996 51,125 48,379
Subscription Common Stock (Note 7) -0- 102,000
Subscription Preferred Stock (Note 7) 104,000 -0-
Additional Paid In Capital 2,400,340 2,356,729
Accumulated Deficit (4,382,487) (4,090,776)
Total Stockholders' Equity 358,388 442,579
Total Liabilities and
Stockholders' Equity $1,805,965 $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
DEC. 31, 1996 DEC. 31, 1995
(unaudited) (unaudited)
Net Sales $ 715,155 $1,072,857
Cost of Sales 457,022 650,991
Gross Profit 258,133 421,866
Selling, General and Administrative 493,378 757,335
Research and Development 64,340 115,415
Interest Expenses 12,144 1,685
Loss Before Income Taxes ( 311,729) ( 452,569)
Provision For Income Taxes -0- -0-
Net Loss ( 311,729) ( 452,569)
Accumulated Deficit - Beginning of
Period (4,070,758) (2,990,419)
Accretion of Redeemable Preferred
Stock -0- ( 3,241)
Accumulated Deficit - End of Period $(4,382,487) $(3,446,229)
========= =========
Net Income (Loss) Applicable to Common
Shares $( 340,142) $( 480,810)
========= =========
Earnings Per Share Data:
Net Income (Loss) $( 0.07) $ ( 0.18)
========= =========
Weighted Average Number of Common
Shares Outstanding 4,815,756 2,673,225
The accompanying notes are an integral part of these financial statements.
(3)
ADVANCED MEDICAL PRODUCTS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
SIX MONTHS ENDED
DEC. 31, 1996 DEC. 31, 1995
(unaudited) (unaudited)
Net Sales $ 1,508,844 $ 2,385,736
Cost of Sales 758,336 1,274,846
Gross Profit 750,508 1,110,890
Selling, General and Administrative 906,855 1,324,601
Research and Development 119,493 181,844
Interest Expenses 15,871 3,557
Loss Before Income Taxes ( 291,711) ( 399,112)
Provision for Income Taxes -0- -0-
Net Loss ( 291,711) ( 399,112)
Accumulated Deficit-Beginning of Period (4,090,776) (3,040,635)
Accretion of Redeemable Preferred Stock -0- ( 6,482)
Accumulated Deficit-End of Period $(4,382,487) $(3,446,229)
========= =========
Net Loss Applicable to Common Shares $( 346,536) $( 455,594)
========= =========
Earnings Per Common Share Data:
Net Loss $( .07) $( .17)
========= =========
Weighted Average Number of Common
Shares Outstanding 4,814,126 2,673,225
The accompanying notes are an integral part of these financial statements.
(4)
ADVANCED MEDICAL PRODUCTS, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
DEC. 31, 1996 DEC. 31, 1995
(unaudited) (unaudited)
Cash Flows from Operating Activities:
Net Loss $( 291,711) $( 399,112)
Adjustments To Reconcile Net Income
To Net Cash Used By Operating Activities:
Loss on Disposal of Fixed Assets 7,813 -0-
Depreciation and Amortization 58,748 48,648
Bad Debt Expense 12,000 394
Provision for Doubtful Accounts ( 20,625) ( 9,753)
Change in Assets and Liabilities:
Accounts Receivable 47,488 ( 35,659)
Inventory ( 1,899) 179,451
Refundable Income Taxes 58,940 -0-
Other Current Assets ( 16,076) -0-
Other Assets ( 4,480) 24,689
Accounts Payable ( 14,942) ( 26,197)
Other Current Liabilities ( 120,633) 176,573
Total Adjustments 6,334 358,146
Net Cash Used By Operating Activities ( 285,377) ( 40,966)
Cash Flows Used By Investing Activities:
Capital Expenditures ( 54,161) ( 36,268)
Proceeds from Sale of Equipment 1,500 -0-
Capitalization of Software Costs ( 24,860) ( -0-)
Net Cash Used by Investing Activities ( 77,521) ( 36,268)
Cash Flows Provided (Used) By Financing
Activities:
Proceeds From Loan From Shareholder 150,000 -0-
Proceeds from Credit Line 1,026,973 -0-
Payments on Short-Term Debt ( 790,132) -0-
Payments on Long-Term Debt ( 19,370) ( 19,780)
Net Cash Provided (Used) By Financing
Activities 367,471 ( 19,780)
Net Increase (Decrease) In Cash 4,573 ( 97,014)
Cash, Beginning Of Period 14,631 32,411
Cash, End Of Period $ 19,204 $ ( 64,903)
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 15,871 $ 3,557
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 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 six month period ended
December 31, 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:
DEC. 31, 1996 JUNE 30, 1996
(unaudited) (audited)
Raw Materials and Work In Process $ 399,858 $ 453,849
Finished Goods 351,811 295,921
$ 751,669 $ 749,770
========= =========
3. Other Current Assets
Prepaid Expenses $ 45,355
Deposits - Current 4,962
$ 50,317
=========
4. Other Current Liabilities
Accrued Royalties $ 42,798
Obligation - Keshler 7,500
Accrued Vacation Pay 23,205
Deferred Service Contract Revenue 134,762
Warranty Reserve 23,249
Accrued Sales Tax Liability 56,291
$ 287,805
=========
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. This obligation paid in
full as of December 31, 1996.
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.
(6)
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 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 on December 31, 1996 and $100,000 was converted into a long-term
note due to mature December 31, 1997. The balance on this note as of
December 31, 1996, including interest due, was $101,500.
6. Notes Payable
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, accrues interest at 11 percent, and is secured by furniture,
fixtures, and equipment. The balance as of December 31, 1996 was
$63,214.
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,
accrues interest at 11 percent and is secured by equipment, furniture
and fixtures. The balance as of December 31, 1996 was $3,927.
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. The balance on this credit
line at December 31, 1996 was $304,877.
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.
(7)
7. Capital Stock Transactions Continued
Nishimoto Sangyo, one of the Company's preferred stockholders, 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 which were issued December 31, 1996. They also entered
into an agreement to convert $104,000 of their December 31, 1996
preferred stock dividend into 104 shares of $1,000 face value
preferred stock. This amount has been reflected in the financial
statements as a preferred stock subscription as the shares were not
issued at December 31, 1996.
8. 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.
(8)
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales of $1,508,844 for the six months ended December 31, 1996
represent a 37% decrease from sales of $2,385,736 in the comparable six
month period of fiscal 1996. Net sales of $715,155 for the quarter ended
December 31, 1996 represent a 33% decrease from sales of $1,072,857 for the
quarter ended December 31, 1995. This decrease 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.
The Company's gross profit margin increased to 50% of net sales for the six
month period ended December 31, 1996 from 46% of net sales in the
comparable six months ended December 31, 1995. This increase is due to
efforts to reduce sales discounts and manufacturing costs. The gross
profit margin decreased from 39% of net sales in the second quarter of
fiscal 1996 to 36% of net sales in the second quarter of fiscal 1997. The
apparent decrease in the gross profit margin from the first quarter of
fiscal 1997 to the second quarter of fiscal 1997 was due to adjustments
made in the second quarter for unabsorbed overhead under the new standard
cost system.
Selling, general and administrative expenses of $906,855 for the six months
ended December 31, 1996 were 60% of net sales for the period compared to
expenses of $1,324,601 or 55% of net sales for the same period last year.
These expenses decreased from 71% of net sales in the second quarter of
fiscal 1996 to 69% of net sales in the second quarter of fiscal 1997.
These expenses were still a high percentage of net sales, but actual
expenses were reduced by 31% and 34% from what they were in the first six
months and second 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 36% and 43% less than
in the first six months and second quarter of fiscal 1996 respectively.
Research and development costs during the first six months of fiscal 1997
decreased 34% from last year. During the second quarter these costs
decreased 56% from the comparable period 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 six months ended December 31, 1996 was $(291,711) compared
to $(399,112) for the same period last year. For the quarter ended
December 31, 1996 the net loss decreased to $(311,729) from $(452,569) in
the second quarter ended December 31, 1995. The net loss for the first six
months and second quarter of fiscal 1997 primarily resulted from high fixed
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
(9)
differences in gross profit 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 six months and second quarter of last year despite lower sales
levels was primarily the result of lower expenses company wide.
During the first six months of fiscal 1997, accounts receivable decreased
slightly from $547,441 to $520,578. Total inventory remained about the
same at $751,669; Inventory write-offs and reductions in Holter monitor
inventory were offset by a buildup in inventory of nearly $125,000 for the
new Micros QV product.
LIQUIDITY AND CAPITAL RESERVES
Operating activities used $285,377 of cash during the six months ended
December 31, 1996 compared with $40,966 used during the six months ended
December 31, 1995. The increase is due primarily to efforts to decrease
accounts payable, and marketing and inventory costs for the Company's
Micros QV hand-held portable ultrasound unit. In the first six months of
fiscal 1997, $77,521 was used for capital expenditures, compared to $36,268
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 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 five 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.
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).
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 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 & L A 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.
During the first six 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).
(10)
Subsequent to December 31, 1996, the Company has 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 Q.V. product is available for sale, the Company expects to
see some recovery from the declined 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 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.
(11)
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.
(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: JANUARY 31, 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: JANUARY 31, 1997
(14)
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