U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(mark one)
__X___Quarterly report under Section 13 or 15 of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 1999.
______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)
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:
5,962,496 at May 15, 1999.
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Advanced Medical Products Inc.
Balance Sheet
March.31, 1999 June 30, 1998
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 28,822 $ 82,087
Accounts Receivable (net of allowance
for doubtful accounts of $24,594 and $25,000) 437,024 342,040
Inventory (Note 2) 197,504 322,706
Prepaid Expenses 16,171 36,553
Total Current Assets 679,521 783,386
Furniture and Equipment, Net 170,012 250,691
Product Software Costs, Net 29,077 52,751
Other Long Term Assets (Note 3) 12,974 13,474
Total Assets 891,584 1,100,302
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes Payable (Notes 6,7) $ 387,281 $ 295,798
Accounts Payable 701,695 448,548
Current Portion Long-Term Debt 170,587 30,327
Accrued Wages and Commissions 109,331 73,968
Other Current Liabilities (Note 4) 346,545 301,995
Dividends Payable on Preferred Stock -0- 162,981
Total Current Liabilities 1,715,439 1,313,617
Long-Term Liabilities:
Long-Term Debt, Net of Current Portion 4,299 169,692
Total Liabilities 1,719,738 1,483,309
Stockholders' Equity:
Class A Preferred Stock, no par value;
authorized 4,000 shares; no shares
December 31, 1998, 2,377 shares issued
and outstanding at Junes 30, 1998 -0- 2,289,410
Common Stock, $0.01 par value; authorized
7,000,000 shares, 5,962,495 shares issued and
outstanding at March 31, 1998 and at
June 30, 1998. 59,625 59,625
Additional Paid-In Capital 4,813,468 2,486,209
Accumulated Deficit (5,701,247) (5,218,251)
Total Stockholders' Equity (828,154) (383,007)
Total Liabilities and Stockholders Equity $ 891,584 $1,100,302
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Operations and Accumulated Deficit
Three Months Ended
March 31, 1999 March 31, 1998
(unaudited) (unaudited)
Net Sales $ 575,779 $ 616,092
Cost of Sales 312,487 304,741
Gross Profit 263,292 311,351
Selling, General and Administrative 250,443 262,088
Research and Development 26,707 43,900
Interest Expenses 20,404 22,942
Income Before Income Taxes ( 34,262) ( 17,059)
Provision For Income Taxes -0- -0-
Net Income ( 34,262) ( 17,059)
Accumulated Deficit - Beginning
of Period (5,666,985) (4,937,826)
Accumulated Deficit - End of Period $ (5,701,247) $ (4,955,593)
Net Income (Loss) Applicable to
Common Shares $ ( 34,262) $ ( 46,767)
Earnings Per Share Data:
Net Income (Loss) $ ( 0.01) $ ( 0.01)
Weighted Average Number of Common
Shares Outstanding 5,962,495 5,679,162
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Operations and Accumulated Deficit
Nine Months Ended
March 31, 1999 March 31, 1998
(unaudited) (unaudited)
Net Sales $ 1,945,509 $ 1,645,896
Cost of Sales 1,095,028 817,789
Gross Profit 850,481 828,107
Selling, General and Administrative 978,437 761,664
Research and Development 110,888 119,839
Allowance for Doubtful Accounts 173,136 48,000
Interest Expenses 71,017 81,901
Income Before Income Taxes (482,997) (183,198)
Provision For Income Taxes -0- -0-
Net Income (482,997) (183,198)
Accumulated Deficit - Beginning of Period $ (5,218,251) $ (4,771,688)
Accumulated Deficit - End of Period $ (5,701,247) $ (5,026,961)
Net Income (Loss) Applicable to
Common Shares $ (482,997) $ (255,273)
Earnings Per Share Data:
Net Income (Loss) $ (0.08) $ (0.04)
Weighted Average Number of Common
Shares Outstanding 5,962,495 5,395,829
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Cash Flows
Nine Months Ended
March 31, 1999 March 31, 1998
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ ( 482,997) $ ( 183,405)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 113,396 111,253
Allowance for doubtful accounts 173,186 45,544
Change in assets and liabilities:
Accounts receivable (268,170) ( 70,960)
Inventory 70 ( 28,007)
Other assets 20,882 ( 70,839)
Accounts payable 253,149 32,726
Other current liabilities 79,913 ( 13,826)
Total adjustments 372,426 5,891
Net cash provided (used) by operating
activities (110,571) ( 177,514)
Cash flows used by investing activities:
Capital expenditures -0- -0-
Proceeds from sale of equipment -0- -0-
Capitalization of software costs ( 9,044) ( 1,756)
Net cash used by investing activities ( 9,044) ( 1,756)
Cash flows provided (used) by financing activities:
Net proceeds from sale of common stock -0- 257,898
Net proceeds (payments) on short term debt 91,483 ( 50,792)
Payments on long-term debt ( 25,133) ( 29,588)
Net cash provided (used) by financing
activities 66,350 177,518
Net increase (decrease) in cash ( 53,265) ( 1,752)
Cash, beginning of period 82,087 50,938
Cash, end of period $ 28,822 $ 49,186
Supplemental disclosures of cash flow information:
Cash paid during the period for interest: $ 51,437 $ 68,822
Supplemental schedule of non-cash investing
and financing activities:
Sale of inventory $ 125,132 -0-
Elimination of accrued dividends ($ 162,981) -0-
Additional paid in capital $ 2,327,259 -0-
Reduction of Preferred Stock ($ 2,289,710) -0-
The accompanying notes are an integral part of these financial statements.
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 and nine-month
period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for fiscal year 1999.
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, 1998.
2. Inventory
March 31, 1999 June 30, 1998
(unaudited)
Inventory consisted of:
Raw materials and work in process $ 119,897 $ 162,799
Finished goods 77,607 159,899
$ 197,504 $ 322,706
3. Other Long Term Assets
Product software costs net of amortization
3/31/99 of $352,098 and 6/30/98 of $332,249 $ 29,077 $ 52,751
Deposits 12,974 13,474
$ 42,151 $ 66,225
4. Other Current Liabilities
March 31, 1999 June 30, 1998
Accrued royalties $ 5,725 $ 15,229
Deferred contract revenue 216,380 167,440
Warranty reserve 26,660 38,073
Accrued sales tax liability 65,938 67,419
Other 31,842 13,834
$ 346,545 $ 301,995
5. Per Share Earnings
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.
6. Related Party Transactions
Effective July 1, 1996, the Company entered into a loan
agreement with BioTel International, Inc (acquired in
December 1997 by Carolina Medical, Inc., a majority
shareholder of the Company's stock), under which the
Company borrowed $150,000 at 12 percent annual rate of
interest. This note, secured by a second position lien on
the Company's assets, became due on September 30, 1996 but
had subsequently been extended to December 31, 1998.
During the nine months ended March 31, 1998, $ 9,000 was
expensed for interest on this debt, but the interest was not paid.
At various times between February 27, 1998 and March 22,
1999, Braemar Inc., a subsidiary of Carolina Medical,
produced under the terms of a manufacturing agreement and
sold to Advanced Medical quantities of ambulatory EKG and
blood pressure monitors on open account net 60 day terms.
Margins over direct material and labor costs in prices
charged by Braemar were similar to margins charged to
Braemar's unrelated third parties. Sales to Advanced
Medical by Braemar totaled $554,522. Cash payments for
these goods were made by Advanced Medical to Braemar
totaling $245,628.28. In addition, $99,318.40 of
receivables from Braemar were offset against additional
overdue amounts owed by Advanced Medical to Braemar. The
balance of $209,575 remained due and owing to Braemar by
Advanced Medical at March 22, 1999.
Between July 1, 1998 (when Biosensor and Carolina Medical
merged) and March 22, 1999, Advanced Medical purchased
inventory from Biosensor, at Biosensor's cost, in the
amount of $88,436, which inventory Advanced Medical has
resold at ordinary and normal markups. Advanced Medical
has not paid Biosensor for these inventory purchases and
the entire amount remained due and owing at March 22, 1999.
Inter-company debt and expense has been eliminated in the
consolidated financial statements. At various time between
July 1, 1998 and March 30, 1999, Biosensor Corporation
extended loans to Advanced Medical to enable Advanced
Medical to meet payroll and other time critical cash needs.
These loans, which were not evidenced by notes, totaled
$192,000, which was considered by Advanced Medical as
additional capital contributions. (Also see Note 8, Filing
of a Motion Under U.S.A. Chapter 11 Paragraph 363 for Sale
of Assets, and Note 9, Subsequent Events)
7. Credit Agreement
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 up to 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 maximum
loan balance of $750,000. Interest is charged 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 are 0.75% of the average daily balance.
As of March 31, 1999, $ 250,281 was borrowed by the Company
under this agreement. This credit line, secured by all of
the assets of the Company, expired on December 31, 1998.
The Company has been substantial violation of the working
capital and tangible net book value covenants of this
credit agreement. The lender waived the covenant
violations through December 31, 1998, but was unwilling to
extend the waiver any further. Under the terms of the
credit agreement, Emergent had the right to seize the
assets, or to foreclose and sell all of the assets of the
Company at auction to recover their loan balance. (Also see
Note 8, Filing of a Motion Under U.S.A. Chapter 11
Paragraph 363 for Sale of Assets, and Note 9, Subsequent Events)
8. Filing of a Motion Under 11 U.S.C. Section 363 for Sale of Assets
On March 23, 1999, after reporting that, for the quarter
ended December 31, 1998 the Company had net losses of
$373,173 of which $130,000 was as a result of their
distributor in Europe, Kontron Instruments Ltd. filing for
Administrative Receivership, Advanced Medical Products,
Inc. filed a motion with the Federal Bankruptcy Court,
District of South Carolina, for an order authorizing the
sale of all assets, including equipment, inventory, and
accounts receivable, outside the ordinary course of
business, free and clear of all liens and encumbrances and
other interests, pursuant to 11 U.S.C. Section 363 of the
bankruptcy code. Biosensor Corporation, owner of Carolina
Medical, Inc., who owns 55.3% of the common stock of
Advanced Medical Products, Inc., proposed to purchase the
assets and assume all of the secured debt, employee and
commission liabilities, and all customer warranty and
service liabilities of Advanced Medical Products. In
addition, Biosensor proposed to make a payment of $68,000
toward administrative expenses and the amount owed by
Advanced Medical to outside unsecured creditors. If it was
the successful bidder on the assets, Biosensor and its
affiliates agreed not to participate in distribution of
payments toward unsecured claims. Biosensor's unsecured
claims exceed unsecured claims by all non-affiliated
creditors combined. Biosensor had been funding the losses
incurred by Advanced Medical Products, Inc. and indicated
its inability to continue doing so.
Advanced Medical Products, Inc. continued to operate as
debtor in possession, pending sale of the assets. Emergent
Asset Based Lending, L.L.C., Advanced Medical's principle
secured lender whose loan agreement has been in default
since December, agreed to continue to lend against
receivables and inventory based on Biosensor's guarantee of
the debt. As of March 22, 1999, $ 253,446 was borrowed by
Advanced Medical under this agreement.
9. Subsequent Events
On May 3, 1999, the United State Bankruptcy Court for the
District of South Carolina entered and order approving the
Disclosure Statement filed on March 23, 1999, fixing June
11, 1999 as the last day for filing ballots accepting or
rejecting the Plan of Reorganization, and setting June 21,
1999 as the date of the hearing on the confirmation of the Plan.
On May 11, 1999, pursuant to a court order entered on May
10, 1999 in the Federal Bankruptcy Court for the District
of South Carolina, Advanced Medical Products, Inc. sold all
assets, including equipment, inventory, and accounts
receivable, outside the ordinary course of business, free
and clear of all liens and encumbrances and other
interests, pursuant to 11 U.S.C. Section 363 of the
bankruptcy code. Biosensor Corporation purchased the
assets and assumed all of the secured debt, employee and
commission liabilities, and all customer warranty and
service liabilities of Advanced Medical Products, Inc. In
addition, Biosensor made a payment of $68,000 for certain
priority claims and administrative expenses, and for
distribution to outside unsecured creditors. Biosensor and
its subsidiaries agreed not to participate in distribution
of payments toward unsecured claims, although their claims
exceeded unsecured claims by all non-affiliated creditors
combined. The assets and liabilities of Advanced Medical
will be consolidated with the operating assets and
liabilities of Biosensor, and the assets and liabilities of
Diagnostic Monitoring purchased by Biosensor from Cardiac
Science Inc. on December 31, 1998, into Advanced Biosensor,
Inc., a new wholly owned subsidiary of Biosensor, which
also agreed to assume Advanced Medical's lease obligations
and to continue to operate the business at the present
Columbia, SC location.
At a hearing held on June 21, 1999 the Plan of
Reorganization, as amended, was confirmed. The Plan had
previously been approved by all classes of creditors. On
June 28, 1999 the United State Bankruptcy Court for the
District of South Carolina entered an order confirming the
Plan of Reorganization.
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS
Forward Looking Statements
This and other sections of this report contain "forward-
looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which represent
the Company's expectations concerning future events
including future cash flows, results of operations,
expected continuing availability of the credit line, the
Company's continuing ability to sell its Holter and
ambulatory blood pressure products to office practices, and
the Company's belief regarding future recovery from
declining revenues in the medical device industry. By
their very nature, forward-looking statements are subject
to known and unknown risks and uncertainties relating to
the Company's future performance that may cause actual
results to differ materially from those expressed or
implied in such forward-looking statements. The Company
does not undertake and assumes no obligation to update any
forward-looking statement that may be made herein or from
time to time by or on behalf of the Company.
The following discussion should be read in conjunction with
the accompanying Financial Statements, including the notes
thereto, appearing elsewhere herein.
Results of Operations
Net sales of $575,779, and $1,945,509 for the quarter and
nine months ended March 31, 1999 represent a 6.5% decrease
and 18% increase from sales of $616,092 and $1,645,896 in
the comparable periods of fiscal 1998. These nine months
increases was primarily the result of results achieved
during the first six months under an agreement entered into
in July 1998 between the Company and Biosensor Corporation,
the Company's majority shareholder, authorizing the Company
to purchase and resell Biosensor's cardiac monitoring
products along with Advanced Medical products through both
companies' existing OEM/International distributors, as well
as to domestic customers. However, during the quarter
ended March 31, 1999 the Company was not able to sustain
the first six months sales growth due to a lack of working
capital and other related factors (see notes 8 and 9).
Gross profit margins on sales were 46% of net sales for the
quarter and 44% for the nine months ended March 31, 1999,
down from 50% gross margin reported for the quarter and
nine months ended December 31, 1998. Lower margin
percentages resulted from generally lower margins on
Biosensor products, and lower sales.
Selling, general and administrative expenses, not including
bad debt writeoffs, were $250,443 for the quarter and
$978,437 for the nine months ended March 31, 1999. These
expenses were 43% and 50% of net sales compared to expenses
of $262,088 and $809,664 or 43% and 50 % of net sales for
the same periods last year. Allowance for doubtful
accounts of $6,500 for the quarter and $173,136 in the nine
months ended March 31, 1999 (of which approximately
$130,000 resulted from the bankruptcy filing of Kontron
Instruments Ltd., the Company's major distributor
throughout Europe, see Note 10), added substantially to the
total expenses for the nine months. During the comparable
first nine months last year, $48,000 was written off for
doubtful accounts.
Research and development costs during the third quarter and
first nine months of fiscal 1999 ended March 31, 1999 were
4.6% and 5.7% of sales compared to 7.1% and 7.3%
respectively last year. This is a result of efforts to
reduce expenses wherever possible in the current year.
Net losses for the quarter and nine months ended March 31,
1999 were $34,262 and $482,997 respectively compared to
losses (applicable to common shares) of $46,435 and
$255,273 for the same periods last year. The substantially
higher losses in the recent nine months period, despite
higher sales, was primarily the result of unusually high
bad debt writeoffs, and the Company's efforts to increase
sales of all of its products.
During the first nine months of fiscal 1999 ended March 31,
1999 accounts receivable increased to $437,024 (after the
writeoff of receivables from Kontron Instruments, see Note
10) from $342,040 at June 30, 1998. This was due to the
somewhat higher level of sales and slower payment by
certain other customers. Inventory decreased from $322,706
at June 30, 1998 to $197,504 at March 31, 1999,
Liquidity and Capital Resources
Operating activities used cash of $110,571 during the nine
months ended March 31, 1999. This compared to $177,514
used during the nine months ended March 31, 1998. The
Company at June 30, 1998 and March 31, 1999 had deficits in
net working capital (current assets minus current
liabilities) of $530,131 and $1,025,918 respectively.
Internally generated funds are not providing sufficient
working capital to meet immediate needs, and the existing
borrowing sources will not continue to be available. As of
March 31, 1999, $250,281 was borrowed by the Company
against its principle credit line. This credit agreement
expired on December 31, 1998, and is secured by all of the
assets of the Company. The Company was in violation of
both the working capital and net book value covenants of
the credit agreement. The lender waived the covenant
violations through December 31, 1998 (see Note 7 herein),
but has been unwilling to extend the waiver. During the
quarter ended December 31, 1998 the Company borrowed
additionally from its majority shareholder, (see Note 6
herein) and has been extended credit by its majority
shareholder and a subsidiary of its majority shareholder to
purchase finished goods. The Company has not been able to
continue to receive loans or credit from its majority
shareholder or subsidiaries thereof. The Company has not
been successful in obtaining capital from unrelated sources.
Internally generated funds, and present sources of funding
have not been sufficient to meet working capital
requirements, and without additional funding, the Company was
not able to continue as a going concern. On March 23, 1999
Advanced Medical Products, Inc. filed a motion with the
Federal Bankruptcy Court, District of South Carolina, for
an order authorizing the sale of all assets, including
equipment, inventory, and accounts receivable, outside the
ordinary course of business, free and clear of all liens
and encumbrances and other interests, pursuant to Chapter
11 paragraph 363 of the bankruptcy code.
On May 11, 1999, pursuant to a court order entered on May
10, 1999 in the Federal Bankruptcy Court for the District
of South Carolina, Advanced Medical Products, Inc. sold all
assets, including equipment, inventory, and accounts
receivable to Biosensor Corporation (See Notes 8. and 9. to
the Financial Statements).
No capital expenditures were made by the Company during the
first nine months of this year or last year, and no capital
expenditures are planned for the remainder of fiscal 1999.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
Advanced Medical Products, Inc.
(Registrant)
By: /s/ GEORGE L. DOWN
George L. Down, President
Dated: June 28, 1999
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