<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995 or
[ ] 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: ____________33-26398___________
ADVANCED MEDICAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3492624
---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
9775 Businesspark Avenue, San Diego, CA 92131
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(619) 566-0426
----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 _______
On August 7, 1995, 16,130,717 shares of Registrant's Common Stock were
outstanding.
Page 1 of 19
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
------------------------------------------------------------
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 - Financial Statements:
PAGE
---------------
Condensed consolidated balance sheets at December 31, 1994 and
June 30, 1995................................................ 3
<S> <C>
Condensed consolidated statements of operations for the three
and six months ended June 30, 1994 and 1995................. 4
Condensed consolidated statements of cash flows for the six
months ended June 30, 1994 and 1995......................... 5
Condensed consolidated statement of changes in stockholders'
equity (deficit) for the period from December 31, 1994 to
June 30, 1995............................................... 6
Notes to the condensed consolidated financial statements..... 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1 - Legal Proceedings..................................... Not applicable
Item 2 - Changes in Securities................................. Not applicable
Item 3 - Defaults Upon Senior Securities....................... 14
Item 4 - Submission of Matters to a Vote of Security Holders... 14
Item 5 - Other Information..................................... Not applicable
Item 6 - Exhibits and Reports on Form 8-K...................... 15
</TABLE>
- 2 -
<PAGE>
FORM 10 -- Q
PART 1 -- ITEM 1
FINANCIAL INFORMATION
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C> <C>
DECEMBER 31, JUNE 30,
1994 1995
------------ -----------
(UNAUDITED)
Current assets:
Cash and cash equivalents..................................................... $ 1,340 $ 642
Restricted cash and investment securities..................................... 1,732 2,037
Securities available for sale................................................. 2,883 3,973
Receivables, net.............................................................. 24,841 24,879
Inventories................................................................... 20,347 15,766
Prepaid expenses and other current assets..................................... 2,140 2,118
------------ -----------
Total current assets........................................................ 53,283 49,415
Net investment in sales-type and direct financing leases........................ 14,807 15,973
Property, plant and equipment, net.............................................. 11,595 11,918
Other non-current assets........................................................ 4,921 7,118
Intangible assets, net.......................................................... 47,518 45,899
------------ -----------
$132,124 $130,323
------------ -----------
------------ -----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
Current liabilities:
Current portion of long-term debt............................................. $ 1,214 $ 674
Accounts payable.............................................................. 8,427 7,762
Accrued expenses and other current liabilities................................ 14,066 13,792
------------ -----------
Total current liabilities................................................... 23,707 22,228
------------ -----------
Long-term debt.................................................................. 91,803 67,894
Other non-current liabilities................................................... 7,285 6,769
------------ -----------
99,088 74,663
------------ -----------
Minority interests in consolidated subsidiaries................................. 5,000 5,000
------------ -----------
Contingent liabilities (Note 5)
Mandatorily redeemable equity securities........................................ 6,567 6,892
------------ -----------
Non-redeemable preferred stock, common stock, and other stockholders' equity
(deficit):
Preferred stock, authorized 6,000 and 3,000 shares at $.001 and $.01 par
value, respectively; issued and outstanding -- none
Common stock, authorized 75,000 shares at $.01 par value; issued and
outstanding -- 14,152 shares and 16,214 shares at December 31, 1994 and June
30, 1995, respectively....................................................... 142 162
Capital in excess of par value................................................ 58,703 63,290
Accumulated deficit........................................................... (61,922) (43,684)
Treasury stock................................................................ (734) (734)
Unrealized holding gains from securities available for sale................... 883 1,973
Other equity.................................................................. 690 533
------------ -----------
Total non-redeemable preferred stock, common stock and other stockholders'
equity (deficit)........................................................... (2,238) 21,540
------------ -----------
$132,124 $130,323
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
- 3 -
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1995 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales.............................................................. $ 27,440 $ 29,166 $ 54,583 $ 57,756
Cost of sales...................................................... 15,951 16,383 32,773 33,414
--------- --------- --------- ---------
Gross margin..................................................... 11,489 12,783 21,810 24,342
--------- --------- --------- ---------
License fees revenue............................................... 110 110 220 220
--------- --------- --------- ---------
Selling expenses................................................... 4,350 4,694 8,560 8,914
General and administrative expenses................................ 2,681 2,328 5,660 5,201
Research and development expenses.................................. 1,494 1,905 2,925 3,991
--------- --------- --------- ---------
Total operating expenses......................................... 8,525 8,927 17,145 18,106
--------- --------- --------- ---------
Income from operations........................................... 3,074 3,966 4,885 6,456
--------- --------- --------- ---------
Other income (expense):
Interest income.................................................. 643 626 1,239 1,189
Interest expense................................................. (2,308) (2,354) (4,649) (4,096)
Other, net....................................................... 153 6 1,233 (153)
--------- --------- --------- ---------
(1,512) (1,722) (2,177) (3,060)
--------- --------- --------- ---------
Income before income taxes and extraordinary item.................. 1,562 2,244 2,708 3,396
Income tax provision............................................... 373 206 670 335
--------- --------- --------- ---------
Income before extraordinary item................................... 1,189 2,038 2,038 3,061
Extraordinary item -- gain on early retirement of debt, net of
tax............................................................... 6,370 15,177
--------- --------- --------- ---------
Net income......................................................... 1,189 8,408 2,038 18,238
Dividends and accretion on mandatorily redeemable preferred
stock............................................................. 180 162 536 325
--------- --------- --------- ---------
Net income applicable to common stock.............................. $ 1,009 $ 8,246 $ 1,502 $ 17,913
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share assuming no dilution:
Income before extraordinary item................................. $ .07 $ .12 $ .11 $ .18
Extraordinary item -- gain on early retirement of debt........... .40 1.01
--------- --------- --------- ---------
Net income per common share assuming no dilution............... $ .07 $ .52 $ .11 $ 1.19
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share assuming full dilution:
Income before extraordinary item................................. $ .05 $ .06 $ .08 $ .09
Extraordinary item -- gain on early retirement of debt........... .20 .48
--------- --------- --------- ---------
Net income per common share assuming full dilution............. $ .05 $ .26 $ .08 $ .57
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding assuming no dilution.... 14,069 15,942 14,069 15,018
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding assuming full
dilution.......................................................... 20,069 32,560 19,969 31,743
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
- 4 -
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1994 1995
---------- ---------
<S> <C> <C>
Net cash provided by operating activities................................................. $ 8,635 $ 8,188
---------- ---------
Cash flows from investing activities:
Net decrease (increase) in restricted cash and investments.............................. 20 (305)
Capital expenditures.................................................................... (1,932) (2,657)
Proceeds from sale of investments....................................................... 3,440
Payment for product distribution rights................................................. (3,358)
Proceeds from disposal of property...................................................... 284 28
---------- ---------
Net cash provided by (used in) investing activities....................................... 1,812 (6,292)
---------- ---------
Cash flows from financing activities:
Net repayments under credit facilities.................................................. (6,044) (1,659)
Principal payments on long-term debt.................................................... (11,522) (866)
Proceeds from issuance of secured promissory note....................................... 6,000
Other................................................................................... 20
---------- ---------
Net cash used in financing activities..................................................... (11,546) (2,525)
---------- ---------
Effect of exchange rate changes on cash................................................... 79 (69)
---------- ---------
Net decrease in cash and cash equivalents................................................. (1,020) (698)
Cash and cash equivalents at beginning of period.......................................... 1,762 1,340
---------- ---------
Cash and cash equivalents at end of period................................................ $ 742 $ 642
---------- ---------
---------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
- 5 -
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAINS FROM
COMMON STOCK CAPITAL IN TREASURY STOCK SECURITIES
---------------------- EXCESS OF ACCUMULATED ------------------------ AVAILABLE
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT FOR SALE
--------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... 14,152 $ 142 $ 58,703 $ (61,922) 83 $ (734) $ 883
Issuance of common stock.............. 2,062 20 4,912
Dividends on mandatorily redeemable
preferred stock...................... (325)
Unrealized holding gains from
securities available for sale........ 1,090
Other equity transactions.............
Net income for the period............. 18,238
--
--------- ----- ----------- ------------ ----------- -----------
Balance at June 30, 1995.............. 16,214 $ 162 $ 63,290 $ (43,684) 83 $ (734) $ 1,973
--
--
--------- ----- ----------- ------------ ----------- -----------
--------- ----- ----------- ------------ ----------- -----------
<CAPTION>
OTHER
EQUITY TOTAL
----------- ---------
<S> <C> <C>
Balance at December 31, 1994.......... $ 690 $ (2,238)
Issuance of common stock.............. 4,932
Dividends on mandatorily redeemable
preferred stock...................... (325)
Unrealized holding gains from
securities available for sale........ 1,090
Other equity transactions............. (157) (157)
Net income for the period............. 18,238
----------- ---------
Balance at June 30, 1995.............. $ 533 $ 21,540
----------- ---------
----------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
- 6 -
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE 1 -- BUSINESS AND STATEMENT OF ACCOUNTING POLICY
BUSINESS:
Advanced Medical, Inc. ("Advanced Medical"), operating through its major
operating subsidiary, IMED Corporation ("IMED"), is a leading developer and
manufacturer of infusion products and related technologies for the health care
industry (Advanced Medical and its subsidiaries are collectively referred to
herein as "the Company").
STATEMENT OF ACCOUNTING POLICY:
The accompanying financial statements have been prepared by the Company without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures herein are
adequate to make the information not misleading.
In the opinion of the Company, the accompanying financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the Company's financial position as of June 30, 1995, and the
results of its operations and its cash flows for the six months ended June 30,
1994 and 1995.
NET INCOME PER COMMON SHARE:
Net income per common share assuming no dilution is computed using the weighted
average number of common and common stock equivalent shares outstanding during
the period. Net income per common share assuming full dilution is computed using
the weighted average number of common and common stock equivalent shares
outstanding during the period plus the shares that would be outstanding assuming
conversion of the $6,000 secured promissory note ("Decisions Note") issued to
Decisions Corporation during January 1994 and the $6,500 secured promissory note
(the "Note") issued to Decisions Corporation during August 1994. Assuming
conversion of the Decisions Note and the Note, interest expense (net of taxes)
on the convertible debt has been added to the net income applicable to common
stock in the amount of $79 and $150 for the three months ended June 30, 1994 and
1995, respectively, and $153 and $299 for the six months ended June 30, 1994 and
1995, respectively. Common stock equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive effect.
NOTE 2 -- INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ ---------
<S> <C> <C>
Raw materials................................................................. $ 5,311 $ 5,986
Work-in-process............................................................... 3,753 2,008
Finished goods................................................................ 11,283 7,772
------------ ---------
$ 20,347 $ 15,766
------------ ---------
------------ ---------
</TABLE>
NOTE 3 -- DEVELOPMENT AND EXCLUSIVE DISTRIBUTION AGREEMENT
On May 8, 1995, IMED entered into a development and exclusive distribution
agreement ("the Agreement") with Debiotech SA ("Debiotech"). Pursuant to the
Agreement, Debiotech granted IMED the exclusive right to distribute Debiotech's
products in certain North and Central American countries. IMED paid Debiotech
$3,000 upon the signing of the Agreement and also agreed to pay
- 7 -
<PAGE>
NOTE 3 -- DEVELOPMENT AND EXCLUSIVE DISTRIBUTION AGREEMENT (CONTINUED)
Debiotech additional amounts upon attainment of agreed upon milestones by
Debiotech with respect to the development of certain future products. IMED will
purchase the products it sells from Debiotech at predetermined prices. The
product distribution fee of $3,000 and related expenses of $358 have been
classified as an intangible asset and are being amortized on a straight-line
basis over the 15 year term of the Agreement.
NOTE 4 -- DEBT
On March 31, 1995, the Company completed an exchange (the "Exchange") wherein
$28,245, or approximately 47%, in principal amount of the Company's 7 1/4%
Convertible Subordinated Debentures due 2002 ("Old Debentures") were exchanged
for an aggregate of $14,123 in principal amount of newly created subordinated
debentures ("First Debentures") and 1,340 shares of the Company's common stock
("Common Stock"). As a result of this transaction, the Company recognized an
extraordinary gain on the extinguishment of debt of $8,807 (net of the write-off
of unamortized debt issue costs of $1,343 related to the Old Debentures and net
of $705, the taxes applicable to the Exchange).
On May 19, 1995, the Company completed a second exchange ("Second Exchange")
wherein $15,603 of Old Debentures were exchanged for an aggregate of $7,801 of
newly created 15% Subordinated Debentures due 1999 ("New Debentures") and 735
shares of Common Stock. In addition, the Company accepted for exchange all of
the First Debentures and Common Stock from the Exchange for an aggregate of
$14,123 of New Debentures and 1,327 shares of Common Stock. As a result of these
transactions, the Company recognized an extraordinary gain on the extinguishment
of debt of $6,370 (net of the write-off of unamortized debt issue costs of $727
related to the Old Debentures on net of $362, the taxes applicable to the Second
Exchange).
As of June 30, 1995, the principal amount of New Debentures issued and
outstanding was $21,924 and the principal amount of Old Debentures issued and
outstanding was $16,152.
NOTE 5 -- LITIGATION AND CONTINGENCIES
The Company is a defendant in various actions, claims and legal proceedings
arising from normal business operations. Management believes they have
meritorious defenses and intends to vigorously defend against all allegations
and claims. As the ultimate outcome of the matters is uncertain, no contingent
liabilities or provisions have been recorded in the accompanying financial
statements for such matters. However, in management's opinion, based upon
discussion with legal counsel, liabilities arising from these matters, if any,
will not have a material adverse affect on consolidated financial position or
results of operations.
NOTE 6 -- MANDATORILY REDEEMABLE EQUITY SECURITIES
As of June 30, 1995, dividends in arrears on the $.01 par value mandatorily
redeemable preferred stock ("10% Preferred Stock") and the $.01 par value
mandatorily redeemable convertible preferred stock ("Convertible Preferred
Stock") were approximately $740 and $720, respectively. Additionally, the
Company did not declare the March 28, 1994 redemption of its 10% Preferred Stock
(redemption price of approximately $3,300).
NOTE 7 -- SALE OF MARKETABLE SECURITIES
Other income for the three and six months ended June 30, 1994 includes gains on
the sale of marketable securities of $214 and $1,264, respectively.
NOTE 8 -- SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Income taxes paid during the six months ended June 30, 1994 and 1995 totaled
$785 and $1,232, respectively. Interest paid during the six months ended June
30, 1994 and 1995 totaled $3,638 and $3,566, respectively. As more fully
described in Note 4, the Company completed noncash transactions wherein $43,848
of Old Debentures were exchanged for an aggregate of $21,924 of New Debentures
plus 2,062 shares of Common Stock.
- 8 -
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
OVERVIEW
Advanced Medical is a holding company for IMED, Fidata Corporation ("Fidata")
and several investments. It also identifies and evaluates potential acquisitions
and investments and performs various corporate functions. As a holding company,
Advanced Medical currently has no revenues to fund its operating and interest
expense and relies on cash generated by cash flow from IMED, external
borrowings, sale of investments and other external sources of funds to meet its
obligations.
For purposes of this discussion and analysis, the three months ended June 30,
1994 and 1995 are referred to as the 1994 Second Quarter and 1995 Second
Quarter, respectively, and the six months ended June 30, 1994 and 1995 are
referred to as 1994 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Company's debt restructurings during 1994, management
currently believes that sufficient cash will be available through IMED, based
upon current operations, to satisfy debt service and other corporate expenses of
Advanced Medical in the foreseeable future. In 1995, IMED's cash flow from
operations was $12.1 million which was used for (i) repayments of $1.7 million
under the revolving credit facility, (ii) advances of $4.5 million to Advanced
Medical, as permitted under IMED's Amended and Restated Loan Agreement ("Amended
Loan Agreement") with General Electric Capital Corporation ("GECC"), (iii)
payments of $3.3 million for the Agreement with Debiotech and (iv) capital
expenditures of $2.7 million. IMED relies on cash generated from operations,
together with funds available from the revolving credit facility, to fund its
working capital requirements, interest on the GECC credit facility and capital
expenditures.
The Company had working capital of $29.6 million as of December 31, 1994
compared with working capital of $27.2 million as of June 30, 1995. The decrease
in working capital from December 31, 1994 to June 30, 1995 resulted from
reductions in finished goods inventory levels due to sales of instruments
partially offset by an increase in the market value of securities available for
sale and a decrease in current liabilities.
On March 31, 1995, the Company completed the Exchange, wherein $28.2 million of
Old Debentures were exchanged for an aggregate of $14.1 million of First
Debentures and approximately 1.3 million shares of Common Stock. As a result of
the Exchange, the Company's long-term debt was reduced $14.1 million and
shareholders' equity increased $12.1 million. See Note 4 to the Condensed
Consolidated Financial Statements.
On May 19, 1995, the Company completed the Second Exchange wherein $15.6 million
of Old Debentures were exchanged for an aggregate of $7.8 million of New
Debentures and .7 million shares of Common Stock. In addition, the Company
accepted for exchange all of the First Debentures and Common Stock from the
Exchange for an aggregate of $14.1 million of New Debentures and 1.3 million
shares of Common Stock. As a result of the Second Exchange, the Company's
long-term debt was reduced $7.8 million and shareholders' equity increased by
$8.0 million. See Note 4 to the Condensed Consolidated Financial Statements.
The Company considers its investment in the common stock of Alteon, Inc.
("Alteon") to be a significant source of capital and liquidity if the sale of
this investment becomes necessary to satisfy working capital needs. As of July
31, 1995, the Company owned 472,600 shares of Alteon common stock which were
registered under the Securities Act on October 1, 1993, and had an aggregate
market value of approximately $4.3 million based upon the closing price per
share on the NASDAQ National Market System ("NASDAQ"). Prices obtainable in any
private sales of such securities are likely to be lower than those quoted on the
NASDAQ. Alteon is engaged in the research and development of
- 9 -
<PAGE>
medical and pharmaceutical products and as such has not yet successfully brought
products to the market. Therefore, failure of Alteon to develop and market their
products successfully could adversely affect the ability of the Company to
dispose of its investments therein upon favorable terms.
The Company did not pay the March 28, 1994 mandatory redemption of all
outstanding shares of 10% Preferred Stock. As of June 30, 1995, there were
329,913 shares of 10% Preferred Stock currently outstanding with a liquidation
preference of $10 per share and accrued and unpaid dividends were approximately
$.7 million. In addition to the 10% Preferred Stock, as of June 30, 1995, there
were 333,000 shares of Convertible Preferred Stock currently outstanding with a
liquidation preference of $6.40 per share and accrued and unpaid dividends were
approximately $.7 million. The Company does not expect to declare dividends or
redeem the preferred stock issues in the near term due to its limited capital
resources.
In connection with borrowings associated with the IMED acquisition, IMED issued
to GECC a warrant to acquire at a de minimis price common shares equal to 10%,
on a fully diluted basis, of the common stock of IMED. Under the Amended Loan
Agreement, GECC retained the warrant. The IMED warrant is redeemable at the
option of GECC until August 12, 2004 at the higher of fair value or
fully-diluted net book value at the redemption date. Additionally, IMED has the
option to redeem not less than 25% of the shares under warrant, or warrant stock
if exercised, beginning April 2, 1995. The Company's liquidity would be
adversely affected, and capital resources would be significantly reduced, in the
event GECC exercises its mandatory redemption rights. However, GECC cannot
require redemption to the extent that it would render IMED unable to pay its
debts as they mature.
RESULTS OF OPERATIONS
SALES
The Company's sales, cost of sales, and selling expenses for the historical
periods shown consist exclusively of IMED's sales, cost of sales and selling
expenses and are presented in the table below.
<TABLE>
<CAPTION>
1994 1995
SECOND SECOND
QUARTER QUARTER 1994 1995
---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States......................................... $ 22.0 $ 24.0 $ 44.1 $ 47.5
International......................................... 4.7 5.2 8.8 10.3
Discontinued IMED Irish Operations (1)................ 0.8 1.7
---------- ---------- ----- -----
Total sales....................................... $ 27.5 $ 29.2 $ 54.6 $ 57.8
---------- ---------- ----- -----
---------- ---------- ----- -----
Total sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 58.1 56.2 60.0 57.9
---------- ---------- ----- -----
Gross margin.......................................... 41.9% 43.8% 40.0% 42.1%
---------- ---------- ----- -----
---------- ---------- ----- -----
Selling expenses...................................... $ 4.4 $ 4.7 $ 8.6 $ 8.9
---------- ---------- ----- -----
---------- ---------- ----- -----
Selling expenses as a percentage of sales............. 15.9% 16.1% 15.7% 15.4%
---------- ---------- ----- -----
---------- ---------- ----- -----
<FN>
------------------------
(1) Represents revenue associated with Pharmacia AB ("Pharmacia") products
manufactured in IMED's Irish Manufacturing Facility ("IMED Ireland") for
Pharmacia during 1994 that has discontinued due to the sale of IMED Ireland
in August 1994.
</TABLE>
- 10 -
<PAGE>
The following table sets forth IMED sales by major product groups for the
periods presented.
<TABLE>
<CAPTION>
1994 SECOND 1995 SECOND
QUARTER QUARTER 1994 1995
----------- ----------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Piston Cassette Disposables.................................. $ 5.5 $ 3.8 $ 11.8 $ 9.2
Peristaltic Disposables...................................... 13.2 15.6 25.7 29.3
Piston Cassette Pumps........................................ 0.2 0.4 0.4
Peristaltic Pumps............................................ 5.4 7.6 9.6 13.8
ReadyMED..................................................... 0.8 0.6 1.8 1.5
Pharmacia product manufactured in Ireland.................... 0.8 1.7
Other (1).................................................... 1.6 1.6 3.6 3.6
----- ----- --------- ---------
Total........................................................ $ 27.5 $ 29.2 $ 54.6 $ 57.8
----- ----- --------- ---------
----- ----- --------- ---------
<FN>
------------------------
(1) Primarily includes operating lease income relating to pumps, service fees
and accessory sales.
</TABLE>
The Company's major source of revenue is the sale of proprietary disposable
administration sets for its installed infusion instrument base. The overall
volume of disposables sold has grown from 1994 through 1995. This growth has
been achieved despite a change in protocol at certain hospitals increasing the
maximum time between set changes from every 24 hours to as much as every 72
hours, and results primarily from an increase in IMED's installed base,
including the addition of new accounts. The Company is unable to predict the
potential effect of this change in protocol, which is expected to continue with
respect to certain applications of IMED's products, on the Company's future
financial condition or results of operations. IMED's products are at the high
end of the industry price range and compete on the basis of technological
sophistication, quality, safety and flexibility in application.
Disposable administration sets used with IMED's piston cassette pumps had
generated, prior to the third quarter of 1992, a majority of IMED's overall
sales of disposables and of IMED's total revenues. However, during 1994 and 1995
fewer than 7% of the worldwide unit sales of new pumps were attributable to
piston cassette pumps, with the remainder being represented by sales of Gemini
pumps. Virtually all placements to new customers from 1992 through 1995
consisted of Gemini instruments. Therefore, sales of piston cassette products
(pumps and disposables) are expected to continue to decline as demand for IMED's
pumps and proprietary disposable administration sets reflects to an increasing
extent the expected gradual shift away from piston cassette technology and
toward peristaltic technology, such as that used in IMED's Gemini series of
instruments, and other newer technology. IMED's current sales efforts, which
emphasize its Gemini series of products, are both consistent with and encourage
this shift. There can be no assurance that future sales of peristaltic products
will be sufficient to offset the anticipated continued decline in sales of older
technology.
The increase in U.S. sales from the 1994 Second Quarter to the 1995 Second
Quarter and from 1994 to 1995 is due primarily to increased volumes of
instruments and disposable administration sets partially offset by a slight
decline in selling prices of instruments and disposable administration sets.
Declines in selling prices are a result of market conditions. As hospitals
continue to seek ways to control operating costs, IMED can expect continuing
pressure to reduce prices. The Company believes that its future levels of
profitability will depend on reducing manufacturing costs, successful new
product introductions and the development of new markets for these new products.
The increase in international sales from the 1994 Second Quarter to the 1995
Second Quarter is primarily due to increased volumes of disposables sold in
Australia, the Middle East and the Far East. The increase in international sales
from 1994 to 1995 is primarily due to (i) increased volumes of instruments sold
in the Far East and in the European Territory ("European Territory") covered by
the distribution agreement with its European marketing and distribution partner,
Pharmacia, and
- 11 -
<PAGE>
(ii) increased volumes of disposables sold in Australia and the Far East. These
increases were partially offset by decreased volumes of disposables sold in the
European Territory due to Pharmacia purchasing patterns.
GROSS MARGIN
The gross margin percentage increased from the 1994 Second Quarter to the 1995
Second Quarter and from 1994 to 1995 primarily due to (i) molded parts and
components for disposable administration sets sourced from outside vendors at
lower costs than previous costs to manufacture at IMED Ireland, (ii) the
discontinuance of sales generated from low margin Pharmacia products
manufactured by IMED Ireland for Pharmacia discussed previously, and (iii) the
favorable effects of peso devaluation on the direct labor costs on assembly of
disposable administration sets at the Tijuana facility of $206 in the 1995
Second Quarter and $495 in 1995. The increase in gross margin percentage from
the 1994 Second Quarter to the 1995 Second Quarter and from 1994 to 1995 was
partially offset by the decline in instrument and disposable administration sets
selling prices in the U.S. market, as previously discussed.
SELLING EXPENSES
The increase in selling expenses from the 1994 Second Quarter to the 1995 Second
Quarter and from 1994 to 1995 is primarily due to (i) increases in promotion and
advertising expenses, (ii) expenses associated with certain 1995 sales meetings
not held in 1994 and (iii) increases in personnel costs associated with
additional headcount in international territories previously covered exclusively
by a dealer network. These increases were partially offset by cost containment
programs which have eliminated certain non-value added activities and
expenditures.
GENERAL AND ADMINISTRATIVE EXPENSES
The following table sets forth general and administrative ("G&A") expenses, in
millions, for Advanced Medical and its subsidiaries for the periods presented.
<TABLE>
<CAPTION>
1994 SECOND 1995 SECOND
QUARTER QUARTER 1994 1995
----------- ----------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
IMED........................................................... $ 2.1 $ 2.0 $ 4.7 $ 4.4
Advanced Medical............................................... .4 .2 .7 .6
Fidata......................................................... .2 .1 .3 .2
--- --- --- ---
Total G&A expenses......................................... $ 2.7 $ 2.3 $ 5.7 $ 5.2
--- --- --- ---
--- --- --- ---
</TABLE>
Due to the nature of Advanced Medical's operations, G&A expenses can fluctuate
from period to period as the majority of its costs are comprised of (i)
professional and consulting fees and indirect costs (such as travel costs)
associated with identifying, evaluating and making acquisitions and investments,
(ii) communication and meeting costs of shareholder and investor relations and
(iii) other costs of performing general holding company functions.
Advanced Medical is winding down Fidata's remaining operations. Management
expects to settle certain remaining claims and liquidate Fidata completely in
the fourth quarter of 1995. However, there can be no assurance that Fidata will
be completely liquidated in the fourth quarter of 1995 as such will require
court and regulatory approval.
RESEARCH AND DEVELOPMENT EXPENSES
The Company's Research and Development ("R&D") expenses, which consist
exclusively of IMED's R&D, increased from the 1994 Second Quarter to the 1995
Second Quarter and from 1994 to 1995 due primarily to personnel and related
costs associated with IMED's in-house development of a new line of hospital
infusion pumps and associated disposable administration sets based upon its
patented technology and know-how. Staffing and development programs which are in
place in 1995 were not fully implemented in 1994.
- 12 -
<PAGE>
RESTRUCTURINGS
During 1993, the Company recorded a $3.5 million restructuring charge in
connection with the sale of IMED Ireland and relocation of its molding
operations to the United States. The charge included accruals of $1.3 million
related to estimated relocation costs and professional fees. Cash payments of
approximately $.1 million were made during 1994 and 1995. Accrued expenses of
$.7 million remained at June 30, 1995. Expenditures of $.5 million and $.2
million are expected to be paid during the remainder of 1995 and 1996,
respectively.
The Company implemented a plan to restructure the operations of IMED during the
fourth quarter of 1993 and recorded a $1.2 million restructuring accrual. The
restructuring included (i) consolidation of certain operations, (ii) the
reduction in IMED's domestic work force by approximately 10%, (iii) the
modification of certain employee benefit plans and (iv) the elimination of
non-value added activities and expenditures. Cash payments of $.5 and $.1
million were paid during 1994 and 1995, respectively. Accrued restructuring
expenses of approximately $.4 million remained at June 30, 1995. Expenditures of
$.4 million, relating primarily to (i) above, are expected to be paid during the
remainder of 1995.
SEASONALITY
Infusion instrument sales are typically higher in the fourth quarter due to
sales compensation plans which reward the achievement of annual quotas and the
seasonal characteristics of the industry, including hospital purchasing
patterns. The Company anticipates that this trend will continue but is unable to
predict the effect, if any, from health care reform and increased competitive
pressures.
OTHER MATTERS
Other income (expense), net for 1994 Second Quarter and 1994, includes income of
$.2 million and $1.3 million, respectively, from the sale of marketable
securities. The Company did not sell any of its marketable securities during
1995.
Effective January 1, 1994 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
HEALTH CARE REFORM
Heightened public awareness and concerns regarding the growth in overall health
care expenditures in the United States may result in the enactment of national
and state health care reform or other legislation affecting payment mechanisms
and health care delivery. Legislation which imposes limits on the number and
type of medical procedures which may be performed or which has the effect of
restricting a provider's ability to select specific devices or products for use
in administrating medical care may adversely impact the demand for the Company's
products. In addition, legislation which imposes restrictions on the price which
may be charged for medical products may adversely affect the Company's results
of operations. It is not possible to predict the extent to which the Company or
the health care industry in general may be adversely affected by the
aforementioned in the future.
- 13 -
<PAGE>
PART II
OTHER INFORMATION
--------------------------------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(B) ARREARAGES IN THE PAYMENT OF PREFERRED STOCK DIVIDENDS
On March 28, 1994, Advanced Medical was required to redeem all the shares
outstanding of its 10% Preferred Stock at the redemption price of $10 per share
plus all accrued and unpaid dividends to the redemption date (329,901 shares
currently outstanding). On July 31, 1995, the total amount of dividend
arrearages on the 10% Preferred Stock was approximately $770,000. Unless
converted, Advanced Medical is required to redeem all the shares outstanding of
its Convertible Preferred Stock at an aggregate redemption price of
approximately $2,100,000 plus accrued and unpaid dividends at such time as the
10% Preferred Stock is completely redeemed. On July 31, 1995, the total amount
of dividend arrearages on the Convertible Preferred Stock was approximately
$745,000. No such redemption and dividend payments have been made due to
Advanced Medical's limited capital resources.
Advanced Medical did not declare and pay the September 1993, March 1994,
September 1994 and March 1995 dividends.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Items 4(a), (b) and (c) regarding the Annual Meeting of Stockholders of Advanced
Medical which was held June 22, 1995, are incorporated by reference to Advanced
Medical's Notice of Annual Meeting and Proxy Statement for Annual Meeting of
Stockholders, dated June 8, 1995.
- 14 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
4.1 Form of Certificate of Voting Powers, Designation, Rights, Preferences and
Restrictions of 10% Cumulative Preferred Stock. (Incorporated by reference to
Appendix A to the Prospectus/Joint Proxy Statement, dated March 3, 1989, of Fidata
Corporation, Advanced Medical, Inc. and Controlled Therapeutics Corporation
included and forming part of the Registration Statement on Form S-4 of Advanced
Medical.)
4.2 Loan Agreement, dated as of April 2, 1990, by and among IMED, as borrower, and
General Electric Capital Corporation ("GECC"), as agent and lender. (Incorporated
by reference to Exhibit 10(a) to the Company's report on Form 8-K dated April 17,
1990.)
4.3 Form of Certificates of Voting Powers, Designation, Rights, Preferences and
Restrictions of Convertible Preferred Stock. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990 [the
"1990 10-K"].)
4.4 Registration Rights Agreement, dated as of March 26, 1991, by and among the
Company, Mr. Picower, Decisions and JA Special Limited Partnership, regarding the
Convertible Preferred Stock. (Incorporated by reference to Exhibit 10.10(a) to the
1990 10-K.)
4.5 Indenture to U.S. Trust Company California, N.A., Trustee, dated January 30, 1992.
(Incorporated by reference to Exhibit 4.26 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.)
4.6 Letter Agreement, dated as of December 27, 1993, by and between Mr. Picower and the
Company (Incorporated by reference to Exhibit 1 to the Company's Report on Form 8-K
dated January 12, 1994.)
4.7 Promissory Note dated January 4, 1994 issued to Decisions. (Incorporated by
reference to Exhibit 4.33 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.)
4.8 Promissory Note, dated August 12, 1994, issued to Decisions. (Incorporated by
reference to Exhibit 99.3 to the Company's report on Form 10-Q for the quarter
ended June 30, 1994 [the "June 30, 1994 10-Q"].)
4.9 Modification Agreement dated February 3, 1995, by and between the Company and
Decisions Incorporated. (Incorporated by reference to the Exhibit 4.11 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 [the
"1994 10-K"].)
4.10 Exchange Agreement dated February 3, 1995, by and among the Company and Fidelity
Convertible Securities Fund and Fidelity Select Healthcare Fund. (Incorporated by
reference to Exhibit 4.12 to the Company's 1994 10-K.)
4.11 Indenture to United States Trust Company of New York dated as of June 1, 1995.
(Incorporated by reference to Exhibit 9(c)(4) to the Company's Schedule 13E-4 dated
April 21, 1995.)
10.1 Warrant Purchase Agreement, dated April 2, 1990, between IMED and GECC.
(Incorporated by reference to Exhibit 10-18 to the Company's report on Form 10-Q
for the quarter ended March 31, 1990 ([the "March 31, 1990 10-Q"].)
10.2 Warrant to Purchase Common Stock of IMED, dated April 2, 1990. (Incorporated by
reference to Exhibit 10-19 to the March 31, 1990 10-Q.)
10.3 Amended and Restated Distribution Agreement dated as of August 12, 1994 by and
among Pharmacia AB, IMED Corporation and the Company. (Incorporated by reference to
Exhibit 10.25 to the Company's Form 10-Q for the quarter ended September 30, 1994
[the "September 30, 1994 10-Q"].)
</TABLE>
- 15 -
<PAGE>
<TABLE>
<S> <C>
10.4 Final Agreement dated as of August 12, 1994 by and among the Company, AM General
Development Corp., AM Development Limited, Kamen, Deka Research & Development Corp.
and IMED Corporation. (Incorporated by reference to Exhibit 10.26 to the Company's
September 30, 1994 10-Q.)
10.5 Letter Agreement, dated as of June 29, 1994, by and between Mr. Picower and the
Company. (Incorporated by reference to Exhibit 99.1 to the June 30, 1994 10-Q.)
10.6 Amended and Restated Loan Agreement, dated August 12, 1994, by and between IMED and
GECC. (Incorporated by reference to Exhibit 99.2 to the June 30, 1994 10-Q.)
11.1 Computation of Net Income per share for the three and six month periods ended June
30, 1994 and 1995.
</TABLE>
---------------------------------------
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report is
being filed.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
________ADVANCED MEDICAL, INC.________
(REGISTRANT)
Date: August 8, 1995 By: ________/s/_JOSEPH W. KUHN________
Joseph W. Kuhn
PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
- 17 -
<PAGE>
EXHIBIT INDEX
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE NO.
--------- -----
<S> <C> <C>
11.1 Computation of Net Income per share for the three and six month periods ended June 30, 1994 and
1995............................................................................................. 19
</TABLE>
- 18 -
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE FOR THE THREE AND
SIX MONTHS ENDED JUNE 30, 1994 AND 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1995 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME PER COMMON SHARE ASSUMING NO DILUTION
Income before extraordinary item and dividends and accretion on
mandatorily redeemable preferred stock.......................... $ 1,189 $ 2,038 $ 2,038 $ 3,061
Dividends and accretion on mandatorily redeemable preferred
stock........................................................... (180) (162) (536) (325)
--------- --------- --------- ---------
Income before extraordinary item................................. 1,009 1,876 1,502 2,736
Extraordinary item - gain on early retirement of debt............ 6,370 15,177
--------- --------- --------- ---------
Net income applicable to common stock............................ $ 1,009 $ 8,246 $ 1,502 $ 17,913
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding (1)................... 14,069 15,942 14,069 15,018
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share assuming no dilution:
Income before extraordinary item................................. $ 0.07 $ 0.12 $ 0.11 $ .18
Extraordinary item - gain on early retirement of debt............ 0.40 1.01
--------- --------- --------- ---------
Net income per common share assuming no dilution................. $ 0.07 $ 0.52 $ 0.11 $ 1.19
--------- --------- --------- ---------
--------- --------- --------- ---------
INCOME PER COMMON SHARE ASSUMING FULL DILUTION
Income before dividends and accretion on mandatorily redeemable
preferred stock................................................. $ 1,189 $ 2,038 $ 2,038 $ 3,061
Dividends and accretion on mandatorily redeemable preferred
stock........................................................... (180) (162) (536) (325)
Add back interest expense, net of tax, on convertible promissory
notes........................................................... 79 150 153 299
--------- --------- --------- ---------
Income before extraordinary item................................. 1,088 2,026 1,655 3,035
Extraordinary item - gain on early retirement of debt............ 6,370 15,177
--------- --------- --------- ---------
Net income applicable to common stock............................ $ 1,088 $ 8,396 $ 1,655 $ 18,212
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding prior to conversion of
convertible promissory notes (1)................................ 14,069 15,995 14,069 15,218
Add weighted average shares issued upon conversion of convertible
promissory notes................................................ 6,000 16,565 5,900 16,525
--------- --------- --------- ---------
Weighted average common shares outstanding....................... 20,069 32,560 19,969 31,743
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share assuming full dilution:
Income before extraordinary item................................. $ 0.05 $ 0.06 $ 0.08 $ 0.09
Extraordinary item - gain on early retirement of debt............ 0.20 0.48
--------- --------- --------- ---------
Net income per common share assuming full dilution............... $ 0.05 $ 0.26 $ 0.08 $ .57
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
------------------------
(1) INCLUDES THE COMMON STOCK EQUIVALENT OF DILUTIVE OPTIONS OUTSTANDING AT THE
END OF EACH PERIOD.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,679
<SECURITIES> 3,973
<RECEIVABLES> 18,426
<ALLOWANCES> (857)
<INVENTORY> 15,766
<CURRENT-ASSETS> 49,415
<PP&E> 27,780
<DEPRECIATION> (15,862)
<TOTAL-ASSETS> 130,323
<CURRENT-LIABILITIES> 22,228
<BONDS> 67,894
<COMMON> 162
6,892
0
<OTHER-SE> 21,378
<TOTAL-LIABILITY-AND-EQUITY> 130,323
<SALES> 57,756
<TOTAL-REVENUES> 57,976
<CGS> 33,414
<TOTAL-COSTS> 33,414
<OTHER-EXPENSES> 18,056
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 4,096
<INCOME-PRETAX> 3,396
<INCOME-TAX> 335
<INCOME-CONTINUING> 3,061
<DISCONTINUED> 0
<EXTRAORDINARY> 15,177
<CHANGES> 0
<NET-INCOME> 18,238
<EPS-PRIMARY> 1.19
<EPS-DILUTED> .57
</TABLE>
