<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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: 0-22390
---------------------------------------------------------
U.S. MEDICAL SYSTEMS, INC.
--------------------------
Delaware 68-0206382
- ---------------------------------------------- --------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7600 Burnet Road, Suite 350, Austin, TX 78757
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code. . . . . . . (512) 795-0440
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 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
-------- ---------
Number of shares outstanding of the issuer's common stock, as of March 31, 1997:
2,873,823
Page 1 of 13
<PAGE> 2
U.S. MEDICAL SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
------------------------------ ----
<S> <C>
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets -
March 31, 1997 and June 30, 1996 3
Unaudited Condensed Consolidated Statements of
Operations - For the three months ended
March 31, 1997 and March 31, 1996 4
Unaudited Condensed Consolidated Statements of
Operations - For the nine months ended March 31, 1997
and March 31, 1996 5
Unaudited Condensed Consolidated Statements of
Cash Flows - For the nine months ended March 31, 1997
and March 31, 1996 6
Notes to the Unaudited Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 9
PART II. OTHER INFORMATION
Signature 13
</TABLE>
Page 2 of 13
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. MEDICAL SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 June 30
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 181,014 $ 22,014
Accounts receivable 174,167 67,479
Inventory 80,960 111,043
Prepaid expenses 7,028 7,720
----------- -----------
TOTAL CURRENT ASSETS 443,169 208,256
Other Assets
Property and equipment, net 17,949 25,346
Intangible assets, net 71,006 141,796
----------- -----------
TOTAL OTHER ASSETS 88,955 167,142
----------- -----------
TOTAL ASSETS $ 532,124 $ 375,398
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 39,426 $ 53,174
Accrued liabilities 28,435 114,724
Current portion of long-term debt due to stockholders 49,500 796,950
----------- -----------
TOTAL CURRENT LIABILITIES 117,361 964,848
----------- -----------
TOTAL LIABILITIES 117,361 964,848
----------- -----------
Stockholders' Equity
Common stock, 20,000,000 shares authorized, $ .01 par
value, 2,873,823 issued and outstanding March 31, 1997
and 2,332,023 issued and outstanding June 30, 1996 28,738 117,246
Additional paid-in capital 7,039,383 5,826,636
Accumulated deficit (6,653,358) (6,533,332)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 414,763 (589,450)
TOTAL LIABILITIES AND STOCKHOLDERS'
----------- -----------
EQUITY $ 532,124 $ 375,398
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Page 3 of 13
<PAGE> 4
U.S. MEDICAL SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
For the three months For the three months
ended March 31 ended March 31
1997 1996
---------------- ----------------
<S> <C> <C>
Net Sales $ 218,889 $ 163,725
Cost of sales (63,962) (95,868)
---------------- ----------------
GROSS PROFIT 154,927 67,857
Costs and expenses
General and administrative 56,307 45,715
Selling and marketing (802) 11,566
Research and development 874 (3,963)
Depreciation and amortization 16,573 43,626
---------------- ----------------
TOTAL COST AND EXPENSES 72,952 96,944
---------------- ----------------
PROFIT (LOSS) FROM OPERATIONS 81,975 (29,087)
Other income (expense)
Interest income 2,140 832
Interest expense (1,238) (19,923)
Miscellaneous income (expense), net 586 294
---------------- ----------------
TOTAL OTHER INCOME (EXPENSE) 1,488 (18,797)
---------------- ----------------
NET PROFIT (LOSS) $ 83,463 $ (47,884)
================ ================
Net income (loss) per share $ 0.03 $ (0.01)
================ ================
Weighted average shares outstanding 2,741,954 8,509,140
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Page 4 of 13
<PAGE> 5
U.S. MEDICAL SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
For the nine months For the nine months
ended March 31 ended March 31
1997 1996
----------------- -----------------
<S> <C> <C>
Net Sales $ 435,156 $ 433,562
Cost of sales (195,717) (210,821)
----------------- -----------------
GROSS PROFIT 239,439 222,741
Costs and expenses
General and administrative 221,239 263,987
Selling and marketing 38,002 92,580
Research and development 7,890 82,245
Depreciation and amortization 77,549 135,725
----------------- -----------------
TOTAL COSTS AND EXPENSES 344,680 574,538
----------------- -----------------
LOSS FROM OPERATIONS (105,241) (351,797)
Other income (expense)
Interest income 2,755 2,751
Interest expense (29,720) (59,769)
Miscellaneous income (expense), net 12,180 (4,885)
----------------- -----------------
TOTAL OTHER INCOME (EXPENSE) (14,785) (61,903)
----------------- -----------------
NET LOSS $ (120,026) $ (413,700)
================= =================
Net income (loss) per share $ (0.07) $ (0.05)
================= =================
Weighted average shares outstanding 1,765,608 8,509,140
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Page 5 of 13
<PAGE> 6
U.S. MEDICAL SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months For the nine months
ended March 31 ended March 31
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net Loss $ (120,026) $ (413,700)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 77,549 104,266
Loss on disposition of excess equipment 638
Changes in assets and liabilities
Accounts receivable (106,688) 60,614
Inventories 30,083 70,882
Prepaid expenses and other assets 692 2,606
Accounts payable and accrued liabilities 5,852 (42,930)
---------------- ----------------
Net cash used for operating activities (111,900) (218,262)
---------------- ----------------
Cash flows from investing activities:
Proceeds from sales of furniture and equipment -- 62,439
---------------- ----------------
Net cash provided by (used for) investing activities 62,439
---------------- ----------------
Cash flows from financing activities:
Additional paid in capital -- 59,400
Proceeds from issuance of common stock -- 600
Private Placement shareholders' investment 270,900 --
---------------- ----------------
Net cash provided by financing activities 270,900 60,000
---------------- ----------------
Increase (decrease) in cash 159,000 (95,823)
Cash and cash equivalents at beginning of year 22,014 194,969
---------------- ----------------
Cash and cash equivalents at end of period $ 181,014 $ 99,146
================ ================
Supplemental non-cash financing activities:
The following occurred in December 1996
1. 3,177,325 shares of common stock held in escrow
were canceled
2. A one-for-seven reverse split of common stock was
completed
3. 1,110,983 shares of common stock were issued in
exchange for notes payable totaling $747,450 and
accrued interest totaling $105,889
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Page 6 of 13
<PAGE> 7
U.S. MEDICAL SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION
U.S. MEDICAL SYSTEMS, INC. (the "Company"), (formally Medical Polymers
Technologies, Inc.), through its wholly-owned subsidiary U.S. Medical,
Inc., develops, produces and markets products directed at the
over-the-counter consumer market and products related to infection
prevention for the professional dental health care industry.
The Company's current cash resources have not been sufficient to
support the Company's current debt interest payments and extensive
consumer promotion of existing products. As such, the Company is
focusing its strategy on the Miracle Grip(R) and PDS(R) Clean
products. Due to the extensive capital requirements for consumer
advertising, the Company will curb new product launches in 1997 and
only market its two revenue producing products. In December 1996, the
Company completed a restructuring and $853,000 of its long term debt
was converted to equity.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and, accordingly, do not include
all information and footnotes required under generally accepted
accounting principles for complete financial statements. In the
opinion of management, these interim condensed consolidated financial
statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the
financial position of the Company as of March 31, 1997, and the
results of the Company's operations and its cash flows for the three
months and nine months ended March 31, 1997 and 1996. These condensed
consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-KSB/A-1 filed on September 19,
1996.
3. INVENTORIES
At March 31, 1997 and June 30, 1996, inventories consisted primarily
of finished products, work in progress and raw chemicals. The balance
of inventory consisted of packaging materials for Miracle Grip(R).
4. LONG TERM DEBT
The Company completed a private placement of 10% subordinated debt
with warrants to existing shareholders on March 1, 1995 for $805,000.
This private placement included one stock purchase warrant exercisable
for approximately 2.9 shares of $.01 par value Common Stock of the
Company for every $1.00 of principal. One cent of each dollar invested
was attributed to the purchase of the warrants and $0.99 was
attributed to the notes. The warrants were exercisable at any time
after September 1, 1995 until February 27, 2000 at an exercise price
of $0.15 per share of common stock, subject to adjustment. Terms of
debt were 10% interest only to be paid March 1, 1996; 10% interest and
one-half of the principal to be paid March 1, 1997; and 10% interest
and the balance of the principal was to be paid March 1, 1998. The
amount of the proceeds
Page 7 of 13
<PAGE> 8
attributable to the warrants ($8,050) was recorded as a discount to
debt (to be amortized over the life of the debt) and an increase to
additional paid-in capital. Offering expenses of $35,000 were incurred
and recorded as an intangible asset in the financial statements.
However, the remaining unamortized offering expense of $21,000 were
written off in December 1996, when the debt was converted to equity.
These expenses were being amortized over the life of the debt. On
November 19, 1996, stockholders approved a reorganization plan which
converted $853,000 of the principle and interest of this debt to
equity. On December 17, 1,110,983 shares of common stock was issued to
satisfy the above debt. Warrants related to this private placement
were canceled as part of the reorganization. There is one debt holder
remaining which represents $49,500 of principle and approximately
$9,075 in interest. The Company is seeking to restructure this debt.
5. REORGANIZATION PLAN
In order to address the Company's financial problem and return the
Company to a stable financial condition, management, with the approval
of the Board of Directors, devised a Reorganization Plan. The
Reorganization Plan called for the cancellation of all the
indebtedness of the Company to its noteholders through an offer to
exchange the outstanding notes for the Company's Common Stock. On June
10, 1996, the Vancouver Stock Exchange indicated that it had no
objection to the proposed debt settlement with the noteholders.
Written approval was secured by twenty-three of the noteholders. The
stockholders approved the debt settlement on November 19, 1996.
Stockholders also approved, as part of the reorganization, a
consolidation of the Company's shares on a one-for-seven reverse split
and approved a change of the name of the Company to U. S. Medical
Systems, Inc. Other items the Company took action on as part of the
reorganization, which did not require stockholder approval, were:
cancellation of 3,177,325 escrowed shares and a private placement
which raised approximately $270,900. On December 17, 1996, the
Vancouver Stock Exchange approved the reorganization and the company
began trading as U.S. Medical Systems, Inc. on the Vancouver Stock
Exchange (Symbol: USS) and the NASD Bulletin Board (Symbol: USME). On
January 22, 1997, the Vancouver Stock Exchange approved the private
placement. Since the private placement was not approved until January
1997, $213,275 received in December 1996 from investors in the private
placement was recorded as U.S. Medical Systems, Inc. liabilities and
included in accrued liabilities in the December 31, 1996 financial
statements. An additional $57,625 was received in this reporting
period and 541,800 shares of common stock were issued in January 1997.
6. NET INCOME (LOSS) PER SHARE
Net (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares and common share equivalents
(if dilutive) during each period. As required by accounting principles
generally accepted in the United States, issued and outstanding shares
of common stock which are held in escrow are excluded from the
weighted average number of common and common equivalent shares because
the release of such shares is contingent upon the Company reaching
certain financial goals which have not yet been attained. In this
period due to the one for seven reverse split in the last period, the
weighted averages were recomputed. On March 31, 1997, the weighted
average, excluding escrow shares, was 1,765,608 for the nine month
period and 2,741,954 for the quarter being reported.
Page 8 of 13
<PAGE> 9
ITEM 2.
This quarterly report on Form 10-Q contains certain forward-looking statements
and information relating to the Company and its subsidiaries that are based on
the beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate" and "intend" and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, competitive factors, general
economic conditions, customer relations, relationships with vendors,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to
update these forward-looking statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion below analyzes changes in the consolidated operating results and
financial conditions of the Company during its third quarter of fiscal 1996 and
1997 and the nine month period ended March 31, 1996 and 1997.
GENERAL
The Company experienced an increase in net sales, a profit from operation and a
profit for the fiscal quarter ended March 31, 1997. Net sales increased 33.7%
during the third quarter from $163,725 in 1996 to $218,889 in 1997. Operating
profits increased 335% from a loss of $29,087 in fiscal 1996 to a profit
$81,975 in fiscal 1997 third quarter. Net profit increased 274% from a loss of
$47,884 in 1996 to a profit of $83,463 for the reporting quarter. The Company's
gross margin increased to 70.7% in 1997 from 41.4% in 1996. The increase in
gross margin was due primarily to the increased sales of the PDS(R) product
line in this quarter. Losses are anticipated in 1997 as the Company continues
its efforts to obtain increased market acceptance for its Miracle Grip(R)
product line, and expand the PDS(R) line to other markets.
The increase in sales for the current period is attributable to the sales in
PDS(R) line. Likewise, increases in operating profits are related to the
increase in sales and to decreases in overall expenses. It is expected that
overhead expenses should be stable in the next period.
The Company continues to seek increases in sales of the Miracle Grip(R) product
line through major food and drug chains in the United States. Likewise, the
Company has completed a direct mail test in areas of the country where Miracle
Grip(R) is not sold and may continue to pursue sales through that channel as
well. Strategically, the Company will require additional capital to manufacture
and market existing and future products developed internally.
During the previous period, the Board of Directors completed a reorganization
plan to restructure the Company and convert debt to equity. There can be no
assurance that the reorganization approved by stockholders in November and by
the Vancouver Stock Exchange will ensure financial success. Likewise, there can
be no assurance that the Company will be able to sustain operations through
1997, convert its remaining raw materials and packaging inventories into
salable products and successfully
Page 9 of 13
<PAGE> 10
market its products. At the Company's annual meeting, stockholders were told
that the Company might seek to sell one or all of its existing product lines
and seek to acquire an existing company.
The Company has suffered significant net losses, has a substantial accumulated
deficit and has generated significant negative cash flows from operations.
Marketing and costs to maintain inventory during fiscal 1997 will require
significant cash resources. The Company obtained $270,900 in December 1996 and
January 1997 in connection with the private placement of equity and warrants.
However, there can be no assurance that the additional cash resources will
enable the Company to sustain operations in the next fiscal year, convert its
remaining raw materials and packaging inventories into salable products and
successfully market its products. In consideration of this, additional
financing may be required in order to continue to fund operations. See the
discussion under "Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's Condensed Consolidated Financial Statements of Income, expressed
as a percentage of revenue:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31 March 31
1997 1996 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0%
COSTS AND EXPENSES
Cost of sales (29.2%) (58.6%) (45.0%) (48.6%)
General and administrative (25.7%) (27.9%) (50.9%) (60.9%)
Selling and marketing 0.04% (7.1%) (8.7%) (21.4%)
Research and development (0.04%) 2.4% (1.8%) (19.0%)
Depreciation and amortization (7.6%) (26.6%) (17.8%) (31.3%)
-------------------------------------------
OPERATING EXPENSES (62.5%) (117.7%) (124.2%) (181.1%)
INCOME (LOSS) from operations 37.5% (17.8%) (24.2%) (81.1%)
Total other income (expense): 0.6% (11.5%) (3.4%) (14.3%)
NET INCOME (LOSS) 38.1% (29.3%) (27.6%) (95.4%)
=====================================================================================
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales for the three months ended March 31, 1997, increased 33.7% to
$218,889 from $163,725 for the same period last year. Approximately two-thirds
of the 1997 sales were related to PDS(R) Clean product for the dental market
which has higher margins, lower cost of goods and lower marketing costs. Sales
of the polymer film product line decreased 31% from last year's period. This
was due to the loss of the Walgreens account due to slower than expected sales
in their stores. Net sales of the discontinued stick technology decreased 83%
compared to the corresponding fiscal 1996 period. Sales of the PDS(R) line were
up in this period.
Cost of goods sold as a percentage of net sales decreased to 29.2% from 58.6%
in the fiscal 1996 period. The decrease was primarily the result of a shift in
mix of sales, with increased sales in the PDS(R) technology compared to the
film technology product and higher gross margins of products sold in the
Page 10 of 13
<PAGE> 11
current period. Gross margins are expected to fluctuate in future quarters with
mixed sales between the polymer film technology and the PDS(R) line.
General and administrative expenses increased by $10,592, or 23.2% in the third
quarter 1997 period compared to the 1996 period primarily as a result of
nonrecurring expenses of approximately $25,000 related to legal, accounting,
shareholder communications expenses due to the reorganization and an adjustment
in vacation accrual. Overhead expenses are expected to be stable in the next
quarter. Management plans to continue cost cutting efforts in this area.
The decrease of over $12,000 or 106.9% in sales and marketing expenses in the
third quarter 1997 period was largely associated with a credit of promotional
and advertising cost on the Miracle Grip(R) product line from the previous
quarter. Currently sixteen brokers representing the Company market the Miracle
Grip(R) product. Selected advertising and in-store promotions will continue
during fiscal 1997.
Research and development expenses increased to less than $1,000 in the current
period. The increase was attributed to consulting fees to NewForm Development
Labs.
Interest expense decreased to $1,238 attributable to the debt conversion of
$853,000 of principle and interest. The interest income increased 257% in the
period due to the equity raised in the last period. There was an increase of in
miscellaneous income due to a refund on product liability insurance from an
overpayment in fiscal 1996.
As a result of the above activities, the Company's losses decreased from
$47,884 in the fiscal 1996 period, or $0.01 per share to a profit of $83,463,
or $0.03 per share in fiscal 1997's third quarter. If the Company is able to
enhance advertising support for Miracle Grip(R) in 1997, management anticipates
the sales volumes should grow for the Miracle Grip(R) product line. However,
the Company operates in a highly competitive industry with companies that are
better established in the market place and have vastly greater resources than
the Company. Therefore, there can be no assurances that demand for the
Company's Miracle Grip(R) product line will continue to grow.
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Net sales for the nine months ended March 31, 1997 were flat at $435,156 as
compared to $433,562 for the same period of the previous year. The flat sales
were attributable to reduced purchases of the QUITCH(R) products due to the
discontinuance of the solid stick technology. Sales of Miracle Grip(R)
increased by 19% over the fiscal 1996 nine month period.
Costs of goods sold as a percentage of net sales declined to 45.0% from 48.6%
in the fiscal 1996 period. This increase resulted from increased PDS(R) products
being manufactured in the third quarter.
General and administrative expenses decreased by $42,749 or 16.2% to $221,239
in the nine month period. This was due primarily to reduced staff in the
period. The Company is currently contracting all accounting and market support
services. The Company expects that general and administrative expenses will
stabilize since the Company is currently placing emphasis on cost controls and
limiting non-essential spending whenever feasible. However, efforts to acquire
a company will effect these expense areas.
Sales and Marketing expenses also decreased by $54,578 or 59% to $38,002 from
$92,580 in the nine month period last year. This continued decrease resulted
from the management decision to eliminate the costly master broker arrangement,
and reduce broad based national advertising until distribution expands.
Page 11 of 13
<PAGE> 12
Research and development expenses decreased 90.4% to $7,890 in the nine month
period. This resulted from the completion of clinical studies and stability
studies and the completion of development on current and future products with
NewForm Labs. The Company expects that research and development costs will be
minimal through the remainder of fiscal year 1997.
Interest expense decreased to $29,720 attributable to the debt to equity
conversion by stockholders from the debt financing of $805,000 on March 1,
1995. The stabilization in interest income of $2,755 from the previous nine
month period last year was a result of more interest bearing investments during
the current period due to the increased cash infusion from the private
placement in the last period. The increase in miscellaneous income by $12,180
in the nine month period from last year is attributed to a refund on product
liability insurance from fiscal 1996.
Net losses of $120,026 were down $293,674 or 71.0% from the corresponding
fiscal 1996 nine month period. The continued reduction is losses resulted from
increased strength in product sales and the steady focus of management at cost
controls including less expensive manufacturing processes.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 was $325,808 compared to a deficit in working
capital at June 30, 1996 of $756,592. Current ratio was 3.78 from 0.22 at June
30, 1996. The increase in working capital is due to the conversion of $853,000
of the Company's debt to equity and an cash infusion of $270,900 due to the
closing of a private placement in the period, as well as a profitable third
quarter.
There were no capital expenditures in this period.
Total long term debt outstanding was $49,500, not including accrued interest on
the debt, at March 31, 1997 of $9,075, which was a 94% reduction from the first
quarter. Interest on the remaining debt is being accrued monthly.
In December 1996, the Company completed a reorganization plan which included
the conversion $853,000 of debt and interest through November 1, 1996 to
equity. This transaction was approved by 23 of the 24 noteholders representing
94% of the Company's outstanding debt. The Company is negotiating to
restructure the remaining 6% of the debt.
Management believes the reorganization, including the debt conversion to
equity, together with existing cash resources and net proceeds from sales of
its products and the completed private placement will be satisfactory to fund
operations for the next six to nine months. There can be no assurance that the
Company will be able to obtain financing on acceptable terms, if at all, to
fund operations beyond that time frame. Currently, management is reviewing a
number of acquisition opportunities however, there are no immediate
opportunities to present to the stockholders.
Page 12 of 13
<PAGE> 13
SIGNATURE
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.
U.S. MEDICAL SYSTEMS, INC.
THE REGISTRANT
Date: April 29,1997
/s/ SHARRI MCANALLY
-----------------------------
Sharri McAnally
Corporate Secretary
(an authorized accounting officer on behalf of the registrant)
Page 13 of 13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000898770
<NAME> U.S. MEDICAL SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 181,014
<SECURITIES> 0
<RECEIVABLES> 174,167
<ALLOWANCES> 5,000
<INVENTORY> 80,960
<CURRENT-ASSETS> 443,169
<PP&E> 17,949
<DEPRECIATION> 0
<TOTAL-ASSETS> 443,169
<CURRENT-LIABILITIES> 117,361
<BONDS> 0
0
0
<COMMON> 2,873,823
<OTHER-SE> 414,763
<TOTAL-LIABILITY-AND-EQUITY> 532,124
<SALES> 435,156
<TOTAL-REVENUES> 0
<CGS> 195,717
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 1,238
<INCOME-PRETAX> 83,463
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
