<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to _________
Commission file number 1-12954
US MEDICAL PRODUCTS, INC.
(Name of small business issuer in its charter)
TEXAS 74-2599718
(State of incorporation) (IRS Employer Identification No.)
12201 TECHNOLOGY BOULEVARD, SUITE 100, AUSTIN, TEXAS 78727
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (512) 257-8787
Check whether the issuer(1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act 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
-- --
The number of shares outstanding as of May 16, 1997 is 16,247,575.
This document consists of 9 sequentially numbered pages of which this is page 1.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
US Medical Products, Inc.
BALANCE SHEET
March 31, 1997
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 56,624
Accounts Receivable, net 487,342
Inventory 1,867,447
Prepaid Expenses 290,838
------------
Total Current Assets 2,702,251
Property and Equipment, net 784,971
Other Assets 85,492
------------
Total Assets $ 3,572,714
------------
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 2,185,790
Accrued expenses 112,084
Current portion of capital lease obligations 44,273
Current portion of long-term debt 334,476
Other Liabilities 689,088
------------
Total Current Liabilities 3,365,711
Long-term portion of capital lease obligations 61,661
------------
Total Liabilities 3,427,372
Stockholder's Equity
Common stock, no par value
40,000,000 shares authorized
16,247,575 issued and outstanding
15,838,007
Accumulated deficit (15,692,666)
------------
Total stockholder's equity 145,342
Total liabilities and stockholder's equity $ 3,572,714
------------
------------
SEE ACCOMPANYING NOTES
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US MEDICAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
. March 31
1997 1996
-------------------------
Revenues $1,766,992 $ 769,580
Expenses:
Cost of Goods Sold 1,588,223 263,862
Sales and marketing 134,573 468,717
Research and development 116,741 314,002
General and administrative 277,658 344,484
Interest, net 7,476 125,834
Writedown of Assets to net realizable value 109,729 -
---------- ----------
Total expenses $2,234,400 $1,516,899
Net loss $(467,408) $(747,319)
Loss per common share $(.03) $(.10)
Weighted average common shares outstanding 16,247,575 7,201,702
SEE ACCOMPANYING NOTES.
<PAGE>
US MEDICAL PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended
March 31, 1997
1997 1996
----------------------
Operating Activities
Net (loss) $(467,408) $ (747,319)
Adjustments to reconcile net loss to net cash
used in operating activities
Writedown of assets to Net Realizable Value 109,729
Depreciation & Amortization 127,028 122,258
Issuance of notes payable in lieu of payment fot item 118 816
Changes in assets & liabilities
Decrease (Increase) in accounts receivable, net 193,686 (67,344)
Decrease (Increase) in inventories 1,386,465 (1,019,193)
Decrease (increase) in prepaid expenses (146,604) 36,378
(Increase) in other assets (27,000) (4,615)
Increase (decrease)in accounts payable and
accrued expenses (418,807) 309,344
Increase (decrease) in other liabilities 146,067 --
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Net cash used in operating activities 903,156 (1,324,436)
Investing activities
Sale of furniture and equipment 21,911 --
Purchase of furniture and equipment (48,147) (181,935)
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Net cash used in investing activities (26,236) (181,935)
Financing Activities
Proceeds from the issuance of notes payable-
investor 165,000 1,461,000
Payments on notes payable (1,000,000) (26,522)
Payments on capital lease obligations (10,398) (9,313)
--------- ----------
Net cash provided by financing activities (845,398) 1,425,165
Net decrease in cash and cash equivalents 31,522 (81,206)
Cash and cash equivalents at beginning of period 25,102 89,372
--------- ----------
Cash and cash equivalents at end of period 56,624 8,166
Supplemental research transaction:
Stock issued upon conversion of note
by majority shareholder $ 1,849,449
SEE ACCOMPANYING NOTES
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in March 1991, to develop, manufacture and market
medical and surgical products at prices lower than those of competing products.
Its products are joint reconstructive devices, namely the Consensus-Registered
Trademark- Knee, Hip and Bipolar Systems (the "Consensus Products"), consisting
of prostheses that replace all or a part of the patient's diseased or fractured
joint, together with the specialized surgical instruments used to implant these
devices. The Consensus Products are designed to be substantially equivalent to
other highly featured joint replacement systems on the market. However, both
the implant devices and surgical instruments comprising the Consensus Products
incorporate certain distinctive features designed to accommodate the preferences
of orthopedic surgeons.
US Medical Products, Inc., a Texas corporation (the "Company"), has entered
into merger negotiations with Metrax Medical, Inc., a Delaware corporation
("Metrax Medical"), which owns 80% of the Company's Common Stock. Metrax
Medical is a privately held company that owns 100% of Metrax GmbH, a German
based medical products company that develops, manufactures and internationally
distributes professional medical products and consumer wellness products. Upon
consummation of the merger, the Company anticipates that Metrax Medical will be
merged with and into the Company, with the Company remaining as the surviving
entity to continue the operations of Metrax Medical. The Company also intends
to change its name to Metrax International, Inc.
The Company is also currently negotiating to sell substantially all of its
assets to Hayes Medical, Inc., a California corporation ("Hayes Medical") for a
secured promissory note in the principal amount of 56.25% of the agreed upon
book value of the assets, less certain liabilities of the Company to be assumed
by Hayes Medical at closing and less a cash payment to be made of approximately
$300,000. The Company is also currently negotiating an agreement to sell its
intellectual property to Hayes Medical for a consideration of approximately
$550,000.
Effective February 1, 1997, the Company entered into a "worldwide exclusive
distribution agreement" with an affiliate of Hayes Medical (the "Distributor").
In conjunction with this agreement, the Company sold to the Distributor
inventory with a book value of $1.78 million dollars in exchange for a cash
purchase price of 56.25% of the net book value of such inventory ($1.0 million).
The Distributor also agreed to purchase additional inventory with a net book
value of $.533 million in exchange for a cash purchase price of 56.25% of the
inventory's book value ($.3 million dollars). Any additional purchases by the
Distributor pursuant to the worldwide distribution agreement will be made at 60%
of the Company's list price. See "Subsequent Events".
<PAGE>
RESULTS OF OPERATIONS
REVENUE. The Company's total revenue increased from $769,580 for the
three month period ended March 31, 1996 to $1,766,992 for the same period in
1997. The Company's revenue is primarily derived from the sale of orthopedic
implant devices together with corresponding surgical instruments. The increase
in total revenue from 1996 to 1997 was primarily attributable to the worldwide
distribution agreement entered into with the Hayes Medical affiliate.
COSTS OF GOODS SOLD. Costs of goods sold increased from $263,862 for the
three month period ended March 31, 1996 to $1,588,223 for the same period in
1997. Costs of goods sold includes the cost of materials, manufacturing costs,
related production costs and allocated overhead costs. As a result of the
distributorship agreement, the gross margin decreased from 65.7 % for the three
month period ended March 31, 1996 to 10.1% for the same period in 1997.
SALES AND MARKETING. Sales and marketing expense decreased from $468,717
for the three month period ended March 31, 1996 to $134,573 for the same period
in 1997. The decrease in Sales and Marketing expenses is attributable to the
decrease in expenses due to the worldwide distribution agreement.
RESEARCH AND DEVELOPMENT. Research and development expense decreased from
$314,002 for the three month period ended March 31, 1996 to $116,741 for the
same period in 1997. The primary components of research and development expense
are salaries and development costs associated with the primary knee
implant/instrument system. The development costs include creation of models,
prototypes, test parts, product testing and preproduction of clinical implants
and instruments for product evaluation prior to final release.
GENERAL AND ADMINISTRATIVE. General and administrative expense decreased
from $344,484 for the three month period ended March 31, 1996 to $277,658 for
the same period in 1997. The primary components of general and administrative
expense are salaries, including those for the Company's finance and
administration staff, and all components of corporate overhead not charged to
inventory.
Interest for the three month period ended March 31, 1996 in the amount of
$125,834 is primarily attributable to the note held by the Company on behalf of
Smith Management, the company's majority shareholder at the time. Interest for
the same period in 1997, in the amount of $7,476 is due to the Company's current
majority shareholder, Metrax Medical, Inc., and various equipment lease notes.
The Company incurred a net loss for the three month period ended March 31,
1997 of $467,408, or ($0.03) per share. This net loss compares to the loss in
1996 of $747,319, or ($0.10) per share.
The Company intends to sell substantially all of its assets to Hayes
Medical at approximately 56.25% of book value. While there can be no assurance
that this sale will be consummated, it indicates an impairment in value of the
Company's assets. As a result, the Company has recorded a writedown of
inventory and fixed assets of $109,729 for the quarter ended March 31, 1997.
<PAGE>
LIQUIDITY & FINANCING:
On August 19, 1996, Durian Securities, Inc., a private investment company
managed and administered by Smith Management Co., Inc., sold its holdings in the
Company and its notes receivable from the Company with a face value of
$1,100,000 to Metrax Medical, Inc. ("MMI)". In January 1997, the Company paid
$1,000,000 to MMI as payment on this debt . MMI used a majority of these
proceeds to satisfy its obligations to Durian, thereby removing the encumbrances
on the Company's assets which were collateralizing the MMI's note payable to
Durian and loaned $165,000 to the Company to reduce accounts payable.
SUBSEQUENT EVENTS:
On April 7, 1997, the Company signed an amendment to the "world wide
exclusive distribution agreement," whereby up to an additional $700,000 of
inventory may be purchased at a price of 30% above cost (prior to valuation
reserves) for new inventory or 56.25% of fully burdened cost (prior to valuation
reserves) for existing inventory. Additional future purchases made under this
agreement, if any, will be made at a price to be agreed upon by both parties.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain claims arising in the normal course of
business. It is unable to say at this time the extent to which these matters
will be pursued by the claimants or to predict with certainty the eventual
outcome. However, the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on its financial position or
results of operations.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
See Subsequent Events
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits on this Form 10-QSB
None
b. Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
U.S. Medical Products, Inc.
Registrant
/s/ FREDERICK MINDERMANN
----------------------------
Frederick Mindermann
Chief Executive Officer
May 20, 1997
/s/ CHERYL SEALE
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Cheryl Seale
Director - Finance and Administration
May 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 58,624
<SECURITIES> 0
<RECEIVABLES> 487,342
<ALLOWANCES> 0
<INVENTORY> 1,367,447
<CURRENT-ASSETS> 2,702,251
<PP&E> 784,971
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,572,714
<CURRENT-LIABILITIES> 3,365,711
<BONDS> 0
0
0
<COMMON> 15,838,007
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,572,714
<SALES> 1,766,992
<TOTAL-REVENUES> 1,766,992
<CGS> 1,588,223
<TOTAL-COSTS> 2,234,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,476
<INCOME-PRETAX> (467,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (467,408)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
