U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(mark one)
__X___Quarterly report under Section 13 or 15 of the Securities Exchange Act
of 1934.
For the quarterly period ended September 30, 1998.
______Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______ to ______
Commission file number 0-16341
Advanced Medical Products, Inc.
(Exact name of small business issuer as specified in its charter)
6 Woodcross Drive, Columbia, South Carolina 29212
(Address of principal executive offices)
(Zip code)
(803) 407-3044
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES ______ NO __X____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,962,496 at November 24,
1998.
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Advanced Medical Products Inc.
Balance Sheet
Sept. 30, 1998 June 30, 1998
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 35,813 $ 82,087
Accounts Receivable (net of allowance
for doubtful accounts of $00,000 and
$00,000 respectively) 491,718 342,040
Inventory (Notes 2,10) 354,952 322,706
Prepaid Expenses 23,205 36,553
Total Current Assets 905,688 783,486
Furniture and Equipment, Net 222,378 250,691
Product Software Costs, Net 47,885 52,751
Other Long Term Assets (Note 3) 13,474 13,474
Total Assets 1,189,425 1,100,302
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes Payable (Notes 4,5) $ 335,198 $ 295,798
Accounts Payable 595,278 448,548
Current Portion Long-Term Debt 21,314 30,327
Accrued Wages and Commissions 112,224 73,968
Other Current Liabilities (Note 6) 255,692 301,995
Dividends Payable on Preferred Stock
(Notes 7,10) 162,981 162,981
Total Current Liabilities 1,482,685 1,313,617
Long-Term Liabilities:
Long-Term Debt, Net of Current Portion
(Note 5) 165,307 169,692
Total Liabilities 1,647,992 1,483,309
Stockholders' Equity:
Class A Preferred Stock, no par value;
authorized 4,000 shares; issued and
outstanding 2,377 shares (Notes 7,10) 2,289,410 2,289,410
Common Stock, $0.01 par value; authorized
7,000,000 shares, 5,962,495 shares issued
and outstanding at September 30, 1998 and
at June 30, 1998. (Note 9) 59,625 59,625
Additional Paid-In Capital 2,486,209 2,486,209
Accumulated Deficit (5,293,813) (5,218,251)
Total Stockholders' Equity (458,568) (383,006)
Total Liabilities and Stockholders Equity $1,189,425 $1,100,302
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Operations and Accumulated Deficit
Three Months Ended
Sept. 30, 1998 Sept. 30, 1997
(unaudited) (unaudited)
Net Sales $ 675,282 $ 529,338
Cost of Sales 359,370 270,487
Gross Profit 315,912 258,851
Selling, General and Administrative 330,321 259,751
Research and Development 40,289 26,155
Interest Expenses 20,864 27,362
Income Before Income Taxes (75,562) (54,417)
Provision For Income Taxes -0- -0-
Net Income (75,562) (54,417)
Accumulated Deficit - Beginning of Period (5,218,251) (4,771,688)
Accumulated Deficit - End of Period $(5,293,813) $(4,826,104)
Net Income (Loss) Applicable
to Common Shares $( 75,562) $( 84,130)
Earnings Per Share Data: (Note 8)
Net Income (Loss) $( 0.01) $( 0.02)
Weighted Average Number of Common
Shares Outstanding 5,962,495 5,112,495
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Cash Flows
Three Months Ended
Sept. 30, 1998 Sept. 30, 1997
(unaudited) (unaudited)
Cash flows from operating activities:
Net Income $ (75,562) $ ( 54,417)
Adjustments to reconcile net income to net
Cash provided (used) by operating activities:
Depreciation and amortization 39,219 37,088
Provision for doubtful accounts 6,000 ( 15,134)
Change in assets and liabilities:
Accounts receivable (155,678) 161,272
Inventory (32,246) ( 38,681)
Other assets 13,348 33,578
Accounts payable 146,730 16,793
Other current liabilities (8,047) ( 47,823)
Total adjustments 9,326 147,093
Net cash provided (used) by operating
activities (66,236) 92,676
Cash flows used by investing activities:
Capital expenditures -0- -0-
Capitalization of software costs (6,040) ( 1,750)
Net cash used by investing activities (6,040) ( 1,750)
Cash flows provided (used) by financing activities:
Net increase in short term notes 39,400 (94,047)
Payments on long-term debt (13,398) (15,836)
Net cash provided (used) by financing
activities 26,002 (109,883)
Net increase (decrease) in cash (46,274) ( 18,966)
Cash, beginning of period 82,087 50,938
Cash, end of period
$ 35,813 $ 31,972
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20,200 $ 22,862
Income taxes -0- -0-
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Notes to Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principals
for interim financial information and with the instructions to Form 10-
QSB and Article 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principals for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for fiscal year 1999. The unaudited condensed
financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended June 30, 1998.
2. Inventory
Sept. 30, 1998 June 30, 1998
(unaudited)
Inventory consisted of:
Raw materials and work in process $ 246,580 $ 162,799
Finished goods 108,372 159,899
$ 354,952 $ 322,706
3. Other Long Term Assets
Product software costs net of
amortization 9/30/98 of
$330,287 and 6/30/98 of $319,381 $ 47,885 $ 52,751
Deposits 13,474 13,474
$ 61,359 $ 66,225
4. Credit Agreement
On October 21, 1996, the Company entered into an asset based credit
agreement with Emergent Financial Corporation of Atlanta, Georgia.
Under this agreement the Company may borrow 80 percent of eligible
accounts receivable (as defined in the agreement) and 30 percent of
eligible inventory (as defined in the agreement) up to a total loan
balance of $750,000. Interest is charged at an annual percentage rate
of Prime plus 2% as defined by NationsBank of Georgia, N.A. and monthly
fees as a percentage of the balance outstanding are 0.75% of the
average daily balance. As of September 30, 1998, $ 295,198 was borrowed
by the Company under this agreement. This line is due on December 31,
1998, and is secured by substantially all assets of the Company.
However, the Company is in violation of certain covenants of the credit
agreement. The lender has waived the covenant violations through
December 31, 1998.
5. Related Party Transactions
Effective July 1, 1996, the Company entered into a loan agreement with
BioTel International, Inc. (acquired in December 1997 by Carolina
Medical, Inc., a majority shareholder of the Company's stock), under
which the Company borrowed $150,000 at 12 percent annual rate of
interest. This note, originally set to mature September 30, 1996 has
subsequently been extended to December 31, 1999. At September 30,
1998, $3,000 in interest was due, in addition to the principle.
In July, 1998 Carolina Medical Inc. was merged into and with CMI of
Minnesota (CMI). On July 23, 1998 all of the outstanding shares of CMI
(who also owned Braemar, Inc.) were acquired by Biosensor Corporation
(Biosensor). Because the former shareholders of CMI effectively
control Biosensor after the transaction, the transaction was recorder
as a "reverse acquisition" whereby CMI was deemed to have acquired
Biosensor, the surviving corporation. During July and August 1998,
Biosensor loaned the Company an additional $70,000 to meet working
capital requirements, of which $30,000 was repaid in September 1998.
The Company purchased approximately $152,000 of finished goods from
Braemar, Inc. a subsidiary of Biosensor, and approximately $71,000 of
finished goods from Biosensor during the quarter ended September 30,
1998, in addition to $240,000 of finished goods purchased from Braemar
prior to June 30, 1998. At September 30, 1998, approximately $328,000
of the Company's accounts payable were owed to Biosensor and its
subsidiary. (see Note 7, Capital Stock Transactions, and Note 10,
Subsequent Events)
6. Other Current Liabilities
Accrued royalties $ 11,770 $ 15,229
Deferred service contract revenue 142,565 167,440
Warranty reserve 23,174 38,073
Accrued sale tax liability 62,335 67,419
Other 15,848 13,834
$ 255,692 $ 301,995
7. Capital Stock Transactions
During 1993, the Company authorized 4,000 shares of Class A Preferred
Stock, no par value, of which 2,000 shares were issued to Nishimoto
Sangyo Company, Ltd. (Nishimoto). Nishimoto entered into an agreement
to convert, as of March 31, 1996, $102,000 of their accrued dividend
and interest into 300,000 shares of common stock at $0.34 per share;
these shares were issued by December 31, 1996. Also as of March 31,
1996, Nishimoto converted $113,000 in Preferred Stock dividends into
113 additional shares of Preferred Stock. As of January 31, 1997,
Nishimoto Sangyo converted $104,000 in Preferred Stock dividends due
December 31, 1996 into 104 additional shares of Preferred Stock.
On August 29, 1996, the Company was released from a fifteen year lease
with SCANA, the Company's landlord. SCANA received 160 shares of the
Company's Class A Preferred Stock as payment in full of the delinquent
lease payments of approximately $160,000.
In May 1998, Carolina Medical, Inc., the Company's majority
shareholder, issued common stock in Carolina Medical to acquire
300,000 shares of Advanced Medical Products, Inc. common stock
previously owned by Nishimoto, increasing Carolina Medical's ownership
to 55.3% of the outstanding common stock of the Company.
During May and June 1998 Carolina Medical, Inc. issued common stock in
Carolina Medical to acquire all of the issued and outstanding Preferred
Stock of the Company, totaling 2,377 shares, 2,217 previously owned by
Nishimoto and 160 shares previously owned by SCANA, including all
unpaid dividends of $162,981. (See Footnote 10, Subsequent Events)
8. Per Share Earnings
Earnings per common share were computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Earnings per share did not include the impact of outstanding options
since it was not significant.
9. Plan of Reorganization and Merger
In July 1998 the Company's Board of Directors approved a Plan of
Reorganization and Merger, which plan had been previously approved by
the Board of Directors of Biosensor Corporation, authorization the
merger of a wholly owned subsidiary of Biosensor, which has not yet
been organized, with and into Advanced Medical Products, Inc., subject
to terms and conditions. The Company and Biosensor are currently
preparing a definitive agreement to combine their cardiac monitor
businesses, and to do business as Advanced Biosensor Inc. As of the
date of this filing, no definitive agreement has been concluded.
10. Subsequent Events
In July 1998, the Board of Directors approved a plan to sell the
Company's Micros QV ultrasound product line, including inventory valued
at June 30, 1998 at $135,152 and all rights and intellectual property,
to Carolina Medical in exchange for the return of all of the 2,377
shares of the Company's Preferred Stock having a face value of
$2,377,000 and forgiveness of all of the accrued unpaid dividends
totaling $162,981 as of June 30, 1998. Carolina Medical also agreed to
waive any payment of dividends on the Preferred Stock for the quarter
ended September 30, 1998; thus no dividend was accrued or expensed by
the Company for the quarter ended September 30, 1998. This transaction
was completed In October 1998.
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS
Forward Looking Statements
This and other sections of this report contain "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, which represent the Company's expectations
concerning future events including future cash flows, results of
operations, expected continuing availability of the credit line, the
Company's continuing ability to sell its Holter and ambulatory blood
pressure products to office practices, and the Company's belief
regarding future recovery from declining revenues in the medical device
industry. By their very nature, forward-looking statements are subject
to known and unknown risks and uncertainties relating to the Company's
future performance that may cause actual results to differ materially
from those expressed or implied in such forward-looking statements.
The Company does not undertake and assumes no obligation to update any
forward-looking statement that may be made herein or from time to time
by or on behalf of the Company.
The following discussion should be read in conjunction with the
accompanying Financial Statements, including the notes thereto,
appearing elsewhere herein.
Results of Operations
Net sales of $675,282 for the three months ended September 30, 1998
were 28% higher than sales of $529,338 in the comparable quarter in
1997. This increase was due primarily to purchase and resale of
Biosensor products by the Company during the recent quarter, and due to
higher service and supply sales.
The Company's gross profit margin was 47% of net sales for the three
months ended September 30, 1998. The decrease from 49% gross margin in
the first quarter of 1997 was primarily a result of lower margins on
the resale of Biosensor products. Selling, general and administrative
expenses of $330,329 for the three months ended September 30, 1998 were
49% of net sales for the period compared to expenses of $259,751, which
were also 49% of sales for the same period last year. Selling expenses
as a percent of sales remain higher than planned, mostly because of
lower than planned international sales to distributors, which typically
carry a much lower selling expense than domestic sales. Sales in the
U.S. were mostly to office based physicians sold through manufacturers
representatives who are paid sales commissions, adding to the selling
expense.
Research and development costs during the first quarter of fiscal 1999
increased by $14,134 over last year and were 6% of sales. Most of the
engineering effort was on the Analyst I Windows software for Holter
monitor and ABP analysis and report generation.
Net loss applicable to common shares for the quarter ended September
30, 1998 was $75,562 compared to a loss of $84,130 for the same period
last year. The loss for the first quarter of fiscal 1997 included an
accrued dividend on the preferred stock, which was waved in 1998 .
During the first three months of fiscal 1999, accounts receivable
increased by $149,678 due to the higher level of sales. Inventory
increased from $322,706 to $354,493. Current notes and accounts
payable increased by $39,400 and $146,730 respectively.
Liquidity and Capital Resources
Operating activities used $66,236 of cash during the quarter ended
September 30, 1998 compared with $92,676 of cash provided by operating
activities during the quarter ended September 30, 1997. In the first
quarter of fiscal 1999, $26,002 was provided by financing activities
compared to $109,883 used by financing activities for the same period
last year.
The Company at June 30, 1998 and September 30, 1998 had a deficit in
net working capital (current assets minus current liabilities) of
$530,131 and $576,997 respectively. Internally generated funds and
existing borrowing resources are providing sufficient working capital
to meet immediate needs, but there is no assurance that the existing
borrowing sources will continue to be available and management does not
believe that internally generated funds will be sufficient to meet
commitments and future needs. In order to improve the Company's cash
flow position, the Company has undertaken steps internally to improve
gross margins and fixed costs, but these efforts have not resulted in
profitability. As of September 30, 1998, $295,198 was borrowed by the
Company against its principle credit line. This line is due on
December 31, 1998, and is secured by substantially all of the assets of
the Company. However, the Company is in violation of certain covenants
of the credit agreement. The lender has waived the covenant violations
through December 31, 1998. During the quarter ended September 30, 1998
the Company has borrowed additionally from its majority shareholder,
and has been extended credit by a subsidiary of its majority
shareholder to purchase finished goods. There is no assurance that the
Company will be able to continue to receive credit from its majority
shareholder. The Company has not been successful in obtaining capital
from any other unrelated sources.
In July 1998 Carolina Medical, Inc. a majority shareholder of the
Company's common stock was merged into and with CMI of Minnesota (CMI).
CMI also owns Braemar, Inc., a North Carolina Corporation with
operations in Minnesota. On July 23, 1998 all of the outstanding
shares of CMI were acquired by Biosensor Corporation (Biosensor)
pursuant to a Plan of Reorganization and Agreement by and between CMI
and Biosensor, Dated May 29, 1998. Because the former shareholders of
CMI effectively control Biosensor after the transaction, the
transaction has been recorded as a "reverse acquisition" whereby CMI is
deemed to have acquired Biosensor.
In July 1998 the Company's Board of Directors approved a plan of
Reorganization and Merger, which plan had been previously approved by
the Board of Biosensor Corporation, authorizing the merger of a wholly
owned subsidiary of Biosensor Corporation with and into Advanced
Medical Products, Inc. subject to certain terms and conditions. The
Company and Biosensor are currently preparing a definitive agreement to
combine their cardiac monitor businesses, and to do business as
Advanced Biosensor Inc. A definitive agreement had not been reached as
of the date of this filing.
The Company currently does not have specific plans for any major
capital expenditures in fiscal 1998.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K have been
filed during the quarter for which this report is filed.
However, a report was filed on Form 8-K on October 14,
1998, amended on October 23, 1998, regarding a change in
auditors for the Fiscal year ended June 30, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned hereunto
duly authorized.
Advanced Medical Products Inc.
(Registrant)
By: s/s: George L. Down
George L. Down, President
Dated: November 24, 1998