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 December 31, 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
February 15, 1999.
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Advanced Medical Products Inc.
Balance Sheet
Dec.31, 1998 June 30, 1998
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 68,817 $ 82,087
Accounts Receivable (net of allowance for
doubtful accounts of $22,452 and $25,000
respectively) 456,322 342,040
Inventory (Notes 2,7) 197,947 322,706
Prepaid Expenses 16,682 36,553
Total Current Assets 739,768 783,386
Furniture and Equipment, Net 196,190 250,691
Product Software Costs, Net 39,983 52,751
Other Long Term Assets (Note 3) 12,974 13,474
Total Assets 988,915 1,100,302
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes Payable (Notes 4,5) $ 553,938 $ 295,798
Accounts Payable 617,889 448,548
Current Portion Long-Term Debt 170,587 30,327
Accrued Wages and Commissions 104,966 73,968
Other Current Liabilities (Note 6) 325,935 301,995
Dividends Payable on Preferred Stock (Note 7) -0- 162,981
Total Current Liabilities 1,773,315 1,313,617
Long-Term Liabilities:
Long-Term Debt, Net of Current Portion 9,492 169,692
Total Liabilities 1,782,807 1,483,309
Stockholders' Equity:
Class A Preferred Stock, no par value;
authorized 4,000 shares; no shares
December 31, 1998, 2,377 shares issued
and outstanding at Junes 30, 1998 (Note 7) -0- 2,289,410
Common Stock, $0.01 par value; authorized
7,000,000 shares, 5,962,495 shares issued and
outstanding at December 31, 1998 and at June
30, 1998. (Notes 9, 10) 59,625 59,625
Additional Paid-In Capital 4,813,468 2,486,209
Accumulated Deficit (5,666,985) (5,218,251)
Total Stockholders' Equity (793,892) (383,007)
Total Liabilities and Stockholders Equity $ 988,915 $ 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
Dec. 31, 1998 Dec. 31, 1997
(unaudited) (unaudited)
Net Sales $ 694,448 $ 500,466
Cost of Sales 423,171 242,561
Gross Profit 271,277 257,905
Selling, General and Administrative 410,123 251,825
Allowance for Doubtful Accounts 160,686 36,000
Research and Development 43,892 49,784
Interest Expenses 29,749 32,018
Income Before Income Taxes ( 373,173) ( 111,722)
Provision For Income Taxes -0- -0-
Net Income ( 373,173) ( 111,722)
Accumulated Deficit - Beginning of Period (5,293,812) (4,826,104)
Accumulated Deficit - End of Period $(5,666,985) $(4,937,826)
Net Income (Loss) Applicable to
Common Shares $ (373,173) $ (141,435)
Earnings Per Share Data:
Net Income (Loss) (Note 8) $ (0.06) $ (0.02)
Weighted Average Number of Common
Shares Outstanding 5,962,495 5,679,162
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Operations and Accumulated Deficit
Six Months Ended
Dec. 31, 1998 Dec. 31, 1997
(unaudited) (unaudited)
Net Sales $ 1,369,730 $ 1,029,804
Cost of Sales 782,541 513,048
Gross Profit 587,189 516,756
Selling, General and Administrative 734,494 505,576
Allowance for Doubtful Accounts 166,636 42,000
Research and Development 84,181 75,939
Interest Expenses 50,613 59,380
Income Before Income Taxes (448,735) (166,139)
Provision For Income Taxes -0- -0-
Net Income (448,735) (166,139)
Accumulated Deficit - Beginning of Period $(5,218,251) $(4,712,261)
Accumulated Deficit - End of Period $(5,666,986) $(4,937,826)
Net Income (Loss) Applicable to Common Shares $ (448,735) $ (225,565)
Earnings Per Share Data:
Net Income (Loss) (Note 8) $ (0.08) $ (0.04)
Weighted Average Number of Common
Shares Outstanding 5,962,495 5,395,829
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Statement of Cash Flows
Six Months Ended
Dec. 31, 1998 Dec. 31, 1997
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ (448,735) $ (166,139)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 76,313 74,169
Allowance for doubtful accounts 166,686 42,000
Change in assets and liabilities:
Accounts receivable (280,968) 120,266
Inventory (373) (3,392)
Other assets 20,371 (62,128)
Accounts payable 169,342 (96,509)
Other current liabilities 54,938 (62,402)
Total adjustments 206,309 12,004
Net cash provided (used) by operating activities (242,426) (154,135)
Cash flows used by investing activities:
Capital expenditures -0- -0-
Proceeds from sale of equipment -0- -0-
Capitalization of software costs (9,044) (1,756)
Net cash used by investing activities (9,044) (1,756)
Cash flows provided (used) by financing activities:
Net proceeds from sale of common stock -0- 257,898
Net proceeds (payments) on short term debt 258,140 (101,598)
Payments on long-term debt (19,940) (25,203)
Net cash provided (used) by financing activities 238,200 131,097
Net increase (decrease) in cash (13,270) (24,794)
Cash, beginning of period 82,087 50,938
Cash, end of period $ 68,817 $ 26,144
Supplemental disclosures of cash flow information:
Cash paid during the period for interest: $ 36,040 $ 50,380
Supplemental schedule of non-cash investing
and financing activities: (Note 7)
Sale of inventory $ 125,132 -0-
Elimination of accrued dividends $ (162,981) -0-
Additional paid in capital $ 2,327,259 -0-
Reduction of Preferred Stock $(2,289,710) -0-
The accompanying notes are an integral part of these financial statements.
Advanced Medical Products Inc.
Notes to Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principals for interim financial information and with the
instructions to Form 10-QSB and Article 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principals
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period and six-month period
ended December 31, 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
Dec. 31, 1998 June 30, 1998
(unaudited)
Inventory consisted of:
Raw materials and work in process $ 119,890 $ 162,799
Finished goods 78,057 159,899
$ 197,947 $ 322,706
3. Other Long Term Assets
Product software costs net of amortization
12/31/98 of $341,192 and
6/30/98 of $332,249 $ 39,983 $ 52,751
Deposits 12,974 13,474
$ 52,957 $ 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 up to 80
percent of eligible accounts receivable (as defined in the
agreement) and 30 percent of eligible inventory (as defined in
the agreement) up to a maximum loan balance of $750,000.
Interest is charged at an annual percentage rate of Prime plus 2%
as defined by NationsBank of Georgia, N.A. and monthly fees as a
percentage of the balance outstanding are 0.75% of the average
daily balance. As of December 31, 1998, $ 339,618 was borrowed
by the Company under this agreement. This credit line, secured
by all of the assets of the Company, expired on December 31,
1998. The Company is in substantial violation of the working
capital and tangible net book value covenants of this credit
agreement. The lender waived the covenant violations through
December 31, 1998, but has expressed an unwillingness to extend
the waiver. Under the terms of the credit agreement, Emergent
has the right to seize the assets, or to foreclose and sell all
of the assets of the Company at auction to recover their loan
balance. Discussions with Emergent are in progress, but as of the
date of this filing, no agreement has been reached, and Emergent
Financial Corporation has not notified the Company of their
intentions. The Company has pursued other outside sources for
funding but the large deficits in both working capital and
shareholder equity, coupled with continuing losses, have to date
prevented the Company from being able to secure alternative
financing.
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, secured by a second position
lien on the Company's assets, became due on September 30, 1996
but has subsequently been extended to December 31, 1999. During
the six months ended December 31, 1998, $ 9,000 was expensed for
interest on this debt, but the interest has not been paid.
During the quarter ended December 31, 1998, Biosensor
Corporation, (merged with Carolina Medical on July 1, 1998)
loaned the Company an additional $173,563 to meet working capital
needs. Of the Company's current notes payable balance of
$553,938 on December 31, 1998, $213,563 was due to Biosensor.
During the six months ended December 31, 1998, the Company
expensed $5,144 for interest on this debt, but the interest has
not been paid. There is no assurance that Carolina Medical or
Biosensor Corporation will continue to provide working capital
loans to the Company.
During the quarter and six months ended December 31, 1998 , the
Company purchased for resale $70,381 and $222,183 of manufactured
finished goods from Braemar, Inc. a subsidiary of Biosensor. At
December 31, 1998, $169,442 of the Company's accounts payable
were owed to Braemar. Of this amount, approximately $137,000 was
past due under the 60 day terms of the manufacturing agreement
between the Company and Braemar. There can be no assurance that
Braemar will continue to extend credit to the Company in the
future, or that alternate sources of manufacturing that will
extend credit to the Company can be obtained.
Also during the quarter and six months ended December 31, 1998
the Company purchased directly from Biosensor Corporation $77,901
and $134,420 respectively of finished goods inventory, which the
Company resold. At December 31, 1998, the Company owed $120,673
to Biosensor as part of the Company's trade accounts payable.
(Also see Note 9, Plan of Reorganization and Merger, and Note 10,
Subsequent Events)
6. Other Current Liabilities Dec. 31, 1998 June 30, 1998
Accrued royalties $ 8,968 $ 15,229
Deferred contract revenue 212,381 167,440
Warranty reserve 26,660 38,073
Accrued sales tax liability 56,000 67,419
Other 21,926 13,834
$ 325,935 $ 301,995
7. Capital Stock Transactions
In July 1998, the Board of Directors approved the sale of the
Company's Micros QV ultrasound product line, including inventory
valued at June 30, 1998 at $125,132 and all rights and
intellectual property relating to the product line, 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 or six months ended
December 31, 1998. This transaction was completed in October
1998 and resulted in a $37,849 increase in the Company's
Additional Paid in Capital and the conversion of Preferred Stock
Paid in Capital to Additional Paid in Capital. All of the
Company's Preferred Stock has been retired, leaving all 4,000
shares authorized but unissued.
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 authorizing the merger of a wholly
owned subsidiary of Biosensor with and into Advanced Medical
Products, Inc. The Plan had been previously approved by the Board
of Directors of Biosensor Corporation, subject to certain terms
and conditions, including the authorization of additional shares
of common stock by Biosensor Corporation's shareholders, and the
registration of Biosensor common shares to be issued to the
Company's shareholders in exchange for the 2,962,496 common stock
shares of the Company not already owned by Biosensor Corporation.
Biosensor's Preliminary Proxy Statement filed with the Securities
and Exchange Commission on June 2, 1998 was expected to
accomplish the administrative changes to Biosensor's Articles and
By-laws (including the authorization of additional common stock
and a one share for six reverse split) that were a condition
precedent to implementing the Plan. Extensive SEC comments on
this filing received by Biosensor on July 10, 1998 required
filing by amendment audited fiscal 1997 and 1998 financial
statements for Braemar Inc., Biosensor Corporation, Carolina
Medical, and Advanced Medical, and extensive consolidations and
pro-forma combining financial statements. (See Note 10)
10. Subsequent Events
A substantial amendment to the Biosensor Proxy Statement
described above, containing 1997 and 1998 audited financial
statements, was filed on December 3, 1998. After a review of the
additional SEC comments received on January 14, 1999, Biosensor's
Board of Directors decided that it was not appropriate , under
the circumstances, to continue this effort and the associated
expense for legal and accounting support. Therefore, on February
5, 1999 Biosensor withdrew the Proxy filing and elected to
suspend its duty to file reports under section 13 and 15(d) of
the Securities Exchange Act by filing Form 15 with the SEC (a
procedure available to companies who have fewer than 500
shareholders). Shareholder approval for the authorization of
additional shares of Biosensor common stock is now not likely
before May 1999. Additionally, Biosensor's Board has concluded
that an S-4 Registration Statement to register Biosensor shares
for distribution to Advanced Medical's shareholders in exchange
for their shares of the Company's common stock will not be
feasible. Therefore, the Company and Biosensor have abandoned
the Plan described in Note 9 above.
On January 27, 1998 the Company was notified that Kontron
Instruments Limited, distributor for Advanced Medical products
throughout Europe, was in administrative receivership. The
Company added $130,000 to its allowance for doubtful accounts at
December 31, 1998, the amount owed to the Company by Kontron
Instruments. New distributors are being sought.
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 $694,448, and $1,369,730 for the quarter and six
months ended December 31, 1998 represent a 38.8% and 33% increase
from sales of $500,466 and $1,029,804 in the comparable periods
of fiscal 1998. These increases were primarily the result of an
agreement entered into in July 1998 between the Company and
Biosensor Corporation, the Company's majority shareholder,
authorizing the Company to purchase and resell Biosensor's
cardiac monitoring products along with Advanced Medical products
through both companies' existing OEM/International distributors,
as well as to domestic customers. During the quarter ended
December 31, 1998 the Company purchased for resale Biosensor
product inventory at Biosensor's cost.
Gross profits for both the three months and six months were
increased, but gross profit margins on sales were 39% of net
sales for the quarter and 42.9% for the six months ended December
31, 1998, down from 50.2% gross margin reported for the six
months ended December 31, 1997. Lower margin percentages
resulted from generally lower margins on Biosensor products,
along with other factors.
Selling, general and administrative expenses, not including bad
debt writeoffs, were $410,123 for the quarter and $734,494 for
the six months ended December 31, 1998. These expenses were
59.3% and 54.2% of net sales compared to expenses of $251,825 and
$511,576 or 50.3% and 49.7 % of net sales for the same periods
last year. Allowance for doubtful accounts of $160,686 in the
quarter ended December 31, 1998 (of which approximately $130,000
resulted from the bankruptcy filing of Kontron Instruments Ltd.,
the Company's major distributor throughout Europe, see Note 10)
and $166,668 for the six months, added substantially to the total
expenses for the quarter and six months. During the comparable
first six months last year, $42,000 was written off for doubtful
accounts.
Research and development costs during the second quarter and
first six months of fiscal 1999 ended December 31, 1998 were 6.3%
and 6.1% of sales compared to 9.9% and 7.4% respectively last
year. This is a result of the higher sales level in the current year.
Net losses for the quarter and six months ended December 31, 1998
were $373,173 and $488,735 respectively compared to losses
(applicable to common shares) of $141,435 and $225,565 for the
same periods last year. The substantially higher losses in the
recent periods, despite higher sales, were primarily the result
of unusually high bad debt writeoffs in the most recent quarter,
and increased sales and marketing costs related to the Company's
efforts to increase sales of all of its products.
During the first six months of fiscal 1999 ended December 31,
1998 accounts receivable increased to $456,322 (after the
writeoff of receivables from Kontron Instruments, see Note 10)
from $342,040 at June 30, 1998. This was due to the higher level
of sales and somewhat slower payment by certain other customers.
Inventory decreased from $322,706 at June 30, 1998 to $197,947 at
December 31, 1998, primarily as a result of the sale of Micros QV
inventory to Carolina Medical in October. (see Note 7)
Liquidity and Capital Resources
The Company believes that internally generated funds, and present
sources of funding will not be sufficient to meet working capital
requirements. The Company continues to seek additional capital
sources to provide debt or equity funding. However there is no
assurance that existing shareholders will provide the Company with
any additional funding, or that other outside sources of funding
will be available when needed. Without additional funding, the
Company may not be able to continue as a going concern.
Operating activities used cash of $242,426 during the six months
ended December 31, 1998. This compared to $154,135 used during
the six months ended December 31, 1997. The Company at June 30,
1998 and December 31, 1998 had deficits in net working capital
(current assets minus current liabilities) of $530,131 and
$1,033,547 respectively. Internally generated funds are not
providing sufficient working capital to meet immediate needs, and
there is no assurance that the existing borrowing sources will
continue to be available. In attempts 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 December 31, 1998, $339,618
was borrowed by the Company against its principle credit line.
This credit agreement expired on December 31, 1998, and is
secured by all of the assets of the Company. However, the
Company is in violation of both the working capital and net book
value covenants of the credit agreement. The lender waived the
covenant violations through December 31, 1998 (see footnote 4
herein), but has been unwilling to extend the waiver. During the
quarter ended December 31, 1998 the Company has borrowed
additionally from its majority shareholder, (see footnote 5
herein) and has been extended credit by its majority shareholder
and a subsidiary of its majority shareholder to purchase finished
goods. There is no assurance that the Company will be able to
continue to receive loans or credit from its majority shareholder
or subsidiaries thereof. The Company has not been successful in
obtaining capital from unrelated sources.
No capital expenditures were made by the Company during the first
six months of this year or last year, and no capital expenditures
are planned for the remainder of fiscal 1999.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Advanced Medical Products Inc.
(Registrant)
By: /s/ GEORGE L. DOWN
George L. Down, President
Dated: February 22, 1999