UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 18, 1997 is 16,247,575.
This document consists of 10 sequentially numbered pages of which this is
page 1.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
US MEDICAL PRODUCTS, INC.
BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
Assets
Current Assets
Cash and cash equivalents $ 241,137
Accounts Receivable, net 337,863
Inventory 1,726,105
Prepaid Expenses 292,657
------------
Total Current Assets 2,597,762
Property and Equipment, net 647,161
Other Assets 210,835
------------
Total Assets $ 3,455,758
------------
------------
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 2,077,263
Accrued expenses 139,532
Current portion of capital lease obligations 43,706
Current portion of note payable 175,326
Other Liabilities 820,337
------------
Total Current Liabilities 3,256,164
Long-term portion of capital lease obligations 52,664
------------
Total Liabilities 3,308,828
Stockholder's Equity
Common stock, no par value
40,000,000 shares authorized
16,247,575 issued and outstanding
15,838,008
Accumulated deficit (15,691,078)
------------
Total stockholder's equity 146,930
Total liabilities and stockholder's equity $ 3,455,758
------------
2
US MEDICAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
JUNE 30
1997 1996
--------------------------
Revenues $ 373,060 $ 1,212,147
Expenses:
Cost of Goods Sold 362,881 527,872
Sales and marketing 119,271 543,118
Research and development 69,731 242,144
General and administrative 172,377 366,622
Interest, net 23,958 143,246
Writedown of Assets to net realizable value 157,017 -
----------- ------------
Total expenses $ 905,235 $ 1,823,002
Operating loss (532,175) (810,855)
Gain on Sale of Assets 533,763
Net gain/(loss) $ 1,588 $ (610,855)
Loss per common share $(.00) $(.04)
Weighted average common shares outstanding 16,247,575 16,247,575
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US MEDICAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
1997 1996
--------------------------
Revenues $ 2,140,052 $ 1,981,727
Expenses:
Cost of Goods Sold 1,951,104 791,734
Sales and marketing 253,844 1,011,835
Research and development 186,472 556,146
General and administrative 450,035 711,106
Interest, net 31,434 269,080
Writedown of Assets to net realizable value 266,746 -
----------- ------------
Total expenses $ 3,139,635 $ 3,339,901
Operating loss (999,583) (1,358,174)
Gain on Sale of Assets 533,763
Net loss $ (465,820) $ (1,358,174)
Loss per common share $(.03) $(.10)
Weighted average common shares outstanding 16,247,575 13,179,006
4
US MEDICAL PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
1997 1996
--------------------------------
Operating Activities
Net (loss) $ (465,820) $ (1,358,174)
Adjustments to reconcile net loss to net cash
used in operating activities
Writedown of assets to Net Realizable Value 266,746
Gain on sale of assets (533,763) -
Depreciation & Amortization 155,892 241,169
Issuance of notes payable in lieu of payment
for interest 217,546
Changes in assets & liabilities
Accounts receivable, net 343,165 (457,999)
Inventories 1,370,791 (1,935,174)
Prepaid expenses (148,424) (31,855)
Other assets (63,942) (56,627)
Accounts payable and accrued expenses (633,590) 1,191,327
Other liabilities 426,870 -
---------- -----------
Net cash provided by (used in) operating activities 845,809 (2,151,002)
Investing activities
Proceeds from sale of assets 400,000 -
Sale of furniture and equipment 48,296
Purchase of furniture and equipment (48,108) (801,571)
---------- -----------
Net cash provided by (used in) investing activities 400,188 (801,571)
Financing Activities
Proceeds from the issuance of notes payable-
investor 165,000 2,906,000
Proceeds from issuance of notes payable-other 77,805
Payments on notes payable (1,175,000) (57,100)
Payments on capital lease obligations (19,962) (18,141)
---------- -----------
Net cash provided by (used in) financing activities (1,029,962) 2,908,565
Net increase(decrease) in cash and cash equivalents 216,035 (44,008)
Cash and cash equivalents at beginning of period 25,102 89,372
---------- -----------
Cash and cash equivalents at end of period 241,137 45,363
Supplemental noncash transactions:
Stock issued upon conversion of note by
majority shareholder $ 1,849,449
Note receivable obtained in sale of assets $150,000
5
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.
The Company has entered into an agreement 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. On May 20, 1997 the Company sold its intellectual
property to Hayes Medical for a consideration of $400,000 cash and a note in
the amount of $150,000.
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.
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RESULTS OF OPERATIONS
REVENUE. The Company's total revenue decreased from $1,212,147 for the
three month period ended June 30, 1996 to $373,060 for the same period in
1997. The Company's total revenue increased from $1,981,727 for the six month
period ended June 30, 1996 to $2,140,052 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 change in
total revenue from 1996 to 1997 is primarily attributable to the worldwide
distribution agreement entered into with the Hayes Medical affiliate.
National Medical Specialty (NMSI). NMSI stocks inventory for distribution to
former usmp distributors. Although sold at a discount, the amount of
inventory sold to NMSI for their distribution was greater in the first six
months of 1997, than the inventory sold to usmp distributors in the first six
months of 1996.
COSTS OF GOODS SOLD. Costs of goods sold decreased from $527,872 for
the three month period ended June 30, 1996 to $362,881 for the same period in
1997. Costs of goods sold increased from $791,734 for the six month period
ended June 30, 1996 to $1,951,104 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 60.0 % for the six
month period ended June 30, 1996 to 8.8% for the same period in 1997.
SALES AND MARKETING. Sales and marketing expense decreased from
$543,118 for the three month period ended June 30, 1996 to $119,271 for the
same period in 1997. Sales and marketing expense decreased from $1,011,835
for the six month period ended June 30, 1996 to $253,844 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 $242,144 for the three month period ended June 30, 1996 to $69,731 for
the same period in 1997. Research and development expense decreased from
$556,146 for the six month period ended June 30, 1996 to $186,472 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 $366,622 for the three month period ended June 30, 1996 to
$172,377 for the same period in 1997. General and administrative expense
decreased from $711,106 for the six month period ended June 30, 1996 to
$450,035 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.
7
Interest for the six month period ended June 30, 1996 in the amount of
$269,080 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 $31,434 is due to the
Company's current majority shareholder, Metrax Medical, Inc., and various
equipment lease notes.
The Company sold its intellectual property to Hayes Medical, Inc. on May
20, 1997. As a result, the Company recognized a gain on this sale of
$533,763.
The Company incurred a net loss for the six month period ended June 30,
1997 of $465,820, or ($0.03) per share. This net loss compares to the loss
in 1996 of $1,358,174, 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 $266,746 for six months ending
June 30, 1997.
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 . In May 1997, the
Company repaid the remaining $100,000 of 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. In April, the Company repaid MMI $75,000 of the $165,000 loan.
8
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
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits on this Form 10-QSB
None
b. Reports on Form 8-K
None
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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
September 25, 1997
/s/ CHERYL SEALE
____________________________
Cheryl Seale
Director - Finance and Administration
September 25, 1997
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