SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
APRIL 26, 1997 0-9922
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AMERICAN ELECTROMEDICS CORP.
----------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
-------- ----------
(State or Other Jurisdiction (IRS Employer
of Incorporation or ID No.)
Organization)
13 COLUMBIA DRIVE, SUITE 18, AMHERST, NEW HAMPSHIRE 03031
---------------------------------------------------------
(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 603-880-6300
------------
Securities registered pursuant to Section 12(b) of
the Exchange Act: NONE
----
Securities registered pursuant to Section 12(g)
of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
--------------------------------------
(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months, and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
---- ---
As of June 13, 1997, there were outstanding 2,553,136 shares of
the Issuer's Common Stock, $.10 par value, after adjustment for a
one-for-five reverse stock split effective November 8, 1996.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, April 26, 1997 and July 27, 1996 . 3
Statements of Income for the Three and Nine Months
Ended April 26, 1997 and April 27, 1996 . . . . 4
Statements of Cash Flows for the Nine Months Ended
April 26, 1997 and April 27, 1996 . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 7
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 9
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
APRIL 26, 1997 JULY 27, 1996
-------------- -------------
(UNAUDITED)
ASSETS (THOUSANDS)
Current assets:
Cash and cash equivalents . . $ 372 $ 317
Accounts receivable, net of
allowance of $11,000:
Trade . . . . . . . . . . . 306 303
264 402
Affiliate . . . . . . . . . ----- -----
570 705
Inventories . . . . . . . . . 665 480
Prepaid and other current 309 133
assets . . . . . . . . . . . ----- -----
Total current assets . . . 1,916 1,635
Property and equipment . . . 442 406
(388) (365)
Accumulated depreciation . . ----- -----
54 41
Deferred financing costs . . 141 --
Investment in affiliate . . . 821 876
211 219
Goodwill . . . . . . . . . . ----- -----
$3,143 $2,771
===== =====
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . $ 236 $ 324
Bank line of credit . . . . . 300 300
Accrued liabilities . . . . . 142 38
Current portion of long-term 167 67
debt . . . . . . . . . . . . ----- -----
Total current liabilities . 845 729
Long-term debt . . . . . . . 410 94
Convertible subordinated 720 --
debentures . . . . . . . . .
Stockholders' equity:
Preferred stock, $.01 par
value; Authorized
- 1,000,000 shares; -- --
Outstanding-none . . . . . .
Common stock, $.10 par value;
Authorized - 20,000,000 shares;
Outstanding - 2,553,136
shares at April 26, 1997 and
2,454,666 shares 255 245
at July 27, 1996 . . . . . .
Additional paid-in capital . 2,919 2,783
(2,006) (1,080)
Retained deficit . . . . . . ----- -----
1,168 1,948
Total stockholders' equity ----- -----
$3,143 $2,771
===== =====
See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
------------------
APRIL 26, 1997 APRIL 27, 1996
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(THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net sales . . . . . . . . . . $ 423 $1,066
247 519
Cost of goods sold . . . . . ----- -----
Gross profit . . . . . . 176 547
Selling, general and 411 264
administrative . . . . . . .
10 50
Research and development . . ----- -----
421 314
Total operating expenses ----- -----
Operating income (loss) . . . (245) 233
Other income (expenses):
Undistributed earnings of (12) (7)
affiliate . . . . . . . .
Interest, net . . . . . . (38) (10)
(237) --
Other . . . . . . . . . . ----- -----
(287) (17)
Income (loss) before (532) 216
provision for income taxes .
-- 15
Provision for income taxes . ----- -----
$(532) $ 201
Net income (loss) . . . . . . ===== ======
Weighted average number of 2,526,965 2,520,787
common and common equivalent ========== =========
shares outstanding . . . . .
Earnings (loss) per common $(.21) $ .08
and common equivalent share . ===== =====
NINE MONTHS ENDED
-----------------
APRIL 26, 1997 APRIL 27, 1996
-------------- --------------
(THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net sales . . . . . . . . . . . . $1,486 $2,573
841 1,338
Cost of goods sold . . . . . . . ----- ------
Gross profit . . . . . . . . 645 1,235
Selling, general and 1,100 713
administrative . . . . . . . . .
85 158
Research and development . . . . ----- ------
1,185 871
Total operating expenses . . ----- ------
Operating income (loss) . . . . . (540) 364
Other income (expenses):
Undistributed earnings of (55) 93
affiliate . . . . . . . . . .
Interest, net . . . . . . . . (81) (7)
(250) --
Other . . . . . . . . . . . . ----- ------
(386) 86
Income (loss) before provision for (926) 450
income taxes . . . . . . . . . .
-- 25
Provision for income taxes . . . ----- ------
$ (926) $ 425
Net income (loss) . . . . . . . . ====== ======
Weighted average number of common 2,495,232 2,471,658
and common equivalent shares ========= =========
outstanding . . . . . . . . . . .
Earnings (loss) per common and $ (.37) $ .17
common equivalent share . . . . . ====== =====
See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
-----------------
APRIL APRIL
26, 27,
1997 1996
---- ----
(THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . $(926) $ 425
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . 56 26
Undistributed earnings of affiliate . . . . . . 55 (93)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . 135 (304)
Inventories, prepaid and other current
assets . . . . . . . . . . . . . . . . . . (361) (296)
Accounts payable and accrued liabilities . . 16 1
----- -----
Net cash used in operating activities . . . . (1,025) (241)
INVESTING ACTIVITIES:
Investment in affiliate . . . . . . . . . . . . . -- (519)
Purchase of property and equipment, net . . . . . (36) (14)
----- -----
Net cash used in investing activities . . . . (36) (533)
FINANCING ACTIVITIES:
Principal payments on long-term debt . . . . . . (84) (26)
Proceeds from long-term debt and bank line of
credit . . . . . . . . . . . . . . . . . . . . 500 500
Issuance of common stock, net . . . . . . . . . . 144 --
Issuance of convertible subordinated debt . . . . 720 --
Deferred financing costs . . . . . . . . . . . . (166) --
Proceeds from exercise of stock options . . . . . 2 10
----- -----
Net cash provided by financing activities . . 1,116 484
Increase (decrease) in cash and cash equivalents 55 (290)
Cash and cash equivalents, beginning of period . 317 505
----- -----
Cash and cash equivalents, end of period . . . . $ 372 $ 215
===== =====
See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
APRIL 26, 1997
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles 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 and nine month periods ended April 26, 1997 are not
necessarily indicative of the results that may be expected for
the year ending July 26, 1997. For further information, refer to
the financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended July
27, 1996.
2. CORPORATE FINANCING
-------------------
In October 1996, the Company completed a private placement (the
"Placement") of 12 units (the "Units") at a price of $75,000 per
Unit or an aggregate Placement of $900,000. Each Unit consisted
of a $60,000 principal amount 14% Convertible Subordinated
Debenture due October 31, 1999 (the "Debentures") and 4,000
shares of Common Stock, or an aggregate of $720,000 principal
amount of Debentures and 48,000 shares of Common Stock.
The Debentures are convertible into Common Stock at $3.75 per
share upon or after the Debentures are called for redemption or
the effectiveness of a registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the
underlying shares of Common Stock, subject to customary anti-
dilution provisions. The Company may call all or part of the
Debentures at par, plus accrued interest, at any time after
October 31, 1997. The Debentures contain various covenants upon
the Company, including a restriction on the payment of cash
dividends on its Common Stock.
Simultaneously with the closing of the Placement, the Company
received a Term Loan from its bank. The bank had conditioned the
closing of the Term Loan on the Company receiving at least
$700,000 from the issuance of subordinated debentures and/or
capital stock. The Term Loan is repayable over five years, bears
annual interest at prime plus 1/2%, and is guaranteed by the New
Hampshire Business Finance Authority. The bank also increased
the Company's revolving line of credit to $400,000 from $300,000.
As of April 26, 1997 there was $300,000 outstanding under this
revolving line of credit. The Term Loan and the credit line are
secured by a lien on the Company's assets.
The net proceeds of the Placement and the Term Loan of
approximately $1,200,000 are being used for general working
capital purposes, including possible acquisitions and marketing.
3. REVERSE STOCK SPLIT
-------------------
At the Company's annual meeting of stockholders on October 8,
1996, stockholders authorized the Board of Directors to effect a
reverse stock split at a ratio to be determined by the Board and
when the Board determined it was in the best interest of the
Company and the stockholders. In November 1996, the Company
announced that its Board of Directors had approved a 1-for-5
reverse stock split, to be effective November 8, 1996. The
reverse split reduced the number of shares outstanding to
2,506,266. All prior periods presented have been adjusted to
reflect the above reverse stock split.
4. OTHER EXPENSES
--------------
The Company expensed $225,000 in the quarterly period ended April
26, 1997 as a result of a strategic change in direction of the
business. The Company has decided it will not pursue the
development and marketing of a new product technology it licensed
in November 1996 from BioFlo Systems, Inc. This amount
represents the write-off of the technology and estimates related
to the release of outgoing management and associated costs.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
---------------------
Net sales for the three and nine month periods ended April 26,
1997 were $423,000 and $1,486,000, respectively, compared to
$1,066,000 and $2,573,000 for the three and nine month periods
ended April 27, 1996. The decrease in sales was attributable to
a substantial decline in sales in Germany, which had constituted
the Company's major international market, initially because of
temporary regulatory delays which have become less of a factor in
the latter part of the third quarter upon receipt of ISO 9000
certification for the manufacture of medical devices, and
subsequently because of changes in the reimbursement policy for
the Company's products in Germany.
Cost of sales for the three and nine months ended April 26, 1997
were 58.4% and 56.6% of net sales compared to 48.7% and 52.0% of
net sales during the same periods in the prior year. The
increase in cost as a percentage of sales can be attributed to
the product mix and unfavorable overhead variances as a result of
decreased manufacturing levels in response to the general
domestic industry-wide slowdown and the previously mentioned
decline in sales in Germany.
Selling, general and administrative expenses for the three and
nine month periods ended April 26, 1997 were $411,000 and
$1,100,000, respectively, compared to $264,000 and 713,000 for
the comparable prior year periods. The increase reflects
higher corporate development, including retention of senior
level executives, sales and promotional activity, regulatory and
corporate communications expenses.
Net loss for the three and nine month periods ended April 26,
1997 were $532,000, or $.21 per share, and $926,000, or $.37 per
share, respectively, compared to net income of $201,000, or $.08
per share, and $425,000, or $.17 per share, for the same periods
last year. The decrease in net income is the result of decreased
sales along with increases in expenditures for marketing efforts
to promote and position the Company's new products, and the
Company's corporate development, regulatory and communications
efforts. Additionally, included in the three month period ended
April 26, 1997 was a $225,000 charge related to a write-off of
certain licensed technology and estimates related to the release
of outgoing management and associated costs.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital of the Company at April 26, 1997 was $1,071,000,
compared to $906,000 at fiscal year ended July 27, 1996. The
increase of $165,000 was primarily the result of net proceeds of
the Company's private placement and Term Loan from its bank of
approximately $1,200,000 offset by results of operations.
Currently, the Company expects that available cash and its
existing bank line of credit will be sufficient to meet its
normal operating requirements, including research and development
expenditures, over the near term.
The Company is considering future growth through acquisitions of
companies or business segments in related lines of business or
other lines of business, as well as through expansion of the
existing line of business. There is no assurance that management
will find suitable acquisition candidates or effect the financial
arrangements which may be necessary for such acquisitions.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Noel Wren commenced an action against the Company returnable on
May 6, 1997 in the Superior Court of New Hampshire, Hillsborough
County, seeking damages resulting from the Company's termination
of his employment as President and Chief Executive Officer,
together with costs and fees, and also a petition to attach. Mr.
Wren remains a director of the Company. The Company filed an
appearance responding to and denying the allegations and objected
to the petition to attach. Management believes that it has
sufficient defenses to the claims and it intends to file
counterclaims. Discovery has not yet commenced.
-7-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarterly
period ended April 26, 1997.
Exhibits -
27. Financial Data Schedule
-8-
<PAGE>
AMERICAN ELECTROMEDICS CORP.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ELECTROMEDICS CORP.
----------------------------
/s/ Thomas A. Slamecka Dated: June 16, 1997
-------------------------
Thomas A. Slamecka
Chairman
/s/ Michael T. Pieniazek Dated: June 16, 1997
-------------------------
Michael T. Pieniazek
President and
Chief Financial Officer
-9-
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
ELECTROMEDICS CORP. FORM 10-QSB FOR THE PERIOD ENDED APRIL 26, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-26-1997
<CASH> 372
<SECURITIES> 0
<RECEIVABLES> 570
<ALLOWANCES> 0
<INVENTORY> 665
<CURRENT-ASSETS> 1,916
<PP&E> 442
<DEPRECIATION> (388)
<TOTAL-ASSETS> 3,143
<CURRENT-LIABILITIES> 845
<BONDS> 720
0
0
<COMMON> 255
<OTHER-SE> 913
<TOTAL-LIABILITY-AND-EQUITY> 3,143
<SALES> 423
<TOTAL-REVENUES> 423
<CGS> 247
<TOTAL-COSTS> 247
<OTHER-EXPENSES> 708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> (532)
<INCOME-TAX> 0
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<NET-INCOME> (532)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
