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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) -- May 5, 1998
-------------
AMERICAN ELECTROMEDICS CORP.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-9922 04-2608713
-------------------- -------------------- -----------------
(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of Incorporation)
13 Columbia Drive, Suite 5, Amherst, New Hampshire 03031
-----------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number,
including area code -- (603) 880-6300
--------------
Not Applicable
-----------------------------------------------------------------
(Former Name or Former Address, if changed since last report)
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
-----------------------------------------------------
AND EXHIBITS
------------
On June 5, 1998, the Company filed a Form 8-K to report the
acquisition of Dynamic Dental Systems, Inc. ("DDS") and Equidyne
Systems, Incorporated ("ESI"). The financial statements required
to be filed under Item 7(a) and (b) of such form 8-K were to be
filed thereafter by amendment. Included in this amendment are:
(1) financial statements of DDS, (ii) financial statements of ESI
and (iii) the Company's pro forma financial statements reflecting
the acquisition of DDS and ESI. In addition, on January 26,
1996, the Company filed a Form 8-K to report the acquisition of a
50% interest in Rosch GmbH Medizintechnik ("Rosch GmbH"). In
December 1997, the Company acquired the remaining 50% of Rosch
GmbH. Also, included in this amendment are (a) financial
statements of Rosch GmbH and (b) the Company's pro forma
financial statements reflecting the Rosch GmbH acquisition.
Page
----
(a) (i) Financial Statements of Dynamic Dental
Systems, Inc.
Report of Johnny B. Martin, dated August 11,
1998 4
Balance Sheet as at December 31, 1997 5
Statement of Income and Retained Earnings for
the year ended December 31, 1997 6
Statement of Cash Flows for the year ended
December 31, 1997 7
Notes to Financial Statements 8
(a) (ii) Financial Statements of Equidyne Systems,
Inc.(a development stage company)
Report of Nation Smith Hermes Diamond, dated
August 11, 1998 10
Balance Sheets as at December 31, 1997 and
1996 11
Statements of Operations for the years ended
December 31, 1997 and 1996 and for the period
from inception (August 11, 1993) to
December 31, 1997 12
Statements of Stockholders' Equity for the
years ended December 31, 1997 and 1996 13
Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and for the period
from inception (August 11, 1993) through
December 31, 1997 14
Notes to Financial Statements 15
(a)(iii) Financial Statements of Rosch GmbH
Medizintechnik
2
<PAGE>
Balance Sheet as at July 31, 1997 18
Statement of Operations for the seven months
ended July 31, 1997 19
Audit Report of Wilhelm T. J. Hagen 20
Balance Sheet as at December 31, 1996 21
Statement of Operations for the twelve months
ended December 31, 1996 22
Audit Report of Wilhelm T. J. Hagen 23
(b)(i) Pro forma Financial Statements (the Company,
Rosch GmbH, ESI and DDS)
Pro forma Condensed Financial Statements 24
Pro forma Combined Condensed Balance Sheet as
at April 30, 1998 25
Pro forma Combined Condensed Statement of
Operations for the nine months ended April
30, 1998 26
Pro forma Combined Condensed Statement of
Operations for the year ended July 31, 1997 27
(b)(ii) Pro forma Financial Statements (Company and
Rosch GmbH)
Pro forma Condensed Financial Statements 28
Pro forma Combined Condensed Balance Sheet as
at July 31, 1997 29
Pro forma Combined Condensed Statement of
Operations for the year ended July 31, 1997 30
Pro forma Combined Condensed Statement of
Operations for the three month period ended
October 31, 1997 31
3
<PAGE>
[LETTERHEAD OF JOHNNY B. MARTIN, CERTIFIED PUBLIC ACCOUNTANT]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Dynamic Dental Systems, Inc.
Gainesville, Georgia
I have audited the accompanying balance sheet of DYNAMIC DENTAL
SYSTEMS, INC. as of December 31, 1997 and the related statements
of income and retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the
company's management. My responsibility is to express an opinion
on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
DYNAMIC DENTAL SYSTEMS, INC. as of December 31, 1997 and the
results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting
principles.
/s/ Johnny B. Martin
-------------------------------
Certified Public Accountant
August 11, 1998
4
<PAGE>
DYNAMIC DENTAL SYSTEMS, INC.
----------------------------
BALANCE SHEET
December 31, 1997
1997
-------
ASSETS
Current Assets
Cash $ 70,467
Accounts Receivable 103,155
Inventory 49,595
--------
Total Current Assets 223,217
Organization Cost 195
--------
TOTAL ASSETS $223,412
========
CURRENT LIABILITIES
Accounts Payable $ 86,495
Line of Credit 70,000
Federal Income Tax Payable 10,775
State Income Tax Payable 4,000
Sales Tax Payable 655
--------
TOTAL CURRENT LIABILITIES 171,925
--------
STOCKHOLDERS EQUITY
Common Stock, No Par Value 3000 Shares
Authorized, Issued and Outstanding 300
Retained Earnings 51,187
--------
TOTAL STOCKHOLDERS EQUITY 51,487
--------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $223,412
========
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
DYNAMIC DENTAL SYSTEMS, INC.
----------------------------
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Year Ended December 31, 1997
1997
--------
REVENUE
Sales $1,446,724
Training Fees 12,150
Other Income 6,532
----------
1,465,406
Cost of Goods Sold 956,873
----------
GROSS PROFIT 508,533
----------
EXPENSES
Advertising 69,250
Amortization 122
Bank Service Charges 1,562
Commissions 112,526
Contract Labor 83,722
Credit Card Fees 11,298
Depreciation 5,394
Dues and Subscriptions 550
Equipment Rental 2,128
Exhibition Costs 55,678
Insurance 1,806
Interest 4,256
Meals and Entertainment 2,272
Miscellaneous 192
Office Supplies 5,622
Professional Fees 3,367
Rent 18,365
Repairs and Maintenance 435
Software 1,287
Taxes and Licenses 2,100
Telephone 15,598
Training 7,475
Travel 36,255
Utilities 1,097
Waste Removal 214
----------
TOTAL EXPENSES 442,571
INCOME BEFORE TAXES 65,962
INCOME TAX 14,775
----------
NET INCOME 51,187
BEGINNING RETAINED EARNINGS --
----------
RETAINED EARNINGS DECEMBER 31, 1997 $ 51,187
==========
6
<PAGE>
DYNAMIC DENTAL SYSTEMS, INC.
----------------------------
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
1997
--------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 51,187
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Depreciation and Amortization 5,516
Increase in Accounts Receivable (103,155)
Increase in Inventories (49,595)
Increase in Accounts Payable 86,495
Increase in Other Current Operating
Liabilities 15,430
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,878
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (5,711)
---------
NET CASH (USED IN) INVESTING ACTIVITIES (5,711)
---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds Under Line of Credit Borrowing 70,000
Common Stock Issued 300
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 70,300
---------
INCREASE (DECREASE) IN CASH 70,467
CASH AT BEGINNING OF PERIOD 0
---------
CASH AT END OF PERIOD $ 70,467
=========
7
<PAGE>
DYNAMIC DENTAL SYSTEMS, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
--------------------------------------------------------
ACTIVITIES
----------
NATURE OF BUSINESS
The Company sells computers with related software, cameras, and
printers to dentists. This equipment is utilized to photograph
and display the teeth and mouths of patients.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared on the
accrual basis of accounting and accordingly reflect all
significant receivables, payables, and other liabilities.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
DEPRECIATION
The Company purchased $5,394 of depreciable assets during the
year ended December 31, 1997. It elected to write off these
assets as expenses for income tax and financial statement
purposes. Direct write-off of depreciable assets is not
generally accepted accounting principles, but the Company does
not consider the amounts involved to be material.
AMORTIZATION
The Company incurred $317 in organization costs. It is
amortizing these costs over a five year period.
ACCOUNTS RECEIVABLE
The Company recognizes sales when products are shipped. There
have been no credit losses as of December 31, 1997 and the
Company had collected all amounts owed to it as of August 11,
1998.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid investments available for current use
with an initial maturity of three months or less to be cash
equivalents.
8
<PAGE>
DYNAMIC DENTAL SYSTEMS, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1997
NOTE 2: LINE OF CREDIT
-----------------------
The Company has a line of credit with a local bank that provides
for maximum borrowings of $70,000 at a rate of interest that
varies with prime as defined in the loan agreement. The rate at
December 31, 1997 was 10.5%. The loan is secured by a personal
guarantee of the President of the Company.
NOTE 3: INCOME TAXES
---------------------
The provision for income taxes consists entirely of amounts owed
as of December 31, 1997:
Federal $10,775
State 4,000
-------
$14,775
=======
NOTE 4: SUBSEQUENT EVENT
-------------------------
All the Company's stock was acquired through a merger with
American Electromedics Corporation.
The Company has an employment agreement with the principal seller
providing for a base salary of $125,000 annually through April
30, 2001. The agreement provides for automatic annual renewals
beginning May 1, 2001 unless written notice of termination is
given by either party.
The principal seller has agreed not to compete with the Company
for a two year period that begins on the date that he ceases to
be an employee of the Company.
9
<PAGE>
(a)(ii) Financial Statements of Dynamic Dental Systems, Inc.
[LETTERHEAD OF NATION SMITH HERMES DIAMOND]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
EQUIDYNE SYSTEMS, INC.
(A development stage company)
We have audited the accompanying balance sheets of EQUIDYNE
SYSTEMS, INC. (a development stage company) as of December 31,
1997 and 1996, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then
ended, and for the period from August 11, 1993 (inception) to
December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of EQUIDYNE SYSTEMS, INC. (a development stage company) as of
December 31, 1997 and 1996, and the results of its operations and
cash flows for the years then ended, and for the period from
August 11, 1993 (inception) to December 31, 1997, in conformity
with generally accepted accounting principles.
August 11, 1998 /s/Nation Smith Hermes Diamond
10
<PAGE>
EQUIDYNE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . $ 100 $ 24,700
Prepaid expenses . . . . . . . . . 1,000 --
----------- -----------
Total current assets . . . . . . 1,100 24,700
FIXED ASSETS -- NET (Notes 1(c) and 2) 600 4,600
INTANGIBLE ASSETS -- NET (note 1(d)) 10,900 23,100
----------- -----------
$ 12,600 $ 52,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Notes payable -- related parties
(Note 3) . . . . . . . . . . . . $ 98,200 $ 97,800
Accounts payable . . . . . . . . . 95,300 100,600
Accrued expenses . . . . . . . . . 47,500 48,700
----------- -----------
Total liabilities . . . . . . . 241,000 247,100
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Series A preferred stock, no par
value; 860,500 shares authorized
and 795,500 shares issued and
outstanding (Note 4) . . . . . 753,300 753,300
Series B preferred stock, no par
value; 50,000 shares authorized
and 14,800 shares issued and
outstanding (Note 4) . . . . . 140,200 140,200
Common stock, no par value;
2,500,000 shares authorized and
669,060 shares issued and
outstanding . . . . . . . . . . 700 700
Deficit accumulated during the
development stage . . . . . . . . (1,122,600) (1,088,900)
----------- -----------
Total ownership equity (deficit) . . (228,400) (194,700)
----------- -----------
$ 12,600 $ 52,400
=========== ===========
The accompanying notes are an integral part of these financial
statements.
11
<PAGE>
EQUIDYNE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE
PERIOD
FROM
INCEPTION
(AUGUST 11,
YEAR ENDED YEAR ENDED 1993) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ ------------
OPERATING EXPENSES
Research and
development $ 2,600 $ 111,600 $ 669,300
General and 23,600 208,200 531,200
administrative -------- --------- -----------
Total operating expenses 26,200 319,800 1,200,500
-------- --------- -----------
OTHER INCOME (EXPENSE)
Licensing and
evaluation fees -- 90,000 90,000
Interest expense (3,500) (2,200) (11,000)
Interest income -- -- 2,900
Loss on disposal of (4,000) -- (4,000)
fixed assets -------- --------- -----------
Total other income (7,500) 87,800 77,900
(expense) -------- --------- -----------
NET LOSS $(33,700) $(232,000) $(1,122,600)
======== ========= ===========
The accompanying notes are an integral part of these financial
statements.
12
<PAGE>
EQUIDYNE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK(1)
------------------------
SHARES AMOUNT
------ ------
BALANCE AT INCEPTION -- $ --
Initial capitalization 564,060 600
Preferred Series A stock issued, -- --
795,500 shares
Net loss -- --
------- -----------
BALANCE AT DECEMBER 31, 1995 564,060 600
Preferred Series B stock issued, -- --
14,800 shares
Common stock issued 105,000 100
Net loss -- --
------- -----------
BALANCE AT DECEMBER 31, 1996 669,060 700
Net loss -- --
------- -----------
BALANCE AT DECEMBER 31, 1997 669,060 $ 700
======= ===========
PREFERRED STOCK(1)
---------------------
SERIES A SERIES B
-------- --------
BALANCE AT INCEPTION $ -- $ --
Initial capitalization -- --
Preferred Series A stock issued, 753,300 --
795,500 shares
Net loss -- --
-------- --------
BALANCE AT DECEMBER 31, 1995 753,300 --
Preferred Series B stock issued, -- 140,200
14,800 shares
Common stock issued -- --
Net loss -- --
-------- --------
BALANCE AT DECEMBER 31, 1996 753,300 140,200
Net loss -- --
-------- --------
BALANCE AT DECEMBER 31, 1997 $753,300 $140,200
======== ========
ACCUMULATED
DEFICIT TOTAL
----------- -----
BALANCE AT INCEPTION $ -- $ --
Initial capitalization -- 600
Preferred Series A stock issued, -- 753,300
795,500 shares
Net loss (856,900) (856,900)
----------- ----------
BALANCE AT DECEMBER 31, 1995 (856,900) (103,000)
Preferred Series B stock issued, -- 140,200
14,800 shares
Common stock issued -- 100
Net loss (232,000) (232,000)
----------- ----------
BALANCE AT DECEMBER 31, 1996 (1,088,900) (194,700)
Net loss (33,700) (33,700)
----------- ----------
BALANCE AT DECEMBER 31, 1997 $(1,122,600) $(228,400)
=========== =========
(1) Reflects adjustment for one for ten reverse stock split in
November 1997.
The accompanying notes are an integral part of these financial
statements.
13
<PAGE>
EQUIDYNE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Period
from Inception
Year Ended Year Ended (August 11, 1993)
December 31, December 31, to
1997 1996 December 31, 1997
------------ ------------ -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(33,700) $(232,000) $(1,122,600)
Adjustments to
reconcile net
loss to net
cash used in
operating
activities:
Depreciation 12,200 10,100 54,000
and
amortization
Loss on sale of 4,000 300 4,000
fixed assets --
net
Change in
operating assets
and liabilities:
Accounts -- 3,000 --
receivable
Prepaid (1,000) -- (1,000)
expenses
Intangible -- 31,800 (4,200)
assets
Other assets -- 3,800 --
Accounts (5,300) 68,300 95,300
payable
Accrued (800) (24,900) 47,900
expenses -------- --------- -----------
Net cash used in (24,600) (139,600) (926,600)
operating -------- --------- -----------
activities
CASH FLOWS FROM
INVESTING
ACTIVITIES
Purchase of fixed -- (800) (15,300)
assets -------- --------- -----------
CASH FLOWS FROM
FINANCING
ACTIVITIES
Proceeds from -- 137,100 894,200
issuance of stock
Proceeds from 17,800 47,800
note payable --
related party
Principal
payments on notes -- (15,000) --
payable --
related party -------- --------- -----------
Net cash provided -- 139,900 942,000
by financing -------- --------- -----------
activities
NET INCREASE (24,600) (500) 100
(DECREASE) IN CASH
CASH AT BEGINNING 24,700 25,200 --
OF PERIOD -------- --------- -----------
CASH AT END OF $ 100 $ 24,700 $ 100
PERIOD ======== ========= ===========
Noncash Investing and Financing Activities
During 1993 the Company acquired a $50,000 patent with a note
payable.
The accompanying notes are an integral part of these financial
statements.
14
<PAGE>
EQUIDYNE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES A summary of the Company's
significant accounting policies
applied in the preparation of the
accompanying financial statements
follows.
(a) Organization EQUIDYNE SYSTEMS, INC. (the
"Company") was organized under the
laws of the state of California on
August 11, 1993. The Company is
designing and developing a
low-cost, needle-free drug
injection system. The Company is
in the development stage.
(b) Use of estimates The preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to
make estimates and assumptions
that affect the reported amounts
of assets and liabilities and
disclosure of contingent assets
and liabilities at the date of the
balance sheet. Actual results
could differ from those estimates.
(c) Depreciation Fixed assets are depreciated on a
straight-line basis over estimated
useful lives ranging from three to
seven years.
(d) Intangibles Costs associated with patents and
intellectual property are
amortized on a straight line basis
over the estimated useful lives of
five to seventeen years.
(e) Research and The Company is actively engaged in
development new product development efforts.
Research and development costs
relating to possible future
products are expensed as incurred.
Total expense was approximately
$2,600, $111,600, and $669,300 for
1997, 1996 and for the period from
inception through December 31,
1997, respectively.
(f) Income Taxes Income taxes are provided for the
tax effects of transactions
reported in the financial
statements and consist of taxes
currently due plus deferred taxes
related to differences between the
basis of fixed assets for
financial and income tax
reporting. Deferred taxes also
are recognized for any operating
losses that are available to
offset future taxable income and
any tax credits that are available
to offset future federal and state
income taxes. Deferred tax assets
and liabilities represent the
future tax return consequences of
those differences, which will
either be taxable or deductible
when the assets and liabilities
are recovered or settled.
2. FIXED ASSETS Fixed assets consisted of the
following:
December 31, 1997 1996
---- ----
Tools, molds $ -- $ 15,300
Furniture and
fixtures 700 --
Less accumulated
depreciation (100) (10,700)
----- --------
$ 600 $ 4,600
===== ========
15
<PAGE>
Depreciation expense was $10,700
for the period from inception
through December 31, 1997,
respectively.
3. NOTES PAYABLE--
RELATED PARTIES Notes payable -- related parties
consisted of the following:
December 31, 1997 1996
---- ----
Demand note
payable to a
shareholder
non-interest
bearing. $50,000 $50,000
Convertible
demand note
payable to a
shareholder
with interest
at prime (8%
at December 31,
1997) 25,000 25,000
Note payable to
a shareholder,
non-interest
bearing. Due in
monthly install-
ments of $1,000
from April 1996
until paid in
full. Subject to
a $100 fee for
each late
payment 18,200 17,800
Demand note
payable to a
shareholder
with interest
at 12%. Con-
vertible at
the holders
option to
a like value
of preferred
Series A
shares. 5,000 5,000
------- -------
$98,200 $97,800
======= =======
4. PREFERRED STOCK The Company has authorized
12,000,000 shares of no par
convertible preferred stock, of
which 795,500 shares of Series A
and 14,800 shares of Series B were
issued and outstanding at
December 31, 1997. Each preferred
Series A share is convertible into
one common share and each share of
Series B is convertible into ten
common shares at the option of the
holder or will be automatically
converted upon certain conditions.
Holders of preferred shares have
the right to one vote for each
share of common stock into which
such preferred stock can be
converted, and with the same
voting rights as common stock.
In the event of a voluntary or
involuntary liquidation or
dissolution of the Company, the
holders of preferred shares shall
be entitled to receive an amount
equal to their initial investment.
If the assets of the Company are
insufficient to permit the payment
in full, then the entire assets of
the Company shall be distributed
ratably among the holders of
preferred shares.
5. COMMITMENTS
(a) Leases The Company leases operating
facilities on a month-to-month
basis. Rent expense included in
the statements of operations was
approximately $3,200, $20,600, and
$100,000 for 1997, 1996 and from
the period of inception through
December 31, 1997, respectively.
(b) Litigation A lawsuit was filed during May
1996 by a former board member and
officer against the Company
alleging breach of an employment
contract. The ultimate resolution
of this issue is not ascertainable
at this time. No provision has
been made in the financial
statements related to this claim.
16
<PAGE>
6. INCOME TAXES The Company had a deferred tax
asset for the deductible temporary
differences related to net
operating loss carryforwards of
$450,000 and $430,000 at
December 31, 1997 and 1996.
Because management was unable to
determine if, more likely than
not, the Company will realize the
deferred tax asset related to the
net operating loss carryforwards,
a valuation allowance of $450,000
and $430,000 was provided for
these deferred tax assets as of
December 31, 1997 and 1996.
At December 31, 1997, the Company
had federal and state net
operating loss (NOL) carryforwards
of approximately $1,120,000.
These NOL's begin to expire in
1998.
7. SUBSEQUENT EVENTS
(a) Merger Subsequent to December 31, 1997,
the Company entered into merger
negotiations with American
Electromedics Corp. The merger
period began March 28, 1998 and
was finalized May 11, 1998. Under
the terms of the merger agreement,
American Electromedics Corp.
exchanged 600,000 shares of its
common stock for 100% of the
Company's outstanding shares,
after conversion of the preferred
stock to common stock, in a
tax-free exchange. After the
merger, the Company is a
wholly-owned subsidiary of
American Electromedics.
At May 11, 1998, American
Electromedics common stock has
been issued for 90% of the
Company's common stock. The
remaining 10% will be issued, at
American Electromedics' option,
from an escrow account within five
months of the final merger date.
The agreement calls for all shares
to be registered, on a best
efforts basis, within six months
of the final merger date.
(b) Stock bonus On March 27, 1998, 62,000 shares
of the Company's common stock was
issued to an officer to fulfill a
bonus incentive agreement
initiating the merger between the
Company and American Electromedics
Corp. Under the terms of the
agreement, shares were to be
awarded if the officer attracted a
cash investment into the Company.
However, the Company's Board of
Directors voted to award 62,000
shares, acknowledging that the
merger with American Electromedics
represented an increase in
shareholder value to the Company's
shareholders, even though it was
not a direct cash investment.
The 62,000 shares, at the time of
the merger and under the stock
swap merger terms, were valued at
$101,455.
(c) Litigation During July 1998, a former officer
of the Company filed a lawsuit
against the Company and four
former directors for breach of an
employment contract. The ultimate
resolution of this issue is not
ascertainable at this time.
(d) Related party loans Subsequent to December 31, 1997,
American Electromedics Corp. began
loaning the Company funds for
ongoing research and development
efforts and for general and
administrative costs. The balance
outstanding is approximately
$525,000 as of August 11, 1998.
17
<PAGE>
(a)(iii) Financial Statements of Rosch GmbH Medizintechnik.
ROSCH GMBH MEDIZINTECHNIK
BALANCE SHEET
(VALUES IN DEUTSCHE MARKS)
JULY 31, 1997
-------------
ASSETS
------
Current assets:
Cash & cash equivalents 114,428.91 DM
Accounts receivable 1,788,777.45
Inventories 1,807,507.00
------------
Total current assets 3,710,713.36
Property and equipment, net 387,889.61
Other assets 764,861.72
------------
Total assets 4,863,464.69 DM
============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable 2,380,915.40 DM
Accrued liabilities 238,159.63
Other liabilities 483,874.86
------------
Total current liabilities 3,102,949.89
Long term debt 1,353,483.00
Stockholders' Equity:
Capital stock 50,000.00
Retained earnings 357,031.80
------------
Total stockholders' equity 407,031.80
Total liabilities and stockholders' equity 4,863,464.69 DM
============
18
<PAGE>
ROSCH GMBH MEDIZINTECHNIK
STATEMENT OF OPERATIONS
(VALUES IN DEUTSCHE MARKS)
SEVEN MONTHS ENDED
JULY 31, 1997
------------------
Net sales 4,720,424.91 DM
Cost of goods sold 3,111,813.11
-------------
Gross profit 1,608,611.80
Selling, general and administrative 1,615,716.51
-------------
Total operating expense 1,615,716.51
Loss before taxes and interest (7,104.71)
Interest, net (71,510.73)
Other income 97,624.57
-------------
Earnings after taxes and interest 19,009.13 DM
==============
19
<PAGE>
Audit Report
Rosch GmbH Medizintechnik
Berlin, Germany
I have examined the Annual Report, the Accounts and the
Administration by the General Manager for the period January 01,
1997 to July 31, 1997. The examination was carried out in
accordance with generally accepted accounting standards.
The Annual Report has been carried out in compliance with the
German Commercial Code (HGB) and the prevailing laws set out by
the German Tax Authorities.
I recommend
that the Income Statement and the Balance Sheet be adopted
that the earnings be disposed of as proposed in the Report of the
General Manager
that the General Manager be discharged from liability for the
fiscal year January 01, 1997 to July 31, 1997.
Dessau, Germany, September 09, 1998
Wilhelm T. J. Hagen
[Seal of Wilhelm T. J. Hagen]
20
<PAGE>
ROSCH GMBH MEDIZINTECHNIK
BALANCE SHEET
(VALUES IN DEUTSCHE MARKS)
DECEMBER 31,
1996
------------
ASSETS
------
Current assets:
Cash & cash equivalents 56,616.87 DM
Accounts receivable 976,370.08
Inventories 1,240,317.16
------------
Total current assets 2,273,304.11
Property and equipment, net 382,043.00
Prepaid and other current
assets 205,488.20
------------
Total assets 2,860,835.31 DM
============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable 929,165.61 DM
Accrued liabilities 413,013.31
Other liabilities 32,700.00
------------
Total current liabilities 1,374,878.92
Long term debt 843,864.60
Stockholders' Equity:
Capital stock 50,000,000
Shareholder credit 254,069.12
Retained earnings 338,022.67
------------
Total stockholders' equity 642,091.79
Total liabilities and stockholders' equity 2,860,835.31 DM
============
21
<PAGE>
ROSCH GMBH MEDIZINTECHNIK
STATEMENT OF OPERATIONS
(VALUES IN DEUTSCHE MARKS)
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------
Net sales 4,162,584.78 DM
Cost of goods sold 2,935,361.67
------------
Gross profit 1,227,223.11
Selling, general and administrative 1,120,898.92
------------
Total operating expense 1,120,898.92
Earnings before interest and taxes 106,324.19
Interest, net (38,518.14)
Other expense (10,849.55)
Taxes (30,402.45)
------------
------------
Earnings after taxes and interest 26,554.05 DM
============
22
<PAGE>
Audit Report
Rosch GmbH Medizintechnik
Berlin, Germany
I have examined the Annual Report, the Accounts and the
Administration by the General Manager for the period January 01,
1996 to December 31, 1996. The examination was carried out in
accordance with generally accepted accounting standards.
The Annual Report has been carried out in compliance with the
German Commercial Code (HGB) and the prevailing laws set out by
the German Tax Authorities.
I recommend
that the Income Statement and the Balance Sheet be adopted
that the earnings be disposed of as proposed in the Report of the
General Manager
that the General Manager be discharged from liability for the
fiscal year January 01, 1996 to December 31, 1996.
Dessau, Germany, September 09, 1998
Wilhelm T. J. Hagen
[Seal of Wilhelm T. J. Hagen]
23
<PAGE>
(b) Pro forma Financial Statements (Company, Rosch GmbH
Medizintechnik, Equidyne Systems, Incorporated and Dynamic Dental
Systems, Inc.)
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed balance
sheet as of April 30, 1998 and the unaudited combined condensed
statements of earnings for the nine months ended April 30, 1998
and year ended July 31, 1997 for the following companies:
American Electromedics Corp., Equidyne Systems, Inc., Dynamic
Dental Systems, Inc. and Rosch GmbH Medizintechnik. The pro
forma combined condensed statements are presented under the
purchase method of accounting for business combinations. The
purchase method of accounting requires that all assets and
liabilities be adjusted to their estimated fair market value as
of the date of acquisition.
The pro forma statements are provided for informational purposes
only. The pro forma combined condensed statements of earnings
are not necessarily indicative of actual results that would have
been achieved had the acquisition been consummated at the
beginning of the periods presented, and is not indicative of
future results. The pro forma financial statements should be
read in conjunction with the audited financial statements and the
notes thereto of Equidyne Systems, Inc., Dynamic Dental Systems,
Inc. and Rosch GmbH and the Company.
24
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
APRIL 30, 1998
(UNAUDITED)
(THOUSANDS)
PRO FORMA AMERICAN PRO FORMA PRO FORMA
ELECTROMEDICS(1) ADJUSTMENTS COMBINED
------------------- ----------- ---------
ASSETS
Current Assets:
Cash and cash
equivalents . . . $ 147 (3)$(139) $ 8
Accounts receivable 1,328 -- 1,328
Inventories . . . . 1,944 -- 1,944
Other current
assets . . . . . 705 -- 705
------- ----- -------
Total current
assets . . . $ 4,124 $(139) $ 3,985
Depreciable assets,
net . . . . . . . 438 -- 438
Intangible assets,
net . . . . . . . 5,154 (2)(134) 5,020
Investment in
affiliate . . . . 311 -- 311
Other . . . . . . . 901 -- 901
------- ----- -------
Total assets $10,928 $(273) $10,655
======= ===== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . $ 1,187 -- $ 1,187
Bank line of credit 300 -- 300
Accrued liabilities 412 -- 412
Current portion of
long-term debt . 167 -- 167
------- ----- -------
Total current
liabilities . 2,066 -- 2,066
Long-term debt . . 1,785 (2)(145) 1,640
Other liabilities . 12 -- 12
Stockholders' Equity:
Common stock . . . 712 -- 712
Additional paid-in
capital . . . . . 9,691 -- 9,691
Retained deficit . (3,242) (2,3)(128) (3,370)
Foreign currency
translation
adjustment . . . (96) -- (96)
------ ----- -------
Total stockholders'
equity . . . 7,065 (128) 6,937
------ ----- -------
Total liabilities
and stockholders'
equity . . . $10,928 $(273) $10,655
======= ===== =======
See accompanying notes.
25
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA AMERICAN PRO FORMA PRO FORMA
ELECTROMEDICS(1) ADJUSTMENT COMBINED
------------------ ---------- ---------
Net sales . . . . . $ 7,040 $ -- $ 7,040
Cost of goods sold 4,210 -- 4,210
--------- ---------
2,830 2,830
Operating expense . 3,493 -- 3,493
Amortization of
tangibles . . . . . 229 (2) 73 302
Operating loss . . (892) (73) (965)
Other income
(expenses) . . . . (33) (3) 6 (27)
--------- ------- ---------
Loss before
provisions for
income taxes . . . (925) (67) (992)
Provision for income
taxes . . . . . . . (24) -- (24)
--------- ------- ---------
Net loss . . . . . $ (949) $(67) $ (1,016)
========= ======= =========
Loss per share:
Basic . . . . . . . $ (.14) -- $ (.15)
========= =========
Diluted . . . . . . $ (.14) -- $ (.15)
========= ==========
Shares used to
compute per share
amounts:
Basic . . . . . . . 7,118,136 -- 7,118,136
========= =========
Diluted . . . . . . 7,118,136 -- 7,118,136
========= =========
See accompanying notes.
26
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(1) YEAR ENDED JULY 31, 1997
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
AMERICAN PRO FORMA PRO FORMA
ELECTROMEDICS(1) ADJUSTMENT COMBINED
---------------- ---------- ---------
Net sales . . . . . . $ 6,176 $ -- $ 6,176
Cost of goods sold . 3,758 -- 3,758
--------- ---------
2,418 2,418
Operating expense . . 3,141 -- 3,141
Amortization of
tangibles . . . . . 50 (5) 206 256
--------- ------- ---------
Operating loss . . . (773) (206) (979)
Other income
(expenses) . . . . . (417) (3) (3) (414)
--------- ------- ---------
Loss before provision
for income taxes . . (1,190) (203) (1,393)
Provision for income
taxes . . . . . . . (27) -- (27)
--------- ------- ---------
Net loss . . . . . . $(1,217) (203) $ (1,420)
========= ======== =========
Loss per share:
Basic . . . . . . . . $ (.31) -- $ (.36)
========= -------- =========
Diluted . . . . . . . $ (.31) -- $ (.36)
========= =========
Shares used to
compute per share
amounts:
Basic . . . . . . . . 4,008,136 -- 4,008,136
========= =========
Diluted . . . . . . . 4,008,136 -- 4,008,136
========= =========
Notes to Pro Forma Condensed Financial Statements
(1) Pro forma numbers for American Electromedics column include
the following companies: American Electromedics Corp.,
Rosch GmbH Medizintechnik, Equidyne Systems, Inc. and
Dynamic Dental Systems, Inc. These combined numbers are
represented as though Equidyne, Dynamic and Rosch were
acquired as of August 1, 1996.
(2) Amortized nine months of goodwill for investment in
affiliates with the assumption that subsidiaries were owned
at August 1, 1996.
(3) Write off notes payable on Equidyne Systems, Inc., assuming
debt was fully paid when acquired on August 1, 1996.
(4) Dynamic Dental Systems date of inception was January 1,
1997. Seven months activity reflected.
(5) Amortized twelve months of goodwill for investment in
affiliates with the assumption that subsidiaries were owned
at August 1, 1996.
27
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed balance
sheet as of October 31, 1997 and the unaudited combined condensed
statements of earnings for the three months ended October 31,
1997 and year ended July 31, 1997 for the following companies:
American Electromedics Corp. and Rosch GmbH Medizintechnik. The
pro forma combined condensed statements are presented under the
purchase method of accounting for business combinations. The
purchase method of accounting requires that all assets and
liabilities be adjusted to their estimated fair market value as
of the date of acquisition.
The pro forma statements are provided for informational purposes
only. The pro forma combined condensed statements of earnings
are not necessarily indicative of actual results that would have
been achieved had the acquisition been consummated at the
beginning of the periods presented, and is not indicative of
future results. The pro forma financial statements should be
read in conjunction with the audited financial statements and the
notes thereto of Rosch GmbH and the Company
28
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
OCTOBER 31, 1997
(UNAUDITED)
(THOUSANDS)
Pro Forma
American Pro Forma Pro Forma
Electromedics (1) Adjustments Combined
----------------- ----------- ---------
ASSETS
Current Assets:
Cash and cash
equivalents . . $ 239 $ - $ 239
Accounts
receivable . . . 1,291 - 1,291
Inventories . . . 1,471 - 1,471
Other current
assets . . . . . 163 - 163
------- ------- -------
Total current
assets . . . 3,164 - 3,164
Depreciable
assets, net . . 263 - 263
Intangible assets,
net . . . . . . 871 (2) (7) 874
Other . . . . . . 532 - 532
------- ------- -------
Total assets . $ 4,830 $ (7) $ 4,823
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,014 $ - $ 1,014
Bank line of
credit . . . . . 300 - 300
Accrued
liabilities . . 514 - 514
Current portion of
long-term debt . 152 - 152
------- ------- -------
Total current
liabilities . 1,980 - 1,980
Long-term debt . 1,590 - 1,590
Other liabilities - - -
Stockholders' equity:
Preferred stock,
$ .01 par value;
Authorized -
1,000,000 shares;
Outstanding -
none . . . . . . - - -
Common stock,
$ .10 par value;
Authorized -
20,000,00
Outstanding -
2,658,136 . . . 266 - 266
Additional paid-in
capital . . . . 3,013 - 3,013
Retained deficit (2,009) (2) (7) (2,016)
Foreign
translation
adjustment . . . (10) - (10)
------- ------- -------
Total
stockholders'
equity . . . 1,260 (7) 1,253
------- ------- -------
Total liabilities
and stockholders'
equity . . . . . $ 4,830 $ (7) $ 4,823
======= ======= =======
See accompanying notes.
29
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
American Pro Forma Pro Forma
Electromedics(1) Adjustments Combined
---------------- ----------- ---------
Net sales . . . . . $ (5,847) $ - $ 5,847
Cost of goods sold 3,340 - 3,340
--------- ------ --------
2,507 - 2,507
Operating expense . 3,032 - 3,032
Amortization of
intangibles . . . 50 (2) 27 77
Operating income
(loss) . . . . . . (575) 0 (602)
Other income
(expenses) . . . . (418) - (418)
--------- ------ --------
Loss before
provision for
income taxes . . . (993) (27) (1,020)
Provisions for
income taxes . . . (26) - (26)
--------- ------ --------
Net loss . . . . . $ (1,019) $(27) $ (1,046)
========= ====== ========
Loss per share:
Basic . . . . . . . $ (.39) $ (.40)
========= - ========
Diluted . . . . . . $ (.39) $ (.40)
========= - ========
Shares used to
compute per share
amounts:
Basic . . . . . . . 2,658,136 2,658,136
========= - =========
Diluted . . . . . . 2,658,136 2,658,136
========= - =========
See accompanying notes
30
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
American Pro Forma Pro Forma
Electromedics(1) Adjustments Combined
---------------- ----------- ---------
Net sales . . . $ 1,830 $ - $ 1,830
Cost of goods
sold . . . . . 1,058 - 1,058
--------- ------- ---------
772 - 772
Operating
expense . . . 687 - 687
Amortization of
intangibles . 16 (2) 7 23
Operating
income . . . 69 0 62
Other income
(expenses) . . (4) - (4)
--------- ------- ---------
Income before
provision for
income taxes . 65 (7) 58
Provisions for
income taxes . - -
--------- ------- -
Net income . . $ 65 (2) (7) $ 58
========= ======= =========
Earnings per share:
Basic . . . . . $ .03 $ .03
========= - =========
Diluted . . . . $ .03 $ .03
========= - =========
Shares used to
compute per
share amounts:
Basic . . . . . 2,658,136 2,658,136
========= - =========
Diluted . . . . 2,658,136 2,658,136
========= - =========
Notes to Pro Forma Condensed Financial Statements
(1) Pro forma numbers for American Electromedics column include
the following companies: American Electromedics Corp. and
Rosch GmbH Medizintechnik. These combined numbers are
represented as though Rosch GmbH was acquired on August 1,
1996.
(2) Amortized three months of goodwill for investment in
affiliate with the assumption that the subsidiary was owned
at August 1, 1996.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
American Electromedics Corp.
---------------------------
(Registrant)
By:/s/ Michael T. Pieniazek
---------------------------
Michael T. Pieniazek
President
September 9, 1998
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