SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(AMENDMENT NO. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
JANUARY 31, 1998 0-9922
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AMERICAN ELECTROMEDICS CORP.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction (IRS Employer ID No.)
of Incorporation
or Organization)
13 COLUMBIA DRIVE, SUITE 18, AMHERST, NEW HAMPSHIRE 03031
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(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 603-880-6300
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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
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(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 March 31, 1998, there were outstanding 5,663,136 shares of
the Issuer's Common Stock, $.10 par value.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, January 31, 1998 and July 31, 1997 . . . . 3
Statements of Operations for the Three and Six Months
Ended January 31, 1998 and January 25, 1997 . . . . . . 4
Statements of Cash Flows for the Six Months Ended
January 31, 1998 and January 25, 1997 . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
JANUARY 31, JULY 31,
1998 1997
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(Unaudited) (Thousands)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . $ 256 $ 471
Accounts receivable
Trade . . . . . . . . . . . . . . . . 1,065 283
Affiliate . . . . . . . . . . . . . . --- 379
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1,065 662
Inventories . . . . . . . . . . . . . . 2,052 475
Prepaid and other current assets . . . 764 244
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Total current assets . . . . . . . . 4,137 1,852
Property and equipment . . . . . . . . 721 449
Accumulated depreciation . . . . . . . (411) (396)
------- -------
310 53
Deferred financing costs . . . . . . . 21 128
Investment in affiliate . . . . . . . . 332 819
Goodwill . . . . . . . . . . . . . . . 982 208
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$5,782 $ 3,060
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . $ 664 $ 187
Bank line of credit . . . . . . . . . . 272 300
Accrued liabilities . . . . . . . . . . 533 153
Current portion of long-term debt . . . 167 152
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Total current liabilities . . . . . . 1,636 792
Long-term debt . . . . . . . . . . . . 1,041 380
Convertible subordinated debentures . . --- 720
Stockholders' equity:
Preferred stock, $.01 par value;
Authorized - 1,000,000 shares;
Outstanding - none . . . . . . . . . . --- ---
Common stock, $.10 par value;
Authorized - 20,000,000 shares;
Outstanding - 4,513,136
shares at January 31, 1998 and
2,553,136 at July 31,1997 . . . . . . 451 255
Additional paid-in capital . . . . . . 4,647 2,919
Retained deficit . . . . . . . . . . . (1,886) (2,006)
Foreign currency translation adjustment (107) ---
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Total stockholders' equity . . . . . 3,105 1,168
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$ 5,782 $ 3,060
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See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
JANUARY JANUARY JANUARY JANUARY
31, 1998 25, 1997 31, 1998 25, 1997
-------- -------- -------- ---------
(Thousands, except per share amounts)
Net sales $1,805 $523 $3,635 $1,063
Cost of goods sold 821 282 1,879 594
------ ------ ------ ------
Gross profit 984 241 1,756 469
Selling, general and
administrative 903 374 1,590 689
Research and development --- 41 --- 75
------ ------ ------ ------
Total operating expenses 903 415 1,590 764
------ ------ ------ ------
Operating income (loss) 81 (174) 166 (295)
Other income (expenses):
Undistributed earnings
of affiliate 77 (13) 77 (43)
Interest, net (40) (34) (118) (43)
Minority interest in
affiliate --- --- (85) ---
Other (52) (13) 6 (13)
------ ------ ------ ------
(15) (60) (120) (99)
Income (loss) before
provision for income taxes 66 (234) 46 (394)
Provision for income taxes (2) --- (2) ---
------ ------- ------ ------
Net income (loss) $ 64 $ (234) $ 44 $(394)
====== ======= ====== ======
Weighted average number
of common and
Common equivalent shares
outstanding 4,096,830 2,506,266 3,282,142 2,481,164
========= ========= ========= =========
Earnings (loss) per
common and common
equivalent share:
Basic $ .02 $ (.09) $ .01 $ (.16)
====== ======= ====== =======
Diluted $ .02 $ (.09) $ .01 $ (.16)
====== ======= ====== =======
See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
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JANUARY 31, JANUARY 25,
1998 1997
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(Thousands)
OPERATING ACTIVITIES:
Net income (loss) $ 44 $ (394)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 132 33
Undistributed earnings of affiliate (77) 43
Minority interest in affiliate 85 --
Changes in operating assets and
liabilities:
Accounts receivable 341 141
Inventories, prepaid and other
current assets (1,339) (352)
Accounts payable and accrued
liabilities (264) (57)
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Net cash used in operating
activities (1,078) (586)
INVESTING ACTIVITIES:
Purchase of property and equipment,
net (94) (24)
Payment for product license --- (100)
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Net cash used in investing activities (94) (124)
FINANCING ACTIVITIES:
Principal payments on long-term debt (72) (47)
Proceeds from long-term debt and bank
line of credit (28) 500
Proceeds from issuance of common
stock, net 994 144
Proceeds from issuance of convertible
subordinated debt --- 720
Deferred financing costs --- (166)
Proceeds from exercise of stock
options --- 2
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Net cash provided by (used in)
financing activities 894 1,153
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Effect of exchange rate changes on
cash and cash equivalents 1 ---
Increase (decrease) in cash and cash
equivalents (277) 443
Cash and cash equivalents, beginning
of period 533 317
------- -------
Cash and cash equivalents, end of
period $ 256 $ 760
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NON-CASH ACTIVITIES:
Conversion of convertible subordinated
debt into common stock $ 720 ___
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Common Stock issued in connection
with acquisitions $ 210 ___
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See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
(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.
The Company changed its method from the equity method of
accounting for Rosch GmbH Medizintechnik ("Rosch GmbH") to a
consolidated basis on August 11, 1997 based upon the Company's
determination that it had reached the definition of control of
Rosch GmbH as of August 11, 1997 under generally accepted
accounting principles. The Company's determination of control of
Rosch GmbH was based primarily upon the successful completion of
negotiations to acquire effective voting control. For the first
quarterly period ended October 31, 1997, the Company continued to
recognize earnings of Rosch GmbH up to its 50% ownership share.
On December 18, 1997, the Company closed on the purchase of the
remaining 50% of the outstanding capital stock of Rosch GmbH,
for $50,000 plus 105,000 shares of Common Stock, pursuant to a
Stock Purchase Option Agreement, dated as of November 1, 1997.
As a result of this transaction, the Company recognized 100% of
earnings by Rosch GmbH for the second quarterly period ended
January 31, 1998.
The following proforma information is presented for comparative
purposes to disclose information on the financial position and
results of operations of American Electromedics Corp. and Rosch
GmbH had they been consolidated for all periods presented.
(IN 000'S)
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Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
1/31/98 1/25/97 1/31/98 1/25/97
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Sales $ 1,805 $ 1,296 $ 3,635 $ 2,261
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Gross profit 984 253 1,756 620
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Net profit (loss) 64 (580) 44 (811)
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Current assets 4,137 3,501 4,137 3.501
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Non-current assets 1,645 1,205 1,645 1,205
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Current liabilities 1,636 1,071 1,636 1,071
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Non-current liabilities 1,041 2,450 1,041 2,450
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Operating results for the three and six month periods ended
January 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending July 31, 1998. 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 31, 1997.
2. INVESTMENT IN AFFILIATE
-----------------------
On December 18, 1997, the Company invested $255,000, consisting
of $150,000 in cash and 105,000 shares of its Common Stock, for a
45% interest in Meditronic Medizinelektronik GmbH ("Meditronic"),
pursuant to a Stock Purchase Option Agreement, dated as of
November 1, 1997. The shares were valued at $1.00 per share,
which represented the fair market value of the Common Stock as of
the entry into such Agreement. Meditronic is a development and
manufacturing company based in Germany, specializing in the
manufacture of medical camera systems. Substantially all of
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<PAGE>
Meditronic's sales are to Rosch GmbH. At January 31, 1998, the
investment in Meditronic exceeded the Company's share of the
underlying equity in net assets by approximately $190,000 and is
being amortized over twenty-five years.
3. DEBT
----
On October 28, 1997, the Company entered into a Forbearance and
Workout Agreement with its bank as a result of the Company not
being in compliance with certain financial covenants under its
loan agreement as of July 31, 1997. The bank has waived the non-
compliance and the Company agreed to, among other things, raise
an additional $250,000 of equity capital and to apply $150,000 of
such amount against outstanding term loans. Additionally, as
part of this Agreement, the Company's revolving line of credit
was reduced to $300,000. Certain of the loan agreement financial
covenants were also amended to more reasonably reflect the
Company's current financial position.
As of November 26, 1997, the Company closed a private placement
of 1,030,000 shares of Common Stock at a price of $1.00 per share
to a group of "accredited investors". In connection with the
closing of the private placement of 1,030,000 shares of Common
Stock on November 26, 1997, the Company used $150,000 of the
placement proceeds to repay portions of its bank indebtedness.
In connection with the October 1997 amendments to its bank
arrangements and efforts to obtain additional equity capital, the
Company reduced the conversion price of its outstanding 14%
Convertible Subordinated Debentures (the "Debentures") from $3.75
to $1.00 per share. As of November 3, 1997, the holders of all
outstanding $720,000 principal amount of Debentures elected to
convert. As a result of these conversions, the Company also
reduced its long-term debt by $720,000 and issued 720,000 shares
of Common Stock.
4. SUBSEQUENT EVENTS
-----------------
Effective as of March 15, 1998, the Company retained Liviakis
Financial Communications, Inc. ("LFC") as a financial consultant
for a term of one year for a fee of 1,000,000 shares of the
Company's Common Stock and warrants for an additional 1,000,000
shares of Common Stock exercisable at $1.00 per share for four
years. LFC would receive a finder's fee equal to 2.5% of the
gross funding of any debt or equity placement and 2% of the gross
consideration on any acquisition for which LFC acts as a finder
for the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
This Report contains or refers to forward-looking information
made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. That information covers
future revenues, products and income and is based upon current
expectations that involve a number of business risks and
uncertainties. Among the factors that could cause actual results
to differ materially from those expressed or implied in any
forward-looking statement include, but not limited to,
technological innovations of competitors, delays in product
introductions, changes in health care regulations and
reimbursements, changes in foreign economic conditions or
currency translation, product acceptance or changes in government
regulation of the Company's products, as well as other factors
discussed in other Securities and Exchange Commission filings
for the Company.
RESULTS OF OPERATIONS
---------------------
Net sales for the three and six month periods ended January 31,
1998 were $1,805,000 and $3,635,000, respectively, compared to
$523,000 and $1,063,000 for the three and six month periods ended
January 25, 1997. The increase in sales in fiscal 1998 was
attributable to accounting for sales of Rosch GmbH on a
consolidated basis as well as sales of the new intraoral dental
camera system. Sales of the dental camera commenced in the
second quarter of fiscal 1997.
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<PAGE>
Cost of sales for the three and six month periods ended January
31, 1998 were 45.5% and 51.7%, compared to 53.9% and 55.9% of net
sales during the same periods in the prior year. The decrease in
cost as a percentage of sales can be attributed to the product
mix which included sales of Rosch GmbH on a consolidated basis.
Selling, general and administrative expenses for the three and
six month periods ended January 31, 1998 were $903,000 and
$1,590,000, respectively, compared to $374,000 and $689,000 for
the comparable prior year periods. The increase reflects
increased marketing and promotional activity, as well as
accounting for the selling, general and administrative expenses
of Rosch GmbH on a consolidated basis. The Company expects that
the higher level of marketing and selling expenses will continue
for the balance of fiscal 1998, when compared to the prior year
as the Company promotes its new dental camera product line.
Net profit for the three and six month periods ended January 31,
1998 were $64,000, or $.02 per share, and $44,000, or $.01 per
share, compared to net losses of $234,000, or $.09 per share, and
$394,000, or $.16 per share for the same periods in the prior
fiscal year. The increase in net profit is the result of
increased sales offset by higher interest costs.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital of the Company at January 31, 1998 was
$2,501,000, compared to $1,060,000 at fiscal year ended July 31,
1997. The $1,441,000 increase in working capital primarily
reflects the accounting for Rosch GmbH on a consolidated basis,
along with gross proceeds of $1,030,000 upon a private placement
of 1,030,000 shares of Common Stock. As mentioned in Note 3 to
the financial statements to this Report, the Company applied
$150,000 to repay portions of its bank indebtedness and $200,000
as the cash portion of the purchase price of its acquisition of
Rosch GmbH and investment in Meditronic. Further, the conversion
of the Debentures shall reduce the annual interest expense going
forward by approximately $100,000. The principal component of
the increase in working capital were inventory and accounts
receivable as the result of accounting for Rosch GmbH on a
consolidated basis.
The Company expects that available cash and its existing bank
line of credit should be sufficient to meet its normal operating
requirements, including research and development expenditures,
for the next few months, after which the Company would have to
raise additional capital or curtail certain activities. The
Company is seeking additional capital through equity and/or debt
placements and would use the placement proceeds for repayment of
its bank indebtedness, for marketing and research and development
activities, for possible acquisitions and for working capital.
The Company has made a commitment with its bank that the
outstanding indebtedness, which was approximately $600,000 at
February 28, 1998, would be repaid by the end of May 1998 or the
closing of the placement, if earlier. There is no assurance that
a placement will be consummated, and if so, that it will be on
terms favorable to the Company.
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. In March 1998, the Company entered in
an Agreement and Plan of Merger to acquire Equidyne, Inc., for
600,000 shares of the Company's Common Stock. Equidyne holds a
patent for a needleless injection process which is in the
development stage. The closing is subject to customary closing
conditions, including completion of the Company's due diligence
review. No assurance can be given that the Equidyne transaction
will close or if consummated that it will be successful,
especially in light of the need for additional working capital to
support the necessary development, production and marketing
efforts. There is no assurance that management will find
suitable acquisition candidates or effect the necessary financial
arrangements for such acquisitions.
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<PAGE>
PART II. - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
The issuance of 720,000 shares of Common Stock upon conversion of
the Debentures was exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act") by virtue of
section 3(a)(9) thereof. As of November 26, 1997, the Company
closed a private placement of 1,030,000 shares of Common Stock at
a price of $1.00 per share to a group of "accredited investors",
which placement was exempt from registration under the Securities
Act by virtue of section 4(2), thereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K for an event on November
26, 1997 to report the closing of placements of stock mentioned
in Item 2 of this Report.
Exhibits -
10-1 Consulting Agreement, dated February 19, 1998, between the
Company and Liviakis Financial Communications, Inc.
Financial Data Schedule
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<PAGE>
SIGNATURES
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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.
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Dated: September 9, 1998 /s/ Thomas A. Slamecka
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Thomas A. Slamecka
Chairman
Dated: September 9, 1998 /s/ Michael T. Pieniazek
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Michael T. Pieniazek
President and
Chief Financial Officer
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