SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
OCTOBER 31, 1997 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 (IRS Employer ID No.)
Jurisdiction 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
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
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As of December 17, 1997, there were outstanding 4,303,136 shares
of the Issuer's Common Stock, $.10 par value.
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AMERICAN ELECTROMEDICS CORP.
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, October 31, 1997 and
July 31, 1997 . . . . . . . . . . . . . . . . . . 3
Statements of Operations for the
Three Months Ended October 31, 1997 and
October 26, 1996 . . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the
Three Months Ended October 31, 1997 and
October 26, 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 . . . . . . . . . 7
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 8
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
OCTOBER 31, JULY 31,
1997 1997
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(Unaudited)
(Thousands)
Assets
Current Assets:
Cash and cash equivalents . . . . . $ 289 $ 471
Accounts receivable
Trade . . . . . . . . . . . . . . 1,291 283
Affiliate . . . . . . . . . . . . -- 379
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1,291 662
Inventories . . . . . . . . . . . . 1,471 475
Prepaid and other current assets . 580 244
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Total current assets . . . . . . 3,631 1,852
Property and equipment . . . . . . 667 449
Accumulated depreciation . . . . . (404) (396)
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263 53
Deferred financing costs . . . . . 115 128
Investment in affiliate . . . . . . -- 819
Goodwill . . . . . . . . . . . . . 864 208
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$ 4,873 $ 3,060
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . $ 1,014 $ 187
Bank line of credit . . . . . . . . 300 300
Accrued liabilities . . . . . . . . 266 153
Current portion of long-term debt . 167 152
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Total current liabilities . . . . 1,747 729
Minority interest in affiliate . . 148 --
Long-term debt . . . . . . . . . . 1,087 380
Convertible subordinated
debentures . . . . . . . . . . . 720 720
Stockholders' equity:
Preferred stock, $.01 par value;
Authorized - 1,000,000 shares;
Outstanding - none . . . . . . . -- --
Common stock, $.10 par value;
Authorized - 20,000,000 shares;
Outstanding - 2,553,136 shares
at October 31, 1997 and at
July 31,1997 . . . . . . . . . . 255 255
Additional paid-in capital . . . . 2,919 2,919
Retained deficit . . . . . . . . . (2,007) (2,006)
Foreign currency translation
adjustment . . . . . . . . . . . 4 --
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Total stockholders' equity . . . 1,167 1,168
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$ 4,873 $ 3,060
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SEE ACCOMPANYING NOTES.
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AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
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OCTOBER 31, OCTOBER 26,
1997 1996
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(Thousands, except
per share amounts)
Net sales . . . . . . . . . . . . $ 1,830 $ 540
Cost of goods sold . . . . . . . 1,058 312
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Gross profit . . . . . . . . . . 772 228
Selling, general and
administrative . . . . . . . . 687 315
Research and development . . . . -- 34
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Total operating expenses . . . 687 349
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Operating income (loss) . . . . . 85 (121)
Other income (expenses):
Undistributed earnings of
affiliate . . . . . . . . . -- (30)
Interest, net . . . . . . . . . (78) (9)
Minority interest in
affiliate . . . . . . . . . . (85) --
Other . . . . . . . . . . . . . 58 --
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(105) (39)
Loss before provision for
income taxes . . . . . . . . . (20) (160)
Provision for income taxes . . . -- --
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Net loss . . . . . . . . . . . . $ (20) $ (160)
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Weighted average number of
common and common equivalent
shares outstanding . . . . . . 2,553,136 2,456,064
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Loss per common and
common equivalent share . . . . $ (.01) $ (.07)
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See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
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OCTOBER 31, OCTOBER 26,
1997 1996
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(THOUSANDS)
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . $ (20) $ (160)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization . . . . . . . . 49 10
Undistributed earnings
of affiliate . . . . . . . . -- 30
Minority interest in
affiliate . . . . . . . . . . 85 --
Changes in operating assets
and liabilities:
Accounts receivable . . . . . 187 64
Inventories, prepaid and
other current assets . . . (88) (47)
Accounts payable and
accrued liabilities . . . . (385) 72
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Net cash used in operating
activities . . . . . . . . . . (172) (31)
INVESTING ACTIVITIES:
Purchase of property and
equipment, net . . . . . . . . (13) (6)
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Net cash used in investing
activities . . . . . . . . . . (13) (6)
FINANCING ACTIVITIES:
Principal payments on
long-term debt . . . . . . . . (62) (17)
Proceeds from long-term debt
and bank line of credit . . . . -- 500
Issuance of common stock, net . . -- 146
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 . . . . (62) 1,185
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Effect of exchange rate changes on
cash and cash equivalents . . . 3 --
Increase (decrease) in cash
and cash equivalents . . . . . (244) 1,148
Cash and cash equivalents,
beginning of period . . . . . . 533 317
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Cash and cash equivalents,
end of period . . . . . . . . . $ 289 $ 1,465
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See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 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.
Effective July 31, 1997, the Company is reporting its month end
on the last day of each month for accounting purposes.
The Company changed its method from the equity method of
accounting for its 50%-owned affiliate 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 on August
11, 1997 was based primarily upon the successful completion of
negotiations to acquire effective voting control. For the
quarterly period ended October 31, 1997, the Company consolidated
the Company and Rosch GmbH, however, the Company continued only
to recognize earnings of Rosch GmbH up to its 50% ownership share
until the remaining 50% was purchased. Subsequently, the Company
closed on the acquisition of the remaining 50% of Rosch GmbH (see
Note 3. Subsequent Events below).
The following proforma information is presented for comparative
purposes to disclose information on the financial position and
result 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 Months Three Months
Ended Ended
10/31/97 10/26/96
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Sales $1,830 $1,076
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Gross profit 772 394
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Net loss (20) (255)
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Current assets 3,258 3,405
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Non-current assets 1,659 1,432
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Current liabilities 1,733 755
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Non-current liabilities 1,969 2,157
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Operating results for the three month period ended October 31,
1997 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.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have
been translated into U.S. dollars in accordance with Statement of
Financial Standards No. 52, Foreign Currency Translation. All
balance sheet amounts have been translated using the exchange
rates in effect at the balance sheet date. Statement of
Operations amounts have been translated using average exchange
rates. The gains and losses resulting from the changes in
exchange rates from the date of acquisition of Rosch GmbH to
October 31, 1997 have been reported separately as a component of
stockholders equity.
The aggregate transaction gains and losses are insignificant.
2. DEBT
The Company entered into a Forbearance and Workout Agreement with
its bank on October 28, 1997 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.
3. SUBSEQUENT EVENTS
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. The Company also will record a charge of
approximately $100,000 to write-off deferred financing costs
capitalized upon initial issuance of the Debentures.
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." The Company used $150,000
of the placement proceeds to repay portions of its bank
indebtedness.
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 the Company's Common Stock along
with a 45% interest in Meditronic Medizinelektronik GmbH for
$150,000 plus 105,000 shares of the Company's Common Stock,
pursuant to a Stock Purchase Option Agreement, dated as of
November 1, 1997.
4. Year 2000
The Company has completed an assessment of Year 2000 issues with
respect to its computer systems. The Company believes that the
Year 2000 issue will not pose significant operational problems
for its computer systems in that all required modifications and
conversions to comply with Year 2000 requirements will be fully
completed by the third quarter of 1999. In the opinon of
management, the total cost of addressing the Year 2000 issue
will not have a material impact on the Company's financial
position or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
RESULTS OF OPERATIONS
Net sales for the three month period ended October 31, 1997 were
$1,830,000, compared to $540,000 for the three month period ended
October 26, 1996. 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, which sales commenced subsequent to the first
quarter of fiscal 1997.
Cost of sales for the three month periods ended October 31, 1997
and October 26, 1996 were 57.8% of net sales.
Selling, general and administrative expenses for the three month
period ended October 31, 1997 were $687,000, compared to $315,000
for the comparable prior year period. The increase reflects
accounting for the selling, general and administrative expenses
on a consolidated basis.
Net loss for the three month period ended October 31, 1997 was
$20,000, or $.01 per share, compared to a net loss of $160,000,
or $.07 per share, for the same period in the prior fiscal year.
The decrease in net loss is the result of increased sales offset
by higher interest costs.
LIQUIDITY AND CAPITAL RESOURCES
Working capital of the Company at October 31, 1997 was
$1,525,000, compared to $1,060,000 at fiscal year ended July 31,
1997. The increase of $465,000 reflects primarily the accounting
for Rosch GmbH on a consolidated basis.
Subsequent to October 31, 1997, the Company increased its working
capital upon the conversion of the $720,000 principal amount of
Debentures to Common Stock and the gross proceeds of $1,030,000
upon a 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 the remaining 50% of Rosch GmbH. A
copy of such purchase agreement is filed as an exhibit to this
Report.
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. Further, the conversion of the
Debentures shall reduce the annual interest expense by $100,000.
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 necessary
financial arrangements for such acquisitions.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In December 1997, the Company and Noel Wren settled the action,
instituted by Mr. Wren in May 1997, against the Company upon
payment by the Company of $62,500 and the exchange of mutual
releases. For additional information, see Item 3 "Legal
Proceedings" in the Company's Form 10-KSB for the fiscal year
ended July 31, 1997
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarterly
period ended October 31, 1997.
Exhibits -
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AMERICAN ELECTROMEDICS CORP.
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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/s/ Thomas A. Slamecka Dated: July 6, 1998
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Thomas A. Slamecka
Chairman
/s/ Michael T. Pieniazek Dated: July 6, 1998
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Michael T. Pieniazek
President and
Chief Financial Officer
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