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
JANUARY 31, 1998 0-9922
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AMERICAN ELECTROMEDICS CORP.
----------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction of (IRS Employer ID No.)
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
--------------------------------------
(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
----
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 . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 9
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
JANUARY 31, JULY 31,
1998 1997
----------- --------
(Unaudited)
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . $ 256 $ 471
Accounts receivable
Trade . . . . . . . . . . . . . . . . . 1,065 283
Affiliate . . . . . . . . . . . . . . . -- 379
------ ------
1,065 662
Inventories . . . . . . . . . . . . . . . 2,052 475
Prepaid and other current assets . . . . 764 244
------ ------
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
------ ------
$5,782 $3,060
====== ======
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
------ ------
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) --
------ ------
Total stockholders' equity . . . . . . 3,105 1,168
------ ------
$5,782 $3,060
====== ======
See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JANUARY 31, JANUARY 25, JANUARY 31, JANUARY 25,
1998 1997 1998 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 admini-
istrative . . . 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 pro-
vision 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 equiva-
lent share:
Basic . . . . . $ .02 $ (.09) $ .01 $ (.16)
====== ====== ====== ======
Diluted . . . . $ .02 $ (.09) $ .01 $ (.16)
====== ====== ====== ======
See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
----------------
JANUARY 31, JANUARY 25,
1998 1997
---------- ----------
(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 . . . . . . . . (1,549) (352)
Accounts payable and accrued
liabilities . . . . . . . . . . (264) (57)
------ ------
Net cash used in operating
activities. . . . . . . . . . . (1,288) (586)
INVESTING ACTIVITIES:
Purchase of property and equipment,
net . . . . . . . . . . . . . . . . (94) (24)
Payment for product license . . . . . -- (100)
------ ------
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 . . . . . . . . . . . . 1,924 144
Proceeds from issuance of convertible
subordinated debt . . . . . . . . . -- 720
Redemption of convertible
subordinated debt . . . . . . . . . (720) --
Deferred financing costs . . . . . . -- (166)
Proceeds from exercise of stock
options . . . . . . . . . . . . . . -- 2
------ ------
Net cash provided by (used in)
financing activities . . . . . . 1,104 1,153
------ ------
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
====== ======
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
-----------------------------------------------------------------
Current liabilities 1,636 1,071 1,636 1,071
-----------------------------------------------------------------
Non-current liabilities 1,041 2,450 1,041 2,450
-----------------------------------------------------------------
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 $150,000 and issued
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.
Meditronic is a development and manufacturing company based in
Germany, specializing in the manufacture of medical camera
systems. Substantially all of 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
-8-
<PAGE>
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.
27. Financial Data Schedule
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.
----------------------------
Dated: April 9, 1998 /s/ Thomas A. Slamecka
-----------------------
Thomas A. Slamecka
Chairman
Dated: April 9, 1998 /s/ Michael T. Pieniazek
------------------------
Michael T. Pieniazek
President and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit Description
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10-1 Consulting Agreement, dated February 19,
1998, between the Company and Liviakis
Financial Communications, Inc.
27. Financial Data Schedule
CONSULTING AGREEMENT
-------------------
This Consulting Agreement (the "Agreement"), dated on February
19, 1998 and effective as of March 16, 1998 is entered into by
and between AMERICAN ELECTROMEDICS CORPORATION, a Delaware
corporation (herein referred to as the "Company") and LIVIAKIS
FINANCIAL COMMUNICATIONS, INC., a California corporation (herein
referred to as the "Consultant").
RECITALS
---------
WHEREAS, Company is a publicly held corporation with its
common stock traded through the OTC Bulletin Board; and
WHEREAS, Consultant has experience in the area of corporate
finance, investor communications and financial and investor
public relations; and
WHEREAS, Company desires to engage the services of
Consultant to assist and consult with the Company in matters
concerning corporate finance and to represent the company in
investors' communications and public relations with existing
shareholders, brokers, dealers and other investment professionals
as to the Company's current and proposed activities;
NOW THEREFORE, in consideration of the promises and the
mutual covenants and agreements hereinafter set forth, the
parties hereto covenant and agree as follows:
1. Term of Consultancy. Company hereby agrees to retain the
-------------------
Consultant to act in a consulting capacity to the Company, and
the Consultant hereby agrees to provide services to the Company
commencing March 15, 1998 and ending on March 15, 1999.
2. Duties of Consultant. The Consultant agrees that it will
--------------------
generally provide the following specified consulting services
through its officers and employees during the term specified in
Section 1.:
(a) Advise and assist the Company in developing and
implementing appropriate plans and materials for presenting the
Company and its business plans, strategy and personnel to the
financial community, establishing an image for the Company in the
financial community, and creating the foundation for subsequent
financial public relations efforts;
(b) Introduce the Company to the financial community;
(c) With the cooperation of the Company, maintain an
awareness during the term of this Agreement of the Company's
plans, strategy and personnel, as they may evolve during such
period, and advise and assist the Company in communicating
appropriate information regarding such plans, strategy and
personnel to the financial community.
(d) Assist and advise the Company with respect to its (i)
stockholder and investor relations, (ii) relations with brokers,
dealers, analysts and other investment professionals, and (iii)
financial public relations generally;
(e) Perform the functions generally assigned to
investor/stockholder relations and public relations departments
in major corporations, including responding to telephone and
written inquiries (which may be referred to the Consultant by the
Company); preparing press releases for the Company with the
Company's involvement and approval or reviewing press releases,
reports and other communications with or to shareholders, the
investment community and the general public; advising with
respect to the timing, form, distribution and other matters
related to such releases, reports and communications; and
consulting with respect to corporate symbols, logos, names, the
presentation of such symbols, logos and names, and other matters
relating to corporate image;
(f) Upon the Company's approval, disseminate information
regarding the Company to shareholders, brokers, dealers, other
investment community professionals and the general investing
public;
(g) Upon the Company's approval, conduct meetings, in
person or by telephone, with brokers, dealers, analysts and other
investment professionals to advise them of the Company's plans,
goals and activities, and assist the Company in preparing for
press conferences and other forums involving the media,
investment professionals and the general investment public;
(h) At the Company's request, review business plans,
strategies, mission statements budgets, proposed transactions and
other plans for the purpose of advising the Company of the
investment community implications thereof; and,
(i) Otherwise perform as the Company's financial relations
and public relations consultant.
3. Allocation of Time and Energies. The Consultant hereby
-------------------------------
promises to perform and discharge well and faithfully the
responsibilities which may be assigned to the Consultant from
time to time by the officers and duly authorized representatives
of the Company in connection with the conduct of its financial
and investor public relations and communications activities, so
long as such activities are in compliance with applicable
securities laws and regulations. Consultant shall diligently and
thoroughly provide the consulting services required hereunder.
Although no specific hours-per-day requirement will be required,
Consultant and the Company agree that Consultant will perform the
duties set forth hereinabove in a diligent and professional
manner. The parties acknowledge and agree that a
disproportionately large amount of the effort to be expended and
the costs to be incurred by the Consultant and the benefits to be
received by the Company are expected to occur upon and shortly
after, and in any event, within two months of the effectiveness
of this Agreement. It is explicitly understood that Consultant's
performance of its duties hereunder will in no way be measured by
the price of the Company's common stock, nor the trading volume
of the Company's common stock. It is also understood that the
Company is entering into this Agreement with Liviakis Financial
Communications, Inc. ("LFC"), a corporation and not any
individual member of LFC, and with such, Consultant will not be
deemed to have breached this Agreement if any member, officer or
director of LFC leaves the firms or dies or becomes physically
unable to perform any meaningful activities during the term of
the Agreement, provided the Consultant otherwise performs its
obligations under this Agreement.
4. Remuneration. As full and complete compensation for
------------
services described in this Agreement, the Company shall
compensate Consultant as follows:
4.1 For undertaking this engagement and for other good and
valuable consideration, the Company agrees to issue and deliver
to the Consultant a "Commencement Bonus" payable in the form of
1,000,000 shares of the Company's Common Stock ("Common Stock")
and 1,000,000 warrants (the "Warrants") entitling the Consultant
the right to purchase shares of the Company's Common Stock. The
form and content of the Warrant agreement is attached hereto and
referenced as "Exhibit A". Among other things, the Warrants will
contain the following terms and conditions:
1. the Warrants will be excercible at a price of One
Dollar ($1.00);
2. the Warrants will be for a term of four (4) years;
3. the Warrants will contain no call and/or
redemption provisions;
4. the Warrants will contain "piggyback registration
rights" such that the shares of common stock
issuable upon the exercise of the Warrants will be
included in the next appropriate registration
filed by the Company, which shall be filed by the
Company no later than October 1, 1998. All
registration costs shall be borne solely by the
Company; and,
5. The Warrants shall be exercisable at anytime
during the term of the Warrants and shall contain
a "cashless exercise" provision.
This Commencement Bonus shall be issued to the Consultant
promptly following execution of this Agreement and shall, when
issued and delivered to Consultant, be fully paid and non-
assessable. The Company understands and agrees that Consultant
has foregone significant opportunities to accept this engagement
and that the Company derives substantial benefit from the
execution of this Agreement and the ability to announce its
relationship with Consultant. The 1,000,000 shares of Common
Stock and the 1,000,000 Warrants issued as a Commencement Bonus,
therefore, constitute payment for Consultant's agreement to
represent the Company and are a non-refundable, non-
apportionable, and non-ratable retainer; such Warrants are not a
prepayment for future services. If the Company decides to
terminate this Agreement prior to March 15, 1999 for any reason
whatsoever, it is agreed and understood that Consultant will not
be requested or demanded by the Company to return any of the
shares of Common Stock or Warrants paid to it hereunder. 750,000
shares of the Common Stock and 750,000 of the Warrants issued
pursuant to this Agreement shall be evidenced by a stock
certificate and warrant agreement(s) issued in the name of
Liviakis Financial Communications, Inc. and 250,000 shares of the
Common Stock and 250,000 of the Warrants issued pursuant to this
Agreement shall be evidenced by a stock certificate and warrant
agreement(s) issued in the name of Robert B. Prag ("Prag").
4.2 Consultant and Prag (hereinafter referred to as
"Consultants") acknowledge that the shares of Common Stock and
Warrants to be issued pursuant to this Agreement (collectively,
the "Shares) have not been registered under the Securities Act of
1933, and accordingly are "restricted securities" within the
meaning of Rule 144 of the Act. As such, the Shares may not be
resold or transferred unless the Company has received an opinion
of counsel reasonably satisfactory to the Company that such
resale or transfer is exempt from the registration requirements
of that Act.
4.3 In connection with the acquisition of Shares hereunder,
the Consultants represent and warrant to the Company as follows:
(a) Consultants acknowledge that the Consultants have been
afforded the opportunity to ask questions of and receive answers
from duly authorized officers or other representatives of the
Company concerning an investment in the Shares, and any
additional information which the Consultants have requested.
(b) Consultants' investment in restricted securities is
reasonable in relation to the Consultants' net worth, which is in
excess of ten (10) times the Consultants' cost basis in the
Shares. Consultants have had experience in investments in
restricted and publicly traded securities, and Consultants have
had experience in investments in speculative securities and other
investments which involve the risk of loss of investment.
Consultants acknowledges that an investment in the Shares is
speculative and involves the risk of loss. Consultants have the
requisite knowledge to assess the relative merits and risks of
this investment without the necessity of relying upon other
advisors, and Consultants can afford the risk of loss of his
entire investment in the Shares. Consultants are (i) accredited
investors, as that term is defined in Regulation D promulgated
under the Securities Act of 1933, and (ii) a purchases described
in Section 25102 (f) (2) of the California Corporate Securities
Law of 1968, as amended.
(c) Consultants are acquiring the Shares for the
Consultants' own account for long-term investment and not with a
view toward resale or distribution thereof except in accordance
with applicable securities laws.
5. Financing "Finder's Fee". It is understood that in the
------------------------
event Consultant introduces Company, or its nominees, to a lender
or equity purchaser, not already having a preexisting
relationship with the Company, with whom Company, or its
nominees, ultimately finances or causes the completion of such
financing, Company agrees to compensate Consultant for such
services with a "finder's fee" in the amount of 2.5% of total
gross funding provided by such lender or equity purchaser, such
fee to be payable in cash. This will be in addition to any fees
payable by Company to any other intermediary, if any, which shall
be per separate agreements negotiated between Company and such
other intermediary. It is also understood that in the event
Consultant introduces Company, or its nominees, to an acquisition
candidate, either directly or indirectly through another
intermediary, not already having a preexisting relationship with
the Company, with whom Company, or its nominees, ultimately
acquires or causes the completion of such acquisition, Company
agrees to compensate Consultant for such services with a
"finder's fee" in the amount of 2% of total gross consideration
provided by such acquisition, such fee to be payable in cash.
This will be in addition to any fees payable by Company to any
other intermediary, if any, which shall be per separate
agreements negotiated between Company and such other
intermediary. It is specifically understood that Consultant is
not nor does it hold itself out be a Broker/Dealer, but is rather
merely a "Finder" in reference to the Company procuring financing
sources and acquisition candidates.
5.1 It is further understood that Company, and not
Consultant, is responsible to perform any and all due diligence
on such lender, equity purchaser or acquisition candidate
introduced to it by Consultant under this Agreement, prior to
Company receiving funds or closing on any acquisition. However,
Consultant will not introduce any parties to Company about which
Consultant has any prior knowledge of questionable, unethical or
illicit activities.
5.2 Company agrees that said compensation to Consultant
shall be paid in full at the time said financing or acquisition
is closed. Moreover, said compensation, will be a condition
precedent to the closing of such financing or acquisition and
Company shall execute any and all documents necessary to effect
said compensation.
5.3 As further consideration to Consultant, Company, or its
nominees, agrees to pay with respect to any financing or
acquisition candidate provided directly or indirectly to the
Company by any lender or equity purchaser covered by this Section
5. during the period of one year from the date of this Agreement,
a fee to Consultant equal to that outlined in Section "5" herein.
5.4 Consultant will notify Company of introductions it
make for potential sources of financing or acquisitions in a
timely manner (within approximately 3 days of introduction) via
facsimile memo. If Company has a preexisting relationship with
such nominee and believes such party should be excluded from this
Agreement, then Company will notify Consultant immediately of
such circumstance via facsimile memo.
6. Expenses. Consultant agrees to pay for all its expenses
--------
(phone, mailing, labor, etc.), other than extraordinary items
(travel required by/or specifically requested by the Company,
luncheons or dinners to large groups of investment professionals,
mass faxing to a sizable percentage of the Company's
constituents, investor conference calls, print advertisements in
publications, etc.) approved by the Company prior to its
incurring an obligation for reimbursement.
7. Indemnification. The Company warrants and represents that
---------------
all oral communications, written documents or materials furnished
to Consultant by the Company with respect to financial affairs,
operations, profitability and strategic planning of the Company
are accurate and Consultant may rely upon the accuracy thereof
without independent investigation. The Company will protect,
indemnify and hold harmless Consultant against any claims or
litigation including any damages, liability, cost and reasonable
attorney's fees as incurred with respect thereto resulting from
Consultant's communication or dissemination of any said
information, documents or materials not designated by the Company
to the Consultant as "confidential" or "Company private",
excluding any such claims or litigation resulting from
Consultant's communication or dissemination of information not
provided or authorized by the Company. To the extent feasible,
the Company agrees to make Consultant an additional insured on
any and all commercial liability and directors and officers
liability insurance policies and to provide Consultant with
current Certificates of Insurance reflecting the same.
8. Representations. Consultant represents that it is not
---------------
required to maintain any licenses and registrations under federal
or any state regulations necessary to perform the services set
forth herein. Consultant acknowledges that, to the best of its
knowledge, the performance of the services set forth under this
Agreement will not violate any rule or provision of any
regulatory agency having jurisdiction over Consultant.
Consultant acknowledges that, to the best of its knowledge,
Consultant and its officers and directors are not the subject of
any investigation, claim, decree or judgment involving any
violation of the SEC or securities laws. Consultant further
acknowledges that it is not a securities Broker Dealer or a
registered investment advisor. Company acknowledges that, to the
best of its knowledge, that it has not violated any rule or
provision of any regulatory agency having jurisdiction over the
Company. Company acknowledges that, to the best of its
knowledge, Company is not the subject of any investigation,
claim, decree or judgment involving any violation of the SEC or
securities laws.
9. Legal Representation. The Company acknowledges that it has
--------------------
been represented by independent legal counsel in the preparation
of this Agreement. Consultant represents that they have
consulted with independent legal counsel and/or tax, financial
and business advisors, to the extent the Consultant deemed
necessary.
10. Status as Independent Contractor. Consultant's engagement
--------------------------------
pursuant to this Agreement shall be as independent contractor,
and not as an employee, officer or other agent of the Company.
Neither party to this Agreement shall represent or hold itself
out to be the employer or employee of the other. Consultant
further acknowledges the consideration provided hereinabove is a
gross amount of consideration and that the Company will not
withhold from such consideration any amounts as to income taxes,
social security payments or any other payroll taxes. All such
income taxes and other such payment shall be made or provided for
by Consultant and the Company shall have no responsibility or
duties regarding such matters. Neither the Company or the
Consultant possess the authority to bind each other in any
agreements without the express written consent of the entity to
be bound.
11. Attorney's Fee. If any legal action or any arbitration or
--------------
other proceeding is brought for the enforcement or interpretation
of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with or related to
this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs in
connection with that action or proceeding, in addition to any
other relief to which it or they may be entitled.
12. Waiver. The waiver by either party of a breach of any
-------
provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by such
other party.
13. Notices. All notices, requests, and other communications
--------
hereunder shall be deemed to be duly given if sent by U.S. mail,
postage prepaid, addressed to the other party at the address as
set forth herein below:
To the Company: American Electromedics Corporation
Mr. Michael Pieniazek, President & CEO
13 Columbia Drive; Suite 18
Amherst, NH 03031
To the Consultant: Liviakis Financial Communications, Inc.
John M. Liviakis, President
2420 "K" Street, Suite 220
Sacramento, CA 95816
It is understood that either party may change the
address to which notices for it shall be addressed by providing
notice of such change to the other party in the manner set forth
in this paragraph.
14. Choice of Law, Jurisdiction and Venue. This Agreement
--------------------------------------
shall be governed by, construed and enforced in accordance with
the laws of the State of California. The parties agree that
Sacramento County, CA. will be the venue of any dispute and will
have jurisdiction over all parties.
15. Arbitration. Any controversy or claim arising out of or
-----------
relating to this Agreement, or the alleged breach thereof, or
relating to Consultant's activities or remuneration under this
Agreement, shall be settled by binding arbitration in California,
in accordance with the applicable rules of the American
Arbitration Association, and judgment on the award rendered by
the arbitrator(s) shall be binding on the parties and may be
entered in any court having jurisdiction thereof. The provisions
of Title 9 of Part 3 of the California Code of Civil Procedure,
including section 1283.05, and successor statutes, permitting
expanded discovery proceedings shall be applicable to all
disputes that are arbitrated under this paragraph.
16. Miscellaneous Conditions. Company and Consultant each
------------------------
agree to the following terms and conditions:
a.) The Company shall arrange that all insiders agree to a
six month lockup agreement, which would include all officers and
directors.
17. Complete Agreement. This Agreement contains the entire
-------------------
agreement of the parties relating to the subject matter hereof.
This Agreement and its terms may not be changed orally but only
by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or
discharge is sought.
<PAGE>
AGREED TO:
"Company" AMERICAN ELECTROMEDICS CORPORATION
Date: By: /s/ Michael Pieniazek
------------ -------------------------------------
Michael Pieniazek, President & CEO
& Its Duly Authorized Officer
"Consultant" LIVIAKIS FINANCIAL COMMUNICATIONS, INC.
Date: 2/19/98 By: /s/ John M. Liviakis /s/ Robert B. Prag
------------ ---------------------- --------------------
John M. Liviakis Robert B. Prag
President Sr. Vice
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
ELECTROMEDICS CORP. FORM 10-QSB FOR THE PERIOD ENDED JANUARY 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 256
<SECURITIES> 0
<RECEIVABLES> 1,065
<ALLOWANCES> 0
<INVENTORY> 2,052
<CURRENT-ASSETS> 4,137
<PP&E> 721
<DEPRECIATION> (411)
<TOTAL-ASSETS> 5,782
<CURRENT-LIABILITIES> 1,636
<BONDS> 0
0
0
<COMMON> 451
<OTHER-SE> 2,654
<TOTAL-LIABILITY-AND-EQUITY> 5,782
<SALES> 1,805
<TOTAL-REVENUES> 1,805
<CGS> 821
<TOTAL-COSTS> 821
<OTHER-EXPENSES> 903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 66
<INCOME-TAX> (2)
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> .02
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</TABLE>
