<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1995.
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________.
Commission file number: 0-11758
American Medical Electronics, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1428758
---------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
250 E. Arapaho Road, Richardson, TX 75081
------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 918-8300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1995
--------------------------- ------------------------------
Common Stock - no par value 7,738,296
<PAGE> 2
AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- -------------
(In thousands)
(unaudited) (derived from audited
financial statements)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,365 $ 2,130
Marketable securities 14,617 13,758
Accounts receivable (net of allowance for doubtful
accounts of $1,996 and $2,434 in 1995
and 1994, respectively) 7,647 9,442
Deferred taxes 3,271 4,020
Inventory 6,266 4,608
Prepaid expenses and other assets 1,501 1,464
----------- ----------
Total Current Assets 35,667 35,422
Furniture and Equipment 9,558 8,060
Less allowance for depreciation and amortization (3,709) (3,170)
----------- ----------
5,849 4,890
Intangibles and other noncurrent assets
(net of amortization of $1,079 and
$959 in 1995 and 1994, respectively) 1,591 1,669
----------- ----------
$ 43,107 $ 41,981
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable and current portion of long-term debt $ 550 $ 550
Accounts payable 465 1,154
Accrued expenses 5,015 3,513
----------- ----------
Total Current Liabilities 6,030 5,217
Long-Term Debt 913 1,405
Deferred Taxes 545 487
Shareholders' Equity
Preferred stock, no par value, none issued -- --
Common stock, 7,716 and 7,533 shares issued
and outstanding in 1995 and 1994, respectively 34,072 33,849
Unrealized losses on marketable securities
(net of taxes) (87) (666)
Retained earnings 1,634 1,689
----------- ----------
Total Shareholders' Equity 35,619 34,872
----------- ----------
$ 43,107 $ 41,981
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES $ 8,331 $ 10,259 $ 16,454 $ 20,356
Cost of Revenue 2,550 2,431 4,887 4,784
---------- ---------- ---------- ----------
Gross Profit 5,781 7,828 11,567 15,572
Expenses:
Selling, general and administrative 5,244 5,365 10,326 10,955
Research and development 838 838 1,653 1,647
Non-recurring charge -- -- -- 991
---------- ---------- ---------- ----------
Income (Loss) From Operations (301) 1,625 (412) 1,979
Other Income (Expenses):
Loss on sales of marketable securities -- (9) -- (9)
Interest income 207 158 401 329
Interest expense (43) -- (72) (3)
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes (137) 1,774 (83) 2,296
Provision (benefit) for income taxes (49) 604 (29) 781
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (88) $ 1,170 $ (54) $ 1,515
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE $ (.01) $ .16 $ (.01) $ .21
========== ========== ========== ==========
Weighted Average Shares Outstanding
for the Period 7,703 7,242 7,696 7,266
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
----------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES $ (54) $ 1,515
Net income (loss)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 715 615
Provision for losses on accounts receivable 1,009 1,621
Loss on sales of marketable securities 9
Tax benefit from stock option and warrant exercises 8 499
Deferred income taxes 528 (560)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 786 (3,892)
(Increase) in inventory (1,658) (757)
(Increase) in other assets (37) (338)
Increase (decrease) in accounts payable (689) 170
Increase in accrued expenses 1,502 1,019
------------- -------------
Net Cash Provided (Used) By Operating Activities 2,110 (99)
INVESTING ACTIVITIES
Proceeds from sale of marketable securities -- 3,034
Purchase of furniture and equipment (1,498) (1,357)
Purchase of intangibles (42) (535)
------------- -------------
Net Cash Provided (Used) By Investing Activities (1,540) 1,142
FINANCING ACTIVITIES
Principal payments on bank notes and notes payable (550) (131)
Proceeds from sale on common stock 215 1,649
------------- -------------
Net Cash Provided (Used) By Financing Activities (335) 1,518
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS 235 2,561
Cash and cash equivalents at beginning of period 2,130 1,037
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,365 $ 3,598
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES
For the Quarter Ended June 30, 1995
1. BASIS OF PRESENTATION
The consolidated financial statements consist of the accounts of
American Medical Electronics, Inc. and its wholly-owned subsidiaries
(the "Company"). The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
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. Results of operations for the
three and six month periods ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1995. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1994.
2. EARNINGS PER SHARE
Earnings per share are computed by dividing the net income (loss) for
the period by the weighted average number of common shares and, when
dilutive, common equivalent shares outstanding during the period.
3. MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale
and, as of June 30, 1995, has approximately $9.1 million, $4.5
million, and $1.0 million invested in U.S. treasury notes, debt
securities of U.S. corporations and obligations of U.S. government
agencies, respectively. Unrealized losses on marketable securities,
net of taxes, were approximately $87,000 and $666,000 in 1995 and
1994, respectively.
4. INVENTORY
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Raw materials $ 924 $ 1,163
Work-in-process 760 988
Finished goods 2,689 748
Field inventory 5,090 3,644
------------- --------
9,463 6,543
Less reserve for refurbishment,
obsolescence and lost field units (3,197) (1,935)
------------- --------
$ 6,266 $ 4,608
============= ========
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------- ---------
<S> <C> <C>
Long-term obligations, net of unamortized
discount of $487 and $595 in 1995 and
1994, respectively $ 1,463 $ 1,955
Less current maturities (550) (550)
--------- --------
$ 913 $ 1,405
========= ========
</TABLE>
No interest was paid in the six months ended June 30, 1995. Interest
paid in the six months ended June 30, 1994 was approximately $3,000.
6. NON-RECURRING CHARGE
In the first quarter of 1994, the Company recorded a pretax charge of
$991,000 related to an employment contract dispute with its former
president and chief executive officer.
7. ACQUISITIONS
In December 1994, the Company acquired all of the outstanding common
stock of Osteogenics, Inc., a development stage company that holds an
exclusive license from the American Dental Association Health
Foundation for technology to develop patented calcium phosphate
formulations. The Company is currently seeking FDA clearance to use
the formulations for bone substitute applications.
The acquisition was accounted for using the purchase accounting
method and generated a one-time charge to earnings for the purchased
research and development of approximately $6.4 million in the fourth
quarter of 1994. Payment of the future consideration that is
contingent on the attainment of certain milestones would result in
the Company recording goodwill.
On May 8, 1995 the Company announced it had signed a definitive
agreement whereby Orthofix International N.V. (Orthofix) would
acquire all the outstanding stock of the Company for $10 per share,
to be paid in a combination of cash and Orthofix stock. In addition,
the Company's shareholders will receive the right to a pro-rata
portion of contingent payments of up to $18 million, if certain
revenues or earnings targets are met prior to December 31, 1997.
This acquisition is subject to approval by the shareholders of both
companies and other customary closing conditions. The boards of
directors of both companies have approved the definitive agreement.
Under the terms of the agreement, approximately 43% of the total
consideration will be paid in Orthofix shares and the remainder will
be paid in cash. The Company's shareholders will be able to choose
to receive either cash or stock, subject to pro-ration in certain
circumstances. The Company also signed a one- year distribution
agreement with Orthofix to distribute Orthofix products in the United
States and Canada beginning June 1, 1995.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
REVENUES: Revenues for the three and six months ended June 30, 1995
decreased 19% compared to the same periods in 1994 due primarily to
decreases of 21% and 22%, respectively, in unit rentals of the Company's
pulsed electromagnetic field (PEMF) stimulation devices that were partially
offset by increases of 4% in average realized prices. The Company believes
revenues from rental of its PEMF devices were, and continue to be, impacted
by more rigorous cost containment efforts by third-party payers, a decline
in the growth rate of spine fusion procedures due to those efforts, caution
related to the regulatory and legal environment surrounding certain aspects
of spinal surgery and turnover in the Company's direct sales force during
the fourth quarter of 1994.
Revenues from the Company's discontinued fixation product line were
approximately $186,000 and $469,000 for the three-month periods ended June
30, 1995 and 1994, respectively, and $553,000 and $1,010,000 for the
six-month periods ended June 30, 1995 and 1994, respectively. The Company
is seeking divestiture of this product line and expects revenues to
continue to decrease.
The Company began distributing Orthofix external fixation devices in June
1995 pursuant to a distribution agreement. See Note 7 of Notes to
Consolidated Financial Statements.
COST OF REVENUES: Cost of revenues, as a percentage of revenues, increased
to 31% for the three-month period ended June 30, 1995 compared to 24% for
the same period in 1994. Cost of revenues increased to 30% for the six
months ended June 30, 1995 from 24% for the same period in 1994. These
costs increased principally due to higher per unit refurbishment costs,
lower production volumes, accelerated technological obsolescence expense
and increased royalty expense related to sales of Ogden Anchor systems.
As a result of the Orthofix distribution agreement described above, the
Company's gross profit, as a percentage of revenues, is expected to
decrease due to the lower gross margin of the Orthofix products compared to
the Company's existing product lines.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses decreased 2% and 6% for the three-month and six-month periods
ended June 30, 1995, respectively, compared to the same periods in 1994 due
primarily to a reduction in costs directly related to revenues, such as
allowance for doubtful accounts, commissions and promotional expenses.
RESEARCH AND DEVELOPMENT: Research and development expenses for the three
and six-month periods ended June 30, 1995 were essentially unchanged
compared to the same periods in 1994. The Company expects to continue
research and development at a level that will require expenditures of
approximately 10% to 12% of revenues for the balance of 1995.
INCOME TAXES: The income tax benefit, as a percentage of loss before
income taxes, increased to approximately 36% for the three-months ended
June 30, 1995 compared to a 34% tax provision, as a percentage of income
before income taxes, for the same period in 1994. For the six months ended
June 30, 1995, a 35% tax benefit was recorded versus a 34% tax provision,
as a percentage of income before taxes, for the same period of 1994.
<PAGE> 8
Liquidity and Capital Resources
The Company's cash and marketable securities position at June 30, 1995, was
approximately $17.0 million.
For the remainder of 1995, the Company's primary source of funds is
expected to be cash from operations. Cash from operations and the
Company's cash and marketable securities are expected to meet anticipated
cash needs for the Company's existing operations, including further
research and development with respect to Osteogenics Inc.'s technology and
commitments related to the distribution of Orthofix products. See Note 7
of Notes to Consolidated Financial Statements.
As discussed in Note 7 of Notes to Consolidated Financial Statements, the
Company has signed a definitive agreement to be acquired by Orthofix
International N.V. subject to approval by the shareholders of both
companies and other customary closing conditions.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed
a Current Report on Form 8-K dated May 12, 1995 reporting an Other
Event pursuant to Item 5 of Form 8-K.
<PAGE> 9
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 thereunto duly authorized.
<TABLE>
<S> <C> <C>
DATE August 14, 1995 American Medical Electronics, Inc.
---------------------------- ----------------------------------
(Registrant)
/s/ Wesley E. Johnson, Jr
-------------------------
Wesley E. Johnson, Jr.
Vice President/Finance and Chief
Financial Officer
(Duly Authorized Officer)
/s/ Wesley E. Johnson, Jr.
--------------------------
Wesley E. Johnson, Jr.
Vice President/Finance and Chief
Financial Officer
(Principal Financial Officer)
</TABLE>
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000715247
<NAME> AMERICAN MEDICAL ELECTRONICS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,365
<SECURITIES> 14,617
<RECEIVABLES> 7,647
<ALLOWANCES> 1,996
<INVENTORY> 6,266
<CURRENT-ASSETS> 35,667
<PP&E> 9,558
<DEPRECIATION> 3,709
<TOTAL-ASSETS> 43,107
<CURRENT-LIABILITIES> 6,030
<BONDS> 913
<COMMON> 34,072
0
0
<OTHER-SE> 1,547
<TOTAL-LIABILITY-AND-EQUITY> 43,107
<SALES> 0
<TOTAL-REVENUES> 16,454
<CGS> 4,887
<TOTAL-COSTS> 4,887
<OTHER-EXPENSES> 11,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> (83)
<INCOME-TAX> (29)
<INCOME-CONTINUING> (54)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
