<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 March 31, 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)
<TABLE>
<S> <C>
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)
</TABLE>
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.
<TABLE>
<S> <C>
Class Outstanding at May 12, 1995
----- ----------------------------
Common Stock - no par value 7,696,676
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<PAGE> 2
AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -------------
(In thousands)
(unaudited) (derived from audited
financial statements)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,073 $ 2,130
Marketable securities 14,151 13,758
Accounts receivable (net of allowance for doubtful
accounts of $2,312 and $2,434 in 1995
and 1994, respectively) 8,306 9,442
Deferred taxes 3,883 4,020
Inventory 4,361 4,608
Prepaid expenses and other assets 1,574 1,464
---------- ----------
Total Current Assets 34,348 35,422
Furniture and Equipment 8,754 8,060
Less allowance for depreciation and amortization (3,440) (3,170)
---------- ----------
5,314 4,890
Intangibles and other noncurrent assets
(net of amortization of $1,019 and
$959 in 1995 and 1994, respectively) 1,642 1,669
---------- ----------
$ 41,304 $ 41,981
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable and current portion of long-term debt $ 550 $ 550
Accounts payable 647 1,154
Accrued expenses 3,545 3,513
---------- ----------
Total Current Liabilities 4,742 5,217
Long-Term Debt 883 1,405
Deferred Taxes 428 487
Shareholders' Equity
Preferred stock, no par value, none issued -- --
Common stock, 7,697 and 7,533 shares issued
and outstanding in 1995 and 1994, respectively 33,928 33,849
Unrealized losses on marketable securities
(net of taxes) (400) (666)
Retained earnings 1,723 1,689
---------- ----------
Total Shareholders' Equity 35,251 34,872
---------- ----------
$ 41,304 $ 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 March 31
1995 1994
---- ----
(In thousands, except per share amounts)
<S> <C> <C>
REVENUES $ 8,123 $ 10,097
Cost of Revenue 2,337 2,353
-------- ---------
Gross Profit 5,786 7,744
Expenses:
Selling, general and administrative 5,082 5,590
Research and development 815 809
Non-recurring charge -- 991
-------- ---------
Income (Loss) From Operations (111) 354
Other Income (Expenses):
Interest income 194 171
Interest expense (29) (3)
-------- ---------
Income Before Income Taxes 54 522
Provision for income taxes 20 177
-------- ---------
NET INCOME $ 34 $ 345
======== =========
NET INCOME PER SHARE $ -- $ .05
======== =========
Weighted Average Shares Outstanding
for the Period 7,743 7,298
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
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<CAPTION>
Three Months Ended March 31
1995 1994
----------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES $ 34 $ 345
Net income
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 329 304
Provision for losses on accounts receivable 418 789
Tax benefit from stock option exercises 7 --
Deferred income taxes (49) (268)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 718 (2,526)
(Increase) decrease in inventory 247 (12)
(Increase) in prepaid expenses (110) (456)
Decrease in other assets -- 60
(Decrease) in accounts payable (507) (68)
Increase in accrued expenses 34 935
----------- -----------
Net Cash Provided (Used) By Operating Activities 1,121 (897)
INVESTING ACTIVITIES
Proceeds from sale of marketable securities -- 1,027
Purchase of furniture and equipment (694) (162)
Purchase of intangibles (33) (138)
----------- -----------
Net Cash Provided (Used) By Investing Activities (728) 727
FINANCING ACTIVITIES
Principal payments on bank notes and notes payable (522) (131)
Proceeds from sale on common stock 72 --
----------- -----------
Net Cash Used By Financing Activities (450) (131)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (57) (301)
Cash and cash equivalents at beginning of period 2,130 1,037
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,073 $ 736
=========== ===========
</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 March 31, 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 months ended March 31, 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 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 has approximately $8.8 million, $1.0 million, and $4.4 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
$400,000 and $666,000 in 1995 and 1994, respectively.
4. INVENTORY
Inventory consisted of the following (in thousands):
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<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Raw materials $ 1,318 $ 1,163
Work-in-process 1,009 988
Finished goods 385 748
Field inventory 3,977 3,644
--------- --------
6,689 6,543
Less reserve for refurbishment,
obsolescence and lost field units (2,328) (1,935)
--------- --------
$ 4,361 $ 4,608
========= ========
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<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:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
Long-term obligations, net of unamortized
discount of $517 and $595 in 1995 and
1994, respectively $ 1,433 $ 1,955
Less current maturities (550) (550)
-------- -------
$ 883 $ 1,405
======== =======
</TABLE>
No interest was paid in the three months ended March 31, 1995.
Interest paid in the three months ended March 31, 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 principal terms of the acquisition included a cash payment of $1
million at closing, the issuance of 405,000 shares of the Company's
common stock, 255,000 at closing and 150,000 shares in January 1995,
the issuance of a warrant to purchase up to 40,000 additional common
shares at an exercise price of $10.50 per share and a $3.8 million
note, $2.8 million of which is contingent upon the attainment of the
milestones discussed below. In addition, the Company has entered
into consulting and non-compete agreements with the principal
shareholders of Osteogenics, Inc. with an aggregate value of
approximately $1.2 million. Upon attainment of certain milestones
related to the calcium phosphate formulations and the price of the
Company's common stock, future consideration may be payable as
follows: 110,000 shares of the Company's common stock plus
additional common shares valued at $3.0 million on the date of
issuance; and a warrant to purchase up to 160,000 common shares at
exercise prices between $12.75 and $17.75 per share.
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 the milestones would result in the
Company recording goodwill.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
8. SUBSEQUENT EVENT
On May 8, 1995 the Company announced it had signed a definitive
agreement whereby Orthofix International N.V. (Orthofix) would
acquire 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> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
REVENUES: Revenues for the three-months ended March 31, 1995 decreased 19%
compared to the same period in 1994 due primarily to a decrease of 24% in unit
rentals of the Company's pulsed electromagnetic field (PEMF) stimulation
devices that was partially offset by an increase of 5% in average realized
prices due to increased rentals of higher price Physio-Stim(R) bone growth
stimulator systems. 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 payors, 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 $370,000 and $540,000 for the three-month periods ended March
31, 1995 and 1994, respectively. The Company expects revenues from this
product line to continue to decrease as it pursues its sale.
Revenues from the sale of Ogden(TM) Anchor soft tissue reattachment devices
increased to approximately $220,000 in the first quarter of 1995 compared to
approximately $87,000 for the first quarter of 1994. During the quarter the
Company received Food and Drug Administration marketing clearances that added a
second size anchor to the product line and expanded the indications for use to
include additional applications in the shoulder, elbow, wrist, knee, ankle and
foot. The Company expects an increasing trend in revenues from sales of its
Ogden Anchor systems as a result of these clearances and future clearances for
additional anchor sizes.
COST OF REVENUES: Cost of revenues, as a percentage of revenues, increased to
29% for the three-month period ended March 31, 1995 compared to 23% for the
same period in 1994 principally due to higher per unit refurbishment costs,
lower production volumes, increased technological obsolescence expense and
increased royalty expense related to sales of Ogden Anchor systems.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses decreased 9% for the three-month period ended March 31, 1995 compared
to the same period 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, as a percent of
revenue increased to 10% for the three-month period ended March 31, 1995
compared to 8% for the same period in 1994 due primarily to expenditures
related to development of Osteogenics, Inc.'s technology acquired in December
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 provision for income taxes, as a percentage of income before
income taxes increased to approximately 37% from 34% for the three-months ended
March 31, 1995 compared to the same period in 1994 primarily due to items which
are not deductible for federal income tax purposes.
Liquidity and Capital Resources
The Company's cash and marketable securities position at March 31, 1995, was
approximately $16.2 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
<PAGE> 9
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 its acquisition by Orthofix, including
the commencement of distribution of external fixation products of Orthofix and
the addition of direct sales representatives for that purpose. See Note 7 of
Notes to Consolidated Financial Statements.
As discussed in Note 8 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
an amendment dated January 27, 1995 to its Current Report on Form 8-K dated
December 29, 1994 to file audited financial statements of Osteogenics, Inc. as
of and for the year ended December 31, 1993 and for the period from September
16, 1988 (date of inception) to December 31, 1993, a pro forma combined
condensed balance sheet as of September 30, 1994 and pro forma combined
condensed income statements as of December 31, 1993 and September 30, 1994, all
pursuant to Item 7 of Form 8-K as a result of the acquisition of Osteogenics,
Inc.
<PAGE> 10
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.
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<S> <C>
DATE May 12, 1995 American Medical Electronics, Inc.
------------------------- ----------------------------------
(Registrant)
/s/ John F. Clifford
----------------------------------
John F. Clifford
President and Chief
Executive 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> 11
EXHIBIT INDEX
Exhibit
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,073
<SECURITIES> 14,151
<RECEIVABLES> 8,306
<ALLOWANCES> 2,312
<INVENTORY> 4,361
<CURRENT-ASSETS> 34,348
<PP&E> 8,754
<DEPRECIATION> 3,440
<TOTAL-ASSETS> 41,304
<CURRENT-LIABILITIES> 4,742
<BONDS> 883
<COMMON> 33,928
0
0
<OTHER-SE> 1,323
<TOTAL-LIABILITY-AND-EQUITY> 41,304
<SALES> 0
<TOTAL-REVENUES> 8,123
<CGS> 2,337
<TOTAL-COSTS> 2,337
<OTHER-EXPENSES> 5,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 54
<INCOME-TAX> 20
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
