-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MY9WT3VSqm/sBFfbgL8cI5pWxMWwVw0y3QbpTdDIWGhGjXUfonRXpVeung5hXaJG 4rbG2Ru6q6jPNcntzxSDPQ== 0000352281-99-000002.txt : 19990318 0000352281-99-000002.hdr.sgml : 19990318 ACCESSION NUMBER: 0000352281-99-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ELECTROMEDICS CORP CENTRAL INDEX KEY: 0000352281 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042608713 STATE OF INCORPORATION: DE FISCAL YEAR END: 0727 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-09922 FILM NUMBER: 99567019 BUSINESS ADDRESS: STREET 1: 13 COLUMBIA DR STE 5 CITY: AMHERST STATE: NH ZIP: 03031 BUSINESS PHONE: 6038806300 MAIL ADDRESS: STREET 1: 13 COLUMBIA DR STREET 2: STE 18 CITY: AMHERST STATE: NH ZIP: 03031 10QSB 1 FORM 10-QSB 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, 1999 0-9922 ---------------- ------ AMERICAN ELECTROMEDICS CORP. ---------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) DELAWARE 04-2608713 -------- ---------- (State or Other Jurisdiction (IRS Employer ID No.) of Incorporation or Organization) 13 COLUMBIA DRIVE, SUITE 5, AMHERST, NEW HAMPSHIRE 03031 --------------------------------------------------------- (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 11, 1999, there were outstanding 7,668,464 shares of the Issuer's Common Stock, $.10 par value. AMERICAN ELECTROMEDICS CORP. Index ----- Page ---- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets, January 31, 1999 and July 31, 1998 . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations for the Three and Six Months Ended January 31, 1999 and January 31, 1998 . 4 Consolidated Statements of Cash Flows for the Six Months Ended January 31, 1999 and January 31, 1998 . . . 5 Notes to Consolidated Financial Statements . . . . . . . 6 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . 7 PART II - OTHER INFORMATION Item 2. Changes in Securities . . . . . . . . . . . . . . . . 9 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 9 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .10 -2- PART I - FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 31, JULY 31, 1999 1998 ----------- ----------- (Unaudited) ASSETS (Thousands) Current Assets: Cash and cash equivalents . . . . . . . $ 107 $ 396 Accounts receivable . . . . . . . . . . 1,443 1,169 Inventories . . . . . . . . . . . . . . 2,432 1,951 Prepaid and other current assets . . . 356 223 ------- ------- Total current assets . . . . . . . . 4,338 3,739 Property and equipment . . . . . . . . 900 794 Accumulated depreciation . . . . . . . (467) (436) ------- ------- 433 358 Goodwill . . . . . . . . . . . . . . . 4,174 4,298 Patents . . . . . . . . . . . . . . . 2,932 3,027 Other . . . . . . . . . . . . . . . . 29 36 ------- ------- $11,906 $11,458 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Bank debt . . . . . . . . . . . . . . . $1,223 $1,033 Loans from related parties. . . . . . . 425 - Other short-term debt . . . . . . . . . 650 - Accounts payable . . . . . . . . . . . 2,263 1,118 Accrued liabilities . . . . . . . . . . 568 723 Dividends payable . . . . . . . . . . . 327 72 ------- ------- Total current liabilities . . . . . . 5,456 2,946 Stockholders' equity: Series A Convertible Preferred stock,$.01 par value; Authorized - 1,000,000 shares; Outstanding -3,000 shares 2,387 2,387 Common stock, $.10 par value; Authorized - 20,000,000 shares; Outstanding - 7,668,464 shares at January 31, 1999 and 7,058,136 at January 31, 1998. . . . . 767 705 Additional paid-in capital . . . . . . 12,270 12,643 Retained deficit . . . . . . . . . . . (8,322) (5,680) Accumulated other comprehensive loss. . (190) (249) ------- ------- 6,912 9,806 Deferred compensation . . . . . . . . . (462) (1,294) ------- ------- Total stockholders' equity . . . . 6,450 8,512 ------- ------- $11,906 $11,458 ======= ======= See accompanying notes. -3- AMERICAN ELECTROMEDICS CORP.AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ----------------- JANUARY JANUARY JANUARY JANUARY 31, 1999 31, 1998 31, 1999 31,1998 -------- -------- -------- --------- (Thousands, except per share amounts) Net sales . . . . . . . . . $2,290 $1,805 $4,396 $3,635 Cost of goods sold. . . . . 1,454 821 2,673 1,879 ------ ------ ------ ------ Gross profit. . . . . . . . 836 984 1,723 1,756 Selling, general and administrative . . . . . . 1,966 903 3,888 1,590 Research and development. . 77 - 205 - ------ ------ ------ ------ Total operating expenses . 2,043 903 4,093 1,590 ------ ------ ------ ------ Operating income (loss). . (1,207) 81 (2,370) 166 Other income (expenses): Undistributed earnings of affiliate. . . . . . - 77 - 77 Interest, net . . . . . (58) (40) (75) (118) Minority interest in affiliate . . . . . . . - - - (85) Other . . . . . . . . . (91) (52) (197) 6 ------ ------ ------ ------ (149) (15) (272) (120) Income (loss) before provision for income taxes (1,356) 66 (2,642) 46 Provision for income taxes - (2) - (2) ------ ------- ------ ------ Net income (loss). . . . $(1,356) $ 64 $(2,642) $ 44 ====== ======= ====== ====== Net income (loss) attributable to common stockholders* . . . . $(1,494) $ 64 $(2,897) $ 44 ====== ======= ====== ====== Weighted average number of common and common equivalent shares outstanding 7,369,800 4,096,830 7,217,218 3,282,142 ========= ========= ========= ========= Earnings (loss) per common and common equivalent share: Basic $ (.20) $ .02 $ (.40) $ .01 ====== ======= ====== ======= Diluted $ (.20) $ .02 $ (.40) $ .01 ====== ======= ====== ======= See accompanying notes. * The three and six months ended January 31,1999 includes the impact of $138,000 and $255,000, respectively, of dividends on Preferred Stock. -4- AMERICAN ELECTROMEDICS CORP.AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) SIX MONTHS ENDED ---------------- JANUARY 31, JANUARY 31, 1999 1998 ----------- ---------- (Thousands) OPERATING ACTIVITIES: Net income (loss) $ (2,642) $ 44 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 284 132 Deferred compensation 832 - Undistributed earnings of affiliate - (77) Minority interest in affiliate - 85 Changes in operating assets and liabilities: Accounts receivable (252) 341 Inventories, prepaid and other current assets (528) (1,339) Accounts payable and accrued liabilities 969 (264) ------- ------- Net cash used in operating activities (1,337) (1,078) INVESTING ACTIVITIES: Purchase of property and equipment, net (125) (94) ------- ------- Net cash used in investing activities (125) (94) FINANCING ACTIVITIES: Principal payments on long-term debt - (72) Proceeds from long-term debt and bank line of credit - (28) Proceeds from issuance of common stock, net - 994 Net proceeds from bank debt 153 - Net proceeds from related party debt 425 - Net proceeds from other short-term debt 650 - Issuance of common stock, net (79) - Proceeds from exercise of stock options 22 - ------- ------- Net cash provided by financing activities 1,171 894 ------- ------- Effect of exchange rate changes on cash and cash equivalents 2 1 Decrease in cash and cash equivalents (289) (277) Cash and cash equivalents, beginning of period 396 533 ------- ------- Cash and cash equivalents, end of period $ 107 $ 256 ======= ======= NON-CASH ACTIVITIES: Conversion of convertible subordinated debt into common stock $ - $ 720 ======= ======= Common Stock issued in connection with acquisitions $ - $ 210 ======= ======= Common stock issued under conversion provision of warrants $ 59 $ - ======= ======= See accompanying notes. -5- AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1999 (Unaudited) 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated 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. Operating results for the three and six month periods ended January 31, 1999 are not necessarily indicative of the results that may be expected for the year ending July 31, 1999. 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, 1998. 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 Accounting 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 changes in exchange rates from the date of acquisition of Rosch GmbH to January 31, 1999 have been reported separately as a component of stockholders' equity. The aggregate transaction gains and losses are insignificant. Comprehensive Income (Loss) Effective August 1, 1998, the Company adopted Statement of Financial Accounting Standard No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes new rules for the reporting and display of comprehensive income or loss and its components, however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. For the three and six months ended January 31, 1999, the Company's only item of other comprehensive income was the foreign currency translation adjustment recognized in consolidation of its wholly-owned German subsidiary, Rosch GmbH. SFAS 130 requires such adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. The foreign currency translation adjustment and comprehensive loss for the three months ended January 31, 1999 was $(29,000) and ($1,385,000), respectively. For the six months ended January 31, 1999, the foreign currency translation adjustment and comprehensive loss was $59,000 and ($2,583,000), respectively. As of January 31, 1999, the cumulative translation adjustment and accumulated other comprehensive loss was ($190,000). -6- 2. DEBT ---- In September 1998, the Company entered into a $505,000 line-of-credit with Guardian Financial Services, Inc. (owned by an officer of the Company). This line-of-credit is due on demand and bears an interest rate of 10% per annum. As of January 31, 1999, $425,000 was outstanding under this line-of-credit, which expired on February 28, 1999, and remains outstanding as a demand loan, which is to be secured by substantially all assets of the Company. On January 29, 1999, the Company entered into a $50,000 Promissory Note bearing interest at 11.5%, and maturing on February 15, 1999. The Company's $600,000 term loan, originally due to expire on November 25, 1998, has reverted to a demand loan and was still outstanding at January 31, 1999. The $650,000 total balance was paid in full on February 3, 1999. See "Subsequent Event", below. 3. AQUISITIONS ----------- On April 30, 1998, the Company acquired all of the issued and outstanding capital stock of Dynamic Dental Systems, Inc. ("DDS"), pursuant to an Agreement and Plan of Merger, whereby DDS became a wholly-owned subsidiary of the Company. DDS was founded in 1997 and is a distributor of digital operator hardware, cosmetic-imaging software, intraoral dental camera systems and digital x-ray equipment. The total cost of acquisition was approximately $3.2 million consisting primarily of 750,000 shares of the Company's Common Stock, valued at an aggregate price of $3,000,000 and $225,000 in cash. The purchase price exceeded the fair value of net assets acquired by approximately $3.4 million, which is being amortized on a straight-line basis over 15 years. The acquisition has been accounted for as a purchase and, accordingly, the operating results of DDS have been included in the Company's consolidated financial statements since the date of acquisition. On May 12, 1998, the Company acquired Equidine Systems, Inc. ("ESI). ESI was founded in 1990 and is engaged in the development of the INJEX(TM) needle-free drug injection delivery system, which is designed to eliminate the risks of contaminated needle stick accidents and the resulting cross contamination of hepatitis, HIV, and other diseases. The total cost of acquisition was approximately $2.6 million consisting of 600,000 shares of the Company's Common Stock. The acquisition has been accounted for as a purchase and, accordingly, the operating results of ESI have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $3.0 million, which has been allocated to patents, is being amortized over 15 years, the remaining life of the patent. The following unaudited proforma consolidated financial results of operations for the three and six months ended January 31, 1998 assume the acquisitions of DDS and ESI occurred as of August 1, 1997. Three months ended Six months ended January 31, 1998 January 31, 1998 ------------------ ---------------- Net sales. . . . . . . . . . . . $2,488,000 $4,716,000 Net loss . . . . . . . . . . . . (55,000) (233,000) Loss per share; basic and diluted (.01) (.05) 4. EQUITY ------ Effective December 15, 1998, certain holders of oustanding warrants to purchase an aggregate of 1 million shares of the Company's Common Stock at $1 per share, exercised their rights under the related warrant agreements to execute a cashless exercise. Upon exercise of these warrants, the Company issued 589,828 shares of its Common Stock, par $.10. 5. SUBSEQUENT EVENT ---------------- On February 3, 1999, the Company sold 1,600 shares of Series B Preferred Stock to three purchasers for $1,000 per share or an aggregate purchase price of $1.6 million, together with Warrants to purchase up to 25,000 shares of the Company's Common Stock at an exercise price of $3.00 per share and exercisable until January 31, 2002. The Series B Preferred Stock is convertible at any time after April 30, 1999 into shares of common stock at a conversion rate equal to $1,000 divided by the lower of (i) $2.00 or (ii) 75% of the average closing bid price for the common stock for the five trading days immediately preceding the conversion date. The Company may force conversion of all ( and not less than all) of the outstanding shares of Series B Preferred Stock at any time after the first anniversary of the effective date of a registration statement covering the underlying shares of Common Stock. There is no minimum conversion price. Should the bid price of the Common Stock fall substantially prior to conversion, the holders of the Series B Preferred Stock could obtain a significant portion of the Common Stock upon conversion, to the detriment of the then holders of the Common Stock. The Series B Preferred Stock has a liquidation preference of $1,000 per share, plus any accrued and unpaid dividends, and provides for an annual dividend equal to 5% of the liquidation preference, which may be paid at the election of the Company in cash or shares of its common stock. The conversion terms of the Series B Preferred Stock could result in a discount to the holders, depending on the market price of the Company's Common Stock during the five trading days immediately preceding a future conversion date. Any such discount would be considered an additional preferred stock dividend resulting from the beneficial conversion feature of the securities, and would be recorded as a charge to income available to common stockholders at the time of conversion. As the Series B Preferred Stock is not convertible until after April 30, 1999, the amount of the dividend which would be recognized, if any, cannot be determined at this time. The net proceeds of $1,500,000 (after offering expenses)from the sale of the Series B Preferred Stock were used in part to repay the Company's $600,000 term loan and $50,000 Promissory Note described in Note 2, above. 6. YEAR 2000 --------- The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on recent assessments, the Company determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. To date, the Company has substantially completed its assessment of all systems that could be significantly affected by the Year 2000. The assessment indicated that most of the Company's significant information technology systems will be affected, including its financial information system which includes its general ledger, accounts payable, billing and inventory systems. The assessment was also undertaken on the Company's products, which are also at risk, as they utilize software and hardware (embedded chips) as well. However, based on its review of its product line, the Company has determined that most of the products it has sold and will continue to sell do not require remediation to be Year 2000 compliant. Accordingly, the Company does not believe that the Year 2000 presents a material exposure as it relates to the Company's products. The Company's manufacturing processes consist principally of unautomated assembly of components manufactured by outside third-parties. The Company has begun to gather information about the Year 2000 compliance status of its significant suppliers, and will take appropriate steps to monitor their compliance on an ongoing basis. Regarding its information technology exposures, the Company utilizes an unmodified off-the-shelf software package, which is not year 2000 compliant. The Company has confirmed with its software vendor that a year 2000-compliant upgrade is readily available, and anticipates purchasing this upgrade during its third fiscal quarter, which ends on April 30, 1999. The upgrade would provide full year 2000 compliance with respect to its financial information systems, and as the new software will also be an unmodified off-the-shelf package, testing to ensure Year 2000 compliance will not be necessary. Implementation will take place as early as possible following the purchase of the system, and is expected to be completed no later than June 30, 1999. The Company does not presently maintain direct interfaces with any third-party vendors. The Company has made various queries of its significant suppliers that do not share information systems with the Company (external agents). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of assuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. The total cost of the Company's Year 2000 project is estimated at $25,000, which will be funded through operating cash flows. To date, the Company has not incurred any direct costs related to its Year 2000 project. The project costs will consist principally of the cost of new software, which will be capitalized. Management of the Company believes it has an effective plan in place to resolve the Year 2000 Issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of its Year 2000 project. In the event that the Company does not complete any additional phases, the Company could be unable to take customer orders, manufacture and ship products, invoice customers or collect payments. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company currently has no contingency plans in place in the event it does not complete all phases of its Year 2000 project. The Company plans to evaluate the status of completion in June 1999 and determine whether such a plan is necessary. 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, 1999 were $2,290,000 and $4,396,000, respectively, compared to $1,805,000 and $3,635,000 for the three and six month periods ended January 31, 1998. The increase in sales in fiscal 1999 was attributable to the acquisitions of DDS and ESI in April and May 1998, respectively. -7- Cost of sales for the three and six month periods ended January 31, 1999 were 63.5% and 60.8%, compared to 45.5% and 51.7% of net sales during the same periods in the prior year. The increase in cost as a percentage of sales can be attributed to the product mix which included sales of DDS in fiscal 1999. The intraoral dental camera and related product lines in the U.S. generally produce lower gross margins than the Company's other product lines. Total operating expenses for the three and six month periods ended January 31, 1999 were $2,043,000 and $4,093,000, respectively, compared to $903,000 and $1,590,000 for the comparable prior year periods. The 1999 amounts reflect increased marketing, promotional, and development activity. The fiscal 1999 amounts also include the selling, general and administrative expenses of DDS and ESI, acquired in April and May 1998, respectively. The increase also includes $399,000 and $832,000 for the three and six month periods ended January 31, 1999, respectively, for amortization of deferred compensation for consultants and for options granted in connection with the acquisitions of DDS and ESI. This amortization relates primarily to the deferred compensation recognized in connection with the Company's consulting agreement with Liviakis Financial Communications, and will be fully amortized as of March 15, 1999. Net loss for the three and six month periods ended January 31, 1999 were $1,356,000, or $.20 per common share, and $2,642,000, or $.40 per common share, compared to net profit of $64,000, or $.02 per share, and $44,000, or $.01 per share for the same periods in the prior fiscal year. The decrease in net results is primarily attributable to increased selling, general and administrative costs and decreased gross margins. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Working capital (deficit) of the Company at January 31, 1999 was $(1,118,000), compared to $793,000 at fiscal year ended July 31, 1998. The $1,911,000 decrease in working capital primarily reflects the effect of operating losses. In February 1999, the Company received gross proceeds of $1,600,000 upon a private placement of 1,600 shares of Series B Convertible Preferred Stock. As mentioned in Note 5 to the consolidated financial statements, the Company used $650,000 of the proceeds to repay portions of its short-term indebtedness, and the remaining proceeds of $850,000 (net of offering costs of $100,000) is being used for general working capital purposes. The Company has incurred net losses of $1,356,000 and $2,642,000, respectively, for the three and six month periods ended January 31, 1999, as well as a net loss of $3,674,000 for the year ended July 31, 1998. This and other factors, such as working capital needed for the Company's operations, requires additional funding beyond that which the Company currently has available. The Company therefore will need to immediately raise additional capital. The Company announced on January 5, 1999, that it intends to change the Company's business strategy and direction in order to focus all of its resources on ESI, and the continued development of the INJEX(TM) System. The Company plans to affect this change through the sale of its audiometrics and U.S. dental (DDS) business units. The proceeds from such sales would likely provide additional working capital, and reduce the Company's expected short-term working capital needs by eliminating the operating losses those business units have been incurring. In addition, the Company continues to seek other sources of additional working capital through equity and/or debt placements or secured financing. No assurance can be given that the Company's plans to sell its audiometrics and U.S. dental business units will be successfully achieved, or that such other financing arrangements will be obtained. Further, no assurance can be given that such sales or financing arrangements would be successfully completed within the necessary time frame and, if so, on terms not dilutive to existing stockholders. As a result of the foregoing, substantial doubt exists about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. -8- PART II. - OTHER INFORMATION Item 2. CHANGES IN SECURITIES Effective December 15, 1998, certain holders of oustanding warrants to purchase an aggregate of 1 million shares of the Company's Common Stock at $1 per share, exercised their rights under the related warrant agreements to execute a cashless exercise. Upon exercise of these warrants, the Company issued 589,828 shares of its Common Stock, par $.10. Item 6. EXHIBITS AND REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the quarterly period ended January 31, 1999. Exhibits - 27. Financial Data Schedule -9- 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: March 16, 1999 /s/ Thomas A. Slamecka ---------------------- Thomas A. Slamecka Chairman Dated: March 16, 1999 /s/ Michael T. Pieniazek ------------------------ Michael T. Pieniazek President and Chief Financial Officer -10- EXHIBIT INDEX Exhibit Description - ------ ----------- 27 Financial Data Schedule EX-27 2 FDS --
5 This schedule contains summary financial information extracted from American Electromedics Corp. Form 10-QSB for the period ended January 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 3-mos JUL-31-1999 JAN-31-1999 107 0 1,443 0 2,432 356 900 (467) 11,906 5,456 0 0 2,387 767 3,296 11,906 2,290 2,290 1,454 1,454 2,134 0 58 (1,356) 0 (1,356) 0 0 0 (1,356) (.20) (.20)
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