-----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, SG+vascKxBl+kZRrTZMJ1yfJuwDVApQ6JdQ0MpeB1rV0MBhEGbCMWDoyr/6MscYj nsC72yzZnPaEc07nNSwY+Q== 0000950120-98-000141.txt : 19980417 0000950120-98-000141.hdr.sgml : 19980417 ACCESSION NUMBER: 0000950120-98-000141 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980416 SROS: NONE 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: 98595102 BUSINESS ADDRESS: STREET 1: 13 COLUMBIA DR STE 18 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 OF AMERICAN ELECTROMEDICS CORP. 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 ---------------- ------ AMERICAN ELECTROMEDICS CORP. ---------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) DELAWARE 04-2608713 -------- ---------- (State or Other Jurisdiction of (IRS Employer ID No.) Incorporation or Organization) 13 COLUMBIA DRIVE, SUITE 18, 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 31, 1998, there were outstanding 5,663,136 shares of the Issuer's Common Stock, $.10 par value. AMERICAN ELECTROMEDICS CORP. Index ----- 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 -2- 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. -3- 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. -4- 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. -5- 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) ----------------------------------------------------------------- Three Three Six Six Months Months Months Months Ended Ended Ended Ended 1/31/98 1/25/97 1/31/98 1/25/97 ----------------------------------------------------------------- Sales $ 1,805 $ 1,296 $ 3,635 $ 2,261 ----------------------------------------------------------------- Gross profit 984 253 1,756 620 ----------------------------------------------------------------- Net profit (loss) 64 (580) 44 (811) ----------------------------------------------------------------- Current assets 4,137 3,501 4,137 3,501 ----------------------------------------------------------------- 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. -6- 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. -7- 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- 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 -9- EXHIBIT INDEX Exhibit Description ------- ----------- 10-1 Consulting Agreement, dated February 19, 1998, between the Company and Liviakis Financial Communications, Inc. 27. Financial Data Schedule EX-10 2 EXHIBIT 10-1 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. 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 EX-27 3 ART 5 FDS FOR 2ND QRT 10-QSB
5 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. 1,000 6-MOS JUL-31-1998 JAN-31-1998 256 0 1,065 0 2,052 4,137 721 (411) 5,782 1,636 0 0 0 451 2,654 5,782 1,805 1,805 821 821 903 0 40 66 (2) 64 0 0 0 64 .02 .02
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