-----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, FZEdfMgVYtyhRVHQlurv8lFtNsTN/DWDaE8wKnBraZ7bU5KYpVH71kPXqrwPtNWL GXfIuAlf7R8WI9NX2nfX6w== 0000950120-98-000328.txt : 19980910 0000950120-98-000328.hdr.sgml : 19980910 ACCESSION NUMBER: 0000950120-98-000328 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980909 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/A SEC ACT: SEC FILE NUMBER: 000-09922 FILM NUMBER: 98706373 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/A 1 AMENDMENT NO. 2 TO FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (AMENDMENT NO. 2) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended Commission File Number OCTOBER 31, 1997 0-9922 ---------------- ------ AMERICAN ELECTROMEDICS CORP. ---------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) DELAWARE 04-2608713 -------- ---------- (State or Other Jurisdiction of Incorporation (IRS Employer ID No.) 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 December 17, 1997, there were outstanding 4,303,136 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, October 31, 1997 and July 31, 1997........... 3 Statements of Operations for the Three Months Ended October 31, 1997 and October 26, 1996...................... 4 Statements of Cash Flows for the Three Months Ended October 31, 1997 and October 26, 1996...................... 5 Notes to Financial Statements................................ 6 Item 2. Management's Discussion and Analysis or Plan of Operation.. 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings........................................... 7 Item 6. Exhibits and Reports on Form 8-K............................ 7 SIGNATURES.......................................................... 8 -2- PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS AMERICAN ELECTROMEDICS CORP. BALANCE SHEETS OCTOBER 31, JULY 31, 1997 1997 ----------- ------- (Unaudited) (Thousands) Assets Current Assets: Cash and cash equivalents ....................... $ 289 $ 471 Accounts receivable Trade ......................................... 1,291 283 Affiliate ..................................... -- 379 ------- ------- 1,291 662 Inventories ..................................... 1,471 475 Prepaid and other current assets ................ 580 244 ------- ------- Total current assets .......................... 3,631 1,852 Property and equipment .......................... 667 449 Accumulated depreciation ........................ (404) (396) ------- ------- 263 53 Deferred financing costs ........................ 115 128 Investment in affiliate ......................... -- 819 Goodwill ........................................ 864 208 ------- ------- $ 4,873 $ 3,060 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ................................ $ 1,014 $ 187 Bank line of credit ............................. 300 300 Accrued liabilities ............................. 266 153 Current portion of long-term debt ............... 167 152 ------- ------- Total current liabilities ..................... 1,747 729 Minority interest in affiliate .................. 148 -- Long-term debt .................................. 1,087 380 Convertible subordinated debentures ............. 720 720 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 - 2,553,136 shares at October 31, 1997 and at July 31,1997 255 255 Additional paid-in capital ...................... 2,919 2,919 Retained deficit ................................ (2,007) (2,006) Foreign currency translation adjustment ......... 4 -- ------- ------- Total stockholders' equity .................... 1,167 1,168 ------- ------- $ 4,873 $ 3,060 ======= ======= SEE ACCOMPANYING NOTES. -3- AMERICAN ELECTROMEDICS CORP. STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED ------------------ OCTOBER 31, OCTOBER 26, 1997 1996 ----------- ------------ (Thousands, except per share amounts) Net sales ................................ $ 1,830 $ 540 Cost of goods sold ....................... 1,058 312 ----------- ----------- Gross profit ............................. 772 228 Selling, general and administrative ...... 687 315 Research and development ................. -- 34 ----------- ----------- Total operating expenses ............... 687 349 ----------- ----------- Operating income (loss) .................. 85 (121) Other income (expenses): Undistributed earnings of affiliate .... -- (30) Interest, net .......................... (78) (9) Minority interest in affiliate ......... (85) -- Other .................................. 58 -- ----------- ----------- (105) (39) Loss before provision for income taxes ... (20) (160) Provision for income taxes ............... -- -- ----------- ----------- Net loss ................................. $ (20) $ (160) =========== =========== Weighted average number of common and common equivalent shares outstanding ... 2,553,136 2,456,064 =========== =========== Loss per common and common equivalent share $ (.01) $ (.07) =========== =========== See accompanying notes. -4- AMERICAN ELECTROMEDICS CORP. STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED OCTOBER 31, OCTOBER 26, 1997 1996 ------------------------ (THOUSANDS) OPERATING ACTIVITIES: Net loss .......................................... $ (20) $ (160) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ................... 49 10 Undistributed earnings of affiliate ............. -- 30 Minority interest in affiliate .................. 85 -- Changes in operating assets and liabilities: Accounts receivable ........................... 187 64 Inventories, prepaid and other current assets . (88) (47) Accounts payable and accrued liabilities ...... (385) 72 ------- ------- Net cash used in operating activities ........... (172) (31) INVESTING ACTIVITIES: Purchase of property and equipment, net ........... (13) (6) ------- ------- Net cash used in investing activities ............. (13) (6) FINANCING ACTIVITIES: Principal payments on long-term debt .............. (62) (17) Proceeds from long-term debt and bank line of credit -- 500 Issuance of common stock, net ...................... -- 146 Issuance of convertible subordinated debt .......... -- 720 Deferred financing costs ........................... -- (166) Proceeds from exercise of stock options ............ -- 2 ------- ------- Net cash provided by (used in) financing activities. (62) 1,185 ------- ------- Effect of exchange rate changes on cash and cash equivalents ....................................... 3 -- Increase (decrease) in cash and cash equivalents .. (244) 1,148 Cash and cash equivalents, beginning of period .... 533 317 ------- ------- Cash and cash equivalents, end of period .......... $ 289 $ 1,465 ======= ======= See accompanying notes. -5- AMERICAN ELECTROMEDICS CORP. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997 (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. Effective July 31, 1997, the Company is reporting its month end on the last day of each month for accounting purposes. The Company changed its method from the equity method of accounting for its 50%-owned affiliate 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 on August 11, 1997 was based primarily upon the successful completion of negotiations to acquire effective voting control. For the quarterly period ended October 31, 1997, the Company consolidated the Company and Rosch GmbH, however, the Company continued only to recognize earnings of Rosch GmbH up to its 50% ownership share until the remaining 50% was purchased. Subsequently, the Company closed on the acquisition of the remaining 50% of Rosch GmbH (see Note 3. Subsequent Events below). The following proforma information is presented for comparative purposes to disclose information on the financial position and result of operations of American Electromedics Corp. and Rosch GmbH had they been consolidated for all periods presented. (in 000's) --------------------------------------------------------------- Three Months Three Months Ended Ended 10/31/97 10/26/96 --------------------------------------------------------------- Sales $1,830 $1,076 --------------------------------------------------------------- --------------------------------------------------------------- Gross profit 772 394 --------------------------------------------------------------- --------------------------------------------------------------- Net loss (20) (255) --------------------------------------------------------------- --------------------------------------------------------------- Current assets 3,258 3,405 --------------------------------------------------------------- --------------------------------------------------------------- Non-current assets 1,659 1,432 --------------------------------------------------------------- --------------------------------------------------------------- Current liabilities 1,733 755 --------------------------------------------------------------- --------------------------------------------------------------- Non-current liabilities 1,969 2,157 --------------------------------------------------------------- Operating results for the three month period ended October 31, 1997 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. 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 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 the changes in exchange rates from the date of acquisition of Rosch GmbH to October 31, 1997 have been reported separately as a component of stockholders equity. The aggregate transaction gains and losses are insignificant. 2. DEBT The Company entered into a Forbearance and Workout Agreement with its bank on October 28, 1997 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. -6- 3. SUBSEQUENT EVENTS 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. The Company also will record a charge of approximately $100,000 to write-off deferred financing costs capitalized upon initial issuance of the Debentures. 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." The Company used $150,000 of the placement proceeds to repay portions of its bank indebtedness. On December 18, 1997, the Company closed on the purchase of the remaining 50% of the outstanding capital stock of Rosch GmbH for $155,000, consisting of $50,000 of cash and 105,000 shares of the Company's Common Stock, along with an investment in a 45%interest in Meditronic Medizinelektronik GmbH for $255,000, consisting of $150,000 of cash and 105,000 shares of the Company's Common Stock, pursuant to a Stock Purchase Option Agreement, dated as of November 1, 1997. The shares were valued at $1.00 per share, which represented the fair market value of the Common Stock as of the entry into the Stock Purchase Option Agreement. 4. Year 2000 The Company has completed an assessment of Year 2000 issues with respect to its computer systems. The Company believes that the Year 2000 issue will not pose significant operational problems for its computer systems in that all required modifications and conversions to comply with Year 2000 requirements will be fully completed by the third quarter of 1999. In the opinion of management, the total cost of addressing the Year 2000 issue will not have a material impact on the Company's financial position or results of operations. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS Net sales for the three month period ended October 31, 1997 were $1,830,000, compared to $540,000 for the three month period ended October 26, 1996. 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, which sales commenced subsequent to the first quarter of fiscal 1997. Cost of sales for the three month periods ended October 31, 1997 and October 26, 1996 were 57.8% of net sales. Selling, general and administrative expenses for the three month period ended October 31, 1997 were $687,000, compared to $315,000 for the comparable prior year period. The increase reflects accounting for the selling, general and administrative expenses on a consolidated basis. Net loss for the three month period ended October 31, 1997 was $20,000, or $.01 per share, compared to a net loss of $160,000, or $.07 per share, for the same period in the prior fiscal year. The decrease in net loss is the result of increased sales offset by higher interest costs. LIQUIDITY AND CAPITAL RESOURCES Working capital of the Company at October 31, 1997 was $1,525,000, compared to $1,060,000 at fiscal year ended July 31, 1997. The increase of $465,000 reflects primarily the accounting for Rosch GmbH on a consolidated basis. Subsequent to October 31, 1997, the Company increased its working capital upon the conversion of the $720,000 principal amount of Debentures to Common Stock and the gross proceeds of $1,030,000 upon a 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 the remaining 50% of Rosch GmbH. A copy of such purchase agreement is filed as an exhibit to this Report. Currently, the Company expects that available cash and its existing bank line of credit will be sufficient to meet its normal operating requirements, including research and development expenditures, over the near term. Further, the conversion of the Debentures shall reduce the annual interest expense by $100,000. 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. 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 1. LEGAL PROCEEDINGS In December 1997, the Company and Noel Wren settled the action, instituted by Mr. Wren in May 1997, against the Company upon payment by the Company of $62,500 and the exchange of mutual releases. For additional information, see Item 3 "Legal Proceedings" in the Company's Form 10-KSB for the fiscal year ended July 31, 1997 Item 6. EXHIBITS AND REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the quarterly period ended October 31, 1997. Exhibits - -7- AMERICAN ELECTROMEDICS CORP. 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. ---------------------------- /s/ Thomas A. Slamecka Dated: September 9, 1998 ---------------------- Thomas A. Slamecka Chairman /s/ Michael T. Pieniazek Dated: September 9, 1998 ------------------------ Michael T. Pieniazek President and Chief Financial Officer -8- -----END PRIVACY-ENHANCED MESSAGE-----