-----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, MX1Svbe24Kw4UfPHm/Z/MMIpNgsFvV/D7UwXYyhgW5Q/KW30UHFLHRcbAmksInyv wdrnoqxj0zp57KdBo2FQFQ== 0000950120-98-000335.txt : 19980915 0000950120-98-000335.hdr.sgml : 19980915 ACCESSION NUMBER: 0000950120-98-000335 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980505 ITEM INFORMATION: FILED AS OF DATE: 19980914 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-09922 FILM NUMBER: 98708446 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 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A (AMENDMENT NO. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported) -- May 5, 1998 ------------- AMERICAN ELECTROMEDICS CORP. ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-9922 04-2608713 -------------------- -------------------- ----------------- (State or other (Commission File Number) (IRS Employer jurisdiction Identification No.) of Incorporation) 13 Columbia Drive, Suite 5, Amherst, New Hampshire 03031 ----------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code -- (603) 880-6300 -------------- Not Applicable ----------------------------------------------------------------- (Former Name or Former Address, if changed since last report) Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION ----------------------------------------------------- AND EXHIBITS ------------ On June 5, 1998, the Company filed a Form 8-K to report the acquisition of Dynamic Dental Systems, Inc. ("DDS") and Equidyne Systems, Incorporated ("ESI"). The financial statements required to be filed under Item 7(a) and (b) of such form 8-K were to be filed thereafter by amendment. Included in this amendment are: (1) financial statements of DDS, (ii) financial statements of ESI and (iii) the Company's pro forma financial statements reflecting the acquisition of DDS and ESI. In addition, on January 26, 1996, the Company filed a Form 8-K to report the acquisition of a 50% interest in Rosch GmbH Medizintechnik ("Rosch GmbH"). In December 1997, the Company acquired the remaining 50% of Rosch GmbH. Also, included in this amendment are (a) financial statements of Rosch GmbH and (b) the Company's pro forma financial statements reflecting the Rosch GmbH acquisition. Page ---- (a) (i) Financial Statements of Dynamic Dental Systems, Inc. Report of Johnny B. Martin, dated August 11, 1998 4 Balance Sheet as at December 31, 1997 5 Statement of Income and Retained Earnings for the year ended December 31, 1997 6 Statement of Cash Flows for the year ended December 31, 1997 7 Notes to Financial Statements 8 (a) (ii) Financial Statements of Equidyne Systems, Inc.(a development stage company) Report of Nation Smith Hermes Diamond, dated August 11, 1998 10 Balance Sheets as at December 31, 1997 and 1996 11 Statements of Operations for the years ended December 31, 1997 and 1996 and for the period from inception (August 11, 1993) to December 31, 1997 12 Statements of Stockholders' Equity for the years ended December 31, 1997 and 1996 13 Statements of Cash Flows for the years ended December 31, 1997 and 1996 and for the period from inception (August 11, 1993) through December 31, 1997 14 Notes to Financial Statements 15 (a)(iii) Financial Statements of Rosch GmbH Medizintechnik 2 Balance Sheet as at July 31, 1997 18 Statement of Operations for the seven months ended July 31, 1997 19 Audit Report of Wilhelm T. J. Hagen 20 Balance Sheet as at December 31, 1996 21 Statement of Operations for the twelve months ended December 31, 1996 22 Audit Report of Wilhelm T. J. Hagen 23 (b)(i) Pro forma Financial Statements (the Company, Rosch GmbH, ESI and DDS) Pro forma Condensed Financial Statements 24 Pro forma Combined Condensed Balance Sheet as at April 30, 1998 25 Pro forma Combined Condensed Statement of Operations for the nine months ended April 30, 1998 26 Pro forma Combined Condensed Statement of Operations for the year ended July 31, 1997 27 (b)(ii) Pro forma Financial Statements (Company and Rosch GmbH) Pro forma Condensed Financial Statements 28 Pro forma Combined Condensed Balance Sheet as at July 31, 1997 29 Pro forma Combined Condensed Statement of Operations for the year ended July 31, 1997 30 Pro forma Combined Condensed Statement of Operations for the three month period ended October 31, 1997 31 3 [LETTERHEAD OF JOHNNY B. MARTIN, CERTIFIED PUBLIC ACCOUNTANT] INDEPENDENT AUDITOR'S REPORT To the Board of Directors Dynamic Dental Systems, Inc. Gainesville, Georgia I have audited the accompanying balance sheet of DYNAMIC DENTAL SYSTEMS, INC. as of December 31, 1997 and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DYNAMIC DENTAL SYSTEMS, INC. as of December 31, 1997 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Johnny B. Martin ------------------------------- Certified Public Accountant August 11, 1998 4 DYNAMIC DENTAL SYSTEMS, INC. ---------------------------- BALANCE SHEET December 31, 1997 1997 ------- ASSETS Current Assets Cash $ 70,467 Accounts Receivable 103,155 Inventory 49,595 -------- Total Current Assets 223,217 Organization Cost 195 -------- TOTAL ASSETS $223,412 ======== CURRENT LIABILITIES Accounts Payable $ 86,495 Line of Credit 70,000 Federal Income Tax Payable 10,775 State Income Tax Payable 4,000 Sales Tax Payable 655 -------- TOTAL CURRENT LIABILITIES 171,925 -------- STOCKHOLDERS EQUITY Common Stock, No Par Value 3000 Shares Authorized, Issued and Outstanding 300 Retained Earnings 51,187 -------- TOTAL STOCKHOLDERS EQUITY 51,487 -------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $223,412 ======== The accompanying notes are an integral part of these financial statements. 5 DYNAMIC DENTAL SYSTEMS, INC. ---------------------------- STATEMENT OF INCOME AND RETAINED EARNINGS For the Year Ended December 31, 1997 1997 -------- REVENUE Sales $1,446,724 Training Fees 12,150 Other Income 6,532 ---------- 1,465,406 Cost of Goods Sold 956,873 ---------- GROSS PROFIT 508,533 ---------- EXPENSES Advertising 69,250 Amortization 122 Bank Service Charges 1,562 Commissions 112,526 Contract Labor 83,722 Credit Card Fees 11,298 Depreciation 5,394 Dues and Subscriptions 550 Equipment Rental 2,128 Exhibition Costs 55,678 Insurance 1,806 Interest 4,256 Meals and Entertainment 2,272 Miscellaneous 192 Office Supplies 5,622 Professional Fees 3,367 Rent 18,365 Repairs and Maintenance 435 Software 1,287 Taxes and Licenses 2,100 Telephone 15,598 Training 7,475 Travel 36,255 Utilities 1,097 Waste Removal 214 ---------- TOTAL EXPENSES 442,571 INCOME BEFORE TAXES 65,962 INCOME TAX 14,775 ---------- NET INCOME 51,187 BEGINNING RETAINED EARNINGS -- ---------- RETAINED EARNINGS DECEMBER 31, 1997 $ 51,187 ========== 6 DYNAMIC DENTAL SYSTEMS, INC. ---------------------------- STATEMENT OF CASH FLOWS For the Year Ended December 31, 1997 1997 -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 51,187 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: Depreciation and Amortization 5,516 Increase in Accounts Receivable (103,155) Increase in Inventories (49,595) Increase in Accounts Payable 86,495 Increase in Other Current Operating Liabilities 15,430 --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,878 --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (5,711) --------- NET CASH (USED IN) INVESTING ACTIVITIES (5,711) --------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds Under Line of Credit Borrowing 70,000 Common Stock Issued 300 --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 70,300 --------- INCREASE (DECREASE) IN CASH 70,467 CASH AT BEGINNING OF PERIOD 0 --------- CASH AT END OF PERIOD $ 70,467 ========= 7 DYNAMIC DENTAL SYSTEMS, INC. ---------------------------- NOTES TO FINANCIAL STATEMENTS For the Year Ended December 31, 1997 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF -------------------------------------------------------- ACTIVITIES ---------- NATURE OF BUSINESS The Company sells computers with related software, cameras, and printers to dentists. This equipment is utilized to photograph and display the teeth and mouths of patients. BASIS OF ACCOUNTING The financial statements of the Company have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. DEPRECIATION The Company purchased $5,394 of depreciable assets during the year ended December 31, 1997. It elected to write off these assets as expenses for income tax and financial statement purposes. Direct write-off of depreciable assets is not generally accepted accounting principles, but the Company does not consider the amounts involved to be material. AMORTIZATION The Company incurred $317 in organization costs. It is amortizing these costs over a five year period. ACCOUNTS RECEIVABLE The Company recognizes sales when products are shipped. There have been no credit losses as of December 31, 1997 and the Company had collected all amounts owed to it as of August 11, 1998. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. 8 DYNAMIC DENTAL SYSTEMS, INC. ---------------------------- NOTES TO FINANCIAL STATEMENTS For the Year Ended December 31, 1997 NOTE 2: LINE OF CREDIT ----------------------- The Company has a line of credit with a local bank that provides for maximum borrowings of $70,000 at a rate of interest that varies with prime as defined in the loan agreement. The rate at December 31, 1997 was 10.5%. The loan is secured by a personal guarantee of the President of the Company. NOTE 3: INCOME TAXES --------------------- The provision for income taxes consists entirely of amounts owed as of December 31, 1997: Federal $10,775 State 4,000 ------- $14,775 ======= NOTE 4: SUBSEQUENT EVENT ------------------------- All the Company's stock was acquired through a merger with American Electromedics Corporation. The Company has an employment agreement with the principal seller providing for a base salary of $125,000 annually through April 30, 2001. The agreement provides for automatic annual renewals beginning May 1, 2001 unless written notice of termination is given by either party. The principal seller has agreed not to compete with the Company for a two year period that begins on the date that he ceases to be an employee of the Company. 9 (a)(ii) Financial Statements of Dynamic Dental Systems, Inc. [LETTERHEAD OF NATION SMITH HERMES DIAMOND] INDEPENDENT AUDITOR'S REPORT To the Stockholders EQUIDYNE SYSTEMS, INC. (A development stage company) We have audited the accompanying balance sheets of EQUIDYNE SYSTEMS, INC. (a development stage company) as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and for the period from August 11, 1993 (inception) to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EQUIDYNE SYSTEMS, INC. (a development stage company) as of December 31, 1997 and 1996, and the results of its operations and cash flows for the years then ended, and for the period from August 11, 1993 (inception) to December 31, 1997, in conformity with generally accepted accounting principles. August 11, 1998 /s/Nation Smith Hermes Diamond 10 EQUIDYNE SYSTEMS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS December 31, 1997 1996 ---- ---- ASSETS CURRENT ASSETS Cash . . . . . . . . . . . . . . . $ 100 $ 24,700 Prepaid expenses . . . . . . . . . 1,000 -- ----------- ----------- Total current assets . . . . . . 1,100 24,700 FIXED ASSETS -- NET (Notes 1(c) and 2) 600 4,600 INTANGIBLE ASSETS -- NET (note 1(d)) 10,900 23,100 ----------- ----------- $ 12,600 $ 52,400 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Notes payable -- related parties (Note 3) . . . . . . . . . . . . $ 98,200 $ 97,800 Accounts payable . . . . . . . . . 95,300 100,600 Accrued expenses . . . . . . . . . 47,500 48,700 ----------- ----------- Total liabilities . . . . . . . 241,000 247,100 COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' EQUITY (DEFICIT) Series A preferred stock, no par value; 860,500 shares authorized and 795,500 shares issued and outstanding (Note 4) . . . . . 753,300 753,300 Series B preferred stock, no par value; 50,000 shares authorized and 14,800 shares issued and outstanding (Note 4) . . . . . 140,200 140,200 Common stock, no par value; 2,500,000 shares authorized and 669,060 shares issued and outstanding . . . . . . . . . . 700 700 Deficit accumulated during the development stage . . . . . . . . (1,122,600) (1,088,900) ----------- ----------- Total ownership equity (deficit) . . (228,400) (194,700) ----------- ----------- $ 12,600 $ 52,400 =========== =========== The accompanying notes are an integral part of these financial statements. 11 EQUIDYNE SYSTEMS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION (AUGUST 11, YEAR ENDED YEAR ENDED 1993) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1997 ------------ ------------ ------------ OPERATING EXPENSES Research and development $ 2,600 $ 111,600 $ 669,300 General and 23,600 208,200 531,200 administrative -------- --------- ----------- Total operating expenses 26,200 319,800 1,200,500 -------- --------- ----------- OTHER INCOME (EXPENSE) Licensing and evaluation fees -- 90,000 90,000 Interest expense (3,500) (2,200) (11,000) Interest income -- -- 2,900 Loss on disposal of (4,000) -- (4,000) fixed assets -------- --------- ----------- Total other income (7,500) 87,800 77,900 (expense) -------- --------- ----------- NET LOSS $(33,700) $(232,000) $(1,122,600) ======== ========= =========== The accompanying notes are an integral part of these financial statements. 12 EQUIDYNE SYSTEMS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY COMMON STOCK(1) ------------------------ SHARES AMOUNT ------ ------ BALANCE AT INCEPTION -- $ -- Initial capitalization 564,060 600 Preferred Series A stock issued, -- -- 795,500 shares Net loss -- -- ------- ----------- BALANCE AT DECEMBER 31, 1995 564,060 600 Preferred Series B stock issued, -- -- 14,800 shares Common stock issued 105,000 100 Net loss -- -- ------- ----------- BALANCE AT DECEMBER 31, 1996 669,060 700 Net loss -- -- ------- ----------- BALANCE AT DECEMBER 31, 1997 669,060 $ 700 ======= =========== PREFERRED STOCK(1) --------------------- SERIES A SERIES B -------- -------- BALANCE AT INCEPTION $ -- $ -- Initial capitalization -- -- Preferred Series A stock issued, 753,300 -- 795,500 shares Net loss -- -- -------- -------- BALANCE AT DECEMBER 31, 1995 753,300 -- Preferred Series B stock issued, -- 140,200 14,800 shares Common stock issued -- -- Net loss -- -- -------- -------- BALANCE AT DECEMBER 31, 1996 753,300 140,200 Net loss -- -- -------- -------- BALANCE AT DECEMBER 31, 1997 $753,300 $140,200 ======== ======== ACCUMULATED DEFICIT TOTAL ----------- ----- BALANCE AT INCEPTION $ -- $ -- Initial capitalization -- 600 Preferred Series A stock issued, -- 753,300 795,500 shares Net loss (856,900) (856,900) ----------- ---------- BALANCE AT DECEMBER 31, 1995 (856,900) (103,000) Preferred Series B stock issued, -- 140,200 14,800 shares Common stock issued -- 100 Net loss (232,000) (232,000) ----------- ---------- BALANCE AT DECEMBER 31, 1996 (1,088,900) (194,700) Net loss (33,700) (33,700) ----------- ---------- BALANCE AT DECEMBER 31, 1997 $(1,122,600) $(228,400) =========== ========= (1) Reflects adjustment for one for ten reverse stock split in November 1997. The accompanying notes are an integral part of these financial statements. 13 EQUIDYNE SYSTEMS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Period from Inception Year Ended Year Ended (August 11, 1993) December 31, December 31, to 1997 1996 December 31, 1997 ------------ ------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(33,700) $(232,000) $(1,122,600) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 12,200 10,100 54,000 and amortization Loss on sale of 4,000 300 4,000 fixed assets -- net Change in operating assets and liabilities: Accounts -- 3,000 -- receivable Prepaid (1,000) -- (1,000) expenses Intangible -- 31,800 (4,200) assets Other assets -- 3,800 -- Accounts (5,300) 68,300 95,300 payable Accrued (800) (24,900) 47,900 expenses -------- --------- ----------- Net cash used in (24,600) (139,600) (926,600) operating -------- --------- ----------- activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed -- (800) (15,300) assets -------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from -- 137,100 894,200 issuance of stock Proceeds from 17,800 47,800 note payable -- related party Principal payments on notes -- (15,000) -- payable -- related party -------- --------- ----------- Net cash provided -- 139,900 942,000 by financing -------- --------- ----------- activities NET INCREASE (24,600) (500) 100 (DECREASE) IN CASH CASH AT BEGINNING 24,700 25,200 -- OF PERIOD -------- --------- ----------- CASH AT END OF $ 100 $ 24,700 $ 100 PERIOD ======== ========= =========== Noncash Investing and Financing Activities During 1993 the Company acquired a $50,000 patent with a note payable. The accompanying notes are an integral part of these financial statements. 14 EQUIDYNE SYSTEMS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting policies applied in the preparation of the accompanying financial statements follows. (a) Organization EQUIDYNE SYSTEMS, INC. (the "Company") was organized under the laws of the state of California on August 11, 1993. The Company is designing and developing a low-cost, needle-free drug injection system. The Company is in the development stage. (b) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates. (c) Depreciation Fixed assets are depreciated on a straight-line basis over estimated useful lives ranging from three to seven years. (d) Intangibles Costs associated with patents and intellectual property are amortized on a straight line basis over the estimated useful lives of five to seventeen years. (e) Research and The Company is actively engaged in development new product development efforts. Research and development costs relating to possible future products are expensed as incurred. Total expense was approximately $2,600, $111,600, and $669,300 for 1997, 1996 and for the period from inception through December 31, 1997, respectively. (f) Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to differences between the basis of fixed assets for financial and income tax reporting. Deferred taxes also are recognized for any operating losses that are available to offset future taxable income and any tax credits that are available to offset future federal and state income taxes. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. 2. FIXED ASSETS Fixed assets consisted of the following: December 31, 1997 1996 ---- ---- Tools, molds $ -- $ 15,300 Furniture and fixtures 700 -- Less accumulated depreciation (100) (10,700) ----- -------- $ 600 $ 4,600 ===== ======== 15 Depreciation expense was $10,700 for the period from inception through December 31, 1997, respectively. 3. NOTES PAYABLE-- RELATED PARTIES Notes payable -- related parties consisted of the following: December 31, 1997 1996 ---- ---- Demand note payable to a shareholder non-interest bearing. $50,000 $50,000 Convertible demand note payable to a shareholder with interest at prime (8% at December 31, 1997) 25,000 25,000 Note payable to a shareholder, non-interest bearing. Due in monthly install- ments of $1,000 from April 1996 until paid in full. Subject to a $100 fee for each late payment 18,200 17,800 Demand note payable to a shareholder with interest at 12%. Con- vertible at the holders option to a like value of preferred Series A shares. 5,000 5,000 ------- ------- $98,200 $97,800 ======= ======= 4. PREFERRED STOCK The Company has authorized 12,000,000 shares of no par convertible preferred stock, of which 795,500 shares of Series A and 14,800 shares of Series B were issued and outstanding at December 31, 1997. Each preferred Series A share is convertible into one common share and each share of Series B is convertible into ten common shares at the option of the holder or will be automatically converted upon certain conditions. Holders of preferred shares have the right to one vote for each share of common stock into which such preferred stock can be converted, and with the same voting rights as common stock. In the event of a voluntary or involuntary liquidation or dissolution of the Company, the holders of preferred shares shall be entitled to receive an amount equal to their initial investment. If the assets of the Company are insufficient to permit the payment in full, then the entire assets of the Company shall be distributed ratably among the holders of preferred shares. 5. COMMITMENTS (a) Leases The Company leases operating facilities on a month-to-month basis. Rent expense included in the statements of operations was approximately $3,200, $20,600, and $100,000 for 1997, 1996 and from the period of inception through December 31, 1997, respectively. (b) Litigation A lawsuit was filed during May 1996 by a former board member and officer against the Company alleging breach of an employment contract. The ultimate resolution of this issue is not ascertainable at this time. No provision has been made in the financial statements related to this claim. 16 6. INCOME TAXES The Company had a deferred tax asset for the deductible temporary differences related to net operating loss carryforwards of $450,000 and $430,000 at December 31, 1997 and 1996. Because management was unable to determine if, more likely than not, the Company will realize the deferred tax asset related to the net operating loss carryforwards, a valuation allowance of $450,000 and $430,000 was provided for these deferred tax assets as of December 31, 1997 and 1996. At December 31, 1997, the Company had federal and state net operating loss (NOL) carryforwards of approximately $1,120,000. These NOL's begin to expire in 1998. 7. SUBSEQUENT EVENTS (a) Merger Subsequent to December 31, 1997, the Company entered into merger negotiations with American Electromedics Corp. The merger period began March 28, 1998 and was finalized May 11, 1998. Under the terms of the merger agreement, American Electromedics Corp. exchanged 600,000 shares of its common stock for 100% of the Company's outstanding shares, after conversion of the preferred stock to common stock, in a tax-free exchange. After the merger, the Company is a wholly-owned subsidiary of American Electromedics. At May 11, 1998, American Electromedics common stock has been issued for 90% of the Company's common stock. The remaining 10% will be issued, at American Electromedics' option, from an escrow account within five months of the final merger date. The agreement calls for all shares to be registered, on a best efforts basis, within six months of the final merger date. (b) Stock bonus On March 27, 1998, 62,000 shares of the Company's common stock was issued to an officer to fulfill a bonus incentive agreement initiating the merger between the Company and American Electromedics Corp. Under the terms of the agreement, shares were to be awarded if the officer attracted a cash investment into the Company. However, the Company's Board of Directors voted to award 62,000 shares, acknowledging that the merger with American Electromedics represented an increase in shareholder value to the Company's shareholders, even though it was not a direct cash investment. The 62,000 shares, at the time of the merger and under the stock swap merger terms, were valued at $101,455. (c) Litigation During July 1998, a former officer of the Company filed a lawsuit against the Company and four former directors for breach of an employment contract. The ultimate resolution of this issue is not ascertainable at this time. (d) Related party loans Subsequent to December 31, 1997, American Electromedics Corp. began loaning the Company funds for ongoing research and development efforts and for general and administrative costs. The balance outstanding is approximately $525,000 as of August 11, 1998. 17 (a)(iii) Financial Statements of Rosch GmbH Medizintechnik. ROSCH GMBH MEDIZINTECHNIK BALANCE SHEET (VALUES IN DEUTSCHE MARKS) JULY 31, 1997 ------------- ASSETS ------ Current assets: Cash & cash equivalents 114,428.91 DM Accounts receivable 1,788,777.45 Inventories 1,807,507.00 ------------ Total current assets 3,710,713.36 Property and equipment, net 387,889.61 Other assets 764,861.72 ------------ Total assets 4,863,464.69 DM ============ LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- Current liabilities: Accounts payable 2,380,915.40 DM Accrued liabilities 238,159.63 Other liabilities 483,874.86 ------------ Total current liabilities 3,102,949.89 Long term debt 1,353,483.00 Stockholders' Equity: Capital stock 50,000.00 Retained earnings 357,031.80 ------------ Total stockholders' equity 407,031.80 Total liabilities and stockholders' equity 4,863,464.69 DM ============ 18 ROSCH GMBH MEDIZINTECHNIK STATEMENT OF OPERATIONS (VALUES IN DEUTSCHE MARKS) SEVEN MONTHS ENDED JULY 31, 1997 ------------------ Net sales 4,720,424.91 DM Cost of goods sold 3,111,813.11 ------------- Gross profit 1,608,611.80 Selling, general and administrative 1,615,716.51 ------------- Total operating expense 1,615,716.51 Loss before taxes and interest (7,104.71) Interest, net (71,510.73) Other income 97,624.57 ------------- Earnings after taxes and interest 19,009.13 DM ============== 19 Audit Report Rosch GmbH Medizintechnik Berlin, Germany I have examined the Annual Report, the Accounts and the Administration by the General Manager for the period January 01, 1997 to July 31, 1997. The examination was carried out in accordance with generally accepted accounting standards. The Annual Report has been carried out in compliance with the German Commercial Code (HGB) and the prevailing laws set out by the German Tax Authorities. I recommend that the Income Statement and the Balance Sheet be adopted that the earnings be disposed of as proposed in the Report of the General Manager that the General Manager be discharged from liability for the fiscal year January 01, 1997 to July 31, 1997. Dessau, Germany, September 09, 1998 Wilhelm T. J. Hagen [Seal of Wilhelm T. J. Hagen] 20 ROSCH GMBH MEDIZINTECHNIK BALANCE SHEET (VALUES IN DEUTSCHE MARKS) DECEMBER 31, 1996 ------------ ASSETS ------ Current assets: Cash & cash equivalents 56,616.87 DM Accounts receivable 976,370.08 Inventories 1,240,317.16 ------------ Total current assets 2,273,304.11 Property and equipment, net 382,043.00 Prepaid and other current assets 205,488.20 ------------ Total assets 2,860,835.31 DM ============ LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- Current liabilities: Accounts payable 929,165.61 DM Accrued liabilities 413,013.31 Other liabilities 32,700.00 ------------ Total current liabilities 1,374,878.92 Long term debt 843,864.60 Stockholders' Equity: Capital stock 50,000,000 Shareholder credit 254,069.12 Retained earnings 338,022.67 ------------ Total stockholders' equity 642,091.79 Total liabilities and stockholders' equity 2,860,835.31 DM ============ 21 ROSCH GMBH MEDIZINTECHNIK STATEMENT OF OPERATIONS (VALUES IN DEUTSCHE MARKS) TWELVE MONTHS ENDED DECEMBER 31, 1996 ------------------- Net sales 4,162,584.78 DM Cost of goods sold 2,935,361.67 ------------ Gross profit 1,227,223.11 Selling, general and administrative 1,120,898.92 ------------ Total operating expense 1,120,898.92 Earnings before interest and taxes 106,324.19 Interest, net (38,518.14) Other expense (10,849.55) Taxes (30,402.45) ------------ ------------ Earnings after taxes and interest 26,554.05 DM ============ 22 Audit Report Rosch GmbH Medizintechnik Berlin, Germany I have examined the Annual Report, the Accounts and the Administration by the General Manager for the period January 01, 1996 to December 31, 1996. The examination was carried out in accordance with generally accepted accounting standards. The Annual Report has been carried out in compliance with the German Commercial Code (HGB) and the prevailing laws set out by the German Tax Authorities. I recommend that the Income Statement and the Balance Sheet be adopted that the earnings be disposed of as proposed in the Report of the General Manager that the General Manager be discharged from liability for the fiscal year January 01, 1996 to December 31, 1996. Dessau, Germany, September 09, 1998 Wilhelm T. J. Hagen [Seal of Wilhelm T. J. Hagen] 23 (b) Pro forma Financial Statements (Company, Rosch GmbH Medizintechnik, Equidyne Systems, Incorporated and Dynamic Dental Systems, Inc.) PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined condensed balance sheet as of April 30, 1998 and the unaudited combined condensed statements of earnings for the nine months ended April 30, 1998 and year ended July 31, 1997 for the following companies: American Electromedics Corp., Equidyne Systems, Inc., Dynamic Dental Systems, Inc. and Rosch GmbH Medizintechnik. The pro forma combined condensed statements are presented under the purchase method of accounting for business combinations. The purchase method of accounting requires that all assets and liabilities be adjusted to their estimated fair market value as of the date of acquisition. The pro forma statements are provided for informational purposes only. The pro forma combined condensed statements of earnings are not necessarily indicative of actual results that would have been achieved had the acquisition been consummated at the beginning of the periods presented, and is not indicative of future results. The pro forma financial statements should be read in conjunction with the audited financial statements and the notes thereto of Equidyne Systems, Inc., Dynamic Dental Systems, Inc. and Rosch GmbH and the Company. 24 PRO FORMA COMBINED CONDENSED BALANCE SHEET APRIL 30, 1998 (UNAUDITED) (THOUSANDS) PRO FORMA AMERICAN PRO FORMA PRO FORMA ELECTROMEDICS(1) ADJUSTMENTS COMBINED ------------------- ----------- --------- ASSETS Current Assets: Cash and cash equivalents . . . $ 147 (3)$(139) $ 8 Accounts receivable 1,328 -- 1,328 Inventories . . . . 1,944 -- 1,944 Other current assets . . . . . 705 -- 705 ------- ----- ------- Total current assets . . . $ 4,124 $(139) $ 3,985 Depreciable assets, net . . . . . . . 438 -- 438 Intangible assets, net . . . . . . . 5,154 (2)(134) 5,020 Investment in affiliate . . . . 311 -- 311 Other . . . . . . . 901 -- 901 ------- ----- ------- Total assets $10,928 $(273) $10,655 ======= ===== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable . $ 1,187 -- $ 1,187 Bank line of credit 300 -- 300 Accrued liabilities 412 -- 412 Current portion of long-term debt . 167 -- 167 ------- ----- ------- Total current liabilities . 2,066 -- 2,066 Long-term debt . . 1,785 (2)(145) 1,640 Other liabilities . 12 -- 12 Stockholders' Equity: Common stock . . . 712 -- 712 Additional paid-in capital . . . . . 9,691 -- 9,691 Retained deficit . (3,242) (2,3)(128) (3,370) Foreign currency translation adjustment . . . (96) -- (96) ------ ----- ------- Total stockholders' equity . . . 7,065 (128) 6,937 ------ ----- ------- Total liabilities and stockholders' equity . . . $10,928 $(273) $10,655 ======= ===== ======= See accompanying notes. 25 PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS NINE MONTHS ENDED APRIL 30, 1998 (UNAUDITED) (THOUSANDS, EXCEPT PER SHARE AMOUNTS) PRO FORMA AMERICAN PRO FORMA PRO FORMA ELECTROMEDICS(1) ADJUSTMENT COMBINED ------------------ ---------- --------- Net sales . . . . . $ 7,040 $ -- $ 7,040 Cost of goods sold 4,210 -- 4,210 --------- --------- 2,830 2,830 Operating expense . 3,493 -- 3,493 Amortization of tangibles . . . . . 229 (2) 73 302 Operating loss . . (892) (73) (965) Other income (expenses) . . . . (33) (3) 6 (27) --------- ------- --------- Loss before provisions for income taxes . . . (925) (67) (992) Provision for income taxes . . . . . . . (24) -- (24) --------- ------- --------- Net loss . . . . . $ (949) $(67) $ (1,016) ========= ======= ========= Loss per share: Basic . . . . . . . $ (.14) -- $ (.15) ========= ========= Diluted . . . . . . $ (.14) -- $ (.15) ========= ========== Shares used to compute per share amounts: Basic . . . . . . . 7,118,136 -- 7,118,136 ========= ========= Diluted . . . . . . 7,118,136 -- 7,118,136 ========= ========= See accompanying notes. 26 PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (1) YEAR ENDED JULY 31, 1997 (UNAUDITED) (THOUSANDS, EXCEPT PER SHARE AMOUNTS) PRO FORMA AMERICAN PRO FORMA PRO FORMA ELECTROMEDICS(1) ADJUSTMENT COMBINED ---------------- ---------- --------- Net sales . . . . . . $ 6,176 $ -- $ 6,176 Cost of goods sold . 3,758 -- 3,758 --------- --------- 2,418 2,418 Operating expense . . 3,141 -- 3,141 Amortization of tangibles . . . . . 50 (5) 206 256 --------- ------- --------- Operating loss . . . (773) (206) (979) Other income (expenses) . . . . . (417) (3) (3) (414) --------- ------- --------- Loss before provision for income taxes . . (1,190) (203) (1,393) Provision for income taxes . . . . . . . (27) -- (27) --------- ------- --------- Net loss . . . . . . $(1,217) (203) $ (1,420) ========= ======== ========= Loss per share: Basic . . . . . . . . $ (.31) -- $ (.36) ========= -------- ========= Diluted . . . . . . . $ (.31) -- $ (.36) ========= ========= Shares used to compute per share amounts: Basic . . . . . . . . 4,008,136 -- 4,008,136 ========= ========= Diluted . . . . . . . 4,008,136 -- 4,008,136 ========= ========= Notes to Pro Forma Condensed Financial Statements (1) Pro forma numbers for American Electromedics column include the following companies: American Electromedics Corp., Rosch GmbH Medizintechnik, Equidyne Systems, Inc. and Dynamic Dental Systems, Inc. These combined numbers are represented as though Equidyne, Dynamic and Rosch were acquired as of August 1, 1996. (2) Amortized nine months of goodwill for investment in affiliates with the assumption that subsidiaries were owned at August 1, 1996. (3) Write off notes payable on Equidyne Systems, Inc., assuming debt was fully paid when acquired on August 1, 1996. (4) Dynamic Dental Systems date of inception was January 1, 1997. Seven months activity reflected. (5) Amortized twelve months of goodwill for investment in affiliates with the assumption that subsidiaries were owned at August 1, 1996. 27 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined condensed balance sheet as of October 31, 1997 and the unaudited combined condensed statements of earnings for the three months ended October 31, 1997 and year ended July 31, 1997 for the following companies: American Electromedics Corp. and Rosch GmbH Medizintechnik. The pro forma combined condensed statements are presented under the purchase method of accounting for business combinations. The purchase method of accounting requires that all assets and liabilities be adjusted to their estimated fair market value as of the date of acquisition. The pro forma statements are provided for informational purposes only. The pro forma combined condensed statements of earnings are not necessarily indicative of actual results that would have been achieved had the acquisition been consummated at the beginning of the periods presented, and is not indicative of future results. The pro forma financial statements should be read in conjunction with the audited financial statements and the notes thereto of Rosch GmbH and the Company 28 PRO FORMA COMBINED CONDENSED BALANCE SHEET OCTOBER 31, 1997 (UNAUDITED) (THOUSANDS) Pro Forma American Pro Forma Pro Forma Electromedics (1) Adjustments Combined ----------------- ----------- --------- ASSETS Current Assets: Cash and cash equivalents . . $ 239 $ - $ 239 Accounts receivable . . . 1,291 - 1,291 Inventories . . . 1,471 - 1,471 Other current assets . . . . . 163 - 163 ------- ------- ------- Total current assets . . . 3,164 - 3,164 Depreciable assets, net . . 263 - 263 Intangible assets, net . . . . . . 871 (2) (7) 874 Other . . . . . . 532 - 532 ------- ------- ------- Total assets . $ 4,830 $ (7) $ 4,823 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,014 $ - $ 1,014 Bank line of credit . . . . . 300 - 300 Accrued liabilities . . 514 - 514 Current portion of long-term debt . 152 - 152 ------- ------- ------- Total current liabilities . 1,980 - 1,980 Long-term debt . 1,590 - 1,590 Other liabilities - - - Stockholders' equity: Preferred stock, $ .01 par value; Authorized - 1,000,000 shares; Outstanding - none . . . . . . - - - Common stock, $ .10 par value; Authorized - 20,000,00 Outstanding - 2,658,136 . . . 266 - 266 Additional paid-in capital . . . . 3,013 - 3,013 Retained deficit (2,009) (2) (7) (2,016) Foreign translation adjustment . . . (10) - (10) ------- ------- ------- Total stockholders' equity . . . 1,260 (7) 1,253 ------- ------- ------- Total liabilities and stockholders' equity . . . . . $ 4,830 $ (7) $ 4,823 ======= ======= ======= See accompanying notes. 29 PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1997 (UNAUDITED) (THOUSANDS, EXCEPT PER SHARE AMOUNTS) Pro Forma American Pro Forma Pro Forma Electromedics(1) Adjustments Combined ---------------- ----------- --------- Net sales . . . . . $ (5,847) $ - $ 5,847 Cost of goods sold 3,340 - 3,340 --------- ------ -------- 2,507 - 2,507 Operating expense . 3,032 - 3,032 Amortization of intangibles . . . 50 (2) 27 77 Operating income (loss) . . . . . . (575) 0 (602) Other income (expenses) . . . . (418) - (418) --------- ------ -------- Loss before provision for income taxes . . . (993) (27) (1,020) Provisions for income taxes . . . (26) - (26) --------- ------ -------- Net loss . . . . . $ (1,019) $(27) $ (1,046) ========= ====== ======== Loss per share: Basic . . . . . . . $ (.39) $ (.40) ========= - ======== Diluted . . . . . . $ (.39) $ (.40) ========= - ======== Shares used to compute per share amounts: Basic . . . . . . . 2,658,136 2,658,136 ========= - ========= Diluted . . . . . . 2,658,136 2,658,136 ========= - ========= See accompanying notes 30 PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS THREE MONTHS ENDED OCTOBER 31, 1997 (UNAUDITED) (THOUSANDS, EXCEPT PER SHARE AMOUNTS) Pro Forma American Pro Forma Pro Forma Electromedics(1) Adjustments Combined ---------------- ----------- --------- Net sales . . . $ 1,830 $ - $ 1,830 Cost of goods sold . . . . . 1,058 - 1,058 --------- ------- --------- 772 - 772 Operating expense . . . 687 - 687 Amortization of intangibles . 16 (2) 7 23 Operating income . . . 69 0 62 Other income (expenses) . . (4) - (4) --------- ------- --------- Income before provision for income taxes . 65 (7) 58 Provisions for income taxes . - - --------- ------- - Net income . . $ 65 (2) (7) $ 58 ========= ======= ========= Earnings per share: Basic . . . . . $ .03 $ .03 ========= - ========= Diluted . . . . $ .03 $ .03 ========= - ========= Shares used to compute per share amounts: Basic . . . . . 2,658,136 2,658,136 ========= - ========= Diluted . . . . 2,658,136 2,658,136 ========= - ========= Notes to Pro Forma Condensed Financial Statements (1) Pro forma numbers for American Electromedics column include the following companies: American Electromedics Corp. and Rosch GmbH Medizintechnik. These combined numbers are represented as though Rosch GmbH was acquired on August 1, 1996. (2) Amortized three months of goodwill for investment in affiliate with the assumption that the subsidiary was owned at August 1, 1996. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. American Electromedics Corp. --------------------------- (Registrant) By:/s/ Michael T. Pieniazek --------------------------- Michael T. Pieniazek President September 9, 1998 -----END PRIVACY-ENHANCED MESSAGE-----