-----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, OoDIw8US6rvsc3k01YS27+23znclWe8RfKfDPk7v79kHgSBYJlFjLl9G8uf40dvF Z5IdAvhWzlmagTVkn0vbfg== 0000950120-99-000076.txt : 19990301 0000950120-99-000076.hdr.sgml : 19990301 ACCESSION NUMBER: 0000950120-99-000076 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990226 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: 99551724 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. 1 TO FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A1 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, 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 5, AMHERST, NEW HAMPSHIRE 03031 -------------------------------------------------------- (Address and Zip Code of Principal Executive Offices) Issuer's telephone number, including area code: 603-880-6300 ------------ Securities registered pursuant to Section 12(b) of the Exchange Act: NONE ---- Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.10 PER SHARE --------------------------------------- (Title of Class) Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO -- -- As of December 13, 1998, there were outstanding 7,071,136 shares of the Issuer's Common Stock, $.10 par value. AMERICAN ELECTROMEDICS CORP. Index ----- Page ---- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets, October 31, 1998 and July 31, 1997 . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations for the Three Months Ended October 31, 1998 and October 31, 1997 . . 4 Consolidated Statements of Cash Flows for the Three Months Ended October 31, 1998 and October 31, 1997 . . 5 Notes to Consolidated Financial Statements . . . . . . . 6 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 10 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 11 -2- PART I - FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, JULY 31, 1998 1998 ----------- ------- (Unaudited) (Thousands) ASSETS Current Assets: Cash and cash equivalents ................. 181 $ 396 Accounts receivable ....................... 1,454 1,169 Inventories ............................... 2,346 1,951 Prepaid and other current assets .......... 342 223 ------- ------- Total current assets .................... 4,323 3,739 Property and equipment .................... 838 794 Accumulated depreciation .................. (451) (436) ------- ------- 387 358 Goodwill .................................. 4,240 4,298 Patents ................................... 2,984 3,027 Other ..................................... 27 36 ------- ------- $11,961 $11,458 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .......................... $ 1,877 $ 1,118 Bank debt ................................. 1,791 1,033 Accrued liabilities ....................... 538 723 Dividends payable ......................... 189 72 ------- ------- Total current liabilities ............... 4,395 2,946 Stockholders' equity: Series A Convertible Preferred stock, $.01 par value; Authorized - 1,000,000 shares; Outstanding - 3,000 shares ................ 2,387 2,387 Common stock, $.10 par value; Authorized - 20,000,000 shares; Outstanding - 7,071,136 shares at October 31, 1998 and 7,058,136 shares at July 31, 1998 .................... 707 705 Additional paid-in capital ................ 12,460 12,643 Retained deficit .......................... (6,966) (5,680) Accumulated other comprehensive loss (161) (249) ------- ------- 8,427 9,806 Deferred compensation ..................... (861) (1,294) ------- ------ Total stockholders' equity .............. 7,566 8,512 ------- ------- $11,961 $11,458 ======= ======= SEE ACCOMPANYING NOTES. -3- AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED ------------------ OCTOBER 31, OCTOBER 31, 1998 1997 ----------- ---------- (Thousands, except per share amounts) Net sales ............................... $ 2,150 $ 1,830 Cost of goods sold ...................... 1,263 1,058 --------- ------- Gross profit ............................ 887 772 Selling, general and administrative ..... 1,922 687 Research and development ................ 128 -- ---------- ------- Total operating expenses .............. 2,050 687 ---------- -------- Operating income (loss) ................. (1,163) 85 Other income (expenses): Interest, net ......................... (17) (78) Minority interest in affiliate ........ -- (85) Other ................................. (106) 58 ----------- -------- (123) (105) Loss before provision for income taxes .. (1,286) (20) ----------- ----------- Net loss ................................ $ (1,286) $ (20) =========== =========== Net loss attributable to common stockholders* ......................... $ (1,403) $ (20) =========== =========== Weighted average number of common and common equivalent shares outstanding .. 7,064,636 2,553,136 ========== ========== Net loss per share, basic and diluted $ (.20) $ (.01) ========== ========== See accompanying notes. * The quarter ended October 31, 1998 includes the impact of $117,000 of dividends on Preferred Stock. -4- AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED OCTOBER 31, OCTOBER 31, 1998 1997 -------------------------- (THOUSANDS) OPERATING ACTIVITIES: Net loss ........................................$ (1,286) $ (20) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ................. 132 49 Deferred compensation amortization ............ 432 -- Minority interest in affiliate ................ - 85 Other ......................................... - 62 Changes in operating assets and liabilities: Accounts receivable .......................... (206) 187 Inventories, prepaid and other current assets. (402) (88) Accounts payable and accrued liabilities ..... 532 (385) ------- ------ Net cash used in operating activities .......... (798) (110) INVESTING ACTIVITIES: Purchase of property and equipment, net .......... (36) (13) ------- ------- Net cash used in investing activities ............ (36) (13) FINANCING ACTIVITIES: Principal payments on long-term debt ............. - (62) Net proceeds from bank debt ...................... 682 -- Issuance of common stock, net .................... (79) -- Proceeds from exercise of stock options .......... 15 -- ------- ------- Net cash provided by (used in) financing activities. 618 (62) ------- ------- Effect of exchange rate changes on cash and cash equivalents ...................................... 1 3 ------- ------- Decrease in cash and cash equivalents ............ (215) (182) Cash and cash equivalents, beginning of period ... 396 471 ------- ------- Cash and cash equivalents, end of period .........$ 181 $ 289 ======== ======== See accompanying notes. -5- AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1998 (Unaudited) 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended October 31, 1998 are not necessarily indicative of the results that may be expected for the year ending July 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended July 31, 1998. Foreign Currency Translation The financial statements of the Company's foreign subsidiary have been translated into U.S. dollars in accordance with Statement of Financial 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, 1998 have been reported separately as a component of stockholders equity. The aggregate transaction gains and losses are insignificant. New Accounting Pronouncements Effective August 1, the Company adopted Statement of Financial Accounting Standard No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes new rules for the reporting and display of comprehensive income or loss and its components, however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. For the three months ended October 31, 1998, the Company's only item of other comprehensive income was the foreign currency translation adjustment recognized in consolidation of its wholly-owned German subsidiary, Rosch GmbH. SFAS 130 requires such adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. The foreign currency translation adjustment and comprehensive loss for the three months ended October 31, 1998 was $88,000 and ($1,198,000), respectively. As of October 31, 1998, the cumulative translation adjustment and accumulated other comprehensive loss was ($161,000). 2. DEBT ---- In September 1998, the Company entered into a $500,000 line of credit with Guardian Financial Services, Inc. (owned by an officer of the Company). This line of credit bears an interest rate of 10% per annum. As of October 31, 1998, $75,000 was outstanding under this line of credit, which is collateralized -6- essentially by all of the assets of the Company including an assignment of patents and trademarks. In September 1998, the Company also entered into a Term Loan in an amount of $600,000 due on November 25, 1998. Interest is 10% per annum, and as of October 31, 1998, there was $600,000 outstanding under this loan, which is collateralized by essentially all of the assets of the Company. 3. ACQUISITIONS ------------ On April 30, 1998, the Company acquired all of the issued and outstanding capital stock of Dynamic Dental Systems, Inc. ("DDS"), pursuant to an Agreement and Plan of Merger, whereby DDS became a wholly-owned subsidiary of the Company. DDS was founded in 1997 and is a distributor of digital operator hardware, cosmetic-imaging software, intraoral dental camera systems and digital x-ray equipment. The total cost of acquisition was approximately $3.2 million consisting primarily of 750,000 shares of the Company's Common Stock, valued at an aggregate price of $3,000,000 and $225,000 in cash. The purchase price exceeded the fair value of net assets acquired by approximately $3.4 million, which is being amortized on a straight-line basis over 15 years. The acquisition has been accounted for as a purchase and, accordingly, the operating results of DDS have been included in the Company's consolidated financial statements since the date of acquisition. On May 12, 1998, the Company acquired Equidyne Systems, Inc. ("ESI"). ESI was founded in 1990 and is engaged in the development of the INJEX(TM) needle-free drug injection delivery system, which is designated to eliminate the risks of contaminated needle stick accidents and the resulting cross contamination of hepatitis, HIV, and other diseases. The total cost of acquisition was approximately $2.6 million consisting of 600,000 shares of the Company's Common Stock. The acquisition has been accounted for as a purchase and, accordingly, the operating results of ESI have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $3.0 million, which has been allocated to patents, is being amortized over 15 years, the remaining life of the patent. The following unaudited proforma consolidated financial results of operations for the quarter ended October 31, 1997 assume the acquisitions of DDS and ESI occurred as of August 1, 1997. Net sales . . . . . . . . . . $2,228,000 Net loss . . . . . . . . . . (185,000) Loss per share; basic and diluted . . . . . . . . . . . (.05) 4. YEAR 2000 --------- The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on recent assessments, the Company determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently -7- believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completely timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. To date, the Company has substantially completed its assessment of all systems that could be significantly affected by the Year 2000. The assessment indicated that most of the Company's significant information technology systems will be affected, including its financial information system which includes its general ledger, accounts payable, billing and inventory systems. The assessment was also undertaken on the Company's products, which are also at risk, as they utilize software and hardware (embedded chips) as well. However, based on its review of its product line, the Company has determined that most of the products it has sold and will continue to sell do not require remediation to be Year 2000 compliant. Accordingly, the Company does not believe that the Year 2000 presents a material exposure as it relates to the Company's products. The Company's manufacturing processes consist principally of unautomated assembly of components manufactured by outside third-parties. The Company has begun to gather information about the Year 2000 compliance status of its significant suppliers, and will take appropriate steps to monitor their compliance on an ongoing basis. Regarding its information technology exposures, the Company utilizes an unmodified off-the-shelf software package, which is not year 2000 compliant. The Company has confirmed with its software vendor that a year 2000-compliant upgrade is readily available and anticipates purchasing this upgrade during its third fiscal quarter, which ends on April 30, 1999. The upgrade would provide full year 2000 compliance with respect to its financial information systems, and as the new software will also be an unmodified off-the-shelf package, testing to ensure Year 2000 compliance will not be necessary. Implementation will take place as early as possible following the purchase of the system, and is expected to be completed no later than June 30, 1999. The Company does not presently maintain direct interfaces with any third-party vendors. The Company has made various queries of its significant suppliers that do not share information systems with the Company (external agents). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of assuring that external agents will be Year 2000 ready. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. The total cost of the Company's Year 2000 project is estimated at $25,000, which will be funded through operating cash flows. To date, the Company has not incurred any direct costs related to its Year 2000 project. The project costs will consist principally of the cost of new software, which will be capitalized. Management of the Company believes it has an effective plan in place to resolve the Year 2000 Issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of its Year 2000 project. In the event that the Company does not complete any additional phases, the Company could be unable to take customer orders, manufacture and ship products, invoice customers or collect payments. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. -8- The Company currently has no contingency plans in place in the event it does not complete all phases of its Year 2000 project. The Company plans to evaluate the status of completion in June 1999 and determine whether such a plan is necessary. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF ----------------------------------------------- OPERATION RESULTS OF OPERATIONS ------------------------------- Net sales for the three month period ended October 31, 1998 were $2,150,000, compared to $1,830,000 for the three month period ended October 31, 1997. The increase in sales in fiscal 1999 was attributable to incremental sales of the intraoral dental camera system by the Company's new acquisition, Dynamic Dental Systems, Inc. Cost of sales for the three month periods ended October 31, 1998 and October 31, 1997 were 58.7% and 57.8% of net sales, respectively. Selling, general and administrative expenses for the three month period ended October 31, 1998 were $1,922,000, compared to $687,000 for the comparable prior year period. The increase reflects increased marketing and promotional activity and increased corporate activity as a result of aggressive corporate development activity and retention of senior level executives. The increase also includes $432,000 of amortization of deferred compensation recognized in connection with the acquisition of DDS and ESI. Net loss for the three month period ended October 31, 1998 was $1,286,000, compared to a net loss of $20,000, for the same period in the prior fiscal year. The increase in net loss is the result of increased sales offset by higher selling general and administrative costs. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Working capital of the Company at October 31, 1998 was $(72,000), compared to $793,000 at fiscal year ended July 31, 1998. The decrease of $865,000 reflects primarily the net effect of operating losses. The Company has incurred net losses of $3,674,000 for the year ended July 31, 1998 and $1,286,000 for the three month period ended October 31, 1998. This and other factors, such as working capital needed for the Company's operations, requires additional funding beyond that which the Company currently has available. The Company therefore will need to immediately raise additional capital. The Company is seeking additional capital through equity and/or debt placements or secured financing; however, no assurance can be given that such financing arrangements would be successfully completed immediately and, if so, on terms not dilutive to existing stockholders. As a result of the foregoing, substantial doubt exists about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. -9- PART II. - OTHER INFORMATION ----------------- 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, 1998. Exhibits - None. -10- 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/Michael T. Pieniazek Dated: February 25, 1999 ------------------------ Michael T. Pieniazek President and Chief Financial Officer -11- -----END PRIVACY-ENHANCED MESSAGE-----