0000950134-95-002023.txt : 19950816 0000950134-95-002023.hdr.sgml : 19950816 ACCESSION NUMBER: 0000950134-95-002023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MEDICAL ELECTRONICS INC CENTRAL INDEX KEY: 0000715247 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411428758 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11758 FILM NUMBER: 95563931 BUSINESS ADDRESS: STREET 1: 250 E ARAPAHO RD CITY: RICHARDSON STATE: TX ZIP: 75081 BUSINESS PHONE: 2149188300 MAIL ADDRESS: STREET 1: 250 E ARAPAHO ROAD CITY: RICHARDSON STATE: TX ZIP: 75081 10-Q 1 FORM 10-Q PERIOD END JUNE 30, 1995 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1995. or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________. Commission file number: 0-11758 American Medical Electronics, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-1428758 ---------------------------------- ----------------------- (State or other jurisdiction of (IRS Employer I.D. No.) incorporation or organization) 250 E. Arapaho Road, Richardson, TX 75081 ------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 918-8300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 11, 1995 --------------------------- ------------------------------ Common Stock - no par value 7,738,296 2 AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets
June 30, December 31, 1995 1994 ---------- ------------- (In thousands) (unaudited) (derived from audited financial statements) ASSETS Current Assets Cash and cash equivalents $ 2,365 $ 2,130 Marketable securities 14,617 13,758 Accounts receivable (net of allowance for doubtful accounts of $1,996 and $2,434 in 1995 and 1994, respectively) 7,647 9,442 Deferred taxes 3,271 4,020 Inventory 6,266 4,608 Prepaid expenses and other assets 1,501 1,464 ----------- ---------- Total Current Assets 35,667 35,422 Furniture and Equipment 9,558 8,060 Less allowance for depreciation and amortization (3,709) (3,170) ----------- ---------- 5,849 4,890 Intangibles and other noncurrent assets (net of amortization of $1,079 and $959 in 1995 and 1994, respectively) 1,591 1,669 ----------- ---------- $ 43,107 $ 41,981 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Note payable and current portion of long-term debt $ 550 $ 550 Accounts payable 465 1,154 Accrued expenses 5,015 3,513 ----------- ---------- Total Current Liabilities 6,030 5,217 Long-Term Debt 913 1,405 Deferred Taxes 545 487 Shareholders' Equity Preferred stock, no par value, none issued -- -- Common stock, 7,716 and 7,533 shares issued and outstanding in 1995 and 1994, respectively 34,072 33,849 Unrealized losses on marketable securities (net of taxes) (87) (666) Retained earnings 1,634 1,689 ----------- ---------- Total Shareholders' Equity 35,619 34,872 ----------- ---------- $ 43,107 $ 41,981 =========== ==========
See Notes to Consolidated Financial Statements 3 AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except per share amounts) REVENUES $ 8,331 $ 10,259 $ 16,454 $ 20,356 Cost of Revenue 2,550 2,431 4,887 4,784 ---------- ---------- ---------- ---------- Gross Profit 5,781 7,828 11,567 15,572 Expenses: Selling, general and administrative 5,244 5,365 10,326 10,955 Research and development 838 838 1,653 1,647 Non-recurring charge -- -- -- 991 ---------- ---------- ---------- ---------- Income (Loss) From Operations (301) 1,625 (412) 1,979 Other Income (Expenses): Loss on sales of marketable securities -- (9) -- (9) Interest income 207 158 401 329 Interest expense (43) -- (72) (3) ---------- ---------- ---------- ---------- Income (Loss) Before Income Taxes (137) 1,774 (83) 2,296 Provision (benefit) for income taxes (49) 604 (29) 781 ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (88) $ 1,170 $ (54) $ 1,515 ========== ========== ========== ========== NET INCOME (LOSS) PER SHARE $ (.01) $ .16 $ (.01) $ .21 ========== ========== ========== ========== Weighted Average Shares Outstanding for the Period 7,703 7,242 7,696 7,266
See Notes to Consolidated Financial Statements 4 AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1995 1994 ----------- ---------- (In thousands) OPERATING ACTIVITIES $ (54) $ 1,515 Net income (loss) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 715 615 Provision for losses on accounts receivable 1,009 1,621 Loss on sales of marketable securities 9 Tax benefit from stock option and warrant exercises 8 499 Deferred income taxes 528 (560) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 786 (3,892) (Increase) in inventory (1,658) (757) (Increase) in other assets (37) (338) Increase (decrease) in accounts payable (689) 170 Increase in accrued expenses 1,502 1,019 ------------- ------------- Net Cash Provided (Used) By Operating Activities 2,110 (99) INVESTING ACTIVITIES Proceeds from sale of marketable securities -- 3,034 Purchase of furniture and equipment (1,498) (1,357) Purchase of intangibles (42) (535) ------------- ------------- Net Cash Provided (Used) By Investing Activities (1,540) 1,142 FINANCING ACTIVITIES Principal payments on bank notes and notes payable (550) (131) Proceeds from sale on common stock 215 1,649 ------------- ------------- Net Cash Provided (Used) By Financing Activities (335) 1,518 ------------- ------------- INCREASE IN CASH AND CASH EQUIVALENTS 235 2,561 Cash and cash equivalents at beginning of period 2,130 1,037 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,365 $ 3,598 ============= =============
See Notes to Consolidated Financial Statements 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) AMERICAN MEDICAL ELECTRONICS, INC. AND SUBSIDIARIES For the Quarter Ended June 30, 1995 1. BASIS OF PRESENTATION The consolidated financial statements consist of the accounts of American Medical Electronics, Inc. and its wholly-owned subsidiaries (the "Company"). The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 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. Results of operations for the three and six month periods ended June 30, 1995, are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1994. 2. EARNINGS PER SHARE Earnings per share are computed by dividing the net income (loss) for the period by the weighted average number of common shares and, when dilutive, common equivalent shares outstanding during the period. 3. MARKETABLE SECURITIES The Company classifies its marketable securities as available-for-sale and, as of June 30, 1995, has approximately $9.1 million, $4.5 million, and $1.0 million invested in U.S. treasury notes, debt securities of U.S. corporations and obligations of U.S. government agencies, respectively. Unrealized losses on marketable securities, net of taxes, were approximately $87,000 and $666,000 in 1995 and 1994, respectively. 4. INVENTORY Inventory consisted of the following (in thousands):
June 30, December 31, 1995 1994 -------- ------------ Raw materials $ 924 $ 1,163 Work-in-process 760 988 Finished goods 2,689 748 Field inventory 5,090 3,644 ------------- -------- 9,463 6,543 Less reserve for refurbishment, obsolescence and lost field units (3,197) (1,935) ------------- -------- $ 6,266 $ 4,608 ============= ========
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued 5. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consisted of the following (in thousands):
June 30, December 31, 1995 1994 ------- --------- Long-term obligations, net of unamortized discount of $487 and $595 in 1995 and 1994, respectively $ 1,463 $ 1,955 Less current maturities (550) (550) --------- -------- $ 913 $ 1,405 ========= ========
No interest was paid in the six months ended June 30, 1995. Interest paid in the six months ended June 30, 1994 was approximately $3,000. 6. NON-RECURRING CHARGE In the first quarter of 1994, the Company recorded a pretax charge of $991,000 related to an employment contract dispute with its former president and chief executive officer. 7. ACQUISITIONS In December 1994, the Company acquired all of the outstanding common stock of Osteogenics, Inc., a development stage company that holds an exclusive license from the American Dental Association Health Foundation for technology to develop patented calcium phosphate formulations. The Company is currently seeking FDA clearance to use the formulations for bone substitute applications. The acquisition was accounted for using the purchase accounting method and generated a one-time charge to earnings for the purchased research and development of approximately $6.4 million in the fourth quarter of 1994. Payment of the future consideration that is contingent on the attainment of certain milestones would result in the Company recording goodwill. On May 8, 1995 the Company announced it had signed a definitive agreement whereby Orthofix International N.V. (Orthofix) would acquire all the outstanding stock of the Company for $10 per share, to be paid in a combination of cash and Orthofix stock. In addition, the Company's shareholders will receive the right to a pro-rata portion of contingent payments of up to $18 million, if certain revenues or earnings targets are met prior to December 31, 1997. This acquisition is subject to approval by the shareholders of both companies and other customary closing conditions. The boards of directors of both companies have approved the definitive agreement. Under the terms of the agreement, approximately 43% of the total consideration will be paid in Orthofix shares and the remainder will be paid in cash. The Company's shareholders will be able to choose to receive either cash or stock, subject to pro-ration in certain circumstances. The Company also signed a one- year distribution agreement with Orthofix to distribute Orthofix products in the United States and Canada beginning June 1, 1995. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations REVENUES: Revenues for the three and six months ended June 30, 1995 decreased 19% compared to the same periods in 1994 due primarily to decreases of 21% and 22%, respectively, in unit rentals of the Company's pulsed electromagnetic field (PEMF) stimulation devices that were partially offset by increases of 4% in average realized prices. The Company believes revenues from rental of its PEMF devices were, and continue to be, impacted by more rigorous cost containment efforts by third-party payers, a decline in the growth rate of spine fusion procedures due to those efforts, caution related to the regulatory and legal environment surrounding certain aspects of spinal surgery and turnover in the Company's direct sales force during the fourth quarter of 1994. Revenues from the Company's discontinued fixation product line were approximately $186,000 and $469,000 for the three-month periods ended June 30, 1995 and 1994, respectively, and $553,000 and $1,010,000 for the six-month periods ended June 30, 1995 and 1994, respectively. The Company is seeking divestiture of this product line and expects revenues to continue to decrease. The Company began distributing Orthofix external fixation devices in June 1995 pursuant to a distribution agreement. See Note 7 of Notes to Consolidated Financial Statements. COST OF REVENUES: Cost of revenues, as a percentage of revenues, increased to 31% for the three-month period ended June 30, 1995 compared to 24% for the same period in 1994. Cost of revenues increased to 30% for the six months ended June 30, 1995 from 24% for the same period in 1994. These costs increased principally due to higher per unit refurbishment costs, lower production volumes, accelerated technological obsolescence expense and increased royalty expense related to sales of Ogden Anchor systems. As a result of the Orthofix distribution agreement described above, the Company's gross profit, as a percentage of revenues, is expected to decrease due to the lower gross margin of the Orthofix products compared to the Company's existing product lines. SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative expenses decreased 2% and 6% for the three-month and six-month periods ended June 30, 1995, respectively, compared to the same periods in 1994 due primarily to a reduction in costs directly related to revenues, such as allowance for doubtful accounts, commissions and promotional expenses. RESEARCH AND DEVELOPMENT: Research and development expenses for the three and six-month periods ended June 30, 1995 were essentially unchanged compared to the same periods in 1994. The Company expects to continue research and development at a level that will require expenditures of approximately 10% to 12% of revenues for the balance of 1995. INCOME TAXES: The income tax benefit, as a percentage of loss before income taxes, increased to approximately 36% for the three-months ended June 30, 1995 compared to a 34% tax provision, as a percentage of income before income taxes, for the same period in 1994. For the six months ended June 30, 1995, a 35% tax benefit was recorded versus a 34% tax provision, as a percentage of income before taxes, for the same period of 1994. 8 Liquidity and Capital Resources The Company's cash and marketable securities position at June 30, 1995, was approximately $17.0 million. For the remainder of 1995, the Company's primary source of funds is expected to be cash from operations. Cash from operations and the Company's cash and marketable securities are expected to meet anticipated cash needs for the Company's existing operations, including further research and development with respect to Osteogenics Inc.'s technology and commitments related to the distribution of Orthofix products. See Note 7 of Notes to Consolidated Financial Statements. As discussed in Note 7 of Notes to Consolidated Financial Statements, the Company has signed a definitive agreement to be acquired by Orthofix International N.V. subject to approval by the shareholders of both companies and other customary closing conditions. PART II-OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K During the quarter for which this report is filed, the Company filed a Current Report on Form 8-K dated May 12, 1995 reporting an Other Event pursuant to Item 5 of Form 8-K. 9 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 thereunto duly authorized. DATE August 14, 1995 American Medical Electronics, Inc. ---------------------------- ---------------------------------- (Registrant) /s/ Wesley E. Johnson, Jr ------------------------- Wesley E. Johnson, Jr. Vice President/Finance and Chief Financial Officer (Duly Authorized Officer) /s/ Wesley E. Johnson, Jr. -------------------------- Wesley E. Johnson, Jr. Vice President/Finance and Chief Financial Officer (Principal Financial Officer)
10 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 0000715247 AMERICAN MEDICAL ELECTRONICS, INC. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 2,365 14,617 7,647 1,996 6,266 35,667 9,558 3,709 43,107 6,030 913 34,072 0 0 1,547 43,107 0 16,454 4,887 4,887 11,979 0 72 (83) (29) (54) 0 0 0 (54) (.01) 0