SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
OCTOBER 31, 1998 0-9922
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AMERICAN ELECTROMEDICS CORP.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction of Incorporation (IRS Employer ID No.)
or Organization)
13 COLUMBIA DRIVE, SUITE 5, AMHERST, NEW HAMPSHIRE 03031
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(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
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(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
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, October 31, 1998 and
July 31, 1998..................................................... 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......... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 7
Item 6. Exhibits and Reports on Form 8-K.................................... 7
SIGNATURES................................................................. 8
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PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JULY 31,
1998 1998
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(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
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Total current assets ............................. 4,323 3,739
Property and equipment ............................. 838 794
Accumulated depreciation ........................... (451) (436)
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387 358
Goodwill ........................................... 4,240 4,298
Patents ............................................ 2,984 3,027
Other .............................................. 27 36
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$ 11,961 $ 11,458
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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
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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, $.10 par value; Authorized
- - 20,000,000 shares; Outstanding - 7,071,136
shares at October 31, 1998 and 7,058,136
shares at July 31, 1998 ............................ 707 705
Additional paid-in capital ......................... 12,460 12,643
Retained deficit ................................... (6,966) (5,680)
Cumulative translation adjustment .................. (161) (249)
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8,427 9,806
Deferred compensation .............................. (861) (1,294)
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Total stockholders' equity ....................... 7,566 8,512
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$ 11,961 $ 11,458
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SEE ACCOMPANYING NOTES.
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AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
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OCTOBER 31, OCTOBER 31,
1998 1997
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(Thousands, except
per share amounts)
Net sales ........................................ $ 2,150 $ 1,830
Cost of goods sold ............................... 1,263 1,058
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Gross profit ..................................... 887 772
Selling, general and administrative .............. 1,922 687
Research and development ......................... 128 --
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Total operating expenses ....................... 2,050 687
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Operating income (loss) .......................... (1,163) 85
Other income (expenses):
Interest, net .................................. (17) (78)
Minority interest in affiliate ................. -- (85)
Other .......................................... (106) 58
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(123) (105)
Loss before provision for income taxes ........... (1,286) (20)
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Net loss ......................................... $ (1,286) $ (20)
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Net loss attributable to common stockholders* .... $ (1,403) $ (20)
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Weighted average number of common and
common equivalent shares outstanding ........... 7,064,636 2,553,136
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Net loss per share, basic and diluted ............ $ (.20) $ (.01)
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See accompanying notes.
* The quarter ended October 31, 1998 includes the impact of $117,000 of
dividends on Preferred Stock.
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AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
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OCTOBER 31, OCTOBER 31,
1998 1997
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(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)
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Net cash used in operating activities ................ (798) (110)
INVESTING ACTIVITIES:
Purchase of property and equipment, net ................ (36) (13)
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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 --
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Net cash provided by (used in) financing activities .. 618 (62)
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Effect of exchange rate changes on cash and cash
equivalents ............................................ 1 3
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Decrease in cash and cash equivalents .................. (215) (182)
Cash and cash equivalents, beginning of period ......... 396 471
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Cash and cash equivalents, end of period ............... $ 181 $ 289
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See accompanying notes.
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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.
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
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.
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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 Company has taken actions to make its systems, products and infrastructure
Year 2000 compliant and expects the transition to be fully completed by the
third quarter of Fiscal 1999. The Company is also beginning to inquire as to the
status of its key suppliers and vendors with respect to the Year 2000 issues;
however, there can be no assurance that a failure to resolve any such issue
would not have a material adverse effect on the Company. Management believes,
based upon available information, that it will be able to manage its total Year
2000 transition without any material adverse effect on its business operations,
products or financial prospects. Management also believes the total cost of
addressing the Year 2000 issue will not have a material impact on the Company's
financial position.
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
$433,000 of amortization of deferred compensation for consultants and for
options granted 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.
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 -
27. Financial Data Schedule
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AMERICAN ELECTROMEDICS CORP.
SIGNATURES
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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.
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/s/ Thomas A. Slamecka Dated: January 4, 1999
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Thomas A. Slamecka
Chairman of the Board
/s/ Michael T. Pieniazek Dated: January 4, 1999
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Michael T. Pieniazek
President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Description
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27 Financial Data Schedule