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, 1997 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 18, 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
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As of December 17, 1997, there were outstanding 4,303,136 shares of
the Issuer's Common Stock, $.10 par value.
AMERICAN ELECTROMEDICS CORP.
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, October 31, 1997 and July 31, 1997............. 3
Statements of Operations for the Three Months Ended
October 31, 1997 and October 26, 1996........................ 4
Statements of Cash Flows for the Three Months Ended
October 31, 1997 and October 26, 1996........................ 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation.... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 7
Item 6. Exhibits and Reports on Form 8-K............................... 7
SIGNATURES............................................................ 8
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
OCTOBER 31, JULY 31,
1997 1997
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(Unaudited)
(Thousands)
Assets
Current Assets:
Cash and cash equivalents ....................... $ 289 $ 471
Accounts receivable
Trade ......................................... 1,291 283
Affiliate ..................................... -- 379
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1,291 662
Inventories ..................................... 1,471 475
Prepaid and other current assets ................ 580 244
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Total current assets .......................... 3,631 1,852
Property and equipment .......................... 667 449
Accumulated depreciation ........................ (404) (396)
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263 53
Deferred financing costs ........................ 115 128
Investment in affiliate ......................... -- 819
Goodwill ........................................ 864 208
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$ 4,873 $ 3,060
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................ $ 1,014 $ 187
Bank line of credit ............................. 300 300
Accrued liabilities ............................. 266 153
Current portion of long-term debt ............... 167 152
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Total current liabilities ..................... 1,747 729
Minority interest in affiliate .................. 148 --
Long-term debt .................................. 1,087 380
Convertible subordinated debentures ............. 720 720
Stockholders' equity:
Preferred stock, $.01 par value; Authorized
- 1,000,000 shares; Outstanding - none ......... -- --
Common stock, $.10 par value; Authorized
- 20,000,000 shares; Outstanding - 2,553,136
shares at October 31, 1997 and at July 31,1997 255 255
Additional paid-in capital ...................... 2,919 2,919
Retained deficit ................................ (2,007) (2,006)
Foreign currency translation adjustment ......... 4 --
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Total stockholders' equity .................... 1,167 1,168
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$ 4,873 $ 3,060
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SEE ACCOMPANYING NOTES.
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AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
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OCTOBER 31, OCTOBER 26,
1997 1997
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(Thousands, except per share amounts)
Net sales ...................................... $ 1,830 $ 540
Cost of goods sold ............................. 1,058 312
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Gross profit ................................... 772 228
Selling, general and administrative ............ 687 315
Research and development ....................... -- 34
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Total operating expenses ..................... 687 349
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Operating income (loss) ........................ 85 (121)
Other income (expenses):
Undistributed earnings of affiliate .......... -- (30)
Interest, net ................................ (78) (9)
Minority interest in affiliate ............... (85) --
Other ........................................ 58 --
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(105) (39)
Loss before provision for income taxes ......... (20) (160)
Provision for income taxes ..................... -- --
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Net loss ....................................... $ (20) $ (160)
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Weighted average number of common and
common equivalent shares outstanding ......... 2,553,136 2,456,064
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Loss per common and common equivalent share .... $ (.01) $ (.07)
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See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
OCTOBER 31, OCTOBER 26,
1997 1997
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(THOUSANDS)
OPERATING ACTIVITIES:
Net loss ............................................. $ (20) $ (160)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ...................... 49 10
Undistributed earnings of affiliate ................ -- 30
Minority interest in affiliate ..................... 85 --
Changes in operating assets and liabilities:
Accounts receivable .............................. 187 64
Inventories, prepaid and other current assets .... (88) (47)
Accounts payable and accrued liabilities ......... (385) 72
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Net cash used in operating activities .............. (172) (31)
INVESTING ACTIVITIES:
Purchase of property and equipment, net .............. (13) (6)
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Net cash used in investing activities ................ (13) (6)
FINANCING ACTIVITIES:
Principal payments on long-term debt ................. (62) (17)
Proceeds from long-term debt and bank line of credit.. -- 500
Issuance of common stock, net ........................ -- 146
Issuance of convertible subordinated debt ............ -- 720
Deferred financing costs ............................. -- (166)
Proceeds from exercise of stock options .............. -- 2
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Net cash provided by (used in) financing activities. (62) 1,185
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Effect of exchange rate changes on cash and cash
equivalents .......................................... 3 --
Increase (decrease) in cash and cash equivalents ..... (244) 1,148
Cash and cash equivalents, beginning of period ....... 533 317
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Cash and cash equivalents, end of period ............. $ 289 $ 1,465
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See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The Company changed its method from the equity method of accounting
for its 50%-owned affiliate Rosch GmbH Medizintechnik ("Rosch GmbH")
to a consolidated basis on August 11, 1997 based upon the Company's
determination that it had reached the definition of control of Rosch
GmbH as of August 11, 1997 under generally accepted accounting
principles.
The Company's determination of control of Rosch GmbH on August 11,
1997 was based primarily upon the successful completion of
negotiations to acquire effective voting control. Subsequently, the
Company closed on the acquisition of the remaining 50% of Rosch
GmbH (see Note 3. Subsequent Events below).
The following proforma information is presented for comparative
purposes to disclose information on the financial position and result
of operations of American Electromedics Corp. and Rosch GmbH
had they been consolidated for all periods presented.
(in 000's)
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Three Months Three Months
Ended Ended
10/31/97 10/26/96
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Sales $1,830 $1,076
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Gross profit 772 394
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Net loss (20) (255)
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Current assets 3,258 3,405
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Non-current assets 1,659 1,432
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Current liabilities 1,733 755
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Non-current liabilities 1,969 2,157
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Operating results for the three month period ended October 31, 1997
are not necessarily indicative of the results that may be expected for
the year ending July 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended July 31, 1997.
2. DEBT
The Company entered into a Forbearance and Workout Agreement with its
bank on October 28, 1997 as a result of the Company not being in
compliance with certain financial covenants under its loan agreement
as of July 31, 1997. The bank has waived the non-compliance and the
Company agreed to, among other things, raise an additional $250,000 of
equity capital and to apply $150,000 of such amount against outstanding
term loans. Additionally, as part of this Agreement, the Company's
revolving line of credit was reduced to $300,000. Certain of the loan
agreement financial covenants were also amended to more reasonably
reflect the Company's current financial position.
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3. SUBSEQUENT EVENTS
In connection with the October 1997 amendments to its bank
arrangements and efforts to obtain additional equity capital, the
Company reduced the conversion price of its outstanding 14%
Convertible Subordinated Debentures (the "Debentures") from $3.75 to
$1.00 per share. As of November 3, 1997, the holders of all outstanding
$720,000 principal amount of Debentures elected to convert. As a result
of these conversions, the Company also reduced its long-term debt by
$720,000 and issued 720,000 shares of Common Stock. The Company also
will record a charge of approximately $100,000 to write-off deferred
financing costs capitalized upon initial issuance of the Debentures.
As of November 26, 1997, the Company closed a private placement of
1,030,000 shares of Common Stock at a price of $1.00 per share to a
group of "accredited investors." The Company used $150,000 of the
placement proceeds to repay portions of its bank indebtedness.
On December 18, 1997, the Company closed on the purchase of the
remaining 50% of the outstanding capital stock of Rosch GmbH
along with 45% of the outstanding shares of Meditronic Medizinelektronik
GmbH for $200,000 plus 210,000 shares of the Company's Common Stock,
pursuant to a Stock Purchase Option Agreement, dated as of November 1,
1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net sales for the three month period ended October 31, 1997 were
$1,830,000, compared to $540,000 for the three month period ended
October 26, 1996. The increase in sales in fiscal 1998 was attributable
to accounting for sales of Rosch GmbH on a consolidated basis as well
as sales of the new intraoral dental camera system, which sales commenced
subsequent to the first quarter of fiscal 1997.
Cost of sales for the three month periods ended October 31, 1997 and
October 26, 1996 were 57.8% of net sales.
Selling, general and administrative expenses for the three month
period ended October 31, 1997 were $687,000, compared to $315,000
for the comparable prior year period. The increase reflects accounting
for the selling, general and administrative expenses on a consolidated
basis.
Net loss for the three month period ended October 31, 1997 was $20,000,
or $.01 per share, compared to a net loss of $160,000, or $.07 per share,
for the same period in the prior fiscal year. The decrease in net loss
is the result of increased sales offset by higher interest costs.
LIQUIDITY AND CAPITAL RESOURCES
Working capital of the Company at October 31, 1997 was $1,525,000,
compared to $1,060,000 at fiscal year ended July 31, 1997. The
increase of $465,000 reflects primarily the accounting for Rosch
GmbH on a consolidated basis.
Subsequent to October 31, 1997, the Company increased its working
capital upon the conversion of the $720,000 principal amount of
Debentures to Common Stock and the gross proceeds of $1,030,000 upon a
placement of 1,030,000 shares of Common Stock. As mentioned in Note 3
to the financial statements to this Report, the Company applied
$150,000 to repay portions of its bank indebtedness and $200,000 as
the cash portion of the purchase price of its acquisition of the remaining
50% of Rosch GmbH. A copy of such purchase agreement is filed as an
exhibit to this Report.
Currently, the Company expects that available cash and its existing
bank line of credit will be sufficient to meet its normal operating
requirements, including research and development expenditures, over
the near term. Further, the conversion of the Debentures shall reduce
the annual interest expense by $100,000.
The Company is considering future growth through acquisitions of
companies or business segments in related lines of business or other
lines of business, as well as through expansion of the existing line
of business. There is no assurance that management will find suitable
acquisition candidates or effect the necessary financial arrangements
for such acquisitions.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In December 1997, the Company and Noel Wren settled the action,
instituted by Mr. Wren in May 1997, against the Company upon payment
by the Company of $62,500 and the exchange of mutual releases. For
additional information, see Item 3 "Legal Proceedings" in the Company's
Form 10-KSB for the fiscal year ended July 31, 1997
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarterly period
ended October 31, 1997.
Exhibits -
10.1 Stock Purchase Option Agreement, dated as of November 1, 1997,
between American Electromedics Corp. and Andy Rosch (without 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: December 24, 1997
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Thomas A. Slamecka
Chairman
/s/ Michael T. Pieniazek Dated: December 24, 1997
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Michael T. Pieniazek
President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Description
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10.1 Stock Purchase Option Agreement, dated as
of November 1, 1997, between American
Electromedics Corp. aand Andy Rosch (without
exhibits).
27 Financial Data Schedule