<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO.: 001-11835
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-3836867
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
5915 RODEO ROAD
LOS ANGELES, CA 90016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 841-5200
(ISSUER'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: COMMON STOCK, $0.01
PAR VALUE.
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
-------------- ---------------------
<S> <C>
COMMON STOCK, $0.01 PAR VALUE PACIFIC EXCHANGE, INC.
</TABLE>
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: COMMON
STOCK, $0.01 PAR VALUE
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES [X] NO
[ ]
Issuer's revenues for its most recent fiscal year: $30,386,000
The aggregate market value of the shares of common stock held by
non-affiliates of the Registrant as of March 25, 1998, was $8,846,375. There
were 4,391,770 shares of common stock, $0.01 par value, outstanding as of March
25, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENTS FORM 10-KSB REFERENCES
--------- ----------------------
<S> <C>
Portions of the company's Definitive Proxy Part III, Items 10-13 (Page 25)
Statement for its 1998 Annual Meeting of Stockholders
</TABLE>
================================================================================
<PAGE> 2
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The American Materials & Technologies Corporation ("AMT," and together with
its subsidiaries, the "Company"), was incorporated in Delaware in March 1995.
AMT had no operations until December 19, 1995, when it acquired Structural
Polymer Systems, Inc. (renamed Culver City Composites Corporation) ("CCC"), a
manufacturer of advanced composites. In November 1996, AMT acquired 63% of the
outstanding shares of Carbon Design Partnership Limited ("Carbon Design"), a
design and fabrication business located in Totnes, Devon, UK. On February 27,
1997, AMT purchased all of the assets of Grafalloy L.P. ("Grafalloy"), a
manufacturer of graphite golf club shafts. AMT maintains its headquarters in Los
Angeles, California; its common stock trades on The Nasdaq Stock Market(SM)
under the symbol AMTK and on the Pacific Exchange under the symbol "MTK."
The Company manufactures and sells advanced composites and products made
from these materials. Advanced composites are a combination of high performance
reinforcement fabrics or fibers (such as fiberglass, carbon, or aramid) and a
polymer (such as epoxy, phenolic, or polyimide). The combination of high
performance reinforcement fabrics or fibers with polymers forms an advanced
composite with exceptional structural and/or performance properties. The Company
provides raw materials to parts manufacturers and also manufactures finished
parts.
The Company believes that increased demand by customers for products
utilizing advanced composites, as evidenced by projections of increased aircraft
build rates, coupled with the decrease in available capacity caused by other
companies' plant shutdowns during the past few years, will lead to increased
demand for products from the remaining advanced composite manufacturing
companies. The Company believes that it can employ its existing significant
excess production capacity to achieve greater sales of advanced composites and
thereby increase profitability as a result of this expected increase in demand.
Also, the Company will seek to acquire additional companies in the advanced
materials or technologies industries in order to expand its customer base,
reduce costs, and offer new products.
BUSINESS
Prepreg Business
The Company coats or impregnates a variety of fabrics or fibers with
polymers to produce "prepreg," an advanced composite which is molded into parts
for use in a variety of aerospace, defense, industrial and recreational
products. The Company's prepreg business competes in three major product lines
and in a variety of specialized products. These lines include aircraft
interiors, high temperature resin systems used in aircraft engines and ablative
products used in missiles and wireless communications. The Company believes that
Culver City Composites Corporation is the leader in sales of advanced composites
containing the high temperature resin system PMR-15 for jet engine applications,
as well as being a leading supplier of advanced composites used in aircraft
interiors. Prepreg sales represented 69% of the Company's total revenues in
1997.
The Company estimates that the total worldwide market for advanced
composites was approximately $900 million in 1997, with more than half of those
sales in North America. The market growth rate for advanced composites of the
type produced by its prepreg business has, in the past, been closely correlated
to the overall build rate of commercial and military aircraft because these
customers constitute by far the largest source of demand. The Company believes
this will continue to be the case for the next several years, as the advantages
of lower weight and resulting fuel economy will cause aircraft manufacturers to
use increasing amounts of advanced composite materials, particularly in newer
models and development programs. For example, recently developed military
aircraft such as the stealth fighter, F-22, and B-2 bomber and commercial
aircraft such as the Boeing 777 and the Airbus 321, 330 and 340 models contain a
higher percentage by weight of advanced composites than the older aircraft they
replace.
1
<PAGE> 3
Orders for commercial aerospace materials generally lag behind the award of
contracts for new aircraft by a considerable period. Thus, the cycle of new
aircraft procurement normally does not have an impact on aerospace orders
received by the Company for about one to three years.
In the defense aerospace markets, manufacturers of advanced composites
generally are selected to supply a particular advanced composite material as
much as one to four years ahead of its actual use in production by the customer.
Typically, a lengthy development and testing process is required before the
advanced composite is deemed "qualified" as meeting the customer's
specifications. In aircraft production, this process can require approval of
finished parts by the Federal Aviation Administration. The Company has qualified
its advanced composites to meet over 200 specifications for use in the defense,
aerospace, and wireless communications markets.
The Company sells its prepreg products to the aerospace, communications,
defense, and recreation markets. Major customers include: The Boeing Company,
General Electric Company, Lockheed Martin Corporation, the Aerojet division of
GenCorp Inc., and Airbus Industrie.
Important materials produced by the Company include:
S-2(R) and E-Type Fiberglass prepregs. These materials are low-cost and
lightweight, exhibit high strength, and are used in overhead bins, seats,
lavatories, and other items in aircraft and train interiors.
Carbon fiber based prepregs. These materials exhibit superior
strength-to-weight ratios compared to glass materials and are used in similar
interior applications, as well as in floor panels which require greater strength
characteristics, aircraft engine components where both strength and heat
resistance are key attributes, and in primary and secondary structure
applications.
Aramid, Quartz, Ceramic prepregs. Aramid fiber is exceptionally resistant
to impact and is used in aircraft and various armor protection applications.
Quartz and ceramic fibers are resistant to extremely high temperatures and are
used in various aerospace and general industrial applications including engine
and missile components.
Approximately 30% of the Company's prepreg sales in 1997 and 1996 were
derived from contracts where the Company is the sole source supplier. Sales to
the prepreg business's two largest customers, Boeing and General Electric,
accounted for 19% and 31% of consolidated sales in 1997 and 1996, respectively.
The Company believes that the loss of any of its principal prepreg customers
would have a materially adverse effect on the Company.
The Company advertises in trade magazines, provides press releases and
publicity for trade newsletters, solicits business through both domestic and
foreign employee sales personnel and independent domestic and foreign sales
representatives, and attends and exhibits at major international trade shows as
means of developing existing and new business. In cases where two or more
companies are qualified on a given product, business is generally obtained
through competitive bidding.
The Company is attempting to develop and commercialize new resin systems
for prepreg applications. SuperImide 800(TM) is designed to exhibit superior
high temperature resistance in aerospace and military applications. PETI-5,
under license from NASA, is intended to be used in high temperature applications
in low altitude space vehicles, such as the proposed High Speed Civil Transport
airplane. These products are currently in the development stage and have not
been introduced commercially to the market.
In October 1997 the Company entered into a joint venture agreement with
Schappe Techniques Sarl of France to produce and market Modlite Select(TM)
(pending), a family of high-performance, low-cost carbon fiber yarns and fabrics
currently under development. Strategic marketing of these products began in
January 1998.
Graphite Golf Shaft Business
On February 27, 1997, the Company, through its wholly owned subsidiary
Grafalloy Corporation ("Grafalloy"), acquired all of the assets and assumed
certain liabilities of Grafalloy L.P. Grafalloy develops, manufactures and sells
high performance, high quality graphite golf shafts. Grafalloy specializes in
the
2
<PAGE> 4
development of innovative shafts and manufactures a wide variety of graphite
shaft models that range in weight, torque, and stiffness designed to meet the
needs of players of various ages and skill levels. Sales of graphite golf shafts
accounted for 28% of the Company's total sales in 1997.
Grafalloy manufactures and distributes several lines of golf shafts ranging
from light and flexible shafts that provide ultralight weight and high
trajectory for senior players, to stiff, low torsion shafts with low balance
point and exceptional clubhead feel for professional and experienced players.
Grafalloy has been able to develop market leadership positions in some notable
categories. Management believes that the ProLite(R) shaft is the No. 1
ultralight shaft on the PGA and Senior PGA tours, and had the most wins on the
PGA and Senior PGA tours in 1997 and 1996. In addition, the ProLite(R) 35 was
the No. 1 ultralight shaft among clubmakers in 1997. Grafalloy uses both tour
usage and shaft innovations, such as ultralight weight and low balance point, to
build brand awareness and preference.
Grafalloy distributes its golf shaft products primarily to two market
segments: the original equipment manufacturers segment, which consists of
companies who specialize in the design, assembly, and marketing of golf clubs;
and the components segment, which consists of individual professional clubmakers
and hobbyists who purchase and assemble golf club components for sale or their
personal use. Grafalloy also uses catalog distributors, such as Golfsmith, to
distribute its standard product line of branded shafts to the components market.
Demand in the original equipment market is primarily influenced by cost and
unique club design, while demand in the component segment is influenced by brand
strength, shaft performance, quality, and price. A majority of Grafalloy's sales
in 1997 were to the components market, but its OEM business showed a higher rate
of growth than its components business.
Design & Fabrication Business
In March 1998 the Company decided to discontinue financial support of
Carbon Design, its majority-owned joint venture, and the business was placed in
voluntary liquidation. Carbon Design performed design engineering and custom
manufacturing of advanced composite parts using a variety of proprietary
manufacturing processes and technologies. A variety of custom designed parts for
industrial, sporting and recreational uses were sold to companies in the
sporting goods, engineering, industrial construction and film-making industries.
This business accounted for less than 3% of the Company's revenues in 1997.
COMPETITION
The Company competes in highly competitive, worldwide industries and has
numerous U.S. and foreign competitors. Two of the Company's prepreg business
competitors, Cytec Industries Inc. and Hexcel Corporation, are considerably
larger than the Company in size and financial resources. Similarly, Grafalloy
competes with several companies; some, such as Aldila Inc., are significantly
larger.
To the Company's knowledge, in the global aerospace and defense markets, it
is the third-largest manufacturer of advanced composite prepregs. Depending upon
the material and markets, relevant competitive factors in the prepreg business
include price, delivery, service, quality, and product performance. The
Company's ability to compete effectively in the prepreg business will depend on
its products' functional features and upon the ability of the Company to attract
and retain qualified personnel, to maintain and expand the capabilities of its
technologies, to sell existing products to new customers, to develop new
products for existing customers, to service its products, and to expand its
sales force or enter into satisfactory arrangements for the marketing of its
products.
U.S. graphite golf shaft companies compete, both domestically and
internationally, with companies whose manufacturing is located in Mexico and/or
in Korea, Taiwan, China, and other Asian countries. Japanese and U.S. companies
compete primarily on performance, quality and service, while Korean, Chinese and
Taiwanese companies compete primarily on price. Primary domestic competitors in
the golf shaft business are Aldila, Inc., Horizon Sports Technologies, True
Temper, UST and Unifiber Corporation.
Many graphite golf shaft companies compete aggressively for market share,
which has an adverse impact on industry profitability. Many of the Company's
competitors have significant financial resources, and have
3
<PAGE> 5
achieved lower cost structures and now compete primarily on the basis of price.
Some of the Company's competitors have superior product development and
manufacturing capabilities. To achieve a competitive advantage in these critical
areas and enjoy long term success in the golf shaft industry, the Company must
continue to invest in marketing, product development, technology and
manufacturing.
SOURCES OF SUPPLY
Worldwide aircraft production has increased substantially over the past two
years and is expected to remain at these higher levels for several years.
Increased production is expected to increase the demand for glass, carbon and
other fibers. There are a limited number of worldwide suppliers of aerospace
grade and other advanced composite fibers, including Owens Corning Fiberglass
Corporation and PPG Industries, Inc. for fiberglass; Hexcel Corporation, Amoco
Performance Products, Inc., Toho Carbon Fibers, Inc., Toray International, Inc.
and certain licensees of these companies for carbon; and E. I. DuPont de Nemours
& Co. and Akzo Nobel for aramid fibers. All of these companies supply fibers
which go into the Company's products. Due to increased aircraft manufacture and
an increasing use of advanced composite materials in other industrial and
recreational products, there can be no assurance that future supplies of these
fibers will be adequate to meet overall industry demand or that prices will
remain stable. Supply has been adversely impacted at times by strong demand in
the electronics and other markets. Carbon fiber is currently in a worldwide
shortage and is being allocated to certain markets by suppliers. However,
significant increases in capacity have been announced which are expected to
begin to come on stream in 1998.
The Company is dependent on a consistent supply of carbon fiber/epoxy
unidirectional tape to make golf shafts. The Company is able to purchase this
tape from a number of suppliers, and management believes that adequate supplies
will continue to be available at competitive prices.
The Company purchases woven fabric for its prepreg business from a number
of manufacturers, including BGF Industries, Inc., Clark Schwebel, Inc., Hexcel
Corporation, and JPS Glass Fabrics, Inc. One supplier accounted for over 70% of
total fabric supply for the prepreg business in the years ended December 31,
1997 and 1996. The Company believes it has a satisfactory relationship with that
supplier, and that if that supplier were unable to supply the Company, it would
be able to obtain fabric from other suppliers. However, there is no assurance
that such other suppliers would offer fabric on terms as favorable as those
currently available.
The Company's polymers include epoxy, phenolic, polyester, and polyimide
resins. Most resins have been developed internally and others, such as PMR-15,
are licensed from other organizations. In many cases, there are multiple
qualified sources of woven and raw fiber, packaging and other product
constituents. The Company has several sole source suppliers, including suppliers
of various resins, which the Company believes to be stable sources of supply or
capable of replacement at limited additional cost.
Although the Company believes that it has adequate supplies of important
materials to supply existing products and customers, the possibility exists that
the limited number of suppliers, including the Company's sole source suppliers,
could experience a disruption in manufacturing or supply capability which would
adversely affect the Company's ability to supply products to its customers.
Substitutes for certain materials might not be readily available and an
inability to obtain essential materials, if prolonged, could materially
adversely affect the Company's business.
RESEARCH AND DEVELOPMENT
The Company's research and development activities include: qualification
support; the demonstration of product capabilities to new and existing
customers; research and development of new resins, substrates and combinations
thereof; process support for the production group; engineering of customers'
parts; and the design of innovative golf shafts. In the years ended December 31,
1997 and 1996, research and development expenditures were $1,639,000 and
$535,000, respectively (5.4% and 2.4% of net sales). The Company expects that
research and development expenditures will increase in 1998, but at a lesser
rate than the increase in sales.
4
<PAGE> 6
PATENTS, TRADEMARKS AND TECHNOLOGY
Most of the Company's prepreg resin systems are based on proprietary
formulations and represent the cumulative effects of over 50 years of
formulation technology and qualifications in this industry. The Company licenses
the formulation for the PMR-15 resin from the National Aeronautics and Space
Administration and licenses other technologies from other companies. Most
manufacturing processes and design capabilities developed and currently held by
the Company are also proprietary in nature. The Company intends to protect its
proprietary technology through applications for patents when and where
appropriate. The Company currently holds no patents, although five patent
applications are pending.
The Company's trademarks include AMT(TM), CULVER CITY COMPOSITES (TM),
GRAFALLOY(R), GRAFALLOY LADY CLASSIC(R), LADY CLASSIC(R), SENIOR CLASSIC(R),
CLASSIC LITE(TM), ATTACKLITE(TM), PRO M29 ATTACK(TM), GRAFALLOY SOLITE(TM) and
others. The Company holds licenses for the marks POWERCOIL(R), PROLITE(R), and
NITROFLEX(R).
ENVIRONMENTAL MATTERS
Environmental control regulations have not had a significant adverse effect
on the overall operations of the Company. The Company believes that it is in
compliance in all material respects with all applicable environmental laws and
regulations.
An environmental site assessment authorized by Montecatini U.S.A., Inc., a
subsidiary of Montedison S.p.A. and the former owner of CCC, determined that
there had been a leak of acetone into the ground at the Company's Culver City,
California manufacturing facility. Acetone is not on the federal hazardous
substances list, nor is it on California's hazardous substances list. The
Company removed the source of the leak and is currently monitoring the
biodegredation of the acetone.
EMPLOYEES
The Company had 169 full-time, permanent employees and 76 temporary
production employees at December 31, 1997. Of these employees, 186 were in
manufacturing, 15 were in sales and marketing, 18 were in research and
development, and the remainder were in administrative functions. The Stove,
Furnace, and Allied Appliance Workers Division, International Brotherhood of
Boilermaker, Iron Ship Builders, Blacksmiths, Forgers and Helpers represents 47
of the Company's employees under a contract that extends to April 30, 2000.
Management believes labor relations to be generally good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases the following properties: (i) a 40,000-square foot
corporate headquarters, research and development and manufacturing facility in
Los Angeles, California; (ii) a 37,000 square feet manufacturing facility,
located nearby in Culver City, California, which houses the main manufacturing
plant of Culver City Composites Corporation; (iii) a 21,000-square foot
manufacturing and administrative facility in El Cajon, California; and (iv) a
6,000-square foot manufacturing and administrative facility in Devon, England.
The leases are for terms of one to ten years, and contain varying option
clauses ranging from three to ten years. The lease for Grafalloy's manufacturing
and administrative facility expires in the fourth quarter of 1998 and the
Company expects to move that business to a larger facility.
ITEM 3. LEGAL PROCEEDINGS
In September 1997 the Company filed a lawsuit against a competitor alleging
damages from unfair business practices and violations of federal antitrust laws.
The competitor has denied the allegations. This matter is in the early stages of
discovery.
The Company is involved in litigation from claims arising from its
operations in the normal course of business. The Company is not a party to any
legal proceedings the outcome of which, in the opinion of
5
<PAGE> 7
management, would have a material adverse effect on the Company's results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the quarter ended December 31, 1997.
6
<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on The Nasdaq Stock Market(SM) under
the symbol "AMTK" and on the Pacific Exchange under the symbol "MTK" subsequent
to the Company's initial public offering on July 1, 1996. The table below shows
the quarterly high and low trade prices as reported by Nasdaq.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
HIGH LOW HIGH LOW
----- ---- ----- ----
<S> <C> <C> <C> <C>
First Quarter............................... 6 7/8 3 5/8 n/a n/a
Second Quarter.............................. 5 7/8 3 3/16 n/a n/a
Third Quarter............................... 6 5/8 4 3/8 8 4
Fourth Quarter.............................. 5 7/16 1 1/2 6 5/8 3 1/2
</TABLE>
As of December 31, 1997, the Company had approximately 1,600 stockholders,
including those whose shares are held in brokerage accounts.
The Company has not paid cash dividends to holders of its Common Stock and
has no plans to do so. The Company currently intends to retain any earnings to
fund its operations and future growth. The Company's revolving credit agreements
contain certain restrictions on the timing and amounts of dividends which limit
the Company's ability to pay dividends in the future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
AMT was incorporated in Delaware on March 29, 1995. Its activities for the
period from inception to December 19, 1995 produced no revenue and were limited
to the acquisition of Culver City Composites Corporation ("CCC"), a manufacturer
of advanced composites for the aerospace industry. For most of 1996, CCC was the
Company's sole operating subsidiary. In November 1996, AMT acquired a majority
interest in Carbon Design Partnership Limited ("Carbon Design"). This business
accounted for less than 1% of the Company's revenues in 1996 and less than 3% in
1997. On February 27, 1997, the Company acquired the assets of Grafalloy L.P., a
manufacturer of graphite golf club shafts.
Each acquisition was accounted for as a purchase; accordingly, the
consolidated financial statements include the acquired companies from the
respective dates of acquisition. The following table presents a comparison of
the Company's 1997 and 1996 results of operations.
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------- % CHANGE
$ AMOUNT % OF SALES $ AMOUNT % OF SALES 1997/96
-------- ---------- -------- ---------- --------------
($ IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Net sales................................. $30,386 100.0% $22,411 100.0% 35.6%
Cost of sales............................. 22,146 72.9% 16,750 74.7% 32.2%
Gross margin.............................. 8,240 27.1% 5,661 25.3% 45.6%
Operating expenses:
Marketing, selling, and
administrative..................... 8,372 27.6% 3,621 16.2% 131.2%
Research and development............. 1,639 5.4% 535 2.4% 206.4%
Unusual items........................ 3,845 12.7% -- -- --
Income (loss) from operations............. (5,616) (18.5)% 1,505 6.7% NM
Interest expense.......................... (603) (2.0)% (434) (1.9)% 38.9%
Interest and other income, net............ 95 0.3% 131 0.6% (27.5)%
Income tax (expense) benefit.............. 230 0.8% (239) 5.4% NM
Income (loss) before extraordinary item... (5,894) (19.4)% 963 4.3% NM
Net income (loss)......................... $(5,894) (19.4)% $ 934 4.2% NM
Diluted income (loss) per share......... $ (1.35) $ 0.32 NM
Weighted average number of shares....... 4,352 2,956 47.2%
</TABLE>
- ---------------
NM = Not meaningful
7
<PAGE> 9
RESULTS OF OPERATIONS
The Company's net sales were $30,386 in 1997 compared to $22,411 in 1996,
an increase of $7,975 or 36%. The addition of Grafalloy accounted for all of the
increase. Sales at Culver City Composites Corporation were adversely affected by
reduced sales to a major customer because of a product model transition, lower
than anticipated shipments to Boeing in the fourth quarter of the year because
of delays in commercial aircraft production, and the loss of a contract from
another customer. Boeing and GE remained the largest customers for CCC, together
accounting for approximately 27% of its sales compared to 31% in 1996.
The Company's cost of sales was $22,146 in 1997, with gross profit (net
sales less costs of materials and manufacturing) of $8,240 or 27.1% of sales. In
1996, cost of sales was $16,750, while gross profit was $5,661 or 25.3% of
sales. The higher gross profit percentage in 1997 resulted from the addition of
the higher margin golf shaft business, which has lower materials cost but higher
sales and marketing expenses than the prepreg business. CCC's gross profit was
consistent at approximately 25% in each year, as lower materials cost in 1997
offset higher fixed manufacturing costs.
Marketing, selling, and administrative expenses were $8,372 in 1997
compared to $3,621 in 1996, an increase of $4,751 or 131% as the Company added
additional staff in sales, sales support, investor relations, and
administration, and increased marketing efforts and customer contacts. At CCC,
staff levels were increased in the first half of 1997 in anticipation of higher
sales. However, a significant slowdown in orders occurred in the September to
December period following production delays at a major aerospace customer. This
resulted in a cost structure that was not supported by the Company's revenue
base. Reductions in staff and overhead were instituted early in the fourth
quarter to achieve an annualized reduction of approximately $1,000.
Research and development expenses were $1,639 in 1997, an increase of
$1,104 or 206% over expenses of $535 in 1996. As a percentage of sales, R&D
expenses increased to 5.4% from 2.4%, reflecting expanded activities for new
product development (including PETI-5/X resin systems and Modlite Select(TM))
and increased efforts to qualify products for additional aerospace and
commercial uses. Research and development activities are expected to continue to
grow, but are expected to decline as a percentage of sales in future years.
Unusual item expenses of $3,845 were recorded in 1997. During the second
and third quarters of 1997 the Company engaged in extensive efforts, including
financing activities, negotiations and due diligence, for the acquisition of a
much larger company. The Company was not successful, and the target company was
acquired by a major competitor in September 1997. Negotiations related to
several smaller acquisitions were also terminated during the third quarter. As a
result, expenses of approximately $760 related to the Company's acquisition
activities were recognized in the third quarter. The Company also recorded
charges of $1,085 in the third and fourth quarters related to its investment in
Carbon Design, primarily consisting of a writedown of goodwill and a reserve for
loss on sale following a decision to dispose of that business. Finally, goodwill
related to the purchase of Grafalloy was reduced by $2,000 in the fourth
quarter.
Interest expense was $603 in 1997 compared to $434 in 1996, an increase of
$169, as a result of borrowings incurred in the purchase of Grafalloy. Interest
and other income decreased in 1997 because of lower cash balances in
interest-earning accounts.
An extraordinary loss of $29 was incurred in 1996 upon the early retirement
of a loan made by an affiliate of the Company.
As a result of the factors described above, the Company incurred a net loss
of $5,894 in 1997 or $1.35 per share (diluted), after reporting net income of
$934 or $0.32 per share (diluted) in 1996. Excluding the unusual item charges,
the net loss in 1997 was $2,049 or $0.47 per share.
At December 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of $3,900 available to offset taxable income of the
Company through 2012. Additional carryforwards of approximately $32,165 are
available as a result of the acquisition of CCC in December 1995. The change-
in-ownership provisions of Section 382 of the Internal Revenue Code limit the
amount available to offset future taxable income to approximately $500 per year
through 2010.
8
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1997, cash used in operations was $157. The
impact of the net loss was largely offset by non-cash charges ($3,638), by
reductions in inventories ($1,205), and by increases in accounts payable and
accrued liabilities ($3,078). Capital expenditures increased to $1,382 in 1997
compared to only $365 in 1996. These expenditures included new liquid bulk
storage tanks, modifications to resin mixing facilities, and additional testing
equipment. In 1996, cash used in operations was $379, which included an increase
in accounts receivable of $1,138.
Capital expenditures are expected to increase in 1998, including
replacement of some equipment and additions to improve efficiency. Grafalloy
anticipates moving to a larger facility in the fourth quarter of 1998.
Management plans to acquire additional equipment to expand manufacturing
capacity at that time.
To pay for the acquisition of Grafalloy in February 1997, the Company used
available cash plus borrowings of approximately $2,300 under its revolving line
of credit. Subsequently, the Company renegotiated its bank credit facilities to
reduce the interest rate (by 50 basis points) and to increase the total facility
to $10,167, consisting of $7,467 revolving credit based upon inventory and
receivables, a $1,000 five-year term loan, and a $1,700 standby term loan to
finance capital expenditures. At December 31, 1997, $3,167 was outstanding on
the revolving credit lines and $845 was available based on eligible collateral.
The credit agreements extend to January 1999 and April 2000. As a result of
losses incurred in 1997, the Company was not in compliance with certain
covenants in its loan agreements. A waiver of compliance was granted by the
lender.
In the last quarter of 1997 the Company obtained temporary extensions of
credit terms from its major suppliers. The Company anticipates that higher sales
in 1998 will increase the asset base for borrowing and enable it to reduce
accounts payable to normal levels. The Company is also seeking up to $1 million
from a private placement of debt or equity. Proceeds would be used to reduce
debt.
In August 1997 the Company borrowed $2,500 pursuant to an industrial
development bond, with the proceeds to be used for equipment for a new product
line. Early in 1998 the Company decided not to proceed with this project at the
current time, and in March 1998 the funds were returned to the lender.
The Company has reviewed its enterprise resource planning systems and has
determined that the systems are able to deal with Year 2000 programming issues.
Therefore, any costs of compliance will not be material to the business or to
its results of operations.
NEW ACCOUNTING STANDARDS
In 1997 the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting and display of comprehensive income and its components, and Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosure about
products and services, geographic areas and major customers. The Company will
adopt these new standards in fiscal 1998; this will not have any significant
effect on the Company's financial position or results of operations.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company has made forward-looking statements in this Form 10-KSB,
including future cash flows and the level of future R&D activities and capital
expenditures. These statements are only predictions. Actual events or results
may differ materially as a result of risks and uncertainties facing the Company,
including:
Competition -- The Company encounters significant competition domestically
from a number of well-established manufacturers in each of its product lines,
and from foreign sources for some products. In most
9
<PAGE> 11
product markets the Company faces competition from other manufacturers that have
larger market shares or other competitive advantages.
Pricing Pressures -- The aerospace and defense industries have seen
increased concentration in recent years as a result of a number of business
combinations. These larger companies are in a position to negotiate favorable
pricing terms from their suppliers, including the Company. The Company's ability
to maintain its profit margins will depend on the technical and functional
features of its products, the development of new products, and further
development of its sales force.
Dependence on Major Customers -- Approximately 29% of the Company's sales
in 1997 were made to three customers. The loss of a significant amount of
business from any of these customers would have a material adverse effect on the
sales and operating results of the Company.
Cyclical Nature of the Aerospace Industry -- The aerospace industry,
including transportation and communications, accounted for approximately 60% of
the Company's sales in 1997. This industry historically has been subject to
cyclical downturns. For example, after increasing each year from 1985 to 1991,
annual revenues in the aerospace industry dropped significantly in 1992 and
remained depressed through late 1995.
Raw Material Costs -- In the past few years, prices paid by the Company for
certain raw materials, such as fabric and resins, have fluctuated. When prices
have increased, the Company has not always been able to pass along the full
effect of such increases to its customers in order to maintain or enhance its
market position.
New Products -- The Company's future results will depend in part on its
ability to enhance its existing products and to introduce new products on a
timely and cost-effective basis that meet evolving customer requirements. Delays
in introduction or a disappointing market acceptance could have an adverse
effect on the Company's business.
Government Regulation -- The Company must comply with a number of federal
and state environmental regulations. Although these regulations have not had a
significant adverse effect on the overall operations of the Company, the costs
of compliance could increase in future years.
International Operations -- A small but increasing portion of the Company's
sales in recent years has been derived from its international operations. The
Company's operating results could be significantly affected by such factors as
foreign exchange fluctuations, difficulties in staffing and managing foreign
operations, and other risks associated with international activities.
The Company disclaims any obligation to update any of the factors that may
affect future operating results or to announce publicly the result of any
revisions to any of the forward-looking statements contained in this Form
10-KSB, or to make corrections to reflect future events or developments.
ITEM 7. FINANCIAL STATEMENTS
The following are included herein:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report................................ 11
Consolidated balance sheets as of December 31, 1997 and
1996...................................................... 12
Consolidated statements of operations for the years ended
December 31, 1997 and 1996................................ 13
Consolidated statements of cash flows for the years ended
December 31, 1997 and 1996................................ 14
Consolidated statements of stockholders' equity for the
years ended December 31, 1997 and 1996.................... 15
Notes to consolidated financial statements.................. 16
</TABLE>
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
10
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The American Materials & Technologies Corporation
We have audited the accompanying consolidated balance sheets of The
American Materials & Technologies Corporation and Subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The American
Materials & Technologies Corporation and Subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the years then ended in conformity with generally accepted accounting
principles.
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
February 6, 1998
(March 23, 1998, with respect to Note 5)
11
<PAGE> 13
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 92 $ 4,655
Restricted cash........................................... 2,528 --
Accounts receivable, net of allowance of $369 and $123,
respectively........................................... 4,107 3,824
Inventories............................................... 3,742 1,456
Prepaid expenses and other current assets................. 659 520
------- -------
Total current assets.............................. 11,128 10,455
Property and equipment, net................................. 6,235 4,359
Goodwill, less accumulated amortization of $2,202 and $3,
respectively.............................................. 5,078 518
Other assets, net........................................... 618 363
------- -------
$23,059 $15,695
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 4,212 $ 112
Accounts payable.......................................... 4,875 1,957
Accrued liabilities....................................... 3,137 1,394
Income taxes payable...................................... -- 218
------- -------
Total current liabilities......................... 12,224 3,681
Long-term debt, less current installments................... 4,205 336
Minority interest........................................... -- 70
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000 shares;
none issued............................................ -- --
Common stock, $.01 par value. Authorized 15,000 shares;
4,394 and 4,139 shares, respectively, issued and
outstanding............................................ 44 41
Additional paid-in capital................................ 12,194 10,910
Retained earnings (deficit)............................... (5,237) 657
Treasury stock, at cost (177 shares at December 31,
1997).................................................. (371) --
------- -------
Total stockholders' equity........................ 6,630 11,608
------- -------
$23,059 $15,695
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 14
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Net sales................................................... $30,386 $22,411
Costs and expenses:
Materials................................................. 13,695 11,175
Manufacturing............................................. 8,451 5,575
Marketing, selling and administrative..................... 8,372 3,621
Research and development.................................. 1,639 535
Unusual items (Note 4).................................... 3,845 --
------- -------
36,002 20,906
------- -------
Income (loss) from operations............................... (5,616) 1,505
Other (expense) income:
Interest expense.......................................... (603) (434)
Interest and other income................................. 25 131
Minority interest......................................... 70 --
------- -------
Income (loss) before income taxes........................... (6,124) 1,202
Income tax expense (benefit)................................ (230) 239
------- -------
Income (loss) before extraordinary item..................... (5,894) 963
Loss on early extinguishment of debt, net of tax............ -- (29)
------- -------
Net income (loss)........................................... $(5,894) $ 934
======= =======
Basic income (loss) per share:
Income (loss) before extraordinary item................... $ (1.35) $ 0.35
Extraordinary item........................................ -- (0.01)
Net income (loss)......................................... $ (1.35) 0.34
Diluted income (loss) per share:
Income (loss) before extraordinary item................... $ (1.35) $ 0.33
Extraordinary item........................................ -- (0.01)
Net income (loss)......................................... $ (1.35) $ 0.32
Weighted average number of shares:
Basic..................................................... 4,352 2,729
Diluted................................................... 4,352 2,956
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 15
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (5,894) $ 934
Depreciation and amortization............................. 1,203 601
Other non-cash charges.................................... 2,435 78
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable.................................. 808 (1,138)
Inventories.......................................... (1,205) 546
Prepaid expenses and other current assets............ (39) (237)
Other assets......................................... (325) (336)
Accounts payable..................................... 1,688 (886)
Accrued liabilities.................................. 1,390 (159)
Income taxes payable................................. (218) 218
-------- --------
Net cash used in operating activities....................... (157) (379)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (1,382) (365)
Acquisition of businesses, net of cash acquired........... (6,911) (535)
-------- --------
Net cash used in investing activities....................... (8,293) (900)
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt.............................. 31,123 21,848
Repayments of long-term debt.............................. (27,191) (23,676)
Repayment of note payable--affiliate...................... -- (3,150)
Proceeds from issuance of common stock.................... 300 10,365
Repurchase of common stock................................ (345) --
Proceeds from exercise of warrant......................... -- 374
-------- --------
Net cash provided by financing activities................... 3,887 5,761
-------- --------
Net increase (decrease) in cash and cash equivalents........ (4,563) 4,482
Cash and cash equivalents at beginning of year.............. 4,655 173
-------- --------
Cash and cash equivalents at end of year.................... $ 92 $ 4,655
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 16
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL RETAINED TOTAL
NUMBER PAID-IN EARNINGS TREASURY STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL (DEFICIT) STOCK EQUITY
--------- ------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 1,517 $15 $ 198 $ (277) $ 0 $ (64)
Issuance of common stock............... 2,332 23 10,341 -- -- 10,364
Exercise of warrant by affiliate....... 290 3 371 -- -- 374
Net income............................. -- -- -- 934 -- 934
----- --- ------- ------- ----- ------
Balance at December 31, 1996........... 4,139 41 10,910 657 0 11,608
Issuance of common stock............... 75 1 299 -- -- 300
Issuance of stock for acquisition...... 180 2 985 -- (26) 961
Repurchase of common stock............. -- -- -- -- (345) (345)
Net loss............................... -- -- -- (5,894) -- (5,894)
----- --- ------- ------- ----- ------
Balance at December 31, 1997........... 4,394 $44 $12,194 $(5,237) $(371) $6,630
===== === ======= ======= ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 17
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company. The American Materials & Technologies Corporation (the
"Company") was incorporated in the State of Delaware in March 1995 to acquire
and manage businesses in the advanced materials and technologies industries.
Culver City Composites Corporation ("CCC"), a supplier of prepreg materials to
the aerospace industry, was acquired in December 1995; a 63% ownership in Carbon
Design Partnership Limited, ("Carbon Design"), a design and custom manufacturing
business in the U.K., was purchased in November 1996; and Grafalloy Corporation
("Grafalloy") was formed in February 1997 to acquire the assets of Grafalloy
L.P., a manufacturer of graphite golf club shafts. The results of operations of
the acquired companies are included in the consolidated financial statements
from the respective dates of acquisition.
Basis of Presentation. The consolidated financial statements include
domestic and foreign subsidiaries. All material intercompany profits, balances
and transactions have been eliminated. Accounts denominated in foreign
currencies have been translated using year-end exchange rates for assets and
liabilities, while revenues and expenses are translated at exchange rates
prevailing during the year. Adjustments for foreign currency translation
fluctuations have been insignificant.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from management's estimates.
Cash. The Company maintains its operating cash in demand deposit accounts
and commercial paper on a short term basis up to 30 days. Proceeds from an
industrial development bond have been placed in an interest-bearing escrow
account at a commercial bank.
Inventories. Inventories are stated at the lower of first-in, first-out
(FIFO) cost or market value.
Property and Equipment. Property and equipment are stated at cost and
depreciated using the straight-line method over estimated useful lives of three
to seven years. Leasehold improvements are amortized on a straight-line basis
over the shorter of their useful lives or the term of the related lease.
Expenditures for maintenance and repairs are expensed as incurred.
Goodwill. The excess of purchase price over the fair value of net assets of
acquired subsidiaries (goodwill) is being amortized on a straight-line basis
over 30 years, except for writedowns taken for impairment (Note 4).
Long-Lived Assets. Impairment loss is recorded on long-lived assets used in
operations, such as property and equipment and intangible assets, when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of the assets.
This loss is measured by the difference between carrying amounts and estimated
fair values. Impairment losses of approximately $2,500 related to goodwill at
Grafalloy and Carbon Design were recorded in 1997.
Derivative Financial Instruments. The Company has not used any derivative
financial instruments to hedge foreign currency and interest rate market
exposures, nor has it used derivatives for speculative or trading purposes.
Revenue Recognition. Revenues are recognized at the time of shipment.
Allowances are provided for estimated returns and adjustments.
Research and Development Costs. Expenditures related to the development of
new products and processes, including significant improvements and refinements
to existing products, are expensed as incurred.
Stock-Based Compensation. Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation," encourages but does
not require companies to record compen-
16
<PAGE> 18
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
sation cost for stock-based employee compensation plans at fair value. The
Company has chosen to present required disclosures and to continue to account
for stock-based employee compensation using the method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." Compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.
Environmental Remediation Costs. The Company accrues remediation
liabilities when it is probable that a liability exists and the costs can
reasonably be estimated. The Company's estimates of these costs are based on
existing technology, current laws and regulations, and the Company's current
legal obligations regarding remediation and site-specific costs. These
liabilities are adjusted when the effect of new facts or changes in law or
technology are determinable. Approximately $330 was accrued for environmental
remediation costs at December 31, 1997.
Earnings (Loss) per Share. Basic earnings (loss) per share is computed
using the weighted average number of shares of outstanding common stock. Diluted
per share amounts also include the effect of dilutive common stock equivalents
from the assumed exercise of stock options. Earnings per share data for 1996
have been restated to conform to the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Diluted per share amounts
for 1996 include 127,000 common stock equivalents from stock options. For 1997,
stock options and warrants (Note 10) have been excluded because the effect would
be antidilutive.
Fair Value of Financial Instruments. The carrying amounts reported in the
balance sheet for cash, accounts receivable, accounts payable and accrued
liabilities approximated their fair value based on the short-term maturity of
these instruments.
Cash Flow Information. Cash payments for interest in 1997 and 1996 were
$510 and $434 respectively. Cash payments for income taxes were $10 in 1997 and
$21 in 1996.
Recent Accounting Pronouncements. SFAS No. 130, "Reporting Comprehensive
Income," establishes standards for the reporting and display of comprehensive
income and its components. SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," establishes standards for reporting
information operating segments in annual and interim financial statements. The
Company will adopt these standards in the first quarter of 1998. They will not
have any significant effect on the Company's financial position or results of
operations.
2. BALANCE SHEET ITEMS
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw materials.............................................. $2,271 $ 978
Work-in-progress........................................... 1,013 478
Finished goods............................................. 458 --
------ ------
$3,742 $1,456
====== ======
</TABLE>
17
<PAGE> 19
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of property and equipment are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Machinery and equipment.................................... $5,200 $3,085
Leasehold improvements..................................... 1,550 1,485
Furniture and fixtures..................................... 401 184
Construction in progress................................... 673 249
------ ------
7,824 5,003
Less accumulated depreciation and amortization............. (1,589) (644)
------ ------
$6,235 $4,359
====== ======
</TABLE>
Accrued liabilities include the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accrued compensation....................................... $1,006 $ 600
Other accrued expenses..................................... 1,981 794
------ ------
$2,987 $1,394
====== ======
</TABLE>
3. ACQUISITIONS
On December 19, 1995, the Company acquired all of the outstanding stock of
Structural Polymer Systems, Inc., a manufacturer and marketer of advanced
composite materials for the aerospace and defense industries, for approximately
$5,688, including acquisition costs. The purchase was financed with loans from
an affiliated company and a bank line of credit and term loan. The name of the
acquired company was changed to Culver City Composites Corporation.
In November 1996, the Company acquired 63% of the outstanding stock of
Carbon Design Partnership Limited, a U.K. company engaged in the design and
manufacturing of composite parts for recreational and industrial uses, for cash
of approximately $590.
On February 27, 1997, the Company acquired all of the assets and assumed
certain liabilities of Grafalloy L.P., a manufacturer of graphite golf club
shafts. The purchase price of approximately $9,200 included a cash payment of
$6,400, 179,492 shares of common stock (valued at $987), notes of $1,537 (as
subsequently adjusted based on the purchase agreement), and expenses of $280.
Each of these acquisitions was accounted for as a purchase and,
accordingly, the operating results have been included in the Company's
consolidated financial statements from the respective dates of acquisition. Pro
forma unaudited operating results for the years ended December 31, 1997 and
1996, assuming that Carbon Design and Grafalloy had been acquired on January 1,
1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net sales................................................ $32,113 $33,841
Net income (loss)........................................ $(6,085) $ 1,385
Per share:
Basic.................................................. $ (1.39) $ 0.48
Diluted................................................ $ (1.39) $ 0.44
</TABLE>
4. UNUSUAL ITEMS
During the first nine months of 1997 the Company engaged in extensive
efforts, including financing activities, negotiations and due diligence, for the
acquisition of a much larger business. The Company was not
18
<PAGE> 20
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
successful, and the target company was acquired by a major competitor in
September 1997. Negotiations related to several smaller acquisitions were also
terminated during the third quarter. Expenses of approximately $760 related to
the Company's acquisition activities were recognized in the third quarter of
1997.
Also in the third quarter of 1997, the Company recorded charges of $720
related to its investment in Carbon Design, including the writedown of goodwill,
following a decision to pursue the sale of that business.
In the fourth quarter of 1997 the Company recorded charges of $2,000 to
reduce goodwill arising from the purchase of Grafalloy based upon a review of
projected future cash flows. In addition, reserves related to the disposition of
Carbon Design were increased by $365. These charges contributed to a net loss in
the fourth quarter of $3,883.
5. LONG-TERM DEBT
Long-term debt includes the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Borrowings under revolving credit facilities................ $3,167 $ --
Term loans, payable in monthly installments through 2000.... 863 448
Industrial development bond................................. 2,500 --
Acquisition notes due March through August 1998............. 1,069 --
Other....................................................... 818 --
------ ----
8,417 448
Less current portion........................................ 4,212 112
------ ----
$4,205 $336
====== ====
</TABLE>
Required principal payments of long-term debt are as follows:
1998 -- $4,212; 1999 -- $3,530; 2000 -- $636; 2001 -- $21; and 2002 -- $18. The
carrying value of all debt instruments approximates their fair value.
In April 1997 the Company renegotiated its bank credit facility to reduce
the interest rate margin and to increase the total facility to $10,167,
consisting of $7,467 revolving credit based upon inventory and accounts
receivable, a $1,000 five-year term loan, and a $1,700 standby term loan to
finance capital expenditures. At December 31, 1997, $3,167 was outstanding on
the revolving credit lines and $845 was available based on eligible collateral.
The effective annual interest rate on the total credit facility for the year
ended December 31, 1997 was 12.5%. Under a previous credit agreement in effect
for CCC during 1996, the effective annual interest rate was 10.2%.
One credit agreement for $6,167 extends to January 1999 and the second for
$4,000 extends to April 2000. Interest is charged at the rate of 1% above the
prime rate; a fee of 1% per annum is charged on the unused portion of the credit
facilities. The term loans bear interest at 1% over the prime rate and are
payable in equal principal amounts over sixty months. The loan agreements
require, among other things, that the Company maintain certain financial
covenants, including tangible net worth, interest coverage, and debt service
coverage; the agreements also restrict capital expenditures and the payment of
dividends. The credit facilities are secured by substantially all the assets of
the Company. As a result of losses incurred in 1997, the Company was not in
compliance with certain covenants in its loan agreements. A waiver of compliance
was granted by the lender.
In August 1997 the Company borrowed $2,500 pursuant to an industrial
development bond. The note bears interest at 7.1% per annum and is payable over
78 months beginning in April 1998. The proceeds of the loan were placed in an
interest-earning escrow account pending disbursement for designated capital
expenditures. The entire amount remained in escrow at December 31, 1997
(classified as restricted cash). The
19
<PAGE> 21
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Company subsequently decided not to proceed with the project and the funds were
returned to the lender in March 1998.
In December 1997 the Company repurchased 172,582 shares of its common stock
(issued in the purchase of Grafalloy) for notes totaling $345. The 10% notes
were due in February 1999, but were canceled in January 1998 in connection with
the exercise of stock options.
From December 1995 to July 1996, the Company was obligated under two 10%
promissory notes, in the amounts of $3,000 and $150, respectively, to a company
in which the Company's Chairman was an officer and director. The notes were
repaid in full on July 5, 1996. In connection with the $3,000 note, the Company
issued a warrant to purchase 289,790 shares of the Company's common stock at
$1.29 per share. The warrant was exercised in September 1996. A value of $78 was
assigned to the warrant when issued; the unamortized discount at the date the
note was repaid was recognized as an extraordinary loss on early extinguishment
of debt.
6. COMMITMENTS AND CONTINGENCIES
The Company leases its principal manufacturing and office facilities under
non-cancelable leases expiring through 2006. The leases generally require the
lessee to pay taxes, maintenance, insurance and certain other operating costs of
the leased property. The leases on most of the properties contain renewal
provisions and some base rents are subject to annual increases determined by
indexing. Rent expense for the years ended December 31, 1997 and 1996 was $795
and $682, respectively. Minimum lease payments under operating lease commitments
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- ------
<S> <C>
1998............................. $ 744
1999............................. 632
2000............................. 632
2002............................. 632
2002............................. 588
Thereafter....................... 1,826
------
$5,054
======
</TABLE>
In September 1997 the Company filed a lawsuit against a competitor seeking
damages from unfair competition and violations of the antitrust laws. The
defendant has denied any liability. The lawsuit is in the early stages of
discovery. The Company is involved in other litigation in the ordinary course of
business, the outcome of which, in the opinion of management, will not have any
material adverse effect on the Company's financial position or results of
operations.
7. BUSINESS AND CREDIT CONCENTRATIONS
The majority of the Company's business is conducted with major aerospace
and defense companies and their subcontractors. The Company estimates an
allowance for doubtful accounts based on the creditworthiness of its customers
as well as general economic conditions. One customer accounted for approximately
12% of sales in 1997 and 16% in 1996. Two separate customers represented 10% of
1997 sales and 15% of 1996 sales, respectively.
20
<PAGE> 22
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Current:
Federal................................................... $(203) $203
State..................................................... (27) 36
----- ----
(230) 239
----- ----
Deferred.................................................... -- --
----- ----
Total............................................. $(230) $239
===== ====
</TABLE>
A reconciliation between the federal statutory tax rate and the effective
income tax rate for the years ended December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory federal income tax rate........................... (35)% 34%
State income taxes, net of federal taxes.................... (6) 6
Benefit of operating loss carryforwards..................... -- (20)
Losses for which no benefit is provided..................... 37 --
--- ---
Effective income tax rate......................... (4)% 20%
=== ===
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred income tax assets and liabilities at December 31, 1997 and 1996 are
shown below:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards......................... $4,212 $3,360
Allowance for doubtful accounts.......................... 148 49
Inventory reserves....................................... 140 141
Accrued expenses......................................... 112 92
Deferred compensation.................................... 189 100
Other.................................................... 31 25
------ ------
4,832 3,767
------ ------
Deferred income tax liabilities:
Depreciation and amortization............................ (728) (618)
------ ------
Deferred tax valuation allowance........................... (4,104) (3,149)
------ ------
Net deferred income taxes.................................. $ -- $ --
====== ======
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $3,900 for federal tax purposes, expiring in 2012. In addition, as
a result of the acquisition of Culver City Composites, the Company had
approximately $32,165 of net operating loss carryforwards which extend to
2002-2010. The utilization of these carryforwards is limited to approximately
$500 each year as a result of the December 1995 "change in ownership" as defined
in the Internal Revenue Code.
21
<PAGE> 23
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans. Substantially all U.S.-based non-bargaining
unit employees of the Company are eligible to participate in one of two defined
contribution plans. Participants can contribute up to 12% or 19% of their annual
salary and receive a matching contribution from the employer according to the
provisions of the respective plan documents. The expense of the defined
contribution plans for the years ended December 31, 1997 and 1996 was $34 and
$66, respectively.
Defined Benefit Plan. The Company maintains a defined benefit pension plan
covering all bargaining unit employees. The plan provides for monthly benefit
payments upon retirement based on a fixed monthly payment for each year of
credited service. Plan contributions are made in accordance with ERISA
regulations. The plan maintains investments in various pooled funds at a bank.
Net periodic pension cost was $25 and $23 for the years ended December 31, 1997
and 1996, respectively. The net pension asset at December 31, 1997 was $37 (net
liability of $38 at December 31, 1996).
The components of net pension costs for the years ended December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Service cost for benefits earned............................ $ 25 $ 24
Interest cost on projected benefit obligation............... 71 71
Expected return on plan assets.............................. (77) (79)
Prior service cost amortization............................. 8 9
Net actuarial gain assumption............................... (10) (10)
Expenses.................................................... 8 8
---- ----
Net pension cost.......................................... $ 25 $ 23
==== ====
</TABLE>
The following table summarizes the funded status of the plan and amounts
recognized in the consolidated balance sheet at December 31, 1997 and 1996,
using a valuation date of August 1:
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $ 925 $899
Non-vested benefit obligation............................. 4 2
------ ----
Projected benefit obligation.............................. 929 901
Plan assets at fair value................................... 1,049 863
------ ----
Excess (deficiency) of plan assets over projected benefit
obligation................................................ 120 (38)
Unrecognized net (gain) loss................................ (146) 9
Unrecognized prior service cost............................. 63 71
Adjustment to recognized minimum liability.................. -- (80)
------ ----
Net pension asset (liability) recognized.................... $ 37 $(38)
====== ====
Assumptions used:
Discount rate............................................. 8% 8%
------ ----
Long-term rate of return on plan assets................... 9% 9%
------ ----
</TABLE>
10. STOCKHOLDERS' EQUITY
Common Stock. In July 1996 the Company completed an initial public offering
of 2,000,000 shares of its common stock at $5.50 per share. The underwriter
subsequently exercised an option to purchase an additional
22
<PAGE> 24
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
296,000 shares at $5.50 per share. Net proceeds were $10,215. Also in 1996 the
Company sold 11,364 shares of common stock for $50 in a private transaction.
The Company issued 25,000 shares of common stock in 1996 and an additional
75,000 shares in 1997 in consideration for the extension of an exclusive license
granted pursuant to a joint venture agreement dated March 1996. These shares
were valued at $4.00 per share.
As partial consideration for the purchase of Grafalloy (Note 3), the
Company issued 179,492 shares of common stock valued at $987. On December 1,
1997, the Company repurchased 172,582 of these shares for promissory notes
aggregating $345 due in February 1999.
Stock Option Plans. The Company's 1996 Incentive and Nonqualified Stock
Option Plan ("1996 Plan") was adopted in February 1996 and its 1997 Stock Option
Plan ("1997 Plan") was adopted in March 1997 and approved by stockholders in May
1997. A total of 350,000 shares of common stock are reserved for issuance under
each plan. Options may be granted to officers, directors, and employees of the
Company and to consultants who provide services to the Company. The Board of
Directors determines individuals to whom options will be granted, the option
exercise price and other terms of each award, subject to the provisions of the
plans. The plans expire in 2006 and 2007, respectively.
Under both plans, no option may extend for more than ten years from the
date of grant. The exercise price for incentive stock options (as defined in the
Internal Revenue Code of 1986) may not be less than the fair market value of the
common stock at the date of grant. As of December 31, 1997 there were 25,387
unissued shares of common stock reserved for future grants under the plans.
In addition to options granted under the two plans, the Company in 1995
issued options to purchase 133,303 shares at $0.86 per share and 9,999 shares at
$1.50 per share, and in 1997 issued options to purchase 42,000 shares at $4.88
per share (of which 20,000 subsequently were canceled). The options vest over
periods of up to four years.
Shares subject to option for the years ended December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........... 289,902 $2.36 143,302 $0.90
Granted.................................... 625,313 5.02 151,400 3.68
Exercised.................................. -- --
Canceled................................... (77,300) 4.94 (4,800) 4.00
------- ----- -------- -----
Outstanding at end of year................. 837,915 $4.11 289,902 $2.36
Exercisable at end of year................. 209,218 $2.91 46,934 $0.89
Weighted average fair value of options
granted during the year.................. $2.01 $1.55
</TABLE>
23
<PAGE> 25
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.78 to
$1.50....... 168,302 7.5 $0.92 100,118 $0.90
$4.31 to
$6.25....... 669,613 9.1 $4.91 109,100 $4.76
------- --- ----- ------- -----
837,915 8.7 $4.11 209,218 $2.91
</TABLE>
The Company applies APB 25 and related interpretations in accounting for
grants to employees under its stock option plans. Because the exercise price of
the options equals the market price of the underlying stock on the date of
grant, no compensation cost has been recognized in the Company's financial
statements. Pro forma disclosures assuming compensation cost had been determined
based on the fair value of stock options at the grant dates consistent with the
method of SFAS 123 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C> <C>
Net income (loss) As reported............................ $(5,894) $ 928
Pro forma.............................. $(6,161) $ 886
Per share:
Basic As reported............................ $ (1.35) $0.34
Pro forma.............................. $ (1.42) $0.32
Diluted As reported............................ $ (1.35) $0.32
Pro forma.............................. $ (1.42) $0.30
</TABLE>
The fair value of options granted has been estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1997 and 1996 respectively: expected volatility of 50%
and 45% (based on the historical volatility of a sample of similar companies);
risk-free interest rates of 5.5% and 6.4%; expected lives of 5 years; and no
dividend yield. For purposes of the pro forma disclosures, the estimated fair
value of the options has been amortized to expense over the vesting period of
the options.
Warrants. In connection with its initial public offering in July 1996, the
Company issued a warrant to purchase 200,000 shares of common stock to the
representative of the underwriters. The warrant is exercisable at $8.80 per
share through June 2001. The Company has also issued five-year warrants to
consultants to purchase 95,000 shares of common stock at prices of $4.00 and
$4.88 per share.
24
<PAGE> 26
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Information regarding the directors and executive officers of the Company
is included under the caption "Election of Directors" in the Company's
Definitive Proxy Statement for its 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information regarding executive compensation is presented under the caption
"Compensation of Executive Officers' in the Company's Definitive Proxy Statement
for its 1998 Annual Meeting of Stockholders and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership is presented under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Definitive Proxy Statement for its 1998 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related transactions is included under the caption
"Certain Transactions" in the Company's Definitive Proxy Statement for its 1998
Annual Meeting of Stockholders and is incorporated herein by reference.
25
<PAGE> 27
ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1(a) Restated Certificate of Incorporation of the Company
3.2(a) Amended and Restated By-Laws of the Company
4.1(a) Specimen certificate for the Common Stock of the Company
4.2(a) Form of Representative's Warrant
4.3(a) Form of Lock-Up Agreement
10.3(a)(g) Employment Agreement with Paul W. Pendorf, as amended
10.3.1(a)(g) Option Agreement for Paul W. Pendorf
10.5(a)(g) Employment Agreement with Philip D. Cunningham
10.6(a)(g) Employment Agreement with Leslie J. Cohen
10.7(a) Purchase Agreement between the Company and Montecatini
U.S.A., Inc. dated November 16, 1995
10.8(a) Assignment and Assumption Agreement between the Company and
AMT Sub, Inc. dated December 19, 1995
10.9(a) Lease Agreement dated March 1, 1996 between Rodeo
Properties, Inc. as lessor and the Company as lessee for
property located at 5915 Rodeo Road, Los Angeles, California
10.10(a) Lease Agreement dated December 20, 1995 between Sybel Heller
Revocable Trust as lessor and the Company as lessee for
property located at 3512 Helms Avenue, Culver City,
California
10.11(a) Lease Agreement dated December 8, 1988 between Lawrence
Greener (Trustee) as lessor and the Company as lessee for
property located at 8592 National Blvd., Culver City,
California, together with Amendment Nos.1-4
10.12(a) Lease Agreement dated October 31, 1994 between Bostwick &
Newman as lessor and the Company as lessee for property
located at 3517 Schaefer Street, Culver City, California,
together with Amendment No. 1 thereto.
10.13(a) Loan and Security Agreement between Culver City Composites
Corporation and LaSalle Business Credit, Inc., dated
December 19, 1995
10.15(a) $4,400,000 Revolving Note of the Culver City Composites
Corporation dated December 19, 1995 in favor of LaSalle
Business Credit, Inc.
10.16(a) Guaranty of the Company dated December 19, 1995 in favor of
LaSalle Business Credit, Inc.
10.17(a) Stock Pledge Agreement between the Company and LaSalle
Business Credit, Inc., dated December 19, 1995
10.22(a) Joint Venture Agreement dated March 20, 1996 among AMT,
Culver City Composites Corporation, Advanced Polymer
Sciences, Inc., and Donald J. Keehan
10.23(a)(g) 1996 Incentive and Nonqualified Stock Option Plan
10.25(a) Retirement Plan for Hourly-Rate Employees of Structural
Polymer Systems, Inc., effective as of August 1, 1994
10.31(b) Form of Indemnity Agreement for Directors of the Company
10.32(b) Agreement among the Company, Carbon Design Partnership
Limited, et. al. dated November 22, 1996
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.33(b) Consulting Agreement between the Company and MapleWood, Inc.
dated July 1, 1996
10.34(c) Asset Purchase Agreement dated February 27, 1997 among the
Company, Grafalloy Acquisition Corporation, Grafalloy L.P.
and Grafalloy, Inc.
10.35(c)(g) Employment Agreement dated February 27, 1997 between
Grafalloy Acquisition Corporation and William C. Gerhart
10.36(c) Guaranty of the Company, dated February 27, 1997
10.37(c) Lease Agreement between Grafalloy, Inc. and Robert and Alice
C. Campbell, dated July 21, 1993, as amended
10.38(d) Loan and Security Agreement dated April 7, 1997 between
Grafalloy Corporation and LaSalle Business Credit, Inc.
10.39(d) Stock Pledge Agreement dated April 7, 1997 by the Company in
favor of LaSalle Business Credit, Inc.
10.40(d) $3,000,000 Revolving Note of Grafalloy Corporation dated
April 7, 1997 in favor of LaSalle Business Credit, Inc.
10.41(d) $300,000 Term Note of Grafalloy Corporation dated April 7,
1997 in favor of LaSalle Business Credit, Inc.
10.42(d) $700,000 Capex Note of Grafalloy Corporation dated April 7,
1997 in favor of LaSalle Business Credit, Inc.
10.43(d) Guaranty of the Company dated April 7, 1997 in favor of
LaSalle Business Credit, Inc.
10.44(d) First Amendment to Loan and Security Agreement by and
between Culver City Composites Corporation and LaSalle
Business Credit, Inc., dated April 7, 1997
10.45(d) $727,000 Term Note of Culver City Composites Corporation
dated April 7, 1997 in favor of LaSalle Business Credit
10.46(d) $1,000,000 Capex Note of Culver City Composites Corporation
dated April 7, 1997 in favor of LaSalle Business Credit
10.47(d) Reaffirmation of Guaranty of the Company in favor of LaSalle
Business Credit, dated April 7, 1997
10.48(e) Addendum dated June 27, 1997 to Employment Agreement of
Leslie J. Cohen
10.49(e) Agreement dated May 1, 1997 between Culver City Composites
Corporation and the Stove, Furnace, Energy and Allied
Appliance Workers Division International Brotherhood of
Boilermakers, Iron Ship Builders, Blacksmiths, Forgers &
Helpers, AFL-CIO, CFL, Local Lodge No. S230
10.50(f)(g) 1997 Stock Option Plan
10.51(g) Employment Agreement dated October 13, 1997 between the
Company and James L. Russell
10.52(g) Employment Agreement dated March 4, 1998 between the Company
and Jorg R. Huber
10.53 Product Development, Manufacturing and Marketing Agreement
dated October 1, 1997 among the Company, Schappe Techniques
Sarl, and AIK Advanced Composites GmbH
11 Computation of Net Income (Loss) per Share
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
21 Subsidiaries of the Company
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
- ---------------
(a) Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-3836, as filed on April 19, 1996 and thereafter amended.
(b) Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-11755, as filed on September 11, 1996 and thereafter
amended.
(c) Incorporated by reference to the Company's Form 10-KSB for the year ended
December 31, 1996
(d) Incorporated by reference to the Company's Form 10-QSB for the quarter ended
March 31, 1997
(e) Incorporated by reference to the Company's Form 10-QSB for the quarter ended
June 30, 1997
(f) Incorporated by reference to the Company's 1997 Definitive Proxy Statement
(g) Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c ).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE AMERICAN MATERIALS & TECHNOLOGIES
CORPORATION
By: /s/ JAMES L. RUSSELL
---------------------------------------
James L. Russell
Vice President and
Chief Financial Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PAUL W. PENDORF President and Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Paul W. Pendorf
/s/ JAMES L. RUSSELL Vice President and Chief Financial Officer (principal
- ----------------------------------------------------- financial officer)
James L. Russell
/s/ STEVEN GEORGIEV Chairman of the Board
- -----------------------------------------------------
Steven Georgiev
/s/ ROBERT V. GLASER Director
- -----------------------------------------------------
Robert V. Glaser
/s/ BUSTER C. GLOSSON Director
- -----------------------------------------------------
Buster C. Glosson
</TABLE>
29
<PAGE> 1
Exhibit 10.51
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of October 13, 1997,
between The American Materials & Technologies Corporation, a Delaware
corporation ("the Company") and James L. Russell, an individual ("Executive").
WITNESSETH THAT:
WHEREAS, the Company desires to employ Executive as its Vice President
and Chief Financial Officer for the period and upon and subject to the terms
herein provided; and
WHEREAS, Executive is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
SECTION 1. TERM OF EMPLOYMENT; COMPENSATION. The Company agrees to
employ Executive from the date hereof until October 13, 2000, in an executive
capacity as Vice President and Chief Financial Officer, with the
responsibilities and benefits normally associated with such position. The
Company will pay Executive for his services during the term of the Executive's
employment hereunder at an annual rate of not less than $135,000, payable
semi-monthly in accordance with standard Company practice, subject to such
payroll and withholding deductions as are required by law. Executive's base
salary shall be subject to annual review commencing December 31, 1998. Executive
shall be entitled to receive an annual bonus for each year of employment under
this Agreement, in an amount to be determined by the Compensation Committee of
the Company's Board of Directors. In addition, the Company shall cause Executive
to be granted an option to purchase 25,000 shares of common stock, $.01 par
value, of the Company at a purchase price equal to the closing market price on
the day prior to the date of the next meeting of the Company's Board of
Directors. Such option will have a term of ten years and vest in equal annual
installments over a period of four years from the date of grant, and shall be
subject to the other terms and conditions customarily attached to options issued
by the Company under its Incentive and Nonqualified Stock Option Plans.
Notwithstanding the preceding sentence of this Section 1, all options granted
pursuant to this Section 1 shall vest in full upon and immediately prior to the
sale of all or substantially all of the assets of the Company or the merger of
the Company with any other corporation or other entity as a result of or as a
part of any change in control of the Company.
SECTION 2. OFFICE AND DUTIES. Executive shall have responsibility,
subject to the Board of Directors of the Company, for participating in the
management and direction of the Company's business and shall perform such tasks
and duties as may from time to time be
37
<PAGE> 2
assigned to the Executive by the President and/or the Board of Directors;
provided that Executive's duties shall not be inconsistent with Executive's
title and position. Executive shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder. During the term of his employment, Executive shall not
directly or indirectly pursue any other business activity without the Company's
prior written consent. Executive agrees that he will travel to whatever extent
is reasonably necessary in the conduct of the Company's business and agrees to
relocate his residence to the Los Angeles, California area.
SECTION 3. EXPENSES. Executive shall be entitled to prompt reimbursement
for expenses incurred by him in connection with the performance of his duties
hereunder upon submission of vouchers therefor in accordance with the Company's
established procedures. In addition, the Company agrees to pay $1,500 per month
for temporary living expenses for a period of ten months in connection with
Executive's relocation to the Los Angeles area. The Company also agrees to pay
for moving Executive's household goods, furniture and personal property from La
Jolla, California to Los Angeles, and to reimburse real estate commissions (up
to 6%) upon the sale of Executive's current residence.
SECTION 4. VACATION. Executive shall be entitled to a paid vacation of
four weeks per year.
SECTION 5. ADDITIONAL BENEFITS. Executive shall be entitled to
participate in all fringe benefit plans which the Company may, in its sole and
absolute discretion, make available generally to its employees, including
medical, dental long-term disability, life insurance, and 401(k) plan. However,
the Company shall not be required to establish or maintain any such program of
plan.
SECTION 6. TERMINATION OF EMPLOYMENT. (a) Notwithstanding any other
provision of this Agreement, Executive's employment may be terminated:
(i) By the Company without cause, in which event the Company shall
pay to Executive an amount equal to one year's base salary.
(ii) In the event of the Executive's termination following the sale or
merger or other change in control of the Company, Executive shall
be paid an amount equal to the then current base salary for a
period of twelve months plus a bonus amount equal to 20% of such
annual salary. Executive shall also be paid a pro-rata bonus,
computed at 20% of salary, for the portion of the current fiscal
year through date of termination.
(iii) By the Company for "Cause" (as hereafter defined) in which event
the Company's obligation to pay future compensation hereunder shall
cease, except for any obligation of the company under any
compensation or benefit plan in which Executive is then a vested
beneficiary. "Cause" means:
38
<PAGE> 3
(A) Executive's material failure, refusal or inability to perform,
neglect of, or carrying out in an irresponsible way his duties
hereunder, or breach of any one or more of the material
provisions of this Agreement, which shall have continued for a
period of thirty days (or such longer period as is reasonable
required to cure such breach with diligent and good faith
effort) after written notice to Executive from the President
or other representative of the Board of Directors of the
Company specifying such breach or failure and which shall not
have resulted from a breach of any material provision of this
Agreement by the Company;
(B) Inability of Executive to discharge his duties hereunder for
one or more period totaling three consecutive months during
any consecutive twelve month period due to illness, accident
or other disability (mental or physical); or
(C) Conviction of Executive for any crime involving moral
turpitude or any other illegal act that materially and
adversely reflects upon the business affairs or reputation of
the company or on Executive's ability to perform his duties
hereunder.
(iv) By the Executive for any reason upon two weeks' written notice, in
which event the Company's obligation to pay future compensation
hereunder shall cease, except for any obligation of the Company
under any compensation or benefit plan in which Executive is then a
vested beneficiary; provided, however, that if such termination by
the Executive is the result of a material breach by the Company of
the terms hereof which continues for ten days (or such longer
period as is reasonably required to cure such breach with diligent
and good faith effort) after the Company's receipt of written
notice thereof, then the Company shall pay to Executive an amount
equal to twelve months' base salary plus any bonus earned under
this Agreement, such bonus amount to be computed on a pro rata
basis according to the number of months of employment completed
during such fiscal year. In addition, all of Executive's stock
options granted pursuant to the Agreement shall become vested in
full and immediately exercisable.
(b) In the event of Executive's death during the term of his employment,
the Company's obligation to pay any further compensation hereunder shall cease,
except that Executive's legal representative shall be entitled to receive his
fixed compensation for the period up to the last day of the month in which such
death shall have occurred.
SECTION 7. CONFIDENTIALITY. Executive shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any information concerning the affairs of
the Company not already lawfully generally available. Upon the termination of
Executive's employment, Executive shall promptly surrender to the Company all
documents, materials, data, information and equipment belonging to or relating
to
39
<PAGE> 4
the Company's business and in his possession, custody or control, and Executive
shall not thereafter retain or deliver to any other person any of the foregoing.
SECTION 8. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered or three
days after mailing if mailed by first-class, registered or certified mail,
postage prepaid, addressed, if to Executive, at his current residence and, if to
the Company, to its corporate office at 5915 Rodeo Road, Los Angeles, California
90016.
SECTION 9. ASSIGNABILITY. This Agreement shall not be assignable by
Executive, but it shall be binding upon, and to the extent provided in SECTION 6
shall inure to the benefit of, his heirs, executors, administrators and legal
representatives.
SECTION 10. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the Company and Executive with respect to the subject matter
thereof and there have been no oral or other agreements of any kind whatsoever
as a condition precedent or inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof.
SECTION 11. EXPENSES. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel, except as otherwise herein specifically provided.
SECTION 12. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it by its own terms explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to executive
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
SECTION 13. AMENDMENTS. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification , consent or discharge is
sought.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the law of the State of California.
40
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed or this Agreement as of
the date first above written.
THE AMERICAN MATERIALS & TECHNOLOGIES
CORPORATION
By: /s/ Paul W. Pendorf
-----------------------------------
Paul W. Pendorf
President & Chief Executive Officer
EXECUTIVE
/s/ James L. Russell
-----------------------------------
James L. Russell
41
<PAGE> 1
Exhibit 10.52
EMPLOYMENT AGREEMENT
March 4, 1998
Mr. Jorg R. Huber
14020 Old Harbor Lane
Suite #206
Marina Del Rey, CA 90292
Dear Mr. Huber:
The American Materials & Technologies Corporation (AMT) is pleased to offer you
employment at President and Chief Operating officer of its subsidiary, Culver
City Composites Corporation. You will report to Paul W. Pendorf, Chairman &
Chief Executive Officer.
The job offer includes the following:
- - An annual salary of $145,000 to be paid semi-monthly, which will be
reviewed at December 31, 1998.
- - Eligible for an annual bonus based upon EBITDA of Culver City Composites
Corporation for calendar year 1998. If EBITDA is at least $2.9 million,
you will be paid a bonus of 30% of your annual salary. The bonus will be
increased pro-rata for EBITDA in excess of $2.9 million. At EBITDA of
$4.0 million, the bonus will be 45% of salary and capped at that point.
A similar arrangement will be in effect for the following years on
EBITDA targets to be agreed upon.
- - Stock options for 60,000 shares of AMT common stock at an exercise price
of $2.00 per share. These options will have a term of ten years and vest
in equal installments over three years from the date of grant.
- - Four weeks paid vacation per year (three weeks in 1998).
- - An automobile allowance of $550 per month plus insurance, gas and
repairs associated with business.
- - Standard employee benefit package, including medical, dental, long-term
disability, life insurance and 401(k) savings plan.
- - In the event of a change in control of AMT, you will be entitled to
severance equal to two years' salary, to be paid within two weeks
following termination. If terminated under your
42
<PAGE> 2
employment contract without change of ownership other than for cause
during the first year of employment, you will be entitled to one year's
salary. This will increase by one month for each month of the second
year of employment to a maximum of two years. Severance will be paid
monthly and will terminate upon your accepting new employment. In the
event of a change in control, your stock options will be 100% vested.
- - If AMT is beneficiary under a key-man life insurance policy, you agree
that Mrs. Huber will waive the marital right.
- - Relocation expenses of $15,000 when your household goods are relocated.
This offer is contingent upon your passing a pre-employment physical and drug
screen and providing employment eligibility verification pursuant to the
Immigration and Control Act of 1986.
This concludes AMT's offer of employment and supersedes any prior oral or
written agreements.
The American Materials & Technologies Corporation
By: /s/ Paul W. Pendorf
-----------------------------
Paul W. Pendorf
President
I accept the offer of employment from AMT, effective March 16, 1998.
/s/ Jorg R. Huber March 4, 1998
- --------------------------------
43
<PAGE> 3
Exhibit 10.53
PRODUCT DEVELOPMENT, MANUFACTURING AND MARKETING AGREEMENT
October 1, 1997
The parties to this agreement, being Schappe Techniques Sarl
("SCHAPPE"), a French company, with location at B.P. 5, 01800 Charnoz, France;
AIK Advanced Composites GmbH ("AIK"), a German company with location at
Otto-Hahn Strasse 5, Industriepark Kassel-Waldau, D-34123 Kassel, Germany; and
Culver City Composites Corporation ("Culver City Composites"), a Delaware U.S.A.
corporation with offices at 5915 Rodeo Road, Los Angeles, California, U.S.A.,
desiring to be bound herein do hereby agree as follows:
WHEREAS, Schappe has long established technical expertise going back to
the late 19th century, starting with the spinning of silk yarns and progressing
to utilization of this technology in the processing of newer synthetic
materials, and
WHEREAS, Schappe has a factory in St.-Die France capable of producing
approximately 300 metric tons per year of processed carbon fiber (24 hours per
day/five days per week) and currently is producing approximately 50 MT per year,
and
WHEREAS, Schappe has patented technology, both in Europe and the U.S.,
covering the conversion of high tow continuous fiber to low tow discontinuous
fiber equivalent (Exhibit A).
WHEREAS, Culver City Composites has a prepregging tradition in the
aerospace industry going back to the World War II era, and
WHEREAS, said tradition includes the manufacture of aircraft interior
prepregs with superior resin properties, and
WHEREAS, Culver City Composites is one of the two leading suppliers of
prepreg for aerospace interior applications used by the Boeing Company and
Airbus Industries, and
WHEREAS, Culver City Composites' initial development work has indicated
that the Schappe process carbon and other fibers can be successfully woven and
prepregged and laminated into the cured forms having initially equivalent
physical and mechanical properties compared to conventional interior composites
materials, and
WHEREAS Culver City Composites is currently engaged in large volume
developmental businesses with focus including automotive, sporting goods
(Exhibit B), and others, and
WHEREAS, AIK is a joint venture that will be owned by AIK Industries
GmbH and Culver City Composites, formed to manufacture and sell prepreg in
Europe, and
44
<PAGE> 4
WHEREAS, the parties believe that prepreg sold to the aerospace industry
as well as other applications (Exhibit B) has very superior economics compared
to current conventional materials, and
WHEREAS, the parties desire to commercially develop said economic
potential of Modlite(R) products and technology via a cooperative world wide
effort,
NOW, THEREFORE the parties agree as follows:
DEVELOPMENTAL PHASE
1. The parties agree to continue to develop fiber, uni-directional tape
(UDT) woven fabric and prepregging techniques to the point where
economics can be clearly defined, and to where qualification quantities
can be supplied to Airbus and Boeing and elsewhere as shown in Exhibit
B. Unless otherwise agreed, Schappe will absorb all costs associated
with delivery of Modlite(R) yarn to Culver City Composites, and Culver
City Composites and AIK will absorb all costs associated with weaving
and prepregging.
2. Culver City Composites will develop a laminate data package to provide
to Boeing and Airbus and later, others as developments dictate (See
Exhibit B). The Boeing Company will be offered a five-year supply
agreement based on firm quotes from Courtaulds, Fortafil, Schappe, TPI
and Culver City Composites. Airbus will be offered a five-year supply
agreement based on firm quotes from Courtaulds, Fortafil, Schappe, a
European weaver (to be selected), and AIK.
3. During the period of the development phase, Schappe, Culver City
Composites and AIK agree to a formal technical exchange meeting three
times a year, one each in France, Germany, and California. The host of
the meeting will prepare an agenda 30 days prior to each meeting for
review and comment by the other two parties.
SUPPLY AGREEMENT
1. Schappe will supply its Modlite(R) fiber yarn (See Exhibit C), based
upon the patented technology, to Culver City Composites and to AIK on an
exclusive world wide basis for an initial period of five years. (See
sole exception Exhibit A Item E).
2. Culver City Composites and AIK agree to exclusively use Schappe
Modlite(R) fiber in the development of the market for discontinuous
carbon fiber aircraft interiors and other applications as shown in
Exhibit B as appropriate.
3. For commercial quantities including the qualification process
completion, Schappe, Culver City Composites and AIK will share equally
in the profits of the sales to Boeing and Airbus, after consideration is
given to their out of pocket cost (incremental "cash cost") and later
other customers (See Exhibit B).
45
<PAGE> 5
MARKETING AGREEMENT
Culver City Composites and AIK agree that AIK will market the prepreg in
the European territory and Culver City Composites will market outside of Europe,
using a coordinated marketing strategy to develop initially the market for
aircraft interiors, followed by the market for other transportation interiors.
The parties agree to exclusively promote the material using the trade mark
"Modlite(R)" and others (See Exhibit B) in all communications.
ADMINISTRATION
There will be an Executive Council designated by Schappe, Culver City
Composites and AIK. One representative from each company will be designated and
this administrative council will be responsible for implementing the tenets of
this agreement. All decisions by the Council are to be unanimous. The council is
to meet at least twice a year -- once in the U.S. and once in Europe.
EXCLUSIVE MANUFACTURING AND TRADEMARK LICENSES
If, as the American market develops, it is determined by the executive
council that American yarn manufacture is desirable, the council will determine
the method by which said plant will be financed and capitalized. It is agreed
that a minimum of 200 metric tons per year production rate must be maintained at
Schappe once that production level is achieved. Schappe, Culver City Composites,
and AIK agree for the term of this agreement not to enter into any negotiations
with any other parties regarding yarn manufacture or prepregging of the
Modlite(R) products.
It is the intention of the parties to systematically, over a 5-10 year
period, develop and introduce a family of products incorporating the Modlite(R)
Schappe yarns as starting material. Culver City Composites or AIK shall have the
lead responsibility within the executive council for market development and
identification of market place opportunities. Schappe shall have total access to
the market information as developed.
TERM
This agreement shall be for an initial term of five years which shall
roll over for two three-year additional terms, absent a ninety-day termination
notice of intent by any of the partners.
CONFIDENTIALITY
The parties agree to enter into full confidentiality agreements covering
all aspects of this agreement.
46
<PAGE> 6
AGREED:
AIK Advanced Composites GmbH /s/ Han J. Prykop
--------------------------------
Hans J. Prykop
Geschaeftsfuehrer
Culver City Composites Corp. /s/ P. W. Pendorf
--------------------------------
P. W. Pendorf
President
Schappe Techniques Sarl /s/ Jean Guevel
--------------------------------
Jean Guevel
Managing Director
47
<PAGE> 1
Exhibit 10.51
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of October 13, 1997,
between The American Materials & Technologies Corporation, a Delaware
corporation ("the Company") and James L. Russell, an individual ("Executive").
WITNESSETH THAT:
WHEREAS, the Company desires to employ Executive as its Vice President
and Chief Financial Officer for the period and upon and subject to the terms
herein provided; and
WHEREAS, Executive is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
SECTION 1. TERM OF EMPLOYMENT; COMPENSATION. The Company agrees to
employ Executive from the date hereof until October 13, 2000, in an executive
capacity as Vice President and Chief Financial Officer, with the
responsibilities and benefits normally associated with such position. The
Company will pay Executive for his services during the term of the Executive's
employment hereunder at an annual rate of not less than $135,000, payable
semi-monthly in accordance with standard Company practice, subject to such
payroll and withholding deductions as are required by law. Executive's base
salary shall be subject to annual review commencing December 31, 1998. Executive
shall be entitled to receive an annual bonus for each year of employment under
this Agreement, in an amount to be determined by the Compensation Committee of
the Company's Board of Directors. In addition, the Company shall cause Executive
to be granted an option to purchase 25,000 shares of common stock, $.01 par
value, of the Company at a purchase price equal to the closing market price on
the day prior to the date of the next meeting of the Company's Board of
Directors. Such option will have a term of ten years and vest in equal annual
installments over a period of four years from the date of grant, and shall be
subject to the other terms and conditions customarily attached to options issued
by the Company under its Incentive and Nonqualified Stock Option Plans.
Notwithstanding the preceding sentence of this Section 1, all options granted
pursuant to this Section 1 shall vest in full upon and immediately prior to the
sale of all or substantially all of the assets of the Company or the merger of
the Company with any other corporation or other entity as a result of or as a
part of any change in control of the Company.
SECTION 2. OFFICE AND DUTIES. Executive shall have responsibility,
subject to the Board of Directors of the Company, for participating in the
management and direction of the Company's business and shall perform such tasks
and duties as may from time to time be
37
<PAGE> 2
assigned to the Executive by the President and/or the Board of Directors;
provided that Executive's duties shall not be inconsistent with Executive's
title and position. Executive shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder. During the term of his employment, Executive shall not
directly or indirectly pursue any other business activity without the Company's
prior written consent. Executive agrees that he will travel to whatever extent
is reasonably necessary in the conduct of the Company's business and agrees to
relocate his residence to the Los Angeles, California area.
SECTION 3. EXPENSES. Executive shall be entitled to prompt reimbursement
for expenses incurred by him in connection with the performance of his duties
hereunder upon submission of vouchers therefor in accordance with the Company's
established procedures. In addition, the Company agrees to pay $1,500 per month
for temporary living expenses for a period of ten months in connection with
Executive's relocation to the Los Angeles area. The Company also agrees to pay
for moving Executive's household goods, furniture and personal property from La
Jolla, California to Los Angeles, and to reimburse real estate commissions (up
to 6%) upon the sale of Executive's current residence.
SECTION 4. VACATION. Executive shall be entitled to a paid vacation of
four weeks per year.
SECTION 5. ADDITIONAL BENEFITS. Executive shall be entitled to
participate in all fringe benefit plans which the Company may, in its sole and
absolute discretion, make available generally to its employees, including
medical, dental long-term disability, life insurance, and 401(k) plan. However,
the Company shall not be required to establish or maintain any such program of
plan.
SECTION 6. TERMINATION OF EMPLOYMENT. (a) Notwithstanding any other
provision of this Agreement, Executive's employment may be terminated:
(i) By the Company without cause, in which event the Company shall
pay to Executive an amount equal to one year's base salary.
(ii) In the event of the Executive's termination following the sale or
merger or other change in control of the Company, Executive shall
be paid an amount equal to the then current base salary for a
period of twelve months plus a bonus amount equal to 20% of such
annual salary. Executive shall also be paid a pro-rata bonus,
computed at 20% of salary, for the portion of the current fiscal
year through date of termination.
(iii) By the Company for "Cause" (as hereafter defined) in which event
the Company's obligation to pay future compensation hereunder shall
cease, except for any obligation of the company under any
compensation or benefit plan in which Executive is then a vested
beneficiary. "Cause" means:
38
<PAGE> 3
(A) Executive's material failure, refusal or inability to perform,
neglect of, or carrying out in an irresponsible way his duties
hereunder, or breach of any one or more of the material
provisions of this Agreement, which shall have continued for a
period of thirty days (or such longer period as is reasonable
required to cure such breach with diligent and good faith
effort) after written notice to Executive from the President
or other representative of the Board of Directors of the
Company specifying such breach or failure and which shall not
have resulted from a breach of any material provision of this
Agreement by the Company;
(B) Inability of Executive to discharge his duties hereunder for
one or more period totaling three consecutive months during
any consecutive twelve month period due to illness, accident
or other disability (mental or physical); or
(C) Conviction of Executive for any crime involving moral
turpitude or any other illegal act that materially and
adversely reflects upon the business affairs or reputation of
the company or on Executive's ability to perform his duties
hereunder.
(iv) By the Executive for any reason upon two weeks' written notice, in
which event the Company's obligation to pay future compensation
hereunder shall cease, except for any obligation of the Company
under any compensation or benefit plan in which Executive is then a
vested beneficiary; provided, however, that if such termination by
the Executive is the result of a material breach by the Company of
the terms hereof which continues for ten days (or such longer
period as is reasonably required to cure such breach with diligent
and good faith effort) after the Company's receipt of written
notice thereof, then the Company shall pay to Executive an amount
equal to twelve months' base salary plus any bonus earned under
this Agreement, such bonus amount to be computed on a pro rata
basis according to the number of months of employment completed
during such fiscal year. In addition, all of Executive's stock
options granted pursuant to the Agreement shall become vested in
full and immediately exercisable.
(b) In the event of Executive's death during the term of his employment,
the Company's obligation to pay any further compensation hereunder shall cease,
except that Executive's legal representative shall be entitled to receive his
fixed compensation for the period up to the last day of the month in which such
death shall have occurred.
SECTION 7. CONFIDENTIALITY. Executive shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any information concerning the affairs of
the Company not already lawfully generally available. Upon the termination of
Executive's employment, Executive shall promptly surrender to the Company all
documents, materials, data, information and equipment belonging to or relating
to
39
<PAGE> 4
the Company's business and in his possession, custody or control, and Executive
shall not thereafter retain or deliver to any other person any of the foregoing.
SECTION 8. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered or three
days after mailing if mailed by first-class, registered or certified mail,
postage prepaid, addressed, if to Executive, at his current residence and, if to
the Company, to its corporate office at 5915 Rodeo Road, Los Angeles, California
90016.
SECTION 9. ASSIGNABILITY. This Agreement shall not be assignable by
Executive, but it shall be binding upon, and to the extent provided in SECTION 6
shall inure to the benefit of, his heirs, executors, administrators and legal
representatives.
SECTION 10. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the Company and Executive with respect to the subject matter
thereof and there have been no oral or other agreements of any kind whatsoever
as a condition precedent or inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof.
SECTION 11. EXPENSES. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel, except as otherwise herein specifically provided.
SECTION 12. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it by its own terms explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to executive
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
SECTION 13. AMENDMENTS. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification , consent or discharge is
sought.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the law of the State of California.
40
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed or this Agreement as of
the date first above written.
THE AMERICAN MATERIALS & TECHNOLOGIES
CORPORATION
By: /s/ Paul W. Pendorf
-----------------------------------
Paul W. Pendorf
President & Chief Executive Officer
EXECUTIVE
/s/ James L. Russell
-----------------------------------
James L. Russell
41
<PAGE> 1
EXHIBIT 11
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Years Ended December 31, 1997 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Basic Earnings Per Share:
Net income (loss) $(5,894) $ 934
Weighted average number of shares 4,352 2,729
Net income (loss) per share $ (1.35) $ 0.32
======= =======
Diluted Earnings Per Share:
Net income (loss) $(5,894) $ 934
Weighted average number of shares:
Shares issued 4,352 2,729
Stock options -- 227
------- -------
Total 4,352 2,956
------- -------
Net income (loss) per share $ (1.35) $ 0.32
======= =======
</TABLE>
48
<PAGE> 1
EXHIBIT 21
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Incorporation Ownership %
- ------------------ ------------- --------- -
<S> <C> <C>
Culver City Composites Corporation Delaware 100
Grafalloy Corporation Delaware 100
Siloxirane Corporation Delaware 51
Carbon Design Partnership Limited United Kingdom 63
</TABLE>
49
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The American Materials & Technologies Corporation
We consent to incorporation by reference in Registration Statement No. 33-44082
on Form S-8 of The American Materials & Technologies Corporation of our report
dated February 6, 1998 (March 23, 1998, with respect to Note 5) relating to the
consolidated balance sheets of The American Materials & Technologies Corporation
as of December 31, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended, which
report appears in the annual report on Form 10-KSB of The American Materials &
Technologies Corporation for the year ended December 31, 1997.
Feldman Radin & Co. PC
New York, NY
March 27, 1998
50
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 92
<SECURITIES> 2,528
<RECEIVABLES> 4,476
<ALLOWANCES> 369
<INVENTORY> 3,742
<CURRENT-ASSETS> 11,128
<PP&E> 7,785
<DEPRECIATION> 1,550
<TOTAL-ASSETS> 23,059
<CURRENT-LIABILITIES> 12,224
<BONDS> 4,205
0
0
<COMMON> 12,238
<OTHER-SE> (5,608)
<TOTAL-LIABILITY-AND-EQUITY> 23,059
<SALES> 30,386
<TOTAL-REVENUES> 30,386
<CGS> 22,146
<TOTAL-COSTS> 36,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 603
<INCOME-PRETAX> (6,124)
<INCOME-TAX> 230
<INCOME-CONTINUING> (5,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,894)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
