<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Quarter Ended March 31, 1999.
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, for the Transition Period from to
Commission file number 1-9748
AMERICAN FILM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified its charter)
Delaware 23-2359277
(State or other jurisdiction of (IRS Employer Identification Number)
incorporated or organization)
4105 Sorrento Valley Blvd., San Diego, CA 92121
-----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code: (212) 572-6370
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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__
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS. Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes__ No X
As of March 31, 1999, there were 89,236,101 shares of common stock outstanding.
<PAGE>
Part 1 - FINANCIAL INFORMATION
American Film Technologies, Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31,
1999 June 30,
(Unaudited) 1998
----------- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 15,624 $ 23,336
Other current assets 4,320 9,612
---------- ---------
Total current assets 19,944 32,948
---------- ---------
Equipment and software, at cost, net 186,765 257,046
Film library, net - 37,500
---------- ---------
$ 206,709 $ 327,494
========== =========
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Notes payable: current portion $ 478,191 $ 478,191
Accounts payable and accrued expenses 714,240 582,826
---------- ---------
Total current liabilities 1,192,431 1,061,017
Long -Term notes payable 1,599,579 1,666,579
---------- ---------
Total Liabilities 2,792,010 2,727,596
---------- ---------
Stockholders' Equity (Deficit)
Common stock, $.002 par value:
Authorized shares - 225,000,000; issued
and outstanding shares 89,236,101
and 76,736,100 at March 31, 1999 and
June 30, 1998, respectively 178,473 153,473
Capital in excess of par value 16,965,115 16,797,115
Deferred compensation (922,000) (1,102,000)
Accumulated deficit (18,806,889) (18,248,690)
----------- -----------
Total stockholders' equity (deficit) (2,585,301) (2,400,102)
---------- -----------
$ 206,709 $ 327,494
========== ==========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
American Film Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues: $ - $ - $ - $ -
--------- ---------- -------- -------
- - - -
--------- ---------- -------- -------
Expenses:
Compensation and benefits -
administrative and officers 60,000 72,204 196,182 226,011
Selling, general and administrative 62,376 104,393 185,631 510,218
Interest expense 22,246 3,319 68,605 6,672
Depreciation and amortization 23,427 49,565 107,781 147,877
--------- ---------- -------- ----------
168,049 229,481 558,199 890,778
--------- ----------- --------- -----------
Net loss (168,049) $ (229,481) $ (558,199) $ (890,778)
========= =========== ============ ===========
Net loss per share - basic $ (0.00) $ (0.00) $ (0.01) $ (0.01)
Net loss per share - diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Shares used in the calculation of net
income (loss) per common share:
Basic 89,236,101 73,700,576 89,236,101 73,700,576
Diluted 162,816,100 142,738,000 160,361,800 140,805,000
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
American Film Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the nine
months ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (558,199) $ (890,778)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and Amortization 107,781 147,877
Amortization of Deferred Compensation 180,000 180,000
Changes in Assets and liabilities:
Other current assets and liabilities 5,292 10,822
Accounts payable and accrued expenses 131,414 (134,040)
Accrued compensation - -
----------- -----------
Net cash used by operating activities (133,712) (686,119)
----------- -----------
Cash Flows From Financing Activities:
Principal payments on notes payable - other - (35,274)
Proceeds from notes payable - other 33,000 396,706
Proceeds from sale of common stock 93,000 172,000
----------- -----------
Net cash provided by financing activities 126,000 533,432
----------- -----------
Net increase (decrease) in cash (7,712) (152,687)
Cash - beginning of period 23,336 159,730
----------- -----------
Cash - end of period $ 15,624 $ 7,043
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 880 $ 63,889
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to present
fairly the financial position as of March 31, 1999 and June 30, 1998, and the
results of operations and cash flows for the nine months ended March 31, 1999
and 1998. The results of operations for the nine months ended March 31, 1999 and
1998, are not necessarily indicative of the results to be expected for the full
year.
2. Reorganization Under Chapter 11
On October 15, 1993, the Company filed for protection from its creditors under
Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing was the
result of continuing defaults related to the Company's loans, recurring
operating losses and cash flow problems. The filing of a Chapter 11 petition
operates as a stay of, among other actions, the commencement or continuation of
a judicial administrative or other action or proceeding against a debtor that
was or could have been initiated before the commencement of a Chapter 11 case or
the enforcement against the debtor or against the property of the estate or a
judgment obtained before the commencement of the case. Under Chapter 11,
substantially all prepetition liabilities of debtors are subject to settlement
under a plan of reorganization. The consummation of a plan of reorganization is
dependent upon the satisfaction of numerous conditions, including, among other
things, the acceptance by several classes of interests and confirmation by the
Bankruptcy Court.
On October 6, 1995, The Company's Plan of Reorganization (the "Plan") was
approved by the Bankruptcy Court and became effective October 17, 1995.
4
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
3. Summary of Significant Accounting Policies
The Company
The Company's business is the production of color versions of motion pictures
and television programs originally produced in black and white. The Company has
produced colorized films for its own library and owns the copyrights on eleven
such films. These films are available for sale and or distribution.
Consolidation
The consolidated financial statements include the accounts of Midtech de Mexico,
S.A., the Company's wholly-owned Mexican subsidiary. All intercompany
transactions have been eliminated in consolidation.
Depreciation and Amortization
Depreciation and amortization are provided over the estimated useful lives of
the underlying assets using primarily the straight-line method over a five-year
period. The Film Library is being amortized over a three-year period. Leasehold
improvements are amortized over the life of the lease or the estimated useful
life of the assets.
Loss per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS 128 replaced
the previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share are calculated
utilizing weighted average shares outstanding and exclude any dilutive effects
of options, warrants and convertible securities. Diluted earnings per share
include the effect of dilutive securities outstanding. All earnings per share
amounts for all period presented, where necessary, have been restated to conform
to the SFAS 128 requirements.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee stock options. Under APB 25, for those Company
employee stock options issued with an exercise price not less than the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
5
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion should be read in conjunction with the consolidated financial
statements, related notes and management's discussion and analysis of financial
conditions and results of operations included in the Company's annual report on
Form 10-K for the year ended June 30, 1998.
Overview and Reorganization.
As stated previously, the Company's Plan of Reorganization (the "Plan") was
approved by the Bankruptcy Court and became effective October 17, 1995. Success
of the Company will, among other things, depend upon the resumption of
production in Mexico. That will require reemployment of selected former Mexican
employees. Since the Mexican operation was suspended in October 1993, the
Company believes most of the former employees have found other jobs. If the
Company is unable to rehire certain former employees, it will have to recruit
and train a new work force. That would delay the resumption of production and
increase the cost of production. As such, it could have a materially adverse
effect on the Company. Although the Company expects to benefit from the
devaluation of the peso, there is no assurance of how long those expected
benefits will last.
Since emerging from bankruptcy, the Company has actively pursued new product
development and opportunities, as well as strategic alliances, partners and
other sources of financing. The Company is in discussions with other potential
investors regarding the purchase of equity securities or other investments in
the Company, however, there can be no assurance that any transaction can be
negotiated or, if negotiated, that such a transaction can be consummated.
Results of Operations.
The financial results of the Company for each of the periods addressed by this
report do not reflect the earnings capacity of the Company. The financial data
for the periods ending March 31, 1999 and 1998 reflects the adoption of Fresh
Start Accounting. As such, the financial data is considered that of a Successor
Company and is not comparable to prior periods.
6
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Since the filing under Chapter 11 in October, 1993, the Company has not
generated any income from film colorization, animation or fee for service
orders. For the quarter ended March 31, 1999 the Company recorded net interest
expense of approximately $22,000 as compared to $3,000 for the period ended
March 31, 1998.
For the quarters ended March 31, 1999 and 1998 the Company recorded compensation
and benefits for its administration and officers of approximately $60,000 and
$72,000 respectively.
For the quarters ended March 31, 1999 and 1998, the Company recorded selling,
general and administrative expenses of approximately $62,000 and $104,000
respectively.
For the quarters ended March 31, 1999 and 1998, the Company recorded
depreciation and amortization expense of approximately $23,000 and $49,000
respectively.
For the quarters ended March 31, 1999 and 1998, the Company had a net loss of
approximately $168,000 and $230,000 respectively, or less than $0.01 cent per
share for each period.
Liquidity and Capital Resources.
During fiscal 1998, the Company's operations were financed almost entirely by
remaining working capital, proceeds from private placements of its securities
and purchases and option exercises by Gerald Wetzler. During this period
$855,965 in secured convertible notes were issued in a private placement.
Between July 1, 1998 and April 22, 1999 an additional $39,000 in secured
convertible notes were issued in a private placement.
The Company is continuing to experience cash flow difficulties. Mr. Wetzler has
continued to provide limited funds to meet minimum operating expenses on a month
to month basis. The Company was required to make a payment in October 1998 of
approximately $405,000 plus interest to unsecured creditors in connection with
its 1995 bankruptcy reorganization but has not made such payment. No creditor
has filed a complaint or objection or instituted any legal action to date
because of such failure. To the extent outside financing is not obtained in the
immediate future and if Mr. Wetzler determines not to continue funding the
Company on a month to month basis the Company will be liquidated. In such event
the shareholders in all likelihood will receive nothing in respect of their
stock.
7
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
In addition the company needs funding sufficient to enable it to become
operational again, although, the amount of funding required is contingent on a
number of variables such as the speed of the start up and initial production
capacity required; the Company believes that the minimum amount required
(including working capital) would be approximately $4,000,000.
The Company entered into an agreement on November 4, 1998, whereby it granted a
three month exclusive option to an individual in the entertainment industry to
nominate a majority of the Board of Directors and to acquire 51% of the stock of
the Registrant for $4,000,000. Although the option period has expired the
Company and the individual are continuing discussions regarding a material
investment in the Company. No assurance can be given that the transaction will
be consummated.
8
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On June 9, 1999, four stockholders of the Company filed suit in the Newcastle
County, Delaware Chancery Court against Mr. Gerald Wetzler, Chairman and Chief
Executive Officer of the Company, and the Company as a nominal defendant,
seeking on various grounds to abrogate a stock option agreement and secured
convertible note previously granted and issued by the Company in 1997 to Mr.
Wetzler, as previously disclosed at that time, and to terminate Mr. Wetzler's
1996 employment agreement with the Company. The action also sought, among other
things, to compel the Company to hold an annual meeting of shareholders to elect
directors as required by Delaware law. Mr. Wetzler has been vigorously
prosecuting his defense of this action and recently filed a Motion for Summary
Judgement with the Court based on terms of all of the agreements in question
which require exclusive jurisdiction in the courts of California for all
disputes arising out of or relating to these agreements. The Company has joined
in such Motion through counsel retained by the independent members of the
Company's Board of Directors. In the interim, the depositions of various
individuals have commenced. The Court, by order dated July 6, 1999, denied a
Motion by Mr. Wetzler to dismiss the action on various grounds, and set an
August 16, 1999 date for a hearing on all matters then outstanding before the
Court in the case, including the Motion for Summary Judgement. The Court also
set September 1, 1999 as the date on which the annual meeting of stockholders to
elect directors will be held and also set July 15, 1999 as the record date for
stockholders of record entitled to notice of and to vote at such meeting.
Item 2. Changes In Securities
Sale of Unregistered Securities - Between July 1, 1998 and April 22, 1999 an
additional $39,000 in Secured Convertible Notes were issued in a private
placement. The Notes were issued without the benefit of an effective
registration statement under the Securities Act of 1933, as amended (the "Act")
in reliance upon the private placement exemptions under Section 4(2) of the Act.
Subsequent Events - On July 8, 1999, Gerald M. Wetzler, Chairman and Chief
Executive Officer, exercised an option to purchase 20,000,000 shares of Common
Stock, $.002 per value at a price of $0.01 per share by paying $40,000 cash and
a promissory note for $160,000.
9
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
As a result of the Plan, as of the Effective Date of the Plan, the Company
adopted "fresh start" accounting, which reflects the payment or discharge of
certain debts in accordance with the plan. "Fresh start accounting" allows a
reorganized entity to reflect its reorganization value, which approximates its
fair value at the date of reorganization. In addition, the accumulated deficit
of the Company is eliminated and its capital structure is recast in conformity
with the Plan.
PART 11 : OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) NONE
10
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN FILM TECHNOLOGIES, INC.
Date: July ________ 1999
By: /s/ Gerald M. Wetzler July 1999
-----------------------------------------------------------------
Gerald M. Wetzler,
Chairman, Chief Executive Officer and Acting
Chief Financial and Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,624
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,944
<PP&E> 510,981
<DEPRECIATION> 324,216
<TOTAL-ASSETS> 206,709
<CURRENT-LIABILITIES> 1,192,431
<BONDS> 0
0
0
<COMMON> 178,403
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 206,709
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 168,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,246
<INCOME-PRETAX> (168,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,049)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
