<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended June 30, 1996.
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
______ to ______.
Commission File No: 0-19195
AMERICAN DENTAL TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 38-2905258
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28411 Northwestern Highway, Suite 1100 48034-5541
Southfield, Michigan
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(810) 353-5300
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
Number of shares outstanding of the registrant's common stock as of August 9,
1996:
27,436,567 Shares
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
American Dental Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $4,919,955 $3,460,836 $10,174,002 $7,852,836
Cost of sales 3,064,978 1,560,671 5,920,404 3,768,044
---------- ------------ ----------- ----------
Gross profit 1,854,977 1,900,165 4,253,598 4,084,792
Selling, general and administrative 966,089 1,526,395 2,635,147 3,451,453
Research and development 168,894 245,255 403,244 494,661
---------- ------------ ----------- ----------
Income from operations 719,994 128,515 1,215,207 138,678
Other income (expense):
Royalty income:
Related Party (Note 2) 76,500 247,500
Other 20,547 10,931 20,547 28,806
Other (11,647) (16,287)
Interest expense (38,953) (13,878) (81,216) (36,720)
---------- ------------ ----------- ----------
Net income $689,941 $202,068 $1,138,251 $378,264
======== ======== ========== ========
Net income per share $ 0.03 $ 0.01 $ 0.06 $ 0.03
=========== =========== ========== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
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American Dental Technologies, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash $ 637,695 $1,665,718
Accounts receivable:
Trade, less allowance of $350,000 in 1996 and 1995 2,377,708 1,220,010
Related parties 1,212,160 724,283
------------- -----------
3,589,868 1,944,293
Inventories 1,812,982 1,905,856
Prepaid expenses and other current assets 469,682 534,074
------------- -----------
Total current assets 6,510,227 6,049,941
Prepaid foreign taxes 300,000 225,000
Deposit (Note 2) 1,410,267 1,410,267
Property and equipment, net 704,007 262,042
Intangible assets, net
Goodwill 3,520,385 3,661,200
Air abrasive technology rights 1,178,478 1,267,998
Other 186,573 108,248
------------- -----------
4,885,436 5,037,446
------------- -----------
Total assets $13,809,937 $12,984,696
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties (Note 2) $1,500,000 $1,700,000
Accounts payable:
Trade 2,856,034 2,839,548
Related parties 1,042,890 884,374
------------- -----------
3,898,924 3,723,922
Compensation and employee benefits 333,848 346,668
Taxes other than income 469,760 607,177
Other accrued liabilities 874,671 1,109,464
------------- -----------
Total current liabilities 7,077,203 7,487,231
Deferred royalty income 3,000,000 3,000,000
Other non-current liabilities 7,348 64,993
Notes payable to related party,
less current portion (Note 2) 400,000 600,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares; none outstanding
Common stock, $.01 par value, authorized
25,000,000 shares; outstanding: 16,001,795 160,017 157,387
Additional paid-in capital 31,640,221 31,288,188
Accumulated deficit (28,474,852) (29,613,103)
------------- -----------
Total stockholders' equity 3,325,386 1,832,472
------------- -----------
Total liabilities and stockholders' equity $13,809,937 $12,984,696
============= ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1996 1995
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,138,251 $378,264
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 96,000 219,000
Amortization 259,075 238,217
Gain on disposal of fixed assets (420) (6,211)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,645,575) (815,665)
Decrease in inventories 92,874 30,169
Decrease in prepaid expenses and other current assets 65,236 43,248
Increase in prepaid foreign taxes (75,000) (150,000)
Increase in accounts payable 175,002 17,323
Increase (decrease) in compensation and employee benefits (12,820) 121,015
Decrease in taxes other than income (137,417) (77,039)
Decrease in other accrued liabilities (440,970) (68,615)
Decrease in other non-current liabilities (24,646) (44,088)
----------- ---------
Net cash used in operating activities (510,410) (114,382)
INVESTING ACTIVITIES:
Proceeds from sale of property 420 43,357
Purchases of property and equipment (13,053) (29,623)
Increase in intangible assets (107,064)
----------- ---------
Net cash provided by (used in) investing activities (119,697) 13,734
FINANCING ACTIVITIES:
Payments on notes payable to related parties (400,000) (200,000)
Proceeds from exercise of stock options 2,084
----------- ---------
Net cash used in financing activities (397,916) (200,000)
----------- ---------
Decrease in cash (1,028,023) (300,648)
Cash at beginning of period 1,665,718 839,259
----------- ---------
Cash at end of period $637,695 $538,611
=========== =========
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1996 (Unaudited)
1. Basis of Presentation and Other Accounting Information
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
American Dental Technologies, Inc. (the "Company" or "ADT") have been prepared
by management in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
The results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the results to be expected for other quarters of
1996 or for the year ended December 31, 1996. The accompanying unaudited
condensed consolidated financial statements should be read with the annual
consolidated financial statements and notes contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- ----------------
<S> <C> <C>
Finished goods $ 917,494 $1,261,853
Work in progress 252,728 39,638
Raw materials, parts and supplies 642,760 604,365
---------- ----------
$1,812,982 $1,905,856
========== ==========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $2,146,333 at
June 30, 1996 and $2,065,633 at December 31, 1995.
Intangible Assets - Accumulated amortization aggregated $1,788,497 at June 30,
1996 and $1,529,400 at December 31, 1995.
2. Related Party Transactions
TEXAS AIRSONICS, INC. In late July 1996, the Company and Texas Airsonics, Inc.
("Texas Air") stockholders approved the merger, which was consummated July 31,
1996. The Company acquired 100% of Texas Air's outstanding stock in exchange
for 11,429,772 shares of the Company's common stock and warrants to purchase
6,996,913 additional shares of common stock at $1.4041 per share for a period
commencing August 1, 1997 and ending July 31, 1999. The Company will account
for the merger as a purchase.
The following pro forma summary of operations is presented as though the
companies had been combined at the beginning of each period.
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
<S> <C> <C>
Revenues $10,551,883 $8,518,237
Net profit 1,154,475 624,413
Net profit per share $0.04 $0.02
</TABLE>
In June 1996, Texas Air shared research and development, legal, and marketing
costs of $650,000.
On August 7, 1995, ADT obtained a $1,500,000 loan from Texas Air with interest
payable at prime (8.25% at June 30, 1996). Interest is due on a quarterly
basis. A principal payment of $200,000 due May 1, 1996 was paid and the
balance, which was originally due on August 1, 1996, was extended
5
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1996 (Unaudited)
2. Related Party Transactions (continued)
following a $200,000 principal payment on August 1, 1996. Approximately
$1,410,000 of these loan proceeds have been deposited with a California court
to stay enforcement of a judgment against ADT, pending an appeal. That case
was recently settled and ADT anticipates the funds will be released by the
court and the loan repaid (Note 3). ADT's obligations to Texas Air are secured
by a pledge of all ADT's assets.
DENICS CO., LTD. The Company has a $1,000,000 note payable to Denics Co., Ltd.
("Denics"), with interest at 3% above the discount rate in Japan (0.5% at June
30, 1996). As of June 30, 1996, $600,000 was outstanding. Borrowings are
being repaid in annual principal installments of $200,000 over a five year
period which began in June 1995. Borrowings are secured by an assignment of
the Company's Japanese patents and related technologies.
Denics manufactured dental lasers in the third quarter of 1994 through 1995 and
pursuant to its agreements, the Company earned a royalty on those laser units
sold in Japan and certain Asian and Pacific markets. The Company earned
royalty payments, net of foreign taxes, of $76,500 and $247,500 during the
three and six month period ended June 30, 1995, respectively. No royalty
payments were due from Denics for the three and six month periods ended June
30, 1996 because Denics purchased products directly from the Company.
Management expects that during the remainder of 1996, Denics will continue to
purchase products directly from the Company rather than manufacturing them,
which will result in a significant reduction in royalty income, but sales and
gross profits to the Pacific Rim market will increase. Denics has placed an
order in excess of $5,000,000 for PulseMaster lasers, KCP units and related
products to be shipped ratably in 1996.
OTHER On April 15, 1996, the Company acquired an ophthalmic excimer laser from
a principal shareholder and director. The laser has been placed in a surgical
center and will be utilized to perform photo-refractive keratotomy (PRK). The
Company will receive a fee from the surgical center on a per use basis. The
purchase price of the laser is approximately $525,800, which is to be paid in
restricted common stock together with a warrant to purchase an equal number of
shares of common stock at market value, exercisable until April 1999. The
payments are to be paid in two annual installments commencing in April 1996.
At the Company's option, any time up to March 31, 1997, the laser can be
returned and the second installment canceled. The first installment of 155,780
shares, based upon the average closing sale price of the Company's common stock
for the first five trading days of April, together with a warrant to acquire
155,780 shares at an exercise price equal to said average price of $1.6875 per
share was made on April 15, 1996.
3. Litigation
On July 30, 1996, American Dental Technologies, Inc. ("ADT") and Sunrise
Technologies International, Inc. ("Sunrise") settled all lawsuits pending
between them. A pending appeal relating to disputes arising out of a February
1994 settlement agreement between the parties will be dismissed and Sunrise has
relinquished and forgiven the $940,178 judgment it received against ADT last
August. ADT anticipates that the approximately $1,410,000 cash deposit posted
by ADT with the court, pending the appeal of that case, will be released and
returned to ADT. In addition, all three patent cases between the parties will
be dismissed, with prejudice. Mutual general releases will also be exchanged.
ADT anticipates related patent claims pending between ADT and Danville
Manufacturing, Inc. and Sullivan Dental Products Inc. will be dismissed,
without prejudice.
ADT has licensed Sunrise under its dental air abrasive method and systems
patents in return for a seven percent royalty on all air abrasive products
manufactured (by or on behalf of Sunrise), sold, or leased by Sunrise, in a
country where ADT has patents or patent applications on any dental air
6
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1996 (Unaudited)
3. Litigation (continued)
abrasive products or methods. Sunrise has acknowledged the validity of ADT's
method and system patents. ADT has acknowledged that Sunrise's current
products are not infringing ADT's apparatus patents, or any other non-dental
air abrasive patents owned by ADT. Sunrise's patent license is non-exclusive,
may not be sub-licensed and is non-transferable for 18 months.
A lawsuit by Dr. Robert Cameron and certain other dentists alleging
misrepresentations as to the use of ADT's dLase 300 for certain dental
procedures pending in the United States District Court for the Eastern District
of Michigan, Southern Division, was settled in December 1995. In April 1996,
the case was dismissed with prejudice and ADT was released from all claims.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the three and six month periods ended June 30, 1996, the Company's net
sales increased 42% and 30% compared to the same periods in 1995. The
increases in 1996 are due primarily to a 103% and 55% increase in the volume of
KCP's sold for the three and six month periods over the same periods for 1995.
The Company's laser product sales volumes for the three and six month periods
ended June 30, 1996 decreased 3% and increased 24%, respectively, compared to
the same periods in 1995. The increase in KCP and laser volumes was partially
offset by a 4% decrease in the KCP average selling price and a decrease of 11%
in the average price of lasers sold. The Company anticipates a decrease in net
sales for the third quarter of 1996 compared to the second quarter, resulting
from a decline in sales activity during the summer, primarily in Europe.
Management believes that the sales growth and profitability anticipated
from its laser product line will require broader market acceptance of laser
products in general, increased market share, additional regulatory approvals
and additional cost reductions. The Company is continuing its efforts to
obtain additional regulatory approvals in the United States and Japan and to
increase the Company's market share to improve laser sales growth and to
achieve profitability in the laser product line.
In February 1996, the Company signed distribution agreements with two
significant distributors. Although there can be no assurances, management
anticipates sales will improve in 1996, primarily resulting from improved sales
through these distributors of the KCP 1000 whisperjet and the PulseMaster 600
LE laser in Europe and the Pacific Rim. The foregoing statement is a "forward
looking statement" within the meaning of the Securities Exchange Act of 1934,
as amended, and is subject to uncertainties. Such uncertainties include,
without limitation, the failure of distributors to meet purchase commitments,
the loss of distributor relationships, the failure to receive necessary
regulatory approvals, and the negative effects of competition on prices and
sales volumes.
Gross profit as a percentage of net sales for the three and six month
periods ended June 30, 1996 was 38% and 42% compared to 55% and 52% for the
same periods in 1995. The decrease in gross profit as a percentage of net
sales is due primarily to an increase in sales of the KCP 1000 PAC, a lower
margin product, and decreases in the average selling price of KCP units. As a
result of acquiring Texas Air, the manufacturer of the KCP product line, the
Company anticipates improved gross margins on KCP products beginning in August
1996 due to the addition of manufacturing margin previously realized by Texas
Air. The foregoing statement is a "forward looking statement"
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<PAGE> 8
within the meaning of the Securities Exchange Act of 1934, as amended, and is
subject to uncertainties. Such uncertainties include, without limitation,
the negative effects of competition on prices and sales volumes and ADT's
ability to successfully integrate Texas Air's business into ADT and to retain
key personnel.
Selling, general and administrative expense decreased $560,306 or 37% and
$816,306 or 24% for the three and six month periods ended June 30, 1996
compared to the same periods in 1995. Pursuant to its manufacturing agreement,
Texas Air shared research and development, legal, and marketing expenses of
approximately $650,000 during the three and six month periods ended June 30,
1996. In addition, there were reductions in legal and depreciation expenses
for the same six month period compared to the period ended June 30, 1995.
Research and development expenses were $168,894 and $403,244 for the three
and six month periods ended June 30, 1996 compared to $245,255 and $494,661 for
the same periods in 1995. The decrease in 1996 primarily relates to sharing of
expenses with Texas Air.
Related party royalty income is derived from the sale of products by
Denics Co., Ltd. ("Denics"), ADT's distributor in Japan and certain Asian and
Pacific markets. There was no related party royalty income for the three and
six month periods ended June 30, 1996 because Denics began purchasing products
directly from ADT. Related party royalty income was $76,500 and $247,500 for
the three and six month periods ended June 30, 1995. Denics manufactured
dental lasers in the third quarter of 1994 through 1995, and pursuant to its
agreements, ADT earned a royalty on units sold in Japan and certain Asian and
Pacific markets. Management expects that during the remainder of 1996, Denics
will continue to purchase products directly from ADT rather than manufacturing
them, which will result in a significant reduction in royalty income, but sales
and gross profits to the Pacific Rim market will increase.
Business Combination
In late July 1996, the Company and Texas Air stockholders approved the
merger, which was consummated July 31, 1996. The Company acquired 100% of
Texas Air's outstanding stock in exchange for 11,429,772 shares of the
Company's common stock and warrants to purchase 6,996,913 additional shares of
common stock at $1.4041 per share for a period commencing August 1, 1997 and
ending July 31, 1999. The Company will account for the merger as a purchase.
The Company expects to benefit from improved gross margins and cash flow from
the manufacturing operations. The foregoing statement is a "forward looking
statement" within the meaning of the Securities Exchange Act of 1934, as
amended, and is subject to uncertainties. Such uncertainties include, without
limitation, the negative effects of competition on prices and sales volumes and
ADT's ability to successfully integrate Texas Air's business into ADT and to
retain key personnel.
Liquidity and Capital Resources
On August 7, 1995, ADT obtained a $1,500,000 loan from Texas Air with
interest payable at prime (8.25% at June 30, 1996). Interest is due on a
quarterly basis. A principal payment of $200,000 due May 1, 1996 was paid and
the balance, which was originally due on August 1, 1996, was extended following
a $200,000 principal payment on August 1, 1996. Approximately $1,410,000 of
these loan proceeds have been deposited with the court to stay enforcement of a
judgment against ADT in the Alameda Superior Court, Oakland, California,
pending an appeal of that case. However, that case was recently settled and
ADT anticipates the funds will be released by the court and the loan repaid.
ADT's obligations to Texas Air are secured by a pledge of all ADT's assets.
The Company has a $1,000,000 note payable to Denics, with interest at 3%
above the discount rate in Japan (0.5% at June 30, 1996). As of June 30, 1996,
$600,000 was outstanding. Borrowings are being repaid in annual principal
installments of $200,000 over a five year period which began in June 1995.
Borrowings are secured by an assignment of the Company's Japanese patents and
related technologies.
8
<PAGE> 9
The Company's operating activities used $510,410 in cash resources during
the six month period ended June 30, 1996, compared to $114,382 in the same
period of 1995. The use of cash resources during the period ended June 30,
1996 is principally due to a $1,645,575 increase in accounts receivable,
resulting primarily from higher sales, and a reduction in other accrued
liabilities, primarily customer deposits of approximately $450,000. These
changes were partially offset by net income of $1,138,251 and a $175,002
increase in accounts payable.
The Company has a working capital deficit of $566,976 at June 30, 1996
compared to a working capital deficit of $1,437,290 at December 31, 1995. The
improvement in the deficit is a result of net income of $1,138,251 for the six
month period ended June 30, 1996. The deficit is due primarily to use of the
$1,500,000 note payable for non-current assets, primarily a deposit of
$1,410,000 and prepaid foreign taxes of $300,000.
Management believes it has taken steps to strengthen its financial
position and improve its cash flow by acquiring Texas Air in July 1996 and
continuing its efforts to expand sales; control selling, general and
administrative expenses; and obtain additional financing. The Company expects
to benefit from improved gross margins and cash flow from the manufacturing
operations of Texas Air. The foregoing statement is a "forward looking
statement" within the meaning of the Securities Exchange Act of 1934, as
amended, and is subject to uncertainties. Such uncertainties include, without
limitation, the negative effects of competition on prices and sales volumes and
the Company's ability to successfully integrate Texas Air's business into the
Company and to retain key personnel.
Sales thus far in 1996 are in line with the Company's business plan and
management expects that trend to continue. Although there can be no
assurances, the Company anticipates sales will improve in 1996 compared to
1995, primarily resulting from sales of the KCP 1000 whisperjet and the
PulseMaster 600 LE laser. In February 1996, the Company signed distribution
agreements for lasers and KCP products with two significant distributors.
Purchases under these agreements are expected to aggregate approximately
$8,600,000 ratably throughout 1996. The foregoing statements in this paragraph
are "forward looking statements" within the meaning of the Securities Exchange
Act of 1934, as amended, and are subject to uncertainties. Such uncertainties
include, without limitation, the failure of distributors to meet purchase
commitments, the loss of distributor relationships, the failure to receive
necessary regulatory approvals and the negative effects of competition on
prices and sales volumes.
The Company believes, based upon its current business plan and completion
of the merger with Texas Air, that current cash resources and cash generated
through operations should be sufficient to meet the Company's anticipated
liquidity needs through at least mid 1997. However, unexpected sales
reductions without a corresponding reduction in expenses would create a need
for additional working capital. The Company is continuing to pursue additional
sources of financing to address its potential short and long-term cash needs,
including without limitation, renegotiating existing debt.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 30, 1996, American Dental Technologies, Inc. ("ADT") and Sunrise
Technologies International, Inc. ("Sunrise") settled all lawsuits pending
between them. An appeal pending in the California Court of Appeal, First
Appellate District, Division Four relating to disputes arising out of a
February 1994 settlement agreement between the parties will be dismissed and
Sunrise has relinquished and forgiven the $940,178 judgment it received against
ADT last August in the Superior Court for the County of Alameda-Southern
Division. ADT anticipates that the approximately $1,410,000 cash deposit
posted by ADT with the court, pending the appeal of that case, will be released
and returned to ADT. In addition, all three patent cases between the parties
pending in the United States District Court for the Northern District of
California, will be dismissed, with prejudice. Mutual general releases will
also be exchanged. ADT anticipates related patent
9
<PAGE> 10
claims pending between ADT and Danville Manufacturing, Inc. and Sullivan Dental
Products Inc. will be dismissed, without prejudice.
ADT has licensed Sunrise under its dental air abrasive method and systems
patents in return for a seven percent royalty on all air abrasive products
manufactured (by or on behalf of Sunrise), sold, or leased by Sunrise, in a
country where ADT has patents or patent applications on any dental air abrasive
products or methods. Sunrise has acknowledged the validity of ADT's method and
system patents (U. S. Patent Numbers 5,275,561, 5,330,354, 5,350,299 and
5,525,058). ADT has acknowledged that Sunrise's current products are not
infringing ADT's apparatus patents (U.S. Patent Numbers 4,635,897, 4,708,534,
4,733,503 and 4,893,440), or any other non-dental air abrasive patents owned by
ADT. Sunrise's patent license is non-exclusive, may not be sub-licensed and is
non-transferable for 18 months. If within two years of July 30, 1996 Sunrise
transfers all of its dental air abrasive business to another, then ADT will
also be entitled to ten percent of the gross consideration Sunrise receives for
the transfer of the license and the dental air abrasive business and the
transferee must assume Sunrise's obligations under the license.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on July 29, 1996, at which
the stockholders considered and voted on the following matters:
1. Approval of the merger between Texas Airsonics, Inc. and a wholly owned
subsidiary of the Company and the issuance of Company common stock and
warrants in connection with the merger. The results of the voting were as
follows:
For-11,122,592 Against-52,958 Abstain-12,774 Broker Non-Votes-2,926,258
2. Both nominees for director at the meeting were elected. The following
table sets forth the number of shares voted for and withheld with respect
to each nominee.
William D. Myers For-14,035,744 Withheld-78,838
Ben J. Gallant For-14,038,144 Withheld-76,438
3. Approval of an amendment to the Company's certificate of incorporation to
increase the authorized common stock from 25 million to 50 million shares.
The results of the voting were as follows:
For-11,264,246 Against-141,064 Abstain-15,075 Broker Non-Votes-2,694,197
4. Approval of an amendment to the Company's Long-Term Incentive Plan to
increase the number of shares issuable under the plan to 2.5 million
shares. The results of the voting were as follows:
For-10,975,265 Against-416,895 Abstain-30,025 Broker Non-Votes-2,692,397
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
Exhibit 2.1 Restated Agreement and Plan of Reorganization and
associated Restated Merger Agreement dated as of November
22, 1996, among American Dental Technologies, Inc., ADT
Merger Corp. and Texas Airsonics, Inc. (Incorporated herein
by reference to ADT's Registration Statement No. 333-6663,
Annex A to the Joint Proxy Statement/Prospectus)
Exhibit 3.1 Certificate of Incorporation of American Dental
Technologies, Inc. filed on November 21, 1989, with
amendments, filed with the Delaware Secretary of State and
effective on January 12, 1990; May 15, 1991; June 4, 1991;
June 1,
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1993; and July 29, 1996 (Incorporated herein by
reference to ADT's Form 8-K filed August 9, 1996, Exhibit
3.1)
Exhibit 4.1 Form of Merger Warrant (Incorporated herein by reference to
ADT's Registration Statement No. 333-6663, Exhibit 4.7)
Exhibit 10.1 Form of Ben J. Gallant Employment Agreement (Incorporated
herein by reference to ADT's Registration Statement No.
333-6663, Exhibit 10.53)
Exhibit 10.2 Form of License Agreement between Texas Airsonics, Inc., a
wholly owned subsidiary of American Dental Technologies,
Inc. and Texas Airsonics, L.P. (Incorporated herein by
reference to ADT's Registration Statement No. 333-6663,
Exhibit 10.54)
Exhibit 10.3 Settlement Agreement between American Dental Technologies,
Inc. and Sunrise Technologies International, Inc., dated
July 30, 1996
Exhibit 11.1 Statement Re: Computation of Net Income Per Share
Exhibit 27.1 Financial Data Schedule
(b) There have been no reports on Form 8-K filed during the quarter ended
June 30, 1996. However, on August 9, 1996, the Company filed a Current Report
on Form 8-K relating to the Company's acquisition of Texas Air on July 31,
1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN DENTAL TECHNOLOGIES, INC.
By: /s/ Anthony D. Fiorillo
-----------------------------
Anthony D. Fiorillo
Chief Executive Officer
Dated: August 13, 1996
By: /s/ Diane M. Miller
-----------------------------
Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: August 13, 1996
11
<PAGE> 12
INDEX TO EXHIBITS
Exhibit No.
Exhibit 10.3 Settlement Agreement between American Dental Technologies, Inc.
and Sunrise Technologies International, Inc., dated July 30, 1996
Exhibit 11.1 Statement Re: Computation of Net Income Per Share
Exhibit 27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.3
SETTLEMENT AGREEMENT
THIS AGREEMENT is made effective this 30th day of July, 1996, by and
between American Dental Technologies (hereinafter, "ADT"), a Delaware
corporation, having offices at 28411 Northwestern Highway, Suite 1100,
Southfield, Michigan 48034-5541, and Sunrise Technologies International, Inc.
(hereinafter, "SUNRISE"), a Delaware corporation, having offices at 47257
Fremont Boulevard, Fremont, California.
WITNESSETH:
WHEREAS, ADT and SUNRISE are presently engaged in the following litigation:
(a) Appellate Action No. A072262, entitled "Sunrise Technologies
International, Inc., Plaintiff/Cross-Defendant and Respondent v. American
Dental Technologies, Inc., f/k/a American Dental Laser, Inc.,
Defendant/Cross-Claimant and Appellant," now pending in the Court of Appeal of
the State of California, First Appellate District, Division Four, as appealed
from the lower court Civil Action No. H-172132-2, entitled, "Sunrise
Technologies International, Inc. et al. v. American Dental Technologies," which
was litigated in the Superior Court for the County of Alameda - Southern
Division (collectively hereinafter, "State Court Action"); and
(b) Civil Action No. C94-1512 (EFL), entitled "Sunrise Technologies
International, Inc. and Danville Manufacturing v. American Dental Technologies,
Inc.," now pending in the United States District Court for the Northern
District of California, Civil Action No. C94-1513 (EFL), entitled, "Sunrise
Technologies International, Inc. and Danville Manufacturing v. American Dental
Technologies, Inc.," now pending in the United States District Court for the
Northern District of California; and Civil Action No. C95-2048-EFL, entitled
"American Dental Technologies, Inc. v. Sunrise Technologies International, Inc.
et al." (collectively hereinafter, "Federal Court Actions");
WHEREAS, a judgment was entered against ADT in the lower court proceedings
of the State Court Action in the sum of $940,178.00, plus taxable costs and
interest, ADT having posted a cash deposit with the state court pending an
appeal in the State Court Action in the sum of $1,410,267.00;
WHEREAS, ADT and SUNRISE desire to settle and terminate the foregoing
litigation and as part of such settlement SUNRISE desires to obtain certain
patent licenses from ADT;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, ADT and SUNRISE agree as follows:
State Court Action
1. SUNRISE shall relinquish and forgive the judgment in the State Court
Action in its full amount of $940,178.00, plus costs, interest and attorney
fees. SUNRISE shall release ADT, its officers, agents, affiliates, and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the State Court Action, including all such
claims for damages, costs, interest and attorney fees. SUNRISE will execute
all documents necessary to dismiss the State Court Action with prejudice and to
release the full amount of the cash deposit (plus interest) posted on appeal by
ADT immediately upon execution of this Agreement, each party to bear its own
costs and attorney fees. SUNRISE represents and warrants that it has made no
assignment or hypothecation of any judgment or claims, including but not
limited to claims for attorney fees, arising out of the State Court Action to
any creditor, attorney or other third party and agrees to indemnify and hold
ADT harmless from any such third party claim. As used in this Agreement,
"affiliates" shall mean any corporation of which fifty percent (51%) or more of
the voting stock is owned or controlled by a party to this Agreement.
<PAGE> 2
2. ADT shall release SUNRISE, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the State Court Action, including all such
claims for damages, costs, interest and attorney fees. ADT will execute all
documents necessary to dismiss the State Court Action with prejudice
immediately upon execution of this Agreement, each party to bear its own costs
and attorney fees. ADT represents and warrants that it has made no assignment
or hypothecation of any claims, including but not limited to claims for
attorney fees, arising out of the State Court Action to any creditor, attorney
or other third party and agrees to indemnify and hold SUNRISE harmless from any
such third party claim.
Federal Court Actions
3. ADT shall release SUNRISE, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the Federal Court Actions, including all
such claims for damages, costs, interest and attorney fees. ADT further
releases SUNRISE with respect to SUNRISE's past Senior model and current
MicroPrep Associate and Director models, as described and identified in the
depositions of Mark Fernwood and Joseph Shaffer in the Federal Court Actions,
from any and all claims of infringement under patents issuing on any pending or
presently contemplated patent applications owned or controlled by ADT which
relate to air abrasive equipment or apparatus, other than such patents or
applications covering air abrasive dental systems or methods of treatment as
otherwise provided herein. ADT will execute all documents necessary to dismiss
SUNRISE from the Federal Court Actions with prejudice immediately upon
execution of this Agreement, each party to bear its own costs and attorney
fees. In no event, however, shall this paragraph 3 be interpreted to
constitute a release of any liability or damages, directly or indirectly,
arising out of ADT's claims against Danville Manufacturing or a dismissal of
any of the claims in the Federal Court Actions against Danville Manufacturing.
Notwithstanding, upon execution of this Agreement, ADT will offer to dismiss
without prejudice all pending litigation by ADT against Danville Manufacturing
in return for a dismissal without prejudice by Danville Manufacturing of all
pending litigation by Danville Manufacturing against ADT; each party to bear
its own costs and attorneys fees. ADT represents and warrants that it has made
no assignment or hypothecation of any claims, including but not limited to
claims for attorney fees, arising out of the Federal Court Actions to any
creditor, attorney or other third party and agrees to indemnify and hold
SUNRISE harmless from any such third party claim.
4. SUNRISE shall release ADT, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the Federal Court Actions, including all
such claims for declaratory judgment, damages, costs, interest and attorney
fees. SUNRISE will execute all documents necessary to dismiss its claims in
the Federal Court Actions against ADT with prejudice immediately upon execution
of this Agreement, each party to bear its own costs and attorneys fees.
SUNRISE represents and warrants that it has made no assignment or hypothecation
of any claims, including but not limited to claims for attorney fees, arising
out of the State Court Action to any creditor, attorney or third party and
agrees to indemnify and hold ADT harmless from any such third party claim.
5. The dismissals submitted to the Court pursuant to paragraphs 3 and 4
of this Agreement shall include (i) a stipulation by SUNRISE that the patents
asserted in Civil Action No. C95-2048 (EFL), to wit, U. S. Patent No.
5,330,354, U. S. Patent No. 5,350,299 and U. S. Patent No. 5,525,058 and the
patent asserted in Civil Action No. C94-1513 (ELF), to wit, U. S. Patent No.
5,275,561, are acknowledged by SUNRISE to be valid; (ii) an order commensurate
in scope with the stipulation of section (i) of this paragraph 5; (iii) a
stipulation by ADT that the patents asserted in Civil Action No. C94-1512
(EFL), to wit, U. S. Patent No. 4,893,440, U. S. Patent No. 4,733,503, U. S.
Patent No. 4,708,534 and U. S. Patent No.4,635,897, and any non-dental air
abrasive patents or patent applications presently owned by ADT are not
infringed by SUNRISE's past Senior model and current MicroPrep Associate and
Director models as described and identified in the depositions of Mark Fernwood
and Joseph Shaffer in the Federal Court Actions; and (iv) an order commensurate
in scope with the stipulation of section (iii) of this paragraph 5.
<PAGE> 3
Patent License
6. ADT hereby grants to SUNRISE a nonexclusive license under U. S. Patent
No. 5,275,561, U. S. Patent No. 5,330,354, U. S. Patent No. 5,350,299 and U. S.
Patent No. 5,525,058, and any foreign counterparts, reexaminations, reissues,
continuations or continuations-in-part based on the disclosures of the patents
of this paragraph 6, for the life of such patents, to make, use, lease and sell
SUNRISE's current MicroPrep Associate and Director models as described and
identified in the depositions of Mark Fernwood and Joseph Shaffer in the
Federal Court Actions, and future models to the extent such future models do
not infringe any non-dental patents or patent applications (for example, on
helical powder feed mechanisms) of ADT, throughout the world, but excluding
those territories (Japan, China, including Hong Kong, Taiwan, North Korea,
South Korea, India, Pakistan, Australia, New Zealand, Singapore, Thailand,
Malaysia and Indonesia) presently covered by agreements between ADT and Denics
Co., Ltd., a/k/a Dental Innovative Corporation, a Japanese corporation. The
license granted in this paragraph 6 is non-transferable by assignment,
sublicense or other means of transfer except as provided in paragraphs 7 and 8
of this Agreement, provided, further, that the period in which SUNRISE is
licensed under this Agreement, SUNRISE shall have the right to have the
products of this paragraph 6 manufactured by a third party solely for SUNRISE.
The license granted in this paragraph 6 is subject to the payments provided in
paragraph 9 of this Agreement. ADT represents and warrants that other than the
patents licensed in this paragraph 6, ADT does not presently own or hold
licensable rights in any other patents or patent applications covering the
products of this paragraph 6.
7. The license granted in paragraph 6 of this Agreement is
non-transferable for a period of eighteen (18) months from the effective date
of this Agreement and SUNRISE shall make no such transfer or promise to
transfer within such eighteen (18) month period, except as provided in
paragraph 8 of this Agreement. After the expiration of such eighteen (18)
month period, SUNRISE shall have the right to transfer the license of paragraph
6 of this Agreement upon the following terms and conditions: the transferee
shall assume all obligations of SUNRISE under this Agreement, including the
obligation to make the payments required by paragraph 9 of this Agreement;
provided, however, that no such transfer of the license after such eighteen
(18) month period has expired, but before the expiration of twenty-four (24)
months after the effective date of this Agreement, shall be made conditioned on
the subsequent sale or transfer of all of SUNRISE's dental air abrasive
products business.
8. SUNRISE may at any time transfer the license of paragraph 6 of this
Agreement if such transfer is made with the transfer of all of SUNRISE's dental
air abrasive products business (for the purposes of this Agreement, the phrase
"transfer of all of SUNRISE's dental air abrasive products business" shall mean
any such transfer by asset sale or exchange or by stock transfer or exchange,
and shall further include any merger by or into, or consolidation with,
SUNRISE); provided, however, that, if such transfer occurs within two (2) years
of the effective date of this Agreement, then SUNRISE shall pay to ADT, in
cash, a transfer fee equal to ten percent (10%) of the gross consideration for
the transfer of the license and the dental air abrasive products business
received by SUNRISE, regardless of the form of the consideration (provided
that, in the event of a merger, such gross consideration shall be based on the
fair market value of the shares thereupon issued by SUNRISE or thereupon issued
to SUNRISE and/or its shareholders) and the transferee or surviving entity
shall assume all obligations of SUNRISE under this Agreement, including the
obligation to make the payments required by paragraph 9 of this Agreement. In
the event such transfer of all of SUNRISE's dental air abrasive products
business shall occur more than two (2) years after the effective date of this
Agreement, then SUNRISE's only obligation upon transfer shall be to require
such transferee or continuing entity to assume all obligations of SUNRISE under
this Agreement, including the obligation to make the payments required by
paragraph 9 of this Agreement.
Payments
9. Beginning on January 1, 1997, SUNRISE, or its permitted successor or
assignee, shall pay to ADT the sum of seven percent (7%) on the net sales price
(defined as gross sales price less freight, duties and taxes) on all air
abrasive products manufactured, sold or leased by SUNRISE, or its permitted
successor or assignee, which are manufactured (by or on behalf of SUNRISE),
sold or leased in a country in which ADT, presently or in the future, owns or
controls patents or patent applications on any dental air abrasive products or
methods of treatment, until the expiration of all such patents/patent
applications. In the event that SUNRISE, or its permitted successor or
assignee, manufactures or has manufactured on its behalf, and
<PAGE> 4
sells or leases (i.e., manufactures and sells or manufactures and leases), air
abrasive products wholly within a country where ADT holds no such patents or
patent applications or where all such patents have expired, then no such
payments shall be required. The payments required under this paragraph 9 of
this Agreement shall accrue when the subject products are delivered, invoiced
or paid for, whichever occurs first. All payments shall be made in U. S.
dollars. In no event shall a payment by SUNRISE under this paragraph 9 be
required for products that are both made and sold prior to January 1, 1997.
10. SUNRISE, and any permitted successor or assignee, shall (i) make the
payments required in paragraph 9 of this Agreement on February 15th, May 15th,
June 15th and November 15th for the preceding accounting quarter, with the
first payment to be made on May 15, 1997. SUNRISE shall keep accurate books
and records reflecting transactions made under this Agreement and shall make
reports at the time of such payments fully supporting the calculation of
payments made, including the number of units sold or leased and the sales price
used to determine payments. ADT shall have the right to inspect such books and
records through an independent certified accountant, not to exceed one such
audit per year.
Termination
11. ADT may terminate the license granted by paragraph 6 of this Agreement
only in the event of a material breach of this Agreement by SUNRISE, and then
only if, upon receiving notice of such breach SUNRISE fails to cure such breach
within thirty (30) days of such notice; such right of termination shall not be
in lieu of other remedies such as specific performance.
Patent Marking
12. SUNRISE shall apply statutory notice to its MicroPrep air abrasive
units sold in the United States substantially as follows: "This unit and its
use is protected by one or more of the following U. S. Patents: 5,275,561,
5,330,354, 5,350,299 and 5,525,058."
Notice
13. All notices required to be given under this Agreement shall be given
in writing and shall be sent by regular mail, postage prepaid, certified mail
or by recognized overnight express mail service to the parties at the addresses
below.
If to ADT, to:
Anthony D. Fiorillo
President and Chief Executive Officer
American Dental Technologies, Inc.
28411 Northwestern Highway, Suite 1100
Southfield, Michigan 48034-5541
Tel.: (810) 353-5300
Fax: (810) 353-0663
With a copy to:
Dykema Gossett PLLC
1577 North Woodward Avenue, Suite 300
Bloomfield Hills, Michigan 48304
Attention: Robert L. Kelly, Esq.
Tel.: (810) 540-0849
Fax: (810) 540-0763
If to SUNRISE, to:
David W. Light
President and Chief Executive Officer
Sunrise Technologies International
47257 Fremont Boulevard
Fremont, California
Tel.:
Fax:
<PAGE> 5
With a copy to:
Daniel Johnson, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square, 4th Floor
Palo Alto, California 94306
Tel.: (415) 843-5000
Fax: (415) 857-0663
14. A notice sent pursuant to paragraph 13 of this Agreement shall be
deemed given on the date it is mailed, unless the intended recipient can
establish that such notice was not timely received.
Jurisdiction
15. The Court in the Federal Court Actions shall retain jurisdiction of
the parties and this Agreement for purposes of resolving any dispute which may
arise hereunder.
Governing Law
16. This Agreement is made in the County of Oakland, State of Michigan,
and shall be governed by the laws of the State of Michigan without regard to
its conflict of laws principles.
Warranties
17. Both parties represent that their undersigned representatives have
the full power and authority to enter into this Agreement. ADT represents and
warrants that it has the right and power to grant the license of paragraph 6 of
this Agreement, but makes no other warranties whatsoever regarding the patents
so licensed.
Relationship of Parties
18. This Agreement is not intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business
organization and neither party shall be nor shall act as an agent of the other
party. Neither party shall use the other party's name in any marketing
efforts.
Severability
19. The invalidity of any provision of this Agreement shall not affect
the validity of any other provision of this Agreement.
Complete Agreement
20. This Agreement constitutes the entire agreement of the parties
regarding this subject matter and supercedes any and all prior or
contemporaneous oral or written agreements, understandings, negotiations or
discussions among the parties regarding this subject matter. Any amendments or
other modifications to this Agreement must be made in writing and must be duly
executed by an authorized representative or agent of each party.
Counterparts
21. This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
Permitted Successors and Assigns
22. This Agreement, and all provisions herein, shall bind the parties
and their permitted successors and permitted assigns.
<PAGE> 6
The parties have executed this Agreement as effective the date first
written above by their duly authorized agents.
AMERICAN DENTAL SUNRISE TECHNOLOGIES
TECHNOLOGIES, INC. INTERNATIONAL, INC.
/s/ ANTHONY D. FIORILLO /s/ DAVID W. LIGHT
- - -------------------------------------- ------------------------------------
By: Anthony D. Fiorillo By: David W. Light
President and Chief Executive Officer President and Chief Executive Officer
Date: July 30, 1996 Date: July 30, 1996
<PAGE> 1
EXHIBIT 11.1
AMERICAN DENTAL TECHNOLOGIES, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary net income per share
Weighted average shares outstanding 16,000,294 14,821,113 15,869,576 14,622,218
Net effect of dilutive stock
options and warrants based on the
treasury stock method using average
market price or the initial public
offering price 3,815,024 252,643 2,845,390 252,643
----------- ----------- ----------- -----------
Weighted average number of common
and common equivalent shares 19,815,319 15,073,756 18,714,966 14,874,861
=========== =========== =========== ===========
Net income available for common
shareholders $ 689,941 $ 202,068 $ 1,138,251 $ 378,264
=========== =========== =========== ===========
Net income per common share $ 0.03 $ 0.01 $ 0.06 $ 0.03
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
-------------------- --------------------
<S> <C> <C>
Fully diluted net income per share
Weighted average shares outstanding 16,000,294 15,869,576
Net effect of dilutive stock
options and warrants based on the
treasury stock method using ending
market price or the initial
public offering price 4,738,617 4,738,617
----------- -----------
Weighted average number of common
and common equivalent shares 20,738,911 20,608,193
=========== ===========
Net income available for common
shareholders $ 689,941 $ 1,138,251
=========== ===========
Net income per common share $ 0.03 $ 0.06
=========== ===========
</TABLE>
Note: Fully Diluted Net Income per share for the three and six month
periods ended June 30, 1995 are represented by the same calculation as
Primary Net Income per share. The Net Income per share was calculated
using the Treasury Stock Method.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 637,695
<SECURITIES> 0
<RECEIVABLES> 3,939,868
<ALLOWANCES> 350,000
<INVENTORY> 2,082,982
<CURRENT-ASSETS> 6,510,227
<PP&E> 2,850,340
<DEPRECIATION> 2,146,333
<TOTAL-ASSETS> 13,809,937
<CURRENT-LIABILITIES> 7,077,203
<BONDS> 0
0
0
<COMMON> 160,017
<OTHER-SE> 3,165,369
<TOTAL-LIABILITY-AND-EQUITY> 13,809,937
<SALES> 10,174,002
<TOTAL-REVENUES> 10,174,002
<CGS> 5,920,404
<TOTAL-COSTS> 5,920,404
<OTHER-EXPENSES> 3,038,391
<LOSS-PROVISION> 685
<INTEREST-EXPENSE> 81,216
<INCOME-PRETAX> 1,138,251
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,215,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,138,251
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
