<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, 1997.
[ ] 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, Southfield, MI 48034-5541
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(248) 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
July 31,1997:
6,909,056 Shares
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
American Dental Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues $5,350,641 $4,919,955 $10,864,505 $10,174,002
Cost of sales 2,169,208 3,064,978 4,600,270 5,920,404
---------- ---------- ----------- -----------
Gross profit 3,181,433 1,854,977 6,264,235 4,253,598
Selling, general and administrative 2,121,936 977,736 4,198,121 2,651,434
Research and development 107,987 168,894 223,116 403,244
---------- ---------- ----------- -----------
Income from operations 951,510 708,347 1,842,998 1,198,920
Other income (expense):
License transfer fee (Note 3) 375,000 375,000
Royalty income 89,472 20,547 102,439 20,547
Interest expense (12,209) (38,953) (30,390) (81,216)
---------- ---------- ----------- -----------
Net income $1,403,773 $ 689,941 $ 2,290,047 $ 1,138,251
========== ========== =========== ===========
Net income per share $ 0.18 $ 0.14 $ 0.30 $ 0.24
========== ========== =========== ===========
</TABLE>
See accompanying notes.
2
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American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
-------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,221,497 $ 1,832,192
Accounts receivable:
Trade, less allowance of $220,000
in 1997 and $280,000 in 1996 2,434,757 2,691,242
Related party 42,753 782,469
----------- -----------
2,477,510 3,473,711
Inventories (Note 1) 4,261,287 3,204,806
Prepaid expenses and other current assets 360,144 537,283
----------- -----------
Total current assets 9,320,438 9,047,992
Other receivable (Note 3) 100,000
Property and equipment, net (Note 1) 1,226,088 1,192,454
Intangible assets, net (Note 1):
Goodwill 9,056,350 9,400,452
Air abrasive technology rights 999,438 1,088,958
Other (Note 4) 1,232,187 217,696
----------- -----------
11,287,975 10,707,106
Investment in joint venture (Note 4) 333,334
----------- -----------
Total assets $21,934,501 $21,280,886
=========== ===========
</TABLE>
See accompanying notes.
3
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American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
--------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related party (Note 4) $ 200,000
Note payable $ 250,000 500,000
Accounts payable 1,778,217 2,080,895
Compensation and employee benefits 236,594 237,488
Taxes other than income 281,470 414,027
Other accrued liabilities 510,393 505,807
------------- -------------
Total current liabilities 3,056,674 3,938,217
Other non-current liabilities 149,431 177,175
Notes payable to related party,
less current portion (Note 4) 400,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares; none outstanding
Common stock, $.04 par value, authorized
12,500,000 shares; outstanding: 6,896,556
shares in 1997; and 6,936,439 shares in 1996 275,865 277,457
Additional paid-in capital 40,249,814 40,515,943
Accumulated deficit (21,694,270) (23,984,317)
Foreign currency translation (103,013) (43,589)
------------- -------------
Total stockholders' equity 18,728,396 16,765,494
------------- -------------
Total liabilities and stockholders' equity $ 21,934,501 $ 21,280,886
============= =============
</TABLE>
See accompanying notes.
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American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,290,047 $ 1,138,251
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 52,874 96,000
Amortization 474,036 259,075
Gain on disposal of fixed assets (420)
Gain on extinguishment of debt (100,000)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 999,123 (1,645,575)
Decrease (increase) in inventories (1,044,064) 92,874
Decrease in prepaid expenses and other current assets 179,245 65,236
Increase in prepaid foreign taxes (75,000)
Increase in notes receivable (100,000)
(Decrease) increase in accounts payable (294,025) 175,002
(Decrease) increase in compensation and employee benefits 56 (12,820)
Decrease in taxes other than income (132,557) (137,417)
Decrease in other accrued liabilities (83,056) (440,970)
Decrease in other non-current liabilities (27,743) (24,646)
------------ ------------
Net cash provided by (used in) operating activities 2,213,936 (510,410)
INVESTING ACTIVITIES:
Proceeds from sale of property 420
Purchases of property and equipment (85,338) (13,053)
Increase in intangible assets (1,054,906) (107,064)
------------ ------------
Net cash used in investing activities (1,140,244) (119,697)
FINANCING ACTIVITIES:
Payments on notes payable to related parties (750,000) (400,000)
Proceeds from exercise of stock options 65,613 2,084
------------ ------------
Net cash used in financing activities (684,387) (397,916)
------------ ------------
Increase (decrease) in cash 389,305 (1,028,023)
Cash at beginning of year 1,832,192 1,665,718
------------ ------------
Cash at end of period $ 2,221,497 $ 637,695
============ ============
</TABLE>
See accompanying notes.
5
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1997 (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 six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for other quarters of 1997
or for the year ended December 31, 1997. 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, 1996.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Finished goods $ 1,144,140 $ 1,426,776
Work in progress 60,868 75,559
Raw materials, parts and supplies 3,053,279 1,702,471
----------- -----------
$ 4,258,287 $ 3,204,806
=========== ===========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,432,333 at
June 30, 1997 and $1,641,920 at December 31, 1996.
Intangible Assets - Accumulated amortization aggregated $2,728,907 at June 30,
1997 and $2,254,871 at December 31, 1996.
Reclassifications - Certain amounts in prior year financial statements have
been reclassified to conform with the presentation used in 1997.
2. Texas Airsonics, Inc. Acquisition
On July 31, 1996, the Company acquired 100% of Texas Airsonics, Inc.'s ("Texas
Air") outstanding common stock in exchange for 2,857,443 shares of the
Company's common stock and warrants to purchase 1,749,228 additional shares of
common stock at $5.6164 per share for a period commencing August 1, 1997 and
ending July 31, 1999. The acquisition has been accounted for as a purchase,
and accordingly, the total value of common stock and warrants issued
($8,572,329) has been allocated to the acquired assets and assumed liabilities
based on their estimated fair values as of the acquisition date and the excess
consideration of $6,098,599 has been accounted for as goodwill and will be
amortized over a fifteen year period.
The following unaudited pro forma summary of operations is presented as though
Texas Air was acquired at the beginning of 1996:
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 1996
-------------
<S> <C>
Net sales $10,551,883
Net income $ 1,154,475
Net income per share $ 0.16
</TABLE>
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1997 (Unaudited)
3. Transfer of License
In June 1997, the Company agreed to the transfer of the licenses for the sale
of dental lasers and air abrasive instruments from Sunrise Technologies, Inc.
("Sunrise") to Lares Co. in connection with the sale of Sunrise's dental
business. The Company received a payment of $275,000 and a note receivable for
$100,000, due in June 2000. The Company will also continue to receive
royalties on air abrasive and dental lasers from Lares.
4. Related Party Transactions
In June 1997, the Company entered into an agreement to cancel its joint
venture agreement with Denics Co., Ltd. ("Denics") to manufacture, market,
distribute and sell dental air abrasive and laser products in the Pacific Rim
territory and to acquire Denics' rights in the joint venture for $1,000,000.
Upon cancellation of the joint venture agreement, Denics returned 53,547 shares
of the Company's common stock. Denics also agreed not to compete for a period
of ten years in the Pacific Rim territory.
The Company had a $1,000,000 note payable to Denics, with interest at 3% above
the discount rate in Japan (0.5% at June 30, 1997). In June 1997, Denics
agreed to extinguish the outstanding principal balance of $600,000 and the
accrued interest for a payment of $500,000.
5. Line of Credit
In October 1996, the Company obtained a $2,500,000 one year revolving line of
credit from a bank, with interest at prime (8.5% at June 30, 1997). The
Company's borrowing base is 80% of eligible accounts receivable and 50% of
inventory. The line of credit is secured by a pledge of the Company's accounts
receivable, inventory and fixed assets. As of June 30, 1997, $250,000 was
outstanding.
6. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the three months ended June 30, 1997
and 1996 of $.02 and $.03 per share, respectively and $.03 and $.05 for the six
months ended June 30, 1997 and 1996, respectively. The impact of Statement 128
on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the three month period ended June 30, 1997, the Company earned
$1,403,773, a 103% increase over net income for the same period in 1996. For
the six month period ended June 30, 1997, the Company earned $2,290,047, a 101%
increase over net income for the same period in 1996. The increases in 1997
net income are primarily due to increased gross profit revenues and the
non-recurring license transfer fee received in 1997.
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For the three and six month periods ended June 30, 1997, the Company's
had net sales of $5,350,641 and $10,864,505, respectively, representing
increases of 9% and 7% over the same periods in 1996. The increases in 1997
revenues and net income are due primarily to a 15% and 25% increase in the
volume of KCP's sold for the three and six month periods over the same periods
for 1996. The Company's laser product sales volumes for the three and six
month periods ended June 30, 1997 decreased approximately 56% compared to 1996
due primarily to dealer inventory adjustments. Gross profit as a percentage of
net sales was 59% and 58% for the three and six months ended June 30, 1997
compared to 38% and 42% for the same periods in 1996. Gross margin improved
due to the addition of manufacturing margin through ADT's acquisition of Texas
Airsonics, Inc. ("Texas Air") on July 31, 1996. The Company anticipates a
decrease in net sales for the third quarter of 1997 compared to the second
quarter, similar to prior years, resulting from the normal seasonal reduction
of dental conferences during the summer.
Operations in the first half of 1997 are in line with the Company's
business plan and management expects that trend to continue. Although there
can be no assurances, management anticipates that sales will continue to
improve in 1997 compared to 1996, primarily from sales of KCPs in the United
States. In June 1997, the Company received a purchase contract from Denics
Co., Ltd. for lasers aggregating $3,325,000 beginning in September 1997 through
March 1999 for distribution in Japan. Internationally, the Company anticipates
lower sales in Japan in 1997 due to dealer inventory reductions, offset by
increased sales in Europe and the Pacific Rim where the Company is establishing
new dealers. The foregoing statements 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 lack of
product acceptance, the potential failure of distributors to meet purchase
commitments, the potential loss of distributor relationships, the potential
failure to receive or maintain necessary regulatory approvals, and the extent
to which competition may negatively affect prices and sales volumes.
Selling, general and administrative expense increased $1,144,200 or
117% and $1,546,687 or 58% for the three and six month periods ended June 30,
1997 compared to the same periods in 1996. The 1997 expense levels reflect the
addition of Texas Air selling and administrative expenses, including
amortization of goodwill, resulting from the acquisition of Texas Air on July
31, 1996. Additionally, in 1996, pursuant to its manufacturing agreement,
Texas Air, prior to its acquisition, shared research and development, legal,
and marketing expenses of approximately $650,000 during the six month periods
ended June 30, 1996.
Research and development expenses were $107,987 and $223,116 for the
three and six month periods ended June 30, 1997 compared to $168,894 and
$403,244 for the same periods in 1996. The decrease in 1997 primarily relates
to reduced personnel costs and clinical trials related to governmental approval
for laser applications that were completed in 1996.
In June 1997, the Company agreed to the transfer of the licenses for
the sale of dental lasers and air abrasive instruments from Sunrise
Technologies, Inc. ("Sunrise") to Lares Co. in connection with the sale of
Sunrise's dental business. The Company received a payment of $275,000 and a
note receivable for $100,000, due in June 2000. The Company will also continue
to receive royalties on air abrasive and dental lasers from Lares.
Pro Forma Summary of Operations
The following pro forma summary of operations information is presented
as though Texas Air was acquired at the beginning of 1996. Pro forma net sales
increased $312,622 or 3% for the six month period ended June 30, 1997 compared
to the same period in 1996. Pro forma net income increased $1,135,572 or 98%
and net income per share increased $.14 or 88% for the six month period ended
June 30, 1997 compared to the same period in 1996. The changes in pro forma
net income and net income per share resulted primarily from the efficiencies
provided by consolidation of operations and personnel.
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Liquidity and Capital Resources
The Company's operating activities provided $2,213,936 in cash
resources during the six month period ended June 30, 1997, compared to using
$510,410 in the same period of 1996. The cash provided by operations in 1997
increased due to net income of $2,290,047, $526,910 related to non-cash
depreciation and amortization expense, and a decrease in accounts receivable of
$999,123. Cash provided by operations was partially offset by changes in
operating assets and liabilities, including an increase in inventories of
$1,044,064 and a decrease in accounts payable of $294,025. The decrease in
accounts receivable is due to collection of a significant amount of related
party receivables. The increase in inventories is primarily for the KCP
product line. The Company has increased its inventory to meet anticipated
demand. The decrease in accounts payable reflects prompt payment to vendors.
The Company has working capital of $6,263,764 at June 30, 1997
compared to working capital of $5,109,775 at December 31, 1996. The increase
in working capital is primarily a result of an increase in inventories, a
reduction of notes payable and cash funded by net income of $2,290,047 for the
six month period ended June 30, 1997. Investing activities for the six months
ended June 30, 1997 included purchasing equipment for the Texas manufacturing
facility. In June 1997, the Company and Denics Co., Ltd. ("Denics") agreed to
cancel the Pacific Rim joint venture and for the Company to purchase the rights
to manufacture, market, distribute and sell air abrasive and laser products in
the Pacific Rim for $1,000,000.
In October 1996, the Company obtained a $2,500,000 one year revolving
line of credit from a bank, with interest at prime (8.5% at June 30, 1997).
The Company's borrowing base is 80% of eligible accounts receivable and 50% of
inventory. The line of credit is secured by a pledge of the Company's accounts
receivable, inventory and fixed assets, along with the guarantee of the
Company's President. As of June 30, 1997, $250,000 was outstanding, with an
additional $2,250,000 available under the borrowing base.
The Company had a $1,000,000 note payable to Denics, with interest at
3% above the discount rate in Japan (0.5% at June 30, 1997). In June 1997,
Denics agreed to extinguish the $600,000 outstanding principal plus accrued
interest for a payment of $500,000.
The Company believes, based upon its current business plan, that
current cash, available financing resources and cash generated through
operations should be sufficient to meet the Company's anticipated short term
and long term liquidity needs for the foreseeable future.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On July 7, 1997, the Company filed a second lawsuit against
Kreativ, Inc. ("Kreativ") in the United States District Court for the Southern
District of Texas. The Company is seeking injunctive relief and money damages
for infringement of certain of the Company's patents, including treble damages
for certain willful infringements, due to Kreativ's making, using, selling and
offering for sale systems which come within the scope of the patents. The
Company's pending lawsuit against Kreativ, filed in December 1996, was reported
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
Item 2. Changes in Securities
On March 17, 1997, in connection with the Company's 1 for 4
reverse stock split, the Company's Certificate of Incorporation was amended to
reduce the number of authorized shares of Common Stock from 50,000,000 to
12,500,000 and to increase the par value of the Common Stock from $.01 to $.04.
9
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 5,
1997, at which time the stockholders considered and voted on the election of
three directors. Each of the nominees for director was an incumbent and all
nominees were elected. The following table sets forth the number of shares
voted for and withheld with respect to each nominee.
<TABLE>
<CAPTION>
Nominee Votes For Votes Against
------- --------- -------------
<S> <C> <C>
William D. Maroney 5,894,227 13,188
Bertrand R. Williams, Sr. 5,893,574 13,841
Charles A. Nichols 5,869,182 38,233
</TABLE>
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 3.5 - Restated Certificate of Incorporation filed August 7, 1997
Exhibit 10.51 - Fifth Memorandum Agreement dated as of June 12, 1997
Exhibit 10.52 - Sixth Memorandum Agreement dated as of June 23, 1997
Exhibit 11.1 - Statement Re: Computation of Net Income Per Share
Exhibit 27 - Financial Data Schedule
(b) There have been no reports on Form 8-K filed during the quarter
ended June 30, 1997.
10
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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/ Ben J. Gallant
-------------------------------
Ben J. Gallant
Dated: August 13, 1997 Chief Executive Officer
By: /s/ Diane M. Miller
-------------------------------
Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Dated: August 13, 1997 Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.5 Restated Certificate of Incorporation
filed August 7, 1997
10.51 Fifth Memorandum Agreement dated as of
June 12, 1997
10.52 Sixth Memorandum Agreement dated as of
June 23, 1997
11.1 Statement Re: Computation of Net Income
Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.5
FIRST RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN DENTAL TECHNOLOGIES, INC.
Pursuant to Section 245 of the General Corporation Law of the State of
Delaware, the undersigned corporation executes the following First Restated
Certificate of Incorporation, which has been duly adopted in accordance with
the provisions of such Section, is not being further amended hereby and
contains no discrepancies from the provisions of the Certificate of
Incorporation, as theretofore amended and supplemented. The corporation was
originally incorporated on November 21, 1989 under the name ADL Consolidated,
Inc.
FIRST. The name of this corporation shall be:
American Dental Technologies, Inc.
SECOND. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the City of Wilmington, County of New Castle 19805, and
its registered Agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The aggregate number of shares which the Company shall have
authority to issue is 22,500,000 to be divided into (a) 12,500,000 shares of
Common Stock, par value $0.04 per share, and (b) 10,000,000 shares of Preferred
Stock, par value $0.01 per share.
The Board of Directors is hereby empowered to cause the Preferred Stock to
be issued from time to time for such consideration as it may from time to time
fix, and to cause such Preferred Stock to be issued in series with such voting
powers, designations, preferences and relative, participating, optional or
other special rights, if any, or the qualifications, limitations or
restrictions thereof, as designated by the Board of Directors in the resolution
providing for the issue of such series. Shares of Preferred Stock of any one
series shall be identical in all respects.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, as amended,
the Board of Directors does hereby provide for issuance of a series of
preferred stock, $0.01 par value, of the Corporation, to be designated "Series
A Preferred Stock" and to the extent that the designations, powers, preferences
and relative and other special rights and the qualifications, limitations and
restrictions of the Series A Preferred Stock are not stated and expressed in
the Certificate of Incorporation, as amended, does hereby fix and herein state
and express such designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions thereof, as
follows:
<PAGE> 2
SERIES A PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" and the number of shares constituting
such series shall be all such shares issued from time to time to Dental
Innovate Corporation by the Corporation, a total of 900,000 shares.
Section 2. Dividends and Distributions. The holder of Series A Preferred
Stock shares ("preferred shares") shall be entitled to receive dividends at the
rate of six (6%) percent per annum on its paid in capital, payable each year on
a date to be specified by the Board of Directors. The dividends accrue from
the date of issuance of the preferred shares and shall be deemed to accrue
whether or not earned or declared. The right to these dividends is cumulative;
and those currently due as well as all those past due must be declared and set
aside or fully paid before any distribution, by dividend or otherwise, is paid
on, declared, or set apart for the holders of any shares of common stock.
After the cumulative dividends on the preferred shares have been paid in full,
any further distribution of dividends shall be made equally to the holders of
all outstanding shares of common stock.
Section 3. Voting Rights. The holder of Series A Preferred Stock shall
have no voting power and the holders of the shares of common stock shall
possess exclusive voting power in the Corporation, except as otherwise provided
by law.
Section 4. Conversion Rights. The holder of the Series A Preferred Stock,
at its option and at any time, is entitled to receive one common share for each
preferred share delivered to the Corporation for conversion. A written notice
shall be given to the Corporation not less than thirty days before the
preferred shares are submitted for conversion. If at any time after the
issuance of the preferred shares, the Corporation issues additional shares of
common stock as a stock dividend, or subdivides or combines the outstanding
shares of common stock, the rate of conversion shall be proportionately
adjusted. All shares of Series A Preferred Stock surrendered for conversion
shall be canceled and shall not be reissued. All such shares shall upon
cancellation become authorized, but unissued shares of preferred stock, and may
be reissued as part of a new series of preferred stock to be created by
resolution of the Board of Directors. So long as any shares of the Series A
Preferred Stock are outstanding, the Corporation shall reserve a sufficient
number of unissued shares of the authorized common stock to satisfy in full the
conversion privileges of the holder of those shares. The Corporation need not
issue fractional shares of its common stock, but may instead pay cash equal to
the market value of the fractional shares the holder of the Series A Preferred
Stock would otherwise be entitled to on conversion.
Section 5. Transfer Restrictions. Series A Preferred Stock shall be
non-transferable. Common stock received by the holder of Series A Preferred
Stock upon conversion shall bear the following restrictive legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THE SHARES OF STOCK REPRESENTED
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BY THIS CERTIFICATE HAVE BEEN ACQUIRED PURSUANT TO AN INVESTMENT
REPRESENTATION ON THE PART OF THE REGISTERED OWNER HEREOF. IF THE
CORPORATION SO REQUESTS, BEFORE THESE SHARES ARE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, THE REGISTERED OWNER HEREOF SHALL OBTAIN AN OPINION OF
COUNSEL SATISFACTORY TO THE BOARD OF DIRECTORS, IN THE BOARD'S SOLE
DISCRETION, THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS."
Section 6. Liquidation, Dissolution or Winding Up. In the event of the
liquidation, dissolution, or winding up of the Corporation, the holder of
Series A Preferred Stock, shall be entitled to receive in full the respective
amounts fixed in accordance with the provisions below before any distribution
or payment is made to the holders of shares of common stock. The holder of
Series A Preferred Stock will be entitled to receive an amount equal to the
consideration received by the Corporation for the issuance of the preferred
shares, together with the accrued cumulative dividends to the payment date,
whether or not earned or declared. After full payment has been made to the
holder of the Series A Preferred Stock, the remaining assets of the Corporation
are to be distributed equally to all holders of outstanding common stock, share
for share. If the assets of the Corporation are insufficient to satisfy in
full the payments to the holder of the Series A Preferred Stock as provided
herein, then the holder of the Series A Preferred Stock will share in any
distribution of assets to the fullest extent to which it otherwise is legally
entitled. This provision shall not apply to a merger or consolidation by the
Corporation, nor to any lease or conveyance of substantially all of its assets.
FIFTH. The name and address of the incorporator is as follows:
Mary T. Reed
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
SEVENTH. No director shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct of
a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which director derived
an improper personal benefit. No amendment to or
3
<PAGE> 4
repeal of this Article Seventh shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment.
EIGHTH. (a) At all meetings of the stockholders of the Corporation, each
holder of record of Common Stock shall be entitled to one vote for each share
of such class of stock standing in his name on the books of the Corporation
subject to the right of the Board of Directors to determine a record date at
any particular meeting. Cumulative voting shall not be permitted at any
election of directors.
(b) The affairs of this Corporation shall be conducted by a Board of
Directors. Except as otherwise provided by this Article Eight, the number of
directors of the Corporation, shall be fixed from time to time by the vote of a
majority of the entire Board; provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office. Commencing with the effective date of this Amendment to the
Certificate of Incorporation, the directors of the Corporation shall be divided
into three classes; Class I, Class II and Class III, each such class, as nearly
as possible, to have the same number of directors. The term of office of the
initial Class I directors shall expire at the annual election of directors by
the stockholders of the Corporation in 1991, the term of the office of the
initial Class II directors shall expire at the annual election of directors by
the stockholders of the Corporation in 1992, and the term of the office of the
initial Class III directors shall expire at the annual election of directors by
the stockholders of the Corporation in 1993, or in each case thereafter when
their respective successors are elected by the stockholders and qualify. At
each annual election of directors by the stockholders of the Corporation held
after the effective date of this Amendment to the Certificate of Incorporation,
the directors chosen to succeed those whose terms are then expired shall be
identified as being of the same class as the directors they succeed and shall
be elected by the stockholders of the Corporation for a term expiring at the
third succeeding annual election of directors, or thereafter when their
respective successors in each case are elected by the stockholders and qualify.
(c) In case of an increase in the number of directors, the additional
directors may be elected by the Board of Directors and such directorships
thereby created shall be apportioned among the classes of directors so as to
maintain such classes as nearly equal in number as possible. In case of
vacancies in any of the classes of directors, a majority of all the remaining
directors in all classes may elect such directors to fill any such vacancies in
any class.
(d) Special meetings of stockholders of the Corporation may be called only
by the Board of Directors pursuant to a resolution approved by a majority of
the entire Board of Directors, upon not less than ten (10) nor more than fifty
(50) days written notice.
(e) Notwithstanding any other provisions of the Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law, this Certificate of Incorporation or
the By-Laws of the Corporation), the provisions of this Article Eight may not
be repealed or amended in any respect, nor may any provision be adopted
inconsistent with this Article Eight unless such action is approved by the
affirmative vote of the
4
<PAGE> 5
holders of eighty (80%) percent of the total shares of
stock of the Corporation then outstanding and entitled to vote thereon.
NINTH. Where stockholder approval is required by applicable state law for
any of the following transactions, the vote required for such approval shall be
the affirmative vote of the holders of at least eighty (80%) percent of the
voting power of the outstanding shares:
(a) Any plan of merger;
(b) Any plan of exchange;
(c) Any sale, lease, transfer or other disposition of all or
substantially all of this Corporation's property and assets,
including its goodwill, not in the usual and regular course of its
business;
(d) Any dissolution of this Corporation;
(e) Any amendment to, or repeal of, a By-Law or By-Laws
lawfully proposed by a stockholder or stockholders holding at least
the required statutory voting power; or
(f) Any amendment to, or repeal of, all or any portion of this
Article Nine; provided, however, that if the then current or a
preexisting Board of Directors of this Corporation shall by
resolution adopted at a meeting of the Board of Directors have
approved one of the enumerated matters (other than dissolution of
this Corporation or an amendment of this Article Nine to alter the
eighty (80%) percent dissolution vote) and shall have determined to
recommend it for approval by the holders of shares entitled to vote
on the matter, then the vote required shall be the affirmative vote
of the holders of at least a majority of the voting power of the
outstanding shares.
IN WITNESS WHEREOF, the undersigned corporation has executed, signed and
acknowledged this First Restated Certificate of Incorporation this 5th day of
August, 1997.
/s/ Ben J. Gallant
----------------------
Ben J. Gallant
President (authorized officer)
Acknowledged:
/s/ John E. Vickers
- --------------------
John E. Vickers, Secretary
5
<PAGE> 1
EXHIBIT 10.51
Fifth Memorandum Agreement
This Fifth Memorandum Agreement is made between American Dental
Technologies, Inc. ("ADT"), a Delaware corporation, and Denics Co., Ltd.
("DENICS"), a Japanese Corporation (formerly referred to as Dental Innovate
Corporation).
RECITALS
WHEREAS, ADT and DENICS entered into a Memorandum Agreement on June 10,
1993 (the "Memorandum Agreement"), as amended by an Amendment Agreement dated
August 16, 1993 with respect to, inter alia, the granting of license by ADT to
DENICS for the manufacture and sale of the KCP 2000 ("KCP") and the formation
of a joint venture;
WHEREAS, ADT and DENICS entered into a Supplemental Agreement on July
27, 1993, as amended by a Letter Agreement dated July 27, 1993 and the
Amendment Agreement with respect to, inter alia, the granting of a license by
ADT to DENICS for the manufacture and sale of the dLase 300, 400 and 800
("dLase") and for the PulseMaster 300, 600 and 1000 ("PulseMaster");
WHEREAS, ADT and DENICS entered into a Letter Agreement in February
1994 with respect to certain purchases of PulseMasters, a loan by DENICS to ADT,
and other matters;
<PAGE> 2
WHEREAS, ADT and DENICS entered into a Second Memorandum Agreement
dated February 24, 1995 with respect to certain purchases of products and other
matters;
WHEREAS, ADT and DENICS entered into a Third Memorandum Agreement dated
February 23, 1996 with respect to certain purchases of products and other
matters;
WHEREAS, ADT and DENICS entered into a Joint Venture Agreement dated
October 31, 1996 with respect to a joint operation in the Pacific Rim
Territories;
WHEREAS, ADT and DENICS entered into a Fourth Memorandum Agreement
dated October 31, 1996 with respect to the distribution and marketing of dental
products in Japan; and
WHEREAS, ADT and DENICS wish to cancel the Joint Venture Agreement and
provide for the management and operation of the business in the Pacific Rim
Territories by ADT;
NOW, THEREFORE, in consideration of the premises and the covenants,
representations, warranties and agreements herein contained, and intending to
be legally bound hereby, the parties agree as follow:
2
<PAGE> 3
1. Definitions
In this Agreement, the following terms shall have the following
meanings.
a. The "Products" means all dental air abrasive products and all laser
products for dental use.
b. The "Pacific Rim Territories" means the following countries:
China (including Hong Kong)
Taiwan
Korea (North and South)
India
Pakistan
Australia
New Zealand
Singapore
Thailand
Malaysia
Indonesia
c. The "Goodwill" means the goodwill generally defined in the
generally accepted accounting principles in the U.S. and Japan.
3
<PAGE> 4
DENICS shall assign the Goodwill connected with the marketing of the
Products in the Pacific Rim Territories to ADT, and ADT shall be entitled to
all the profits from ADT's marketing of the products in the Pacific Rim
Territories.
3. Consideration
In consideration of the Goodwill, ADT will make a payment of $1,000,000
USD to DENICS by way of ADT common stock for which DENICS acknowledges that it
has received ADT stock in the value of $333,333.33 USD.
ADT will issue shares of ADT common stock to DENICS in payment for the
balance as follows:
On July 1, 1997, $333,333.33 USD and on April 1, 1998, $333,333.34 USD
of ADT common stock based upon the average closing price of the stock
for the 10 trading days prior to each date.
ADT, at its sole option, can pay such amounts in cash.
4. Non-Competition
DENICS agree that it will not engage in the marketing of commodities
directly competitive with the Products in the Pacific Rim Territories for a
term of 10 years after execution of this Agreement.
5. Other Rights
Except as set forth above, this Fifth Supplemental Agreement does not
alter or modify any other rights of DENICS or ADT under the prior agreements
which shall be binding on the successors, assigns and affiliates of the
parties.
4
<PAGE> 5
6. Governing Law: Arbitration
It is hereby confirmed that Paragraphs 4.1 (Governing Law) and 4.2
(Arbitration) of the Memorandum Agreement apply to this Agreement.
Executed effective 12, June 1997
American Dental Technologies, Inc. Denics Co., Ltd.
By: /s/ Ben J. Gallant By: /s/ K. Iwai
------------------------- ------------------------
Ben J. Gallant Kengo Iwai
President & C.E.O. President
5
<PAGE> 1
EXHIBIT 10.52
Sixth Memorandum Agreement
This Sixth Memorandum Agreement is made between American Dental
Technologies, Inc. ("ADT"), a Delaware Corporation, and Denics Co., Ltd.
("DENICS"), a Japanese Corporation (formerly referred to as Dental Innovate
Corporation).
RECITALS
WHEREAS, ADT and DENICS entered into a Memorandum Agreement on June 10,
1993 (the "Memorandum Agreement"), as amended by an Amendment Agreement dated
August 16, 1993 with respect to, inter alia, the granting of license by ADT to
DENICS for the manufacture and sale of the KCP 2000 and the formation of a
joint venture;
WHEREAS, ADT and DENICS entered into a Supplemental Agreement on July
27, 1993, as amended by a Letter Agreement dated July 27, 1993, and the
Amendment Agreement with respect to, inter alia, the granting of a license by
ADT to DENICS for the manufacture and sale of the dLase 300, 400 and 800 and for
the PulseMaster 300, 600 and 1000;
WHEREAS, ADT and DENICS entered into a Letter Agreement in February
1994 with respect to certain purchases of PulseMasters, a loan by DENICS to
ADT, and other matters;
<PAGE> 2
WHEREAS, ADT and DENICS entered into a Second Memorandum Agreement
dated February 24, 1995 with respect to certain purchases of products and other
matters;
WHEREAS, ADT and DENICS entered into a Third Memorandum Agreement dated
February 23, 1996 with respect to certain purchases of products and other
matters;
WHEREAS, ADT and DENICS entered into a Joint Venture Agreement dated
October 31, 1996 with respect to a joint operation in the Pacific Rim
Territories;
WHEREAS, ADT and DENICS entered into a Fourth Memorandum Agreement
dated October 31, 1996 with respect to the manufacture, distribution and
marketing of dental products in Japan;
WHEREAS, ADT and DENICS entered into a Fifth Memorandum Agreement dated
June 12, 1997 with respect to operations in the Pacific Rim Territories; and
WHEREAS, ADT and DENICS wish to cancel the Joint Venture Agreement and
Fifth Memorandum Agreement, and provide for the ownership, management and
operation of the business in the Pacific Rim Territories by ADT and for the
prepayment of the loan from ADT to DENICS;
NOW, THEREFORE, in consideration of the premises and the covenants,
representations, warranties and agreements herein
<PAGE> 3
contained, and intending to be legally bound hereby, the parties agree as
follow:
1. Definitions
In this Agreement, the following terms shall have the following
meanings.
a. The "Products" means all dental air abrasive products and all
laser products for dental use.
b. The "Pacific Rim Territories" means the following countries:
China (including Hong Kong)
Taiwan
Korea (North and South)
India
Pakistan
Australia
New Zealand
Singapore
Thailand
Malaysia
Indonesia
c. The "Goodwill" means the goodwill generally defined in the
generally accepted accounting principles in the U.S. and Japan.
<PAGE> 4
2. Cancellation
The Joint Venture Agreement and the Fifth Memorandum Agreement are
hereby canceled.
3. Assignment of Goodwill
DENICS shall assign the Goodwill connected with the marketing of the
Products in the Pacific Rim Territories to ADT, and ADT shall be entitled to
all the profits from ADT's marketing of the Products in the Pacific Rim
Territories. ADT shall have the exclusive right to manufacture, market,
distribute, sell and commercialize the Products in the Pacific Rim Territories
for a period of 10 years after execution of this Agreement.
4. Consideration
In consideration of the Goodwill, ADT will make a payment of $1,000,000
USD to DENICS. Since the joint venture is canceled, the 214,190 share of ADT
common stock, Certificate CS3614, ADT previously issued to DENICS for an
interest in the joint venture is hereby canceled, and the certificate (or
certificate issued for such shares as a result of the reverse split) will be
returned to ADT upon payment by ADT hereunder.
<PAGE> 5
5. Non-Competition
DENICS agree that it will not engage in the marketing or sales of the
Products in the Pacific Rim Territories for a term of 10 years after execution
of this Agreement.
6. Purchase of LE600 Lasers for Remainder of Fiscal Year 1997 and for
Fiscal Year 1998
a. For the remainder of Fiscal Year 1997, DENICS shall purchase
from ADT a total of 70 units of LE600. For Fiscal Year 1998,
DENICS shall purchase from ADT a total of 120 units of LE600.
The price shall be $17,500 USD per unit. Such prices shall be
FOB U.S. shipping point.
b. Commencing September, 1997 and for the remainder of Fiscal Year
1997, DENICS shall purchase a minimum of 10 units of LE600 per
month until the total quantity reaches 70 units for Fiscal
Year 1997.
Commencing April, 1998 and for Fiscal Year 1998, DENICS shall
purchase a minimum of 10 units LE600 per month until the total
quantity reached 120 units.
This Agreement constitutes a purchase order which ADT may ship
against. Payment will be due 60 days from date of shipment.
<PAGE> 6
7. Prepayment of Loan
ADT owes DENICS $600,000 plus accrued interest on the loan as set forth
in the Letter Agreement in February, 1994. ADT agrees to pay $500,000 and
DENICS agrees to accept $500,000 in full payment of all amounts due on the loan.
8. Acceptance and Payment
This Agreement will be enforceable upon DENICS execution and faxing a
copy to ADT at 248-353-0663. ADT may rely upon the faxed copy. Upon receipt
of a faxed copy of this signed agreement, ADT will immediately wire to DENICS
$1,500,000 USD as payment under paragraphs 4 and 7 less the amount of any
invoices from ADT to DENICS totaling no more than $753,750.
9. Other Rights
Except as set forth above, this Sixth Memorandum Agreement does not
alter or modify any other rights of DENICS or ADT under the prior agreements
which shall be binding on the successors, assigns and affiliates of the
parties.
10. Governing Law; Arbitration
It is hereby confirmed that Paragraphs 4.1 (Governing Law) and 4.2
(Arbitration) of the Memorandum Agreement apply to this Agreement.
<PAGE> 7
Executed effective June 23, 1997.
American Dental Technologies, Inc. Denics Co., Ltd.
By: /s/ Ben J. Gallant By: /s/ K. Iwai
------------------------ ----------------------
Ben J. Gallant Kengo Iwai
President & C.E.O. President
<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
1997 1996* 1997 1996*
------------------------- ------------------------
<S> <C> <C> <C> <C>
Primary net income per share
Weighted average shares outstanding 6,945,130 4,000,074 6,938,378 3,967,394
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price or
the initial public offering price 705,417 953,756 734,835 711,348
----------- ----------- ---------- ----------
Weighted average number of common
and common equivalent shares 7,650,547 4,953,830 7,673,213 4,678,742
=========== =========== ========== ==========
Net income available for common
shareholders $ 1,403,773 $ 689,941 $2,290,047 $1,138,251
=========== =========== ========== ==========
Net income per common share $ 0.18 $ 0.14 $ 0.30 $ 0.24
=========== =========== ========== ==========
</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 4,000,074 3,967,394
Net effect of dilutive stock options and
warrants based on the treasury stock
method using ending market price or
the initial public offering price 1,184,654 1,184,654
---------- -----------
Weighted average number of common
and common equivalent shares 5,184,728 5,152,048
========== ===========
Net income available for common
shareholders $ 689,941 $ 1,138,251
========== ===========
Net income per common share $ 0.13 $ 0.22
========== ===========
</TABLE>
Note: Fully Diluted Net Income per share for the three and six month periods
ended June 30, 1997 are represented by the same calculation as Primary
Net Income per share. The Net Income per share was calculated using the
Treasury Stock Method.
*The number of shares reflect the effects of a one-for-four reverse
stock split which was effective March 17, 1997, calculated without
regard to fractional interests.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,221,497
<SECURITIES> 0
<RECEIVABLES> 2,697,510
<ALLOWANCES> 220,000
<INVENTORY> 4,261,287
<CURRENT-ASSETS> 9,320,438
<PP&E> 2,658,421
<DEPRECIATION> 1,432,333
<TOTAL-ASSETS> 21,934,501
<CURRENT-LIABILITIES> 3,056,674
<BONDS> 0
0
0
<COMMON> 275,865
<OTHER-SE> 18,728,396
<TOTAL-LIABILITY-AND-EQUITY> 21,934,501
<SALES> 10,864,505
<TOTAL-REVENUES> 10,864,505
<CGS> 4,600,270
<TOTAL-COSTS> 4,600,270
<OTHER-EXPENSES> 4,421,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,390
<INCOME-PRETAX> 2,290,047
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,290,047
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,290,047
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
