<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 September 30, 1997.
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period
from to___________ 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:
(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 November
12, 1997:
6,934,056 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 Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $4,045,298 $4,046,803 $14,909,803 $14,220,805
Cost of sales 1,918,826 2,239,963 6,519,096 8,160,367
---------- ------------ ----------- -----------
Gross profit 2,126,472 1,806,840 8,390,707 6,060,438
Selling, general and administrative 1,802,104 961,980 6,000,224 3,613,414
Research and development 171,873 84,905 394,990 488,149
---------- ------------ ----------- -----------
Income from operations 152,495 759,955 1,995,493 1,958,875
Other income (expense):
Licensee transfer fee (Note 3) 375,000
Royalty income 8,869 3,492 111,308 24,039
Interest expense (4,350) (14,448) (34,740) (95,664)
---------- ------------ ----------- -----------
Net income $ 157,014 $ 748,999 $ 2,447,061 $ 1,887,250
========== ============ =========== ===========
Net income per share $ 0.02 $ 0.10 $ 0.32 $ 0.32
========== ============ =========== ===========
</TABLE>
See accompanying notes.
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American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
--------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash $1,861,205 $1,832,192
Accounts receivable:
Trade, less allowance of $220,000
in 1997 and $280,000 in 1996 2,122,361 2,691,242
Related party 186,409 782,469
------------ -----------
2,308,770 3,473,711
Inventories (Note 1) 4,887,809 3,204,806
Prepaid expenses and other current assets 546,057 537,283
------------ -----------
Total current assets 9,603,841 9,047,992
Other receivable (Note 3) 100,000
Property and equipment, net (Note 1) 1,218,933 1,192,454
Intangible assets, net (Note 1):
Goodwill 8,884,300 9,400,452
Air abrasive technology rights 954,678 1,088,958
Other (Note 4) 1,217,410 217,696
------------ -----------
11,056,388 10,707,106
Investment in joint venture (Note 4) 333,334
------------ -----------
Total assets $21,979,162 $21,280,886
============ ===========
</TABLE>
See accompanying notes.
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American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ ------------
<S> <C> <C>
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related party (Note 4) $ 200,000
Note payable (Note 5) $ 250,000 500,000
Accounts payable 1,963,966 2,080,895
Compensation and employee benefits 137,388 237,488
Taxes other than income 64,098 414,027
Other accrued liabilities 391,926 505,807
------------ -------------
Total current liabilities 2,807,378 3,938,217
Other non-current liabilities 135,604 177,175
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: 6,934,056
shares in 1997; and 6,936,439 shares in 1996 277,365 277,457
Additional paid-in capital 40,397,689 40,515,943
Accumulated deficit (21,537,256) (23,984,317)
Foreign currency translation (101,618) (43,589)
------------- -------------
Total stockholders' equity 19,036,180 16,765,494
------------- -------------
Total liabilities and stockholders' equity $ 21,979,162 $ 21,280,886
============= =============
</TABLE>
See accompanying notes.
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American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,447,061 $1,887,250
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 84,674 199,053
Amortization 705,625 468,891
Gain on disposal of fixed assets (960)
Gain on extinguishment of debt (100,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,173,600 353,689
Increase in inventories (1,668,418) (166,381)
Decrease (increase) in prepaid expenses
and other current assets (6,298) 49,277
Increase in notes receivable (100,000)
Increase in prepaid foreign taxes (75,000)
Decrease in accounts payable (110,139) (1,887,683)
Decrease in compensation and employee benefits (98,941) (4,689)
Decrease in taxes other than income (349,929) (189,282)
Decrease in other accrued liabilities (206,910) (473,904)
Decrease in other non-current liabilities (41,571) (25,708)
----------- -----------
Net cash provided by operating activities 1,728,754 134,553
INVESTING ACTIVITIES:
Proceeds from sale of property 960
Purchases of property and equipment (109,823) (38,307)
Decrease in non-current deposits 1,410,267
Cash acquired from Texas Airsonics, Inc. 217,772
Increase in intangible assets (1,054,906) (322,215)
----------- -----------
Net cash provided by (used in) investing activities (1,164,729) 1,268,477
FINANCING ACTIVITIES:
Payments on note payable to related parties (500,000) (200,000)
Payments on note payable (250,000) (1,290,000)
Proceeds from exercise of stock options 214,988 87,085
----------- -----------
Net cash used in financing activities (535,012) (1,402,915)
Increase in cash 29,013 115
Cash at beginning of year 1,832,192 1,665,718
----------- -----------
Cash at end of period $ 1,861,205 $ 1,665,833
=========== ===========
</TABLE>
See accompanying notes.
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 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") 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 nine months ended September 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>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Finished goods $ 994,039 $1,426,776
Work in progress 38,429 75,559
Raw materials, parts and supplies 3,855,341 1,702,471
---------- ----------
$4,887,809 $3,204,806
========== ==========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,464,133 at
September 30, 1997 and $1,641,920 at December 31, 1996.
Intangible Assets - Accumulated amortization aggregated $2,960,496 at September
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 each period:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
<S> <C>
Net sales $14,674,526
Net income 1,632,820
Net income per share $0.28
</TABLE>
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American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
September 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. 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 September 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 September 30, 1997, $250,000 was
outstanding. The Company is currently renewing the revolving line of credit and
management anticipates a new $1,500,000 one year revolving line of credit with
terms similar to the previous line of credit.
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 of Statement 128 on the calculation
of primary and fully diluted earnings per share for three and nine month
periods ended September 30, 1996 and 1997 is not material. The Company does
not believe the impact of Statement 128 would be material for the year ended
for December 31, 1997.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the three month period ended September 30, 1997, the Company earned
$157,014, a decrease over net income for the same period in 1996. For the nine
month period ended September 30, 1997, the Company earned $2,447,061, a 30%
increase over net income for the same period in 1996. The decrease in net
income for the three month period ended September 30, 1997 is primarily due to
increased selling, general and administrative expense due to
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approximately $230,000 of non-recurring costs related to laser marketing
start-up costs, ISO 9001 expenses and Nasdaq National Market listing fees. In
1996, pursuant to its manufacturing agreement, Texas Air, prior to its
acquisition, shared research and development, legal, and marketing expenses of
approximately $570,000 and $1,220,000 during the three and nine months periods
ended September 30, 1996, respectively. For the nine month period ended
September 30, 1997, net income increased primarily due to the non-recurring
license transfer fee recognized in June, 1997.
For the three month period ended September 30, 1997, net sales were
approximately the same as in 1996 and for the nine month period in 1997 net
sales increased 5% over 1996. Net sales in the United States, primarily KCPs,
during the three month period ended September 30, 1997, increased 28% compared
to the same period in 1996. The increased sales in the United States were
offset by significantly reduced purchases by the Company's dealer in the Japan.
For the nine months ended September 30, 1997, net sales in the United States
increased 80%, primarily due to an 85% increase in the volume of KCPs sold over
the same period in 1996. This increase in sales in the United States was
partially offset by lower sales to Europe and the Pacific Rim, related to
inventory adjustments, during the nine month period ended September 30, 1997
compared to the same period in 1996.
Operations for the nine months ended September 30, 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
improve for the remainder of 1997 compared to 1996, primarily from sales of
KCPs in the United States and the Company should record improved income from
operations for 1997. Internationally, the Company anticipates lower sales in
Japan in 1997 due to dealer inventory reductions, which may be offset by
increased sales in Europe and the Pacific Rim where the Company has been
actively establishing new dealers. 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.
Additionally, during the fourth quarter of 1997, the Company restructured its
European operations which the Company believes will result in annual savings of
approximately $400,000 beginning in 1998. 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 potential 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.
Gross profit as a percentage of net sales was 53% and 56% for the three
and nine months ended September 30, 1997 compared to 45% and 43% for the same
periods in 1996. Gross margin improved due to the addition of manufacturing
margin through the Company's acquisition of Texas Airsonics, Inc. ("Texas Air")
on July 31, 1996.
Selling, general and administrative expense increased $840,124 or 87% and
$2,386,810 or 66% for the three and nine month periods ended September 30, 1997
compared to the same periods in 1996. In 1996, pursuant to its manufacturing
agreement, Texas Air, prior to its acquisition, shared research and
development, legal, and marketing expenses of approximately $570,000 and
$1,220,000 during the three and nine month periods ended September 30, 1996,
respectively. Additionally, the 1997 expense levels reflect increased
commissions on sales in the United States and the addition of Texas Air selling
and administrative expenses, including amortization of goodwill, resulting from
the acquisition of Texas Air on July 31, 1996.
Research and development expenses were $171,873 and $394,990 for the three
and nine month periods ended September 30, 1997 compared to $84,905 and
$488,149 for the same periods in 1996. The decrease for the nine months ended
September 30, 1997 primarily relates to reduced personnel costs and clinical
trials related to governmental approval for laser applications that were
completed in 1996.
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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 products 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 $235,277 or 2% for the nine month period ended September 30, 1997
compared to the same period in 1996. Pro forma net income increased $814,241
or 50% and net income per share increased $0.04 or 14% for the nine month
period ended September 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.
Liquidity and Capital Resources
The Company's operating activities provided $1,728,754 in cash resources
during the nine month period ended September 30, 1997, compared to providing
$134,553 in the same period of 1996. The cash provided by operations in 1997
increased due to net income of $2,447,061, non-cash items of $609,299,
primarily amortization expense, and a decrease in accounts receivable of
$1,173,600. Cash provided by operations was partially offset by changes in
operating assets and liabilities, primarily an increase in inventories of
$1,668,418. The decrease in accounts receivable is due to lower sales in the
three month period ended September 30, 1997 compared to the three months ended
December 31, 1996. The Company has increased its inventory to meet anticipated
demand.
The Company has working capital of $6,796,463 at September 30, 1997
compared to working capital of $5,109,775 at December 31, 1996. The increase
in working capital is 0primarily a result of an increase in inventories net of
the decrease in accounts receivable for the nine months ended September 30,
1997. 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, which has been recorded as an intangible asset.
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 September 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 September 30, 1997, $250,000 was outstanding, with
an additional $2,250,000 available under the borrowing base. The Company is
currently renewing the revolving line of credit and management anticipates a
new $1,500,000 one year revolving line of credit with terms similar to the
previous line of credit. Although there can be no assurances the Company
believes that the line of credit will be renewed, failure to renew the line of
credit would not have a material adverse effect on the Company's liquidity.
The Company had a $1,000,000 note payable to Denics. 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.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 10.53 Patent License Agreement dated October 18, 1997
between Danville Engineering, Inc. and American
Dental Technologies, Inc.
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
September 30, 1997.
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: November 14, 1997 Chief Executive Officer
By: /s/ Diane M. Miller
-------------------------------
Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Dated: November 14, 1997 Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
------- --- -----------
10.53 Patent License Agreement dated October 18, 1997 between
Danville Engineering, Inc. And American Dental
Technologies, Inc.
11.1 Statement Re: Computation of Net Income Per
Share
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.53
Patent License
WHEREAS: DANVILLE ENGINEERING, INC. ("DANVILLE") desires to obtain a license
under certain patents and patents pending which are owned by American Dental
Technologies, Inc. ("ADT"), and is willing to license such patents to DANVILLE.
NOW THEREFORE, the parties agree as follows:
1. ADT hereby grants to DANVILLE, 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 1, for the life of such patents to make, use, lease and sell
DANVILLE'S current air abrasive dental models 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 Japan, 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 1 is
non-transferable by assignment, sublicense or other means of transfer provided,
further, that the period in which DANVILLE is licensed under this Agreement,
DANVILLE shall have the right to have the products of this paragraph 1
manufactured by a third party solely for DANVILLE. The license in this
paragraph 1 is subject to the payment provided in paragraph 2 of this
Agreement.
Payments
2. Beginning October 1, 1997, DANVILLE, or its permitted successor or
assigneee, shall pay to ADT a royalty on the net sales price (defined as gross
sales price less freight, duties and taxes) on all air abrasive products used
for cavity preparations manufactured, sold or leased by DANVILLE, or its
permitted successor or assignee, which are manufactured (by or on behalf
DANVILLE), 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
patent/patent applications. For air abrasive products used for cavity
preparations which have an electro mechanically operated system and which are
covered by either U.S. Patent No. 5,330,354 or U.S Patent 5,320,299, or U.S.
Patent No. 5,525,058 or any of their foreign counterparts, the royalty shall be
**. For all other air abrasive products used for cavity preparation, such as
completely pneumatic systems, the royalty shall be **. In the event that
DANVILLE, manufactures or has manufactured on its behalf, and sells or leases
air abrasive products used for cavity preparations 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 2 of this Agreement shall accrue when the subject products are
delivered, invoiced or paid for, which ever occurs first. All payments shall
be made in U.S. dollars. In no event shall a payment by DANVILLE under this
paragraph 2 be required for products that are both made and sold prior to
October 1, 1997.
3. DANVILLE shall (1) make the payments required in paragraph 2 of this
Agreement on February 15th, May 15th, August 15th, and November 15th for the
preceding accounting quarter, with the first payment to be made on February 15,
1998. DANVILLE 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.
** Redacted confidential information has been filed separately with
the SEC pursuant to Rule 24b-2.
<PAGE> 2
Termination
4. ADT may terminate the license granted by paragraph 1 of this Agreement
only in the event of a material breach of this Agreement by DANVILLE, and then
only if, upon receiving notice of such breach, DANVILLE 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
5. DANVILLE shall apply statutory notice to its 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
6. 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:
Ben J. Gallant
President and Chief Executive Officer
American Dental Technologies, Inc.
5555 Bear Lane
Corpus Christi, TX 78405
Tel: (512) 289-1145
Fax: (512) 289-5554
If to DANVILLE to:
Mark Fernwood
President and Chief Executive Officer
2021 Omega Road
San Ramon, CA 94583
Tel: (800) 827-7940
Fax: (510) 838-0944
7. A notice sent pursuant to paragraph 6 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.
Governing Law
8. This Agreement is made in the County of Nueces, State of Texas, and
shall be governed by the laws of the State of Texas without regard to its
conflict of laws and principles.
Warranties
9. 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 1 of
this Agreement, but makes no other warranties whatsoever regarding the patents
so licensed.
<PAGE> 3
Relationship of Parties
10. 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 act as an agent of the
other party. Neither party shall use the other party's name in any
marketing efforts.
Severability
11. The invalidity of any provision of this Agreement shall not affect the
validity of any other provision of this Agreement.
Complete Agreement
12. This Agreement constitutes the entire agreement of the
parties regarding this subject matter and supersedes any and all
prior or contemporaneous oral or written agreements, understandings,
negotiations or discussions among the parties regarding this subject
matter. Any amendment 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
13. 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
14. This Agreement, and all provisions herein, shall bind the
parties and their permitted successors and permitted assigns.
Miscellaneous
(a) Air abrasive devices not marketed primarily for cavity preparation, such
as the microetchers and the microprophy, are not subject to this Agreement
and do not fall within the scope of devices used primarily for cavity
preparation and as such, no royalties would be due on these devices.
(b) DANVILLE'S royalty rates will be lowered in a most favored rate
relationship with ADT.
(c) DANVILLE shall have the right to 'private label' the licensed air
abrasive cavity prep products it manufactures so long as the appropriate
royalties are paid.
(d) In the event ADT reacquires patent rights for Japan, this license will
extend to Japan.
AMERICAN DENTAL DANVILLE ENGINEERING, INC.
TECHNOLOGIES, INC.
/S/ Ben J. Gallant /s/ Mark Fernwood
President and Chief Executive Officer President and Chief Executive Officer
Date: October 18, 1997 Date: October 18, 1997
<PAGE> 1
EXHIBIT 11.1
AMERICAN DENTAL TECHNOLOGIES, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996* 1997 1996*
------------------------- -------------------------
<S> <C> <C> <C> <C>
Primary net income (loss) per share
Weighted average shares outstanding 6,917,208 5,911,226 6,931,270 4,620,068
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price or
the initial public offering price 556,601 1,723,178 692,558 1,187,070
---------- ---------- ---------- ----------
Weighted average number of common
and common equivalent shares 7,473,809 7,634,404 7,623,828 5,807,137
========== ========== ========== ==========
Net income available for common
shareholders $ 157,014 $ 748,999 $2,447,061 $1,887,250
========== ========== ========== ==========
Net income per common share $ 0.02 $ 0.10 $ 0.32 $ 0.32
========== ========== ========== ==========
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996* 1997 1996*
------------------------- -------------------------
<S> <C> <C> <C> <C>
Fully diluted net income per share
Weighted average shares outstanding 6,917,208 5,911,226 6,931,270 4,620,068
Net effect of dilutive stock options and
warrants based on the treasury stock
method using the higher of average
or ending market price or the
initial public offering price 1,387,745 1,723,178 1,387,745 1,476,521
---------- ---------- ---------- ----------
Weighted average number of common
and common equivalent shares 8,304,953 7,634,404 8,319,015 6,096,588
========== ========== ========== ==========
Net income available for common
shareholders $ 157,014 $ 748,999 $2,447,061 $1,887,250
========== ========== ========== ==========
Net income per common share $ 0.02 $ 0.10 $ 0.29 $ 0.31
========== ========== ========== ==========
</TABLE>
*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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,861,205
<SECURITIES> 0
<RECEIVABLES> 2,528,770
<ALLOWANCES> 220,000
<INVENTORY> 4,887,809
<CURRENT-ASSETS> 9,603,841
<PP&E> 2,683,066
<DEPRECIATION> 1,464,133
<TOTAL-ASSETS> 21,979,162
<CURRENT-LIABILITIES> 2,807,378
<BONDS> 0
0
0
<COMMON> 277,365
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,979,162
<SALES> 14,909,803
<TOTAL-REVENUES> 14,909,803
<CGS> 6,519,096
<TOTAL-COSTS> 6,519,096
<OTHER-EXPENSES> 1,995,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,740
<INCOME-PRETAX> 2,447,061
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,447,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,447,061
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
