<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 March 31, 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
(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 May 1, 1997:
6,947,603 Shares
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
American Dental Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
----------------------------
<S> <C> <C>
Net sales $5,513,864 $5,254,047
Cost of sales 2,431,062 2,855,426
---------- ----------
Gross profit 3,082,802 2,398,621
Selling, general and administrative 2,076,185 1,673,698
Research and development 115,129 234,350
---------- ----------
Income from operations 891,488 490,573
Other income (expense):
Royalty income 12,967
Interest expense (18,181) (42,263)
---------- ----------
Net income $ 886,274 $ 448,310
========== ==========
Net income per share (Note 5) $ 0.12 $ 0.10
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,037,436 $ 1,832,192
Accounts receivable:
Trade, less allowance of $220,000
in 1997 and $280,000 in 1996 2,785,526 2,691,242
Related party 844,324 782,469
----------- -----------
3,629,850 3,473,711
Inventories (Note 1) 4,146,436 3,204,806
Prepaid expenses and other current assets 467,466 537,283
----------- -----------
Total current assets 10,281,188 9,047,992
Property and equipment, net (Note 1) 1,241,812 1,192,454
Intangible assets, net (Note 1):
Goodwill 9,228,401 9,400,452
Air abrasive technology rights 1,044,198 1,088,958
Other 249,753 217,696
----------- -----------
10,522,352 10,707,106
Investment in joint venture 333,334 333,334
----------- -----------
Total assets $22,378,686 $21,280,886
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related party (Note 3) $ 200,000 $ 200,000
Note payable 500,000 500,000
Accounts payable 2,575,234 2,080,895
Compensation and employee benefits 138,547 237,488
Taxes other than income 326,373 414,027
Other accrued liabilities 421,147 505,807
------------ ------------
Total current liabilities 4,161,301 3,938,217
Other non-current liabilities 169,994 177,175
Notes payable to related party,
less current portion (Note 3) 400,000 400,000
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: 6,947,603
shares in 1997; and 6,936,439 shares in 1996 277,907 277,457
Additional paid-in capital 40,576,106 40,515,943
Accumulated deficit (23,098,042) (23,984,317)
Foreign currency translation (108,580) (43,589)
------------ ------------
Total stockholders' equity 17,647,391 16,765,494
------------ ------------
Total liabilities and stockholders' equity $ 22,378,686 $ 21,280,886
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
American Dental Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
-------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 886,274 $ 448,310
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation 21,075 48,000
Amortization 230,426 116,803
Gain on disposal of fixed assets (375)
Changes in operating assets and liabilities:
Increase in accounts receivable (155,052) (1,347,173)
(Increase) decrease in inventories (931,326) 524,633
Decrease in prepaid expenses and other current assets 71,595 115,267
Increase in prepaid foreign taxes (75,000)
Increase in accounts payable 503,954 157,263
Decrease in compensation and employee benefits (98,034) (11,408)
Increase (decrease) in taxes other than income (87,654) 3,950
Decrease in other accrued liabilities (174,466) (445,101)
Decrease in other non-current liabilities (7,181) (13,289)
---------- -----------
Net cash provided by (used in) operating activities 259,611 (478,120)
Proceeds from sale of property 375
Purchases of property and equipment (69,308) (4,079)
Increase in intangible assets (45,672) (37,404)
---------- -----------
Net cash used in investing activities (114,980) (41,108)
Proceeds from exercise of stock options 60,613
----------
Net cash provided by financing activities 60,613
---------- -----------
Increase (decrease) in cash 205,244 (519,228)
Cash at beginning of period 1,832,192 1,665,718
---------- -----------
Cash at end of period $2,037,436 $ 1,146,490
========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 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 three months ended March 31, 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> March 31, December 31,
1997 1996
-------------------------------
<S> <C> <C>
Finished goods $1,332,438 $1,426,776
Work in progress 75,600 75,559
Raw materials, parts and supplies 2,738,398 1,702,471
---------- ----------
$4,146,436 $3,204,806
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,400,534 at
March 31, 1997 and $1,641,920 at December 31, 1996.
Intangible Assets - Accumulated amortization aggregated $2,485,297 at
March 31, 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:
Three Months Ended
------------------
March 31
---------
1996
----
Net sales $5,394,395
Net income $692,294
Net income per share $0.09
6
<PAGE> 7
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1997 (Unaudited)
3. Related Party Transactions
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 March 31, 1997). As
of March 31, 1997, $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.
4. 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 March 31, 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 December 31, 1996, $500,000 was
outstanding.
5. 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 first quarter ended March 31,
1997 and March 31, 1996 of $.01 and $.01 per share, 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 March 31, 1997, the Company had net
income of $886,274, or a 98% increase over $448,310 of net income in 1996's
first quarter. Net sales were $5,513,864 for the quarter ended March 31,
1997, an increase of 5% over net sales of $5,254,047 for the first quarter
of 1996. Revenues and net income increased primarily due to a 186% increase in
KCP sales volumes in the United States. International KCP sales and dental
laser sales volumes were down from last year's first quarter primarily due to
dealer inventory adjustments. Gross profit as a percentage of net sales was
56% for the first quarter of 1997 compared to 46% for the same period in 1996.
Gross margins improved due to the addition of manufacturing margins through
ADT's acquisition of Texas Airsonics, Inc. ("Texas Air") on July 31, 1996.
Sales in the first quarter 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. 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.
7
<PAGE> 8
Selling, general and administrative expenses increased $402,487 or 24%
for the three months ended March 31, 1997 compared to the same period in 1996.
The increase is primarily due to the acquisition of Texas Air and increased
selling and marketing expenses related to the increased United States KCP sales.
Research and development expenses for the three months ended March 31, 1997
decreased $119,221 or 51% compared to the same period in 1996. The decrease in
1997 is primarily due to reduced personnel costs and clinical trials related to
governmental approval for laser applications that were completed in 1996.
Proforma Summary of Operations
The following proforma summary of operations information is presented
as though Texas Air was acquired at the beginning of 1996. Proforma net sales
increased $119,469 or 2.2% for the three month period ended March 31,
1997 compared to the same period in 1996. Proforma net income increased
$193,980 or 28% and net income per share increased $.03 or 33% for the three
month period ended March 31, 1997 compared to the same period in 1996. The
changes in proforma net income and net income per share resulted primarily from
efficiencies in the consolidation of operations and personnel.
Liquidity and Capital Resources
The Company's operating activities provided $259,611 in cash resources
during the three month period ended March 31, 1997, compared to using $478,120
in the same period of 1996. The cash provided by operations in 1997 increased
due to net income of $886,274, resulting primarily from higher United States
KCP sales, plus $251,501 related to non-cash depreciation and amortization
expense. Cash provided by operations was offset primarily by changes in
operating assets and liabilities, including an increase in accounts receivable
of $155,052, an increase in inventories of $931,326 and an increase in accounts
payable of $503,954. The increase in accounts receivable is due principally to
the 5% increase in sales. The increase in inventories is primarily for the KCP
product line. The Company has increased its inventory to meet anticipated
demand. The increase in accounts payable is primarily related to the increase
in inventories.
The Company has a working capital of $6,119,887 at March 31, 1997
compared to a working capital of $5,109,775 at December 31, 1996. The increase
in working capital is primarily a result of an increase in inventories,
accounts receivable and cash funded by net income of $886,274 for the
three month period ended March 31, 1997. Investing activities for the three
months ended March 31, 1997 included purchasing equipment for the Texas
manufacturing facility.
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 March 31, 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 March 31, 1997, $500,000 was outstanding, with an
additional $2,000,000 available under the borrowing base.
The Company has a $1,000,000 note payable to Denics, with interest at
3% above the discount rate in Japan (0.5% at March 31, 1997). As of March 31,
1997, $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.
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
liquidity needs, as well as its long term liquidity needs for the foreseeable
future.
8
<PAGE> 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) 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
March 31, 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: May 2, 1997 Chief Executive Officer
By: /s/ Diane M. Miller
------------------------------
Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Dated: May 2, 1997 Principal Accounting Officer)
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
11.1 Statement Re: Computation of Net Income Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 11.1
American Dental Technologies, Inc.
Statement Re: Computation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996*
---------------------------
<S> <C> <C>
Primary net income per share:
Weighted average shares outstanding 6,945,130 3,934,714
Net effect of dilutive stock options based on the
treasury stock method using average market
price or the initial public offering price 13,510 30,363
Dilutive effect of stock options and warrants 750,066 349,628
---------- ----------
Weighted average number of common
and common equivalent shares 7,708,707 4,314,705
========== ==========
Net income available for common stockholder $ 886,274 $ 448,310
========== ==========
Net income per common share $ 0.12 $ 0.10
========== ==========
Fully diluted net income per share:
Weighted average shares outstanding 6,945,130 3,934,714
Net effect of dilutive stock options based on the
treasury stock method using average market
price or the initial public offering price 13,510 30,363
Dilutive effect of stock options and warrants 1,056,977 692,328
---------- ----------
Weighted average number of common
and common equivalent shares 8,015,617 4,657,405
========== ==========
Net income available for common stockholder $ 886,274 $ 448,310
========== ==========
Net income per common share $ 0.11 $ 0.10
========== ==========
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,037,436
<SECURITIES> 0
<RECEIVABLES> 3,849,850
<ALLOWANCES> 220,000
<INVENTORY> 4,146,436
<CURRENT-ASSETS> 10,281,188
<PP&E> 2,642,346
<DEPRECIATION> 1,400,534
<TOTAL-ASSETS> 22,378,686
<CURRENT-LIABILITIES> 4,161,301
<BONDS> 0
0
0
<COMMON> 277,907
<OTHER-SE> 17,369,484
<TOTAL-LIABILITY-AND-EQUITY> 22,378,686
<SALES> 5,513,864
<TOTAL-REVENUES> 5,513,864
<CGS> 2,431,062
<TOTAL-COSTS> 2,431,062
<OTHER-EXPENSES> 2,191,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,181
<INCOME-PRETAX> 886,274
<INCOME-TAX> 0
<INCOME-CONTINUING> 886,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886,274
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
