<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, 1998.
[ ] 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)
<TABLE>
<S><C>
Delaware 38-2905258
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
18860 West Ten Mile Road, Southfield, MI 48075
(address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code:
(248) 395-3900
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 11, 1998:
7,409,136 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
1998 1997
--------------------------
<S> <C> <C>
Net sales $5,612,113 $5,513,864
Cost of sales 2,578,834 2,431,062
--------- ---------
Gross profit 3,033,279 3,082,802
Selling, general and administrative 2,160,482 2,097,918
Research and development 174,682 115,129
---------- ----------
Income from operations 698,115 869,755
Other income (expense):
Other income 51,335 21,733
Royalty income 95,554 12,967
Interest expense (4,340) (18,181)
----------- -----------
Net income $ 840,664 $ 886,274
=========== ===========
Net income per share $ 0.12 $ 0.13
====== ======
Net income per share assuming dilution $ 0.12 $ 0.11
====== ======
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
--------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $2,518,599 $ 1,831,683
Accounts receivable:
Trade, less allowance of $250,000
in 1998 and 1997 2,402,404 3,129,352
Related party 431,826 223,150
----------- -----------
2,834,230 3,352,502
Inventories (Note 1) 5,403,308 4,128,905
Prepaid expenses and other current assets 413,494 614,084
Note receivables-related party 500,000 500,000
----------- -----------
Total current assets 11,669,631 10,427,174
Property and equipment, net (Note 1) 1,810,161 1,199,130
Intangible assets, net (Notes 1 and 2):
Goodwill 8,932,699 8,712,250
Air abrasive technology rights 865,158 909,918
Other 1,162,942 1,181,835
----------- -----------
10,960,799 10,804,003
Other receivable 100,000 100,000
----------- -----------
Total assets $24,540,591 $22,530,307
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1997 1997
----------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Note payable (Note 3) $ 250,000 $ 250,000
Accounts payable 2,168,467 1,316,986
Compensation and employee benefits 245,400 247,025
Taxes other than income 8,208 8,429
Other accrued liabilities 337,632 315,039
------------ ------------
Total current liabilities 3,009,707 2,137,479
Other non-current liabilities 118,886 135,392
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: 7,018,136
shares in 1998; and 6,948,011 shares in 1997 280,728 277,923
Additional paid-in capital 40,779,319 40,446,624
Accumulated deficit (19,521,883) (20,362,547)
Foreign currency translation (126,166) (104,564)
------------ ------------
Total stockholders' equity 21,411,998 20,257,436
------------ ------------
Total liabilities and stockholders' equity $ 24,540,591 $ 22,530,307
============ ============
</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
1998 1997
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 840,664 $ 886,274
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 48,000 21,075
Amortization 256,119 230,426
Changes in operating assets and liabilities:
Accounts receivable 519,139 (155,052)
Inventories (1,267,996) (931,326)
Prepaid expenses and other current assets 201,359 71,595
Accounts payable 853,487 503,954
Compensation and employee benefits (1,326) (98,034)
Taxes other than income (222) (87,654)
Other accrued liabilities (9,530) (174,466)
Other non-current liabilities (16,506) (7,181)
----------- -----------
Net cash provided by operating activities 1,423,188 259,611
INVESTING ACTIVITIES
Purchases of property and equipment (658,857) (69,308)
Increase in intangible assets (105,414) (45,672)
----------- -----------
Net cash used in investing activities (764,271) (114,980)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 27,999 60,613
----------- ----------
Net cash provided by financing activities 27,999 60,613
Increase in cash 686,916 205,244
Cash at beginning of period 1,831,683 1,832,192
----------- ----------
Cash at end of period $ 2,518,599 $2,037,436
=========== ==========
</TABLE>
5
See accompanying notes.
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1998 (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, 1998 are not
necessarily indicative of the results to be expected for other quarters of 1998
or for the year ended December 31, 1998. 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, 1997.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Finished goods $1,299,223 $ 920,919
Work in progress 13,812 10,633
Raw materials, parts and supplies 4,090,273 3,197,353
---------- ----------
$5,403,308 $4,128,905
========== ==========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,548,106 at
March 31, 1998 and $1,500,105 at December 31, 1997.
Intangible Assets - Accumulated amortization aggregated $3,382,423 at
March 31, 1998 and $3,126,303 at December 31, 1997.
Earnings Per Share - The following table sets forth the computation for basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
---- ----
<S> <C> <C>
Numerator:
Net income $840,664 $886,274
-------- --------
Numerator for basic and diluted earnings per
share - income available to common
stockholders after assumed conversions $840,664 $886,274
Denominator:
Denominator for basic earnings per share -
weighted-average shares 6,994,247 6,945,130
Effect of dilutive securities:
Employee stock options 72,848 133,164
Warrants 222,165 631,325
--------- ---------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 7,289,261 7,709,620
========= =========
Basic earnings per share $0.12 $0.13
===== =====
Diluted earnings per share $0.12 $0.11
===== =====
</TABLE>
Reclassifications - Certain amounts in prior year financial statements have been
reclassified to conform with the presentation used in 1998.
6
<PAGE> 7
2. The Dental Probe Acquisition
On February 15, 1998, the Company acquired 100% of the outstanding stock of The
Dental Probe, Inc. ("TDP") in exchange for $250,000 and 61,500 shares of common
stock. The acquisition was accounted for as a purchase and accordingly, the
total consideration paid ($250,000 and the value of the common stock issued of
$307,500), 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 $392,500 has been accounted for as goodwill and will be
amortized over a fifteen year period.
3. Line of Credit
In October 1997, the Company obtained a $1,500,000 one year revolving line of
credit from a bank, with interest at prime (8.5% at March 31, 1998). 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 March 31, 1998, $250,000 was
outstanding under this line.
4. Comprehensive Income
During 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company adopted Statement 130 as of
January 1, 1998. The adoption of this Statement had no impact on the Company's
net earnings or shareholder's equity. Statement 130 requires foreign currency
translation adjustments and unrealized gains or losses on investments and
certain derivative instruments, which prior to the adoption of Statement 130
were reported as a component of shareholders' equity, to be included in other
comprehensive income.
Total comprehensive income, net of the related estimated tax, was $819,061
and $734,105 for the three months ended March 31, 1998 and 1997, respectively.
3. Subsequent Event
In April 1998, the Chairman of the Board and a principal stockholder exercised
warrants for 391,000 shares of common stock in exchange for $1,564,000.
7
<PAGE> 8
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, 1998, the Company had net
income of $840,664, as compared to net income of $886,274 in the same period in
1997. Net sales were $5,612,113 for the quarter ended March 31, 1998, an
increase of 2% over net sales of $5,513,864 for the same period in 1997.
Revenues increased primarily due to a 25% increase in North American sales in
the first quarter of 1998, as compared to 1997. However, this increase was
offset by a 41% decline in foreign sales.
For the three month period ended March 31, 1998, gross profit was 54%
compared to 56% for the same period during 1997, due to price reductions for
promotional discounts extended to North American dealers in 1998.
Management anticipates that sales will continue to increase in 1998
compared to 1997, primarily from sales of KCPs in North America.
Internationally, the Company anticipates increased sales in 1998 in Europe and
Japan compared to 1997. The Company recently established a direct sales force
in Germany and has a purchase contract from Denics Co., Ltd. for lasers
aggregating $3,200,000 through March 1999 for distribution in Japan. 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.
Selling, general and administrative expenses increased $62,564 or 3%
for the three months ended March 31, 1998 compared to the same period in 1997,
which is primarily due to increased selling and marketing expenses related to
the increased North American KCP sales. Research and development expenses for
the three months ended March 31, 1998 increased $59,553 or 52% compared to the
same period in 1997. The increase in 1998 is primarily due to expenses relating
to clinical reports for regulatory approvals and two new products that the
Company plans to introduce in 1998.
Royalty income increased $82,587 due to the addition of a new air
abrasion licensee in late 1997.
Liquidity and Capital Resources
The Company's operating activities provided $1,423,188 in cash
resources during the three month period ended March 31, 1998, compared to
providing $259,611 in the same period of 1997. The cash provided by operations
in 1998 increased due to net income of $840,664, resulting primarily from
increased North American KCP sales, and $304,119 related to non-cash
depreciation and amortization expense. Changes in operating assets and
liabilities, including an increase in accounts payable of $853,487, a decrease
in accounts receivable of $519,139, a decrease in prepaid expenses of $201,359,
offset by an increase in inventories of $1,267,996, contributed to the cash
provided by operating activities. The decrease in accounts receivable is due
principally to collection of receivables outstanding at December 31, 1997,
while the increase in inventories is primarily for the KCP product line. The
Company has increased its inventory to meet anticipated demand, thereby
increasing accounts payable.
The Company had working capital of $8,659,924 at March 31, 1998
compared to working capital of $8,289,695 at December 31, 1997. The increase in
working capital is primarily a result of an increase in inventories offset by a
decrease in accounts receivable and cash funded by net income of $840,664 for
the three month period ended March 31, 1998. Investing activities for the three
months ended March 31, 1998 included the purchase of a 12,000 square foot
building in Southfield, Michigan.
In October 1997, the Company obtained a $1,500,000 one year revolving
line of credit from a bank, with interest at prime (8.5% at March 31, 1998). 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, 1998, $250,000 was outstanding under this
line and $1,250,000 remained available under the borrowing base.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
8
<PAGE> 9
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On February 15, 1998, the Company issued 61,500 shares of its common
stock and paid $250,000 to the shareholders of The Dental Probe, Inc. ("TDP")
in exchange for 100% of its outstanding common stock. The shares of the
Company's common stock were issued to TDP shareholders without registration
under the Securities Act of 1933 (the "Act") in reliance upon Section 4(2) of
the Act. The Company relied upon such exemption based on the limited number of
TDP shareholders, the provision of financial and other information concerning
the Company to such shareholders, investment representations made by such
shareholders, the lack of general solicitation and actions taken by the Company
to restrict resale of the securities without registration, including the
placement of restrictive legends on the securities.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 27 - Financial Data Schedule
(b) There have been no reports on Form 8-K filed during the quarter ended
March 31, 1998.
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 14, 1998 Chief Executive Officer
By: /s/ Diane M. Miller
------------------------------
Diane M. Miller
Chief Financial Officer
(Principal Financial Officer and
Dated: May 14, 1998 Principal Accounting Officer)
9
<PAGE> 10
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,518,599
<SECURITIES> 0
<RECEIVABLES> 2,834,230
<ALLOWANCES> 250,000
<INVENTORY> 5,403,308
<CURRENT-ASSETS> 11,699,631
<PP&E> 3,358,267
<DEPRECIATION> 1,548,106
<TOTAL-ASSETS> 24,540,591
<CURRENT-LIABILITIES> 3,009,707
<BONDS> 0
280,728
0
<COMMON> 0
<OTHER-SE> 21,131,270
<TOTAL-LIABILITY-AND-EQUITY> 24,540,591
<SALES> 5,612,113
<TOTAL-REVENUES> 5,612,113
<CGS> 2,578,834
<TOTAL-COSTS> 2,578,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,340
<INTEREST-EXPENSE> 840,664
<INCOME-PRETAX> 0
<INCOME-TAX> 840,664
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 840,664
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
