<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, 1999.
[ ] 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)
18860 West Ten Mile Road, Southfield, MI 48075-2657
(address of principal executive offices) (Zip Code)
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 7, 1999:
7,431,672 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
1999 1998
---------------------------------------
<S> <C> <C>
Revenues:
Equipment $ 6,088,356 $ 5,612,113
Royalties 328,398 95,554
----------- -----------
6,416,754 5,707,667
Cost of products sold 2,976,363 2,578,834
----------- -----------
Gross profit 3,440,391 3,128,833
Selling, general and administrative 2,882,500 2,160,482
Research and development 175,471 174,682
----------- -----------
Income from operations 382,420 793,669
Other income (expense):
Other income 9,690 51,335
Interest expense (87,534) (4,340)
----------- -----------
Net income before taxes 304,576 840,664
Income taxes 175,900 --
----------- -----------
Net income $ 128,676 $ 840,664
=========== ===========
Net income per share $ 0.02 $ 0.12
=========== ===========
Net income per share assuming dilution $ 0.02 $ 0.12
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 608,059 $ 1,409,404
Accounts receivable:
Trade, less allowance of $175,000
in 1999 and 1998 3,352,234 4,423,633
Related party 1,752,284 1,143,475
----------- -----------
5,104,518 5,567,108
Inventories 11,125,191 11,225,208
Deferred taxes 1,742,191 1,857,143
Prepaid expenses and other current assets 1,054,552 919,633
Note receivables-related party 300,000 300,000
----------- -----------
Total current assets 19,934,511 21,278,496
Deferred taxes 3,445,476 3,445,476
Property and equipment, net 2,707,486 2,462,747
Intangible assets, net:
Goodwill 11,953,190 12,170,149
Air abrasive technology rights 686,118 730,878
Other 1,651,085 1,667,439
----------- -----------
14,290,393 14,568,466
Other receivable 100,000 100,000
----------- -----------
Total assets $40,477,866 $41,855,185
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,227,123 $ 2,877,517
Compensation and employee benefits 266,527 405,850
Other accrued liabilities 313,821 491,180
------------- -------------
Total current liabilities 2,807,471 3,774,547
Notes payable 5,450,000 5,950,000
Other non-current liabilities 290,288 321,336
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: 7,431,672
shares in 1999; and 7,419,259 shares in 1998 297,270 296,773
Warrants and options 801,000 772,500
Additional paid-in capital 42,400,672 42,359,016
Accumulated deficit (11,384,554) (11,513,230)
Foreign currency translation (184,281) (105,757)
------------- -------------
Total stockholders' equity 31,930,107 31,809,302
------------- -------------
Total liabilities and stockholders' equity $ 40,477,866 $ 41,855,185
============= =============
</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
1999 1998
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 128,676 $ 840,664
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 90,000 48,000
Amortization 332,836 256,119
Deferred income taxes 114,952 ---
Changes in operating assets and liabilities:
Accounts receivable 486,256 519,139
Inventories 153,529 (1,267,996)
Prepaid expenses and other current assets (102,080) 201,359
Accounts payable (618,748) 853,487
Compensation and employee benefits (138,303) (1,326)
Other accrued liabilities (292,011) (9,752)
Other non-current liabilities (110,334) (16,506)
--------------- ------------
Net cash provided by operating activities 44,773 1,423,188
INVESTING ACTIVITIES:
Purchases of property and equipment (333,508) (658,857)
Increase in intangible assets (54,763) (105,414)
--------------- ---------
Net cash used in investing activities (388,271) (764,271)
FINANCING ACTIVITIES:
Payments on notes payable (2,350,000) ---
Proceeds from notes payable 1,850,000 ---
Proceeds from exercise of stock options 42,153 27,999
-------------- -----------
Net cash provided by (used in) financing activities (457,847) 27,999
--------------- -----------
Increase (decrease) in cash (801,345) 686,916
Cash at beginning of year 1,409,404 1,831,683
-------------- ------------
Cash at end of period $ 608,059 $ 2,518,599
============== ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1999 (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, 1999 are not
necessarily indicative of the results to be expected for other quarters of 1999
or for the year ended December 31, 1999. 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, 1998.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Finished goods $1,838,278 $ 1,255,608
Raw materials, parts and supplies 9,286,913 9,969,600
------------ ------------
$11,125,191 $11,225,208
=========== ===========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $1,834,673 at March
31, 1999 and $1,744,673 at December 31, 1998.
Intangible Assets - Accumulated amortization aggregated $4,684,484 at March 31,
1999 and $4,351,647 at December 31, 1998.
Net Income Per Share - The following table sets forth the computation for basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31
1999 1998
-----------------------------------
<S> <C> <C>
Net Income $ 128,676 $ 840,664
--------- ---------
Numerator for basic and diluted earnings
per share - income available to common
stockholders after assumed conversions 128,676 840,664
Denominator for basic earnings per share
- weighted average shares 7,423,535 6,994,247
Effect of dilutive securities:
Employee stock options 35,061 72,848
Warrants 5,252 222,165
--------- ---------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average
shares after assumed conversions 7,463,848 7,289,260
========= =========
Basic earnings per share $ 0.02 $0.12
========= =========
Diluted earnings per share $ 0.02 $ 0.12
========= =========
</TABLE>
6
<PAGE> 7
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1999 (Unaudited)
Reclassifications - Certain amounts in prior year financial statements have been
reclassified to conform with the presentation used in 1999.
2. 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 $50,152 and
$819,061 for the three months ended March 31, 1999 and 1998, respectively.
3. Segment reporting
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, for the year ended December 31, 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of the enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.
The Company develops, manufactures, markets and sells high technology dental
products, such as air abrasive equipment, lasers, curing lights and intra oral
cameras. The Company sells these products to national and regional dental
distributors in its four fundamental business segments: North America, Japan,
Europe and Other International. The reportable segments are managed separately
because selling techniques and market environments differ from country to
country. The remaining activities of the Company, which are reported as "Other",
include industrial, parts and accessories and royalty income.
The accounting policies of the business segments are consistent with those
described in Note 1. The Company's Chief Operating Decision Maker evaluates
segmental performance and allocates resources based on operational earnings
(gross profit less selling and marketing expenses).
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended March 31
1999 1998
-----------------------------------------
<S> <C> <C>
Revenues:
North America $ 3,885,649 $ 4,423,445
Europe 550,723 131,193
Japan 1,124,000 555,000
Other international --- 100,458
----------- -----------
$ 5,560,372 $ 5,210,096
=========== ===========
Reconciliation of revenues:
Total segment revenues $ 5,560,372 $ 5,210,096
Other 856,382 497,571
----------- -----------
Total revenues $ 6,416,754 $ 5,707,667
=========== ===========
Operational earnings(loss):
North America $ 140,119 $ 1,209,165
Europe 113,990 (95,828)
Japan 547,518 292,700
Other international --- 32,073
----------- -----------
$ 801,627 $ 1,438,110
=========== ===========
Reconciliation of operation earnings
to income from operations:
Total segment operational earnings $801,627 $ 1,438,110
Other operational earnings 687,383 280,024
Research & development expenses (175,471) (174,682)
Administrative expenses (931,119) (749,783)
----------- -----------
Income from operations $ 382,420 $ 793,669
=========== ===========
March 31, 1999 December 31, 1998
------------- -----------------
Long lived assets (excluding deferred taxes):
North America $16,260,719 $16,265,245
Europe 12,155 15,968
Japan --- ---
Other international 825,005 850,000
----------- -----------
$17,097,879 $17,131,213
=========== ===========
</TABLE>
4. Litigation
On December 20, 1996, American Dental filed a lawsuit against Kreativ, Inc.
("Kreativ") and two individuals in the United States District Court for the
Eastern District of Michigan, Southern Division. In February 1999, the Company
requested the court to award enhanced damages related to this lawsuit. During
February 1999, the court granted the request for attorney fees and interest. The
exact amount has yet to be determined by the court. Kreativ has appealed the
judgment and posted a bond.
On May 5, 1998, the Company filed a third lawsuit against Kreativ in the United
States District Court for the Southern District of Texas. These claims against
Kreativ alleging infringment of U.S. Patent 5,476,596 were dismissed and the
Company is appealing the dismissal.
8
<PAGE> 9
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, 1999, the Company earned
$128,676 compared to $840,664 in the same period in 1998. Net income in 1999
includes recognition of normal income tax expense of $175,900. In 1998, the
Company offset current income tax expense with a deferred income tax benefit
related to net operating loss carryforwards that were previously reserved.
The Company had revenues of $6,416,754 for the three month period ended
March 31, 1999 as compared to $5,707,667 for the same period in 1998. The
increase in revenues is due to a strong increase in foreign sales, partially
offset by a decline in North American sales. The decline in North American sales
is primarily attributable to the liquidation of dealer inventories.
Royalty income increased $232,844 for the three month period ending March
31, 1999, as compared to the same period in 1998, primarily due the licensing
agreement with ESC Medical Systems, Ltd. for $300,000 which was executed in
January 1999.
Gross profit as a percentage of revenues remained consistent at 54% for
the three month period ended March 31, 1999 as compared to March 31, 1998.
Management anticipates that revenues will continue to increase in 1999
and sales and marketing costs will return to historical norms in the second half
of the year. 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 $722,018 or 33%
for the three month period ended March 31, 1999 compared to the same period in
1998. These increases are primarily due to increased selling, marketing, and
general and administrative expenses related to the camera business acquired from
Dental Vision Direct ("DVD") in August 1998 and amortization of goodwill also
related to the camera business.
Interest expense increased by $83,194 for the three month period ended
March 31, 1999. The increase during 1999 is primarily due to increased
borrowings on the Company's revolving line of credit, which was primarily used
to fund the camera acquisition.
Liquidity and Capital Resources
The Company's operating activities provided $44,773 in cash resources
during the three month period ended March 31, 1999. The cash provided by
operations in 1999 was primarily due to net income of $128,676, decreases in
accounts receivable of $486,256 and inventories of $153,529, and $537,788 of
non-cash expenses including depreciation, amortization and deferred taxes. Cash
provided by operating activities was reduced primarily by decreases in accounts
payable of $618,748 and other accrued liabilities of $292,011.
The Company's investing activities used $388,271 in cash resources during
the three month period ended March 31, 1999. The cash used in investing
activities in 1999 related primarily to the expansion of the manufacturing
facility in Corpus Christi, Texas.
The Company's financing activities used $457,847 in cash resources during
the three month period ended March 31, 1999. The cash used in financing
activities was primarily used to reduce borrowings on the Company's revolving
line of credit.
9
<PAGE> 10
The Company entered into an agreement in September 1998 for a $7,500,000
revolving line of credit from a bank, with interest at prime or the LIBOR rate
(Eurodollar rates, which were approximately 5% at March 31, 1999) plus 1.5%,
which is due in September 2000. The Company's borrowing is secured by a pledge
of the Company's accounts receivable, inventory, equipment, instruments,
patents, copyrights and trademarks. As of March 31, 1999, the Company had
$5,450,000 outstanding and $2,050,000 available under this line of credit.
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.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company has
established a team that has completed an awareness program and assessment
project to address the Year 2000 issue including information technology (IT) and
non-IT systems. The Company has determined that it will be required to upgrade
or replace portions of its software so that its computer and phone systems will
properly utilize dates beyond December 31, 1999 and that certain non-IT systems,
such as alarms, equipment, and heating and cooling systems may need to be
upgraded or replaced. In April 1999, the Company upgraded its business software
and believes that it is Year 2000 compliant. The Company expects to be able to
complete the remaining Year 2000 remediation by the end of the August of 1999
and believes that all of its systems will then be Year 2000 compliant. If such
planned remediation cannot be completed prior to the end of 1999, the Year 2000
issue could cause production interruptions that could have a material impact on
the operations of the Company. Anticipated spending for Year 2000 remediation,
expected to cost approximately $50,000, will be expensed as incurred and is not
expected to have a significant impact on the Company's ongoing results of
operations. Through March 31, 1999, the Company has incurred approximately
$20,000 attributable to year 2000 remediation.
The Company has initiated communications with a substantial majority of
its significant suppliers and large customers to determine their plans to
address the Year 2000 issue. While the Company expects a successful resolution
of all issues, there can be no guarantee that the systems of other companies
will be converted in a timely manner, or that a failure to convert by a supplier
or customer would not have a material adverse effect on the Company. The Company
considers the failure of a supplier or customer to be Year 2000 compliant to be
the most reasonably likely worst case scenario, since it expects to be Year 2000
compliant prior to the end of August of 1999 and it has determined it has no
material exposure to contingencies related to the Year 2000 issue for the
products it has sold. The Company plans to finalize its contingency plan by June
1999 after assessing which third parties are most likely to have an adverse
effect on the Company. Some material adverse effect could result despite such
contingency planning.
The costs of the project and the date by which the Company plans to
complete the Year 2000 upgrades are based on management's best estimates, which
were derived utilizing third party plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the compatibility of the
upgrades and conversions, availability of personnel to correct capability issues
and similar uncertainties. The disclosure in this section contains information
regarding Year 2000 readiness which constitutes "Year 2000 Readiness
Disclosure" as defined in the Year 2000 Readiness Disclosure Act.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes from the information reported in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
10
<PAGE> 11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) On March 24, 1999, the Company issued warrants to purchase a total of
50,000 shares of its common stock at $4.125 per share to Lara & Lee,
LLC., in exchange for professional services. These warrants are
exercisable beginning March 24, 1999 and expire March 24, 2001. The
warrants were issued without registration under the Securities Act of
1933 (the "Act") in reliance upon Section 4(2) of the Act. The Company
relied upon this exemption based upon the limited number of purchasers,
the provision of financial and other information concerning the Company
to the warrant purchaser, the lack of general solicitation, and actions
taken by the Company to restrict resale of the warrants and underlying
shares, without registration, including provisions restricting the
transferability of the warrants and underlying shares.
11
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit Description
------- -----------
Exhibit 4.20 Non-Transferable Common Stock Purchase Warrant dated March 24,
1999
Exhibit 4.21 Non-Transferable Common Stock Purchase Warrant dated March 24,
1999
Exhibit 10.57** Patent License Agreement dated as of January 21, 1999 between
ESC Medical Systems, Ltd. and American Dental Technologies, Inc.
Exhibit 27 Financial Data Schedule
** Portions of this agreement were filed separately with the Commission
pursuant to Rule 24b-2 of the Securities Act of 1934 governing requests
for confidential treatment of information.
(b) There were no Form 8-Ks filed during the quarter ended March 31, 1999.
12
<PAGE> 13
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, 1999 Chief Executive Officer
By: /s/ Barbara A. Danieli
----------------------------------
Barbara A. Danieli
Chief Financial Officer
(Principal Financial Officer and
Dated: May 14, 1999 Principal Accounting Officer)
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit 4.20 Non-Transferable Common Stock Purchase Warrant dated March 24,
1999
Exhibit 4.21 Non-Transferable Common Stock Purchase Warrant dated March 24,
1999
Exhibit 10.57 Patent License Agreement dated as of January 21, 1999
between ESC Medical Systems Ltd. and American Dental
Technologies
Exhibit 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 4.20
Warrant No. 99-001LL
Expiration Date: March 24, 2001
NON-TRANSFERABLE COMMON STOCK PURCHASE WARRANT
1. This is to certify that, for value received, the registered holder
named on the signature page (the "Holder"), is entitled for a period commencing
March 24, 1999 and ending on the Expiration Date, subject to the terms and
conditions herein set forth, to purchase from American Dental Technologies, Inc.
(the "Company") the number of shares of the Company's common stock ("Common
Stock") set forth below the Holder's name on the signature page hereof at a
purchase price of $4.125 per share of Common Stock (the "Purchase Price Per
Share").
2(a). Other than as specified below, this Warrant is non-transferable
and may be exercised in whole or in part only by the Holder by written certified
or registered mail notice to the Company accompanied by the surrendered Warrant
and payment of the purchase price in certified or bank funds for the number of
shares so purchased. If this Warrant is exercised in part only, then the Company
shall execute and deliver a new Warrant evidencing the rights of the Holder to
purchase the remaining number of shares purchasable hereunder.
(b). This Warrant may be exercised only by the Holder and may not be
transferred other than by will, laws of descent and distribution, a qualified
domestic relations order, or upon the prior written consent of Company. Any
attempted assignment, transfer, pledge or other disposition of this Warrant
other than as provided herein, shall be void and of no effect.
3. Within five business days of receipt of notice of exercise of this
Warrant as above provided, the Company shall cause to be issued in the name of
and delivered to the Holder a certificate or certificates for the shares of
Common Stock so purchased; provided, however, notwithstanding anything to the
contrary in this Warrant, the Holder shall be deemed to be the owner of all
shares of Common Stock for which, and on the last date that, the Holder gives
notice of exercise, surrenders this Warrant, and pays the purchase price for
such shares pursuant to the notice of exercise. The Company covenants and agrees
that all shares of Common Stock which may be delivered upon exercise of this
Warrant will, upon delivery, be fully paid and non-assessable. The Company
agrees at all times to reserve and hold available a sufficient number of
authorized shares of Common Stock to cover the number of shares issuable upon
the full exercise of this Warrant.
4(a). If the Company at any time shall, by subdivision, combination or
reclassification of securities, by merger, by share exchange or otherwise,
change or permit to be changed any of the securities to which purchase rights
under this Warrant exist into the same or a different number of securities of
any class or classes, then this Warrant shall thereafter permit the Holder to
acquire such number and kind of securities and/or other consideration as would
have been
1
<PAGE> 2
issuable as the result of such change as if this Warrant had been exercised
immediately prior to such subdivision, combination, reclassification, merger,
share exchange or other change. In case the shares of Common Stock at any time
outstanding shall be subdivided into a greater number of shares, or combined
into a lesser number of shares, then each share of Common Stock purchasable
under this Warrant shall be replaced for the purposes hereof by the number of
the subdivided or consolidated shares, as the case may be, issued in
substitution for each one share of Common Stock then issued and outstanding; and
in case at any time the Company shall issue any additional shares of Common
Stock as a stock dividend, then the shares purchasable under this Warrant shall
be increased in the same ratio as the then outstanding Common Stock was
increased by such stock dividend, and the Purchase Price Per Share
correspondingly decreased. No fractional shares will be issued and in lieu
thereof the Holder will receive an amount of cash equal to the closing sale
price of the Common Stock as reported by Nasdaq on the last trading day before
the exercise date multiplied by the fractional share to which the Holder would
otherwise be entitled.
(b). The Company will at all times in good faith assist in carrying out
the terms of this Warrant to protect the rights of the Holder against dilution
as provided herein.
5. Neither this Warrant nor the shares issuable upon exercise of this
Warrant have been registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state "Blue Sky" laws. By acceptance of this Warrant,
the Holder represents and warrants to the Company that the Holder will not
offer, distribute, sell, transfer or otherwise dispose of the shares received
upon exercise of this Warrant except pursuant to (i) an effective registration
statement under the Act and any applicable Blue Sky laws with respect thereto;
(ii) an opinion, reasonably satisfactory to the Company, addressed to the
Company, from counsel reasonably satisfactory to the Company, that such
offering, distribution, sale, transfer or disposition is exempt from
registration under the Act and any applicable Blue Sky laws; or (iii) a letter
from the staff of the Securities and Exchange Commission ("SEC") or any state
securities commissioner, as the case may be, to the effect that it will
recommend that no action be taken with respect to such transaction. The Holder
agrees, by acceptance of this Warrant, to execute any and all documents
reasonably deemed necessary by the Company and required by the regulatory
authority of any state in connection with any public offering of the shares
underlying this Warrant.
6. The Holder of this Warrant shall not be entitled to vote or receive
dividends nor be deemed the owner of Common Stock of the Company for any
purpose, nor shall anything contained herein be construed to confer upon the
Holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock, reclassification of the
stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, until this
Warrant shall have been validly exercised as provided above.
2
<PAGE> 3
7. If this Warrant shall be mutilated, lost, stolen or destroyed, then
the Company shall promptly issue a new Warrant of like date, tenor, and
denomination and deliver the same in exchange and substitution for and upon
surrender and cancellation of any mutilated Warrant, or in lieu of any lost,
stolen or destroyed Warrant, upon receipt of an indemnity agreement or bond
reasonably satisfactory to the Company; provided, however, the Company agrees to
use its best efforts to cause the Company's transfer agent to accept the
Holder's indemnity agreement without requiring a bond.
This Warrant issued this 24th day of March, 1999.
AMERICAN DENTAL TECHNOLOGIES, INC.
By:
Ben J. Gallant, President
Registered Holder:
LARA & LEE, LLC
340 East 74th Street
Suite 2H
New York, NY 10021
Phone: 212-585-2300 / Fax: 212-585-2800
Number of Shares: 25,000
3
<PAGE> 1
EXHIBIT 4.21
- - Warrant No. 99-002LL
Expiration Date: March 24, 2001
NON-TRANSFERABLE COMMON STOCK PURCHASE WARRANT
1. This is to certify that, for value received, the registered holder
named on the signature page (the "Holder"), is entitled for a period commencing
March 24, 1999 and ending on the Expiration Date, subject to the terms and
conditions herein set forth, to purchase from American Dental Technologies, Inc.
(the "Company") the number of shares of the Company's common stock ("Common
Stock") set forth below the Holder's name on the signature page hereof at a
purchase price of $4.125 per share of Common Stock (the "Purchase Price Per
Share").
2(a). The Warrant shall become exercisable upon the Company's Common
Stock achieving a closing price of $6.00 or higher for 10 consecutive trading
days during the period of March 24, 1999 through March 24, 2001.
(b). This Warrant is non-transferable and may be exercised, subject to
the terms in paragraph 2(a), in whole or in part only by the Holder by written
certified or registered mail notice to the Company accompanied by the
surrendered Warrant and payment of the purchase price in certified or bank funds
for the number of shares so purchased. If this Warrant is exercised in part
only, then the Company shall execute and deliver a new Warrant evidencing the
rights of the Holder to purchase the remaining number of shares purchasable
hereunder.
(c). This Warrant may be exercised only by the Holder and may not be
transferred other than by will, laws of descent and distribution, a qualified
domestic relations order, or upon the prior written consent of Company. Any
attempted assignment, transfer, pledge or other disposition of this Warrant
other than as provided herein, shall be void and of no effect.
3. Within five business days of receipt of notice of exercise of this
Warrant as above provided, the Company shall cause to be issued in the name of
and delivered to the Holder a certificate or certificates for the shares of
Common Stock so purchased; provided, however, notwithstanding anything to the
contrary in this Warrant, the Holder shall be deemed to be the owner of all
shares of Common Stock for which, and on the last date that, the Holder gives
notice of exercise, surrenders this Warrant, and pays the purchase price for
such shares pursuant to the notice of exercise. The Company covenants and agrees
that all shares of Common Stock which may be delivered upon exercise of this
Warrant will, upon delivery, be fully paid and non-assessable. The Company
agrees at all times to reserve and hold available a sufficient number of
authorized shares of Common Stock to cover the number of shares issuable upon
the full exercise of this Warrant.
1
<PAGE> 2
4(a). If the Company at any time shall, by subdivision, combination or
reclassification of securities, by merger, by share exchange or otherwise,
change or permit to be changed any of the securities to which purchase rights
under this Warrant exist into the same or a different number of securities of
any class or classes, then this Warrant shall thereafter permit the Holder to
acquire such number and kind of securities and/or other consideration as would
have been issuable as the result of such change as if this Warrant had been
exercised immediately prior to such subdivision, combination, reclassification,
merger, share exchange or other change. In case the shares of Common Stock at
any time outstanding shall be subdivided into a greater number of shares, or
combined into a lesser number of shares, then each share of Common Stock
purchasable under this Warrant shall be replaced for the purposes hereof by the
number of the subdivided or consolidated shares, as the case may be, issued in
substitution for each one share of Common Stock then issued and outstanding; and
in case at any time the Company shall issue any additional shares of Common
Stock as a stock dividend, then the shares purchasable under this Warrant shall
be increased in the same ratio as the then outstanding Common Stock was
increased by such stock dividend, and the Purchase Price Per Share
correspondingly decreased. No fractional shares will be issued and in lieu
thereof the Holder will receive an amount of cash equal to the closing sale
price of the Common Stock as reported by Nasdaq on the last trading day before
the exercise date multiplied by the fractional share to which the Holder would
otherwise be entitled.
(b). The Company will at all times in good faith assist in carrying out
the terms of this Warrant to protect the rights of the Holder against dilution
as provided herein.
5. Neither this Warrant nor the shares issuable upon exercise of this
Warrant have been registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state "Blue Sky" laws. By acceptance of this Warrant,
the Holder represents and warrants to the Company that the Holder will not
offer, distribute, sell, transfer or otherwise dispose of the shares received
upon exercise of this Warrant except pursuant to (i) an effective registration
statement under the Act and any applicable Blue Sky laws with respect thereto;
(ii) an opinion, reasonably satisfactory to the Company, addressed to the
Company, from counsel reasonably satisfactory to the Company, that such
offering, distribution, sale, transfer or disposition is exempt from
registration under the Act and any applicable Blue Sky laws; or (iii) a letter
from the staff of the Securities and Exchange Commission ("SEC") or any state
securities commissioner, as the case may be, to the effect that it will
recommend that no action be taken with respect to such transaction. The Holder
agrees, by acceptance of this Warrant, to execute any and all documents
reasonably deemed necessary by the Company and required by the regulatory
authority of any state in connection with any public offering of the shares
underlying this Warrant.
6. The Holder of this Warrant shall not be entitled to vote or receive
dividends nor be deemed the owner of Common Stock of the Company for any
purpose, nor shall anything contained herein be construed to confer upon the
Holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any
2
<PAGE> 3
corporate action (whether upon any recapitalization, issue of stock,
reclassification of the stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, until this Warrant shall have been validly exercised as provided
above.
7. If this Warrant shall be mutilated, lost, stolen or destroyed, then
the Company shall promptly issue a new Warrant of like date, tenor, and
denomination and deliver the same in exchange and substitution for and upon
surrender and cancellation of any mutilated Warrant, or in lieu of any lost,
stolen or destroyed Warrant, upon receipt of an indemnity agreement or bond
reasonably satisfactory to the Company; provided, however, the Company agrees to
use its best efforts to cause the Company's transfer agent to accept the
Holder's indemnity agreement without requiring a bond.
This Warrant issued this 24th day of March, 1999.
AMERICAN DENTAL TECHNOLOGIES, INC.
By:
Ben J. Gallant, President
Registered Holder:
LARA & LEE, LLC
340 East 74th Street
Suite 2H
New York, NY 10021
Phone: 212-585-2300 / Fax: 212-585-2800
Number of Shares: 25,000
3
<PAGE> 1
Exhibit 10.57
Patent License
WHEREAS: ESC Medical Systems. Ltd. ("ESC") desires to obtain a license
under certain patents and patents pending which are owned by American Dental
Technologies, Inc. ("ADT"), and ADT is willing to license such patents to ESC.
NOW THEREFORE, the parties agree as follows:
1. In consideration of the payment of $300,000 by ESC, ADT hereby
grants to ESC, a worldwide nonexclusive license under U.S. Patent No. 5,275,935
and U.S. Patent No. 5,342,198 and any foreign counterparts, reexaminations,
reissues, continuations or continuations-in-part based on the disclosures of the
patents listed in this Agreement, and any rights ADT may acquire in the future
from third parties which rights are required for ESC to make, use, lease or sell
the below-identified Licensed Products (all such rights referred to collectively
as "the Patents"), for the life of the Patents to make, use, lease and sell
ESC's current dental Erbium YAG laser product, including all enhancements,
accessories, and future models ("the Licensed Products") throughout the world.
The license granted in this Agreement is non-transferable by assignment,
sublicense or other means, except that ESC is entitled to sell the Licensed
Products directly or through resellers, and is entitled to transfer the license
to affiliated parties. Affiliated parties are ones that either control or are
controlled by ESC. In addition, during the term of this Agreement, ESC shall
have the right to have the Licensed Products manufactured by a third party on
behalf of ESC.
Payments
2. Beginning December 31, 1998, ESC shall pay to ADT a royalty on
either the Net Sales (as defined as gross sales price less freight, duties,
returns, discounts, allowances, rebates and taxes) or the Net Lease (defined as
gross lese or rental payments less freight, duties, discounts, allowances,
rebates, and taxes) for all Licensed Products sold or leased by ESC in a country
in which ADT, presently or in the future, owns the Patents until the expiration
of the Patents in that country. The royalty shall be on a sliding scale based on
the amount of Net Sales and Net Leases in a calendar year. The royalty shall be
** for sales up to $10,000,000; ** for sales greater than $10,000,000 and up to
$20,000,000; and ** for sales greater than $20,000,000. In the event that ESC
sells or leases the Licensed Products in country where the Patents do not apply,
or where the Patents have expired, then no payments from ESC to ADT shall be
required for the Net Sales in that country. Royalties under this Agreement shall
accrue when the Licensed 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 ESC under this Agreement be required for Licensed Products that are
sold or leased prior to December 31, 1998.
**Redacted confidential information has been filed separately with the
SEC pursuant to Rule 24b-2.
<PAGE> 2
Payment Date and Records
3. ESC shall make the payments required in paragraph 2 of this
Agreement within five days of February 15th, May 15th, August 15th, and November
15th for the then preceding accounting quarter. ECS 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 reasonable right to inspect, at
its own expense, such books and records through an independent certified
accountant. Such inspections are to occur during normal business hours at ESC's
office, not to exceed one such audit per year. Past due payments shall bear
interest at the highest lawful rate, not to exceed 1.5% per month, from the due
date.
Termination
4. ADT and ESC each may terminate the present agreement in the event of
a material breach by the other party, but only if, upon receiving notice of such
breach, the other party fails to cure such breach within thirty (30) days of
such notice. The right of termination shall not be in lieu of other remedies
such as specific performance.
Patent Marking
5. ESC shall apply statutory notice to the Licensed Products 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: Nos. 5,257,935 and 5,342,198."
No Additional License / U.S. Patent No. 5,123,845
6. ADT will not grant any additional licenses under the Patents. ESC
acknowledges the previous grant of a license to Continuum Electro-Optics, Inc.
ADT agrees not to enforce its U.S. Patent No. 5,123,845 against ESC in making,
using, leasing or selling Erbium Yag lasers for dental applications.
Notices
7. 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 ESC, to:
- -----------------------------------
(Title)
- -----------------------------------
ESC Medical Systems, Ltd.
- -----------------------------------
Tel:
-------------------------------
Fax:
-------------------------------
<PAGE> 3
Effect of Notices
8. A notice sent pursuant to paragraph 7 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 and Collection Costs
9. 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. ESC agrees to pay any reasonable costs,
including reasonable attorney fees but excluding audit-related costs, incurred
by ADT in collecting royalties due hereunder or enforcing its rights hereunder.
Warranties
10. 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 this Agreement,
but makes no other warranties whatsoever regarding the Patents so licensed. ESC
agrees that it will not challenge the validity of any patents covered by this
Agreement. ADT further represents that this Agreement does not violate any other
agreement, including license agreements and other distribution agreements in
which ADT is a party.
Relationship of Parties
11. This Agreement is not intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business organization
and neither party shall be nor shall act as an agent of the other party. Neither
party shall use the other party's name in any marketing efforts without the
prior written consent of the party.
Severability
12. If any part of this Agreement is determined to be wholly or
partially unenforceable, the balance of this Agreement will not be affected and
shall remain enforceable.
Mutual Release
13. ADT and ESC, both individually and collectively, hereby release
each other from any and all claims that each may have with respect to the
Patents and the Licensed Products, including products manufactured, sold or
offered for sale by ESC prior to the date of execution of this Agreement.
Complete Agreement
14. This Agreement is the complete agreement between the parties and
this Agreement 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
15. 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.
<PAGE> 4
Successors and Assigns
16. This Agreement, and all provisions herein, shall bind the parties
and their permitted successors, assigns and affiliates.
Patent and Intellectual Property Enforcement and Costs
17. a. Enforcement by ADT. ADT at its sole option shall have the sole
right to enforce the Patents against any third party who may be infringing any
of the patents. ADT, however, shall not be required to enforce the Patents. In
the event ADT chooses to enforce any of the Patents pursuant to this Section,
all costs and expenses of any such litigation shall be borne solely by ADT and
all benefits, damages and settlement, shall be the sole property of ADT.
b. Enforcement if ADT Declines. In the event that ADT in its sole
discretion declines to enforce any of the Patents within 90 days after receiving
written notice of infringement by ESC, ESC may elect to enforce any of the
Patents by paying all expenses and costs of such litigation on behalf of ADT. In
this event, ADT and ESC will select counsel for ADT that is mutually acceptable
to both ADT and ESC. ESC shall be responsible for all costs, expenses, sanctions
and the like that are incurred during the course of the lawsuit, and the
selected counsel shall be jointly responsible to ESC and ADT.
c. Recoupment of Costs. ESC may recoup up to 70% of the costs,
fees and other expenses of filing and prosecuting any litigation to enforce any
of the Patents out of 50% of the royalties payable hereunder which accrue after
notice of the claim on which the litigation is based. In addition, ADT and ESC
will share in all and any recoveries from that litigation at the following rate:
70% to ADT and 30% to ESC. If any recovery from that litigation involves royalty
payments to ADT by a third party, ESC will share in the royalty payments at the
above rate only for royalty payments covering past sales in that litigation.
Other than the reduced royalty payments pursuant to this paragraph, ADT shall
have no liability to ESC for such costs, fees and expenses.
Effective Date
18. This Agreement will be effective on the date it is executed by ESC.
American Dental Technologies, Inc. ESC Medical Systems, Ltd.
- ------------------------------------- -----------------------------
Ben J. Gallant By:
President and Chief Executive Officer Its:
Date: -------------------------
Date:
-------------------------
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<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 608,509
<SECURITIES> 0
<RECEIVABLES> 5,104,518
<ALLOWANCES> 175,000
<INVENTORY> 11,125,191
<CURRENT-ASSETS> 19,934,511
<PP&E> 4,542,159
<DEPRECIATION> 1,834,673
<TOTAL-ASSETS> 40,477,866
<CURRENT-LIABILITIES> 2,807,471
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0
0
<COMMON> 297,270
<OTHER-SE> 31,632,837
<TOTAL-LIABILITY-AND-EQUITY> 40,477,866
<SALES> 6,088,356
<TOTAL-REVENUES> 6,416,754
<CGS> 2,976,363
<TOTAL-COSTS> 2,976,363
<OTHER-EXPENSES> 3,057,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,534
<INCOME-PRETAX> 304,576
<INCOME-TAX> 175,900
<INCOME-CONTINUING> 128,676
<DISCONTINUED> 0
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