<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, 2000.
[ ] 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)
5555 Bear Lane, Corpus Christi, TX 78405
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(361) 289-1145
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 8, 2000:
7,319,847 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
2000 1999
---------------------------------------
<S> <C> <C>
Revenues:
Equipment $ 4,640,598 $6,088,356
Royalties 59,508 28,398
------------- ------------
4,700,106 6,116,754
Cost of products sold 2,744,490 2,976,363
------------- ------------
Gross profit 1,955,616 3,140,391
Selling, general and administrative 2,730,171 2,882,500
Research and development 219,151 175,471
------------- ------------
Income (loss) from operations (993,706) 82,420
Other income (expense):
Other income 26,591 309,690
Interest expense (88,865) (87,534)
------------- ------------
Net income (loss) before taxes (1,055,980) 304,576
Income tax expense (benefit) (310,000) 175,900
------------- ------------
Net income (loss) $ (745,980) $ 128,676
============= ============
Net income (loss) per share $ (0.10) $ 0.02
============= ============
Net income (loss) per share assuming dilution $ (0.10) $ 0.02
============= ============
</TABLE>
See accompanying notes.
2
<PAGE> 3
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
----------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $1,381,779 $ 3,230,647
Accounts receivable:
Trade, less allowance of $175,000
in 2000 and 1999 3,437,788 4,716,252
Inventories 10,157,430 9,938,205
Deferred taxes 1,180,000 870,000
Prepaid expenses and other current assets 558,860 569,903
Other receivable 718,750 775,000
---------- ----------
Total current assets 17,434,607 20,100,007
Deferred taxes 3,874,000 3,874,000
Property and equipment, net 2,511,874 2,447,906
Intangible assets, net:
Goodwill 11,626,205 11,850,523
Air abrasive technology rights 507,078 551,838
Other 1,485,338 1,523,539
---------- ----------
13,618,621 13,925,900
---------- ----------
Total assets $37,439,102 $40,347,813
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
American Dental Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
----------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,305,353 $ 2,311,903
Compensation and employee benefits 171,420 217,141
Accrued warranty 150,000 150,000
Other accrued liabilities 315,385 277,108
------------- -------------
Total current liabilities 1,942,158 2,956,152
Other non-current liabilities 268,393 223,278
Notes payable 4,155,000 5,150,000
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: 7,319,847
shares in 2000; and 7,431,672 shares in 1999 292,797 294,717
Warrants and options 801,000 801,000
Additional paid-in capital 42,225,099 42,312,636
Accumulated deficit (11,867,604) (11,121,624)
Foreign currency translation (377,741) (268,346)
------------- -------------
Total stockholders' equity 31,073,551 32,018,383
------------- -------------
Total liabilities and stockholders' equity $ 37,439,102 $ 40,347,813
============= =============
</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
2000 1999
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (745,980) $ 128,676
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 104,742 90,000
Amortization 341,506 332,836
Deferred income taxes (310,000) 114,952
Changes in operating assets and liabilities:
Accounts receivable 1,295,421 486,256
Inventories (178,344) 153,529
Prepaid expenses and other current assets 25,710 (102,080)
Accounts payable (1,004,606) (618,748)
Compensation and employee benefits (45,485) (138,303)
Other accrued liabilities (37,157) (292,011)
Other non-current liabilities (64,278) (110,334)
------------ ----------
Net cash provided by (used in) operating activities (618,471) 44,773
INVESTING ACTIVITIES:
Purchases of property and equipment (167,964) (333,508)
Collections on notes receivable 56,250 ---
Increase in intangible assets (34,227) (54,763)
------------ ----------
Net cash used in investing activities (145,941) (388,271)
FINANCING ACTIVITIES:
Payments on notes payable (995,000) (2,350,000)
Proceeds from notes payable --- 1,850,000
Repurchase of common stock (89,456) ---
Proceeds from exercise of stock options --- 42,153
----------- ----------
Net cash used in financing activities (1,084,456) (457,847)
----------- ----------
Decrease in cash (1,848,868) (801,345)
Cash at beginning of period 3,230,647 1,409,404
----------- ----------
Cash at end of period $(1,381,779) $ 608,059
=========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2000 (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, 2000 are not
necessarily indicative of the results to be expected for other quarters of 2000
or for the year ended December 31, 2000. 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, 1999.
Inventories - Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Finished goods $ 1,200,494 $ 1,310,448
Raw materials, parts and supplies 8,956,936 8,627,757
----------- -----------
$10,157,430 $ 9,938,205
=========== ===========
</TABLE>
Property and equipment - Accumulated depreciation aggregated $2,226,788 at March
31, 2000 and $2,122,046 at December 31, 1999.
Intangible Assets - Accumulated amortization aggregated $6,147,555 at March 31,
2000 and $5,806,049 at December 31, 1999.
6
<PAGE> 7
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2000 (Unaudited)
1. Basis of Presentation and Other Accounting Information (continued)
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
2000 1999
----------------------------
<S> <C> <C>
Net income (loss) $(745,980) $ 128,676
Numerator for basic and diluted earnings
per share - income (loss) available to common
stockholders after assumed conversion (745,980) 128,676
Denominator for basic earnings per share
- weighted average shares 7,240,431 7,423,535
Effect of dilutive securities:
Employee stock options 16,903 35,061
Warrants --- 5,252
--------- ---------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted average
shares after assumed conversions 7,257,334 7,463,848
========= =========
Basic earnings (loss) per share $(0.10) $0.02
======= =====
Diluted earnings (loss) per share $(0.10) $0.02
======= =====
</TABLE>
Reclassifications - Certain amounts in prior year financial statements have been
reclassified to conform with the presentation used in 2000.
2. Comprehensive Income (Loss)
Total comprehensive income (loss), net of the related estimated tax, was
$(636,586) and $50,152 for the three months ended March 31, 2000 and 1999,
respectively.
7
<PAGE> 8
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2000 (unaudited)
3. Segment Reporting
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).
<TABLE>
<CAPTION>
Three Months Ended March 31
2000 1999
-----------------------------------------
<S> <C> <C>
Revenues:
North America $2,241,098 $3,885,649
Europe 639,713 550,723
Japan 885,140 1,124,000
Other international 46,740 ---
---------- ----------
$3,812,691 $5,560,372
========== ==========
Reconciliation of revenues:
Total segment revenues $3,812,691 $5,560,372
Other 887,415 556,382
---------- ----------
Total revenues $4,700,106 $6,116,754
========== ==========
Operational earnings (loss):
North America $(369,287) $ 140,119
Europe 37,033 113,990
Japan 416,016 547,518
Other international (17,907) ---
---------- ----------
$ 65,855 $ 801,627
========== ==========
Reconciliation of operational earnings
to income (loss) from operations:
Total segment operational earnings $ 65,855 $801,627
Other operational earnings 312,074 387,383
Research & development expenses (219,151) (175,471)
Administrative expenses (1,152,484) (931,119)
---------- ----------
Income (loss) from operations $(993,706) $ 82,420
========== ==========
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Long-lived assets:
North America $2,494,174 $2,436,122
Europe 17,700 11,784
---------- ----------
$2,511,874 $2,447,906
========== ==========
</TABLE>
8
<PAGE> 9
American Dental Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2000 (Unaudited)
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statements
The following discussion and analysis contains statements which 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 possible failure to maintain the Company's line
of credit, the Company's ability to hire and retain qualified sales and service
personnel, the potential for an extended decline in sales, the inability of
revenues to offset additional costs associated with the new approach, 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, the
extent to which competition may negatively affect prices and sales volumes or
necessitate increased sales expenses, and any other uncertainties described in
the discussion below.
New Business Model
On February 14, 2000, the Company commenced selling its dental products in
the United States to dentists through its own sales force. The new business
model for the United States does not merely encompass direct selling by the
Company's own sales force. The Company intends to become a distributor of dental
equipment by establishing the infrastructure to support direct selling of its
products as well as other manufacturer's products. The Company will not only
sell dental products it manufactures, but also intends to actively pursue OEM or
strategic relationships with other manufacturers. Within five years, it plans to
be able to supply 80% to 90% of the equipment used by dentists.
The new business model calls for the establishment of twenty dental sales and
service centers in the year 2000 and twenty additional centers in the following
two years. Each center will be staffed with an office coordinator responsible
for scheduling, coordinating local marketing and reporting to corporate
headquarters. Additionally, each center will have a technician for installation
and technical service support. Outside the United States, including Canada,
American Dental will continue selling its dental products through its
distributor network.
As of May 10, 2000, the Company had twelve sales and service centers operational
and another two locations leased and/or partially staffed. The Company has
experienced an increase in North American revenues for March and April 2000
under its new business model over January and February 2000. The Company is also
currently in discussions with several companies to add several products through
OEM/strategic relationships.
9
<PAGE> 10
Results of Operations
For the three month period ended March 31, 2000, loss before taxes was
$1,055,980 compared to income before taxes of $304,576 for the same period in
1999. The loss before taxes was primarily attributable to a decline in revenues
and gross margins due to the reasons described below. Of the $1,055,980 loss
before taxes, $446,248 is attributable to non-cash expenses of depreciation and
amortization.
The Company had revenues of $4,700,106 for the three month period ended
March 31, 2000 as compared to $6,116,754 for the same period in 1999, a decrease
of 23%. The decrease in revenues is primarily due to $1,644,000 decline in North
American sales due to decreased sales to dealers during January and February,
2000. North American sales increased in March after the new business model,
described previously, was initiated. Until the full implementation of the new
business model, which is not expected to occur until the third quarter of 2000,
management anticipates lower revenues in North America for 2000 as compared to
1999.
Gross profit as a percentage of revenues was 42% for the three month period
ended March 31, 2000, compared to 51% for the same period in 1999. The decrease
in gross profit as a percentage of revenues is primarily due to lower selling
prices to distributors and a change in product mix with higher percentage of
revenues attributable to the lower margin UltraCam and PAC light product lines.
Management anticipates that gross profit margins will improve from the first
quarter after the new business model is fully implemented.
Selling, general and administrative expenses were $2,730,171 for the three
month period ended March 31, 2000 as compared to $2,882,500 for the same period
in 1999, a decrease of 5%. The decrease in selling, general and administrative
expenses is primarily due to a reduction in variable costs associated with the
lower revenues, partially offset by increased expenses associated with the
implementation of the new business model.
Research and development expenses were $219,151 for the three month period
ended March 31, 2000 as compared to $175,471 for the same period in 1999 an
increase of 25%. The increase in research and development expenses related
primarily to the development of a new PAC light and two new products which have
not been completed.
Liquidity and Capital Resources
The Company's operating activities used $618,471 in cash resources during
the three month period ended March 31, 2000. The cash used by operations in 2000
was primarily due to a net loss of $745,980, decreases in accounts payable of
$1,004,606 and an increase in inventory of $178,344. Cash used by operating
activities was primarily offset by a decrease in accounts receivable of
$1,295,421 and $446,248 of non-cash expenses of depreciation, amortization and
deferred taxes.
The Company's investing activities used $145,941 in cash resources during
the three month period ended March 31, 2000. The cash used in investing
activities in 2000 related primarily to the expansion of the sales and service
centers nationwide to implement the new business model in the United States.
The Company's financing activities used $1,084,456 in cash resources during
the three month period ended March 31, 2000. The cash used in financing
activities was primarily used to reduce borrowings on the Company's revolving
line of credit and to repurchase the Company's common stock.
The Company has a $7,500,000 revolving line of credit from a bank, with
interest at prime or the ] rate (Eurodollar rates, which were approximately
6.0% at March 31, 2000) plus 1.5%, which expires in September 2001. 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, 2000, the Company had $4,155,000 outstanding and $3,345,000 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.
10
<PAGE> 11
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,
1999.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit Description
Exhibit 27 Financial Data Schedule
(b) There were no Form 8-Ks filed during the quarter ended March 31, 2000
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: Ben J. Gallant
Dated: May 15, 2000 Chief Executive Officer
(on behalf of the registrant)
By: Barbara A. Danieli
Chief Financial Officer
(Principal Financial Officer
Dated: May 15, 2000 and Principal Accounting
Officer)
11
<PAGE> 12
Exhibit Index
----------------
Exhibit No. Exhibit Description
- ----------- -------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,381,779
<SECURITIES> 0
<RECEIVABLES> 3,612,788
<ALLOWANCES> 175,000
<INVENTORY> 10,157,430
<CURRENT-ASSETS> 17,434,607
<PP&E> 4,738,662
<DEPRECIATION> 2,226,788
<TOTAL-ASSETS> 37,439,102
<CURRENT-LIABILITIES> 1,942,158
<BONDS> 0
0
0
<COMMON> 292,797
<OTHER-SE> 30,780,754
<TOTAL-LIABILITY-AND-EQUITY> 37,439,102
<SALES> 4,640,598
<TOTAL-REVENUES> 4,700,106
<CGS> 2,744,490
<TOTAL-COSTS> 2,744,490
<OTHER-EXPENSES> 2,949,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,865
<INCOME-PRETAX> (1,055,980)
<INCOME-TAX> (310,000)
<INCOME-CONTINUING> (745,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (745,980)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
