SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.D. 20549
AMENDMENT B TO
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996 Commission File number 1-12230
ADVANCED DEPOSITION TECHNOLOGIES, INC.
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(Exact name of Small Business Issuer as
Specified in its Charter)
Delaware 04-2865714
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(State of Organization) (I.R.S. Employer
Identification Number)
580 Myles Standish Blvd., Taunton, Massachusetts 02780
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(Address of principal executive offices, Zip Code)
(508) 823-0707
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(Issuer's telephone number, including area code)
Indicate by check mark wether the issuers (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES_X__ NO____
As of May 20, 1996, there were 3,151,987 shares of Common Stock, $0.01
par value, of the issuer outstanding.
ADVANCED DEPOSITION TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements (as Restated)
Condensed and Consolidated Balance Sheets: 1
March 31, 1996 (unaudited) and December 31, 1995
Condensed and Consolidated Statements of Operations: 2
(unaudited) for the three months ended March 31, 1996
and March 31, 1995
Condensed and Consolidated Statements of Cash Flows: 3
(unaudited) for the three months ended March 31, 1996
and March 31, 1995
Notes to Condensed and Consolidated Financial
Statements 4-5
Item 2. Management's' Discussion and Analysis of Financial
Condition and Results of Operations 6-10
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
March 31, 1996 December 31, 1995
---------------- -------------------
(As Restated)
<S> <C> <C>
CURRENT ASSETS
Cash $ 35 $ 98
Restricted cash 443 500
Amount due from Printpack Enterprises, Inc. (Note 6) 1,321 1,321
Accounts receivable, net of allowance for doubtful
accounts of $137 at March 31, 1996 and
December 31, 1995 1,933 1,451
Inventories 1,708 1,492
Prepaid expenses and other current assets 46 16
-- --
Total current assets 5,486 4,878
PROPERTY AND EQUIPMENT, net 5,211 5,279
OTHER ASSETS, net 179 177
--- ---
$10,876 $10,334
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 1,499 $ 1,499
Current maturities of long-term debt 1,023 1,069
Amount due to Printpack Enterprises, Inc. (Note 6) 1,225 1,225
Accounts payable 3,112 2,366
Accrued expenses 133 100
--- ---
Total current liabilities 6,992 6,259
LONG-TERM OBLIGATIONS, net of current maturities 16 17
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value,
5,500,000 shares authorized, 3,152,828 shares issued,
3,159,752 and 3,142,828 shares outstanding
at March 31, 1996 and December 31, 1995, respectively 32 32
Common stock purchase warrants 78 78
Additional paid-in capital 6,072 6,068
Retained deficit (2,282) (2,088)
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3,9000 4,090
Less Treasury stock, 10,000 shares at cost 32 32
-- --
Total stockholders' equity 3,868 4,058
----- -----
$10,876 $10,334
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</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1995, has been
derived from the audited financial statements of the Company at that date.
See Notes to Condensed and Consolidated Financial Statements
1
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months Three months
ended March 31, ended March 31,
1996 1995
---- ----
(As Restated)
<S> <C> <C>
REVENUES:
Product sales $ 2,214 1,875
Royalties, license fees and other 100 40
--- --
2,314 1,915
COST OF PRODUCTS SOLD 2,112 1,744
----- -----
Gross profit 202 171
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 314 260
RESEARCH AND DEVELOPMENT EXPENSE 21 32
ACCUCRISP DEVELOPMENT EXPENSES - 16
---- --
Operating loss (133) (127)
INTEREST EXPENSE, NET OF INTEREST INCOME (61) (62)
--- ---
Net loss $ (194) $ (189)
============= ==============
NET LOSS PER SHARE $ (.06) $ (.06)
============= ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,151,987 3,121,589
============= ==============
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
2
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months Three months
ended March 31, ended March 31,
1996 1995
---- ----
(As Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 13 $187
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (87) (141)
Decrease in investments in marketable securities -- (2)
Increase in other assets (2) (10)
-- ---
Net cash used in investing activities (89) (153)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit -- 60
Repayment of long term obligations (48) (51)
Purchase of treasury stock -- (32)
Exercise of stock options 4 --
---- --------
Net cash used in financing activities (44) (23)
--- ---
NET INCREASE (DECREASE) IN CASH (120) 11
CASH AND CASH EQUIVALENTS, beginning of period 598 177
--- ---
CASH AND CASH EQUIVALENTS, end of period $478 $188
======== =======
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
3
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
1.) GENERAL
The accompanying unaudited condensed and consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with the instructions to Form
10-QSB and Item 310 (b) of Regulation SB-2. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Reference should be made to the
financial statements and related notes included the Company's Annual Report on
Form 10-KSB, which was filed with the Securities and Exchange Commission on
April 16, 1996.
In the opinion of the management of the Company, the accompanying
financial statements reflect all adjustments that were of a normal recurring
nature necessary for a fair presentation of the Company's results of operations
and changes in financial position for the three month periods ended March 31,
1996, and March 31, 1995. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31,1996.
2.) RESTATEMENT
The Company has restated its consolidated financial statements as of
and for the three months ended March 31, 1996 to reverse a gain recorded on the
termination of an exclusivity agreement with Printpack Enterprises, Inc
("Printpack"). Subsequent to filing its financial statements on Form 10-Q, the
Company determined that its accounting for the termination of the exclusivity
agreement was not acceptable under generally accepted accounting principles. The
impact of the restatement is to reduce the previously reported net income of
$206 to a net loss of $194 and to reduce the previously reported fixed assets
from $5,611 to $5,211.
3.) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of
certain significant accounting policies, including those described below.
a. Principals of consolidation
The accompanying consolidated financial statements include the Company
and its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
b. Revenue recognition
4
The Company recognizes revenues on its product sales upon shipment and
royalties and license fees as earned.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
March 31, December 31,
1996 1995
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Raw materials $1,168 $1,234
Work in process and finished goods 540 258
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Total inventory $1,708 $ 1,492
========= ============
4.) NET LOSS PER COMMON SHARE
Net loss per common share has been determined by dividing net loss by
the weighted average common shares outstanding during the period. Common stock
equivalents have not been included because their effect would be anti-dilutive.
5.) CASH EQUIVALENTS AND INVESTMENT IN MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Investments" (SFAS
No 115) effective January 1, 1994. As of March 31, 1996, the Company's
investments consist entirely of money market funds, which are included in
restricted cash in the accompanying balance sheets.
6.) TERMINATION OF EXCLUSIVITY AGREEMENT WITH PRINTPACK ENTERPRISES, INC.
In September 1992, the Company entered into three agreements
(collectively "the Agreements") with Printpack, a flexible packaging supplier to
food companies. Under the Securities Purchase Agreement, the Company sold
297,610 shares of its common stock to Printpack for $250,000. Under the Purchase
and Tolling Agreement, the Company granted Printpack the exclusive right to
purchase and sell certain flexible microwave packaging products within North
America for five years. The Purchase and Tolling Agreement also set forth
specified minimum purchase requirements and pricing terms for product sales.
Under the Equipment Lease Agreement, Printpack leased a vacuum metallizer to the
Company. The Company accounted for this lease as a capital lease. Printpack did
not meet the specified minimum purchase requirements called for under the
Agreements, and as a result, in 1995, the Company billed Printpack $1,308,000
for overhead and other costs incurred to support of the specified minimum
purchases from Printpack called for under the Agreements. In 1995, the Company
and Printpack agreed in principle to terminate the Agreements. On March 25,
1996, the Company and Printpack entered into a written agreement setting forth
the terms of the termination of the Agreements. The new agreement calls for
Printpack to relinquish its exclusive purchase rights to certain of the
Company's patented products for microwave applications; to transfer to the
Company title to the new metallizer it had been leasing to the Company; and to
return to the Company 297,610 shares of the Company's common stock it had
purchased as part of the Agreements. The Company will pay to Printpack
$1,000,000; grant 200,000 options to Printpack to purchase the Company's stock
at $4.00 per share; and agree not to pursue any claims the Company may have had
pursuant to the terms of the Agreement, including the $1,308,000 of cost
recovery billings for overhead and other expenses incurred by the Company to
support of the specified minimum purchases requirements from Printpack called
for under the Agreements.
5
7.) COMMON STOCK PURCHASE WARRANTS
In the third quarter of 1995, the Company reduced the exercise price of
the Redeemable Common Stock Purchase Warrants (the "Redeemable Warrants") from
$7.00 per share to $5.00 per share. In addition effective March 8, 1996, the
date through which the Redeemable Warrants may be exercised will be extended for
one year from March 8, 1996, to March 8, 1997.
6
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Advanced Deposition Technologies, Inc. (the "Company") otherwise known
as A.D. TECH, is a technology leader in developing and manufacturing
high-resolution, patterned, vacuum-metalized coatings for a variety of energy
management applications related to industrial, medical, commercial and consumer
products. Included among these are products offerings for microwave food
packaging, electronic capacitors, security holograms, retroreflective films,
barrier packaging, electronic article surveillance (EAS), and electric static
discharge (ESD). The Company's revenue to date has been primarily from the
capacitor and packaging markets.
RECENT DEVELOPMENTS
During the three months ended March 31, 1996, the Company experienced a
record quarter for sales to the capacitor industry; began shipping production
orders to the retroreflective materials industry; and also began taking larger
orders from a large national food packaging converter for its Safety Susceptor
films and shipping Safety Susceptor evaluation orders to Europe and the Far
East. New products for the retroreflective and microwave food packaging
industries both rely on the Company's proprietary Pattern Metalization Printing
("PMP") manufacturing process.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Total Revenue. Total revenue increased to approximately $2,314,000 for
the three months ended March 31, 1996 from approximately $1,915,000 for the
three months ended March 31, 1995, an increase of 21%.
Product sales to the capacitor industry totaled approximately
$1,793,000 for the three month period ended March 31, 1996 compared to
approximately $1,231,000 for the three month period ended March 31, 1995, a
45.7% increase. The increase was a result of new customers, increase sales to
existing customers and higher unit prices.
Product sales to the microwave food packaging market totaled
approximately $218,000 during the three months ended March 31, 1996 compared to
an insignificant amount during the three months ended March 31, 1995. Continued
acceptance in the industry of the Company's Safety Susceptor film for microwave
food packaging applications resulted in additional customers and larger orders.
In addition, the Company shipped microwave food packaging products to its OEM
customers as well partially filling an order to its consumer market distributor.
Product sales to new applications markets totaled approximately
$104,000 for the three months ended March 31, 1996 compared to an insignificant
amount for the three months ended March 31, 1995. Sales in this category were
primarily to the retroreflective materials industry where the Company's PMP
process is used to increase the retroreflectivity of materials used on, among
other things, safety related items such as reflective clothing and highway
equipment.
Product sales to the standard packaging market totaled approximately
$99,000 for the three months ended March 31, 1996, compared to approximately
$644,000 for the three months ended September 30, 1995, a 84.6% decrease. The
decreased sales resulted from the Company's termination of its Agreements with
Printpack Enterprises, Inc. ("Printpack"), which called for certain minimum
purchase requirements. The Company does not expect that standard packaging sales
to Printpack will return to the amounts realized in 1995.
7
Royalties, license fees and other revenue during the three months ended
March 31, 1996 increased to approximately $100,000 from approximately $40,000
for the three months ended March 31, 1995. Revenue recognized during 1996 was
the result of the Company's sale of the exclusive rights to its membrane
susceptor technology.
Cost of Product Sales. Cost of product sales increased to approximately
$2,112 for the three months ended March 31, 1996, compared to $1,744 for the
three months ended March 31, 1995, a 21% increase. The increase resulted from
additional sales volume and higher raw material prices. The cost of product
sales as a percentage to product sales increased to 95% in the three months
ended March 31, 1996, as compared to 93% for the three onths ended March 31,
1995. This increase resulted from higher material prices partially for current
products partially offset by an increase in sales of higher margin PMP products.
Selling, General and Administrative. Selling, general and
administrative expenses increased to approximately $314,000 for the three months
ended September 30, 1995, (13.6% of total revenue) from approximately $ 260,000
(13.6% of total revenue) for the three months ended September 30, 1994, due
primarily to increased legal fees, salaries expense and selling expenses.
Research and Development. Research and development costs decreased to
approximately $21,000 for the three months ended March 31, 1996, from
approximately $32,000 for the three months ended March 31, 1995. Research and
development expenses have been primarily related to the development of the
Company's Pattern Metalization Process ("PMP") as well as the development of its
microwave food packaging materials. The developmental stage of both of programs
is substantially complete: the Company is now directing its resources to the
marketing and distribution of these and other patented materials.
Development expenses for the Company's consumer retail product,
ACCU-CRISP, were insignificant for the three months ended March 31, 1996 as
compared to approximately $16,000 for the three months ended March 31, 1995. The
Company does not expect any further significant development expenditures for
ACCU-CRISP. In December 1995, the Company entered into an exclusive agreement
with the Media Group to market and distribute ACCU-CRISP Bags to the consumer
market.
Operating Loss. The Company generated an operating loss of $133,000 for
the three months ended March 31, 1996, compared to an operating loss of $127,000
for the three month period ending March 31, 1995. The increased operating loss
was the result of increased selling, general and administrative expenses
partially offset by increased revenue, lower research and development expenses.
and lower ACCU-CRISP product development expenses.
Net Interest Expense. Net interest expense was approximately $61,000
for the three month period ended March 31, 1996 compared to net interest expense
of $62,000 for the three month period ended March 31, 1995.
Net Loss. The Company experienced a net loss of approximately $194,000
for three month period ended March 31, 1996 compared to a net loss of
approximately $189,000 for the three month period ended March 31, 1995, as a
result of the factors discussed above.
Liquidity and Capital Resources.
The Company has a working capital deficit of approximately $1,506,000
at March 31, 1996, compared to working capital deficit of $1,381,000 at December
31, 1995. This decrease in working capital reflects the first quarter operating
loss and capital spending. The working capital deficit reflects the short term
classification of the $1,225,000 due Printpack under the Equipment
8
Lease Agreement, $1,499,000 due a bank under a line of credit agreement and
$1,017,500 due the same bank under a term note agreement.
Cash provided by operations for the three months ended March 31, 1996,
was approximately $13,000 compared to cash provided by operations during the
three months ended March 31, 1995 of $ 187,000. Positive cash flow from
operations was the result of increases in accounts payable partially offset by
increases in accounts receivable, inventories and prepaid expenses.
In the three month period ending March 31, 1996, the Company expended
$87,000 in capital investments. The investments were primarily for increasing
the capacity and efficiency of existing equipment. As of March 31, 1996, the
Company had no material commitments for additional capital purchases.
The Company's revolving line of credit expired on December 31, 1995.
Under the terms of the line of credit agreement, the Company's term note with
the same bank also became due. The bank has agreed to allow the Company until
June 30, 1996, to repay its indebtedness to the bank. The balances outstanding
on March 31, 1996 on the line of credit and term note were $1,499,000 and
$1,017,500 respectively, and are classified as current liabilities on the
accompanying balance sheet. The Company has $443,000 in cash pledged as
collateral against the line of credit.
The Company received a commitment letter on June 21, 1996, from another
bank for replacement financing which will provide sufficient funds to repay all
amounts due the Company's existing bank and to Printpack, described below. The
bank has committed to provide, subject to its due diligence, term debt and
revolving line of credit financing for three years. The term debt will provide
up to $2,600,000 in proceeds to be repaid in 35 monthly installments of
approximately $43,000, plus interest at prime plus 1%, with a balloon payment of
approximately $1,083,000 due in July 1999. The revolving line of credit will
allow the Company to borrow up to $3,000,000 based on a percentage of its
eligible accounts receivable plus a percentage of its eligible raw materials and
finished goods inventories. Borrowings under the line of credit would bear
interest at prime plus 3/4%.
Although the Company beleives this replacement bank financing will be
completed, no assurances can be given that the bank financing will be completed
on a timely basis, or at all.
In September 1992, the Company entered into three agreements
(collectively "the Agreements") with Printpack, a flexible packaging supplier to
food companies. Under the Securities Purchase Agreement, the Company sold
297,610 shares of its common stock to Printpack for $250,000. Under the Purchase
and Tolling Agreement, the Company granted Printpack the exclusive right to
purchase and sell certain flexible microwave packaging products within North
America for five years. The Purchase and Tolling Agreement also set forth
specified minimum purchase requirements and pricing terms for product sales.
Under the Equipment Lease Agreement, Printpack leased a vacuum metallizer to the
Company. The Company accounted for this lease as a capital lease. Printpack did
not meet the specified minimum purchase requirements called for under the
Agreements, and as a result, in 1995, the Company billed Printpack $1,308,000
for overhead and other costs incurred to support of the specified minimum
purchases from Printpack called for under the Agreements. In 1995, the Company
and Printpack agreed in principle to terminate the Agreements. On March 25,
1996, the Company and Printpack entered into a written agreement setting forth
the terms of the termination of the Agreements. The new agreement calls for
Printpack to relinquish its exclusive purchase rights to certain of the
Company's patented products for microwave applications; to transfer to the
Company title to the new metallizer it had been leasing to the Company; and to
return to the Company 297,610 shares of the Company's common stock it had
purchased as part of the Agreements. The Company will pay to Printpack
$1,000,000; grant 200,000 options to Printpack to purchase the Company's stock
at $4.00 per share; and agree not to pursue any claims the
9
Company may have had pursuant to the terms of the Agreement, including the
$1,308,000 of cost recovery billings for overhead and other expenses incurred by
the Company to support of the minimum purchases requirements from Printpack
called for under the Agreements.
Management believes that the replacement bank financing will provide
sufficient funds for the Company's continued growth. If the replacement
financing is not consummated the Company would have to obtain alternative
sources of financing in order to continue operating in its current form. In
connection therewith, the Company is also seeking to solicit the exercise of its
outstanding Redeemable Warrants. No assurance can be given that such efforts
will be successful.
Seasonal Revenues
Historically, the Company has experienced lower sales to the electronic
capacitor market during the third quarter, particularly in July. Based on market
research conducted by the Company, it believes that demand for the Company's
other products, including microwave food packaging, does not experience
similarly timed seasonal variations and could, in the future, offset lower third
quarter sales in the electronic capacitor market.
Inflation
Several times during the last twenty-four months, suppliers of the film
used in the Company's products experienced problems meeting demand that led to
shortages and price increases. In late 1995, the shortages began to ease and
prices have begun to decrease.
10
PART II - OTHER INFORMATION
Items 1 through 5: Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits
(b) No reports on Form 8-K have been filed during
the quarter for which this report is filed.
11
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 of the
undersigned thereunto duly authorized.
Advanced Deposition Technologies, Inc.
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(Registrant)
June 27, 1996 /s/ Glenn J. Walters
- ------------- ---------------------
(Signature)
Glenn J. Walters
President
June 27, 1996 /s/ Mark R. Thomas .
- ------------- ------------------------------
(Signature)
Mark R. Thomas
Chief Financial Officer
12
