SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 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.
--------------------------------------
(Exact name of Small Business Issuer as
Specified in its Charter)
Delaware 04-2865714
-------- ----------
(State of Organization) (I.R.S. Employer
Identification Number)
580 Myles Standish Blvd., Taunton, Massachusetts 02780
------------------------------------------------------
(Address of principal executive offices, Zip Code)
(508) 823-0707
--------------
(Issuer's telephone number, including area code)
Indicate by check mark whether 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___ 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
Condensed and Consolidated Financial Statements:
March 31, 1996 (unaudited) and December 31, 1995 1
Condensed and Consolidated Statements of Earnings:
(Unaudited) for the three months ended March 31, 1996
and March 31, 1995 2
Condensed and Consolidated Statements of Cash Flows:
(Unaudited) for the three months ended March 31, 1996
and March 31, 1995 3
Notes to Condensed and Consolidated Financial
Statements 4-5
Item 2. Management's' Discussion and Analysis of Financial
Condition and Results of Operations 6-9
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 35 $ 98
Restricted cash 443 500
Amount due from Printpack Enterprises, Inc. (Note 5) 1,321 1,321
Accounts receivable, net of allowance for doubtful
accounts of $137 and $137 at March 31, 1996 and
December 31, 1995, respectively 1,933 1,451
Inventories 1,708 1,492
Prepaid expenses and other current assets 46 16
-------------- -----------------
5,486 4,878
Total current assets
PROPERTY AND EQUIPMENT, net 5,611 5,279
OTHER ASSETS, net 179 177
--------------- -----------------
$ 11,276 $ 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 Printpack Enterprises, Inc. (Note 5) 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, 3,152,000 and
3,142,828 shares outstanding at March 31, 1996 and
3,142,000 December 31, 1995, respectively 32
32
Common stock purchase warrants 78
78
Additional paid-in capital 6,072 6,068
Retained deficit (1,882) (2,088)
--------------- ---------------
4,300 4,090
Less Treasury stock, 10,000 shares at cost 32 32
--------------- ---------------
Total stockholders' equity 4,268 4,058
--------------- ---------------
$ 11,276 $ 10,334
=============== ===============
</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
--------------- ---------------
REVENUES:
<S> <C> <C>
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)
GAIN ON TERMINATION OF EXCLUSIVITY AGREEMENT (Note 5) 400 --
INTEREST (EXPENSE), NET OF INTEREST INCOME ( 61) ( 62)
--------------- ---------------
Income (loss) before provision for income taxes 206 ( 189)
PROVISION FOR INCOME TAXES -- --
--------------- ---------------
Net income (loss) $ 206 $ ( 189)
=============== ===============
INCOME (LOSS) PER SHARE $ .06 $ ( .06)
=============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,278,634 3,121,589
=============== ===============
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
2
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months Three months
ended March 31, ended March 31,
1996 1995
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net cash provided by (used in) 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
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES
Gain on Termination of Exclusivity Agreement (Note 5) $ 400 $ --
=============== ===============
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
1.) GENERAL
3
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 and nine 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. 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
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):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Raw materials $ 1,168 $ 1,234
Work in process and finished goods 540 258
4
--------------- ---------------
Total inventory $ 1,708 $ 1,492
========= ==========
</TABLE>
3. INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share has been determined by dividing net
income (loss) by the weighted average common shares outstanding during the
period. Common stock equivalents have been calculated in accordance with the
treasury stock method and are included for all periods in which their effect is
dilutive.
4. 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.
5. TERMINATION OF EXCLUSIVITY AGREEMENT WITH PRINTPACK ENTERPRISES, INC.
In September 1992, the Company entered into a set of Agreements
(collectively the "Agreement") with Printpack Enterprises, Inc. ("Printpack"),
the purpose of which was to convey to Printpack the exclusive rights to purchase
and market certain of the Company's patented microwave packaging products.
Included in the Agreement was 1) a Securities Purchase agreement, which resulted
in Printpack purchasing 297,610 shares of the Company's common stock, 2) an
Equipment Lease agreement which resulted in the Company's recording of a
capitalized lease, and 3) a Purchase and Tolling agreement which granted
exclusivity to Printpack and set forth certain minimum purchase requirements.
Printpack did not meet the specified minimum purchase requirements resulting in
significant unrecovered costs to the Company, $1,308,000 of which was billed to
Printpack during 1995. In December 1995, the Company was notified that the
Equipment Lease was terminated although negotiations continued with respect to
the settlement of all claims as disclosed in Form 10-KSB. During 1995, the
Company and Printpack agreed in writing to terminate the Agreements subject to
the resolution of the claims the Company presented to Printpack for costs
incurred in support of the Purchase and Tolling agreement. A settlement reached
March 26, 1996, called for the Company to release Printpack from the claims
presented, including but not limited to the $1,308,000 in billings during 1995,
and to repurchase its common stock at its fair market value. In return Printpack
agreed to give the Company $1,800,000 in equipment. The gain on the termination
of the Agreements resulted from recording the value of the equipment recieved
from Printpack less the amount billed to Printpack during 1995.
6. 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.
5
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-metallized 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 Metallization 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 $171,000 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
$651,000 for the three months ended September 30, 1995, a 84.8% decrease. The
decreased sales resulted from the Company's termination of
6
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.
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 1967 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 months ended March 31,
1995. This increase resulted from higher material prices partially offset by a
change in mix to higher margin 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 Metallization 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.
Other Income: The Company realized an approximate gain of $400,000
resulting from the settlement of its claims and the termination of the
Exclusivity Agreement with Printpack. The gain is a result of the recognition of
the fair market value of the assets received in settlement of the Company's
claims on Printpack.
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 Income (Loss). The Company generated net income of approximately
$206,000 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.
7
Liquidity and Capital Resources.
- --------------------------------
The Company has a working capital deficit of approximately $1,506 at
March 31, 1996, compared to working capital deficit of $1,381,000 as of December
31, 1995. This decrease in working capital reflects the first quarter operating
loss, capital spending and debt amortization.
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.
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 are $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 has received proposals from
finance companies and has been seeking additional equity financing in order to
provide sufficient funds to repay all amounts due the bank and to Printpack,
described below.
In September 1992, the Company entered into a set of Agreements
(collectively the "Agreements") with Printpack, the purpose of which was to
convey to Printpack the exclusive rights to purchase and market certain of the
Company's patented microwave packaging products. Included in the Agreements was
1) a Securities Purchase agreement, which resulted in Printpack purchasing
297,610 shares of the Company's common stock, 2) an Equipment Lease agreement
which resulted in the Company's recording of a capitalized lease, and 3) a
Purchase and Tolling agreement which granted exclusivity to Printpack and set
forth certain minimum purchase requirements. Printpack did not meet the
specified minimum purchase requirements resulting in significant unrecovered
costs to the Company. The Company presented these claims for damages to
Printpack in 1995, and also billed Printpack $1,308,000 for overhead and other
costs incurred in support of the Agreements. In December 1995, the Company was
notified that the Equipment Lease was terminated, although negotiations
continued with respect to the settlement of all claims. During 1995, the Company
and Printpack agreed to terminate the Agreement subject to the resolution of the
claims. On March 25, 1996, the Company and Printpack agreed in writing to a
settlement of the claims. The settlement called for the Company to release
Printpack from the all claims related to the Agreement, including but not
limited to the $1,308,000 in billings during 1995 in exchange for Printpack's
agreement to sell the common stock to the Company at market price, and transfer
to the Company $1,800,000 in equipment. The gain on the termination of the
Agreements resulted from recording the value of the assets received from
Printpack less the amounts billed to Printpack during 1995.
Management believes that additional funding will be required in order
for the Company to meet its current cash requirements and to provide funding for
its continued growth. The Company has received a commitment for debt financing,
subject to due diligence, and has filed a Tender Offer Statement with the
Securities and Exchange Commission on May 13, 1996, for the redemption of the
Company's outstanding Redeemable Common Stock Purchase Warrants.
Seasonal Revenues
- -----------------
8
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.
9
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.
10
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.
--------------------------------------
(Registrant)
June 13, 1996 /s/ Glenn J. Walters
- ------------- ---------------------
(Signature)
Glenn J. Walters
President
June 13, 1996 /s/ Mark R. Thomas
- ------------- -------------------
(Signature)
Mark R. Thomas
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $478,000
<SECURITIES> 0
<RECEIVABLES> $3,391,000
<ALLOWANCES> $137,000
<INVENTORY> $1,708,000
<CURRENT-ASSETS> $5,486,000
<PP&E> $8,028,000
<DEPRECIATION> $2,416,000
<TOTAL-ASSETS> $11,276,000
<CURRENT-LIABILITIES> $6,992,000
<BONDS> 0
0
0
<COMMON> $32,000
<OTHER-SE> $78,000
<TOTAL-LIABILITY-AND-EQUITY> $11,276,000
<SALES> $2,214,000
<TOTAL-REVENUES> $2,314,000
<CGS> $2,112,000
<TOTAL-COSTS> $2,112,000
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $61,000
<INCOME-PRETAX> $206,000
<INCOME-TAX> $0
<INCOME-CONTINUING> $206,000
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $206,000
<EPS-PRIMARY> $0.06
<EPS-DILUTED> $0.06
</TABLE>
