SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.D. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996 Commission File number 1-12230
ADVANCED DEPOSITION TECHNOLOGIES, INC.
(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 August 9, 1996, there were 3,914,935 shares of Common Stock,
$0.01 par value, of the issuer outstanding.
ADVANCED DEPOSITION TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements
Condensed and Consolidated Balance Sheets: 1
June 30, 1996 (Unaudited) and December 31, 1995
Condensed and Consolidated Statements of Operations: 2
(Unaudited) for the Three and Six Months
ended June 30, 1996 and June 30, 1995
Condensed and Consolidated Statements of Cash Flows: 3
(Unaudited) for the Six Months ended June 30, 1996
and June 30, 1995
Notes to Condensed and Consolidated Financial
Statements 4-6
Item 2. Management's' Discussion and Analysis of Financial
Condition and Results of Operations 7-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders 13-14
Item 5. Other Information 14
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 309 $ 98
Restricted cash 446 500
Amount due from Printpack Enterprises, Inc. (Note 5) 1,321 1,321
Accounts receivable, net of allowance for doubtful
accounts of $137 at March June 30, 1996 and
December 31, 1995 2,273 1,451
Inventories 1,552 1,492
Prepaid expenses and other current assets
28 16
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Total current assets 5,929 4,878
PROPERTY AND EQUIPMENT, net 5,104 5,279
OTHER ASSETS, net 477 177
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$ 11,510 $ 10,334
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 1,499 $ 1,499
Current maturities of long-term debt (Note 7) 193 1,069
Amount due to Printpack Enterprises, Inc. (Note 5) 1,225 1,225
Accounts payable 3,322 2,366
Accrued expenses 69 100
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Total current liabilities 6,308 6,259
LONG-TERM OBLIGATIONS, net of current maturities (Note 7)
794 17
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value,
10,000,000 shares authorized, 3,178,187 shares issued,
3,168,167 and 3,142,828 shares outstanding
at June 30, 1996 and December 31, 1995, respectively 32 32
Common stock purchase warrants 78 78
Additional paid-in capital 6,077 6,068
Retained deficit (1,747) (2,088)
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4,440 4,090
Less Treasury stock, 10,000 shares at cost
32 32
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Total stockholders' equity 4,408 4,058
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$ 11,510 $ 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 ended June 30 Six months ended June 30
--------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 2,184 $ 1,950 $ 4,398 $ 3,825
Royalties, license fees and other 450 94 550 134
----------- ----------- ----------- -----------
2,634 2,044 4,948 3,959
COST OF PRODUCTS SOLD 1,741 1,821 3,853 3,580
----------- ----------- ----------- -----------
Gross profit 893 223 1,095 379
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 272 291 586 531
RESEARCH AND DEVELOPMENT EXPENSES 30 55 51 82
ACCUCRISP DEVELOPMENT EXPENSES -- 16 -- 32
----------- ----------- ----------- -----------
Operating income (loss) 591 (139) 458 (266)
INTEREST EXPENSE, NET OF INTEREST INCOME 54 85 115 147
----------- ----------- ----------- -----------
Net income (loss) $ 537 (224) $ 343 $ (413)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ .16 $ (.07) $ .10 $ (.13)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,310,687 3,121,589 3,279,706 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>
Six Months ended June 30,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 511 $ 190
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (99) (193)
Decrease in investments in marketable securities -- 1,133
Increase in other assets (165) --
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Net cash provided by (used in) investing activities (264) 940
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit -- (420)
Repayment of long term obligations (99) (345)
Purchase of treasury stock -- (32)
Exercise of stock options 9 --
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Net cash used in financing activities (90) (797)
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NET INCREASE IN CASH 157 333
CASH AND CASH EQUIVALENTS, beginning of period 598 177
------- -------
CASH AND CASH EQUIVALENTS, end of period
$ 755 $ 510
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING AND FINANCING ACTIVITIES:
Acquistion of Technology License applied against Revenue from
Assignment of Patents $ 150 $ --
======= =======
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
-3-
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 and six month periods ended June
30, 1996, and June 30, 1995. Operating results for the three month and six month
periods ended June 30, 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):
June 30, December 31,
1996 1995
--------- ----------
Raw materials $ 1,086 $ 1,234
Work in process and finished goods 466 258
---------- ----------
Total inventory $ 1,552 $ 1,492
========= ==========
-4-
3.) Net Income (Loss) per Common Share
Net 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 where 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 June 30, 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 Agreements 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. On July 15, 1996, the Company
and Printpack consumated this new agreement. Under the new agreement, Printpack
relinquished its exclusive purchase rights to certain of the Company's patented
products for microwave applications; transfered to the Company title to the new
metallizer it had been leasing to the Company; and returned to the Company
297,610 shares of the Company's common stock it had purchased as part of the
Agreements. The Company paid Printpack $1,000,000; granted Printpack warrants to
purchase 200,000 shares of the Company's common stock at $4.00 per share; and
agreed not to pursue any claims the Company may have had pursuant to the terms
of the Agreements, including claims for the payment of $1,308,000 of cost
recovery billings invoiced to Printpack in 1995.
The Company will account for the termination of the Equipment Lease
Agreement in accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS No 13"). SFAS No 13 states that the termination
of a lease that results in the aquisition of the leased asset shall be accounted
for as if it were a renewal of the capital lease whereby a loss only is
recognized to the extent that the carrying value of the asset exceeds the
purchase price. The carrying value of the leased metallizer does not exceed the
purchase price, therefore no loss will be recognized.
The specific accounting transactions required to record the effect of
the termination of the Agreements and the transactions of the new agreement will
be to record the cash payment to Printpack of $1,000,000: to eliminate the
balances in the accounts for the amounts due from Printpack ($1,321,000) and the
amounts due to Printpack ($1,225,000); to transfer the net book value of the
metalizer ($1,400,000) from equipment under lease to the Machinery & Equipment
account; and to record the purchase of 297,610 shares of Treasury Stock valued,
net of the market value of the common stock purchase warrants granted, at
$1,096,000 ($3.68 per share). The market value of the Company's common stock on
March 25, 1996, was $6.00 per share.
-5-
6.) Exercise of 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
expiration of the Redeemable Warrants was extended for one year from March 8,
1996, to March 8, 1997, and the price at which the Company's Common Stock must
trade for ten (10) consecutive days in order for the Company to be permitted to
redeem the Redeemable Warrants was reduced from $9.00 to $7.00 per share.
For the period May 13, 1996 through July 10, 1996, the Company reduced
the number of Redeemable Warrants required to purchase one (1) share of Common
Stock from two (2) Redeemable Warrants to one (1) Redeemable Warrant. In
addition, any holder who exercised one Redeemable Warrant during this period
also received a Class B Warrant which allows the holder to purchase one (1)
share of Common Stock at $5.00 through May 12, 1998. The Company realized net
proceeds of approximately $4,800,000 upon the excercise of approximately
1,050,000 Warrants on July 10, 1996.
7.) Classification of Short-Term Obligations
The Company's revolving line of credit with a former bank 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 balance outstanding
on the term debt of $1,062,500 as of December 31, 1995, was classified as
current on the December 31, 1995, consolidated balance sheets. The balance
outstanding on the term debt as of June 30, 1996, was $969,250.
The Company obtained replacement term debt and revolving line of credit
financing from another bank on July 14, 1996, which allowed the Company to repay
all amounts due the Company's former bank and to Printpack, described below. The
new financing agreement provided the Company with a term facility of $2,600,000
to be repaid in 35 monthly installments of approximately $43,000, plus interest
at the bank's prime rate of interest (8.00% on July 14, 1996) plus 1%, with a
balloon payment of approximately $1,083,000 due in July 1989. The revolving line
of credit allows 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 will bear
interest at the bank's prime rate of interest plus 3/4%. The Company's
replacement term debt and revolving line of credit financing agreements require
the the Company to maintain certain financial ratios and tangible net worth
levels, among others.
The portion of the term debt with the Company's former bank that will
be financed on a long-term basis under the replacement financing arrangement was
classified as non-current on the accompanying June 30, 1996 consolidated balance
sheets.
-6-
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Advanced Deposition Technologies, Inc. (the "Company" or "A.D. TECH" ),
is a technology leader in developing and manufacturing high-resolution,
patterned, vacuum-metallized coatings for a variety of energy management
applications for use in industrial, commercial and consumer products. Included
among these are products offerings for microwave and non-microwave food
packaging, security holograms, retroreflective films, electronic capacitors,
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 July 1996, the Company raised approximately $4,800,000 in net
proceeds through the exercise of approximately 1,050,000 Redeemable Warrants at
$5.00 per share and entered into a new banking relationship that resulted in an
increase in its available line of credit. The Company also entered into an
agreement involving the assignment of certain of its patented materials which
includes a 5 year supply agreement for certain of the Company's products and
under which, the Company became a licensee for 26 patents. The Company in
addition, filed several patent applications for hologram products that are
designed to increase the security and reduce the counterfieting of compact discs
(CD's), digital videodiscs (DVD's), bank checks and bank notes.
Results of Operations
Three months ended June 30, 1996 compared to Three months ended June 30, 1995
Total Revenue. Total revenue increased to approximately $2,634,000 for
the three months ended June 30, 1996 from approximately $2,044,000 for the three
months ended June 30, 1995, an increase of 28.9%.
Product sales to the capacitor industry totaled approximately
$1,599,000 for the three month period ended June 30, 1996 compared to
approximately $1,240,000 for the three month period ended June 30, 1995, a 29.0%
increase. The increase was a result of additional customers, increased sales to
existing customers and higher unit prices.
Product sales to the microwave food packaging market, including the
Accu-Crisp product line, totaled approximately $385,000 during the three months
ended June 30, 1996, compared to approximately $71,000 during the three months
ended June 30, 1995. The Company experienced additional sales of its Safety
Susceptor(R) film for microwave food packaging applications and also shipped a
$95,000 order for Accu-Crisp Bags to its retail distributor, with whom the
Company has entered into an exclusive marketing and distribution agreement.
Product sales to new applications markets totaled approximately
$101,000 for the three months ended June 30, 1996 compared to approximately
$86,000 for the three months ended June 30, 1995. Sales in this category during
the second quarter of 1996 were primarily to the retroreflective materials
industry where the Company's proprietary Pattern Metallization Printing ("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 food packaging market totaled
approximately $99,000 for the three months ended June 30, 1996, compared to
approximately $553,000 for the three months ended June 30,
-7-
1995, an 82.1% 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 food packaging sales to Printpack will return to the
amounts realized in 1995.
Royalties, license fees and other revenue during the three months ended
June 30, 1996, increased to approximately $450,000 from approximately $94,000
for the three months ended June 30, 1995. Revenue recognized during 1996
resulted from the Company's entering into an agreement involving the asignment
of certain of its patented materials.
Cost of Products Sold. Cost of products sold totaled approximately
$1,741,000 for the three months ended June 30, 1996, compared to $1,821,000 for
the three months ended June 30, 1995. The decrease resulted primarily from a
large decrease in standard packaging sales, partially offset by additional sales
in other product lines and higher raw material prices. The cost of product sales
as a percentage of product sales was 79.7% in the three months ended June 30,
1996, as compared to 93.4% for the three months ended June 30, 1995. This
decrease resulted primarily from a change in product mix away from lower margin
standard food packaging business to higher margin capacitor, microwave and new
application products, partially offfset by higher raw material prices.
Selling, General and Administrative. Selling, general and
administrative expenses decreased to approximately $272,000 for the three months
ended June 30, 1996, (10.3% of total revenue) from approximately $291,000 for
the three months ended June 30, 1995, (14.2% of total revenue) due to reduced
selling expenses and professional fees.
Research and Development. Research and development costs decreased to
approximately $30,000 for the three months ended June 30, 1996, from
approximately $55,000 for the three months ended June 30, 1995. Research and
development expenses have been primarily related to the development of the
Company's PMP process 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(R), were insignificant for the three months ended June 30, 1996 as
compared to approximately $16,000 for the three months ended June 30, 1995. The
Company does not expect any further significant development expenditures for
ACCU-CRISP(R). In December 1995, the Company entered into an exclusive agreement
with the Media Group to market and distribute ACCU-CRISP(R) Bags to the consumer
market.
Operating Income (Loss). The Company generated an operating income of
approximately $591,000 for the three months ended June 30, 1996, compared to an
operating loss of $139,000 for the three months ended June 30, 1995. The
increased income was primarily due to higher royalties and license fees to and
also to higher gross margins during the current period.
Net Interest Expense. Net interest expense was approximately $54,000
for the three month period ended June 30, 1996 compared to net interest expense
of $85,000 for the three month period ended June 30, 1995. Net interest expense
for the three months ended June 30, 1995, included a loss on the liquidation of
investment securities, which was the primary reason for the decrease.
Net Income (Loss). The Company generated a net income of approximately
$537,000 for the three months ended June 30, 1996 compared to a net loss of
approximately $224,000 for the three months ended June 30, 1995, as a result of
the factors discussed above.
-8-
Six months ended June 30, 1996 compared to Six months ended June 30, 1995
Total Revenue. Total revenue increased to approximately $4,948,000 for
the six months ended June 30, 1996, from approximately $3,959,000 for the six
months ended June 30, 1995, a 25.0% increase.
Product sales to the capacitor market increased to approximately
$3,392,000 for the six months ended June 30, 1996 from approximately $2,370,000
for the six months ended June 30, 1995, a 43.1% increase. Increased volumes and
higher unit prices accounted for the change.
Product sales to the microwave food packaging market increased to
approximately $603,000 for the six months ended June 30, 1996 from approximately
$190,000 for the six months ended June 30, 1995. Additional sales of the
Company's Safety Susceptor(R) and the shipment of a $140,000 order for Accucrisp
Bags to the Company's retail distributor, with whom the Company has entered into
an exclusive marketing and distribution agreement, accounted for the increase.
Product sales to new applications markets was approximiately $205,000
for the six months ended June 30, 1996 as compared to sales of approximately
$152,000 during the six months ended June 30, 1995. Sales in this category
during the six months ended June 30, 1996, were primarily to the retroreflective
materials industry where the Company's PMP process is used to increase the
retroreflectivity of material used on, among other things, safety related items
such as reflective clothing and highway equipment, and to the holographics
market
Product sales to the standard packaging market decreased to
approximately $198,000 for the six months ended June 30, 1996 from approximately
$1,113,000 for the six months ended June 30, 1995. The decreased sales resulted
from the Company's termination of its Agreements with Printpack Enterprises,
Inc. ("Printpack"). 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 increased to approximately
$550,000 for the six months ended June 30, 1996, as compared to approximately
$134,000 for the six months ended June 30, 1995. Revenue recognized during 1996
was the result of the Company's entering into an agreement involving the
asignment of certain of its patented products.
Cost of Products Sold. Cost of products sold increased to approximately
$3,853,000 for the six months ended June 30, 1996 from approximately $3,580,000
for the six months ended June 30, 1995. The increase was due primarily to higher
raw material prices and manufacturing expenses, partially offset by a large
decrease in sales to the standard food packaging market. As a percentage of
product sales, cost of products sold decreased to 87.6% in the six months ended
June 30, 1996, from 93.6% for the six months ended June 30, 1995 This decrease
resulted primarily from a change in product mix away from lower margin standard
food packaging business to higher margin capacitor, microwave and new
application products, partially offfset by higher raw material prices.
Selling General and Adminstrative. Selling, general and adminstrative
expenses increased to approximately $586,000 (11.8% of total revenue) for the
six months ended June 30, 1996, from approximately $531,000 (13.4% of total
revenue) for the six months ended June 30, 1995, due to increased selling
expenses, professional fees and payroll expenses.
Research and Development. Research and development expenses decreased
to approximately $51,000 for the six months ended June 30, 1996, from
approximately $82,000 for the six months ended June 30, 1995. Research and
development expenses during 1996 have been primarily related to the development
of the Company's PMP process 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.
-9-
Development expenses for the Company's consumer retail product,
ACCU-CRISP(R), were insignificant for the six months ended June 30, 1996 as
compared to approximately $32,000 for the six months ended June 30, 1995. The
Company does not expect any further significant development expenditures for
ACCU-CRISP(R). In December 1995, the Company entered into an exclusive agreement
with the Media Group to market and distribute ACCU-CRISP(R) Bags to the consumer
market.
Operating Income (Loss). The Company generated an operating income of
approximately $458,000 for the six months ended June 30, 1996, as compared to an
operating loss of $266,000 for the six months ended June 30, 1995. The increased
profits were primarily the result of higher royalties and license fees and also
to higher gross margins during the current period.
Net interest expense. Net interest expense decreased to approximately
$115,000 for the six months ended June 30, 1996, from approximately $147,000 for
the six months ended June 30, 1995. Net interest expense for the six months
ended June 30, 1995, included a loss on the liquidation of investment
securities, which was the primary reason for the decrease.
Net Income (Loss). The Company generated net income of approximately
$343,000 for the six months ended June 30, 1996, as compared to a net loss of
approximately $413,000 for the six months ended June 30, 1995, as a result of
the factors discussed above.
Liquidity and Capital Resources.
The Company has a working capital deficit of approximately $379,000 at
June 30, 1996, compared to working capital deficit of $1,381,000 at December 31,
1995. The decrease in the working capital deficit reflects the June 30, 1996
non-current classification of a portion of a term note due to a bank which was
classified as current on December 31, 1995, and also to income from operations.
Cash provided by operations for the six months ended June 30, 1996, was
approximately $511,000 compared to cash provided by operations during the six
months ended June 30, 1995, of $190,000. Positive cash flow from operations was
the result of increases in accounts payable and income from operations,
partially offset by increases in accounts receivable.
In the six month period ending June 30, 1996, the Company expended
$99,000 in capital investments. The investments during 1996 were primarily for
increasing the capacity and efficiency of existing equipment. As of June 30,
1996, the Company had no material commitments for additional capital purchases.
In the six month period ending June 30, 1996, the Company also expended
approximately $165,000, primarily related to costs associated with the
Redeemable Warrants Conversion (see Note 6 of Notes to Condensed and
Consolidated Financial Statements).
The Company's revolving line of credit with a former bank 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 agreed to allow
the Company until June 30, 1996, to repay its indebtedness to the bank. The
balances outstanding on June 30, 1996 on the line of credit and term note were
$1,499,000 and $969,250 respectively. The Company also had $446,000 in cash
pledged as collateral against the line of credit.
The Company obtained replacement term debt and revolving line of credit
financing from another bank on July 14, 1996, which allowed the Company to repay
all amounts due the Company's former bank and to Printpack, described below. The
new financing agreement provided the Company with a term facility of $2,600,000
to be repaid in 35 monthly installments of approximately $43,000, plus interest
at the bank's prime rate of interest (8.00% on July 14, 1996) plus 1%, with a
balloon payment of approximately $1,083,000 due in July 1989. The revolving line
of credit allows 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
-10-
materials and finished goods inventories. Borrowings under the line of credit
will bear interest at the bank's prime rate of interest plus 3/4%. The Company's
replacement term debt and revolving line of credit financing agreements require
the the Company to maintain certain financial ratios and tangible net worth
levels, among others.
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. On July 15, 1996, the Company
and Printpack consumated this new agreement under which Printpack relinquished
its exclusive purchase rights to certain of the Company's patented products for
microwave applications; transfered to the Company title to the new metallizer it
had been leasing to the Company; and returned to the Company 297,610 shares of
the Company's common stock it had purchased as part of the Agreements. In
addition, under the new agreement, the Company paid Printpack $1,000,000;
granted warrants to purchase 200,000 shares of the Company's Common Stock at
$4.00 per share; and agreed not to pursue any claims the Company may have had
pursuant to the terms of the Agreements, including claims for the payment of
$1,308,000 of cost recovery billings invoiced to Printpack in 1995 (see Note 5
to Notes to Condensed and Consolidated Financial Statements).
For the period May 13, 1996 through July 10, 1996, the Company
temporarily reduced the number of Redeemable Warrants required to purchase one
share of Common Stock from two Redeemable Warrants to one Redeemable Warrant. In
addition, any holder who exercised one Redeemable Warrant during this period
also received a Class B Common Stock Redeemable Purchase Warrant which allows
the holder to purchase one share of Common Stock at $5.00 through May 12, 1998.
The Company realized net proceeds of approximately $4,800,000 upon the
conversion of approximately 1,050,000 Redeemable Warrants on July 10, 1996 (see
Note 6 of Notes to Condensed and Consolidated Financial Statements). The effect
of the warrants coversion on the Company's liquidity would be to increase
working capital by approximately $3,800,000.
Management believes that the proceeds from the replacement bank
financing and the Redeemable Warrants conversion together with anticipated cash
flows from operations will provide sufficient funds to meet the Company's
current cash requirements.
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.
-11-
Inflation
Several times during the last two years, 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.
-12-
PART II - OTHER INFORMATION
Items 1 through 3: Not applicable
Item 4. Submission of Matters to a Vote of Security Shareholders
On May 31, 1996, the Company held its Annual Meeting of Stockholders
(the "Annual Meeting") to vote on the following proposals.
1. To elect two Class III Directors, the nominees being Glenn J.
Walters and Gordon E. Walters ("Proposal 1").
2. To amend the Company's Certificate of Incorporation increasing the
number of authorized shares of Common Stock from 5,500,000 shares to
10,000,000 shares ("Proposal 2").
3. To amend the Company's 1993 Stock Option Plan to increase the number
of shares of Common Stock reserved for issuance thereunder from 300,000
shares to 800,000 shares ("Proposal 3").
4. To ratify the selection of Arthur Andersen LLP as the auditors for
the current fiscal year ending December 31, 1996 ("Proposal 4").
Of the 3,169,870 shares of the Company's Common Stock of record as of
April 10, 1996 able to vote at the Annual Meeting, a total of
approximately 2,283,951 shares were voted, or approximately 72% of the
Company's issued and outstanding shares of Common Stock entitled to
vote on these matters.
Each of the proposals was adopted, with the total of the vote totals as
follows:
Proposal 1:
Election of Directors
For Withheld
--- --------
Glenn J. Walters 2,272,484 (99.50%) 1,467 (0.06%)
Gordon E. Walters 2,283,451 (99.98%) 0 (0.00%)
Proposal 2:
To amend the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 5,500,000 shares to 10,000,000 shares.
For Against Abstain
--- ------- -------
2,265,815 (99.21%) 12,324 (0.54%) 5,812 (0.25%)
Proposal 3:
To amend the Company's 1993 Stock Option Plan to increase the number of shares
of Common Stock reserved for issuance thereunder from 300,000 shares to 800,000
shares.
For Against Abstain
--- ------- -------
1,664,770 (72.89%) 63,750 (2.79%) 40,050 (1.75%)
-13-
Proposal 4:
To ratify the selection of Arthur Andersen LLP as the auditors for the current
fiscal year ending December 31, 1996.
For Against Abstain
--- ------- -------
2,279,001 (99.78%) 100 (0.01%) 4,850 (0.21%)
Item 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.
-14-
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
August 14, 1996 /s/ Glenn J. Walters
- --------------- --------------------
(Signature)
Glenn J. Walters
President
August 14, 1996 /s/ Mark R. Thomas
- --------------- ------------------
(Signature)
Mark R. Thomas
Chief Financial Officer
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