<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 MARCH 31, 1997
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 INDUSTRIAL PARK, TAUNTON, MASSACHUSETTS 02780
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
(508) 823-0707
(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 15, 1997, there were 3,965,945 shares of Common Stock, $0.01 par
value, of the issuer outstanding.
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Condensed and Consolidated Balance Sheets (unaudited): 1
March 31, 1997 and December 31, 1996
Condensed and Consolidated Statements of Operations 2
(unaudited): for the Three Months ended March 31, 1997
and March 31, 1996
Condensed and Consolidated Statements of Cash Flows 3
(unaudited): for the Three Months ended March 31, 1997
and March 31, 1996
Notes to Condensed and Consolidated Financial 4-5
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
1
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 927 $ 1,170
Investment in marketable securities 1,339 1.240
Accounts receivable, net of
reserve for doubtful accounts of
$136 at March 31, 1997 and
December 31, 1996 1,927 1,453
Inventories 1,973 1,667
Prepaid expenses and other current
assets 213 123
-------- --------
Total current assets 6,379 5,653
PROPERTY AND EQUIPMENT, net 5,167 5,189
OTHER ASSETS, net 1,709 1,740
-------- --------
$13,255 $12,582
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Revolving line of credit $ 342 $ 180
Current maturities of long-term debt 526 526
Accounts payable 1,028 802
Accrued liabilities 114 113
-------- --------
Total current liabilities 2,010 1,621
LONG-TERM OBLIGATIONS, net of current
maturities 1,722 1,854
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,
4,263,555 shares issued, 3,955,945
and 3,919,300 shares outstanding
at March 31, 1997 and
December 31, 1996, respectively 43 42
Common stock purchase warrants 1,691 1,691
Additional paid-in capital 9,472 9,289
Retained deficit (556) (788)
------- -------
10,650 10,234
Less treasury stock, 307,610
shares at cost (1,127) (1,127)
------- -------
Total stockholders' equity 9,523 9,107
------- -------
$13,255 $12,582
======= =======
</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1996, has been
derived from the audited financial statements of the Company at that date.
See Notes to Condensed and Consolidated Financial Statements
2
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months ended Three Months ended
March 31, 1997 March 31, 1996
------------------ ------------------
<S> <C> <C>
REVENUES:
Product sales $ 3,126 $ 2,214
Royalties, license & other 0 100
----------------- -----------------
Net revenues 3,126 2,314
COST OF REVENUES 2,404 2,112
----------------- -----------------
Gross profit 722 202
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 385 314
RESEARCH AND DEVELOPMENT EXPENSES 61 21
----------------- -----------------
Operating income (loss) 276 (133)
INTEREST EXPENSE, NET (32) (61)
OTHER EXPENSE (14) --
----------------- -----------------
Net income (loss) $ 230 $ (194)
================= ================
NET INCOME (LOSS) PER SHARE $0.06 $(0.06)
================= ================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,142,899 3,151,987
================= ================
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
3
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1997 1996
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used $(233) $ 13
in) operating activities
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (104) (87)
Increase in investment in (114) --
marketable securities
Increase in other assets (5) (2)
------------- -----------
Net cash used in investing
activities (223) (89)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving 162 --
line of credit
Repayment of long term obligations (132) (48)
Proceeds from redemption of common 183 --
stock purchase warrants
Exercise of stock options -- 4
------------- -----------
Net cash provided by (used 213 (44)
in) financing activities
------------- -----------
NET DECREASE IN CASH (243) (120)
CASH AND CASH EQUIVALENTS, beginning of 1,170 598
period
------------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 927 $ 478
============= ===========
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
4
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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 in the Company's Annual Report on Form 10-
KSB, which was filed with the Securities and Exchange Commission on April 15,
1997.
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, 1997
and March 31, 1996. Operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
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, 1997 December 31, 1996
------------- ----------------
<S> <C> <C>
Raw materials $1,459 $1,283
Work in process and finished goods 881 751
------------- ----------------
2,340 2,034
Less: Reserves for obsolescence 367 367
------------- ----------------
Total $1,973 $1,667
============= ================
</TABLE>
5
<PAGE>
d. 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.
3.) CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with original maturities of
less than three months to be cash equivalents. Cash and cash equivalents consist
of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------- ----------------
<S> <C> <C>
Cash $323 $ 218
Cash equivalents 604 952
------------- ----------------
Total $927 $1,170
============= ================
</TABLE>
4.) 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, 1997 and December 31, 1996,
investments in marketable securities, that are classified available-for-sale and
recorded at fair value which approximates costs, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------- ----------------
<S> <C> <C>
United States Government obligations $1,047 $1,143
Corporate obligations 292 97
------------- ----------------
$1,339 $1,240
============= =================
</TABLE>
5.) EXERCISE OF COMMON STOCK PURCHASE WARRANTS
The Company's Redeemable Common Stock Purchase Warrants (the "IPO
Warrants") expired on March 8, 1997. Approximately 76,000 IPO Warrants were
exercised during the first quarter of 1997 resulting in net proceeds of
approximately $183,000.
6
<PAGE>
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
product offerings for electronic capacitors, microwave and non-microwave food
packaging, 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 sales to the capacitor and
microwave packaging markets.
RECENT DEVELOPMENTS
- -------------------
The Company's retail microwave food packaging product, currently being
marketed under the name BROWN & CRISP(R), received very strong initial retailer
response during the first quarter of 1997. The Company also filed a patent
application and has begun evaluation trials for high energy density materials
that are manufactured using the Company's Pattern Metalization Printing ("PMP")
process. The Company believes that these materials will allow electronics
manufacturers to use smaller, lighter and more energy efficient capacitors in
their products. Sales to the capacitor market during the first quarter were
adversely affected by extreme price competition throughout the industry
resulting in lower prices and lost orders.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Revenue. Net revenue increased to $3,126,000 for the three months ended
March 31, 1997, as compared to $2,314,000 for the three months ended March 31,
1996, an increase of 35%. This increase is due to higher product sales to the
microwave food packaging market, including sales of the BROWN & CRISP(R)
product.
Capacitor sales declined in the first quarter due to price erosion and lower
unit shipments. This price erosion has abated and the Company expects that
prices will increase by the end of the year to levels comparable to 1996.
Standard food packaging sales declined slightly due to a change in product mix.
New product sales into other markets outside the capacitor, microwave and
standard food packaging markets declined by $70,000. Revenues from this category
are by their nature difficult to predict and do not yet constitute a significant
portion of the Company's total revenues. There were no licensing fees or royalty
revenues during the three months ended March 31, 1997, as compared to $100,000
for the three months ended March 31, 1996.
Cost of Revenues. Cost of revenues totaled $2,404,000 (76.9% of product
sales) for the three months ended March 31, 1997, compared to $2,112,000 (95.4%
of product sales) for the three months ended March 31, 1996. The increase in
cost of revenues was a result of additional sales into the microwave food
packaging market, including the BROWN & CRISP(R) bags, partially offset by the
decrease in sales to the capacitor and standard food packaging markets. The
decrease in cost of revenues as a percentage of product sales was the result of
higher margins generated by sales of microwave food packaging products.
Gross Profit. Gross profit increased to $722,000 (23.1% of product sales)
for the three months ended March 31, 1997, compared to $202,000 (9.1% of product
sales) for the three months ended March
7
<PAGE>
31, 1996. The increase in gross profit, both in absolute magnitude and as a
percentage of revenue, was due to the additional sales volume and higher gross
margins associated sales of microwave food packaging products, partially offset
by a decrease in licensing fees and royalty revenue.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $385,000 for the three months ended March 31, 1997, (12.3%
of product sales) from approximately $314,000 for the three months ended March
31, 1996, (14.2% of product sales). Higher payroll expenses and professional
fees were the primary reasons for the increase.
Research and Development. Research and development costs increased to
$61,000 for the three months ended March 31, 1997, from approximately $21,000
for the three months ended March 31, 1996, due to additional amortization
expenses related to licenses acquired in 1996. Research and development
expenditures continue to be directed primarily at improving the Company's
technical capacity to produce higher resolution metallized patterns at higher
volumes for existing and new applications
Operating Income (Loss). The Company generated operating income of $276,000
for the three months ended March 31, 1997, compared to an operating loss of
$133,000 for the three months ended March 31, 1996. The increased operating
income was due to higher sales volumes and gross profits generated by sales of
microwave food packaging products, partially offset by higher selling, general
and administrative expenses.
Net Interest Expense. Net interest expense decreased to approximately
$32,000 for the three month period ended March 31, 1997, from $61,000 for the
three month period ended March 31, 1996. The decrease was primarily the result
of increased interest income as a result of additional funds being available for
investment.
Other Expense. Other expense was $14,000 during the three months ended
March 31, 1997, compared to an insignificant amount for the three months ended
March 31, 1996. Other expense includes the amortization of costs associated with
the new financing arrangement entered into during 1996.
Net Income (Loss). The Company generated net income of $230,000 for the
three months ended March 31, 1997 compared to net loss of $194,000 for the three
months ended March 31, 1996, as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had working capital of approximately $4,369,000 at March 31,
1997, compared to working capital of $4,032,000 at December 31, 1996. The
increase in working capital is primarily the result of income from operations
and the exercise of approximately 73,000 Class A Redeemable Common Stock
Purchase Warrants (the "IPO Warrants") in March 1997, from which the Company
realized net proceeds of approximately $183,000.
Cash used in operating activities for the three months ended March 31,
1997, was approximately $233,000 compared to cash provided by operating
activities during the three months ended March 31, 1996, of $13,000. Negative
cash flow from operations was the result of increases in accounts receivable and
inventory resulting from additional sales volume, partially offset by an
increase in accounts payable.
In the three month period ending March 31, 1997, the Company expended
$104,000 in capital investments. The investments during 1997 were primarily for
increasing the capacity and efficiency of existing equipment. As of March 31,
1997, the Company had no material commitments for additional capital purchases.
8
<PAGE>
On July 14, 1996, the Company refinanced its existing revolving term debt
and line of credit of credit with another bank. The replacement term debt and
revolving line of credit financing from the new bank allowed the Company to
repay all amounts due the Company's former bank and to Printpack Enterprises,
Inc. The new financing agreement provided the Company with a term debt 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 (8.50% on March 31, 1997)
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 percentages of its eligible accounts receivable, raw materials and finished
goods inventories. Borrowings under the line of credit bear interest at the
bank's prime rate of interest plus 3/4%. The Company had drawn down
approximately $342,000 on the line of credit as of March 31, 1997. The Company's
replacement term debt and revolving line of credit financing agreements require
the Company to maintain certain financial ratios and tangible net worth levels,
among others.
On March 8, 1997, the IPO Warrants expired. During March 1997,
approximately 78,000 IPO Warrants were exercised, resulting in net proceeds to
the Company of approximately $183,000.
Management believes that the Company's cash, cash equivalents, and short-
term investments together with anticipated cash flows from operations will
provide sufficient funds to meet the Company's current cash requirements and
allow the Company to continue its marketing and product development efforts.
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 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. In 1996, supplies of film increased in quantities sufficient to
meet demand and price increases abated. In 1997, there has been no material
change in supplies or prices of film.
BUSINESS FACTORS
- ----------------
This report contains certain forward-looking statements that are subject to
certain risks and uncertainties. These statements include statements regarding
(i) the expected efforts of the Company's PMP process, (ii) price increases in
the capacitor market and (iii) the Company's liquidity. Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The Company cautions
investors that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in such
forward-looking as a result of various factors, including, but not limited to,
the following; uncertainties regarding the performance advantages of the
Company's PMP process, market response to pricing actions, continued competitive
factors and pricing pressures, the timely acceptance of new products, inventory
risk due to shifts in market demand, the development of competing or superior
technologies or products from other
9
<PAGE>
manufacturers, many of which have substantially greater financial, technical and
other resources than the Company, dependence on key personnel, the variation in
the Company's operating results, technological change, the Company's ability to
develop and protect proprietary products and technologies, the availability of
additional capital on acceptable terms, if at all, to fund expansion, and
general economic conditions. For further information, refer to the more specific
risks and uncertainties discussed throughout this report.
10
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5: Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) No Exhibits.
(b) Reports on Form 8-K. On February 20, 1997, the Company filed Form 8-K
in regard to its change in accountants. In that filing it was reported that the
Company had engaged BDO Seidman, LLP, as its new independent accountants as of
February 12, 1997.
11
<PAGE>
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
May 15, 1997 /s/ Glenn J. Walters
- ------------ ----------------------------
Glenn J. Walters
President
May 15, 1997 /s/ Mark R. Thomas
- ------------ -----------------------------
Mark R. Thomas
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 927,000
<SECURITIES> 1,339,000
<RECEIVABLES> 2,063,000
<ALLOWANCES> 136,000
<INVENTORY> 1,973,000
<CURRENT-ASSETS> 6,379,000
<PP&E> 7,944,000
<DEPRECIATION> 2,777,000
<TOTAL-ASSETS> 13,255,000
<CURRENT-LIABILITIES> 2,010,000
<BONDS> 0
0
0
<COMMON> 43,000
<OTHER-SE> 9,480,000
<TOTAL-LIABILITY-AND-EQUITY> 13,255,000
<SALES> 3,126,000
<TOTAL-REVENUES> 3,126,000
<CGS> 2,404,000
<TOTAL-COSTS> 2,404,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,400
<INCOME-PRETAX> 230,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 230,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,000
<EPS-PRIMARY> .057
<EPS-DILUTED> .057
</TABLE>
