<PAGE>
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, 1998
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 11, 1998, there were 4,268,950 shares of Common Stock, $0.01 par
value, of the issuer outstanding.
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1. Financial Statements
Condensed and Consolidated Balance Sheets (unaudited): 1-2
March 31, 1998 and December 31, 1997
Condensed and Consolidated Statements of Operations 3
(unaudited): for the Three Months ended March 31, 1998
and March 31, 1997
Condensed and Consolidated Statements of Cash Flows 4
(unaudited): for the Three Months ended March 31, 1998
and March 31, 1997
Notes to Condensed and Consolidated Financial 5-7
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 534 $ 919
Investment in marketable securities 157 155
Accounts receivable, net of reserve for doubtful accounts of $378 and
$380 at March 31, 1998 and December 31, 1997 respectively 7,140 7,084
Inventories 3,395 3,347
Prepaid expenses and other current assets 109 69
----------- ------------
Total current assets 11,335 11,574
PROPERTY AND EQUIPMENT, net of accumulated depreciation 6,577 6,331
OTHER ASSETS, net of accumulated amortization 5,628 6,038
------------ ------------
Total assets $ 23,540 $ 23,943
============ ============
</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1997, has been
derived from the audited financial statements of the Company at that date.
See Notes to Condensed and Consolidated Financial Statements
1
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Bridge financing $ 1,000 $ 1,000
Due to financial institutions 3,404 3,709
Accounts payable 3,601 4,092
Accrued liabilities 568 543
Current maturities of long-term debt 526 525
------------ ----------
Total current liabilities 9,099 9,869
LONG-TERM OBLIGATIONS
Revolving line of credit 1,667 974
Long-term obligations, net of current maturities 2,184 2,324
------------ -----------
Total liabilities 12,950 13,167
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 802 795
------------ -----------
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, 4,286,560 shares issued,
4,268,950 and 4,262,950 shares outstanding at
March 31, 1998 and December 31, 1997, respectively 43 43
Common stock purchase warrants 1,671 1,594
Additional paid-in capital 9,515 9,581
Retained deficit (1,345) (1,153)
Foreign currency translation adjustment (31) (19)
------------ ----------
9,853 10,046
Less treasury stock, 17,610 shares at cost (65) (65)
------------ ----------
Total stockholders' equity 9,788 9,981
------------ ----------
$ 23,540 $ 23,943
============ ==========
</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1997, 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, 1998 MARCH 31, 1997
-------------------- ------------------------
<S> <C> <C>
REVENUES $ 5,954 $ 3,126
COST OF REVENUES 4,788 2,302
-------------- -------------
Gross profit 1,166 824
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 974 385
RESEARCH AND DEVELOPMENT EXPENSES 79 126
AMORTIZATION EXPENSE 72 37
-------------- -------------
Operating income 41 276
INTEREST EXPENSE, NET (179) (32)
OTHER EXPENSE (54) (14)
-------------- -------------
Net income (loss) $ (192) $ 230
============== =============
NET INCOME (LOSS) PER SHARE
Basic $ (0.04) $ 0.06
============== =============
Diluted $ (0.04) $ 0.06
============== =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,268,852 4,142,899
============== =============
</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,
--------------------------------
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities $ (492) $ (233)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (474) (104)
Increase in investment in marketable securities (2) (114)
(Increase) decrease in other assets 334 (5)
------- -------
Net cash used in investing activities (142) (223)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving line of credit 694 162
Net repayment to financial institutions (305) --
Repayment of long term obligations (139) (132)
Proceeds from redemption of common stock purchase warrants -- 183
Exercise of stock options 11 --
------- -------
Net cash provided by financing activities 261 213
------- -------
Net effect of exchange rates on cash and cash equivalents (12) --
------- -------
NET DECREASE IN CASH (385) (243)
CASH AND CASH EQUIVALENTS, beginning of period 919 1,170
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 534 $ 927
======= =======
</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, 1998
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 6,
1998.
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, 1998
and March 31, 1997. Operating results for the three month period ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
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 and majority owned subsidiaries. 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, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Raw materials $ 1,760 $ 1,812
Work in process and finished goods 2,013 1,913
------- -------
3,773 3,725
Less: Reserves for obsolescence 378 378
------- -------
Total $ 3,395 $ 3,347
======= =======
</TABLE>
5
<PAGE>
d. Net Income (Loss) per Common Share
Effective January 1, 1997, the Company adopted Financial Accounting
Standards No. 128, "Earnings Per Share", ("SFAS 128"). The new standard
establishes standards for computing and presenting earnings per share.
e. Reclassifications
Certain balances in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
f. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130"), which
requires that all components of comprehensive income and total comprehensive
income be reported on one of the following: a statement of income and
comprehensive income, a statement of comprehensive income or a statement of
stockholders' equity. Comprehensive income is comprised of net income and all
changes to stockholders' equity except those due to investment by owners
(changes in paid in capital) and distributions to owners (dividends). For
interim reporting purposes, SFAS 130 requires disclosure of total comprehensive
income.
Total comprehensive income is as follows: (in thousands):
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net income $ (192) $ 230
Foreign currency translation adjustment (12) --
----------- -----------
Comprehensive income $ (204) $ 230
=========== ===========
</TABLE>
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, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Cash $ 534 $ 919
----- -----
Total $ 534 $ 919
===== =====
</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, 1998 and December 31, 1997,
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, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Equity instruments $ 157 $ 155
----- -----
Total $ 157 $ 155
===== =====
</TABLE>
5.) 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.
In May 1998, the Company reduced the conversion price of the Class B Common
Stock Redeemable Warrants (the "B Warrants)") from $5.00 per share to $3.75 per
share. In addition, the Company extended the expiration date of the B Warrants
from May 12, 1998 to July 31, 1998 and increased the number of warrants required
to purchase one share of Common Stock from one B Warrant to two B Warrants.
6.) ACQUISITION
In December 1997, the Company acquired 65% of the outstanding common stock
of Alexander Boxall, S.A., located in Madrid, Spain ("ABSA"), for $2,884,688 in
cash, a secured note of $990,000 and 280,000 shares of the Company's common
stock with a fair value of $1,034,000. The acquisition was recorded under the
purchase method whereby the net assets acquired were recorded at their fair
market values and the excess of cost over the fair value of the net assets
acquired of approximately $3,415,000 was allocated to goodwill and is being
amortized over 25 years.
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). In
December 1997, the Company acquired 65% of the common stock of Alexander Boxall,
S.A. ("ABSA"), a manufacturer of electronic capacitors used for lighting and
motor run applications. The Company's revenue to date has been primarily from
sales to the capacitor and microwave packaging markets.
RECENT DEVELOPMENTS
- - -------------------
The results of operations of the Company for the quarter ended March 31,
1998 contains a full three months of consolidated operations of ABSA, which had
a significantly favorable impact on sales and net income.
During the first quarter of 1998, the Company incurred higher manufacturing
costs as it increased some production wages in order to attract more experienced
production workers to fill positions created by attrition and additional
product demand. The Company believes that this, in combination with other
measures, will overcome production delays and reduce the abnormally high scrap
rates that constrained first quarter shipments.
During the first quarter of 1998, the Company experienced a significant
and unexpected decrease in sales of BROWN & CRISP bags, which accounts for much
of the decline in reported profitability. As of May 1998, the Company does not
expect that sales of BROWN & CRISP bags during 1998 will match the amount sold
in 1997. The Company believes that sales of metalized film to the standard
microwave and capacitor markets will increase during 1998. Metalized film sales
generate a much lower margin than BROWN & CRISP bags, so that the net effect on
profitability from these two trends is expected to be unfavorable.
The Company continued to manufacture and sell High Energy Density ("HED")
films to capacitor manufacturers during the first quarter of 1998. HED films,
which are designed to provide capacitor manufacturers with the ability to
produce smaller, lighter and more efficient capacitors, have been incorporated
into certain customers' new products.
The Company also executed purchase documents for its acquisition of the
majority of the capital stock of Kidamai SDN ("Kidamai"), a Malaysia capacitor
assembly company with 1997 sales of less than $1,000,000. The Company expects
that the acquisition will be consummated by the end of the second quarter.
The Company also received Patent no. 5,742,411, "Security Hologram with
Covert Message" issued in April 1998.
RESULTS OF OPERATIONS
- - ---------------------
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
7
<PAGE>
Revenue. Net revenue increased to $5,954,000 for the three months ended
March 31, 1998, as compared to $3,126,000 for the three months ended March 31,
1997, an increase of 90%. This increase is due to the effect of the
consolidation of the sales of ABSA. Excluding the effect of the consolidation of
ABSA, sales for the three months ended March 31, 1997 of metalized film and
retail microwave products, including sales of BROWN & CRISP bags, declined by
28% as a result of lower sales of BROWN & CRISP bags. Metalized film sales
increased by 18% primarily as a result of higher standard microwave film sales
and to a lesser extent, higher sales of metalized film to the capacitor market,
partially offset by lower sales of film to the packaging market.
Cost of Revenues. Cost of revenues totaled $4,788,000 (80.4% of product
sales) for the three months ended March 31, 1998, compared to $2,302,000 (73.6%
of product sales) for the three months ended March 31, 1997. The increase in
cost of revenues is due primarily to the effect of the consolidation of ABSA.
Excluding the effect of the consolidation of ABSA, cost of revenues for the
three months ended March 31, 1998 decreased due to the reduced sales of BROWN &
CRISP bags, partially offset by higher material costs associated with higher
sales of metalized film and by higher manufacturing costs associated with the
hiring and training of additional production staff. Cost of revenues as a
percentage of product sales decreased as a result of decreased shipments of
relatively higher-margin BROWN & CRISP products partially offset by the higher
gross margins associated with ABSA capacitor sales.
Gross Profit. Gross profit increased to $1,166,000 (19.6% of product
sales) for the three months ended March 31, 1998, compared to $824,000 (26.4% of
product sales) for the three months ended March 31, 1997. The increase in gross
profit is due to the effect of the consolidation of ABSA and higher sales of
metalized film products, partially offset by decreased sales of BROWN & CRISP
bags. The decrease in gross profit as a percentage of product sales is a result
of decreased sales of relatively higher-margin BROWN & CRISP products partially
offset by the effect of ABSA capacitor sales.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $974,000 for the three months ended March 31, 1998, (16.4%
of product sales) from approximately $385,000 for the three months ended March
31, 1997, (12.3% of product sales). The effect of the consolidation of ABSA and
higher payroll expenses were the primary reasons for the increase.
Research and Development. Research and development costs decreased to
$78,000 for the three months ended March 31, 1998, from approximately $126,000
for the three months ended March 31, 1997. 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
Amortization. Amortization expense increased to $72,000 for the three
months ended March 31, 1998, from $37,000 for the three months ended March 31,
1997 as a result of the amortization of goodwill associated with the ABSA
acquisition.
Operating Income. The Company generated operating income of $41,000 for
the three months ended March 31, 1998, compared to operating income of $276,000
for the three months ended March 31, 1997. The decrease in operating income was
due primarily to lower sales of BROWN & CRISP bags partially offset by the
effect of the consolidation of ABSA and higher sales of metalized film products.
Net Interest Expense. Net interest expense increased to $179,000 for the
three-month period ended March 31, 1998, from $32,000 for the three-month period
ended March 31, 1997. The increase is due to increased borrowings and the effect
of the consolidation of ABSA
8
<PAGE>
Other Expense. Other expense was $54,000 during the three months ended
March 31, 1998, compared to $14,000 for the three months ended March 31, 1997.
Other expense includes the amortization of costs associated with the financing
agreements entered into with the Company's primary lender.
Net Income (Loss). The Company generated a net loss of $192,000 for the
three months ended March 31, 1998 compared to net income of $230,000 for the
three months ended March 31, 1997, primarily as a result of the unexpected lack
of demand for BROWN & CRISP bags which reduced planned net income by
approximately $500,000, for partially offset by the effect of the consolidation
of ABSA.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company had working capital of approximately $2,236,000 at March 31,
1998, compared to working capital of $1,705,000 at December 31, 1997. The
increase in working capital is primarily due to additional borrowings under the
Company's revolving line of credit.
Cash used in operating activities for the three months ended March 31,
1998, was approximately $492,000 compared to cash used in operating activities
during the three months ended March 31, 1997, of $233,000. Negative cash flow
from operations was the result of a reduction in accounts payable and operating
losses.
In the three-month period ending March 31, 1998, the Company expended
$474,000 in capital investments for expansion of its capacity to produce
metalized films. At present, the Company has purchase commitments totaling
$1,800,000 for capital equipment scheduled for delivery primarily in the first
quarter of 1999, which the Company expects will be financed primarily through
additional bank debt.
In December 1997, the Company acquired 65% of the capital stock of ABSA
from two shareholders of ABSA. The ABSA Acquisition was financed with
approximately $1,800,000 in cash; a $1,000,000 bridge loan (the "Bridge Loan");
a $990,000 note payable and 280,000 shares of the Company's Common Stock. The
ABSA Acquisition was accounted for under the purchase method. The Bridge Loan is
from the Company's principal lender and bears interest at the bank's prime
lending rate plus 1.25% per annum and is due, with all unpaid interest, on June
18, 1998. The note payable to a former shareholder of ABSA bears interest at
5.39% per annum and is due, with all unpaid interest, on December 19, 1999.
Under Spanish law and according to the terms of the note, if the Company fails
to pay this note, such shareholder has the option to receive his 50% interest in
ABSA, provided he returns the $2,800,000 in cash he received from the Company,
or liquidated damages of $340,000.
On July 14, 1997, the Company refinanced its existing revolving term debt
and line of credit with another bank. 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 plus 1%, with a balloon payment of approximately $1,083,000 due in July
1999, and is secured by substantially all of the assets of the Company. As of
March 31, 1998, the term loan had a balance of approximately $1,715,000 and bore
interest at 9.5% per annum. 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 and is secured by
substantially all of the assets of the Company. Borrowings under the line of
credit bear interest at the bank's prime rate of interest plus 3/4%. As of March
31, 1998, the revolving line of credit had a balance of approximately $1,667,000
and bore interest at 9.75%. In connection with the ABSA acquisitions, the
Company received a Bridge Loan which is secured by the ABSA shares owned by the
Company. As of March 31, 1998, the Bridge Loan bore interest at 9.75% per annum.
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. At March 31, 1998, the Company was not in
compliance with certain of the financial covenants of the bank loans. The bank
has agreed to waive the events of default relating to those covenants until
January 1, 1999.
Management is currently involved with discussions with its bank to
restructure the Bridge Loan and its term debt. Management does not believe that
cash flow from operations, together with its current reserves of cash and its
working capital facility, will be sufficient to pay all amounts due under the
Bridge Loan due June 18, 1998 and also to meet the Company's other cash
requirements.
9
<PAGE>
SEASONAL REVENUES
- - -----------------
Historically, the Company has experienced lower sales to the electronic
capacitor market during the third quarter, particularly in July. However, due to
changes in production and in customer demand, the Company believes that the
seasonal third-quarter down-turn in sales will be less pronounced this year. In
addition, based on market research conducted by the Company, it believes that
demand for the Company's other products, including microwave food packaging and
electronic capacitors products, do not experience similarly timed seasonal
variations and could, in the future, offset lower third quarter sales in the
electronic capacitor market.
INFLATION
- - ---------
During 1997 and 1998, supplies of raw materials used by the Company have
been adequate to meet demand and prices for these raw materials have softened
slightly. The Company does not foresee any near-term changes in either the
supply or prices of its raw materials.
IMPACT OF THE YEAR 2000 ISSUE
- - -----------------------------
The Year 2000 Issue refers to potential problems with computer systems or
any equipment with computer chips or software that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software that
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities.
The Company has conducted a review of its internal information systems to
determine the extent of any Year 2000 problem. Based on such a review, the
Company does not currently believe that it has material exposure to the Year
2000 Issue with respect to its own information systems, since its existing
systems correctly define the Year 2000.
The Company is in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the Company may be
vulnerable to these parties' failures to timely correct their own Year 2000
problems. To date, the Company is unaware of any situations of noncompliance
that would materially adversely affect its operations or financial condition.
There can be no assurances, however, that instances of noncompliance that would
have a materially adverse effect on the Company's operations or financial
condition will not be identified; that the systems of other companies with which
the Company transacts business will not be corrected on a timely basis; or that
a failure by such entities to correct a Year 2000 problem or a correction that
is incompatible with the Company's information systems would not have a material
adverse effect on the Company's operations or financial condition.
BUSINESS FACTORS
- - ----------------
This report may contain certain forward-looking statements that are subject
to certain risks and uncertainties. These statements include statements
regarding (i) the expected effects of the ABSA acquisition by the Company; (ii)
the Company's ability to realize economies of scale and to expand its sales and
production capacity; (iii) the possibility and the expected effect of the
Kidamai acquisition; and (iv) 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
statement as a result of various factors, including, but not limited to, the
following: uncertainties regarding the performance advantages of the Company's
PMP products and products in development, market responses 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 manufacturers, many of
which have substantially greater financial, technical and other resources than
the Company, the Company's ability to close the Kidamai acquisition on favorable
terms; 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
Item 2. Changes in Securities and Use of Proceeds
In May 1998, the Company reduced the conversion price of the Class B Common
Stock Redeemable Warrants (the "B Warrants)") from $5.00 per share to $3.75 per
share. In addition, the Company extended the expiration date of the B Warrants
from May 12, 1998 to July 31, 1998 and increased the number of B Warrants
required to purchase one share of Common Stock from one B Warrant to two B
Warrants.
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index
(b) Reports on Form 8-K. On January 5, 1998 the Company filed a Form 8-K with
respect to its acquisition of 65% of the capital stock of Alexander Boxall,
S.A.
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, 1998 /s/ Glenn J. Walters
- - ------------ ---------------------------------
Glenn J. Walters
President
May 15, 1998 /s/ Mark R. Thomas
- - ------------ ---------------------------------
Mark R. Thomas
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
- - ------- -----------
10.1 Lease between MARAP, S.A. and Alexander Boxall, S.A. dated
December 15, 1996
27.1 Financial Data Schedule
<PAGE>
[TRANSLATED FROM SPANISH]
EXHIBIT 10.1
REGISTRATION DOCUMENT OF THE LEASE
NUMBER ONE THOUSAND TWO HUNDRED SIXTY
IN MADRID, on the twenty-second of April nineteen hundred ninety-seven
BEFORE ME, FERNANDO RODRIGUEZ TAPIA, Notary in this capital and of its
illustrious College,
THERE APPEARED:
ON THE ONE HAND: MRS. MARIA FRANCISCA MARTINEZ VEGA, having an age of
majority, married, industrialist, resident of Las Rosas (Madrid), Suburb Monte
Rosas, 31 Atlanta street. With National Identity Card Number 99.707.469-C.
And MRS. MARIA DEL PILAR PATINO ALVARO, having an age of majority, separated,
resident of Alcobendas (Madrid), La Moraleja, 375 Dalia street, with National
Identity Card Number 26.146.671-H.
AND ON THE OTHER HAND: MR. PEDRO NUNEZ-BARRANCO GUEMBE, having an age of
majority, separated, resident of Alcobendas (Madrid), La Moraleja, 375 Dalia
street, with National Identity Card Number 5.590.151-R.
I identify those before me by means of their National Identity Cards, having
reviewed them, by the sameness of their images and signatures.
The first two, in name and representation, as BOARD MEMBERS of a commercial
company named "MARAP, S.A.", domiciled in Madrid at 42 Isaac Peral street,
constituted for an indefinite time period by written act authorized in Madrid on
17 July 1989, by an ex-notary of this city, Mr. Enrique Franch Valverde, under
Number 2.966 of his register. He revised his statutes to the new standard by
means of a writing of 29 June 1992, authorized by the notary of Madrid, Mrs.
Maria del Rosario Algora Wesolowski, under number 1.734 of her register.
Written into the Commercial Register of this province, in volume 9.937
General, 8.582 of Section 30, sheet 161, page number 80.780-1, entry 1.
With tax identification card number A-79208278.
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The ladies before me have been named for the task as they claim, whose full
force is affirmed in a document of 29 February 1996, authenticated by the Madrid
notary Mr. Fernando Rodriguez Tapia, under Number 506 of his register, duly
registered in the Commercial Register, and with all powers pertaining to the
task, according to the law and the company statutes.
And Mr. Pedro Nunez-Barranco Guembe is intervening in name and representation
as delegated attorney of a commercial company named "ALEXANDER BOXALL, S.A.",
domiciled in Parla (Madrid), Poligono Industrial, "City of Parla, Parcel K-1 and
K-2"; so constituted for an indefinite period by a document notarized in Madrid
on 26 November 1979 by an ex-notary of this capital, Mr Francisco Nunez Lagos,
in substitution for his colleague Mr. Roberto Blanquer Uberos, number 2.813 in
the register of the latter. He has revised his Statutes to the new standard, by
means of a writing by a Madrid notary, Ms. Maria del Rosario Algora Wesolowski,
under number 2.225 of her register.
Written into the Commercial Register of this province, in volume 6.405, sheet
151, page number M-104.381, 6th entry.
With Tax Identification card number A-28600611.
The gentleman before me has been named for the task as he claims, whose full
force is affirmed in a document of 29 February 1996, authenticated by the Madrid
notary Mr. Fernando Rodriguez Tapia, under number 505 of his register, duly
registered in the Commercial Register, forming the 7th entry on the company's
page on which they delegate all faculties which, in conformity with the company
statutes, correspond to the Board of Directors, except those whose delegation
the law prohibits.
In my judgment they have the legal capacity necessary to intervene and to
execute this registration document of lease and to that end,
THEY DECLARE
I. That the company "MARAP, S.A.", is the owner of the property described in
the document which by virtue of this document is being registered, and by the
title indicated in the
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same, and assuming all that has been reproduced here to the full effect of the
law to avoid unnecessary repetitions.
LAND REGISTRY REFERENCE. According to the proof of payment of the Tax on Real
Estate corresponding to the year 1996, which is exhibited, it results that the
property as defined does not appear with land registry reference.
Photocopy of said proof of payment has been incorporated into this document,
I, the Notary, bearing witness that it matches the original of which I have
taken sight.
II. That the persons appearing before me, in equal representation as this
document, have signed a document dated 15 December 1996, in relation to the
lease, consisting of six sheets of ordinary paper, typewritten on only one of
their sides, and signed by them to signify agreement.
III. That said persons appearing deliver to me, the Notary, said document for
its registration and for this document.
EXECUTE:
That they render public the said document in the exhibition of this document
signed by the persons present on 15 December 1996, and I, the Notary, register
it leaving it incorporated into this document to form an integral part thereof.
Legal reserves and warnings have been made, including those of a fiscal nature
and having taxation effects, I warn of the tax duties and responsibilities that
are incumbent upon the parties and of the consequences of inexactitudes of their
declarations.
This, the persons present utter and execute after the reading of this writing
in the form required by Article 193 of the Notarial Regulations in force, and
finding it correct, they ratify it, indicating their consent and sign with me.
To identify those present by means of their respective National Identification
Documents as reported at the outset, and of the total content of this public
instrument consisting of four sheets of paper of exclusive use for notarized
documents, series 2A, numbers 5458991, 5458992, 5531493 and of this page, I, the
Notary, BEAR WITNESS.
Signed: The signatures of the persons appearing before me.
Signed: Rgues. Tapia.
Signed and sealed.
Stamped.
DOCUMENT ATTACHED
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LEASE
In Madrid, 15 December 1996
ASSEMBLED
ON THE ONE HAND: Maria Francisca Martinez Vega, having an age of majority,
married, an industrialist, with domicile at 31 Atlanta Street, suburb Monte
Rosas, Las Rosas (Madrid), bearing National Identification Card DNI and National
Fiscal ID NIF number 9.707.469-C;
and, M. del Pilar Patino Alvaro, having an age of majority, separated, an
industrialist, resident of Alcobendas, with domicile in suburb La Moraleja, 375
Dalia Street, bearing DNI and NIF number 26.146.671-H.
ON THE OTHER HAND: Pedro Nunez-Barranco Guembe, having an age of majority,
separated, an industrialist, resident of Alcobendas, with domicile in La
Moraleja suburb, 375 Dalia Street, bearing DNI and NIF number 5.590.151-R.
THERE APPEAR
The first two appear in the name and in representation as Board Members of the
MARAP, S.A. company domiciled in Madrid at 42 Isaac Peral Street, constituted
for an indefinite time period by means of a document authenticated in Madrid on
17 July 1989 by a Notary of this city Enrique Franch Valverde under number 2966
of his register. He has revised his company statutes to the new standard by
means of a writing authenticated on 29 June 1992 by a notary of Madrid M. del
Rosario Algora Wesolowski under number 1734 of her register. The naming and the
representation of the persons appearing derives from the raising to public of
the company agreements authenticated before a notary of Madrid Fernando
Rodriguez Tapia on 29 February 1996, number 506 in his register. Hereinafter,
for the effects of this contract, the lessor.
Said company proves to be written into the Madrid Commercial Register, in volume
9.937 General, 8582 of Section 3, Sheet 16, page number 80.780-1, 1st entry.
With Tax ID card #A-7920 8238.
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The powers of the said Board Members for this document derive from Article 18 of
the Company Statutes, whose details relative hereto are here described:
Article 18: The Members are to have sufficient legal rights to represent,
manage and administer the company to carry out every type of action and contract
of administration, management, disposition and control, without excepting those
that deal with acquisition, alienation, encumbrance and mortgaging of real
estate. In fact, as development of the foregoing rights, but by way of
indication and not restrictively, they are to have the following, without
prejudice to the rest, contemplated in these Statutes and which are to be always
amply interpreted: 19th - Agree upon and establish leases, easements, tasks
and encumbrances on the real estate owned by the company.
The third of those appearing is intervening in the name and in representation as
Managing Director of the Alexander Boxall, S.A. company, with company domicile
in Parla (Madrid), Poligono Industrial "Ciudad de Parla", parcel K-1 and K-2,
today 3-5 Bruselas Street; constituted for an indefinite time period by means
of a writing authenticated in Madrid on 26 November 1979 by an ex-notary of this
capital Francisco Nunez-Lagos, in substitution of his colleague of residence
Roberto Blanquer Uberos, number 2813 of his register. He has revised his
Statutes to the new standard by a writing of 10 September 1992, authenticated by
a Madrid notary Maria del Rosario Algora Wesolowski, under number 2225 of her
register. Hereinafter for the effects of this contract, the lessee.
It proves to be written into the Madrid Commercial Register, volume 6405, Sheet
151, page number M-104.381, 1st entry. With Tax ID card A-28600611.
He is empowered for this document according to the writing of raising to public
the company agreements, granted before Madrid notary Fernando Rodriguez Tapia on
29 February 1996, which proves to be written into the Madrid Commercial Register
on the page open at this
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company. The said rights of Managing Director derive from Article 24 of the
Company Statutes whose details relative to the effects of this document are
transcribed here:
Article 18. The Board of Directors is to have sufficient legal rights to
represent, manage and administer the company ... is to have the following:
5th. exempt, alienate, ... and contract with respect to movable assets and real
estate, rural or urban, real and personal, assets.
Both parties mutually acknowledge the legal right and sufficient legitimization
for the execution of this lease, prior to which they
EXPLAIN
FIRST: That the MARAP, S.A. company is the owner of the following property:
- - -----
Industrial corridor, located in Parla, Poligono Industrial "Ciudad de Parla",
parcels K-1 and K-2, today 3-5 Bruselas Street, which consists of a ground floor
and a first floor. The ground floor, in turn, consists of: Work corridor and
office corridor. And the first floor, which is intended for offices. The total
area built, approximate, of both floors is 2,209.50 square meters.
Said corridor has been built on a parcel of land with an approximate area of
three thousand four hundred square meters which adjoins: to the north, free
area; south, Poligono Street; east, parcel K-3; and west, free area. The area
occupied by the building is 1970.80 square meters, the remainder not being
occupied by the building is intended for patios and parking.
The building adjoins in all directions the parcel upon which it has been built.
Said corridor belongs to MARAP, S.A. by sale executed before a Madrid notary
Enrique Franch Valverde on 21 July 1989, number 3.030 in his register and proves
to be written into the Parla Property Register #2, Volume 488, Book 14, Sheet
156, Property number 827, 4th entry.
SECOND: Upon the corridor described earlier [seal] the companies appearing, a
- - ------
lease [seal] raised to public writing before a Madrid notary Enrique Franch
Valverde on 21 July 1989, with #3.0.
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THIRD: The intervening parties have agreed to complete the novation of the
- - -----
aforesaid lease so that hereafter their lease relations will be governed by the
following
STIPULATIONS
FIRST: This lease will go into force on 1 January 1997, expressly remaining
- - -----
subject to what has been agreed upon by the parties in this contract and,
failing that, to Title III of the Urban Lease Law in force, Law 29/1994 of 24
November.
SECOND: The object of this lease is the industrial corridor described in the
- - ------
preamble to this contract, situated on what is today called 3 and 5 Bruselas
Street, with everything inherent and accessory to it.
THIRD: This lease has a duration of ten years, so that it will cease to be in
- - -----
force on 31 December 2006. Supposing that upon expiration of the time period
neither of the parties has communicated to the other its will to put an end to
the lease, it will be understood to have been tacitly extended for periods of
one year.
FOURTH: The annual rent is set at TWENTY-FIVE MILLION TWO HUNDRED THOUSAND
- - ------
PESETAS (25,200,000 Pts), plus VAT, corresponding to advance monthly payments of
TWO MILLION ONE HUNDRED THOUSAND PESETAS (2,100,000 Pts) plus the corresponding
VAT, within the first five days of every month.
FIFTH: The set rent is to be adjusted annually to the consumer price index of
- - -----
the twelve previous months as indicated by the National Statistics Institute or
any body replacing it, the notification in its own receipt being sufficient for
the desired effect the following month. If for any reason a delay takes place
in the communication of the update, the applicable differences are
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to be credited retroactively in the following month to that of the notification
of the said update together with the rent of the said month.
SIXTH: The building's expenses, including those of maintenance, maintenance
- - -----
works and improvements to the same, are to be to the lessee's account. The
expenses of supplies and services are also to the lessee's account.
SEVENTH: The lessee does not have permission to alter the form or to cause
- - -------
lessening of stability or safety of the property without the express permission
of the lessor. Although the lessor authorizes the lessee to carry out works
that will be necessary for the latter's normal operations.
EIGHTH: The lessee does not have the right to sublease, transfer or sell in
- - ------
whole or in part that which is the object of this lease, without the express
prior authorization of the lessor.
NINTH: The lessee in this document delivers to the lessor, who receives, in
- - -----
fulfillment of the terms of Article 36 of the Urban Lease Law in force, as
deposit, TWO MONTHS OF RENT, in cash, for a total of 4,320,000 Pts. The parties
agree that said deposit will not need to be updated during the lifetime of this
lease or of its successive extensions.
TENTH: The tax on real estate will be to the account of the lessee.
- - -----
ELEVENTH: The lessor or a person he designates is to have the right to visit to
- - --------
check the fulfillment of the contractual duties, for which he must notify the
lessee two days in advance.
TWELFTH: The lessee expressly renounces rights of indemnity in the case of the
- - -------
extinction of the contract at the end of the same, established in Article 34 of
the Urban Lease Law.
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THIRTEENTH: This contract will be dissolved through failure to pay the rent for
- - ----------
one month, with the lessor, on such an assumption, remaining with the right to
exercise the corresponding legal action of eviction, or, in his case, that which
legally corresponds to it. Similarly, the lease will terminate for the
nonfulfillment of the terms agreed upon in the seventh and eighth stipulations
of this contract.
FIFTEENTH: This contract may be raised to a public writing if either of the
- - ---------
parties so requests, the other being obliged to present himself before a notary
within a period of thirty days counting from the communication.
Read and found correct, the appearing parties sign and ratify this contract in
duplicate copies to a single effect in the place and on the date indicated at
the head of the same.
THE LESSOR THE LESSEE
MARAP, S.A. ALEXANDER BOXALL, S.A.
Signed: The Board Members /s/ Pedro Nunez Barranco Guembe
/s/ M. Francisca Martinez Vega Pedro Nunez Barranco Guembe, the Managing
M. Francisca Martinez Vega Director
/s/ M. Pilar Patino Alvaroa
M. Pilar Patino Alvaro
9
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 534,000
<SECURITIES> 157,000
<RECEIVABLES> 7,518,000
<ALLOWANCES> 378,000
<INVENTORY> 3,395,000
<CURRENT-ASSETS> 11,335,000
<PP&E> 12,790,000
<DEPRECIATION> 6,213,000
<TOTAL-ASSETS> 23,540,000
<CURRENT-LIABILITIES> 9,099,000
<BONDS> 0
0
0
<COMMON> 9,558,000
<OTHER-SE> 230,000
<TOTAL-LIABILITY-AND-EQUITY> 23,540,000
<SALES> 5,954,000
<TOTAL-REVENUES> 5,954,000
<CGS> 4,788,000
<TOTAL-COSTS> 1,125,000
<OTHER-EXPENSES> 54,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,000
<INCOME-PRETAX> (192,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (192,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (192,000)
<EPS-PRIMARY> (0.04)
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