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________________________________________________________________________________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 incorporation) (I.R.S.Employer
Identification No.)
580 MYLES STANDISH INDUSTRIAL PARK
TAUNTON, MASSACHUSETTS 02780
(Address of Principal Executive Offices)
_________________________
(508) 823-0707
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER TO SECTION 12(B) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Stock Boston Stock Exchange
Class B Redeemable Common Boston Stock Exchange
Stock Purchase Warrants
________________________
SECURITIES REGISTERED UNDER TO SECTION 12(G) OF THE EXCHANGE ACT: NONE
Check whether the issuer (1) has filed all reports required to be filed under
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 60
days.
YES [_] NO [X]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form , and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form. ___
The Registrant had revenue of approximately $12,250,000 in its most recent
fiscal year. As of March 27, 1998, 4,268,919 shares of the Registrant's Common
Stock were outstanding, and the aggregate market value of the Common Stock held
by non-affiliates of the Registrant, based on the average closing bid and asked
prices on such date, was approximately $10,900,000.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant hereby incorporates by reference into Part III of this
report portions of its proxy statement for the 1998 annual meeting of
stockholders, which will be filed within 120 days of the Registrant's fiscal
year ended December 31, 1997.
Transitional Small Business Disclosure Format Yes No X
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ITEM 1. DESCRIPTION OF BUSINESS
Overview
Advanced Deposition Technologies, Inc. (the "Company") develops,
manufactures, markets and sells standard and proprietary metallized films for
energy management applications. The Company's primary markets are the electronic
capacitor market and the microwave food packaging market. The Company produces
metallized films by applying an ultra-thin layer or layers of vaporized metal
onto different types of polymer films. The Company has the capability to print
these metals at high resolutions through its proprietary Pattern Metallized
Printing ("PMP") process for its patented and patent pending products. These
thin films are then incorporated into a wide variety of end-use applications
such as capacitors for florescent lighting, motors, power factor correction
systems and microwave food packaging for pizza, popcorn, pastries, and other
foods. The Company has also developed and manufactured, on a limited basis for
evaluation purposes, other patented or patent pending products that use the
Company's PMP technology, such as authentication holograms, electronic article
surveillance tags, electrostatic discharge materials, retroreflective films, and
solar protective films.
The Company began operations in 1985 as a Massachusetts corporation
supplying metallized film to the electronic capacitor industry. In 1989, the
Company developed and introduced films metallized in patterns for use in
microwave food packaging applications. In July 1993, the Company was
reincorporated as a Delaware corporation. Since 1993, the Company has actively
pursued the development of new products for the food and other industries based
on its PMP process. In 1994, the Company introduced a microwave browning and
crisping bag (the "ACCU-CRISP(R) Bag") made with a patented fuse susceptor
metallized film, which it currently sells through retail channels.
In December 1997, the Company acquired (the "ABSA Acquisition") 65% of the
Alexander Boxall, S.A. ("ABSA"), located in Madrid, Spain. ABSA is a
manufacturer of electronic capacitors with 1997 revenues of approximately
$16,000,000. ABSA has been a significant customer of the Company since 1995. In
January 1998, the Company reached an agreement (the "Kidamai Agreement") to
purchase a majority of the capital stock of Kidamai SDN ("Kidamai") located in
Kuala Lumpur, Malaysia. Kidamai is a capacitor assembler and distributor with
1997 sales of less than $1,000,000. As a result of the ABSA Acquisition and the
contemplated purchase of Kidamai, the Company expects that its sales to the
electronic capacitor industry will account for a significant part of its
business. The Company also expects that sales of products that utilize the
Company's proprietary manufacturing technologies and/or its owned or licensed
patents will account for a substantial portion of its anticipated
future growth in revenues. See "Acquisitions."
Over the past year the Company has applied for new high energy density
("HED") film patents and has been notified that the claims have been allowed.
These new films use the Company's proprietary PMP process to reduce weight,
size, and increase reliability of standard capacitor designs. At least one
customer has
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introduced these films in a commercial application. The Company's executive
offices are located at 580 Myles Standish Industrial Park, Taunton,
Massachusetts, 02780. Its telephone number is (508) 823-0707.
Markets and Products
Since the Company's inception, the majority of the Company's sales have
been to the electronic and alternating current ("AC") capacitor market. In 1989,
the Company decided to find new product areas and focused on establishing itself
as a technology and market leader for providing film used in microwave food
packaging market. In connection with this effort, the Company developed the
ACCU-CRISP(R) Bag in 1994, a consumer product that has been sold primarily over
cable television channels. For the last three years, sales to the microwave food
packaging market have accounted for much of the increase in the Company's sales.
As a result of the ABSA Acquisition in December 1997, the Company now also
produces and sells electronic capacitors and related products for the lighting
and electronic equipment industries. The Company believes that it will benefit
from additional technical support from ABSA that will enable the Company to more
quickly develop new film technology by shortening the testing and acceptance
cycle of new products. The Company also believes that the ABSA Acquisition will
result in favorable economies of scale. See "Products and Processes Under
Development."
Electronic Capacitors
Electronic capacitors store and transmit energy in electronic and electric
devices present in a wide variety of items such as computers, appliances, light
ballasts, automotive engines, air conditioners and audio equipment. Metallized
film, such as the Company supplies, allows electronic capacitor functions in
these products. The Company currently supplies film to many of the major,
technically advanced manufacturers of capacitors and is one of four primary
suppliers of metallized film for these applications in the United States.
Beginning in 1995, using the Company's PMP process, the Company began
introducing new products to the capacitor market for high energy, self-protected
capacitors, also known as segmented electrode materials. In 1997, the Company
introduced an HED film that is designed to allow capacitors to provide up to
twice their current capacity without a significant increase in size or cost.
Through ABSA, the Company manufactures a wide range of electronic capacitors and
capacitor products used primarily for lighting and motor applications. See
"Products and Processes Under Development."
Microwave Food Packaging
Microwave food packaging can be active or passive. Active packaging
produces heat by interaction with microwaves generated from a microwave oven,
thereby increasing the cooking temperature for purposes of browning and
crisping. Passive packaging does not produce heat. The Company can produce
metallized film for use in active packaging in two of the currently available
formats: flexible and rigid paperboard. Flexible packaging is typically wrapped
around food to conduct heat to the whole exterior of the food product within the
package. Rigid paperboard is typically placed within a package to conduct heat
to a particular portion of the food.
In 1994, the Company developed and patented a fuse susceptor film based on
PMP technology, which it markets under the name Safety Susceptor(TM). Safety
Susceptor(TM) metallized film is designed to be used in active flexible and
rigid microwave food packaging to heat food more evenly, crisp the outside of
food, and reduce the occurrence of cold spots. It is also designed to reduce
the occurrence of package charring and the possibility of burning if a package
is overheated due to human error when setting cooking time or otherwise. The
Company incorporates Safety Susceptor(TM) film in its ACCU-CRISP(R) Bags. In
1996, the Company assigned its rights to 3 patents related to Safety
Susceptor(TM) and other microwave food packaging products to Fort James
Corporation ("Fort James"), formerly known as James River Corporation, in
exchange for a cash payment of $1,200,000 and a licensing arrangement, pursuant
to which the Company became a licensee of products to 27 patents, including the
patent for the Safety Susceptor(TM). Under this
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arrangement, the Company retained an exclusive, royalty-free license for sales
of certain consumer products, such as ACCU-CRISP(R) Bags. Fort James also agreed
to purchase certain quantities of microwave packaging film from the Company for
a five-year period, subject to certain quality control and other conditions. The
Company has developed other proprietary and patented metallized films for
microwave food packaging based on PMP technology that it currently sells in
limited quantities for new product applications. See "Marketing and
Distribution."
The Company also sells standard metallized film for microwave packaging
applications. Standard film is produced with a continuous layer of thin metal
deposited onto polymer film and may be incorporated in microwave packaging to
brown and crisp the exterior of food. Except with respect to the Company's
consumer products, the Company generally sells metallized film packed in rolls
to converters who incorporate the film into final food packages.
In 1994, the Company introduced ACCU-CRISP(R) Bags, the Company's first
consumer product, which has been sold on the QVC and Home Shopping Network cable
television channels, as well as through infomercials. In 1996, the Company
signed an exclusive sales and marketing agreement with a manufacturers'
representative for the retail distribution of ACCU-CRISP(R) Bags that is subject
to certain volume purchase requirements. The ACCU-CRISP(R) Bag and the BROWN &
CRISP(R) microwave cooking bag, which are distributed by the Media Group Inc.,
are made using Safety Susceptor(TM) film.
Non-Microwave Food Packaging
Metallized film also acts as an effective barrier to oxygen, water and
ultraviolet light, and is used to package non-microwavable food as a means to
maintain freshness in products such as snack foods, coffee, and juice. In 1996,
the Company began to de-emphasize the marketing of non-microwave food packaging
due to the low margins associated with this product and the termination of the
Company's purchase agreement with the Printpack Enterprises, Inc. ("Printpack").
Printpack is a manufacturer of flexible packaging products and was a major
customer to the Company during 1995. In 1995, the Company and Printpack agreed
in principle to terminate certain agreements (the "Printpack Agreements")
between them. On July 15, 1996, the Company and Printpack consummated a new
agreement under which Printpack (i) relinquished its exclusive purchase rights
to certain of the Company's patented products for microwave applications; (ii)
transferred to the Company title of a high-capacity metallizer that the Company
had been leasing from Printpack; and (iii) returned to the Company 297,610
shares of the Company's Common Stock that it had purchased as part of the
Printpack Agreements. In return, the Company paid $1,000,000 to Printpack;
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 to recover $1,308,508 in costs incurred by it in 1995 for overhead and
other expenses in support of certain minimum purchases by Printpack called for
under the Printpack Agreements. As a result of the termination of the Printpack
Agreements, the Company and Printpack released each other from the terms and
conditions of the Printpack Agreements. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The Company has also developed and manufactured, on a limited basis for
evaluation purposes, other products using the Company's PMP technology, such as
authentication holograms, electronic article surveillance tags, electrostatic
discharge materials, retroreflective films, and solar protective films using the
Company's proprietary metalization process. See "Products and Processes Under
Development."
Marketing and Distribution
The Company markets and sells metallized capacitor film through direct
factory contacts with its major customers. The Company's capacitor and capacitor
products are sold through direct contacts and
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distributors. The Company markets and sells its microwave film products through
manufacturer's representatives, technical presentations, advertising and
participation in industry trade shows and conferences. In addition, the Company
has entered into an exclusive management agreement with The Media Group, Inc. to
market and sell the Company's ACCU-CRISP(R) Bags through retail channels. The
Company may in the future enter into additional exclusive arrangements for the
supply of its products to specific markets within defined territories.
Three customers accounted for approximately 37%, 12% and 9% of the
Company's total product sales in the year ended December 31, 1997. If sales to
any of these customers were significantly reduced, it could have a material
adverse effect on the Company's business and results of operations.
Products and Processes Under Development
The Company's research and development activities are focused on the
development of new proprietary processes and patented products and on
enhancements to its production equipment. Company-funded research and
development expenditures totaled approximately $324,000 and $240,000, or 2.6%
and 2.3% of total revenues, during 1997 and 1996, respectively.
The Company continues to improve its PMP process. This effort led to the
introduction of, among other products, Safety Susceptor(TM) film in 1994,
and HED film in 1996. The Company has enhanced its proprietary metalization
process to enable high-resolution deposition (up to 130 dots per inch) of metals
onto polymer film. Using this PMP process, the Company can produce film with
metallized patterns that is used for logos and figures. This enhanced
metalization process has resulted in the manufacture of new products such as
authentication holograms, which the Company has sold on a limited basis for
evaluation purposes.
Authenticity holograms are used to detect counterfeiting of licenses,
passports, and other important identification documents. Holograms are also
used to reduce copyright and product piracy. The Company has two patents pending
related to proposed products with a high resolution pattern of vapor deposited
metal to create holographic images. The Company believes that these products can
improve the security feature of certain holograms at lower costs of production.
The Company's sales of authenticity holograms were immaterial during 1997 and
1996.
In 1996, the Company developed a high energy density ("HED") metallized
film using the Company's PMP process that is designed to double the capacity of
electronic capacitors without a proportional increase in size or cost. In
January 1997, the Company filed a patent application for this film under the
name "High Energy Density Films and Capacitors Thereof" and received a notice of
allowance in January 1998. As a result of favorable customer product tests, the
Company has received repeat orders for HED films from customers who have used
the film for the development and introduction of new products. There can be no
assurances that these customers will incorporate the Company's HED films into
their products.
Technology and Manufacturing Process
The Company's corporate headquarters and one of its two manufacturing
facilities are located in Taunton, Massachusetts. The Company's second
manufacturing facility is located in Madrid, Spain.
In its 30,000 square foot, film metalizing facility in Taunton, the Company
currently operates three vacuum metallizers, the primary pieces of production
equipment used in its manufacturing process, to metallize film used in all of
its film products and film products under
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development. The Company has enhanced all of its vacuum metallizers with
proprietary improvements to enable them to deposit vaporized metal onto plastic
film in single or multiple coatings and in patterns. Variations in metal
thickness and patterns will influence and modify different energy spectrums. In
1997, the Company announced that it had entered into a purchase agreement to
increase its production capacity with new equipment. The Company believes that
this new equipment and modifications to current production processes can double
capacity by the first quarter of 1999.
In its 23,000 square foot, capacitor manufacturing facility in Madrid, the
Company operates many types of winding and assembly equipment, the primary
pieces of equipment in the manufacture of electronic capacitors. Much of the
equipment in the Madrid facility has been extensively engineered to maximize its
production efficiency and the Company is currently engaged in a year long
program to double its capacity. See "Markets and Products."
Within a vacuum metallizer, rolls of plastic film are fed through a vacuum
chamber where a metal vapor, usually aluminum or zinc, is deposited onto the
film. After cooling, the film is cut to customer specifications using automated
slitters, and then packaged and shipped to customers in the form of boxed rolls
of film. The manufacture of capacitors incorporates two primary operations; the
winding of metallized film into the required capacitor size and the subsequent
encapsulation of the windings into various containers. The Company has
implemented automated computer processes and quality control checks throughout
its production processes. With respect to the Company's ACCU-CRISP(R) Bags, the
Company subcontracts printing and laminating functions to unaffiliated third
parties, who complete the manufacture of the bags using the Company's metallized
film.
The Company relies on management's know-how to engineer its machine
enhancements and protects this information by restricting access to its
production facilities and by requiring all employees to sign confidentiality
agreements. The Company believes that its patents, in addition to the
proprietary enhancements to its vacuum metallizers, described above, give the
Company a competitive advantage in the marketplace. See "Patents and Proprietary
Technology."
Sources of Supply
There are multiple suppliers of base polymer film for the manufacture of
metallized film, of metallized film for the production of electronic capacitors,
and of other raw materials used in the Company's manufacturing processes. The
Company seeks to maintain inventories and close working relationships with its
suppliers to ensure timely and reliable delivery. In 1994 and 1995, suppliers of
base polymer film used in the Company's products experienced capacity problems
which led to film shortages and price increases. These shortages began to abate
in late 1995. Supplies of base polymer film, metallized film and other raw
materials used by the Company are currently available in sufficient quantities
and acceptable prices. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
Patents and Proprietary Technology
The Company has been granted 9 patents and has 8 patent applications
pending in the U.S. Patent and trademark office. Most of the patents and patent
applications pertain to vaporized metals deposited onto substrates and products,
such as the Company's ACCU-CRISP(R) Bags and security holograms. The Company
also has 2 patent disclosures for which patent applications are in process. In
addition, the Company has several pending patent applications in Europe and
Japan. The Company's patent and trade secret rights are of material importance
to the Company and its future prospects. To date, no legal action has been
initiated against the Company for infringement of patents. The Company also
relies on trade secrets that it seeks to protect, in part, through
confidentiality agreements with employees, consultants and other parties.
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Insurance
The Company maintains coverage for the customary risks inherent in the
operation of a manufacturing facility, the supply of home-use products, and
business in general.
Competition
The electronic capacitor film market is highly competitive in respect to
quality, delivery time and price. The Company believes that it competes
effectively with respect to each of these factors. The Company's competitors in
the metallized film industry have substantially greater financial, marketing,
technical and other resources than the Company. In addition, the Company's
primary competitors in the capacitor film market produce their own polymer film.
The Company's primary competitors are Steinerfilm, Inc., Bolmet, Inc., a
subsidiary of Bollore of France, and Toray Plastics, Inc. See "Sources of
Supply."
In the capacitor products market, there are numerous suppliers and
customers world-wide. The electronic capacitor products market is also highly
competitive in respect to quality, delivery time and price. The Company believes
it competes effectively with respect to each of these factors.
The microwave food packaging industry is competitive and subject to changes
in the types of food products requiring packaging, food preparation, and methods
of preparing and cooking food. The Company's success will depend, in part, on
its ability to provide high quality, cost-effective metallized film for
packaging, establish continuing relationships with food packaging companies and
packaging distributors and respond to the changing needs of the marketplace in
order to compete successfully in this industry. The Company competes with
numerous local, regional and national providers of food packaging and food
packaging supplies. Competition in this industry is based upon quality of
metallized film, technological improvement, service and price. The Company
believes it competes effectively with respect to each of these factors.
Employees
As of March 1, 1998, the Company had 195 full-time employees, 139 of which
are located at the ABSA facility in Madrid. Of the total employees, six were
executive officers, two of whom also perform research and development and
marketing functions. A total of 20 employees were involved with selling and
administration and the remaining were involved with manufacturing. None of the
Company's employees at its Taunton facility are represented by a labor union.
The employees at the ABSA facility in Madrid are represented by a nine-member
work council who are mostly members of the Spanish trade union, "Comisiones
Oberas." ABSA's labor relations are governed by the Collective Bargaining
Agreement on metal activities currently in force in the Madrid region, which
sets forth suggested annual salary increases in accordance with increases in the
consumer price index. Management believes that its relationships with its
employees are satisfactory.
Acquisitions
In December 1997, the Company purchased (the "ABSA Acquisition") 65% of the
capital stock of ABSA. The Company purchased 50% of the capital stock of ABSA
from Pedro Nunez-Barranco Guembe and the remaining 15% from Alexander Peter
Boxall. The remaining 35% of ABSA stock is owned by Mr. Boxall. As part of the
purchase price for his shares, Mr. Nunez-Barrance Guembe received a $990,000
note from the Company that is payable in December 1999. If ADT fails to pay Mr.
Nunez-Barranco Guembe in 1999, Mr. Nunez-Barranco Guembe has the option to
receive (i) his 50% interest in ABSA, provided he returns $2,800,000 in cash to
the Company, or (ii) liquidated damages of $340,000. Upon the closing of the
ABSA Acquisition, Mr. Boxall became a director of the Company and Managing
Director of ABSA. The ABSA Acquisition has been accounted for under the purchase
method whereby the Company has been deemed to have acquired ABSA for financial
reporting purposes. In the Company's 1996 and 1997 fiscal years, Company sales
to ABSA amounted to approximately $453,000 and $602,000, respectively.
In addition to the ABSA Acquisition, the Company also reached an agreement
to purchase a majority of the capital stock of Kidamai SDN ("Kidamai"), a
capacitor assembly company with 1997 sales of less than $1,000,000. The Company
anticipates that this transaction will be consummated during the second quarter
of 1998. Kidamai SDN would be a subsidiary of ABSA and would be purchased by the
Company through the forgiveness of certain amounts due ABSA for product sales.
It is anticipated that the amount forgiven will be less than $500,000. Kidamai
has a capacitor assembly facility located in Kuala Lampur, Malaysia.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company maintains its principal executive offices and its metalizing
operations in an approximate 30,000 square foot leased facility in Taunton,
Massachusetts. The Company pays rent and real estate taxes, which combined
currently amount to approximately $22,000 per month, (excluding utilities). The
lease expires on March 31, 2004. The Company's capacitor manufacturing
operations are maintained in an approximate 23,000 square foot leased facility
in Madrid, Spain. The Company pays rent to an affiliate of approximately $14,000
per month plus utilities and taxes pursuant to a lease that expires on December
31, 2006.
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The Company believes that its facilities are adequate for its current needs
and that adequate facilities for expansion, if required, are available at
competitive rates.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security-holders through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been traded on the over-the-counter market
through the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") since September 10, 1993. The Company's Common Stock is also
traded on the Boston Stock Exchange (the "BSE"). The Company's Class B
Redeemable Common Stock Purchase Warrants (the "Class B Warrants) have been
traded on the NASDAQ and the BSE since July, 1996. As of March 31, 1997, there
were approximately 2,360 beneficial holders of the Company's Common Stock.
The following table sets forth the range of high and low bid prices for the
Common Stock and Class B Warrants as reported by NASDAQ from January 1, 1996.
These prices reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Class B Warrants
------------------------- -------------------------
High Low High Low
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<S> <C> <C> <C> <C>
1996
First Quarter $ 6.625 $ 2.375 -- --
Second Quarter $ 6.375 $ 4.625 -- --
Third Quarter $ 5.50 $ 4.25 $1.5625 $ 0.875
Fourth Quarter $4.8125 $ 2.875 $ 1.25 $ 0.50
1997
First Quarter $ 6.125 $3.5625 $ 1.75 $0.6875
Second Quarter $5.0625 $ 3.25 $1.3125 $0.3125
Third Quarter $ 4.625 $ 3.00 $0.6875 $0.3125
Fourth Quarter $ 4.75 $3.5625 $ 0.625 $ 0.25
1998
First Quarter $ 4.313 $ 3.00 $ 0.25 $ 0.10
</TABLE>
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The Company has never paid cash dividends. The Company currently expects to
retain all future earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's financing arrangement with its principal lender prohibit the payment
of cash dividends by the Company. See "MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
In December 1997, in connection with the ABSA Acquisition, the Company
issued 280,000 shares of its Common Stock held in treasury to Mr. Boxall. The
Company relied on the exemption from the registration provisions of the
Securities Act of 1933, as amended, set forth in Section 4(2) thereof relative
to this transaction. See "Description of Business - Acquisitions."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
During 1997, the Company acquired a majority interest in ABSA, a capacitor
manufacturing company with 1997 sales of approximately $16,000,000 and net
income of approximately $800,000. The Company believes that the ABSA Acquisition
will provide it with greater cash flow, improved economies of scale for its
metalizing operations, improved purchasing power, greater access to global
markets, and an enhanced ability to develop new materials for the capacitor
industry. As a result of the ABSA Acquisition, the Company believes that its
consolidated revenue in 1998 will increase by 100% over 1997. See "Description
of Business - Acquisitions."
The Company, excluding the impact of the ABSA Acquisition, recorded record
revenues in 1997 and increased its product sales by more than $3,500,000.
Although income from operating activities in 1997, excluding revenues associated
with technology transfers, improved by $832,000 from 1996, the Company generated
a net loss due to significantly less technology revenue, continued low margins
in its metallized film operations and lower sales to the capacitor industry.
Also contributing to the net loss during 1997 was the Company's program to re-
engineer its production processes and manufacturing control systems, and to
upgrade its production facility in Taunton, Massachusatts. The Company believes
that the results of this program have been increased effective manufacturing
capacity, improved process controls, and higher quality products.
The Company was also awarded "Technology of the Year" and "Package of the
Year" awards from the Association of Industrial Metallizers, Coaters and
Laminators ("AIMCAL"). It was the first time in AIMCAL's history that both
awards have gone to one company. The Company received favorable results from
customer testing of its HED materials and has begun shipping production size
orders. Several customers have begun developing new products from HED materials.
There can be no assurance that these customers will continue to incorporate the
Company's HED films into their products.
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RESULTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
Total Revenue. Total revenue increased by 16.4% during 1997 to $12,250,000
compared to $10,523,000 in 1996. Product sales during 1997 were approximately
$11,750,000 compared to $7,773,000 in 1996, a 51.2% increase. Total revenue in
1997 included $400,000 related to the licensing of PMP technology and $100,000
for consulting services. Total revenue in 1996 included $2,750,000 related to
the assignment of certain of the Company's patents to Fort James. Included in
the revenue recognized under the sale of the patents to Fort James was
$1,550,000 representing the value of certain licenses received, and $1,200,000
in cash received during 1996. The ABSA Acquisition did not have a significant
impact on 1997 revenue or net income.
Product sales of the Company's primary products, metallized film and
packaging products, including sales of ACCU-CRISP Bags, totaled $11,374,000
during 1997 compared to $7,773,000 in 1995, a 46.3% increase. The increase was
due to higher unit shipments of microwave food packaging products and metallized
film. Sales of metallized capacitor film decreased by 27% in 1997 due to reduced
shipments and lower prices. The ABSA Acquisition added $376,000 in revenue
during 1997.
Cost of Revenues. Cost of revenues increased to $10,102,000 in 1997 (85.9%
of product sales) from $7,257,000 (93.4% of product sales) in 1996. The increase
in cost of revenues resulted from increased sales of microwave food packaging
and film products, partially offset by lower sales of capacitor products. Cost
of revenues as a percentage of product sales declined in 1997 due primarily to a
change in product mix towards relatively higher margin retail microwave food
packaging products and away from lower margin metallized film products.
Gross Profit. Gross profit decreased to $2,148,000 (17.5% of total revenue)
in 1997 from $3,266,000 (31.0% of total revenue) in 1996 due primarily to the
decline in revenue associated with the assignment of certain patent rights to
Fort James in 1996, from $2,750,000 in 1996 to zero in 1997. Partially
offsetting this decline was an increase in gross profit generated from product
sales to $1,648,000 in 1997 from $516,000 in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1,782,000 (15.2% of product sales) in 1997 from
$1,378,000 (17.7% of product sales) in 1996 due to higher payroll expenses,
additional reserves for doubtful accounts receivable and the consolidation of
ABSA expenses. These increases were partially offset by the non-recurrence of
non-cash charges recognized in 1996 related to the issue of certain Common Stock
purchase warrants.
Research and Development. Direct research and development expenses increased
to $324,000 (2.8% of product sales) in 1997 from $240,000 (3.1% of product
sales) in 1996. During 1997 and 1996, the Company directed its research and
development efforts at expanding its technical capacity to produce higher
resolution metallized patterns at higher volumes for electronic, security,
holographics, retroreflective and microwave materials.
Amortization of Intangible Assets. Amortization of intangible assets
increased to $154,000 in 1997 from $93,000 in 1996 due primarily to additional
amortization expenses related to the acquisition of the Fort James licenses.
Operating Income (Loss). The Company generated an operating loss of
$112,000 in 1997 compared to operating income of $1,555,000 in 1996. The
decrease in operating income was primarily due to the
9
<PAGE>
decline in revenue related to the assignment of certain patent rights to Fort
James in 1996, from $2,750,000 in 1996 to zero in 1997. This decline was also
due to higher selling, general and administrative expenses and was partially
offset by an increase in gross profit generated from increased product sales.
Interest Income (Expense). Interest income increased to $91,000 in 1997
from $72,000 in 1996 due to higher average cash balances available for
investment. Interest expense totaled $274,000 in 1997, compared to $266,000 in
1996 due higher average loan balances.
Other Expense. Other expense was $63,000 during 1997 compared to $61,000 in
1996. In 1997, other expense was primarily attributable to the amortization of
the costs associated with the Company's new financing arrangement with its
principal lender, while in 1996 other expense was related to the write-down of
capitalized patent costs associated with the assignment of certain patents to
Fort James. See "Liquidity and Capital Resources."
Income Taxes. Income taxes increased to $4,000 in 1997 from zero in 1996.
Income taxes in 1997 were attributable to income generated by the operations of
ABSA.
Minority Interest. Minority interest increased to $3,000 in 1997 due to the
minority interest in ABSA's net income.
Net Income (Loss). The Company generated a net loss of $365,000 in 1997
compared to a net income of $1,300,000 in 1996 as a result of the factors set
forth above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $1,705,000 at December 31, 1997 compared
to working capital of $4,212,000 at December 31, 1996. The decrease in the
Company's working capital position resulted from the ABSA Acquisition and
was partially offset by the exercise of approximately 73,000 Class A Common
Stock purchase warrants.
Cash provided by operating activities for the year ended December 31, 1997
was $177,000 compared to cash used by operating activities of $1,421,000 during
1996. The change in operating cash flow was primarily the result of greater
11
<PAGE>
cash sales and an increase in accounts payable, partially offset by increases in
accounts receivable and inventory, and a decrease in accrued expenses.
During the year ended December 31, 1997, the Company invested $624,000 in
equipment, not including equipment acquired in the ABSA Acquisition, for the
expansion of capacity to produce metallized films. At present, the Company has
purchase commitments totaling $1,800,000 for capital equipment scheduled for
delivery in the second and fourth quarters of 1998, which the Company expects
will be financed primarily through additional bank debt. Additional expenditures
during 1998 and 1999 are projected to be approximately $500,000. It is expected
that the combined committed and projected investments will provide enough
capacity to double the levels of 1997 production at each of the Company's
manufacturing facilities.
In December 1997, the Company acquired 65% of the capital stock of ABSA
from two shareholders of ABSA. The ABSA Acquisition was financed with $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 the former shareholder bears interest at 5.39% per annum and is due,
with all unpaid interest, on December 19, 1999. 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 to the Company, or
liquidated damages of $340,000.
On July 8, 1996, the Company refinanced its term debt and revolving line of
credit with a 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. The Company's new revolving line of
credit bears interest at the bank's prime rate of interest plus 3/4% and is
secured by substantially all of the Company's assets. This revolving line of
credit facility provides for borrowings up to a maximum of $3,000,000, based on
the Company's eligible accounts receivable and inventory, and expires on July 8,
1999. As of December 31, 1997, the revolving line of credit had an outstanding
balance of approximately $974,000 and bore interest at 9.25% per annum. The
Company has a term loan with the same bank that bears interest at the bank's
prime rate of interest plus 1%, is secured by substantially all of the Company's
assets and matures on July 8, 1999. The term loan agreement calls for monthly
principal payments of $43,333 plus accrued interest and a balloon payment of
$1,083,333 on the maturity date. The term loan had a balance of approximately
$1,845,000 on December 31, 1997 and bore interest at the rate of 9.50% per
annum. In connection with the purchase of ABSA, the Company received the Bridge
Loan. The Bridge Loan is secured by the ABSA shares owned by the Company. At
December 31, 1997, the Bridge Loan bore interest at 9.75% per annum. At December
31, 1997, 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 these covenants until January 1, 1999.
In May 1996, the Company commenced a special exercise period during which
it temporarily reduced the number of redeemable common stock purchase warrants
(the "IPO Warrants") required to purchase one share of Common Stock from two IPO
Warrants to one IPO Warrant. In addition, any holder who exercised an IPO
Warrant during the special exercise period also received one Class B Warrant for
no additional consideration. Each Class B Warrant is exercisable at $5.00 per
share until May 12, 1998. After the special exercise period, two IPO Warrants
were again required to purchase one share of Common Stock. In July 1996, the
Company received approximately $4,738,000 in net proceeds from exercises of
approximately 1,044,000 IPO Warrants during this special exercise period. In
March 1997, the Company received approximately $184,000 in net proceeds from the
exercise of approximately 37,000 IPO Warrants.
On March 25, 1996, the Company and Printpack entered into a written
agreement which set forth the terms of the termination of the Printpack
Agreements and the resolution of the outstanding billings totaling $1,308,000
for overhead and other expenses incurred by the Company in support of certain
minimum purchases from Printpack called for in the Printpack Agreements. On July
15, 1996, the Company and Printpack consummated a new agreement under which
Printpack relinquished its exclusive purchase rights to certain of the Company's
patented products for microwave applications; transferred to the Company title
of a high-capacity
12
<PAGE>
metallizer which the Company had been leasing from Printpack; and returned to
the Company 297,610 shares of the Company's Common Stock it had purchased as
part of the original Agreements. The Company paid $1,000,000 to Printpack;
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 $1,308,000 of cost recovery billings invoiced to
Printpack in 1995.
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 on June 18, 1998 and
also to meet the Company's other cash requirements. Management is currently
involved in discussions with the bank to restructure the Bridge Loan and its
term debt.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by the implementation of these new standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income", establishes standards for reporting and
display of comprehensive income, its components, and accumulated balances.
Comprehensive income is defined to include all changes in owners equity except
those resulting from investments by owners and distribution to owners. Among
other disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosure about Segments of an Enterprise and Related Information", which
supercedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas, and major customers. SFAS
13
<PAGE>
No. 131 defines operating segments as components of an enterprise about which
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
Seasonal Revenues
Historically, the Company experienced lower sales of metallized film 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 and electronic
capacitor products, do not experience similarly timed seasonal variations and
will, in the future, offset third quarter seasonal lower sales to the capacitor
market.
Inflation
Several times during 1994 and 1995, suppliers of film used in the Company's
products have experienced problems meeting demand that led to shortages and
price increases. In late 1995, supplies of film increased in quantities
sufficient to meet demand and price increases abated.
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., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
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 disruption 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 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 those parties' failure 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 assurance, however, that instances of noncompliance which could
have a material 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 be corrected on a timely basis; or that a
failure by such entities to correct a Year 20000 problem or a correction which
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 Company's products and products in
development; (ii) the Company's ability to realize economies of scale and to
expand its sales and its 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 statements as a result of various factors, including,
but not limited to, the following: uncertainties regarding the performance
advantages of the Company's 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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 13 below and the index therein for a listing of the financial
statements and supplementary data as filed as part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 12, 1996, by mutual understanding with the Company, Arthur
Andersen LLP ("Arthur Andersen") advised the Company that Arthur Andersen would
no longer serve as the Company's independent accountants.
Arthur Andersen's reports on the financial statements for the years ended
December 31, 1995 and December 31, 1994 did not contain an adverse opinion or a
disclaimer of opinion, and were not modified as to uncertainty, audit scope, or
accounting principles. Arthur Andersen's report on consolidated financial
statements for the year ending December 31, 1995 contained an explanatory
paragraph relating to the uncertainty regarding the Company's ability to
continue as a going concern due to its working capital deficiency and the
expiration of the Company's banking arrangement.
Arthur Andersen disagreed with the Company's accounting for the termination
of lease agreement contained in the Company's Form 10-Q for the quarter ended
March 30, 1996 as filed on May 20, 1996. In response, the Company filed an
amended Form 10-Q for such quarter in which it restated its consolidated
financial statements to reverse the gain recorded on the termination of the
lease agreement. Accordingly, the Company believes that Arthur Andersen now
agrees with the Company's accounting for the termination of the exclusivity
agreement.
On February 12, 1997, the Company engaged BDO Seidman, LLP ("BDO Seidman"),
as its independent accountants. In October 1996 the Company sought guidance from
BDO Seidman regarding the proposed accounting treatment for a significant
transaction with Fort James which involved recognition of
14
<PAGE>
revenues from the sale of patents to Fort James. BDO Seidman concurred with the
Company's proposed treatment of this matter.
Except as stated above, during the two most recent fiscal years and through
February 12, 1997, the Company has not consulted with BDO Seidman on items which
either (1) involved the application of accounting principles to a specified
transaction, either completed or proposed; or (2) concerned the subject matter
of a disagreement or reportable event with the former independent accountants,
as described in Regulation S-K, Item 304(a)(2) under the Securities Act of 1993,
as amended, and the Securities Exchange Act of 1934, as amended.
The Company has authorized Arthur Andersen to respond fully to any
inquiries of BDO Seidman concerning the accounting treatment of the termination
of the exclusivity agreement.
Neither the Board of Directors, nor any other committee, discussed the
disagreement with Arthur Andersen. The Board of Directors approved the change in
independent accountants.
PART III
Items 9 through 12 are incorporated herein by reference to the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. The consolidated financial statements
required to be filed in Item 8 herewith are as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants BDO Seidman, L.L.P............................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996..................................... F-3 to F-4
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996............. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1997 and 1996................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-7
Notes to Consolidated Financial Statements....................................................... F-8 to F-32
</TABLE>
(a) (2) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE
- -------------- -----
<S> <C>
3b Amended and Restated Bylaws.
10ll Modification No. 1 to Revolving Credit and Term Loan
Agreement dated as of December 18, 1997 between the
Company and National Bank of Canada.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, L.L.P.
27 Financial Data Schedule.
</TABLE>
(a) (3) The following exhibits are incorporated by references herein:
(i) The following exhibit was filed as Appendix C of the Company's
Schedule 14(A) for the meeting held on May 22, 1997 (Commission file number
1-12230), and is incorporated herein by refernce:
<TABLE>
<CAPTION>
Exhibit Number Title
- -------------- -----
<S> <C>
* 10ii 1993 Stock Option Plan.
</TABLE>
(ii) The following exhibits were filed on Exhibits 2.1 and 2.2 of
the Company's Form 8-K filed with the Securities and Exchange Commission on
January 5, 1998 (Commission file number 1-12230) and are incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit Number Title
- -------------- -----
<S> <C>
10jj Share Purchase Agreement, dated December 19, 1997,
between the Company and Pedro Nunez-Barranco Guembe.
10kk Share Purchase Agreement, dated December 19, 1997,
between the Company and Alexander Peter Boxall.
(iii) The following exhibit was filed as part of the Company's S-3
Registration Statement 33-98400) declared effective by the Securities and
Exchange Commission on May 13, 1996, and is incorporated herein by reference:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C>
4a Form of Warrant Agreement between the Company and
American Securities Transfer, Incorporated with
description of Warrant Certificate included.
</TABLE>
(iv) The following exhibits, required by Item 601 of Regulation S-B,
were filed with the Company's 10-KSB for the years ended December 31, 1994
(Commission file number 1-12230), and are herein incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C>
*10gg 1994 Formula Stock Option Plan.
10hh Security Agreement with Eastern Bank dated April 3,
1995.
</TABLE>
(v) The following exhibits were filed as part of the Company's SB-2
Registration Statement (33-66324-B) declared effective by the Securities and
Exchange Commission on September 10, 1993, and are incorporated by reference
herein:
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------- -----
<S> <C>
3a Certificate of Incorporation.
3c Certificate of Agreement of Merger between Advanced Dielectric Technologies, Inc., a
Massachusetts corporation ("Advanced Dielectric") and the Company, dated July 15, 1993.
4a Included in Exhibits 3a and 3b.
4c Form of Representative's Warrant Agreement with the Form of Warrant attached thereto.
4d Form of Warrant Agreement between the Company and American Securities Transfer, Incorporated
(includes Specimen Warrant Certificate)
*10q Form of Employment Agreement between the Company and Glenn J. Walters.
*10r Form of Consulting Agreement between the Company and Gordon E. Walters.
10s Form of Employee Secrecy, Invention and Non-Competition Agreement between Advanced Dielectric
Technologies, Inc. and certain employees.
*10u Collaboration Agreement between Advanced Dielectric Technologies, Inc. and Officine
Galileo, S.p.A. ("Galileo"), dated December 19, 1986 and amended May 31, 1988.
10u Collaboration Agreement between Advanced Dielectric Technologies, Inc. and Galileo, dated
August 3, 1992.
10v Transfer of Technology Agreement between Advanced Dielectric and Centro Tecnologie
Del Vuoto, dated June 18, 1993.
10w Securities Purchase Agreement between Advanced Dielectric, Glenn J. Walters, Printpack
Enterprises, Inc. ("Printpack") and Gordon E. Walters, dated September 1992.
10x New Metallizer Agreement between Advanced Dielectric and Printpack, dated September 1992.
10y Purchase and Tolling Agreement between Advanced Dielectric and Printpack dated
September 1992.
10z Lease between Advanced Dielectric and Condyne Realty Inc., f/k/a/ CD-Tech Realty Trust,
dated September 4, 1985 and modified June 28, 1991.
28a Form of Agreement between the Representative and the Company's officers, directors and
Stockholders with respect to the transferability of shares.
28b Form of Financial Advisory and Consulting Agreement between the Company and the
Representative.
</TABLE>
* These reports relate to a management control or compensatory plan or
arrangement.
(b) Reports on Form 8-K: Not applicable.
16
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ADVANCED DEPOSITION TECHNOLOGIES, INC.
BY: /s/ GLENN J. WALTERS
--------------------------------
Glenn J. Walters
President and Chief Executive
Officer
Date: April 1, 1998
IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ---- -------- ----
<S> <C> <C>
/s/ Glenn J. Walters President and Chief Executive April 1, 1998
- -------------------------- Officer and Director (Principal
Glenn J. Walters Executive Officer)
/s/ Mark R. Thomas Chief Financial Officer April 1, 1998
- -------------------------- and Director (Principal Financial
Mark R. Thomas and Accounting Officer)
/s/ Robert M. Pozzo Director April 1, 1998
- --------------------------
Robert M. Pozzo
/s/ John J. Moroney Director April 1, 1998
- --------------------------
John J. Moroney
/s/ Alexander Boxall Director April 1, 1998
- --------------------------
Alexander Boxall
</TABLE>
17
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-3 to F-4
Statements of operations F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Notes to financial statements F-8 to F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Advanced Deposition Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Deposition Technologies, Inc. and subsidiary as of December 31, 1997 and 1996
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Deposition
Technologies, Inc. and subsidiary at December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
March 6, 1998 /s/ BDO Seidman, LLP
F-2
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(NOTE 2(b))
================================================================================
(In Thousands,)
December 31, 1997 1996
================================================================================
ASSETS (Note 4)
CURRENT ASSETS:
Cash and cash equivalents (Note 2(c)) $ 919 $ 1,170
Investment in marketable securities (Notes 2(e) 155 1,240
and 12)
Accounts receivable, net of allowances
for doubtful accounts of $135 in 1997
and $136 in 1996 7,084 1,453
Inventories (Note 2(f)) 3,347 1,667
Prepaid expenses and other 69 123
- --------------------------------------------------------------------------------
Total current assets 11,574 5,653
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost (Notes 2(g) and 4):
Machinery and equipment 8,286 7,286
Furniture and fixtures 738 320
Leasehold improvements 392 264
Vehicles 51 -
Software 99 -
- --------------------------------------------------------------------------------
9,566 7,870
Less - accumulated
depreciation and amortization 3,235 2,681
- --------------------------------------------------------------------------------
Net property and equipment 6,331 5,189
- --------------------------------------------------------------------------------
OTHER ASSETS, net of accumulated
amortization (Notes 2(h), 3 and 7) 6,038 1,740
- --------------------------------------------------------------------------------
Total assets $23,943 $12,582
================================================================================
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(NOTE 2(b)) (Continued)
================================================================================
(In Thousands)
December 31, 1997 1996
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bridge financing (Note 4) $ 1,000 $ -
Due to financial institutions (Note 4) 3,709 -
Accounts payable 4,092 802
Accrued expenses 543 113
Current maturities of long-term
obligations (Note 4) 525 526
- --------------------------------------------------------------------------------
Total current liabilities 9,869 1,441
LONG-TERM OBLIGATIONS:
Revolving line of credit (Note 4) 974 180
Long-term obligations, net of current
maturities (Note 4) 2,324 1,854
- --------------------------------------------------------------------------------
Total liabilities 13,167 3,475
- --------------------------------------------------------------------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 795 -
- --------------------------------------------------------------------------------
COMMITMENTS (Notes 5 and 6)
STOCKHOLDERS' EQUITY (Note 8):
Preferred stock, $.01 par value, authorized
- 1,000,000 shares,
issued and outstanding - none - -
Common stock, $.01 par value, authorized
- 10,000,000 shares,
issued - 4,280,560 and 4,226,910, outstanding
- 4,262,950 and
3,919,300 in 1997 and 1996, respectively 43 42
Common stock purchase warrants 1,594 1,691
Additional paid-in capital 9,581 9,289
Accumulated deficit (1,153) (788)
Foreign currency translation adjustment (19) -
- --------------------------------------------------------------------------------
10,046 10,234
Less treasury stock, 17,610 and 307,610
shares, at cost in 1997 and 1996, respectively (65) (1,127)
- --------------------------------------------------------------------------------
Total stockholders' equity 9,981 9,107
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $23,943 $12,582
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(NOTE 2(b))
================================================================================
(In Thousands, Except
Share and Per Share Data)
December 31, 1997 1996
================================================================================
REVENUES (Notes 2(k) and 12):
Product sales $11,750 $ 7,773
Royalties, license and other (Note 6) 500 2,750
- -------------------------------------------------------------------------------
Total revenues 12,250 10,523
COST OF REVENUES 10,102 7,257
- -------------------------------------------------------------------------------
Gross profit 2,148 3,266
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 2(d)) 1,782 1,378
RESEARCH AND DEVELOPMENT
EXPENSES (Note 2(l)) 324 240
AMORTIZATION EXPENSE 154 93
- -------------------------------------------------------------------------------
Operating income (loss) (112) 1,555
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 91 72
Interest expense (274) (266)
Other expense, net (63) (61)
- -------------------------------------------------------------------------------
Total other expense, net (246) (255)
- --------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interest (358) 1,300
INCOME TAXES (Notes 2(i) and 9) 4 -
- --------------------------------------------------------------------------------
Income (loss) before minority interest (362) 1,300
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY 3 -
- --------------------------------------------------------------------------------
NET INCOME (LOSS) (365) 1,300
================================================================================
NET INCOME (LOSS) PER COMMON SHARE
(NOTES 2(M) and 10):
Basic $ (0.09) $ 0.37
Diluted $ (0.09) $ 0.35
================================================================================
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NOTES 2(b), 6 AND 8)
================================================================================
<TABLE>
<CAPTION>
(In Thousands, Except Share Data
-------------------------------------------------
Common Stock Common
--------------------- Stock Additional
Years ended Number of $.01 Purchase Paid-in
December 31, 1997 and 1996 Shares Par Value Warrants Capital
================================================================================
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 3,142,828 $ 32 $ 78 $ 6,068
Issuance of common stock
purchase warrants - - 1,613 (1,518)
Exercise of common stock
purchase warrants 1,044,425 10 - 4,728
Exercise of stock options 29,657 - - 11
Purchase of treasury stock (297,610) - - -
Net income - - - -
- --------------------------------------------------------------------------------
BALANCE, December 31, 1996 3,919,300 42 1,691 9,289
Issuance of treasury stock
in connection with purchase
of business 280,000 - - -
Expiration of IPO warrants - - (35) 35
Exercise of common stock
purchase warrants 36,676 1 (43) 226
Exercise of stock options 16,974 - - 31
Awards under 1997 stock
award plan 10,000 - - -
Purchase of treasury stock
warrants - - (19) -
Foreign currency
Translation adjustment - - - -
Net loss - - - -
- --------------------------------------------------------------------------------
BALANCE, December 31, 1997 4,262,950 $43 $1,594 $ 9,581
================================================================================
<CAPTION>
(In Thousands, Except Share Data)
----------------------------------------------------
Foreign
Currency Total
Years ended Accumulated Treasury Translation Stockholders'
December 31, 1997 and 1996 Deficit Stock Adjustment Equity
================================================================================
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 (2,088) $ (32) $ - $ 4,058
Issuance of common stock
purchase warrants - - - 95
Exercise of common stock
purchase warrants - - - 4,738
Exercise of stock options - - 11
Purchase of treasury stock - (1,095) - (1,095)
Net income 1,300 - - 1,300
- --------------------------------------------------------------------------------
BALANCE, December 31, 1996 (788) (1,127) - 9,107
Issuance of treasury stock in
connection with purchase of
business - 1,030 - 1,030
Expiration of IPO warrants - - - -
Exercise of common stock
purchase warrants - - - 184
Exercise of stock options - - 31
Awards under 1997 stock
award plan - 32 - 32
Purchase of treasury stock
warrants - - - (19)
Foreign currency
Translation adjustment - - (19) (19)
Net loss (365) - - (365)
- --------------------------------------------------------------------------------
BALANCE, December 31, 1997 $(1,153) $ (65) $ (19) $ 9,981
================================================================================
</TABLE>
F-6
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTES 2(b) AND 13)
================================================================================
<TABLE>
<CAPTION>
(In Thousands)
Years ended December 31, 1997 1996
================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) (365) $ 1,300
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Income recognized under Fort James Corporation
Agreements - (1,550)
Compensation expense relating to issuance of common
stock purchase warrants - 95
Compensation expense relating to the issuance of
common stock 32 -
Depreciation and amortization 700 569
Minority interest 3 -
Changes in assets and liabilities, net of effects from
purchase of ABSA:
Accounts receivable (598) (2)
Inventories 239 (175)
Prepaid expenses and other 55 (107)
Accounts payable 510 (1,564)
Accrued expenses (399) 13
- --------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 177 (1,421)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (624) (398)
(Increase) decrease in investment in
marketable securities 1,085 (1,240)
(Increase) decrease in other assets 37 (94)
Purchase of ABSA, net of cash acquired (3,187) -
- --------------------------------------------------------------------------------
Net cash used for investing activities (2,689) (1,732)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge financing 1,000 -
Net proceeds (repayments) from financial institutions (177) -
Net proceeds (repayments) under revolving line of
credit 794 (1,319)
Borrowings (repayments) of long-term obligations 456 1,294
Proceeds from exercise of common stock purchase warrants,
net of expenses 184 4,738
Proceeds from exercise of common stock options 31 11
Purchase of treasury stock - (999)
Purchase of treasury stock warrants (19) -
- --------------------------------------------------------------------------------
Net cash provided by financing activities 2,269 3,725
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (8) -
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (251) 572
CASH AND CASH EQUIVALENTS, beginning of year 1,170 598
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year 919 $ 1,170
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. OPERATIONS Advanced Deposition Technologies, Inc. (the
"Company") is engaged in the business of manufacturing
proprietary metallized films primarily for the electronics and
microwave food packaging industries.
In December 1997, the Company acquired 65% of the common stock
of Alexander Boxall, S.A. ("ABSA"), a foreign corporation (see
Note 3). ABSA is a manufacturer of electronic capacitors used
for lighting and motor applications.
2. SIGNIFICANT The accompanying consolidated financial statements reflect the
ACCOUNTING application of certain significant accounting policies,
POLICIES including those described below.
(a) Estimates and Assumptions
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its majority owned subsidiary
Alexander Boxall, S.A. The results of operations of ABSA are
included for the period from December 19, 1997 (date of
acquisition) to December 31, 1997. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Cash and Cash Equivalents
The Company considers all investments purchased with original
maturities of less than three months to be cash equivalents.
F-8
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (c) Cash and Cash Equivalents (Continued)
ACCOUNTING
POLICIES Cash and cash equivalents consist of the following (in
thousands):
(Continued)
December 31, 1997 1996
================================================================================
Cash $919 $ 218
Cash equivalents - 952
--------------------------------------------------------------
Total $919 $1,170
================================================================================
(d) Advertising Expenses
Advertising expenses are charged to operations as incurred.
Advertising expense for years ended December 31, 1997 and 1996
were $90,880 and $47,480, respectively.
(e) Investment in Marketable Securities
The Company follows the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which requires
that debt and marketable equity securities be classified as
trading, available-for-sale or held-to-maturity. Available-
for-sale securities are reported in the balance sheet at fair
value with unrealized gains or losses included in a separate
component of stockholders' equity. Realized gains and losses
are recognized in the results of operations.
F-9
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (e) Investment in Marketable Securities (Continued)
ACCOUNTING
POLICIES As of December 31, 1997 and 1996, investments in marketable
(Continued) securities, which are classified as available-for-sale and
recorded at fair value which approximates cost, consisted of
the following (in thousands):
1997 1996
===============================================================================
Equity instruments $ 155 $ -
Obligations of the United States
Government - 1,143
Corporate obligations - 97
--------------------------------------------------------------
Total $ 155 $1,240
================================================================================
All of the Company's investments in debt securities matured
within one year.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of the following (in thousands):
1997 1996
================================================================================
Raw materials $1,812 $1,283
Work in process 731 134
Finished goods 1,182 617
--------------------------------------------------------------
3,725 2,034
Less: Reserve for obsolescence 378 367
--------------------------------------------------------------
Net $3,347 $1,667
================================================================================
Work in process and finished goods include materials, labor
and manufacturing overhead.
F-10
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (g) Property and Equipment
ACCOUNTING
POLICIES Property and equipment is stated at cost. The Company
(Continued) provides for depreciation and amortization by charges to
operations over the estimated useful lives of property and
equipment using the straight-line and units-of-production
methods as follows:
Estimated
Classification Useful Life
================================================================================
Machinery and equipment 15 years
Furniture and fixtures 5 years
Leasehold improvements Terms of lease
Vehicles 4 years
Software 3 years
(h) Other Assets
During 1996, the Company acquired several licenses which allow
the Company to manufacture and market products under certain
patents (see Note 7). The Company capitalizes the costs of
obtaining patents and trademarks and is amortizing such costs
over a five-year period. As described in Note 7, certain
license agreements are being amortized over 14 years, the
remaining life of the patents which underlay such licenses.
Licenses, patent and trademark costs, net of accumulated
amortization of $1,548 and $1,632, are included in other
assets in the accompanying consolidated balance sheets at
December 31, 1997 and 1996, respectively.
F-11
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (h) Other Assets (continued)
ACCOUNTING
POLICIES Other assets consist of (in thousands):
(Continued)
Other assets 1997 1996
================================================================================
Goodwill (Note 3) $3,415 $ -
Licenses and patents 1,839 1,776
Other 1,082 108
- --------------------------------------------------------------------------------
6,336 1,884
Less: accumulated amortization 298 144
- --------------------------------------------------------------------------------
Net $6,038 $1,740
================================================================================
Goodwill results from the excess of cost over fair value of
net assets acquired and is being amortized on a straight-line
basis over 25 years. The Company evaluates the recoverability
and remaining life of its goodwill in accordance with SFAS No.
121.
(i) Income Taxes
The Company provides for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes". Under the liability
method specified by SFAS No. 109, a deferred tax asset or
liability is determined based on the difference between the
financial statement and tax bases of assets and liabilities,
as measured by the enacted rates assumed to be in effect when
these differences reverse.
(j) Postretirement Benefits
The Company does not have any obligations for postretirement
benefits under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", as it does not
currently offer such benefits.
(k) Revenue Recognition
The Company recognizes revenues on its product sales upon
shipment and on royalties and license fees as earned.
F-12
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (l) Research and Development Expenses
ACCOUNTING
POLICIES The Company charges research and development expenses to
(Continued) operations as incurred.
(m) Net Income (Loss) Per Common Share
Effective January 1, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share". As required by SFAS No. 128 the Company
has restated 1996 income per common share in accordance with
the new standard. The effect of the implementation of SFAS
No. 128 was not material to the 1996 financial statements.
The new standard establishes standards for computing and
presenting earnings per share.
(n) Financial Instruments
The estimated fair value of the Company's financial
instruments, which include marketable securities, accounts
receivable, accounts payable and notes payable approximates
their carrying value.
(o) Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary are
translated at the rates of exchange at the balance sheet date,
and related revenues and expenses are translated at average
exchange rates in effect during the period. Resulting
translation adjustments are recorded as a component of
stockholders' equity.
(p) Long-Lived Assets
Effective January 1, 1996, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". SFAS 121 establishes
accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be held and used and
for long-lived assets and certain identifiable intangibles to
be disposed of.
The Company reviews the carrying values of its long-lived,
identifiable intangible assets and goodwill for possible
impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are
reported at the lower of their carrying amounts or fair value
less cost to sell.
F-13
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (q) New Accounting Pronouncements
ACCOUNTING
POLICIES In June 1997, the Financial Accounting Standards Board issued
(Continued) two new disclosure standards. Results of operations and
financial position will be unaffected by implementation of
these new standards.
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") establishes
standards for reporting and display of comprehensive income,
its components, and accumulated balances. Comprehensive
income is defined to include all changes in equity except
those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under
current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires reporting of selected information
about operating segments in interim financial statements
issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas,
and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial
information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance.
F-14
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. SIGNIFICANT (q) New Accounting Pronouncements (continued)
ACCOUNTING
POLICIES Both of these new standards are effective for financial
(Continued) statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be
restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if
any, they may have on future financial statement disclosures.
(r) Reclassifications
Certain balances in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.
3. ACQUISITION Effective December 19, 1997, the Company acquired 65% of the
outstanding common stock of Alexander Boxall, S.A., a foreign
corporation. ("ABSA), a producer of lighting and motor run
capacitors for $2,884,668 in cash, a secured promissory note
of $990,000 and 280,000 shares of the Company's stock with a
fair value of $1,030,400.
The acquisition was recorded using the purchase method of
accounting, whereby the net assets acquired were recorded at
their estimated fair 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.
The consolidated statements of operations and cash flows for
the year-ended December 31, 1997 include the results of
operations and cash flows for ABSA from December 19, 1997
through December 31, 1997.
F-15
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. ACQUISITION
(Continued) The unaudited pro forma combined results of operations of the
Company and ABSA for the years ended December 31, 1997 and
1996, assuming that the acquisition had occurred at January
1, 1996 and after giving effect to certain pro forma
adjustments are as follows (in thousands except per share
data):
Years ended September 30, 1997 1996
================================================================================
Revenue $25,422 $25,400
Net income 181 1,085
Net income per share:
Basic $ 0.04 $ 0.31
Diluted $ 0.04 $ 0.29
4. FINANCING (a) Revolving Line of Credit and Term Note
ARRANGEMENTS
On July 8, 1996, the Company entered into a new financing
agreement (the "New Financing Agreement") which includes a
line of credit (the "New Line of Credit") and a term note (the
"New Term Note").
The New Line of Credit and the New Term Loan are secured by
all of the Company's assets, mature on July 8, 1999, and are
subject to a prepayment fee of 2% of the then outstanding
balance if prepaid by July 8, 1998 or 1% thereafter.
The New Line of Credit allows the Company to borrow up to the
lesser of $3,000,000 or the borrowing base as defined in the
New Financing Agreement and bears interest at a rate of .75%
above the lender's prime lending rate (9.25% at December 31,
1997). The Company is required to make monthly interest only
payments with the principal due on July 8, 1999. As of
December 31, 1997 and 1996, borrowings under the New Line of
Credit were approximately $974,000 and $180,000, respectively.
F-16
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. FINANCING (a) Revolving Line of Credit and Term Notes (Continued)
ARRANGEMENTS
(Continued) The Company borrowed $2,600,000 under the New Term Note which
bears interest at a rate of 1% above the lender's prime
lending rate (9.5% at December 31, 1997). The New Term Note
is payable in thirty-six monthly principal payments, with each
of the first thirty-five such payments to be in the amount of
$43,333 plus interest with the final principal payment of
$1,083,333 due on July 8, 1999. As of December 31, 1997 and
1996, the balance due on the New Term Note was $1,845,000 and
$2,365,000, respectively. The current portion of the Term Note
was $520,000 at December 31, 1997 and 1996.
The New Financing Arrangement includes certain financial
covenants which must be maintained by the Company. Such
financial covenants include a minimum tangible net worth, a
maximum debt to equity ratio, a debt service coverage ratio,
and a minimum level of working capital. As of December 31,
1997, the Company was in default of certain financial
covenants. The Company has received written notification from
the lender which waives the event of default through January
1, 1999.
The Company has also leased certain equipment under a capital
lease. As of December 31, 1997 and 1996, the Company's
outstanding obligation under the lease were $5,542 and
$15,349, respectively. Current obligations under the lease
were $5,542 and $6,508 for December 31, 1997 and 1996,
respectively. Included in property and equipment is capital
lease equipment having a net book value at December 31, 1997
of $15,000.
F-17
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. FINANCING (b) Bridge Note
ARRANGEMENTS
(Continued) In December 1997, the Company borrowed $1,000,000 from a bank
to fund its acquisition of ABSA, using ABSA's stock as
collateral. Principal and interest at the bank's prime rate
plus 1.25% (9.75% at December 31, 1997) are due June 18, 1998.
(c) Note Payable
In connection with its acquisition of ABSA, the Company
entered into a note agreement with a former shareholder of
ABSA in the principal amount of $990,000 with interest at
5.39%. The principal and interest are due on December 19,
1999. If payment is not made within terms, the Company will
incur a penalty, at the option of the holder, of $340,000 or
the return of shares of ABSA equivalent to a 50% ownership,
providing the former shareholder returns the $2,800,000 cash
paid by the Company to acquire ABSA.
(d) Due to Financial Institutions
ABSA receives cash in advance at a discount on specific
accounts receivable balances. The customers have agreements
with the bank to make payments directly to the bank. ABSA is
indebted to the bank until the agreements are paid in full.
As of December 31,1997, the aggregate annual payments on
long-term obligations are as follows (in thousands):
1998 525
1999 2,493
2000 520
2001 285
------
3823
Less: current maturities 525
------
Long Term Liabilities $3,298
======
5. COMMITMENTS (a) Operating Leases
The Company leases its facilities, vehicles and other
equipment under operating leases that expire through March
2004. The Company has an option to purchase the land and
facility at fair market value should the lessor offer the
facility for sale. ABSA's manufacturing operations in Spain
are maintained in a leased facility owned by the 35%
shareholder of ABSA with the lease expiring on December 31,
2006. Future minimum lease payments as of December 31, 1997
are as follows (in thousands):
Fiscal Year Amount
================================================================================
1998 $ 418
1999 415
2000 408
2001 408
2002 408
Thereafter 1,139
--------------------------------------------------------------
Total $3,196
================================================================================
Rent expense included in the accompanying consolidated
statements of operations is approximately $346,000 and
$237,000 for 1997 and 1996, respectively.
F-18
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
5. COMMITMENTS
(Continued) (b) Letters of Credit
At December 31, 1997 the Company has commitments to vendors
for letters of credit for approximately $177,000 expiring
through March 1998.
(c) Purchase Commitments
The Company has a purchase commitment of approximately
$1,800,000 for capital equipment which is scheduled for
delivery in the second and fourth quarters of 1998. The
Company expects to finance the purchase of equipment through a
combination of debt and the results of operations.
6. AGREEMENTS In September 1992, the Company entered into three
WITH agreements (collectively "the Agreements") with Printpack
PRINTPACK Enterprises, Inc. ("Printpack"), a flexible packaging supplier
ENTERPRISES, to food companies. Under the Securities Purchase Agreement,
INC. 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 metalizer 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 the specified minimum purchases
from Printpack called for under the Agreements. In 1995,
the Company and Printpack agreed in principle to terminate
the Agreements. On March 25, 1996, the Company and
Printpack entered into a written agreement setting forth
the terms of the termination of the Agreements. The new
agreement called for Printpack to relinquish its exclusive
purchase rights to certain of the Company's patented
products for microwave applications; to transfer to the
Company, title to the new metalizer it had been leasing to
the Company; and to return to the Company 297,610 shares of
the Company's common stock it had purchased as part of
F-19
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. AGREEMENTS the Agreements. The Company paid to Printpack $1,000,000;
WITH granted 200,000 options to Printpack to purchase the Company's
PRINTPACK stock at $4.00 per share; and agreed not to pursue any claims
ENTERPRISES, the Company may have had pursuant to the terms of the
INC. Agreement, including the $1,308,000 of cost recovery billings
(Continued) for overhead and other expenses incurred by the Company to
support the specified minimum purchases requirements from
Printpack called for under the Agreements.
As a result of the agreements, the Company removed the amount
due from Printpack of $1,321,000 and the amount due to
Printpack of $1,225,000 from its balance sheet. In addition,
the Company recorded the approximate market value of the
297,610 shares acquired and 200,000 warrants issued of
$1,095,000 as a reduction of the Company's stockholders'
equity. The Company did not recognize any gain or loss in its
statement of operations as a result of these agreements.
7. AGREEMENT WITH During 1996, the Company was notified by Fort James
FORT JAMES Corporation ("Fort James"), formerly known as James River
CORPORATION Corporation, that the Company's Fuse Susceptor Patents, used
in the development of microwave food packaging products, were
potentially infringing upon Fort James Seiferth Patents. So as
to avoid potential patent infringement litigation, the Company
entered into a Patent Assignment, Licensing and Supply
Agreement (the "Fort James Agreement") with Fort James during
1996. Under the Fort James Agreement, the Company assigned its
rights under certain patents related to microwave products
(the "Assigned Patents") to Fort James. In return, Fort James
(1) paid $1,200,000 in cash to the Company, (2) granted to the
Company licenses to utilize 27 patents, and (3) entered into a
supply agreement whereby Fort James agreed to purchase
specified minimum quantities of metalized film from the
Company, subject to certain quality standards and other
conditions, for a period of five years.
F-20
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. AGREEMENT WITH
FORT JAMES
CORPORATION
(Continued) Pursuant to the patent assignment, Fort James will remit to
the Company a portion of the royalties it collects from
licensees who produce products covered under the assigned
Patents. The Company pays a royalty for its sales of products
covered under patents included in the Fort James Agreement,
except for products covered under the Assigned Patents.
Royalty expense for the years ended December 31, 1997 and 1996
were $12,000 and $9,000, respectively. The Fort James
Agreement also grants to the Company the exclusive right to
sell home use products covered under the Assigned Patents.
The Company relied on an independent appraiser of intellectual
properties to determine the financial value of the licenses
granted to it under the Fort James Agreement. The licenses
were valued at $1,550,000 and are being amortized over 14
years, the remaining life of the underlying patents.
8. STOCK OPTIONS The Company has a stock option plan (the "Plan") under which
AND WARRANTS employees, including Directors who are employees, may be
granted options to purchase shares of the Company's common
stock at not less than fair market value on the date of the
grant, as determined by the Board of Directors. The Plan also
allows for the issuance of nonqualified stock options to
employees and nonemployees at prices that are less than fair
market value. Options granted under the Plan are exercisable
for up to a 10-year period from the date of grant. During
1996, the Company increased the number of shares reserved for
issuance under the Plan from 300,000 to 800,000.
F-21
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. STOCK OPTIONS The Company accounts for its stock-based compensation plans
AND WARRANTS using the intrinsic value method. Accordingly, no
(Continued) compensation cost has been recognized. Had compensation cost
for the Company's stock options been determined based on the
fair value method, using an option pricing model, in
accordance with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
==========================================================================================
<S> <C> <C> <C>
Net income (loss) (in thousands): As reported $ (365) $1,300
Pro forma $ (622) 1,276
Income (loss) per common share: As reported
Basic $(0.09) $ 0.37
Diluted $(0.09) $ 0.35
Pro forma
Basic $(0.16) $ 0.36
Diluted $(0.16) $ 0.34
</TABLE>
The Company's weighted-average assumptions used in the pricing
model and resulting fair values were as follows:
<TABLE>
<CAPTION>
1997 1996
==========================================================================================
<S> <C> <C>
Risk free rate 5.44% - 6.66% 6.44%
Expected dividend yield - -
Expected option life (in years) 7 7
Expected stock price volatility 46.5% 35.0%
Grant date value $2.25 - $2.83 $ 2.52
</TABLE>
F-22
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. STOCK OPTIONS Stock options activity of the Company, including activity
AND WARRANTS under the Plan, for the years ended December 31, 1996 and
(Continued) 1997, are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Number of Price Price
Shares Per Share Per Share
================================================================================
<S> <C> <C> <C>
Outstanding at December 31, 1995 280,178 $0.27 - $5.44 $2.04
Granted 10,000 4.47 4.47
Exercised (31,230) 0.53 0.53
Canceled (6,400) 0.53 - 2.75 1.02
----------------------------------------------------------------------
Outstanding at December 31, 1996 252,548 0.27 - 5.44 2.35
Granted 217,500 2.88 - 5.06 4.03
Exercised (16,974) 0.27 - 2.75 1.82
Canceled - - -
----------------------------------------------------------------------
Outstanding at December 31, 1997 453,074 $0.27 -$5.44 $3.15
================================================================================
Exercise Weighted
Options Exercisable Number Price Range Average
at Year-End of Shares Per Share Price
================================================================================
1996 178,448 $0.27 - $5.44 $2.25
1997 292,074 $0.27 - $5.44 $2.77
================================================================================
</TABLE>
As of December 31, 1997 and 1996, the Company had 346,926 and 547,452,
respectively, shares available for future grants of options under the
Plan.
All options, granted under the Plan during 1997 and 1996, were granted
with exercise prices equal to the fair market value of the Company's
common stock on the date of grant.
F-23
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. STOCK OPTIONS The following table summarizes information about stock
AND WARRANTS options outstanding at December 31, 1997:
(Continued)
<TABLE>
<CAPTION>
$0.27 $2.38 $4.00
to to to
Range of Exercise Prices: $2.00 $3.69 $5.44
================================================================================
<S> <C> <C> <C>
Outstanding options:
Number outstanding at
December 31, 1997 172,974 137,600 142,500
Weighted average remaining
contractual life (years) 6.2 8.6 9.0
Weighted average exercise price $ 1.98 $ 3.41 $ 4.33
Exercisable options:
Number outstanding at
December 31, 1997 148,974 123,100 20,000
Weighted average remaining
contractual life (years) 6.1 8.7 6.7
Weighted average exercise price $ 1.98 $ 3.48 $ 4.27
===============================================================================
</TABLE>
F-24
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
8. STOCK OPTIONS As of January 1, 1996, the Company had 1,150,000 redeemable
AND WARRANTS common stock purchase warrants (The "IPO Warrants")
(Continued) outstanding. Two IPO Warrants entitled the holder to purchase
one share of common stock at $5.00 per share. In May 1996,
the Company commenced a special exercise period during which
each IPO Warrant entitled the holder to purchase one share of
common stock and to receive one additional warrant (The "Class
B Warrants") at no additional cost. The Company received
approximately $4,738,000 in net proceeds during the special
exercise period which ended in July 1996. As of December 31,
1996 the Company had 132,084 IPO Warrants outstanding
exercisable at $5.00 per share. During 1997, 73,352 IPO
warrants were converted and the remaining 58,732 expired. As
of December 31, 1997 and December 31, 1996, the Company had
1,004,425 and 1,044,425 Class B Warrants outstanding,
respectively. Each Class B Warrant entitles the holder to
purchase one share of common stock at $5.00 per share and
expires on May 12, 1998. During 1997, the Company purchased
40,000 Class B Warrants.
During 1996, the Company entered into a consulting agreement
with an unrelated party. As part of the compensation paid,
the Company issued 66,670 common stock purchase warrants.
Each warrant allows the holder to acquire one share of common
stock at $3.375 per share and is exercisable through March,
1998. The value of these warrants of approximately $95,000 is
included within the accompanying consolidated statement of
operations and consolidated statement of stockholders' equity
for the year ended December 31, 1996.
During 1996, an employee of the Company exercised options to
purchase 10,149 shares of common stock by tendering 1,573
previously purchased shares of common stock to the Company.
The 1,573 shares were then retired by the Company.
F-25
<PAGE>
9. INCOME TAXES Domestic and foreign income (loss) before income
taxes and minority interest in net income (loss) of
consolidated subsidiary are as follows (in thousands):
Years ended December 31, 1997 1996
================================================================================
Domestic $(370) $1,300
Foreign 12 -
--------------------------------------------------------------
$(358) $1,300
================================================================================
The approximate tax effect of each type of temporary
difference and carryforward which gives rise to the Company's
deferred tax (liability) asset as of December 31, 1997 and
1996 is as follows (in thousands):
Deferred (Liability) Asset
--------------------------
1997 1996
================================================================================
Depreciation and amortization $(1,377) $(1,216)
Net operating loss and tax
credit carryforwards 1,320 1,181
Inventory and other reserves 178 173
Other 167 55
Valuation reserve (288) (193)
--------------------------------------------------------------
Net $ - $ -
================================================================================
At December 31, 1997, the Company had Federal and state income
tax loss carryforwards of $3,260,000 and $2,714,000,
respectively. The Company also has tax credit carryforwards of
$112,000, expiring at various dates through 2010. The Tax
Reform Act of 1986 contains provisions that limit the net
operating loss carryforwards available to be used in any given
year in the event of certain changes in ownership.
F-26
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
9. INCOME TAXES The difference between income taxes provided at the Company's
(Continued) effective tax rate and the Federal statutory rate is as
follows (in thousands):
1997 1996
===============================================================================
Federal tax (benefit) at statutory rate $(122) $ 442
Change in valuation reserve 95 (396)
Other - (46)
Foreign income taxes 4 -
Losses without tax benefit 27 -
--------------------------------------------------------------
Total $ 4 $ -
================================================================================
10. NET INCOME The Company follows Statement of Financial Accounting
(LOSS) PER Standards (SFAS) No. 128, Earnings per Share, issued by the
SHARE OF Financial Accounting Standards Board. Under SFAS No. 128, the
COMMON basic and diluted net income (loss) per share of common
STOCK stock for the years ended December 31, 1997 and 1996 is
computed by dividing the net income (loss) by the weighted
average number of common shares outstanding during the period.
The weighted average number of common shares outstanding is
summarized as follows:
December 31, 1997 1996
================================================================================
Denominator for basic
income (loss) per share:
Potential dilutive common shares 3,964,491 3,519,025
Stock options - 136,795
Stock warrants - 43,642
- --------------------------------------------------------------------------------
Denominator for diluted
income (loss) per share 3,964,491 3,699,462
================================================================================
11. TECHNOLOGY The Company has licensed the design specifications and
LICENSE operational technology of certain machinery to a
AGREEMENT stockholder for the purpose of manufacturing and selling
WITH A the machinery to authorized purchasers, as defined. The
RELATED agreement has automatic one-year renewal periods until
PARTY terminated by either party. There were no revenues
recognized under this agreement in 1997 and 1996.
F-27
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
12. CONCENTRATION Statement of Financial Accounting Standards No. 105,
OF CREDIT "Disclosure of Information About Financial Instruments with
RISK Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," requires disclosure of any
significant off-balance-sheet and credit risk concentrations
Although collateral is not required, the Company
periodically reviews its accounts and provides estimated
reserves for potential credit losses.
(a) Significant Customers
Product sales to significant customers for the years ended
December 31, 1997 and 1996 were as follows:
Percentage of Product Sales
---------------------------
Customer 1997 1996
================================================================================
A 37% 2%
B 12 0
C 3 15
D 2 13
(b) Export Sales
Export sales as a percentage of revenues were made to the
following geographic regions in 1997 and 1996, respectively:
Region 1997 1996
================================================================================
Europe 14% 5%
Central America 3 5
Far East 4 2
South America 3 1
F-28
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
13. SUPPLEMENTAL Cash paid during the year for (in thousands):
DISCLOSURE OF
CASH FLOW
INFORMATION
1997 1996
================================================================================
Interest $255 $243
Income taxes $ - $ -
The accompanying consolidated financial statements include the
following noncash investing and financing activities (in
thousands):
1997 1996
================================================================================
Termination of agreements with
Printpack Enterprises, Inc.:
Amounts receivable from
Printpack $ - $ 1,321
Amounts due Printpack $ - (1,225)
Acquisition of treasury stock (96)
================================================================================
Licenses acquired in connection
with agreement with Fort James
Corporation $ - $(1,550)
================================================================================
Value of warrants issued in
connection with consulting
agreement $ - $ 95
================================================================================
Treasury stock issued in
connection with the
purchase of ABSA $1030 -
================================================================================
Treasury stock issued under
stock award plan $ 32 -
================================================================================
F-29
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
14. INDUSTRY AND The Company operations are classified into two business
GEOGRAPHIC segments: food packaging applications and electronic capacitor
SEGMENTS applications.
The following table shows sales, operating income (loss) and
other financial information by industry segment as of and for
the years ended December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Adjustments
Food Capacitor and
Packaging Applications Corporate Eliminations Consolidated
===============================================================================================================
<S> <C> <C> <C> <C> <C>
December 31, 1997
Sales $7,180 $ 5,070 $ - $ - $12,250
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 331 $ (185) $ (250) $(8) $ (112)
===============================================================================================================
Capital Expenditures $ 100 $ 524 $ - $ - $ 624
Depreciation and Amortization 250 450 - - 700
Identifiable assets at
December 31, 1997 $3,340 $19,460 $1,143 $ - $23,943
================================================================================================================
<CAPTION>
December 31, 1996
Sales $4,873 $ 5,650 $ - $ - $10,523
- ----------------------------------------------------------------------------------------------------------------
Operating income (loss) $2,206 $ (380) $ (271) $ - $ 1,555
================================================================================================================
Capital Expenditures $ 100 $ 298 $ - $ - $ 398
Depreciation and Amortization 180 389 - - 569
Identifiable assets at
December 31, 1996 $3,240 $ 6,542 $2,800 $ - $12,582
</TABLE>
F-30
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
14. INDUSTRY AND The Company operates in the United States and Spain in 1997
GEOGRAPHIC and solely in the United States in 1996. Geographic
SEGMENTS information for the year ended December 31, 1997 is presented
(Continued) below:
<TABLE>
<CAPTION>
Adjustments
and
United States Spain Corporate Eliminations Total
===========================================================================================
<S> <C> <C> <C> <C> <C>
December 31, 1997
Sales $11,874 $ 376 $ - $ - $12,250
- -------------------------------------------------------------------------------------------
Operating income (loss) $ 114 $ 32 $ (250) $(8) $ (112)
===========================================================================================
Capital Expenditures $ 533 $ 91 $ - $ $ 624
Depreciation and Amortization 645 55 - - 700
Identifiable assets at
December 31, 1997 $10,718 $12,082 $1,143 $ - $23,943
===========================================================================================
</TABLE>
F-31
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
15. SUBSEQUENT In January 1998, The Company reached an agreement ("The Kidamai
EVENTS Agreement") to purchase a majority of the capital stock of
Kidamai SDN ("Kidamai") located in Kuala Lumpur, Malaysia.
Kidamai is a capacitor assembler and distributor with 1997 sales
of less than $1,000,000. The purchase price is expected to be
less than $500,000.
F-32
<PAGE>
Exhibit 3b
AMENDED AND RESTATED BYLAWS
OF
ADVANCED DEPOSITION TECHNOLOGIES, INC.
Article I. Offices.
- --------- -------
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be at The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware 19801.
Section 2. Additional Offices. The Corporation may also have offices at
--------- ------------------
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
Article II. Meetings of Stockholders.
- ---------- ------------------------
Section 1. Time and Place. A meeting of stockholders for any purpose may
--------- --------------
be held at such time and place within or without the State of Delaware as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meeting. Annual meetings of stockholders, commencing
--------- --------------
with the year 1994, shall be held on the second Wednesday in May if not a legal
holiday, or, if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting. At
such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
Section 3. Notice of Annual Meeting. Written notice of the annual
--------- ------------------------
meeting, stating the place, date, and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than ten (unless a longer
period is required by law) nor more than sixty days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders may be
--------- ----------------
called for any purpose or purposes, unless otherwise prescribed by statute or by
the Certificate of Incorporation, by the Chairman of the Board, if any, or the
President, and shall be called by the President or Secretary at the request, in
writing, of a majority of the Board of Directors or of the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose of the
proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special
--------- -------------------------
meeting, stating the place, date, and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten (unless a longer period is required by
law) nor more than sixty days prior to the meeting.
<PAGE>
Section 6. List of Stockholders. The transfer agent or the officer in
--------- --------------------
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business.
--------- ---------------------------------------
(a) Meetings of stockholders shall be presided over by the Chairman of the
Board or the President, at their option, or, if the Chairman of the Board and
the President are not present or there are none, by a Vice President, or, if he
is not present or there is none, by a person chosen by the Board of Directors,
or, if no such person is present or has been chosen, by a chairman to be chosen
by the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy. The Secretary of the
Corporation, or, if he is not present, an Assistant Secretary, or, if he is not
present, a person chosen by the Board of Directors, shall act as Secretary at
meetings of stockholders; if no such person is present or has been chosen, the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting who are present in
person or represented by proxy shall choose any person present to act as
secretary of the meeting.
(b) The following order of business, unless otherwise determined at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of the meeting
and, if the meeting is a special meeting, the call thereof.
(3) Presentation of proxies.
(4) Announcement that a quorum is present.
(5) Reading and approval of the minutes of the previous meeting.
(C) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting or a
meeting called for that purpose.
(8) Consideration of the specific purpose or purposes, other than the
election of directors, for which the meeting has been called, if
the meeting is a special meeting.
(9) Transaction of such other business as may properly come before
the meeting.
(10) Adjournment.
2
<PAGE>
Section 8. Quorum and Adjournments. The presence in person or
--------- -----------------------
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, a quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy shall
have the power to adjourn the meeting from time to time until a quorum shall be
present or represented. If the time and place of the adjourned meeting are
announced at the meeting at which the adjournment is taken, no further notice of
the adjourned meeting need be given. Even if a quorum shall be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat who are present in person or represented by proxy shall have the
power to adjourn the meeting from time to time for good cause to a date that is
not more than thirty days after the date of the original meeting. Further
notice of the adjourned meeting need not be given if the time and place thereof
are announced at the meeting at which the adjournment is taken. At any
adjourned meeting at which a quorum is present in person or represented by
proxy, any business may be transacted that might have been transacted at the
meeting as originally called. If the adjournment is for more than thirty days,
or if, after the adjournment, a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 9. Voting.
--------- ------
(a) At any meeting of the stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided by law or the Certificate of Incorporation, each stockholder of record
shall be entitled to one vote for each share of capital stock registered in his
name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except as
otherwise provided by law or the Certificate of Incorporation, all other matters
shall be determined by a vote of a majority of the shares present in person or
represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law or
---------- -----------------
the Certificate of Incorporation to be taken at any meeting of stockholders may
be taken without a meeting, without prior notice if a written consent, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present or represented by proxy and voted. Such written consent
shall be filed with the minutes of the meetings of stockholders. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing thereto.
3
<PAGE>
Article III. Directors
- ----------- ---------
Section 1. General Powers, Number, and Tenure. The business of the
--------- ----------------------------------
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts that are not by law, the
Certificate of Incorporation, or these Bylaws directed or required to be
exercised or performed by the stockholders The number of directors shall be
determined by the Board of Directors; if no such determination is made, the
number of directors shall be one. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article.
The directors shall be divided into three classes, as nearly equal in number as
possible, with the term of office of the first class to expire at the 1994
Annual Meeting of Stockholders, the term of office of the second class to expire
at the 1995 Annual Meeting of Stockholders and the term of office of the third
class to expire at the 1996 Annual Meeting of Stockholders. At each Annual
Meeting of Stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a term of office to expire at the third succeeding Annual Meeting of
Stockholders after their election. Directors need not be stockholders. Without
the approval of a majority of disinterested directors, directors cannot
otherwise be engaged as officers, directors, employees, consultants, advisors,
agents (whether as salespeople or otherwise), brokers, partners, coventurers,
stockholders or other proprietors owning directly or indirectly any interest in
any firm, corporation, partnership, trust, association, or other organization
which is engaged in the business of developing, manufacturing, marketing and/or
selling metallized films for the electronics and food packaging industries or
any other markets in which the Corporation sells its present products or
products which it may develop in the future.
Section 2. Vacancies. If any vacancies occur in the Board of Directors,
--------- ---------
or if any new directorships are created, they may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until the next election of
the class for which such director shall have been chosen and until his successor
is duly elected and shall qualify. If there are no directors in office, any
officer or stockholder may call a special meeting of stockholders in accordance
with the provisions of the Certificate of Incorporation or these Bylaws, at
which meeting such vacancies shall be filled.
Section 3. Removal or Resignation.
--------- ----------------------
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director or the entire Board of Directors may be removed with
cause by the holders of a majority of the shares then entitled to vote at an
election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect on delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
4
<PAGE>
Section 4. Place of Meetings. The Board of Directors may hold meetings,
--------- -----------------
both regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected Board
--------- --------------
of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meeting. Additional regular meetings of the Board of
--------- ---------------
Directors may be held at such time and place as may be determined from time to
time by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by the Chairman of the Board, the President, or by a majority of
the whole Board on at least two days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least three days' notice if
sent by mail. Any such notice need not state the purpose or purposes of such
meeting, except as provided in Article XI.
Section 8. Quorum and Adjournments. At all meetings of the Board of
--------- -----------------------
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting at which the
adjournment is taken, until a quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such compensation
--------- ------------
for their services as directors and to such reimbursement for any reasonable
expenses incurred in attending directors' meetings as may from time to time be
fixed by the Board of Directors. The compensation of directors may be on such
basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Consent. Any action required or permitted to be
---------- -----------------
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment.
---------- ---------------------------------------------------------
The Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
5
<PAGE>
Article IV. Committees.
- ---------- ----------
Section 1. Executive Committee. The Board of Directors, by resolution
--------- -------------------
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as Chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director by a
vote of a majority of the whole Board.
Section 2. Powers. The Executive Committee shall have and may exercise
--------- ------
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix its
--------- ----------------------
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall fix. The Executive Committee shall keep regular minutes of its meetings,
which it shall deliver to the Board of Directors from time to time. The
Chairman of the Executive Committee or, in his absence, a member of the
Executive Committee chosen by a majority of the members present, shall preside
at meetings of the Executive Committee; and another member chosen by the
Executive Committee shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall constitute
--------- ------
a quorum for the transaction of business, and the affirmative vote of a majority
of the members present at any meeting at which there is a quorum shall be
required for any action of the `Executive Committee; provided, however, that
when an Executive Committee of one member is authorized under the provisions of
Section 1 of this Article, that one member shall constitute a quorum.
Section 5. Other Committees. The Board of Directors, by resolutions
--------- ----------------
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and authority
as it shall prescribe. Each such committee shall consist of one or more
directors.
Section 6. Committee Changes. The Board of Directors, by a vote of a
--------- -----------------
majority of the whole Board, shall have the power at any time to fill vacancies
in, to change the membership of, and to discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled to
--------- ------------
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any
member may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from
6
<PAGE>
serving the Corporation in any other capacity and from receiving compensation
and reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be
--------- -----------------
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications Equipment. The
--------- ---------------------------------------------------------
members of any committee designated by the Board of Directors may participate in
a meeting of such committee by conference telephone or similar communications
equipment by means of which all persons participating in such meeting can hear
each other, and participation in such a meeting shall constitute presence in
person by any such committee member at such meeting.
Article V. Notices.
- --------- -------
Section 1. Form and Delivery. Whenever a provision of any law, the
--------- -----------------
Certificate of Incorporation, or these Bylaws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in writing,
by mail addressed to the address of the director or stockholder as it appears on
the records of the Corporation, with postage prepaid. These notices shall be
deemed to be given when they are deposited in the United States mail. Notice to
a director may also be given personally or by telephone or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under the
--------- ------
provisions of any law, the Certificate of Incorporation, or these Bylaws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting of the lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
Article VI. Officers.
- ---------- --------
Section 1. Designations. The officers of the Corporation shall be chosen
--------- ------------
by the Board of Directors. The Board of Directors may choose a Chairman of the
Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and
other officers and agents that it shall deem necessary or appropriate. All
officers of the Corporation shall exercise the powers and perform the duties
that shall from time to time be determined by the Board of Directors. Any
number of offices may be held by the sane person, unless the Certificate of
Incorporation or these Bylaws provide otherwise.
7
<PAGE>
Section 2. Term of, and Removal From, Office. At its first regular
--------- --------- -----------------------
meeting after each annual meeting of stockholders, the Board of Directors shall
choose a President, a Secretary, and a Treasurer. It may also choose a Chairman
of the Board, a Vice President or Vice Presidents, one or more Assistant
Secretaries and/or Assistant Treasurers, and such other officers and agents as
it shall deem necessary or appropriate. Each officer of the Corporation shall
hold office until his successor is chosen and shall qualify. Any officer
elected, or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of a majority of the directors then
in office. Removal from office, however, shall not prejudice the contract
rights, if any, of the person removed. Any vacancy occurring in any office of
the Corporation may be filled for the unexpired portion of the term by the Board
of Directors.
Section 3. Compensation. The salaries of all officers of the Corporation
--------- ------------
shall be fixed from time to time by the Board of Directors, and no officer
shall be prevented from receiving a salary because he is also a director of the
Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board, if any,
--------- -------------------------
shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory, and management
functions and duties as may be assigned to him from time to time by the Board of
Directors. He shall, if present, preside at all meetings of stockholders and of
the Board of Directors.
Section 5. The President.
--------- -------------
(a) The President shall have primary responsibility for executing the
management and affairs of the Corporation and, subject to the direction of the
Board of Directors, shall have general charge of the business, affairs, and
property of the Corporation and general supervision over its other officers and
agents. In general, he shall perform all duties incident to the office of
President and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority to attend, act, and vote on behalf
of the Corporation at any meeting of the security holders of other corporations
in which the Corporation may hold securities. At any such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
Section 6. The Vice President. The Vice President, if any, or in the event there
- --------- ------------------
be more than one, the Vice Presidents in the order designated, or in the absence
of any designation, in the order of their election, shall, in the absence of the
President or in the event of his disability, perform the duties and exercise the
powers of the President and shall generally assist the President and perform
such other duties and have such other powers as may from time to time be
prescribed by the Board of Directors.
8
<PAGE>
Section 7. The Secretary. The Secretary shall attend all meetings of the
--------- -------------
Board of Directors and the stockholders and record all votes and the proceedings
of the meetings in a book to be kept for that purpose. He shall perform like
duties for the Executive Committee or other committees, if required. He shall
give, or cause to be given, notice of all meetings of stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
from time to time be prescribed by the Board of Directors, the Chairman of the
Board, or the President, under whose supervision he shall act. He shall have
custody of the seal of the Corporation, and he, or an Assistant Secretary, shall
have authority to affix it to any instrument requiring it, and, when so affixed,
the seal may be attested by his signature or by the signature of the Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing thereof
by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any, or
--------- -----------------------
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have custody of the
--------- -------------
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation in accord with the orders of the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chairman of the
Board, if any, the President, and the Board of Directors, whenever they may
require it or at regular meetings of the Board, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any, or
---------- -----------------------
in the event there shall be more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Treasurer or in the event of his
disability, perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Article VII. Indemnification.
- ----------- ---------------
Reference is made to Section 145 and any other relevant provisions of the
General Corporation Law of the State of Delaware. Particular reference is made
to the class of persons, hereinafter called "Indemnities", who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
l45, namely, any person, or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or
9
<PAGE>
agent of such corporation or is or was serving at the request of such
corporation as a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise. The Corporation shall, and is hereby obligated to, indemnify
the Indemnities, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the aforesaid
statutory provisions. The Corporation shall indemnify the Indemnities, and each
of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification, it being understood that, before making
such indemnification with respect to any situation covered under this sentence,
(i) the Corporation shall promptly make or cause to be made, by any of the
methods referred to in Subsection (d) of such Section 145, a determination as to
whether each Indemnitee acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, in the case of any criminal action or proceeding, had no reasonable cause
to believe that his conduct was unlawful, and (ii) that no such indemnification
shall be made unless it is determined that such Indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Article VIII. Affiliated Transactions and Interested Directors.
- ------------ ------------------------------------------------
Section 1. Affiliated Transactions. No contract or transaction between
--------- -----------------------
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof that authorizes
the contract or transaction or solely because his or their votes are counted for
such purpose if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by the vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders.
10
<PAGE>
Section 2. Determining quorum. Common or interested directors may be
--------- ------------------
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
Article IX. Stock Certificates.
- ---------- ------------------
Section 1. Form and Signatures.
--------- -------------------
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned by
him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures
and the seal may be facsimiles. A certificate may be signed, manually or by
facsimile, by a transfer agent or registrar other than the Corporation or its
employee. In case any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to be such officer before the
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock that
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon any notation to that effect determined by the Board of
Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation or
--------- ------------------------
any transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment, or authority to
transfer, the Corporation or its transfer agent shall issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon the books of the Corporation.
Section 3. Registered Stockholders.
--------- -----------------------
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for calls
and assessments any person who is registered on its books as the owner of shares
of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
11
<PAGE>
Section 4. Record Date. In order that the corporation may determine the
--------- -----------
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of stockholders or any adjournment thereof or to express consent to
corporate action in writing without a meeting, to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any lawful action, the Board of Directors may, in advance, fix a date
as the record date for any such determination. Such date shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to the date of any other action. A determination of
stockholders of record entitled to notice of, or to vote at, a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of
--------- ---------------------------------------
Directors may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing the
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of the lost,
stolen, or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and/or to give the Corporation a bond
in such sum, or other security in such form, as it may direct as indemnity
against any claims that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen, or destroyed.
Article X. General Provisions.
- --------- ------------------
Section 1. Dividends. Subject to the provisions of law and the
--------- ---------
Certificate or Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
--------- --------
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole
discretion, may fix a sum that may be set aside or reserved over and above the
paid-in capital of the Corporation as a reserve for any proper purpose, and may,
from time to time, increase, diminish, or vary such amount.
Section 3. Fiscal Year. Except as from time to tine otherwise provided by
--------- -----------
the Board of Directors, the fiscal year of the Corporation shall end on December
31 of each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
--------- ----
of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
12
<PAGE>
Article XI. Amendments.
- ---------- ----------
The Board of Directors shall have the power to alter and repeal these
Bylaws and to adopt new Bylaws by an affirmative vote of a majority of the whole
Board, provided that notice of the proposal to alter or repeal these Bylaws or
to adopt new Bylaws must be included in the notice of the meeting of the Board
of Directors at which such action takes place.
13
<PAGE>
Exhibit 10ll
------------
ADVANCED DEPOSITION TECHNOLOGIES, INC.
Myles Standish Industrial Park
Taunton, Massachusetts 02780
Dated as of: December 18, 1997
National Bank of Canada
One Federal Street, 27th Floor
Boston, Massachusetts 02110
Re: Modification No. 1 to Revolving Credit and Term Loan Agreement
--------------------------------------------------------------
Ladies and Gentlemen:
We refer to the Revolving Credit and Term Loan Agreement, dated as of July
8, 1996 (as from time to time amended and in effect, the "Agreement"), between
Advanced Deposition Technologies, Inc. (the "Borrower") and National Bank of
Canada (the "Lender"). Terms used in this letter of agreement which are not
defined herein, but which are defined in the Agreement, shall have the same
respective meanings herein as therein.
We have requested you to provide us with a $1,000,000 bridge loan to enable
us to acquire 65% of the capital stock of Alexander Boxall S.A. ("Alexander"),
and to make the amendments to the Agreement necessitated thereby. You have
advised us that you are prepared and would be pleased to provide such bridge
loan and to make the amendments so requested by us on the condition that we join
with you in this letter of agreement.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this letter of agreement, and fully
intending to be legally bound by this letter of agreement, we hereby agree with
you as follows:
ARTICLE I
---------
AMENDMENTS TO AGREEMENT
-----------------------
Effective as of December 18, 1997 (in this letter of agreement, the
"Modification Date"), the Agreement is amended as follows:
<PAGE>
(a) The term "Loan Agreement" shall, wherever used in the Agreement or any
of the other Loan Documents, be deemed to also mean and include any amendments,
restatements and modifications thereof.
(b) The term "Loan Documents" shall, wherever used in the Agreement or any
of the other Loan Documents, be deemed to also mean and include Modification No.
1, the Escrow Letter and the Pledge Agreement.
(c) The definition of "Notes" contained in Section 1.1 of the Agreement is
amended to read in its entirety as follows:
"Notes" means, collectively, the Revolving Credit Note, the Term Note
and the Bridge Note."
(d) The term "Obligations" shall, wherever used in the Agreement or any of
the other Loan Documents, be deemed to also mean and include all obligations of
the Borrower to the Lender under or in respect of Modification No. 1, the Bridge
Note, the Escrow Letter and the Pledge Agreement.
(e) The following nine new definitions are added at the end of Section 1.1
of the Agreement:
"Boxall Purchase Agreement" means the Share Purchase Deed to be
entered into in December, 1997 between Mr. Alexander Peter Boxall and the
Borrower.
"Bridge Loan" shall have the meaning set forth in Section 2.2.1(A).
"Bridge Loan Maturity Date" means June 18, 1998.
"Bridge Note" shall have the meaning set forth in Section 2.2.1(A).
"Escrow Letter" means the Escrow Agreement dated as of the First
Modification Date among the Borrower, the Lender and Uria & Menendez.
"First Modification Date" means December 18, 1997.
"Modification No. 1" means that certain letter agreement dated as of
December 18, 1997 between the Borrower and Lender, upon the terms of which
the Agreement was modified and amended.
"Nunez Purchase Agreement" means the Share Purchase Deed to be entered
into in December, 1997 between Mr. Pedro Nunez - Barranco Guembe and the
Borrower.
-2-
<PAGE>
"Pledge Agreement" means that certain Stock Pledge Agreement to be
entered into in December, 1997 between the Borrower and the Lender, upon
the terms of which all of the issued and outstanding shares of capital
stock of Alexander owned by the Borrower will be pledged to the Lender in
order to secure the Obligations (and shall also include any share pledge
agreement governed by the laws of the Kingdom of Spain and relating to said
capital stock)."
(f) The following new Section 2.2(A) is inserted immediately following
Section 2.2 of the Agreement:
"2.2(A) Bridge Note.
-----------
2.2.1(A) Upon the terms and subject to the conditions of this
Agreement (including Modification No. 1), and in reliance upon the
representations, warranties and covenants of the Borrower made herein and
therein, the Lender agrees to lend to the Borrower the sum of $1,000,000 on
the First Modification Date (the "Bridge Loan") to be evidenced by a Bridge
Note (the "Bridge Note") substantially in the form of Annex A to
-------
Modification No. 1.
2.2.2(A) The principal of the Bridge Loan shall be payable in a
single payment on the Bridge Loan Maturity Date, along with all unpaid
interest and any other amounts due thereon.
2.2.3(A) The Borrower may prepay the Bridge Loan and the Bridge
Note in whole or in part, without premium or penalty, at any time and from
time to time upon five (5) days' prior written notice to the Lender. The
principal amount of the Bridge Loan so prepaid shall be at least $100,000
(or a multiple of $100,000 in excess of $100,000), unless the principal
amount of the Bridge Loan shall be less than $100,000, in which event the
prepayment may be equal to such unpaid principal amount, provided that the
--------
Borrower shall also pay accrued interest on the principal so prepaid to the
date of such prepayment and all fees and charges payable on or before the
date of such prepayment. In addition, in the event that Alexander incurs
indebtedness for borrowed money from a lender other than the Lender
(whether institutional or otherwise, but excluding its existing factoring
arrangements), or in the event there is any redemption of Alexander's
outstanding warrants or stock options, then the proceeds of such
refinancing or redemption shall, immediately upon the receipt thereof, be
used to prepay the Bridge Loan and the Bridge Note. The Borrower shall not
be permitted to reborrow any part of the principal of the Bridge Loan so
prepaid at any time or under any circumstances."
(f) The first three lines of Section 2.3.1 of the Agreement are amended to
read in their entirety as follows:
-3-
<PAGE>
"2.3.1 Revolving Loans shall bear interest at a rate per annum equal
to 3/4% above the Base Rate in effect from time to time; the Term Loan
shall bear interest at a rate per annum equal to 1% above the Base Rate in
effect from time to time; and the Bridge Loan shall bear interest at a rate
per annum equal to 1.25% above the Base Rate in effect from time to time;"
(g) Section 2.3.1 of the Agreement is amended by inserting, immediately
following the date "August 1, 1996" in the ninth line thereof, the following
proviso:
", provided, however, that interest on the Bridge Loan shall be
-------- -------
payable commencing with January 2, 1998"
(h) Section 5.5 of the Agreement is amended: (i) by deleting the word
"and" at the end of clause (iv) thereof; and (ii) by inserting, immediately
following the word "Borrower" in the last line thereof, the following:
"; and (vi) Indebtedness of the Borrower to Pedro Nunez-Barranco Guembe in
the principal amount of $990,000 under a certain Promissory Note dated the
First Modification Date (as in effect and delivered to the Lender on such
date) (the "Nunez Note"), provided that (a) such Indebtedness shall at all
--------
times remain unsecured by any liens or encumbrances, (b) no payments or
prepayments of principal, interest or any other amounts of any kind
whatsoever shall be made on or in respect of such Indebtedness, and (c) the
Nunez Note shall not be amended or changed without the prior written
consent of the Lender.
(i) Section 5.7 of the Agreement is amended by inserting the following new
second sentence:
"Notwithstanding the foregoing, it is understood and agreed that the
Borrower may acquire 15% of the capital stock of Alexander upon the terms
contained in the Boxall Purchase Agreement and 50% of the capital stock of
Alexander upon the terms contained in the Nunez Purchase Agreement, in each
case as in effect and delivered to the Lender, and in any event on terms
and conditions reasonably satisfactory to Lender."
(j) The first sentence of Section 5.12 of the Agreement is amended to read
in its entirety as follows:
"The Borrower will use the proceeds of the Revolving Loans and the
Term Loans solely for its working capital needs and repayment of existing
Indebtedness, and will use the proceeds of the Bridge Loan solely for the
acquisition of the capital stock of Alexander referred to in Section 5.7."
(k) Section 6.1 of the Agreement is amended: (i) by deleting the period at
the end of clause (xii) thereof and inserting in its place the following: ";
or"; and (ii) by
-4-
<PAGE>
inserting, immediately following the said clause (xii), the following new
clauses (xiii), (xiv), (xv) and (xvi):
"(xiii) any failure by (a) the Borrower to deliver to the Lender, on
or before the fifth business day following the consummation of the
acquisition of the capital stock of Alexander referred to in Section 5.7,
an originally executed Pledge Agreement governed by the laws of the
Commonwealth of Massachusetts, along with stock certificates representing
65% of the capital stock of Alexander and related stock powers executed in
blank, (b) the Borrower to deliver duly executed originals of the UCC-1
financing statements referred to in Article III(i)(F) below, (c) your legal
counsel, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., to deliver to
the Lender, a legal opinion reasonably satisfactory to the Lender, and (d)
your legal counsel, Uria Menendez, to deliver to the Lender a legal opinion
relating to the Pledge Agreement governed by the laws of the Commonwealth
of Massachusetts; or
(xiv) in the event that the acquisition of the capital stock of
Alexander is consummated, the failure by the Borrower to deliver to the
Lender, on or before the date upon which the acquisition of the capital
stock of Alexander referred to in Section 5.7 is consummated, duly executed
original counterparts of the documents and instruments referred to in
Article III(f)(i)(B), and Article III(f)(v); or
(xv) in the event that the purchase agreements relating to the
acquisition of the capital stock of Alexander referred to in Section 5.7
are not signed and delivered and all of the conditions precedent thereunder
have not been satisfied (including obtaining any required governmental
consent) on or before December 19, 1997, the failure of the Borrower to
repay to the Lender in full on December 23, 1997 in immediately available
funds all amounts advanced under the Bridge Note, together with accrued and
unpaid interest and other amounts due thereunder, provided that if all of
--------
the foregoing has occurred other than obtaining the governmental consent
and the sole reason for the failure to obtain the governmental consent is
the inability to obtain a hearing on December 19, 1997 and is not a result
of any denial of consent, then the Borrower shall have until December 26,
1997 to obtain such governmental consent and give evidence thereof to the
Lender (it being agreed that any failure to obtain such consent on such
date shall be an Event of Default hereunder); or
(xvi) the failure of the Borrower to deliver to the Lender, within
30 days after the Modification Date, a Pledge Agreement governed by the
laws of the Kingdom of Spain in form and substance satisfactory to the
Lender, together with a favorable legal opinion from the Borrower's Spanish
counsel in form and substance satisfactory to the Lender; or
-5-
<PAGE>
(xvii) any payment or prepayment of principal of any kind whatsoever
shall be made on or in respect of the Nunez Note, or any default or event
of default shall occur thereunder."
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to you as follows:
(a) Representations in Agreement: Each of the representations and
----------------------------
warranties made by or on behalf of the Borrower to you in the Agreement or any
other Loan Document, as amended through this letter of agreement, was true and
correct when made and is true and correct on and as of the Modification Date
with the same full force and effect as if each of such representations and
warranties had been made by the Borrower on the date hereof and in this letter
of agreement, except to the extent that such representations and warranties
relate solely to a prior date.
(b) No Events of Default: No Default or Event of Default exists on the
--------------------
Modification Date (after giving effect to all of the arrangements and
transactions contemplated by this letter of agreement).
(c) Binding Effect of Documents. This letter of agreement has been duly
---------------------------
executed and delivered to you by the Borrower and is in full force and effect as
of the date hereof, and the agreements and obligations of the Borrower contained
herein and therein constitute legal, valid, and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms.
ARTICLE III
-----------
PROVISIONS OF GENERAL APPLICATION
---------------------------------
(a) No Other Changes. Except as otherwise expressly provided by this
----------------
letter of agreement, all of the terms, conditions and provisions of the
Agreement and each of the other Loan Documents remain unaltered. The Agreement
and this letter of agreement shall be read and construed as one agreement.
(b) Governing Law. This letter of agreement is intended to take effect as
-------------
a sealed instrument and shall be deemed to be a contract under the laws of the
Commonwealth of Massachusetts. This letter of agreement and the rights and
obligations of each of the parties hereto shall be governed by and interpreted
and determined in accordance with the laws of the Commonwealth of Massachusetts.
-6-
<PAGE>
(c) Binding Effect; Assignment. This letter of agreement shall be binding
-------------- ----------
upon and inure to the benefit of each of the parties hereto and their respective
successors in title and assigns.
(d) Counterparts. This letter of agreement may be executed in any number
------------
of counterparts, but all such counterparts shall together constitute but one and
the same agreement. In making proof of this letter of agreement, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
(e) Conflict with Other Agreements. If any of the terms of this letter of
------------------------------
agreement shall conflict in any respect with any of the terms of the Agreement
or any other Loan Document, the terms of this letter of agreement shall be
controlling.
(f) Conditions Precedent (or Subsequent). This letter of agreement shall
------------------------------------
become effective as of the Modification Date, but only if (except as otherwise
expressly noted in clauses (k)(xiii) and (k)(xiv) of Article I above with
respect to items which are permitted to be delivered after the Modification
Date):
(i) The Borrower has delivered or caused to be delivered to the
Lender the following instruments and documents, each of which shall be in
form and substance satisfactory to the Lender:
(A) A due diligence report prepared by BDO Seidman with respect
to Alexander;
(B) A signed copy of the Boxall Purchase Agreement and the Nunez
Purchase Agreement, together with related purchase documents with
respect to the acquisition of Alexander;
(C) An insurance certificate or other evidence of insurance in
scope, content and amount satisfactory to the Lender with respect to
the assets of Alexander;
(D) An original Bridge Note and Pledge Agreement duly signed on
behalf of the Borrower, together with stock certificates representing
65% of the capital stock of Alexander and related stock powers executed
in blank (it being understood and agreed, however, that the Pledge
Agreement governed by the laws of the Commonwealth of Massachusetts may
be signed upon delivery of such certificates to the Lender, which
delivery shall occur not later than five business days following the
date upon which the acquisition of the capital stock of Alexander
referred to in Section 5.7 has been consummated);
-7-
<PAGE>
(E) Board of director resolutions, good-standing and legal
existence certificates, an incumbency certificate, and confirmation
that its charter documents and by-laws have not been modified since
July 8, 1996;
(F) Duly executed UCC-1 financing statements relating to the
capital stock to be pledged under the Pledge Agreement;
(G) A favorable legal opinion from the Borrower's U.S. counsel
in or substantially in the form of the opinion delivered in connection
with the July 8, 1996 transaction;
(H) A favorable legal opinion from the Borrower's Spanish
counsel in form and substance satisfactory to the Lender; and
(I) A signed copy of the Escrow Letter.
(ii) The Borrower shall have delivered to the Lender a non-refundable
closing fee in the amount of $15,000.
(iii) No material adverse change shall have occurred in the financial
condition of the Borrower or Alexander in the judgment of the Lender.
(iv) No material litigation shall be pending or threatened that in
the Lender's judgment would have a material adverse effect upon the
creditworthiness or business of the Borrower.
(v) Each of the conditions precedent specified in the Boxall
Purchase Agreement and the Nunez Purchase Agreement shall have been duly
satisfied and completed on or prior to the Modification Date,
notwithstanding any waiver or modification thereof.
-8-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter of agreement and return
such counterpart to the undersigned, whereupon this letter of agreement, as so
accepted by you, shall become a binding agreement between you and the
undersigned.
Very truly yours,
The Borrower:
------------
ADVANCED DEPOSITION
TECHNOLOGIES, INC.
By: /s/ Mark Thomas
----------------------------------
Title: Chief Financial Officer
-------------------------------
The foregoing agreement is hereby accepted by the undersigned as of December
18, 1997.
The Lender:
----------
NATIONAL BANK OF CANADA
By: /s/ Edward T. Paslawski
----------------------------------
Title: Vice President
-------------------------------
By: /s/ Leonard J. Pellecchia
----------------------------------
Title: Vice President
-------------------------------
-9-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Alexander Boxall, S. A. [Organized under the laws of the Kingdom of Spain]
Micro-Tech Products, Inc. [Massachusetts Corporation - Inactive]
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Advanced Deposition Technologies, Inc.
Taunton, Massachusetts
We hereby consent to the incorporation by reference in the registration
statements of Advanced Deposition Technologies, Inc on Form S-8, dated December
11, 1996 (SEC file No. 333-17653), on Form S-8, dated April 24, 1997 (SEC file
No. 333-25801), and on Form S-3, dated May 9, 1996 (SEC file No. 033-98400), of
our report dated March 6, 1998, relating to the consolidated financial
statements of Advanced Deposition Technologies, Inc., appearing in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997.
/s/ BDO Seidman, LLP
Boston, Massachusetts
April 3, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 919 1,170
<SECURITIES> 155 1,240
<RECEIVABLES> 7,219 1,589
<ALLOWANCES> (135) (136)
<INVENTORY> 3,347 1,667
<CURRENT-ASSETS> 11,574 5,653
<PP&E> 9,566 7,870
<DEPRECIATION> (3,235) (2,681)
<TOTAL-ASSETS> 23,943 12,582
<CURRENT-LIABILITIES> 9,869 1,441
<BONDS> 3,298 2,034
0 0
0 0
<COMMON> 43 42
<OTHER-SE> 9,938 9,065
<TOTAL-LIABILITY-AND-EQUITY> 23,943 12,582
<SALES> 11,750 7,773
<TOTAL-REVENUES> 12,250 10,523
<CGS> 10,102 7,257
<TOTAL-COSTS> 10,102 7,257
<OTHER-EXPENSES> 2,260 1,711
<LOSS-PROVISION> 23,000 0
<INTEREST-EXPENSE> 274 266
<INCOME-PRETAX> (358) 1,300
<INCOME-TAX> 4 0
<INCOME-CONTINUING> (365) 1,300
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (365) 1,300
<EPS-PRIMARY> $(0.09) $0.37
<EPS-DILUTED> $(0.09) $0.35
</TABLE>
