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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] Transition report under section 13 or 15(d) of the Exchange Act.
COMMISSION FILE NUMBER 1-12230
ADVANCED DEPOSITION TECHNOLOGIES, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2865714
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
580 Myles Standish Industrial Park, Taunton, Massachusetts 02780
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(508) 823-0707
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 90 days.
YES X NO
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As of November 3, 2000, there were 5,018,648 shares of Common Stock,
$0.01 par value, of the issuer outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
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<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Condensed and Consolidated Balance Sheets (unaudited): 1
September 30, 2000 and December 31, 1999
Condensed and Consolidated Statements of Operations 2
(unaudited): for the Three Months and the Nine Months
ended September 30, 2000 and September 30, 1999
Condensed and Consolidated Statements of Cash Flows 3
(unaudited): for the Nine Months ended September 30, 2000
and September 30, 1999
Notes to Condensed and Consolidated Financial 4-7
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
<TABLE><CAPTION>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
September 30, 2000 December 31, 1999
UNAUDITED AUDITED
========= =======
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 189 $ 309
Investment in marketable securities 2 17
Accounts receivable, net of reserve for doubtful accounts of $146,000
and $184,000 at September 30, 2000 and December 31, 1999, 7,515 6,521
respectively
Inventories 4,702 4,567
Prepaid expenses and other current assets 324 392
-------- --------
Total current assets 12,732 11,806
PROPERTY AND EQUIPMENT, net of accumulated depreciation 8,013 8,383
OTHER ASSETS, net of accumulated amortization 4,540 4,942
-------- --------
Total assets $ 25,285 $ 25,131
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to financing institutions $ 3,869 $ 4,309
Accounts payable 5,744 4,746
Accrued expenses 668 697
Current maturities of long-term obligations 2,254 1,335
-------- --------
Total current liabilities 12,535 11,087
LONG-TERM OBLIGATIONS
Revolving line of credit 1,278 1,820
Long-term obligations, net of current maturities 3,789 4,700
-------- --------
Total liabilities 17,602 17,607
-------- --------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 518 488
-------- --------
STOCKHOLDERS' EQUITY;
Preferred stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value,
Authorized 10,000,000 shares, issued 5,094,758 and 4,894,758,
outstanding
5,018,648 and 4,818,648 shares at September 30, 2000 and
December 31, 1999,
respectively 51 49
Additional paid-in capital 12,200 11,902
Accumulated deficit (4,373) (4,486)
Accumulated other comprehensive (loss) (569) (285)
-------- --------
7,309 7,180
Less treasury stock, 76,110 shares at cost at September 30, 2000
and December 31, 1999 (144) (144)
-------- --------
Total stockholders' equity 7,165 7,036
-------- --------
Total liabilities and stockholders' equity $ 25,285 $ 25,131
======== ========
See Notes to Condensed and Consolidated Financial Statements
1
</TABLE>
<PAGE>
<TABLE><CAPTION>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in Thousands, Except Share and Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 5,960 $ 6,023 $ 20,024 $ 18,432
Royalties, license fees and other 20 126 113 241
----------- ----------- ----------- -----------
5,980 6,149 20,137 18,673
COST OF REVENUES 4,872 5,192 16,276 15,018
----------- ----------- ----------- -----------
Gross Profit 1,108 957 3,861 3,655
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 756 759 2,385 2,716
RESEARCH AND DEVELOPMENT EXPENSES 76 99 202 244
AMORTIZATION EXPENSE 74 54 224 161
----------- ----------- ----------- -----------
Operating income 202 44 1,050 534
INTEREST EXPENSE, NET OF
INTEREST INCOME 272 231 811 642
OTHER (EXPENSE) INCOME 29 (37) 11 7
----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest (41) (224) 250 (101)
INCOME TAXES (BENEFIT) 16 (12) 31 (6)
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARY 43 43 106 53
----------- ----------- ----------- -----------
Net income / (loss) $ (100) $ (255) $ 113 $ (148)
=========== =========== =========== ===========
NET INCOME / (LOSS) PER SHARE
Basic $ (0.02) $ ( 0.06) $ 0.02 $ (0.03)
=========== =========== =========== ===========
Diluted $ (0.02) $ (0.06) $ 0.02 $ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
5,018,648 4,305,219 4,912,809 4,267,600
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 5,018,648 4,305,219 4,919,209 4,267,600
=========== =========== =========== ===========
See Notes to Condensed and Consolidated Financial Statements
2
</TABLE>
<PAGE>
<TABLE><CAPTION>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
2000 1999
UNAUDITED UNAUDITED
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income /(loss) $ 113 $ (148)
Other cash (used in)/ provided by operating
activities 457 (338)
Net cash (used in)/provided by operating activities 570 (486)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (579) (1,186)
Decrease in investment in marketable securities 16 21
(Increase) / decrease in other assets (76) 170
---------- ----------
Net cash used in investing activities (639) (995)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings/(repayments) under revolving line of credit (363) 1,097
Net borrowings/(repayments) from financial institutions 564 (671)
Net borrowings/(repayments) of long-term obligations (567) 904
Conversion of subordinated debt to common stock 300 --
Purchase of treasury stock -- (48)
Exercise of stock options -- 20
---------- ----------
Net cash (used in)/ provided by financing activities (66) 1,302
---------- ----------
Net effect of exchange rates on cash and cash
equivalents 15 1
---------- ----------
NET (DECREASE) IN CASH (120) (178)
CASH AND CASH EQUIVALENTS, beginning of period 309 411
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 189 $ 233
========== ==========
See Notes to Condensed and Consolidated Financial Statements
3
</TABLE>
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
1.) GENERAL
The accompanying unaudited condensed and consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with the instructions to Form
10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Reference should be made to the
financial statements and related notes included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1999, which was filed with the
Securities and Exchange Commission on April 14, 2000.
In the opinion of the management of the Company, the accompanying
financial statements reflect all adjustments that were of a normal recurring
nature necessary for a fair presentation of the Company's results of operations
and changes in financial position for the three and nine month periods ended
September 30, 2000 and September 30, 1999. Operating results for the three and
nine month periods ended September 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000.
2.) SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed and consolidated financial statements
reflect the application of certain significant accounting policies, including
those described below.
a. Principles of consolidation
The accompanying condensed and consolidated financial statements
include the Company and its majority owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
b. Revenue recognition
The Company recognizes revenues on its product sales upon shipment and
royalties and license fees as earned.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
September 30, December 31,
2000 1999
========== ==========
Raw materials $ 2,395 $ 2,338
Work in process 246 287
Finished goods 2,285 2,334
---------- ----------
4,926 4,959
Less: Reserves for obsolescence 224 392
---------- ----------
Total $ 4,702 $ 4,567
========== ==========
4
<PAGE>
d. Net Income Per Common Share
The Company follows Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"). The accounting standard established
standards for computing and presenting earnings per share.
e. Comprehensive income
The Company follows Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which requires that all
components of total comprehensive income be reported on one of the following: a
statement of income and comprehensive income, a statement of comprehensive
income or a statement of stockholders equity. Comprehensive income is comprised
of net income and all changes to stockholders' equity except those due to
investment by owners (changes in paid in capital) and distributions to owners
(dividends). For interim reporting purposes, SFAS 130 requires disclosure of
total comprehensive income.
The components of total comprehensive income (un-audited) are as
follows (in thousands):
<TABLE><CAPTION>
Nine Months ended
September 30,
2000 1999
========== ==========
<S> <C> <C>
Net income / (loss) $ 113 $ (148)
Foreign currency translation adjustments (284) (254)
Unrealized gain (loss) on investments in marketable securities 1 (2)
---------- ----------
Total comprehensive income/(loss) $ (170) $ (404)
========== ==========
</TABLE>
f. Industry and geographic segments
The Company's operations are classified into two business segments:
food packaging applications and electronic capacitor operations.
The following table shows sales, operating income and other un-audited
financial information by industry segment as of and for the nine months ended
September 30, 2000 (in thousands):
INDUSTRY SEGMENTS
-----------------
<TABLE><CAPTION>
Food Capacitor
Packaging Applications Corporate Consolidated
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
September 30, 2000
Sales $ 4,406 $15,732 -- $20,137
------- ------- ------- -------
Operating income (10) 1,060 -- 1,050
------- ------- ------- -------
Other income -- -- -- 11
Interest expense -- -- -- (811)
-------
Income before taxes and minority interest -- -- -- $ 250
======= ======= ======= =======
Identifiable assets at September 30, 2000 $ 3,282 $18,040 $ 3,963 $25,285
======= ======= ======= =======
</TABLE>
5
<PAGE>
Geographic information for the following table shows sales, operating
income (loss) and other financial information by industry segment as of and for
the nine months ended September 30, 2000 (in thousands):
GEOGRAPHIC SEGMENTS
-------------------
<TABLE><CAPTION>
United States Spain Malaysia Consolidated
------------- ----- -------- ------------
<S> <C> <C> <C> <C>
September 30, 2000
Sales $ 7,768 $ 11,477 $ 893 $ 20,137
-------- -------- -------- --------
Operating income (loss) (133) 1,112 71 1,050
-------- -------- -------- --------
Other income -- -- -- 11
Interest expense -- -- -- (811)
--------
Income before taxes and minority interest -- -- -- $ 250
--------
Identifiable assets at September 30, 2000 $ 13,518 $ 10,943 $ 823 $ 25,285
======== ======== ======== ========
</TABLE>
3.) CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1999, Alexander Boxall and the Company entered into a Repayment
Agreement (the "Repayment Agreement") pursuant to which the parties agreed that
in the event that the Company is unable to pay the amounts outstanding under the
promissory note issued to Pedro Nunez Barranco Guembe in connection with the
previous acquisition of his shares of DNA-ADTECH, on or before maturity without
compromising the Company's plan for growth. On December 20, 1999, Mr. Boxall
made payment of $1,099,598 (principal plus interest) to Mr. Guembe in accordance
with the Repayment Agreement. As of December 20, 1999 the Company was indebted
to Mr. Boxall for the amount paid. The debt bears interest at the thirty day
London Interbank Offered Rate, plus 2%, compounded monthly, based on such rate
as of the last day of such month and is due and payable on March 1, 2001. Mr.
Boxall will have the right at any time after January 1, 2001 through March 1,
2001, to convert all or part of the outstanding balance into shares of Common
Stock at a purchase price per share equal to the average sales price of the
Common Stock for the month of December 2000, subject to a $3.50 per share
minimum. If Mr. Boxall does not elect to convert the outstanding balance, the
Company may elect after January 31, 2001 to redeem such amount for shares of
Common Stock at a redemption price equal to the average sales price of the
Common Stock for the twenty business days preceding the date of redemption.
On March 31, 2000, the revolving credit and loan agreement with our
principal lender was amended to record the loan to the Company of $300,000
during April 2000. The Company agreed to repay such amount, with interest. This
debt bears interest at the thirty day London Interbank Offered Rate, plus 2%,
compounded monthly, based on such rate as of the last day of such month.
On May 24, 2000, Mr. Glenn Walters and Mr. Alexander Boxall each purchased
100,000 of common stock at a price of $1.50 per share. These shares were
acquired in exchange for conversion of $300,000 in short term subordinated debt
provided to the Company during the second quarter of 2000.
6
<PAGE>
4.) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. The Company does not expect the adoption of this
Statement to have a material impact on the Company's financial position or
operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements,"
which summarizes the staff's view regarding the application of generally
accepted accounting principles to selected revenue recognition issues. Based
upon the Company's current assessment, the adoption of this SAB will not have a
material effect on the results of operations or financial position of the
Company.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
-------
Advanced Deposition Technologies, Inc. (the "Company" or "A. D. TECH"), is
a technology leader in developing and manufacturing high-resolution, patterned,
vacuum-metalized coatings for a variety of energy management applications for
use in industrial, commercial and consumer products. Included among these are
product offerings for electronic capacitors, microwave and standard food
packaging, security holograms, retroreflective films, barrier packaging,
electronic article surveillance (EAS) and electric static discharge (ESD).
The Company's revenue to date has been primarily from sales to the
capacitor and microwave packaging markets.
RECENT DEVELOPMENTS
-------------------
During the second quarter of 2000 the Company agreed to a joint venture
with three partners in the People's Republic of China relating to metallizing
films used for capacitor, holographic, microwave food packaging, ESD packaging,
and retroreflective applications. The Chinese partners will have a majority
equity position and the Company will supply know-how relating to technology and
marketing.
During the second quarter of 2000 the Company signed an exclusive supply
agreement to incorporate patented microwave susceptor technology for a new
coffee roasting process developed by Mojocoffee Company in a new microwave
coffee- roasting pouch.
On September 6, 2000 the Company retained Whitehorne & Company Ltd.
("Whitehorne"), a Boston-based registered broker-dealer, to advise the Company
with regard to stockholder and investor relations issues, to assist the Company
in regulatory reporting, to help evaluate acquisitions and identify other growth
opportunities. Whitehorne will also prepare and disseminate a corporate profile
on the Company. In exchange for the services to be provided by Whitehorne, the
Company agreed to pay a monthly retainer and to issue warrants to purchase up to
100,000 shares of Advanced Deposition Technologies, Inc. ("ADTC") common stock
at a price of $1.50 per share.
On September 27, 2000 the primary lender informed the Company that the
Amended and Restated Credit and Term Loan Agreement was approved consisting of
the Term Loan for $4,165,000 and the Revolving Line of Credit ("Line of Credit")
of $2,000,000. The principal on the Term Loan is payable in 37 installments,
with each of the first 36 payments to be in the principal amount of $50,000 plus
current interest accrued commencing on November 1, 2000 with a one-time payment
of $2,365,000 on October 31, 2003. Interest is payable monthly at the bank's
prime rate plus 1.25%. The financial covenants remain unchanged; minimum
Tangible Net Worth at September 30, 2000 is $3,500,000, Senior Indebtedness to
Tangible Net Worth is 5.5 to 1.0, and minimum Net Income at December 31, 2000 is
$300,000. As a result of the Amended and Restated Credit and Term Loan the
Company reduced the balance due on its Revolver Note from $1,989,000 to
$1,438,000 with the cap remaining at $2,000,000. As a result of the Amended and
Restated Credit and Term Loan Agreement, the Company's monthly payment was
reduced to $50,000 from $86,000, thereby improving cash flow. On October 20,
2000, the amended agreement, as outlined above, was fully executed by both
parties.
The Company received notice of a decision to grant in its European patent
titled, "Pattern Metallized Optical Varying Security Devices" (Holographic
patent). Another European filing, "Multi-layer Fused Microwave Conductive
Structure" has been issued a patent number 0824482.
8
<PAGE>
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES. Revenues were $5,980,000 for the three months ended September
30, 2000, as compared to $6,149,000 for the three months ended September 30,
1999, a decrease of 2.7%. Sales from our U.S. operation were 8.6% above the same
quarter in 1999. Sales measured in U.S. dollars for the third quarter in Spain
were 11.6% below the same period last year, however, measured in pesetas the
increase was 20.5%. The currency average in the third quarter of 1999 was 159
pesetas to the dollar as compared to 182 pesetas to the dollar during the same
period this year. The third quarter traditionally has experienced lower sales in
the Capacitor market. As 60% of the Company's revenues are generated outside the
United States, the effect of a strong dollar had significant impact on our Sales
and Net Profit results for the third quarter and year to date. Although
production volume from the new machine in Taunton improved 14% from the second
quarter, the Company continues to work through machine performance issues with
the manufacturer. At the mid-point of the quarter, full staffing for this new
equipment was achieved.
COST OF REVENUES. Cost of revenues was $4,872,000 (81.7% of product
sales) for the three months ended September 30, 2000, compared to $5,192,000
(86.2% of product sales) for the three months ended September 30, 1999. Cost of
revenues and percent to sales relationships improved due to the strength of the
dollar on business in Spain as described above and also reflects cost reductions
primarily associated with payrolls in the U.S. operation.
GROSS PROFIT. Gross profit increased to $1,108,000 (18.6% of product
sales) for the three months ended September 30, 2000, compared to $957,000
(15.9% of product sales) for the three months September 30, 1999. The increase
in gross profit was attributed to the combination of higher unit volume, cost
reductions in the U.S. operation and the improvement in sales volume in Spain
despite a traditionally weaker quarter for the Company.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were $756,000 (12.7% of product sales) for the three
months ended September 30, 2000, compared to $759,000 (12.6% of product sales)
for the three months ended September 30, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased
to $76,000 for the three months ended September 30, 2000, compared to $99,000
for the three months ended September 30, 1999.
AMORTIZATION. Amortization expenses increased to $74,000 during the
three months ended September 30, 2000, compared to $54,000 for the three months
ended September 30, 1999 due primarily to increased intangible assets and
related amortization in Spain.
OPERATING INCOME . The Company generated operating income of $202,000
for the three months ended September 30, 2000, compared to operating income of
$44,000 for the three months ended September 30, 1999. Operating income improved
primarily due to improved gross profit.
NET INTEREST EXPENSE. Net interest expense increased to $272,000 for
the three months ended September 30, 2000, compared to $231,000 for the three
months ended September 30, 1999. The increase was due to increased borrowing and
higher interest rates.
OTHER (EXPENSE)/INCOME. Other income totaled $29,000 during the three
months ended September 30, 2000, compared to other expense of $37,000 for the
three months ended September 30, 1999.
9
<PAGE>
INCOME TAXES. Income taxes were $16,000 for the three months ended
September 30, 2000, compared to a tax benefit of $12,000 for the three months
ended September 30, 1999. Profits generated from our Spanish operation resulted
in this tax adjustment.
MINORITY INTEREST. Minority interest remained unchanged at $43,000.
NET INCOME . The Company generated a net loss of $100,000 during the
three months ended September 30, 2000, as compared to a net loss of $255,000 for
the three months ended September 30, 1999 as a result of the factors discussed
above. The Company historically experiences lower sales during the third quarter
as compared the other three quarters.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES. Revenues increased to $20,137,000 for the nine months ended
September 30, 2000, as compared to $18,673,000 for the nine months ended
September 30, 1999, an increase of 7.8%. The increase was primarily due to
stronger film sales in the United States (up 20.5%) and stronger capacitor sales
in Spain. Sales in Spain measured in U.S. dollars were 2.0% above the same
nine-month period last year; however, measured in pesetas the increase was
21.4%, thereby reflecting the strength of the dollar. Currency fluctuations
represent a reduction of approximately $2,400,000 in revenue.
COST OF REVENUES. Cost of revenues increased 8.4% to $16,276,000 (81.3%
of product sales) for the nine months ended September 30, 2000, compared to
$15,018,000 (81.5% of product sales) for the nine months ended September 30,
1999 on a product sales increase of 8.6%. Higher costs associated with the
increase in revenue were partially offset by reductions in the U.S. operation
achieved by certain job eliminations and by the strength of the dollar on
business in Spain.
GROSS PROFIT. Gross profit increased to $3,861,000 (19.3% of product
sales) for the nine months ended September 30, 2000, compared to $3,655,000
(19.8% of product sales) for the nine months ended September 30, 1999. The
dollar increase in gross profit was due primarily to stronger sales and reduced
production costs. Partially offsetting was the negative impact on profit of the
strength of the dollar to the peseta.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased to $2,385,000 (11.9% of product sales) for the
nine months ended September 30, 2000, compared to $2,716,000 (14.7% of product
sales) for the nine months ended September 30, 1999. Reductions were noted in
travel, legal, investor relations expense and non-recurring recruiting fees.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased
to $202,000 for the nine months ended September 30, 2000, compared to $244,000
for the nine months ended September 30, 1999.
AMORTIZATION. Amortization expenses increased to $224,000 during the
nine months ended September 30, 2000, compared to $161,000 for the nine months
ended September 30, 1999 due primarily to increased intangible assets and
related amortization in Spain.
OPERATING INCOME . The Company generated operating income of $1,050,000
for the nine months ended September 30, 2000, compared to operating income of
$534,000 for the nine months ended September 30, 1999. The increase in operating
income was the result of stronger sales and lower marketing and administrative
expenses. The strength of the dollar relative to the pesetas had a negative
impact on the operating income by approximately $180,000 through nine months.
10
<PAGE>
NET INTEREST EXPENSE. Net interest expense increased to $811,000 for
the nine months ended September 30, 2000, compared to $642,000 for the nine
months ended September 30, 1999. The increase was due to increases in debt
balances due to financial institutions and higher interest rates.
OTHER INCOME. Other income totaled $11,000 during the nine months ended
September 30, 2000, compared to other income of $7,000 for the nine months ended
September 30, 1999.
INCOME TAXES. Income taxes were $31,000 for the nine months ended
September 30, 2000 compared to a tax benefit of $6,000 for the nine months ended
September 30, 1999. Income tax expense in 2000 was attributable to the profits
generated by DNA-ADTECH in Spain.
MINORITY INTEREST. Minority interest was $106,000 for the nine months
ending September 30, 2000 compared to $53,000 for the nine months ending
September 30, 1999.
NET INCOME . The Company generated net income of $113,000 during the
nine months ended September 30, 2000, as compared to a net loss of $148,000 for
the nine months ended September 30, 1999 as a result of the factors discussed
above. The strong dollar to the pesetas, period to period, resulted in less
income approximating $76,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company had working capital of approximately $197,000 at September
30, 2000, compared to working capital of $719,000 at December 31, 1999. The
decrease in working capital was primarily due to reclassification from long-term
to short-term obligations due Mr. Boxall pursuant to the subordinated debt
agreement.
Cash provided by operating activities was $570,000 for the nine months
ended September 30, 2000, compared to cash used of $486,000 during the nine
months ended September 30, 1999. Cash flow used for operations for the nine
months ended September 30, 2000 resulted primarily from increases in accounts
payable, offset by increases in accounts receivable and modest increases in
inventory.
The Company used $639,000 in cash for investing activities during the
nine-month period ended September 30, 2000, primarily to purchase property and
equipment to add manufacturing capacity and to increase the efficiency of
existing equipment.
The Revolving Credit and Loan Agreement with our principal lender was
modified September 2, 1999 to include a temporary over advance amount of
$500,000 on our Revolving Line of Credit that is payable over 18 months
beginning January 2000 and modification of the repayment start date of the
Machinery & Equipment ("M&E") Loan from October 1999 to April 1, 2000. The Line
of Credit remains at a maximum of $2,000,000.
In December 1999, the Company amended their Revolving Credit and Loan
Agreement to modify the tangible net worth definition and minimum net income
financial covenants. Tangible Net Worth was amended to include the Subordinated
Debt agreement among the bank, Mr. Boxall (the "Subordinated Creditor"), and
Advanced Deposition Technologies, Inc. (the "Borrower").
On March 31, 2000, the financial agreement with our principal lender was
amended to reduce the M&E Loan borrowing limit from $2,000,000 to $1,500,000 and
provide for the $300,000 subordinated debt loaned to the Company. This financial
amendment also included the waiver for non-compliance with one of the financial
covenants at December 31, 1999. The bank waived the event of default relating to
the covenant of tangible net worth as of December 31, 1999, and March 31, 2000,
respectively.
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On May 24, 2000, Mr. Glenn Walters and Mr. Alexander Boxall each purchased
100,000 of common stock at a price of $1.50 per share. These shares were
acquired in exchange for the conversion of $300,000 in short-term subordinated
debt provided to the Company during the second quarter of 2000.
On September 27, 2000 the primary lender informed the Company that the
Amended and Restated Credit and Term Loan Agreement was approved consisting of
the Term Loan for $4,165,000 and the Revolving Line of Credit ("Line of Credit")
of $2,000,000. The principal on the Term Loan is payable in 37 installments,
with each of the first 36 payments to be in the principal amount of $50,000 plus
current interest accrued commencing on November 1, 2000 with a one-time payment
of $2,365,000 on October 31, 2003. Interest is payable monthly at the bank's
prime rate plus 1.25%. The financial covenants remain unchanged; minimum
Tangible Net Worth at September 30, 2000 is $3,500,000, Senior Indebtedness to
Tangible Net Worth is 5.5 to 1.0, and minimum Net Income at December 31, 2000 is
$300,000. As a result of the Amended and Restated Credit and Term Loan the
Company reduced the balance due on its Revolver Note from $1,989,000 to
$1,438,000 with the cap remaining at $2,000,000. As a result of the Amended and
Restated Credit and Term Loan Agreement, the Company's monthly payment was
reduced to $50,000 from $86,000, thereby improving cash flow. On October 20,
2000, the amended agreement, as outlined above, was fully executed by both
parties.
The Company uses the Line of Credit for working capital. Borrowings under
the Line of Credit bear interest at a rate per annum equal to the bank's prime
lending rate plus 1%. The Credit Agreement provides for a line-of-credit
facility of up to $2,000,000, based on percentages of its eligible accounts
receivable, raw materials and finished goods inventories. The Company has an
outstanding Line of Credit balance of $1,438,000. A portion of the Line of
Credit was classified to current and is associated with the over advance that
was instituted September 2, 1999 of $500,000 and remains in force. The temporary
over advance currently stands at $220,000, payable in increments of $28,000 over
18 months beginning January 2000. Therefore, the additional credit available to
the Company as a result of this amended agreement increased $326,000.
Management believes that the Company's cash and cash equivalents together
with its credit facilities and expected cash flows from operations, will provide
sufficient funds to meet the Company's current and future cash requirements and
allow the Company to continue its marketing and development efforts.
SEASONAL REVENUES
-----------------
Historically, the Company has experienced lower sales to the electronic
capacitor market during the third quarter, particularly in July and August.
Based on market research conducted by the Company, it believes that demand for
the Company's other products, including microwave food packaging, does not
experience similarly timed seasonal variations and could, in the future, offset
lower third quarter sales in the electronic capacitor market.
INFLATION
---------
During 1999 and the first nine months of 2000, there was minimal
inflation for raw materials and unit selling prices.
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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 Company's liquidity; (ii) the effect of seasons on its
revenue; (iii) the Company's future cash requirements; (iv) the Company's
ability maintain adequate staffing in the U.S. operation; (v) the Company's
expected production and revenues from new machinery; (vi) the effect of a
reduced staff on cost of revenues and; (vii) the expected demand for capacitor,
microwave and HED films; (viii) the benefits to the Company of the joint venture
with China and the supply agreement with Mojocoffee, (ix) and the benefits to
the Company of retaining Whitehorne & Company Ltd. to advise regarding investor
relations. 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 PMP products and products in
development, market responses to pricing actions, continued competitive factors
and pricing pressures, the timely acceptance of new products, inventory risk due
to shifts in market demand, the development of competing or superior
technologies or products from other manufacturers, many of which have
substantially greater financial, technical and other resources than the Company,
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.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports filed on Form 8-K
(a) See Exhibit Index
(b) The Registrant did not file any reports on Form 8-K during
the quarter ended September 30, 2000.
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SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advanced Deposition Technologies, Inc.
--------------------------------------
Registrant
November 13, 2000 /s/ Glenn J. Walters
------------------ ---------------------------------------
Glenn J. Walters
Chief Executive Officer
And Treasurer
(Principal Executive Officer)
November 13, 2000 /s/ Joseph P. Keller
------------------ ---------------------------------------
Joseph P. Keller
Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
10ddd Financial Consulting and Investment Banking Agreement
between the Company and Whitehorne & Co., Inc. dated
September 6, 2000
27.1 Financial Data Schedule
16
