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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 JUNE 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
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(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
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(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 August 8, 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):
June 30, 2000 and December 31, 1999 1
Condensed and Consolidated Statements of Operations
(unaudited): for the Three Months and Six Months
ended June 30, 2000 and June 30, 1999 2
Condensed and Consolidated Statements of Cash Flows
(unaudited): for the Six Months ended June 30, 2000
and June 30, 1999 3
Notes to Condensed and Consolidated Financial
Statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE><CAPTION>
ASSETS
(In Thousands)
June 30, December 31,
2000 1999
========= =========
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 360 $ 309
Investment in marketable securities 1 17
Accounts receivable, net of reserve for doubtful
accounts of $144,600 and $184,000 at June 30, 2000
and December 31, 1999, respectively 7,333 6,521
Inventories 4,923 4,567
Prepaid expenses and other current assets 463 392
--------- ---------
Total current assets 13,080 11,806
PROPERTY AND EQUIPMENT, net of accumulated depreciation 8,194 8,383
OTHER ASSETS, net of accumulated amortization 4,667 4,942
--------- ---------
Total assets $ 25,941 $ 25,131
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to financing institutions $ 4,224 $ 4,309
Accounts payable 5,261 4,746
Accrued expenses 817 697
Current maturities of long-term obligations 2,657 1,335
--------- ---------
Total current liabilities 12,959 11,087
LONG-TERM OBLIGATIONS
Revolving line of credit 1,822 1,820
Long-term obligations, net of current maturities 3,220 4,700
--------- ---------
Total liabilities 18,001 17,607
--------- ---------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 513 488
--------- ---------
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 June 30, 2000 and December 31, 1999,
respectively 51 49
Additional paid-in capital 12,200 11,902
Accumulated deficit (4,248) (4,486)
Accumulated other comprehensive (loss) (432) (285)
--------- ---------
7,571 7,180
Less treasury stock, 76,110 shares at cost at
June 30, 2000 and December 31, 1999 (144) (144)
--------- ---------
Total stockholders' equity 7,427 7,036
--------- ---------
Total liabilities and stockholders' equity $ 25,941 $ 25,131
========= =========
</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1999, has been
derived from the audited financial statements of the Company at that date.
See Notes to Condensed and Consolidated Financial Statements
1
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in Thousands, Except Share and Per Share Amounts)
<TABLE><CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 7,036 $ 6,271 $ 14,063 $ 12,409
Royalties, license fees and other 75 9 93 115
----------- ----------- ----------- -----------
7,111 6,280 14,156 12,524
COST OF REVENUES 5,691 5,025 11,403 9,826
----------- ----------- ----------- -----------
Gross Profit 1,420 1,255 2,753 2,698
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 840 939 1,629 1,956
RESEARCH AND DEVELOPMENT EXPENSES 63 69 126 144
AMORTIZATION EXPENSE 75 54 151 108
----------- ----------- ----------- -----------
Operating income 442 193 847 490
INTEREST EXPENSE, NET OF INTEREST INCOME 300 189 538 411
OTHER (EXPENSE) INCOME (15) 69 (18) 43
----------- ----------- ----------- -----------
Income before income taxes and minority interest 127 73 291 122
INCOME TAXES (BENEFIT) 13 (8) 15 5
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARY (9) (10) (63) (9)
----------- ----------- ----------- -----------
Net income $ 105 $ 71 $ 213 $ 108
=========== =========== =========== ===========
NET INCOME PER SHARE
Basic $ 0.02 $ 0.02 $ 0.04 $ 0.03
=========== =========== =========== ===========
Diluted $ 0.02 $ 0.02 $ 0.04 $ 0.03
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,900,870 4,248,170 4,859,307 4,248,823
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 4,903,450 4,248,170 4,872,834 4,248,823
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
2
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ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE><CAPTION>
Six Months Ended
June 30,
2000 1999
======= =======
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 213 $ 108
Other cash used in operating activities (164) (906)
------- -------
Net cash (used in)/provided by operating activities 49 (798)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (333) (536)
Decrease in investment in marketable securities 16 19
(Increase) decrease in other assets (64) 309
------- -------
Net cash used in investing activities (381) (208)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving line of credit 2 1,068
Net borrowings from financial institutions 254 255
Repayment of long-term obligations (239) (389)
Proceeds from subordinated debt 300 --
Purchase of treasury stock -- (34)
Exercise of stock options -- 20
------- -------
Net cash provided by financing activities 317 920
------- -------
Net effect of exchange rates on cash and
cash equivalents 66 (19)
------- -------
NET INCREASE (DECREASE) IN CASH 51 (105)
CASH AND CASH EQUIVALENTS, beginning of period 309 411
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 360 $ 306
======= =======
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
3
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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 six month periods ended June
30, 2000 and June 30, 1999. Operating results for the three and six month
periods ended June 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):
June 30, December 31,
2000 1999
========== ==========
Raw materials $ 2,760 $ 2,338
Work in process 294 287
Finished goods 2,100 2,334
---------- ----------
5,154 4,959
Less: Reserves for obsolescence 231 392
---------- ----------
Total $ 4,923 $ 4,567
========== ==========
4
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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. Reclassifications
Certain balances in the 1999 financial statements have been
reclassified to conform to the 2000 presentation.
f. 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 (unaudited) are as follows
(in thousands):
Six Months ended
June 30,
2000 1999
==================
Net income $ 213 $ 108
Foreign currency translation adjustments (147) (250)
Unrealized losses on investments in marketable securities -- (6)
------- -------
Total comprehensive income/(loss) $ 66 $ (148)
======= =======
g. 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 unaudited
financial information by industry segment as of and for the six months ended
June 30, 2000 (in thousands):
5
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<TABLE><CAPTION>
INDUSTRY SEGMENTS Food Capacitor
----------------- Packaging Applications Corporate Consolidated
========== ========== ========== ==========
<S> <C> <C> <C> <C>
June 30, 2000
Sales $ 2,815 $ 11,341 $ 14,156
---------- ---------- ----------
Operating income 42 805 847
---------- ---------- ----------
Other expenses (18)
Interest expense (538)
----------
Income before taxes and minority interest $ 291
========== ========== ========== ==========
Identifiable assets at June 30, 2000 $ 3,398 $ 18,280 $ 4,263 $ 25,941
========== ========== ========== ==========
</TABLE>
Geographic information for the following table shows sales, operating
income (loss) and other financial information by industry segment as of and for
the six months ended June 30, 2000 (in thousands):
<TABLE><CAPTION>
GEOGRAPHIC SEGMENTS United States Spain Malaysia Consolidated
------------------- ========== ========== ========== ==========
<S> <C> <C> <C> <C>
June 30, 2000
Sales $ 5,400 $ 8,310 $ 447 $ 14,156
---------- ---------- ---------- ----------
Operating income (loss) (62) 879 30 847
---------- ---------- ---------- ----------
Other expenses (18)
Interest expense (538)
----------
Income before taxes and minority interest $ 291
----------
Identifiable assets at June 30, 2000 $ 14,387 $ 10,600 $ 954 $ 25,941
========== ========== ========== ==========
</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.
6
<PAGE>
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 in equal portions
from Mr. Walters and Mr. Boxall. The promissory notes issued to Mr. Walters and
Mr. Boxall were cancelled.
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
-------------------
The Company has 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. The joint
venture is subject to the receipt of government approvals in China and
negotiation of definitive agreements.
The Company signed an exclusive supply agreement to incorporate its
patented microwave susceptor technology for a new coffee roasting process
developed by Mojocoffee Company in a new microwave coffee roasting pouch.
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased to $7,111,000 for the three months ended
June 30, 2000, as compared to $6,280,000 for the three months ended June 30,
1999, an increase of 13%. The increase was primarily due to strong capacitor
film and microwave/food packaging sales from the U.S. operation, up 40% from the
same period in 1999. Sales for the 2nd Quarter in Spain were 3.0% above the same
period last year, however, in pesetas the increase was 12%, thereby reflecting
the strength of the dollar during this period. Sales attributed to the new
production equipment installed in Taunton, Massachusetts improved from the first
quarter. Adequate production staffing continues to be a problem given the
unemployment level in Massachusetts of less than 3%. The Company believes by the
end of the third quarter we will be fully staffed.
COST OF REVENUES. Cost of revenues were $5,691,000 (80.9% of product
sales) for the three months ended June 30, 2000, compared to $5,025,000 (80.1%
of product sales) for the three months ended June 30, 1999. Cost of revenues
increased due to increased sales and the strength of the dollar on business in
Spain as described above, partially offset by cost reductions in the U.S.
operation year to year.
GROSS PROFIT. Gross profit increased to $1,420,000 (20.2% of product
sales) for the three months ended June 30, 2000, compared to $1,255,000 (20.0%
of product sales) for the three months June 30, 1999. The increase in gross
profit dollars was due to increased sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased to $840,000 (11.9% of product sales) for the
three months ended June 30, 2000, compared to $939,000 (15.0% of
8
<PAGE>
product sales) for the three months ended June 30, 1999. The decrease was
primarily due to reductions in travel, legal, investor relation expenses in the
U.S.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased
modestly to $63,000 for the three months ended June 30, 2000, compared to
$69,000 for the three months ended June 30, 1999.
AMORTIZATION. Amortization expenses increased to $75,000 during the
three months ended June 30, 2000, compared to $54,000 for the three months ended
June 30, 1999 due primarily to increased intangible assets and related
amortization in Spain.
OPERATING INCOME. The Company generated operating income of $442,000
for the three months ended June 30, 2000, compared to operating income of
$193,000 for the three months ended June 30, 1999. Operating income improved due
to stronger sales and reduced spending for selling, general and administration.
NET INTEREST EXPENSE. Net interest expense increased to $300,000 for
the three months ended June 30, 2000, compared to $189,000 for the three months
ended June 30, 1999. The increase was due to increased borrowing and higher
interest rates.
OTHER EXPENSE. Other expense totaled $15,000 during the three months
ended June 30, 2000, compared to other income of $69,000 for the three months
ended June 30, 1999. Most of the other income in 1999 was attributed to a
product insurance claim and the associated cancellation of accounts payable by a
related party doing business with DNA Asia. Most of the year 2000 expense
related to currency exchange in Spain.
INCOME TAXES. Income taxes were $13,000 for the three months ended June
30, 2000, compared to a tax benefit of $8,000 for the three months ended June
30, 1999. Income tax expense in 2000 was attributed to the profits generated by
DNA-ADTECH.
MINORITY INTEREST. Minority interest was $9,000 for the three months
ending June 30, 2000 compared to $10,000 for the three months ending June 30,
1999.
NET INCOME. The Company generated net income of $105,000 during the
three months ended June 30, 2000, as compared to net income of $71,000 for the
three months ended June 30, 1999 as a result of the factors discussed above.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased to $14,156,000 for the six months ended
June 30, 2000, as compared to $12,524,000 for the six months ended June 30,
1999, an increase of 13.0%. The increase was primarily due to stronger film
sales in the United States (up 26.6%) and capacitor sales in Spain. Spain sales
were 8.5% above the same six month period last year, however, in pesetas the
increase was 22%, thereby reflecting the strength of the dollar.
COST OF REVENUES. Cost of revenues increased 16.3% to $11,403,000
(81.1% of product sales) for the six months ended June 30, 2000, compared to
$9,826,000 (79.2% of product sales) for the six months ended June 30, 1999 on a
sales increase of 13.0%. Higher costs associated with the increase in revenue
were partially offset by reductions in the U.S. operation due to certain job
eliminations in combination with the strength of the dollar on business in
Spain.
9
<PAGE>
GROSS PROFIT. Gross profit increased to $2,753,000 (19.6% of product
sales) for the six months ended June 30, 2000, compared to $2,698,000 (21.7% of
product sales) for the six months ended June 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 pesetas.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased to $1,629,000 (11.6% of product sales) for the
six months ended June 30, 2000, compared to $1,956,000 (15.8% of product sales)
for the six months ended June 30, 1999. Reductions were noted in travel, legal,
investor relations expense and non-recurring recruiting fees.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased
modestly to $126,000 for the six months ended June 30, 2000, compared to
$144,000 for the six months ended June 30, 1999.
AMORTIZATION. Amortization expenses increased to $151,000 during the
six months ended June 30, 2000, compared to $108,000 for the six months ended
June 30, 1999 due primarily to increased intangible assets and related
amortization in Spain.
OPERATING INCOME. The Company generated operating income of $847,000
for the six months ended June 30, 2000, compared to operating income of $490,000
for the six months ended June 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 $111,000 through six months.
NET INTEREST EXPENSE. Net interest expense increased to $538,000 for
the six months ended June 30, 2000, compared to $411,000 for the six months
ended June 30, 1999. The increase was due to increases in debt balances due to
financial institutions and higher interest rates.
OTHER INCOME (EXPENSE). Other expense totaled $18,000 during the six
months ended June 30, 2000, compared to other income of $43,000 for the six
months ended June 30, 1999. Most of the other income in 1999 was attributed to a
product insurance claim and the associated cancellation of accounts payable by a
related party doing business with DNA Asia. Most of the expense in the current
period related to currency exchange in Spain.
INCOME TAXES. Income taxes were $15,000 for the six months ended June
30, 2000 compared to $5,000 for the six months ended June 30, 1999. Income tax
expense in 2000 was attributable to the profits generated by DNA-ADTECH.
MINORITY INTEREST. Minority interest was $63,000 for the six months
ending June 30, 2000 compared to $9,000 for the six months ending June 30, 1999.
NET INCOME. The Company generated net income of $213,000 during the
six months ended June 30, 2000, as compared to net income of $108,000 for the
six months ended June 30, 1999 as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company had working capital of approximately $121,000 at June 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 $49,000 for the six months
ended June 30, 2000, compared to cash used of $798,000 during the six months
ended June 30, 1999. Cash flow used for operations for the six
10
<PAGE>
months ended June 30, 2000 resulted primarily from non-cash charges to income
and increases in accounts payable, offset by increases in accounts receivable
and inventory.
The Company used $381,000 in cash for investing activities during the
six-month period ended June 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. The Company has drawn down
$1,408,677 of the M&E Loan and through June 30, 2000 has repaid $70,434 of this
loan.
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 to 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.
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.
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 "Line of Credit"),
as well as term loans in the aggregate principal amount of $3,750,000 (the "Term
Loans"). Each of these facilities matures on July 24, 2001. As of June 30, 2000
and December 31, 1999, the Company had an outstanding line of credit balance of
$1,990,000, a portion of which was classified to current for the respective
periods. The Term Loans are to be repaid in 29 monthly payments of $62,500,
commencing January 1999 with a balloon payment of $1,938,000 in July 2001.
Interest is payable monthly at the bank's prime rate plus 1.25%. As of June 30,
2000 the Company has repaid $1,125,000 of the $3,750,000 Term Loans and will be
meeting with the primary lender in August 2000 to discuss the maturities due in
July 2001.
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
11
<PAGE>
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 six months of 2000, there was minimal
inflation for raw materials and unit selling prices.
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. 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: the Chinese joint venture may not be approved and may not be
sucessfully negotiated, 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.
12
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On May 24, 2000, Mr. Walters and Mr. Boxall each purchased 100,000
shares of common stock from the Company at a price of $1.50 per share in
exchange for an equity conversion of $300,000 in short-term subordinated debt
provided to the Company during April 2000 in equal portions by Mr. Walters and
Mr. Boxall. The stock was issued in a private placement under section 4(2) of
the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 24, 2000,
and the following matters were voted on at that meeting:
1. The election of John J. Moroney as Class I Director, to serve for a
three year term of office expiring in 2003 and until his successor is duly
elected and qualified was voted as follows:
For Abstain
--- -------
Mr. Moroney 4,384,116 12,150
2. The proposal to ratify the appointment of BDO Seidman, LLP as
independent accountants for the Company for the fiscal year ending December 31,
2000, were as follows:
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
4,399,942 2,574 3,750 N/A
Item 6. Exhibits and Reports filed on Form 8-K
(a) Exhibits. The exhibits listed on the Exhibit Index filed as
part of this Quarterly Report on Form 10-Q are incorporated
herein by reference.
(b) Reports on Form 8-K. The Registrant did not file any reports
on Form 8-K during the quarter ended June 30,2000.
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<PAGE>
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
August 14, 2000 /s/ Glenn J. Walters
------------------ ---------------------------------------
Glenn J. Walters
Chief Executive Officer
And Treasurer
(Principal Executive Officer)
August 14, 2000 /s/ Joseph P. Keller
------------------ ---------------------------------------
Joseph P. Keller
Controller
(Principal Accounting Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
10zz Promissory Note dated April 1, 2000 from the Company to Glenn
Walters for $150,000.
10aaa Promissory Note dated April 1, 2000 from the Company to
Alexander Boxall for $150,000.
10bbb Note Conversion Agreement dated May 24, 2000
between the Company and Glenn Walters to
convert the note of $150,000 into 100,000
shares of common stock of the Company.
10ccc Note Conversion Agreement dated May 24,
2000 between the Company and Alexander Boxall to
convert the note of $150,000 into 100,000
shares of common stock of the Company.
27.1 Financial Data Schedule
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