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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, 1999
COMMISSION FILE NUMBER 1-12230
ADVANCED DEPOSITION TECHNOLOGIES, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
04-2865714
(I.R.S.EMPLOYER IDENTIFICATION NO.)
580 MYLES STANDISH INDUSTRIAL PARK
TAUNTON, MASSACHUSETTS 02780
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (508) 823-0707
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
TITLE OF EACH NAME OF EACH EXCHANGE ON
CLASS WHICH REGISTERED
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Common Stock Boston Stock Exchange
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: NONE
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 ( )
Check if there is no 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 10-KSB.
The Registrant had revenue of approximately $25,030,000 in its most recent
fiscal year.
The aggregate market value of the Common Stock held by non-affiliates of
the registrant, (without admitting that any person whose shares are not included
in determining such value is an affiliate) based upon the average closing bid
and asked prices of the Common Stock on March 23, 2000 was $8,795,335.
The number of shares outstanding of the Registrant's Common Stock as of
March 23, 2000 was 4,894,758.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant hereby incorporates by reference into Part III of this
report portions of its proxy statement for the 2000 annual meeting of
stockholders, which the Registrant intends to file within 120 days of the
Registrant's fiscal year ended December 31, 1999.
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 capacitors
and a variety of other metallized films for energy management applications. The
Company's primary markets are the lighting and motor capacitor market,
metallized film 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 metallized films 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 food and other industries based on
its PMP process. In the first quarter of 1999, the Company introduced a new and
improved microwave browning and crisping bag under the tradename, "Micro Heat N'
Serve(R)" and expects to market this using e-commerce. The improvements relate
to a reconfigured bag and an entirely new pattern of metal to optimize the
heating. See "Marketing and Distribution". In 1997 and 1998, the Company
acquired controlling interests in DNA-AD TECH of Madrid, Spain and Kidamai of
Kuala Lumpur, Malaysia DNA-AD TECH (Asia) Sdn Bhd ("DNA-Asia"). Both of these
acquisitions gave the Company the ability to produce metalized film capacitors
for lighting and motor applications. It also broadened the Company's geographic
sales to over fifty countries.
As a result of the DNA-ADTECH Madrid and the DNA-Asia acquisitions, the
Company's revenues to the electronic capacitor industry account for a
significant part of its current and future 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.
Over the past year the Company received several new patents. Patent number
5,953,202 relates to metallized films and capacitors that are safer, smaller and
lighter in weight, thus have higher energy density than traditional designs.
These new films use the Company's proprietary PMP process that has been
incorporated in 50% of the Company's production capacity.
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 the microwave food
packaging market. As a result of the DNA-ADTECH and DNA-Asia acquisitions, the
Company also produces and sells electronic capacitors and related products for
the lighting, motors and electronic equipment industries. The Company believes
that it benefits from additional technical support from DNA-ADTECH that enables
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
above mentioned acquisitions have resulted and will continue to result in
favorable economies of scale. See "Products and Processes Under Development."
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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 is the strategic raw material for electronic capacitor functionality in
these products. The Company currently supplies such metallized 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. These new materials
were patented to enable metallized film capacitors to be produced smaller,
lighter, safer and more cost effectively. Through DNA-ADTECH, the Company
manufactures a wide range of electronic capacitors and capacitor products used
primarily for lighting and motor applications and exports to over 50 countries.
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, but instead reflects the
microwave energy away from selected areas. The Company produces metallized film
for use in active microwave food 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 Micro Heat N' Serve(R)
Microwave Cooking Bags. In 1999 the Company introduced a new patent pending
package for improved heating of pizza. This elevated and vented paperboard tray
is currently being sold in Europe in significant quantities. The Company has
developed other proprietary and patented metallized films for microwave food
packaging based on PMP technology that it currently sells for new product
applications. Web sites have been established specifically for e-commerce
transactions of consumer microwave products. See "Marketing and Distribution."
The Company also sells standard metallized film for microwave packaging
applications. Standard metallized susceptor film is produced with a continuous
layer of thin metal deposited onto polymer film and is used in microwave popcorn
bags as well as other microwave packaging products 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.
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. 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 primarily through
direct factory contacts with its major customers. The Company's capacitor and
capacitor products are sold through direct contacts, sales representatives and
distributors. The Company markets and sells its microwave film products using
inside sales staff and through manufacturer's representatives, technical
presentations, advertising and participation in industry trade shows and
conferences.
The Company also expanded some of its web presence by improving its primary
web site (www.adtc.net) and added two new web sites specifically for e-commerce
transactions of consumer microwave products, (www.microwavecook.com) and
(www.microheatnserve.com) in the beginning of the fourth quarter of 1999. These
web E-commerce activities will be expanded upon in the year 2000.
There were no customers accounting for 10% or more of Company sales in 1999 or
1998.
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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 $340,000 and $356,000, or 1.4%
and 1.5% of total revenues, during 1999 and 1998, respectively.
The Company continues to improve its PMP process. The Company has enhanced
its proprietary metalization process to enable high-resolution deposition (up to
130 dots per inch) of metals onto polymer film. 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.
The Company's focus has been on the capacitor and packaging business and
will reexamine other opportunities in the future.
TECHNOLOGY AND MANUFACTURING PROCESS
The Company's corporate office is located in Taunton, Massachusetts. The
Company's manufacturing facilities are located in Taunton, Massachusetts,
Madrid, Spain and Kuala Lumpur, Malaysia.
At its 30,000 square foot film metallizing facility in Taunton, the Company
currently operates four 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 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.
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. With respect to the Company's packaging product line, the Company
subcontracts printing and laminating functions to unaffiliated third parties,
who complete the product using the Company's metallized film.
The production of capacitors involves taking metallized rolls and winding
them into small, individual cylinders frequently called "sections". These
sections are then end-sprayed, leads are attached and placed in a protective
case. The final capacitors are sold in over fifty countries and used for a
variety of applications such as lighting, motors, power regulation and energy
distribution.
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."
At its 70,000 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 engineered to maximize production
efficiency, and the Company is now completing its two year-long program to
double its capacity. 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. See "Markets and Products".
In addition, the Company assembles capacitor windings into finished
capacitors at its capacitor manufacturing facility in Kuala Lumpur. Performing
these functions in Malaysia substantially reduces labor costs and duty charges
when compared to the Company's Madrid operation.
SOURCES OF SUPPLY
There are multiple suppliers of base polymer films 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. Supplies
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of base polymer film, metallized film and other raw materials used by the
Company are currently available in sufficient quantities and acceptable prices.
PATENTS AND PROPRIETARY TECHNOLOGY
The United States Patent and Trademark Office informed the Company of
issuance of U.S. Pat No. 5,953,202 entitled, "High Energy Density Capacitor
Films and Capacitors made therefrom". The Company received a favorable response
to its European patent application for the same. A new patent application for a
microwave vented package was applied for and these products are now being sold
in the United Kingdom and Europe. The Company expects these products will also
generate new revenues with United States customers in the year 2000. In Europe,
the Company was granted a patent for its Safety Susceptor which is becoming the
industry standard in several countries. The Company expanded its licensing
agreement with FCP in Bremen, Germany to include flexible microwave applications
in addition to the license the Company sold to FCP in late 1998.
We anticipate UL approvals for capacitors by the first half of year 2000.
The Company has also established an electronic capacitor division in Madrid,
Spain.
The Company has been granted 15 patents and has 5 United States and 7
foreign patent applications pending in the U.S. Patent and Trademark Office. Of
the active patents, the expiration dates range from January, 2011 through April,
2016. Most of the Company's patents and patent applications pertain to (i)
vaporized metals deposited onto substrates (ii) microwave products, such as the
Company's Micro Heat N' Serve(R) Microwave Cooking Bags, and (iii) 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 business prospects. The
Company is also a licensee of an additional 26 patents under its agreement with
Fort James Corporation. 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.
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. Several of the Company's competitors in the
metallized film industry have greater financial, marketing, technical and other
resources than the Company. In addition, the Company's primary competitors in
the metallized film market produce their own polymer film. In the capacitor
products market, there are numerous world-wide suppliers and customers. The
electronic capacitor products market is also highly competitive in respect to
quality, delivery time and price
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 competes with numerous local,
regional and national providers of food packaging and food packaging supplies.
Competition in this industry is based upon the quality of metallized film,
technological improvement, service and price.
EMPLOYEES
As of March 1, 2000, the Company had 262 full-time employees, of which 33
are located at the Corporate/Manufacturing facility in Taunton, Massachusetts,
191 are located at the DNA-ADTECH facility in Madrid and 38 are located in
Malaysia. Of the total employees, six are executive officers, two of which also
perform research and development and marketing functions. A total of 58
employees were involved with selling, manufacturing support and administration
and the remaining were involved with direct manufacturing. None of the Company's
employees at its Taunton facility are represented by a labor union. The
employees at the DNA-ADTECH facility in Madrid are represented by a nine-member
work council, obligatory in Spain, who are mostly members of the Spanish trade
union, "Comisiones Oberas." DNA-ADTECH'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. None of the Company's employees at
its Kuala
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Lumpur, Malaysia facility are represented by a labor union. Management believes
that relationships with its employees at all three facilities are satisfactory.
ACQUISITIONS
Effective October 1, 1998, the Company, through DNA-ADTECH, acquired 80% of
the outstanding common stock of Kidamai, for approximately $370,000 in the form
of the cancellation of amounts due DNA for product sales. During 1998 the name
of Kidamai was change to DNA-AD TECH (Asia) Sdn Bhd ("DNA-Asia").
In February 1999, the Company established a joint venture with Trykko Pack
of Denmark and currently has an 82% equity position in the newly formed company
called MICROTECH A/S of Denmark. MICROTECH A/S is managed by Steen Pedersen,
managing director of Trykko Pack. MICROTECH A/S has one employee and a salesman
located in England. The purpose of the company is to: (1) manage a technology
licensing program for Europe of the Company's patented Safety Susceptor product,
(2) educate the European market on the Company's microwave film products, (3)
work with our licensees in Europe and (4) establish Safety Susceptor as a
European standard.
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 $21,000 per month, (excluding utilities). The
lease expires on March 31, 2004. The Company's capacitor manufacturing
operations are maintained in an approximate 70,000 square foot leased facility
in Madrid, Spain. DNA-ADTECH pays rent, on one part, to a related party of
approximately $14,000 per month plus utilities and taxes pursuant to a lease
that expires on December 31, 2006 and on another part to a non-affiliate of
approximately $4,000 per month pursuant to a lease which expires on June 30,
2001. DNA-Asia capacitor-manufacturing operations are maintained in an
approximate 7,500 square foot leased facility in Kuala Lumpur. DNA-Asia pays
rent of approximately $2,100 per month plus utilities and taxes pursuant to a
lease that expires in November 2000. The Company believes that its facilities
are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's 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.
MARKET INFORMATION
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 following table sets forth the range of high and low bid prices for the
Common Stock as reported by NASDAQ since January 1, 1998. These prices reflect
inter-dealer prices, without retail mark-up, markdown or commission, and may not
represent actual transactions.
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HIGH LOW
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1998
First Quarter...... $4.313 $ 3.00
Second Quarter..... $ 3.75 $ 1.75
Third Quarter...... $2.875 $ 1.03
Fourth Quarter..... $ 2.00 $ 1.00
1999
First Quarter...... $2.9375 $1.3125
Second Quarter..... $1.4688 $ 1.125
Third Quarter...... $1.4375 $1.0312
Fourth Quarter..... $1.5625 $ .9375
STOCKHOLDERS
As of March 23, 2000, there were 80 shareholders of "record" of the Common
Stock.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. 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
prohibits the payment of cash dividends by the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company recorded a net loss for 1999 of $638,000 as compared to a net
loss for 1998 of $2,695,000. Several factors contributed to the financial
results for 1999. Consolidated revenues of $25,030,000 were 6.5% better than
1998. During the third and fourth quarter, the US operation experienced lower
output caused by the necessary shutdown of certain machines in our Taunton
facility in order to prepare for the installation of a new metallizer. This
resulted in production delays and higher costs while working through a backlog
of sales orders. The machine was delivered in late October 1999 and was in the
final stages of readiness by year end. We believe this new production equipment
has the working capacity to produce annually in excess of $5,000,000 in
incremental revenue. Management believes that this addition will support demand
for the Company's standard capacitor films, microwave films and new HED films.
Revenues in Spain decreased 2.3% from 1998. Unit output of capacitors
increased by 12% during the year. This increase in output was not completely
reflected in revenues due to lower world selling prices and currency
adjustments.
Total Company interest expense for 1999 was $789,000, with $480,000
attributed to U.S. operations and $309,000 to Spain.
On March 23, 1999, the Company entered into an agreement to purchase an
additional 16% of the equity of DNA-ADTECH of Madrid, Spain (the "Purchase
Agreement"), bringing the Company's total equity ownership to 81%. The purchase
price was based upon a similar valuation used in December 1997 when the Company
purchased 65% of ABSA. The Company paid for this additional 16% equity position
by issuing 598,198 shares of Common Stock. This transaction was approved by the
Company's stockholders at the Company's annual meeting in August, 1999.
On March 23, 1999, the Company entered into a Repayment Agreement with Mr.
Boxall, the Company President, to guarantee the debt of the Company to Mr.
Guembe, in exchange for the right to convert whatever amount Mr. Boxall pays to
Mr. Guembe, into shares of the Company's Common Stock. 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. If on January 1, 2001, there exists any outstanding balance of the debt
due Mr. Boxall, Mr. Boxall shall have the right at any time after January 1,
2001 through March 1, 2001, to convert all or part of the outstanding balance of
such debt into shares of common stock at a price per share equal to the fair
market value of the Common Stock on the conversion date, but in no event less
than $3.50 per share.
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RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
TOTAL REVENUE. Total revenue increased by 6.5% during 1999 to $25,030,000
compared to $23,501,000 in 1998. Product sales during 1999 were $24,735,000
compared to $23,070,000 in 1998, a 7.2% increase. Total revenue in 1999 included
$295,000 related to licensing and royalties. Total revenues by geographic
segment were up $889,000 or 10.8% in the United States, down $340,000 or 2.3% in
Spain and up by $980,000 in Malaysia due to a full year of revenues compared to
approximately three months in 1998 from the October 1998 acquisition.
COST OF REVENUES. Cost of revenues increased to $20,411,000 in 1999 (82.5%
of product sales) from $19,120,000 (82.9% of product sales) in 1998. The
increase in cost of revenues was due primarily to the full-year effect of the
DNA-Asia acquisition and higher operational costs in Spain and Taunton
attributed to plant restructuring at both locations. Notwithstanding, the cost
of revenues as a percentage of product sales declined modestly year to year.
GROSS PROFIT. Gross profit increased to $4,619,000 (18.7% of product sales)
in 1999 from $4,381,000 (19.0% of product sales) in 1998. Margins decreased
modestly. Higher costs associated with preparing for the installation of the new
metallizer in Taunton and plant restructuring in Spain were offset by cost
containment efforts at all manufacturing locations.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased to $3,715,000 (15.0% of total product sales) in 1999 from
$4,449,000 (19.3% of product sales) in 1998. Cost control efforts, staff
reductions, lower legal, investor and public relation expenses and the impact of
a strong dollar versus foreign currencies account for the decrease in this
category.
RESEARCH AND DEVELOPMENT. Direct research and development expenses
decreased to $340,000 (1.4% of product sales) in 1999 from $356,000 (1.5% of
product sales) in 1998. 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
decreased to $319,000 in 1999 from $338,000 in 1998.
LOSS FROM IMPAIRMENT OF LONG LIVED ASSETs. A one-time charge against
earnings of $1,108,000 in 1998 included the impairment of the Fort James license
of $1,075,000.
OPERATING INCOME (LOSS). The Company generated operating income of $245,000
(1.0% of product sales) in 1999 compared to an operating loss of ($1,870,000) in
1998 that included the "Loss from Impairment of Long Lived Assets" of $1,108,000
noted above. The full year impact of DNA-Asia and cost containment were the
major reasons for the improvement noted.
INTEREST EXPENSE. Interest expense totaled $789,000 in 1999 compared to
$810,000 in 1998. U.S. operations incurred interest expense of $480,000 and DNA
incurred interest expense of $309,000.
OTHER INCOME (EXPENSE). Other expense was $97,000 during 1999 compared to
other income of $352,000 for 1998. In 1998, other income generated at the DNA
operation included subsidies of $58,000 from the Spanish government (authorized
by the European Union) for creation of stable employment in depressed areas and
$104,000 relating to insurance claim proceeds from DNA (Asia) for a product
liability claim and rebate on VAT taxes of $114,000. In 1999, other expense was
primarily due to losses on currency exchange.
INCOME TAXES. Income taxes of $98,000 in 1998 were attributable to income
generated by the operations of DNA.
MINORITY INTEREST. Minority interest was a loss of $3,000 in 1999 compared
to a gain of $269,000 in 1998.
NET INCOME (LOSS). The Company generated a net loss of $638,000 in 1999
compared to a net loss of $ 2,695,000 in 1998 as a result of the factors set
forth above.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $719,000 at December 31, 1999 compared
to working capital of $505,000 at December 31,1998. The payment of the Mr.
Guembe Note in December, 1999 by Alex Boxall resulted in this debt becoming a
long term liability as of year end.
Cash used for operating activities for the year ended December 31, 1999 was
$209,000 compared to cash provided by operating activities of $97,000 during
1998. A net loss of $638,000 and increased inventories and trade receivables in
1999 were partially offset by non-cash depreciation and amortization of
$1,205,000.
During the year ended December 31, 1999, the Company invested approximately
$1,400,000 in equipment at its Taunton facility, $1,200,000 of which was for the
new high-speed metallizer which it is financing through its M&E Loan agreed to
on September 24, 1998, as detailed below. Fixed asset additions at the Madrid
facility in 1999 of $750,000 were primarily for the program started in 1998 that
included investing in production equipment in the principle areas of production
winding, end spraying and assembly and facility configuration to optimize
production flow. Management anticipates capital expenditures during 2000 to be
minimal and primarily supported by cost savings justification. The Company
expects to realize excellent return on investment during future periods through
increased revenue, efficency and cost improvement on the equipment investments
made in Taunton and Spain.
In March 1999, the Company entered into an agreement with DNA Export, S.A.
to purchase certain shares of capital stock of DNA-ADTECH held by DNA Export,
S.A. (the "Exchange Agreement"). This transaction was approved by the Company's
Stockholders at the Company's annual meeting of stockholders on August 11, 1999,
and brings the Company's total equity ownership in DNA-ADTECH to 81%. As
consideration for the additional equity position in DNA-ADTECH, the Company
issued 598,198 shares of its Common Stock to DNA Export, S.A. As a result of
this transaction, Mr. Boxall, the owner of DNA Export, S.A. beneficially owns a
total of 923,348 shares of the Company's Common Stock which represents
approximately 19% of the Company's Common Stock and continues to own the
remaining 19% of DNA-ADTECH. This transaction was consummated on September 20,
1999 and was exempt from registration pursuant to Regulation D of the Securities
Act of 1933, as amended.
On March 23, 1999, the Company entered into a Repayment Agreement with Mr.
Boxall, the Company President, to guarantee the debt of the Company to Mr.
Guembe, in exchange for the right to convert whatever amount Mr. Boxall pays to
Mr. Guembe, into shares of the Company's Common Stock. 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. If on January 1, 2001, there exists any outstanding balance of the debt
due Mr. Boxall, Mr. Boxall shall have the right at any time after January 1,
2001 through March 1, 2001, to convert all or part of the outstanding balance of
such debt into shares of common stock at a price per share equal to the fair
market value of the Common Stock on the conversion date, but in no event less
than $3.50 per share. 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 July 24, 1998, the Company and its principal lender entered into an
amended Credit Agreement (the "Amended Credit Agreement") that restructured the
terms of the Company's existing line-of-credit facility and two term loan
facilities and waived certain defaults thereunder. The Amended 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 8, 2001.
On September 24, 1998, the Company closed on a line of credit with its
principal lender for the purchase of machinery and equipment (the "M&E Loan").
The M&E Loan allows the Company to borrow up to $2,000,000 for the purchase of
machinery and equipment. Interest is payable monthly at the bank's prime rate
plus 1.25%. The M&E Loan was originally set to be repaid over 60 equal monthly
installments commencing in October, 1999. This was, however, based on delivery
and installment of the machinery by June 1999.
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 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 $1,311,938 of the M&E Loan as of
December 31, 1999.
In December 1999, the Company amended their financial 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").
8
<PAGE>
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 Company had an outstanding balance of approximately
$1,136,000 and $1,990,000 of the Line of Credit as of December 31, 1998 and
December 31, 1999, respectively. The Term Loans are to be repaid in 29 monthly
payments of $62,500, commencing January 1999 with a balloon payment of
$1,875,000 in July 2001. Interest is payable monthly at the bank's prime rate
plus 1.25%. The Term Loans allowed the Company to repay a $1,000,000 bridge note
incurred in connection with the DNA Acquisition and move approximately
$1,165,000 of its previous revolving line of credit balance into a term note
structure.
The Amended Credit Agreement and the M&E Loan require the Company to
maintain certain financial ratios and tangible net worth levels, among others.
The Company was not in compliance with one of the covenants of the Amended
Credit Agreement and M&E Loan Agreement. The bank has agreed to waive the event
of default relating to this covenant as of December 31, 1999, and March 31,
2000, respectively.
Management believes that the Company's cash and cash equivalents together
with its credit lines 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.
SUBSEQUENT EVENTS
In the first two months of 2000, the Company made further reductions in
overhead that should result in approximately $550,000 in annual savings.
Streamlining and simplifying methods are expected to improve the financial
contribution from the headquarters operation along with realizing the benefits
from the new metallizing machine during 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged assets or liability or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
SEASONAL REVENUES
Historically, the Company experienced lower sales of metallized film 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 and
electronic capacitor products, do not experience similarly timed seasonal
variations and will, in the future, offset third quarter lower seasonal sales to
the capacitor market.
INFLATION
In 1999, there was no inflation in raw material prices 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
revenues, (iii) the impact of Year 2000 issues; (iv) the Company's future cash
requirements; (v) the Company's ability to obtain UL approvals, (vi) the
9
<PAGE>
Company's expected production and revenues from new machinery, (vii) the
expected demand for capacitor, microwave and HED films and (viii) the ability of
the line of credit to improve short-term cash flow management, (ix) the
Company's expected revenues from research and development expenditures (x) the
Company's ability to incorporate e-commerce in our business. 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.
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
None
PART III
Items 9 through 12 are incorporated by reference to the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ending December 31, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS. The consolidated financial statements
required to be filed in Item 7 herewith are as follows:
<TABLE><CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants BDO Seidman,
LLP....................................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998................. F-3 to F-4
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998............................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999 and 1998................................................ F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998............................................................. F-7
Notes to Consolidated Financial Statements................................... F-8 to F-32
</TABLE>
(a) (2) The following exhibits are filed herewith:
10
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER TITLE
------ -----
3a Certificate of Incorporation. Filed as Exhibit 3a to the
Company's Registration Statement on Form SB-2 (Commission
file number 33-66324-B) declared effective by the Securities
and Exchange Commission on September 10, 1993 and
incorporated herein by reference.
3b Amended and Restated Bylaws. Filed as Exhibit 3b to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 (Commission file number 1-12230) and
incorporated herein by reference.
3c Certificate of Agreement of Merger between Advanced
Dielectric Technologies, Inc., a Massachusetts corporation
("Advanced Dielectric") And the Company, dated July 15,
1993. Filed as Exhibit 3c to the Company's Registration
Statement on Form SB-2 (Commission file number 33-66324-B)
declared effective by the Securities and Exchange Commission
on September 10, 1993 and incorporated herein by reference.
4a Form of Warrant Agreement between the Company and American
Securities Transfer, Incorporated with description of
Warrant Certificate included. Filed as Exhibit 4a to the
Company's Registration Statement on Form S-3 declared
effective by the Securities and Exchange Commission on May
13, 1996 (Commission file number 33-98400) and incorporated
herein by reference.
4c Form of Representative's Warrant Agreement with the Form of
Warrant Attached thereto. Filed as Exhibit 3a to the
Company's Registration Statement on Form SB-2 (Commission
file number 33-66324-B) declared effective by the Securities
and Exchange Commission on September 10, 1993 and
incorporated herein by reference.
4d Form of Warrant Agreement between the Company and American
Securities Transfer, Incorporated (includes Specimen Warrant
Certificate). Filed as Exhibit 4d to the Company's
Registration Statement on Form SB-2 (Commission file number
33-66324-B) declared effective by the Securities and
Exchange Commission on September 10, 1993 and incorporated
herein by reference.
10q Form of Employment Agreement between the Company and Glenn
J. Walters. Filed as Exhibit 10q to the Company's
Registration Statement on Form SB-2 (Commission file number
33-66324-B) declared effective by the Securities and
Exchange Commission on September 10, 1993 and incorporated
herein by reference.
10r Form of Consulting Agreement between the Company and Gordon
E. Walters. Filed as Exhibit 10r to the Company's
Registration Statement on Form SB-2 (Commission file number
33-66324-B) declared effective by the Securities and
Exchange Commission on September 10, 1993 and incorporated
herein by reference.
10s Form of Employee Secrecy, Invention and Non-Competition
Agreement between Advanced Dielectric Technologies, Inc. and
certain employees. Filed as Exhibit 10s to the Company's
Registration Statement on Form SB-2 (Commission file number
33-66324-B) declared effective by the Securities and
Exchange Commission on September 10, 1993 and incorporated
herein by reference.
10u Collaboration Agreement between Advanced Dielectric
Technologies, Inc. and Officine Galileo, S.P.A. ("Galileo"),
dated December 19, 1986 and amended May 31, 1988. Filed as
Exhibit 10u to the Company's Registration Statement on Form
SB-2 (Commission file number 33-66324-B) declared effective
by the Securities and Exchange Commission on September 10,
1993 and incorporated herein by reference.
10v Transfer of Technology Agreement between Advanced Dielectric
and Centro Tecnologie Del Vuoto, dated June 18, 1993. Filed
as Exhibit 10v to the Company's Registration Statement on
Form SB-2 (Commission file number 33-66324-B) declared
effective by the Securities and Exchange Commission on
September 10, 1993 and incorporated herein by reference.
11
<PAGE>
10w Securities Purchase Agreement between Advanced Dielectric,
Glenn J. Walters, Printpack Enterprises, Inc. ("Printpack")
and Gordon E. Walters, dated September 1992. Filed as
Exhibit 10v to the Company's Registration Statement on Form
SB-2 (Commission file number 33-66324-B) declared effective
by the Securities and Exchange Commission on September 10,
1993 and incorporated herein by reference.
10x New Metallizer Agreement between Advanced Dielectric and
Printpack, dated September 1992. Filed as Exhibit 10x to the
Company's Registration Statement on Form SB-2 (Commission
file number 33-66324-B) declared effective by the Securities
and Exchange Commission on September 10, 1993 and
incorporated herein by reference.
10y Purchase and Tolling Agreement between Advanced Dielectric
and Printpack dated September 1992. Filed as Exhibit 10y to
the Company's Registration Statement on Form SB-2
(Commission file number 33-66324-B) declared effective by
the Securities and Exchange Commission on September 10, 1993
and incorporated herein by reference.
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. Filed as Exhibit 10z to the
Company's Registration Statement on Form SB-2 (Commission
file number 33-66324-B) declared effective by the Securities
and Exchange Commission on September 10, 1993 and
incorporated herein by reference.
10gg 1994 Formula Stock Option Plan. Filed as Exhibit 10gg to the
Company's Annual Report on Form 10K-SB for the fiscal year
ended December 31, 1994 (Commission file number 1-12230),
and incorporated herein by reference.
10hh Security Agreement with Eastern Bank dated April 3, 1995.
Filed as Exhibit 10hh to the Company's Annual Report on Form
10K-SB for the fiscal year ended December 31, 1994
(Commission file number 1-12230) and incorporated herein by
reference.
10ii 1993 Stock Option Plan. Filed as Appendix C to Company's
Definitive Porxy Statement on Schedule 14(A) filed with the
Commission on April 21, 1997 (Commission file number
1-12230) and incorporated herein by reference.
10jj Share Purchase Agreement, between the Company and Alexander
Boxall dated December 19, 1997. Filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January 5, 1998
(Commission file number 1-12230) and incorporated herein by
reference.
10kk Share Purchase Agreement, dated December 19, 1997, between
the Company and Pedro Nunez-Barranco Guembe. Filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K
dated January 5, 1998 (Commission file number 1-12230) and
incorporated herein by reference.
10ll Revolving Credit and Term Loan Agreement, dated as of July
8, 1996, between the Company and the National Bank of
Canada. Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30,
1998 (Commission file number 1-12230) and incorporated
herein by reference.
10mm Modification No. 1 to Revolving Credit and Term Loan
Agreement, dated as of December 18, 1997 between the Company
and National Bank of Canada. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 (Commission file number 1-12230)
and incorporated herein by reference.
10nn Modification No.2 to Revolving Credit and Term Loan
Agreement, dated June 18, 1998, between the Company and
National Bank of Canada. Filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 (Commission file number 1-12230)
and incorporated herein by reference.
12
<PAGE>
10oo Modification No.3 to Revolving Credit and Term Loan
Agreement, dated September 23, 1998, between the Company and
National Bank of Canada. Filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998 (Commission file number 1-12230)
and incorporated herein by reference.
10pp Lease between MARAP, S.A. and Alexander Boxall, S.A. dated
December 15, 1996. Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March
31, 1998 (Commission file number 1-12230) and incorporated
herein by reference.
10qq Exchange Agreement among the Company, DNA Export S.A. and
Alexander Boxall dated March 23, 1999. Filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10Q-SB for the
quarter ended March 31, 1999 (Commission file number
(1-12230) and incorporated herein by reference.
10rr Repayment Agreement by and between the Company and Alexander
Boxall dated March 23, 1999. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10Q-SB for the quarter
ended March 31, 1999 (Commission file number (1-12230) and
incorporated herein by reference.
10ss Form of Agreement between the Representative and the
Company's officers, Directors and Stockholders with respect
to the transferability of shares. Filed as Exhibit 28a to
the Company's Registration Statement on Form SB-2
(Commission file number 33-66324-B) declared effective by
the Securities and Exchange Commission on September 10, 1993
and incorporated herein by reference.
10tt Form of Financial Advisory and Consulting Agreement between
the Company and the Representative. Filed as Exhibit 28b to
the Company's Registration Statement on Form SB-2
(Commission file number 33-66324-B) declared effective by
the Securities and Exchange Commission on September 10, 1993
and incorporated herein by reference.
21 Subsidiaries of the Company. Filed as Exhibit 21 to the
Company's Annual Report on Form 10K-SB for the fiscal year
ended December 31, 1998 (Commission file number (1-12230)
and incorporated herein by reference.
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K
during the three months ended December 31, 1999.
13
<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
CHIEF EXECUTIVE OFFICER AND TREASURER
Date: April 12, 2000
IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS, ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
NAME TITLE DATE
---- ----- ----
/s/ GLENN J. WALTERS Chairman of the Board, April 12, 2000
- --------------------------- Chief Executive Officer,
GLENN J. WALTERS and Treasurer
(principal executive officer)
/s/ JOSEPH P. KELLER Controller (principal financial April 12, 2000
- --------------------------- and accounting officer)
JOSEPH P. KELLER
/s/ ALEXANDER P. BOXALL Director, President April 12, 2000
- ---------------------------
ALEXANDER P. BOXALL
/s/ CHARLES R. BUFFLER Director April 12, 2000
- ---------------------------
CHARLES R. BUFFLER
/s/ JOHN J. MORONEY Director April 12, 2000
- ---------------------------
JOHN J. MORONEY
/s/ ROBERT M. POZZO Director April 12, 2000
- ---------------------------
ROBERT M. POZZO
14
<PAGE>
ADVANCED DEPOSITION
TECHNOLOGIES, INC.
AND SUBSIDIARIES
==========================================
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
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
F-1
<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 subsidiaries as of December 31, 1999 and 1998
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 subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Boston, Massachusetts
March 8, 2000
F-2
<PAGE>
<TABLE><CAPTION>
(In Thousands)
DECEMBER 31, 1999 1998
=======================================================================================
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS:
Cash and cash equivalents (Note 2(c)) $ 309 $ 411
Investment in marketable securities (Notes 2(e) and 2(s)) 17 43
Accounts receivable, net of allowances for doubtful accounts of
$184,000 in 1999 and $460,000 in 1998 (Note 9) 6,521 5,868
Inventories (Note 2(f)) 4,567 4,252
Prepaid expenses and other 392 274
- ---------------------------------------------------------------------------------------
Total current assets 11,806 10,848
- ---------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost (Notes 2(g) and 4):
Machinery and equipment 12,546 12,683
Furniture and fixtures 688 645
Leasehold improvements 501 453
Vehicles 191 189
Software 190 165
Equipment in construction 1,820 640
- ---------------------------------------------------------------------------------------
15,936 14,775
Less - accumulated depreciation and amortization 7,553 7,099
- ---------------------------------------------------------------------------------------
Net property and equipment 8,383 7,676
- ---------------------------------------------------------------------------------------
OTHER ASSETS, net of accumulated amortization (Notes 2(h), 3 and 9) 4,942 5,426
- ---------------------------------------------------------------------------------------
Total assets $25,131 $23,950
=======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE><CAPTION>
(In Thousands)
DECEMBER 31, 1999 1998
=======================================================================================
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to financial institutions (Note 4) $ 4,309 $ 3,589
Accounts payable 4,746 4,347
Accrued expenses 697 643
Current maturities of long-term obligations (Note 4) 1,335 1,764
- ---------------------------------------------------------------------------------------
Total current liabilities 11,087 10,343
LONG-TERM OBLIGATIONS:
Revolving line of credit (Note 4) 1,820 1,136
Long-term obligations, net of current maturities (Note 4) 4,700 4,010
- ---------------------------------------------------------------------------------------
Total liabilities 17,607 15,489
- ---------------------------------------------------------------------------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 488 1,078
- ---------------------------------------------------------------------------------------
COMMITMENTS (Notes 4, 5 and 6)
STOCKHOLDERS' EQUITY (Notes 7, 10 and 13):
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 4,894,758 and 4,286,560, outstanding 4,818,648 and
4,253,950 in 1999 and 1998, respectively 49 43
Additional paid-in capital 11,902 11,177
Accumulated deficit (4,486) (3,848)
Accumulated other comprehensive income (loss) (285) 95
- ---------------------------------------------------------------------------------------
7,180 7,467
Less treasury stock, 76,110 and 32,610 shares, at cost
in 1999 and 1998, respectively (144) (84)
- ---------------------------------------------------------------------------------------
Total stockholders' equity 7,036 7,383
- ---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $25,131 $23,950
=======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE><CAPTION>
(In Thousands Except
Share and Per Share Data)
YEARS ENDED DECEMBER 31, 1999 1998
=======================================================================================
<S> <C> <C>
REVENUES (Notes 2(k), 2(s) and 9):
Product sales $24,735 $23,070
Royalties, license and other 295 431
- ---------------------------------------------------------------------------------------
Total revenues 25,030 23,501
COST OF REVENUES 20,411 19,120
- ---------------------------------------------------------------------------------------
Gross profit 4,619 4,381
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 2(d)) 3,715 4,449
RESEARCH AND DEVELOPMENT EXPENSES (Note 2(l)) 340 356
AMORTIZATION EXPENSE 319 338
LOSS FROM IMPAIRMENT OF LONG-LIVED ASSETS (Note 6) -- 1,108
- ---------------------------------------------------------------------------------------
Operating income (loss) 245 (1,870)
- ---------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (789) (810)
Other income (expense), net (97) 352
- ---------------------------------------------------------------------------------------
Total other expense, net (886) (458)
- ---------------------------------------------------------------------------------------
Loss before income taxes and minority interest (641) (2,328)
INCOME TAXES (Notes 2(i) and 8) -- 98
- ---------------------------------------------------------------------------------------
Loss before minority interest (641) (2,426)
MINORITY INTEREST IN NET INCOME (LOSS) OF SUBSIDIARY (3) 269
- ---------------------------------------------------------------------------------------
NET LOSS $ (638) $(2,695)
=======================================================================================
NET LOSS PER COMMON SHARE (Note (2m)):
Basic and diluted $ (0.14) $ (0.63)
=======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE><CAPTION>
(In Thousands Except Number of Shares)
Common Stock Common
--------------------- Stock Additional
Number of $.01 Purchase Paid-in Accumulated
Shares Par Value Warrants Capital Deficit
===================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 4,280,560 $ 43 $ 1,594 $ 9,581 $ (1,153)
Purchase of treasury stock warrants -- -- (9) -- --
Expiration of warrants -- -- (1,585) 1,585 --
Purchase of treasury stock -- -- -- -- --
Exercise of stock options 6,000 -- -- 11 --
Comprehensive income (loss):
Net loss -- -- -- -- (2,695)
Other comprehensive income -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 4,286,560 43 -- 11,177 (3,848)
Issuance of common stock in
connection with the purchase
of a business 598,198 6 -- 639 --
Purchase of treasury stock -- -- -- -- --
Exercise of stock options 10,000 -- -- 20 --
Investment in joint venture -- -- -- 66 --
Comprehensive income (loss):
Net loss -- -- -- -- (638)
Other comprehensive income -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, December 31, 1999 4,894,758 $ 49 $ -- $ 11,902 $ (4,486)
===================================================================================================
(In Thousands Except Number of Shares)
Treasury Stock Accumulated
--------------------- Other Total
Number of Comprehensive Stockholders'
Shares Amount Income(loss) Equity
=======================================================================================
BALANCE, December 31, 1997 17,610 $ (65) $ (19) $ 9,981
Purchase of treasury stock warrants -- -- (9)
Expiration of warrants -- -- --
Purchase of treasury stock 15,000 (19) -- (19)
Exercise of stock options -- -- 11
Comprehensive income (loss):
Net loss -- -- -- (2,695)
Other comprehensive income -- -- 114 114
- ---------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- (2,581)
- ---------------------------------------------------------------------------------------
BALANCE, December 31, 1998 32,610 (84) 95 7,383
Issuance of common stock in
connection with the purchase
of a business -- -- -- 645
Purchase of treasury stock 43,500 (60) -- (60)
Exercise of stock options -- -- -- 20
Investment in joint venture -- -- -- 66
Comprehensive income (loss):
Net loss -- -- -- (638)
Other comprehensive income -- -- (380) (380)
- ---------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- (1,018)
- ---------------------------------------------------------------------------------------
BALANCE, December 31, 1999 76,110 $ (144) $ (285) $ 7,036
=======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE><CAPTION>
(In Thousands)
YEARS ENDED DECEMBER 31, 1999 1998
==================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (638) $(2,695)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,205 1,396
Provision for asset impairment -- 1,108
Minority interest (3) 269
Loss on sale of investments 5 14
Changes in assets and liabilities:
Accounts receivable (706) 1,183
Inventories (1,007) (735)
Prepaid expenses and other 164 (197)
Accounts payable 586 (548)
Accrued expenses 185 302
- ----------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (209) 97
- ----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,198) (2,169)
Proceeds from sale of investments 35 82
(Increase) decrease in other assets 46 (223)
- ----------------------------------------------------------------------------------
Net cash used for investing activities (2,117) (2,310)
- ----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments from bridge financing -- (1,000)
Net borrowings (repayments) from financial institutions 1,297 (120)
Net proceeds under revolving line of credit 854 162
Net borrowings of long-term obligations 82 2,651
Proceeds from exercise of common stock options 20 11
Purchase of treasury stock (60) (19)
Minority interest investment in joint venture 80 --
Purchase of treasury stock warrants -- (9)
- ----------------------------------------------------------------------------------
Net cash provided by financing activities 2,273 1,676
- ----------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (49) 29
- ----------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (102) (508)
CASH AND CASH EQUIVALENTS, beginning of year 411 919
- ----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 309 $ 411
==================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
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 September 1999, the Company acquired an additional
16% of the common stock of DNA-AD Tech S.A. ("DNA")
formerly known as Alexander Boxall, S.A., a foreign
corporation to bring the Company's total percentage
ownership to 81% (see Note 3). DNA is a manufacturer
of electronic capacitors used for lighting and motor
applications.
2. SIGNIFICANT The accompanying consolidated financial statements
ACCOUNTING reflect the application of certain significant
POLICIES accounting 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 amounts 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 subsidiaries DNA-AD Tech, S.A. and Micro-Tech
A/S. All significant intercompany balances and
transactions have been eliminated in consolidation.
F-8
<PAGE>
2. SIGNIFICANT (C) CASH AND CASH EQUIVALENTS
ACCOUNTING
POLICIES The Company considers all investments purchased with
(Continued) original maturities of less than three months to be
cash equivalents. There were no cash equivalents at
December 31, 1999 and 1998.
(D) ADVERTISING EXPENSES
Advertising expenses are charged to operations as
incurred. Advertising expense for the years ended
December 31, 1999 and 1998 was approximately $77,000
and $81,000, 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." Investments in marketable
securities are classified as available-for-sale
securities and are reported in the balance sheet at
fair value with unrealized gains or losses included
as a component of comprehensive income. Realized
gains and losses are recognized in the results of
operations.
As of December 31, 1999 and 1998, investments in
marketable securities consisted entirely of equity
instruments.
F-9
<PAGE>
2. SIGNIFICANT (F) INVENTORIES
ACCOUNTING
POLICIES Inventories are stated at the lower of cost
(Continued) (first-in, first-out) or market and consist of the
following (in thousands):
1999 1998
=====================================================
Raw materials $2,338 $2,760
Work in process 287 303
Finished goods 2,334 1,905
-----------------------------------------------------
4,959 4,968
Less: reserve for obsolescence 392 716
-----------------------------------------------------
Net $4,567 $4,252
=====================================================
Work in process and finished goods include materials,
labor and manufacturing overhead.
(G) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The
Company 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 Lives
=====================================================
Machinery and equipment 10 - 15 years
Furniture and fixtures 5 years
Leasehold improvements Terms of lease
Vehicles 4 - 5 years
Software 3 - 5 years
F-10
<PAGE>
2. SIGNIFICANT (H) OTHER ASSETS
ACCOUNTING
POLICIES The Company capitalizes the costs of obtaining
(Continued) patents and trademarks and is amortizing such costs
over five to ten years. During 1996, the Company
acquired several licenses which allow the Company to
manufacture and market products under certain patents
which are being amortized over 14 years (see Note 6).
Other assets consist of (in thousands):
OTHER ASSETS 1999 1998
=====================================================
Goodwill (Note 3) $ 4,017 $ 3,899
Licenses and patents 1,667 1,426
Due from related party (Note 9) 106 242
Other 89 463
-----------------------------------------------------
5,879 6,030
Less: accumulated amortization 937 604
-----------------------------------------------------
Net $ 4,942 $ 5,426
=====================================================
Goodwill results from the excess of cost over fair
value of net assets acquired and is being amortized
on a straight-line basis over 10 years related to the
acquisition of Kidamai SDN and 25 years related to
the acquisition of DNA. The Company evaluates the
recoverability and remaining life of its goodwill in
accordance with SFAS No. 121.
F-11
<PAGE>
2. SIGNIFICANT (I) INCOME TAXES
ACCOUNTING
POLICIES The Company provides for income taxes in accordance
(Continued) 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 basis 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.
(L) RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses
to operations as incurred.
(M) NET INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share,"
which requires the Company to present its basic
earnings per share and diluted earnings per share,
and certain other earnings per share disclosures for
each year presented. Basic earnings per share is
computed by dividing income available to common
shareholders by the weighted average number of common
shares outstanding. The computation of diluted
earnings per share is similar to the computation of
basic earnings per share except that the denominator
is increased to include the number of additional
common shares that would have been outstanding if the
dilutive potential common shares had been issued. In
addition, the numerator is adjusted for any changes
in income or loss that would result from the assumed
conversions of those potential shares.
F-12
<PAGE>
2. SIGNIFICANT The weighted average number of common shares
ACCOUNTING outstanding is summarized as follows:
POLICIES
(Continued) DECEMBER 31, 1999 1998
=====================================================
Denominator for basic and
diluted loss per share:
Weighted average common
shares outstanding 4,403,108 4,267,213
=====================================================
In 1999 and 1998, the Company had common stock
options and warrants outstanding, none of which were
included in the diluted earnings per share
calculation since their effect would have been
antidilutive.
(N) FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial
instruments, which include marketable securities,
accounts receivable, accounts payable, amounts due to
financial institutions and long-term obligations
approximate 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 excluded from net income and recorded
as a component of comprehensive income.
(P) LONG-LIVED ASSETS
The Company follows 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.
F-13
<PAGE>
2. SIGNIFICANT The Company reviews the carrying values of its
ACCOUNTING long-lived, identifiable intangible assets and
POLICIES goodwill for possible impairment whenever events or
(Continued) 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. During the year ended December 31,
1998, the Company recorded an impairment loss related
to certain licenses as changes in circumstances
indicated an impairment had occurred (see Note 6).
(Q) COMPREHENSIVE INCOME
The Company follows Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income,
("SFAS No. 130") which 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 stipulates 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 (see Note 13).
(R) INDUSTRY SEGMENTS
The Company follows Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"),
which supercedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise." SFAS No. 131
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 (see Note 12).
F-14
<PAGE>
2. SIGNIFICANT (S) CONCENTRATION OF CREDIT RISK
ACCOUNTING
POLICIES Statement of Financial Accounting Standards No. 105,
(Continued) "Disclosure of Information About Financial
Instruments with 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 receivable and
provides estimated reserves for potential credit
losses.
(T) NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires companies to recognize all
derivative contracts as either assets or liabilities
in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the
objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of
the hedged assets or liability or (ii) the earnings
effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the
period of change. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into
derivative contracts either to hedge existing risks
or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to
affect its financial statements.
(U) RECLASSIFICATIONS
Certain balances in the 1998 financial statements
have been reclassified to conform to the 1999
presentation.
F-15
<PAGE>
3. ACQUISITION Effective September 20, 1999, the Company acquired an
ACTIVITY additional 16% of the outstanding common stock of
DNA, a producer of lighting and motor run capacitors
for 598,198 shares of the Company's stock with a fair
value of approximately $645,000. The acquisition
increased the Company's ownership of DNA to 81%.
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 $167,000 was allocated to
goodwill and is being amortized over 23 years, the
remaining years of amortization for the goodwill
related to the original 65% acquisition of DNA.
The consolidated statements of operations and cash
flows include 65% of the results of DNA from January
1, 1998 through September 20, 1999 and 81% from
September 21, 1999 through December 31, 1999.
On October 1, 1998, the Company's majority owned
subsidiary, DNA, acquired 80% of the capital stock of
Kidamai SDN ("Kidamai"), a capacitor assembler and
distributor located in Kuala Lumpur, Malaysia, for
the cancellation of accounts receivable from product
sales of approximately $370,000. The acquisition was
recorded using the purchase method of accounting
whereby the cost of the acquisition over the fair
value of the net assets acquired of approximately
$370,000 was allocated to goodwill and is being
amortized over 10 years.
The operations of Kidamai were not material and
accordingly, proforma information was not provided.
F-16
<PAGE>
4. FINANCING (A) REVOLVING LINE OF CREDIT AND TERM NOTES
ARRANGEMENTS
The Company has a financing agreement with a bank
(the "Financing Agreement") dated July 8, 1996 which
includes a line of credit (the "Line of Credit"),
term notes ("Term Note A" and "Term Note B"), and an
equipment loan ("M&E Loan").
The Line of Credit and the Term Notes are secured by
all of the Company's assets, mature on July 8, 2001,
and are subject to a prepayment fee of 2% of the then
outstanding balance if prepaid by July 8, 2000 or 1%
thereafter.
The Line of Credit allows the Company to borrow up to
the lesser of $2,000,000 or the borrowing base as
defined in the Financing Agreement and bears interest
at a rate of 1.0% above the lender's prime lending
rate (9.5% at December 31, 1999). The Company is
required to make monthly interest only payments under
the line of credit with the principal due on July 8,
2001. In September 1999, the Financing Agreement was
amended to provide for additional borrowings above
the borrowing base ("Overadvances"). The Overadvances
cannot exceed $500,000. The Overadvances bear
interest at 1% above the lenders prime lending rate
(9.5% at December 31, 1999) and are to be amortized
in accordance with a monthly calculation reducing the
Overadvances as defined in the Financing Agreement
beginning January 1, 2000 through June 2001. As of
December 31, 1999 and 1998, total borrowings under
the Line of Credit were approximately $1,990,000 and
$1,136,000, respectively. The current portion of the
line of credit related to the Overadvances was
approximately $170,000 as of December 31, 1999. The
maximum amount of short-term borrowings under the
line of credit was approximately $1,990,000 and
$1,668,000 for fiscal 1999 and 1998, respectively.
F-17
<PAGE>
4. FINANCING (A) REVOLVING LINE OF CREDIT AND TERM NOTES
ARRANGEMENTS (Continued)
(Continued)
The Company's Term Note A with a total principal
amount of $2,750,000 under the amended Financing
Agreement bears interest at a rate of 1.25% above the
lender's prime lending rate (9.75 % at December 31,
1999). The Term Note A was payable interest only
until January 1, 1999 and then in thirty monthly
principal payments, with each of the first
twenty-nine payments in the amount of $45,833 plus
interest with the final principal payment of
$1,420,834 due on July 8, 2001. As of December 31,
1999 and 1998, the outstanding balance on the Term
Note A was $2,200,000 and $2,750,000, respectively.
The current portion of Term Note A was $550,000 at
December 31, 1999.
(B) TERM NOTE B
In June 1998, the Company converted a bridge note of
$1,000,000 borrowed from a bank to a term note ("Term
Note B"). The loan was used to fund the acquisition
of DNA, using DNA's stock as collateral. The Term
Note B was payable interest only until January 1,
1999 and then in twenty-nine monthly installments of
$16,667 plus interest with one final principal
payment of $516,667 due on July 8, 2001. The Term
Note B bears interest at the bank's prime rate plus
1.25% (9.75% at December 31, 1999). As of December
31, 1999 and 1998, the outstanding balance on the
Term Note B was $800,000 and $1,000,000,
respectively.
(C) M&E LOAN
In September 1999, the Company amended the Financing
Agreement which provides for borrowings up to
$2,000,000 (the "M&E Loan") for the purchase of new
equipment. The principal amount of the M&E Loan
cannot exceed 80% of the invoice price of the new
equipment and bears interest at a rate of 1.25% above
the lenders prime lending rate (9.75% at December 31,
1999). The principal amount outstanding on the M&E
Loan as of April 1, 2000 will be payable in sixty
monthly installments commencing April 1, 2000 with
the final payment due April 1, 2005. As of December
31, 1999 the balance outstanding was approximately
$1,312,000. The monthly installments will approximate
$22,000 plus interest with a current portion of
approximately $197,000 at December 31, 1999.
F-18
<PAGE>
4. FINANCING The Financing Arrangement includes certain financial
ARRANGEMENTS covenants which must be maintained by the Company. In
(Continued) December 1999, the Financing Agreement was amended
with respect to certain financial covenants. The
amended financial covenants include a minimum
tangible net worth and senior debt to net worth
ratio. As of December 31, 1999 and March 31, 2000,
the Company was not in compliance with one of the
financial covenants. Subsequent to year end, the
Company received written notification from the lender
which waived the event of default related to this
covenant as of December 31, 1999 and March 31, 2000,
respectively.
(D) NOTE PAYABLE
In connection with its acquisition of DNA, the
Company entered into a note agreement with a former
shareholder of DNA in the principal amount of
$990,000. The principal and interest were due on
December 19, 1999. In accordance with a Repayment
Agreement with a shareholder of DNA and shareholder
and president of the Company, the total amount
outstanding on the note, including interest, of
$1,099,598 was paid in full in December 1999 by the
shareholder. The amount paid by the shareholder is
payable by the Company and bears interest at the
LIBOR rate plus 2% and becomes due on or before March
1, 2001. If the Company has not paid by January 1,
2001, the shareholder may elect to convert all or
part of the outstanding balance into shares of the
Company's common stock at a conversion price per
share equal to the fair market value of the common
stock on the conversion date, subject to a minimum
$3.50 per share conversion price. This note is
subordinated to all debt under the Financing
Agreement.
F-19
<PAGE>
4. FINANCING (E) DUE TO FINANCIAL INSTITUTIONS
ARRANGEMENTS
(Continued) DNA 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. DNA is indebted to the bank
until the agreements are paid in full. As of December
31, 1999 and 1998, the balance outstanding related to
these Agreements was $3,065,000 and $2,446,000,
respectively.
The Company has other short-term loans from financial
institutions with interest rates ranging from 4.5% to
5.5% with a total outstanding balance of $1,244,000
and $1,143,000 as of December 31, 1999 and 1998,
respectively.
(F) CAPITAL LEASES
The Company leases certain equipment under capital
leases. As of December 31, 1999 and 1998, the
Company's outstanding obligations under the leases
were approximately $454,000 and $540,000,
respectively. Included in property and equipment is
leased equipment having a net book value at December
31, 1999 and 1998 of approximately $500,000 and
$520,000, respectively.
As of December 31, 1999, the aggregate annual
payments on long-term obligations are as follows (in
thousands):
FISCAL YEAR AMOUNT
=====================================================
2000 $ 1,335
2001 3,730
2002 380
2003 262
2004 262
Thereafter 66
-----------------------------------------------------
6,035
Less: current maturities 1,335
-----------------------------------------------------
Long-term liabilities $ 4,700
=====================================================
F-20
<PAGE>
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 in the United States at fair market
value should the lessor offer the facility for sale.
DNA's manufacturing operations in Spain are
maintained in a leased facility which is owned by the
19% shareholder of DNA with annual payments of
approximately $168,000 expiring on December 31, 2006.
Future minimum lease payments as of December 31, 1999
are approximately as follows (in thousands):
FISCAL YEAR AMOUNT
=====================================================
2000 $ 751
2001 674
2002 513
2003 474
2004 284
Thereafter 435
-----------------------------------------------------
Total $ 3,131
=====================================================
Rent expense included in the accompanying
consolidated statements of operations is
approximately $731,000 and $570,000 for 1999 and
1998, respectively.
6. AGREEMENT WITH During 1996, the Company entered into a Patent
FORT JAMES Assignment, Licensing and Supply Agreement (the "Fort
CORPORATION James Agreement") with Fort James Corporation ("Fort
James"). 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-21
<PAGE>
6. AGREEMENT WITH Pursuant to the patent assignment, Fort James will
FORT JAMES remit to the Company a portion of the royalties it
CORPORATION collects from licensees who produce products covered
(Continued) 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, 1999
and 1998 was $0 and $7,000, respectively.
The Company relied on an independent appraiser of
intellectual properties to determine the fair value
of all licenses granted under the Fort James
Agreement. The licenses were valued at $1,550,000 and
were being amortized over 14 years, the remaining
life of the underlying patents.
During fiscal 1998, the Company recorded an
impairment loss of approximately $1,075,000 included
in operations related to the writedown of certain
licenses covered under the Assigned Patents for the
sale of home use products, primarily microwave
cooking bags. Due to the termination of the
distribution agreement, a large decline in sales, and
no new distribution agreement resulting in the
inability to project future revenue, the Company
recorded an impairment loss to reduce the carrying
value of the licenses related to home use products to
$0 at December 31, 1998. The Company also recorded a
charge in 1998 of approximately $180,000 related to
the write-off of the microwave cooking bag inventory.
7. STOCK OPTIONS The Company has a stock option plan (the "Plan")
AND WARRANTS under which 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. The Company has 800,000 shares
reserved for issuance under the Plan.
F-22
<PAGE>
7. STOCK OPTIONS The Company accounts for its stock-based compensation
AND WARRANTS plans using the intrinsic value method. Accordingly,
(Continued) no 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 loss and net loss per share
would have been adjusted to the pro forma amounts
indicated below:
<TABLE><CAPTION>
1999 1998
===================================================================
<S> <C> <C> <C>
Net loss As reported $ (638) $(2,695)
(in thousands) Pro forma $ (667) (2,822)
Net loss per
common share: As reported:
Basic and diluted $(0.14) $ (0.63)
Pro forma:
Basic and diluted $(0.15) $ (0.66)
</TABLE>
The Company's weighted-average assumptions used in
the pricing model and resulting fair values were as
follows:
1999 1998
=====================================================
Risk free rate -- 5.56% - 6.66%
Expected dividend yield -- --
Expected option life (in years) -- 10
Expected stock price volatility -- 46.5%
Grant date fair value -- $2.09 - $2.83
F-23
<PAGE>
7. STOCK OPTIONS Stock option activity of the Company, including
AND WARRANTS activity under the Plan, for the years ended December
(Continued) 31, 1999 and 1998, is 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, 1997 453,074 $0.27 - $5.44 $ 3.15
Granted 52,000 2.81 - 3.38 3.36
Exercised (6,000) 2.00 2.00
---------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1998 499,074 0.27 - 5.44 3.19
Granted -- -- --
Exercised (10,000) 2.00 2.00
Cancelled/expired (242,474) 0.27 - 5.44 2.34
---------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1999 246,600 $2.00 - $5.06 $ 3.02
===============================================================
Exercise Weighted
Options Exercisable Number Price Range Average
At Year-End of Shares Per Share Price
===============================================================
1998 362,074 $0.27 - $5.44 $ 2.96
1999 246,600 $2.00 - $5.06 $ 3.02
</TABLE>
As of December 31, 1999 and 1998, the Company had
553,400 and 300,926 shares, respectively, available
for future option grants under the Plan.
All options granted during 1998 were granted with
exercise prices equal to the fair market value of the
Company's common stock on the date of grant.
F-24
<PAGE>
7. STOCK OPTIONS The following table summarizes information about
AND WARRANTS stock options outstanding at December 31, 1999:
(Continued)
$ 2.00 $ 3.38
to to
Range of Exercise Prices: $ 2.88 $ 5.06
=====================================================
Outstanding options:
Number outstanding at
December 31, 1999 95,600 151,000
Weighted average remaining
contractual life (years) 4.0 7.4
Weighted average exercise price $ 2.10 $ 3.60
Exercisable options:
Number outstanding at
December 31, 1999 95,600 151,000
Weighted average remaining
contractual life (years) 4.0 7.4
Weighted average exercise price $ 2.10 $ 3.60
=====================================================
As of January 1, 1998, the Company had issued
1,044,425 Class B warrants with 1,004,425
outstanding. Each Class B warrant entitled the holder
to purchase one share of common stock at $5.00 per
share and were to expire on May 12, 1998. The Company
extended the expiration date of the Class B warrants
to July 31, 1998. During 1998, the Company purchased
70,000 Class B warrants. No B warrants were exercised
during the extended period and all 1,044,425 warrants
expired.
F-25
<PAGE>
8. INCOME TAXES Domestic and foreign income (loss)
before income taxes and minority interest in net
income (loss) of the consolidated subsidiary are as
follows (in thousands):
YEARS ENDED DECEMBER 31, 1999 1998
=====================================================
Domestic $ (516) $ (3,160)
Foreign (125) 832
-----------------------------------------------------
$ (641) $ (2,328)
=====================================================
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, 1999 and 1998 is as follows (in
thousands):
Deferred
(Liability) Asset
--------------------
1999 1998
====================================================
Depreciation and amortization $ (866) $ (946)
Net operating loss and tax
credit carryforwards 2,378 2,046
Inventory and other reserves 167 441
Other 10 11
Valuation reserve (1,689) (1,552)
----------------------------------------------------
Net $ -- $ --
====================================================
At December 31, 1999, the Company had Federal and
state net operating loss ("NOL") carryforwards of
approximately $5,605,000 and $4,112,000,
respectively. The Company also has tax credit
carryforwards of approximately $107,000. The
Company's NOL carryforwards expire at various dates
through 2019. 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>
8. INCOME TAXES No provision for Federal income taxes has been made
(Continued) for the year ended December 31, 1999 due to domestic
and foreign operating losses.
The difference between income taxes provided at the
Company's effective tax rate and the Federal
statutory rate for the year 1998 was due to the
effect of foreign taxes of approximately $98,000.
9. RELATED PARTY Included in 1999 and 1998 sales is approximately
TRANSACTIONS $2,679,000 and $3,579,000, respectively, in sales to
companies owned by the President and shareholder of
the Company and 19% shareholder of DNA. At December
31, 1999 and 1998, the accounts receivable balances
from these companies totaled approximately $900,000
and $841,000, respectively.
Included in rent expense is rent for a leased
facility owned by the President and shareholder of
the Company and 19% shareholder of DNA of
approximately $170,000 and $168,000 for fiscal years
1999 and 1998, respectively.
Included in other assets are amounts due from the
President and shareholder of the Company and 19%
shareholder of DNA of approximately $106,000 and
$242,000 for the years ended December 31, 1999 and
1998, respectively. Included in accrued liabilities
for December 31, 1999 is approximately $60,000 due to
the same individual.
The Company obtains consulting services from a
shareholder and former director of the Company. Fees
for services paid to this shareholder and former
director were approximately $20,000 for the years
1999 and 1998.
Included in 1999 sales is approximately $313,000 to
the minority interest shareholder of Micro-Tech A/S.
F-27
<PAGE>
10. JOINT VENTURE In February 1999, the Company formed a joint venture
with Trykko Pack of Denmark for the purpose of
licensing the technology of the Company's safety
susceptor patent throughout Europe and marketing the
Company's microwave film products. The Company has an
82% equity interest in the joint venture entity,
Micro-Tech A/S. The Company contributed to the joint
venture a license to the patented technology
described above in return for an 82% equity interest
in the joint venture. The value of the license
contributed was determined by the relative fair value
of the net assets acquired and accordingly, an amount
of $66,000 was recorded as additional paid in
capital. The operations of the joint venture were not
material to the results of operations for 1999.
11. SUPPLEMENTAL Cash paid during the year for (in thousands):
DISCLOSURE OF
CASH FLOW 1999 1998
INFORMATION ====================================================
Interest $ 734 $ 734
Income taxes $ -- $ 98
The accompanying consolidated financial statements
include the following noncash investing and financing
activities (in thousands):
1999 1998
====================================================
Common stock issued in connection
with the purchase of DNA $ 645 $ --
====================================================
Accrued interest converted
to note payable $ 109 $ --
====================================================
Cancellation of accounts receivable
in connection with the acquisition
of Kidamai SDN $ -- $ 370
====================================================
Net unrealized loss on
marketable securities $ -- $ 16
====================================================
F-28
<PAGE>
12. INDUSTRY AND The Company operations are classified into two
GEOGRAPHIC business segments: food packaging applications and
SEGMENTS electronic capacitor applications.
The following table shows sales, operating income
(loss) and other financial information by industry
segment. The corporate column includes corporate
related items not allocated to industry segments (in
thousands):
Food Capacitor
Packaging Applications Corporate Consolidated
===============================================================================
December 31, 1999
Sales $ 5,068 $ 19,962 $ -- $ 25,030
- -------------------------------------------------------------------------------
Operating income (loss) $ (397) $ 915 $ (273) $ 245
===============================================================================
Capital Expenditures $ 83 $ 2,068 $ 47 $ 2,198
Depreciation and Amortization 219 713 273 1,205
- -------------------------------------------------------------------------------
Identifiable assets at
December 31, 1999 $ 4,018 $ 16,868 $ 4,245 $ 25,131
===============================================================================
December 31, 1998
Sales $ 4,917 $ 18,584 $ -- $ 23,501
- -------------------------------------------------------------------------------
Operating income (loss) $ (2,289) $ 723 $ (304) $ (1,870)
===============================================================================
Capital Expenditures $ 100 $ 1,315 $ 754 $ 2,169
Depreciation and Amortization 314 778 304 1,396
- -------------------------------------------------------------------------------
Identifiable assets at
December 31, 1998 $ 4,486 $ 15,163 $ 4,301 $ 23,950
===============================================================================
F-29
<PAGE>
12. INDUSTRY AND The Company operated in the United States and Spain
GEOGRAPHIC for all of 1999 and 1998 and in Malaysia since
SEGMENTS October 1, 1998. The following table presents
(Continued) information by country based on where the revenues
and expenses were generated and where the asset was
located:
United States Spain Malaysia Consolidated
===============================================================================
December 31, 1999
Sales $ 9,131 $ 14,734 $ 1,165 $ 25,030
- -------------------------------------------------------------------------------
Operating income (loss) $ (526) $ 748 $ 23 $ 245
===============================================================================
Capital Expenditures $ 1,427 $ 760 $ 11 $ 2,198
Depreciation and Amortization 827 338 40 1,205
- -------------------------------------------------------------------------------
Identifiable assets at
December 31, 1999 $ 13,241 $ 10,970 $ 920 $ 25,131
===============================================================================
December 31, 1998
Sales $ 8,242 $ 15,074 $ 185 $ 23,501
- -------------------------------------------------------------------------------
Operating income (loss) $ (3,305) $ 1,460 $ (25) $ (1,870)
===============================================================================
Capital Expenditures $ 928 $ 1,241 $ -- $ 2,169
Depreciation and Amortization 1,038 352 6 1,396
- -------------------------------------------------------------------------------
Identifiable assets at
December 31, 1998 $ 11,749 $ 11,112 $ 1,089 $ 23,950
===============================================================================
F-30
<PAGE>
12. INDUSTRY AND
GEOGRAPHIC
SEGMENTS
(Continued)
EXPORT SALES Export sales as a percentage of revenues were made to
the following geographic regions in 1999 and 1998,
respectively:
REGION 1999 1998
===============================================
Europe 52% 54%
South America 5 6
Far East 5 3
Middle East 2 3
Other 3 2
There was no single customer that accounted for over
10% of sales for the years ended December 31, 1999 or
1998.
13. COMPREHENSIVE The Company follows the provisions of Statement of
INCOME Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130").
The components of other comprehensive income (loss)
are as follows:
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
=======================================================================
<S> <C> <C>
Foreign currency translation adjustments $(396,000) $ 130,000
Unrealized gains (losses) on investments
in marketable securities 16,000 (16,000)
-----------------------------------------------------------------------
$(380,000) $ 114,000
=======================================================================
</TABLE>
F-31
<PAGE>
13. COMPREHENSIVE The components of accumulated other comprehensive
INCOME income (loss) are as follows:
(Continued)
<TABLE><CAPTION>
DECEMBER 31, 1999 1998
=======================================================================
<S> <C> <C>
Foreign currency translation adjustments $(285,000) $ 111,000
Unrealized losses on investments
in marketable securities -- (16,000)
-----------------------------------------------------------------------
$(285,000) $ 95,000
=======================================================================
</TABLE>
F-32
EXHIBIT 21
----------
SUBSIDIARIES OF THE COMPANY
---------------------------
DNA-ADTECH (Organized under the laws of the Kingdom of Spain)
DNA-ADTECH (Asia) Sdn Bhd (subsidiary of DNA-ADTECH in Spain organized under
the laws of Malaysia)
Microtech A/S (Organized under the laws of Denmark)
Micro-Tech Products, Inc. (Massachusetts Corporation - Inactive)
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 8, 2000, 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, 1999.
/s/ BDO Seidman, LLP
Boston, Massachusetts
April 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 309
<SECURITIES> 17
<RECEIVABLES> 6705
<ALLOWANCES> (184)
<INVENTORY> 4567
<CURRENT-ASSETS> 11806
<PP&E> 15936
<DEPRECIATION> (7553)
<TOTAL-ASSETS> 25131
<CURRENT-LIABILITIES> 11087
<BONDS> 6035
0
0
<COMMON> 49
<OTHER-SE> 6987
<TOTAL-LIABILITY-AND-EQUITY> 25131
<SALES> 24735
<TOTAL-REVENUES> 25030
<CGS> 20411
<TOTAL-COSTS> 20411
<OTHER-EXPENSES> 4374
<LOSS-PROVISION> 184
<INTEREST-EXPENSE> 789
<INCOME-PRETAX> (641)
<INCOME-TAX> 0
<INCOME-CONTINUING> (638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (638)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 411
<SECURITIES> 43
<RECEIVABLES> 6328
<ALLOWANCES> (460)
<INVENTORY> 4252
<CURRENT-ASSETS> 10848
<PP&E> 14775
<DEPRECIATION> (7099)
<TOTAL-ASSETS> 23950
<CURRENT-LIABILITIES> 10343
<BONDS> 5774
0
0
<COMMON> 43
<OTHER-SE> 7340
<TOTAL-LIABILITY-AND-EQUITY> 23950
<SALES> 23070
<TOTAL-REVENUES> 23501
<CGS> 19120
<TOTAL-COSTS> 19120
<OTHER-EXPENSES> 6251
<LOSS-PROVISION> 460
<INTEREST-EXPENSE> 810
<INCOME-PRETAX> (2328)
<INCOME-TAX> 98
<INCOME-CONTINUING> (2695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2695)
<EPS-BASIC> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
