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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from __________ to __________.
Commission File No. 0-19195
AMERICAN MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-2905258
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
5555 Bear Lane, Corpus Christi, TX 78405
(Address of principal executive offices)(Zip Code)
(361) 289-1145
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Title of Each Class Name of Exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.04 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $5,151,000 as of March 20,
2001, based upon the last sales price reported on The Nasdaq National Market on
that date. For purposes of this calculation only, all directors, executive
officers and owners of more than ten percent of the registrant's Common Stock
are assumed to be affiliates. There were 7,038,897 shares of the registrant's
Common Stock issued and outstanding on March 20, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants' Proxy Statement for its 2001 Annual
Meeting of Stockholders are incorporated by reference into
Part III of this report on Form 10-K
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
American Medical Technologies, Inc. ("American Medical" or "Company")
develops, manufactures and markets high technology products designed primarily
for general dentistry. American Medical's primary products are pulsed dental
lasers, primarily the PulseMaster models; high speed curing lights ("PAC"); air
abrasive kinetic cavity preparation systems ("KCP"), and intra oral cameras
("Ultracam"), which are developed and manufactured at its manufacturing facility
in Corpus Christi, Texas. American Medical also develops, manufactures and
markets precision air abrasive jet machining ("AJM") systems for industrial
applications. American Medical, incorporated in Delaware in November 1989,
completed its initial public offering in June 1991. American Medical changed its
name from American Dental Technologies, Inc. on July 13, 2000.
On February 14, 2000, American Medical announced that it would now sell
its dental products in the United States directly to dentists through its own
sales force. The Company established 17 sales and service centers in 2000 and
plans to add twenty additional sales and service centers over the next two
years. American Medical plans to continue to sell outside the United States
through its distributor network. The goal of the Company is to become an
equipment distributor that supplies 80% to 90% of a dentist's equipment
requirements. To that end, the Company will pursue OEM relationships and
strategic alliances with other manufacturers.
PRODUCTS
LASER PRODUCTS
The PulseMaster 600-IQ, one of two instruments in American Medical's
laser product line, is a neodymium yttrium-aluminum-garnet (Nd:YAG) laser that
delivers pulses of laser energy through a flexible fiber optic delivery system
that can reach into difficult recesses of the mouth. The PulseMaster can deliver
a 100-microsecond energy pulse at rates varying from 10 to 200 times per second,
and at up to six watts of average power. The PulseMaster is contained in a
movable cabinet the size of a medium suitcase, weighs approximately 75 pounds
and plugs into a standard electrical outlet.
American Medical introduced a diode laser, "Diolase", in October 1998.
The diode laser delivers a continuous wave or gated continuous wave through a
flexible fiber optic delivery system that can reach difficult recesses of the
mouth. The Diolase delivers up to 6 watts of power depending upon the fiber size
used. The Diolase is compact and portable in size, weighs approximately 11
pounds and plugs into a standard electrical outlet.
American Medical believes one important feature of its dental lasers is
their ability to help reduce the pain associated with the procedures for which
they are used. Additionally, because the laser is more precise than standard
dental instruments, its use results in less cellular destruction. The laser
minimizes bleeding during soft tissue surgery, creating a cleaner field in which
to operate by eliminating time-consuming removal of blood from the operative
site. The laser also reduces the risk of post-operative infection.
American Medical's dental lasers are used for both soft tissue and hard
tissue applications. Soft tissue procedures include removing excess or diseased
gum tissue, contouring gums, performing biopsies, preparing gums for crown and
bridge impressions, trimming the gums to fit crowns and bridges, treating gum
disease and for hemostasis (control of bleeding). Hard tissue applications
include removing early decay from teeth, etching, increasing hardness of dentin,
and desensitizing and anesthetizing teeth. In May 1999, American Medical
received U.S. Food & Drug Administration ("FDA") clearance to market the
PulseMaster for the selective removal of enamel decay. American Medical has not
received clearance from the FDA to market dental lasers in the United States for
any other hard tissue application, but does market these instruments in certain
other countries for such purposes. See "Governmental Regulation."
American Medical's dental lasers, components and accessories are sold
primarily in certain Asian and Pacific markets, Europe and North America. Lasers
represented approximately 54%, 27% and 17% of American Medical's total revenues
during 2000, 1999 and 1998, respectively.
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PLASMA ARC CURING SYSTEMS
American Medical markets a Plasma Arc Curing System ("PAC") that utilizes
a high intensity light source to rapidly cure composite fillings. Curing occurs
in five to ten seconds, or at least twice as fast as most conventional curing
lights.
American Medical's PAC products, components and accessories are sold
primarily in North America, certain Asian and Pacific markets, and Europe. PAC
products represented approximately 12%, 26% and 2% of American Medical's total
revenues during 2000, 1999 and 1998, respectively.
KCP CAVITY PREPARATION SYSTEMS
American Medical currently offers several KCP models that vary in size,
power and features, from the KCP 5 counter top model to the deluxe KCP 1000PAC
model. American Medical's KCP products remove tooth decay and tooth structure,
including enamel, by means of a narrow stream of minute particles of alpha
alumina propelled at high velocity by compressed air and delivered to the tooth
via a lightweight handpiece. The KCP shapes restoration sites, removes old
composites and modifies underlying hard tissue, often helping to increase bond
strength. It is also used for sealant preparations, stain removal and intraoral
porcelain removal and repair. The KCP can often be used in place of a drill and
may be used in many cases without anesthesia. The dentist controls the cutting
speed by selecting particle size (27 or 50 micron) and air pressure (40 psi to
160 psi) with touch pads on a control panel. The air abrasive stream is
activated by a foot pedal. The KCP floor models (KCP 100 and KCP 1000) are
contained in a movable cabinet the size of a medium suitcase and plug into a
standard electrical outlet.
The KCP is best used in conjunction with modern tooth-colored composite
restoration materials. It is not recommended for removing large amalgam
fillings. The precision of the KCP, and the manner in which it prepares surfaces
for restorations, allow for earlier treatment of decay and less destruction of
the tooth while restoring it. In many cases, the KCP may be used without
anesthesia, allowing a dentist to treat teeth in different quadrants of the
mouth during a single visit. This is generally not possible when conventional
instruments and anesthesia are used.
American Medical also markets its PAC as an accessory to its KCP. The
KCP1000 PAC combines an air abrasive cavity preparation system together with a
composite curing light in a single instrument. This allows dentists to
efficiently switch from cavity preparation to curing.
The KCP is sold primarily in North America, certain Asian and Pacific
markets and Europe. The KCP represented approximately 6%, 15% and 84% of
American Medical's total revenues in 2000, 1999 and 1998, respectively.
INTRA ORAL CAMERA PRODUCTS
The Ultracam is a sophisticated camera system that allows the dentist
to take pictures of a patient's teeth during an examination. The pictures can be
projected on a video monitor in the examination room for immediate viewing by
the dentist and the patient, and printed or stored on a computer disk. The
Ultracam systems offered vary in size from the basic cart system, which is a
portable camera and printer housed in a mobile cart, to a networked system that
can be utilized in several examination rooms. The networked systems combine the
cart system with central printing stations, digital docking stations and
examination room monitors.
The Ultracam is utilized in the dental practice for presentation,
education and as a means of communicating their services through multi-media.
The Digital Docking Station, introduced in 1999, greatly enhances the value of
an intra oral camera by allowing the storage of up to 40 images on a 3 1/2 inch
computer floppy disk.
Ultracam products are sold primarily in North America and Europe. Since
their acquisition in August 1998, the Ultracam products represented
approximately 14%, 22% and 11% of American Medical's total revenue in 2000, 1999
and 1998, respectively.
INDUSTRIAL PRODUCTS
American Medical also develops, manufactures and markets precision air
abrasive jet machining ("AJM") systems for industrial applications. The AJM
system has a wide range of applications, including drilling, cutting, abrading,
deburring, dressing, beveling, etching, shaping and polishing. Its principal
advantage over conventional machining is that the AJM process, which
accomplishes its work through kinetic particle displacement (an erosion
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process), produces no heat, shock or vibration. This enables precise work to be
done on fragile materials without deburring or further processing. Generally,
the same is not true of drills, saws, laser or other types of conventional
machining equipment because all of these systems rely on heat and/or friction to
perform the work. These machining techniques generally require further
processing and in many instances do not provide the precision available with
AJM, particularly with fragile materials. AJM systems are often used to remove
the slag, burrs and flash resulting from conventional machining processes. Some
examples include deburring needles, beveling silicon wafers and cutting fiber
optics.
Industrial products accounted for less than 5% of American Medical's
total revenues in 2000, 1999 and 1998, respectively.
PROBE ONE AND CHART-IT
The Probe One is a computerized periodontal probe which works with
practice management software to automate and streamline perio-probing and
charting. Chart-It is an automated charting software program used to fully
integrate a dentist's operatory with most front office practice management
systems. These products represented less than 1% of the Company's total revenues
in 2000, 1999 and 1998.
MARKETING, SALES AND TRAINING
Prior to February 14, 2000, American Medical marketed its dental products
through independent distributors, primarily Patterson Dental Company and
Sullivan Schein, Inc., to general dental practitioners and certain other dental
specialists in the United States. Sales to Patterson Dental Company, a major
domestic distributor of the Company's kinetic cavity preparation units, were
approximately 16% and 30% of total revenues in 1999 and 1998, respectively.
On February 14, 2000, American Medical commenced selling its dental
products in the United States to dentists through its own sales force. The new
business model for the United States does not merely encompass direct selling by
the Company's own sales force. American Medical intends to become a distributor
of dental equipment by establishing the infrastructure to support direct
selling. American Medical will not only sell dental products it manufactures,
but also intends to actively pursue OEM or strategic relationships with other
manufacturers. Within five years, the Company hopes to be able to offer a line
of products representing 80% to 90% of the equipment used by dentists.
The new business model calls for the establishment of dental sales and
service centers throughout the United States. American Medical opened 17 such
centers in 2000 and plans to open 20 more in the following two years. Each
center is staffed with an office coordinator responsible for scheduling,
coordinating local marketing and reporting to corporate headquarters.
Additionally, each center has a technician for installation and technical
service support. Outside the United States, including Canada, American Medical
continues selling its dental products through its strong distributor network.
American Medical's products are exclusively marketed in Japan by Denics
Co. Ltd. ("Denics") or its affiliates. In Germany, the Company's primary
European market, American Medical is selling directly to the end user as well as
selling through distributors. In the rest of Europe, American Medical's products
are marketed through exclusive dental distributors, such as DLMedica in Italy,
Casa Schmidt in Spain and Dentex in Russia. As of March 2001, American Medical
has purchase commitments of approximately $1,000,000 from its foreign
distributors. Sales to Denics, the Company's largest foreign distributor, were
approximately 21%, 19% and 12% of total revenues in 2000, 1999 and 1998,
respectively. The Company's current contract with Denics expires on March 31,
2001. Based on the current economic conditions in Japan, management does not
expect significant additional orders from Denics in 2001.
The loss of American Medical's relationship with any of its international
dental product distributors or their failure to meet purchase commitments could
have a material adverse effect on American Medical's business.
Marketing activities, such as dental exhibitions and meetings, are
typically lower in the summer months, which results in decreased revenues during
the third quarter of the year.
American Medical presently has several industrial product distributors.
Such distributors have been and are anticipated to be the primary source of
sales for American Medical's industrial products in the future. Industrial
product distributors are supported by American Medical primarily through
advertising in the Thomas Register and trade journals, and by participation in
trade shows.
4
American Medical also sells some industrial products directly to
customers through advertisements or customer referrals and through original
equipment manufacturers of grinding equipment who purchase AJM systems to
incorporate into their equipment.
TRAINING AND SERVICE
Because American Medical's dental products represent new approaches to
dentistry, training is considered to be a significant aspect of its marketing
efforts. American Medical offers complementary training on all of its products.
American Medical encourages each purchaser to participate in ongoing continuing
education regarding the use of American Medical's dental products and endeavors
to share new developments as soon as reliable scientific support has been
established.
American Medical or its distributors generally provide warranty service
for American Medical's products in the United States. To service its dental
products, American Medical has full-time service employees in its sales and
service centers throughout the United States and has service arrangements with
independent distributors for products in other markets. If such arrangements are
unavailable, certain American Medical sales personnel are trained to make minor
service repairs. To date, American Medical has not experienced significant
service problems. American Medical generally provides a one-year warranty on all
of its products.
The Company has a service center in Keltern, Germany that provides
installation, training, service and technical support for Europe, Russia and the
Mid-East. In other international markets, the distributors provide installation,
training and service with technical support from the United States office.
SUPPORT OF EDUCATIONAL ACTIVITIES
Because American Medical's dental products represent new approaches to
dentistry, American Medical believes a substantial effort is required to educate
dentists regarding the advantages of its technology. American Medical actively
supports educational activities relating to the use of its products.
The Institute for Advanced Dental Technologies, formerly The Institute
for Laser Dentistry (the "Institute") arranges for various professionals in the
dental field to give lectures at dental meetings and institutions throughout the
world and publishes professional papers and articles. The Institute also
supervises the training of clinical instructors, provides clinical instructors
to lead educational programs, evaluates developments in dental technology and
organizes clinical training programs. American Medical supports these programs
by providing financial support to the Institute, soliciting enrollments,
providing loans of equipment and assisting in the preparation of course
materials. Following the completion of a program, an American Medical sales
representative is typically available to answer questions concerning American
Medical's products.
COMPETITION
In general, American Medical's products are subject to intense
competition, both from other advanced dental technology companies and from
makers of conventional dental equipment. American Medical believes there are
approximately 9 competing companies which presently offer Nd:YAG, diode, argon,
erbium, holmium or CO2 lasers for use in dentistry. American Medical has patents
in the basic technologies, which the Company believes provide a competitive
advantage. American Medical believes there are approximately 3 companies that
presently sell competing dental air abrasive products and approximately 11
companies that presently sell competing intra oral camera systems.
American Medical's laser, PAC and KCP products must also compete with
conventional treatment methods using dental instruments or equipment that are
generally less expensive and with which dentists are more familiar.
Many of these competing companies, particularly those which manufacture
traditional dental equipment, may have been in business longer, have greater
resources and have a larger distribution network than American Medical. American
Medical's competitive position is dependent upon its pricing and marketing
practices, its ability to make ongoing improvements in its existing products, to
develop new products, and to successfully promote the capabilities and treatment
benefits of its products. While American Medical believes its products are
competitive in terms of capabilities, quality and price, competition has, and
may in the future, adversely affect American Medical's business.
5
PATENTS
American Medical believes its patents provide a competitive advantage in
those countries where they have been issued. American Medical believes its
technology patents and other patent rights provide a proprietary means to
utilize that technology in dentistry. In the United States, American Medical has
patents related to dental laser methods and technology patents that have
expiration dates ranging from 2002 to 2016, dental air abrasive systems and
methods for using an air abrasive stream for dentistry that do not begin
expiring until 2011, technology patents for air abrasive cavity preparation
systems that do not begin expiring until 2004, and industrial air abrasive
patents that have expiration dates ranging from 2004 to 2016. American Medical
also holds several industrial air abrasive patents in various other countries.
MANUFACTURING AND SUPPLIERS
American Medical manufactures, assembles and services its products at its
ISO 9001-certified facility in Corpus Christi, Texas. Certification under the
ISO 9001 standard represents the highest level of facility certification
attainable. Manufacturing certification became a requirement for all medical
products distributed or sold in Europe as of July 1, 1998.
American Medical's products are manufactured from parts, components and
subassemblies obtained from a number of unaffiliated suppliers and/or fabricated
internally at its manufacturing facility. American Medical has modern machining
capability allowing it to control the production of certain non-standard parts.
American Medical uses numerous suppliers for standard parts and for fabrication
of certain parts. Although most of the parts and components used in its products
are available from multiple sources, American Medical presently obtains several
parts and components from single sources. Lack of availability of certain parts
and components could result in production delays. Management has identified
alternate suppliers and believes any delays would be minimal. While the loss of
American Medical's relationship with a particular supplier might result in some
production delays, such a loss is not expected to materially affect American
Medical's business.
RESEARCH AND DEVELOPMENT
Most research and development, prototype production and testing
activities take place at the Texas facility, although some research and
development work is performed for American Medical by consultants. The Texas
facility has an engineering and CAD/CAM drafting staff which is capable of
producing new product prototypes. Although American Medical expects to continue
to conduct most of its own research and development activities, American Medical
will continue to work with various domestic and international dental schools,
consultants and researchers to analyze dental applications and to develop
product enhancements and complementary products.
American Medical's research and development expenditures for 2000, 1999
and 1998 were $966,382, $931,189, and $947,202, respectively. American Medical's
current research and development efforts are focused on new complementary
products for the dental market.
GOVERNMENTAL REGULATION
American Medical's dental products are subject to significant
governmental regulation in the United States and certain other countries. In
order to conduct clinical tests and to market products for therapeutic use,
American Medical must comply with procedures and standards established by the
FDA and comparable foreign regulatory agencies. Changes in existing regulations
or adoption of additional regulations may adversely affect American Medical's
ability to market its existing products or to market enhanced or new dental
products.
UNITED STATES REGULATORY REQUIREMENTS
The FDA granted clearance to market the KCP for hard-tissue applications
and the PulseMaster dental lasers for soft-tissue procedures in late 1992.
Clearance to market the PAC was granted by the FDA in mid-1995. The PulseMaster
received FDA clearance to market for laser curettage in March 1997 and a diode
laser was granted soft tissue clearance in September 1997. The PulseMaster
received FDA clearance to market for selective removal of enamel dental caries
in May 1999. The receipt of FDA clearance requires proof of the product's safety
and efficacy or that the product is substantially equivalent to products that
have already received FDA clearance. Such clearances, if obtained, may take from
three months to several years to receive.
6
FOREIGN REGULATORY REQUIREMENTS
The KCP, PAC, intraoral cameras and lasers have been granted CE mark
approvals which are recognized by most European countries, and may be sold in
Germany and many other European markets. The PulseMaster and KCP has also been
approved for sale in Japan. American Medical's dental lasers comply with
government regulations in most major countries in Europe, Asia, the Pacific Rim,
and North and South America and are marketed for both hard and soft tissue
applications, except in Japan, where (as in the United States) they have not
been cleared for certain hard-tissue procedures. Additional foreign
authorizations to market its dental products are being sought where needed.
Regulation of medical devices in other countries varies between countries such
as Japan, which has standards similar to the FDA, to countries that have no
regulations. Regulation of medical devices in other countries is also subject to
change and there can be no assurance American Medical will continue to be able
to comply with such requirements.
European regulations required ISO 9001 certification as of July 1998 for
all medical products distributed or sold in Europe. American Medical's
manufacturing facility received ISO 9001 certification in 1997.
PRODUCT LIABILITY EXPOSURE
American Medical's business involves the inherent risk of product
liability claims. If such claims arise, they could have an adverse effect on
American Medical. American Medical currently maintains product liability
insurance on a "claims made" basis with coverage per occurrence and in the
aggregate annually of $5,000,000. There is no assurance that such coverage will
be sufficient to protect American Medical from all risks to which it may be
subject or that product liability insurance will be available at a reasonable
cost, if at all, in the future.
FOREIGN OPERATIONS AND SEGMENT INFORMATION
For information regarding the Company's foreign operations and business
segments, see Note 8 of the Notes to Consolidated Financial Statements. Such
information is incorporated herein by reference.
EMPLOYEES
On March 1, 2001, American Medical had 116 full-time employees. Of these
employees, 36 were engaged in direct sales and marketing activities and 48 in
manufacturing activities. The remaining employees are in finance,
administration, customer service, and research and development. American Medical
has no collective bargaining agreements with any unions and believes that its
overall relations with its employees are good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning each of the
current executive officers of American Medical who are elected to serve at the
discretion of the Board of Directors.
NAME AGE POSITION
-------------------------------------------------------------------------------------------------
Ben J. Gallant 66 President, Chief Executive Officer, Chair of the Board of Directors
John E. Vickers, III 53 Chief Operating Officer, Secretary and Director
Justin W. Grubbs 30 Chief Financial Officer
William S. Parker 54 Senior Vice President - Dental
Hans Nahme 60 Vice President - International Sales
John A. Miller 40 Vice President - Domestic Sales
BEN J. GALLANT - Mr. Gallant has been the Company's President and Chief
Executive Officer since November 1996 and served as its Chief Operating officer
from September 1996 to May 2000. Mr. Gallant was a founder of Texas Airsonics,
Inc., served as a director and chairman of the board since that company's
inception in 1982, and was elected president and chief executive officer in
1991. He is chiefly responsible for the design and development of the Company's
KCP and industrial product lines. Mr. Gallant has been a director of the Company
since 1996.
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JOHN E. VICKERS III - Mr. Vickers was appointed Chief Operating Officer of the
Company in May 2000. He previously served the Company as Executive Vice
President from August 1998 to May 2000 and as Senior Vice President - Operations
from November 1996 to August 1998. Mr. Vickers had served as Texas Airsonics
Inc.'s chief financial officer and legal counsel from June 1993 until its
acquisition by the Company in July 1996 and had various operating
responsibilities with Texas Airsonics. From December 1991 until July 1994, Mr.
Vickers was of counsel to the law firm of Novak, Vickers and Burt and practiced
law for over 25 years. Mr. Vickers has been a director of the Company since
1996.
JUSTIN W. GRUBBS - Mr. Grubbs was appointed Chief Financial Officer in July of
2000. Prior to joining the Company he had been employed by the public accounting
firm of Ernst & Young LLP for seven years, specializing in entrepreneurial
growth companies in the retail, distribution and manufacturing industries. Mr.
Grubbs graduated from Georgetown University in 1993 with dual concentrations in
accounting and finance and is a licensed certified public accountant.
WILLIAM S. PARKER - Mr. Parker was appointed Senior Vice President - Dental of
the Company in August 1998 and became a Director in November 1999. He is chiefly
responsible for the Company's product development. He had been a consultant,
then an employee of the Company in charge of product development since 1991.
From 1976 to 1991, he was the president and co-founder of the New Directions
Group, Inc., a management consulting firm which had clients such as Ford, Exxon
Enterprises, AT&T and Ross Laboratories.
HANS H. NAHME - Mr. Nahme was appointed Vice President - International Sales in
August 1999. Prior to joining American Medical, Mr. Nahme had been general
manager with IDEA Associates, Inc., a Portland, Oregon firm that had been
responsible for export sales of American Medical products in Latin America,
Australia and New Zealand, from 1997 to 1999. From 1994 to 1997, Mr. Nahme was
Vice President - International Sales of Dentech, Inc.
JOHN A. MILLER - Mr. Miller was appointed Vice President - Domestic Sales in
2000. Prior to that he had served as the Vice President - Western Sales since
1999. Prior to joining American Medical, Mr. Miller was President of Source One,
a marketing, consulting, planning and research firm he founded in 1996. Mr.
Miller has been in dental equipment related sales for over ten years.
FORWARD LOOKING STATEMENTS
The Company makes forward-looking statements in this report and may
make such statements in future filings with the Securities and Exchange
Commission. The Company may also make forward-looking statements in its press
releases or other public shareholder communications. The Company's
forward-looking statements are subject to risks and uncertainties and include
information about its expectations and possible or assumed future results of
operations. When the Company uses any of the words "believes", "expects",
"anticipates", "estimates" or similar expressions, it is making forward-looking
statements.
The Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 for all of its forward-looking statements. While the Company
believes that its forward-looking statements are reasonable, you should not
place undue reliance on any such forward-looking statements, which speak only as
of the date made. Because these forward-looking statements are based on
estimates and assumptions that are subject to significant business, economic and
competitive uncertainties, many of which are beyond the Company's control or are
subject to change, actual results could be materially different. Factors that
might cause such a difference include, without limitation, the following: the
possible failure to maintain the Company's ability to borrow under its line of
credit, the Company's potential inability to hire and retain qualified sales and
service personnel, the potential for an extended decline in sales, the possible
failure of revenues to offset additional costs associated with its new business
model, the potential lack of product acceptance, the Company's potential
inability to introduce new products to the market, the potential failure of
customers to meet purchase commitments, the potential loss of customer
relationships, the potential failure to receive or maintain necessary regulatory
approvals, the extent to which competition may negatively affect prices and
sales volumes or necessitate increased sales expenses, the failure of
negotiations to conclude OEM agreements or strategic alliances and the other
risks and uncertainties set forth in this report.
Other factors not currently anticipated by management may also
materially and adversely affect the Company's results of operations. Except as
required by applicable law, the Company does not undertake any obligation to
publicly release any revisions which may be made to any forward-looking
statements to reflect events or circumstances occurring after the date of this
report.
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ITEM 2. DESCRIPTION OF PROPERTIES
American Medical owns an approximately 52,000 square foot manufacturing
facility on 5.2 acres located at 5555 Bear Lane, Corpus Christi, Texas 78405,
which houses its manufacturing and administration facilities.
American Medical leases 17 sales and service centers throughout the
United States, each approximately 1,500 square feet and a total of 2,000 square
feet in San Carlos, California for its product development, clinical and service
activities. The leases are generally for one to two year terms.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
American Medical's common stock is traded on The Nasdaq National Market
(Symbol: ADLI). The following table sets forth certain information as to the
high and low sales prices per share of American Medical common stock as reported
by Nasdaq for each quarterly period during the last two years.
Closing Price
HIGH LOW
-----------------------------------
1999
First Quarter $4.688 $3.688
Second Quarter 4.125 3.125
Third Quarter 3.750 2.250
Fourth Quarter 2.375 1.250
2000
First Quarter $3.063 $1.500
Second Quarter 1.969 1.094
Third Quarter 1.875 1.125
Fourth Quarter 1.906 0.750
As of March 20, 2001, there were approximately 3,300 beneficial and
record holders of American Medical common stock based upon the records of the
Company's stock transfer agent and security position listings.
The Board of Directors presently intends to retain all earnings to
finance operations and does not expect to authorize cash dividends in the
foreseeable future. The Company's debt agreement also prevents the Company from
declaring or paying dividends without prior approval of the lender. Any payment
of cash dividends in the future will depend upon earnings, capital requirements
and other factors considered relevant by the Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data, as of and for each of the five
years ended December 31, is derived from the audited financial statements of
American Medical. Operating results for prior years are not necessarily
indicative of the results that may be expected for any other periods. The data
should be read in conjunction with the financial statements and related notes
included in this report and with Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(dollars in thousands, except per share amounts)
2000 1999 1998 1997 1996
--------------------------------------------------------------------------
Operating data:
Net revenues $19,902 $24,370 $28,285 $21,652 $20,510
Net income (loss) ($18,403)(1) $392 $8,849(2) $3,622 $5,628(3)
Net income (loss)
per common share
assuming dilution ($2.53) $.05 $1.20 $.47 $.90
Weighted average number
of common shares 7,284 7,446 7,375 7,640 6,284
Balance Sheet Data (at year end):
Total assets $18,291 $40,348 $41,855(4) $22,530 $21,280(5)
Long-term obligations 2,673 5,373 6,271 135 577
Stockholders' equity (6) 13,002 32,018 31,809 20,257 16,809
Working capital 9,786 17,144 17,504 8,290 5,153
- ---------------
1) Includes impairment charges of $9.2 million related to intangibles
associated with the air abrasion and camera product lines, a charge to
increase the reserve for slow moving inventory by $.8 million, a write off
of demonstration inventory of $1.2 million related to the change in the
business model, and a deferred income tax valuation allowance of $5.6
million.
2) Includes $5.1 million income tax benefit related to reversal of a previously
recorded deferred tax asset valuation allowance.
3) Includes $2.7 million related party royalty income and a $.6 million
restructuring expense.
4) Includes goodwill of $4.2 million and other assets of $3.9 million recorded
in connection with the acquisitions of The Dental Probe and Dental Vision
Direct in February 1998 and August 1998, respectively.
5) Includes goodwill of $6.1 million and other assets of $2.4 million
recorded in connection with the acquisition of Texas Airsonics, Inc.
on July 31, 1996.
6) No dividends were paid on the common stock during the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and the notes thereto included
elsewhere in this report. The discussion contains certain forward-looking
statements relating to the Company's anticipated future financial condition and
operating results and its current business plans. In the future, the Company's
financial condition and operating results could differ materially from those
discussed herein and its current business plans could be altered in response to
market conditions and other factors beyond its control. Important factors that
could cause or contribute to such differences or changes include
10
those discussed elsewhere in this report. See the disclosures under "Item 1 -
Business - Forward-Looking Statements."
RESULTS OF OPERATIONS
For the year ended December 31, 2000, the Company's revenues decreased
18% compared to 1999. This decrease in revenues was primarily due to a 38%
decrease in revenues in the United States. The decrease in domestic revenues was
primarily due to lower revenues during the transition period as the new business
model was being implemented.
For the year ended December 31, 1999, the Company's revenues decreased
14% compared to 1998. This decrease in revenues was primarily due to 27%
decrease in revenues in North America, partially offset by a 39% increase in
revenues in Japan and a 41% increase in Europe. The decrease in North American
revenues was primarily due to a decrease in KCP sales caused by the liquidation
of dealer inventories and a soft air abrasion market. Sales of lasers, PAC
lights and intraoral cameras increased in North America during 1999, partially
off-setting the softer KCP sales. The increase in revenues in Europe was mainly
attributable to the addition of new distributors in 1999.
Gross profit as a percentage of revenues was 45% for the year ended
December 31, 2000, compared to 48% in 1999 and 54% in 1998. The decrease in
gross profit as a percentage of revenues in 2000 compared to 1999 and 1998 was
due to the Company increasing its reserve for slow-moving inventory in response
to the decline in the air abrasion and camera markets. When the increase in this
reserve is factored out, gross profit would have improved to 50% in 2000.
Selling, general and administrative expenses were $21,226,253 in 2000,
$10,772,746 in 1999 and $10,618,210 in 1998. The significant increase in 2000
was primarily attributable to non-cash impairment charges and charges related to
demonstration inventory units. In 2000, the continued decline in sales of the
Company's KCP and camera units, and the underperformance of the dental probe
units, served as indicators of impairment for certain intangible assets
associated with the previous acquisitions of Texas Airsonics, Inc., Dental
Vision Direct, Inc., and Dental Probe, Inc. Following the guidance of FASB
Statement No. 121 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, the Company projected future cash flows for
these products based on management's best estimates of likely future sales, less
costs of goods sold and selling expenses. The undiscounted future cash flows
were less than the recorded value of the assets related to these product lines,
indicating impairment existed. To determine the amount of the impairment, the
fair value of the related assets was determined by comparing the future cash
flows discounted at a rate of 8% to the fair value of the related long-lived
assets based on current market selling prices of similar equipment. The Company
recorded an impairment of approximately $9.2 million to reduce the carrying
value of the long-lived assets associated with the aforementioned acquisitions
to the fair value of those assets. This impairment expense is included in
selling, general and administrative expenses on the statement of operations.
As part of the transition to the new business model, the Company decided
to discontinue its demonstration unit sales initiative. This change resulted in
the Company disposing of approximately $1.2 million in demonstration units that
had been on loan to sales personnel, universities, and prospective customers
that were no longer deemed salable. This charge was included in selling, general
and administrative expenses in 2000.
The increase in selling, general and administrative expenses in 1999
compared to 1998 was primarily attributable to sales and marketing expenses in
the first half of the year which were higher as a percentage of sales primarily
due to increased selling, marketing and general and administrative expenses
related to the camera business acquired from Dental Vision Direct and
amortization of goodwill also related to the camera business.
Research and development expenses were $966,382 in 2000, $931,189 in
1999, and $947,202 in 1998. The expenditures related primarily to the
development of new products and enhancements to current products.
Non-recurring license transfer fees of $665,000 were received in 1999.
These related to the licensing agreement with ESC Medical Systems, Ltd. for
$300,000, a licensing agreement with Chart-It for $65,000 and settlement of
$300,000 from Kreativ regarding patent litigation.
Other income decreased $773,343 to $83,773 for the year ended December
31, 2000 compared to 1999. This decrease from 1999 is primarily due to
non-recurring items in 1999 such as the receipt of the Kreativ lawsuit
settlement payment of $580,000 and a gain on the sale of the Michigan building
of $180,000.
11
Interest expense was $322,475 in 2000, $401,438 in 1999, and $206,856
in 1998. The decrease in interest expense in 2000 is due to the reduction of the
outstanding debt. The increase in interest expense in 1999 was primarily due to
the debt incurred to fund the acquisition of Dental Vision Direct in August
1998.
In 2000, the Company recorded a $4,744,000 charge for income tax. The
Company's income taxes at U.S. statutory rates, differs from its recorded income
tax expense primarily due to nondeductible goodwill amortization. In 1998, based
on the Company's past history of earnings, the Company reversed its previously
recorded deferred tax asset valuation allowance as the Company determined that
it was more likely than not that it would realize the related deferred tax
asset. In 1998, the effect of the reversal was to increase net income by
$5,072,117 for this income tax benefit. With the loss incurred in 2000 and the
continued downturn in the dental products industry, uncertainties exist as to
the future realization of the deferred tax asset under the criteria set forth
under FASB Statement No. 109. Therefore, the Company re-established the tax
asset valuation allowance. Recording this allowance results in a current year
non-cash tax expense of approximately $5.7 million. At December 31, 2000, the
Company had approximately $12 million of net operating loss carryforwards. These
net operating loss carryforwards expire in various amounts in the years 2006
through 2020.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $1,420,222 in cash
resources in 2000. Cash provided by operating activities in 2000 was due largely
to reductions in receivables of $1.2 million and inventory of approximately
$865,000, partially offset by reductions in accounts payable of approximately
$690,000.
The Company's investing activities used $41,118 in cash resources in
2000. The cash used in investing activities in 2000 related primarily to the
purchase of property and equipment.
On September 21, 2000, the Company renewed an agreement for a
$7,500,000 revolving line of credit from a bank, with interest at the bank's
prime rate or the LIBOR rate (Eurodollar rates, which were approximately 5.7% at
December 31, 2000) plus a margin of 1.5%, which expires in September 2002. The
Company's borrowing is secured by a pledge of the Company's accounts receivable,
inventory, equipment, instruments, patents, copyrights and trademarks. The
agreement contains several qualitative and financial covenants. As of December
31, 2000, the Company was not in compliance with some of the financial covenants
and the bank issued a letter waiving the event of default. Subsequent to
December 31, 2000, the agreement was amended to include, among other things, a
borrowing base formula based on the Company's levels of inventory, accounts
receivable and fixed assets, and a change to a variable eurodollar loan margin
rate based on certain Company performance ratios. As of December 31, 2000, the
Company had $2.5 million outstanding. Under the terms of the amended agreement,
the Company had approximately $5 million available to borrow at December 31,
2000.
The Company believes, based upon its current business plan, that current
cash, available financing resources and cash generated through operations should
be sufficient to meet the Company's anticipated short term and long term
liquidity needs for the foreseeable future.
NEW ACCOUNTING STANDARDS AND DISCLOSURES
Accounting for Derivative Instruments and Hedging Activities. In
September 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". In September 1999, the FASB agreed to defer the effective date of
Statement No. 133 for one year until the first quarter of 2001, citing concerns
over interpretations on important implementation issues. The management of the
Company, because of its minimal use of derivatives, does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
consolidated financial position of the Company.
12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is subject to market risk
from changes in foreign exchange rates and interest rates.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company sells its products in North America, Europe (primarily
Germany), Japan and other foreign countries. The Company is headquartered in the
United States and has a German subsidiary. Except for revenues generated by its
German subsidiary, the Company sells its products to its foreign customers in
United States dollars. As a result, the Company's financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company distributes its
products. The Company's operating results are primarily exposed to changes in
exchange rates between the United States dollar and the German deutsche mark.
As currency rates change, translation of the income statements of the
Company's German subsidiary into United States dollars affects year-to-year
comparability of operating results. The Company does not generally hedge
operating translation risks because cash flows from the German operations are
generally reinvested locally.
As of December 31, 2000 and 1999, the Company's net assets (defined as
current assets less current liabilities) subject to foreign currency translation
risk were $1,795,121 and $1,562,051, respectively. The potential decrease in net
assets from a hypothetical 10% adverse change in quoted foreign currency
exchange rates would be approximately $180,000 and $156,000 for 2000 and 1999,
respectively.
INTEREST RATE RISK
The Company's variable interest expense is sensitive to changes in the
general level of United States and European interest rates. The Company's long
term debt represents borrowings under a revolving line of credit at the bank's
prime rate and various notes at Eurodollar rates plus 1.5% and is sensitive to
changes in interest rates. The borrowings under the Eurodollar rates have
maturity dates varying between 30 to 120 days. The Company does not generally
hedge interest rate risks. At December 31, 2000, the weighted average interest
rate on the $2.5 million debt was 8.15% and the fair value of the debt
approximates its carrying value.
The Company had interest expense of $322,475 in 2000 as compared to
$401,438 in 1999. The potential increase in interest expense from a hypothetical
2% adverse change in interest rates, assuming the December 31, 2000 and 1999
debt was outstanding for the entire year, would be approximately $50,000 and
$103,000, for the year ended December 31, 2000 and 1999, respectively.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Stockholders and Board of Directors
American Medical Technologies, Inc.
We have audited the accompanying consolidated balance sheets of American Medical
Technologies, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of 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 consolidated financial position of
American Medical Technologies, Inc. at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects
the information set forth therein.
ERNST & YOUNG LLP
San Antonio, Texas
March 12, 2001, except for Note 4
to which the date is March 26, 2001
14
American Medical Technologies, Inc.
Consolidated Statements of Operations
Year Ended December 31
2000 1999 1998
---------------------------------------------------------
Revenues $19,685,222 $ 24,201,163 $ 28,011,240
Royalties 217,024 168,364 273,480
------------- ------------ ----------------
19,902,246 24,369,527 28,284,720
Cost of sales 11,130,379 12,778,664 12,877,318
----------- ---------- ----------
Gross profit 8,771,867 11,590,863 15,407,402
Selling, general and administrative 21,226,253 10,772,746 10,618,210
Research and development 966,382 931,189 947,202
------------- ------------ -----------
Income (loss) from operations (13,420,768) (113,072) 3,841,990
Other income (expense)
License transfer fees --- 665,000 ---
Other income 83,773 857,116 142,066
Interest expense (322,475) (401,438) (206,856)
-------------- ------------ -------------
Income (loss) before income taxes (13,659,470) 1,007,606 3,777,200
Income tax (benefit) expense 4,744,000 616,000 (5,072,117)
------------ ------------- -------------
Net income (loss) ($ 18,403,470) $ 391,606 $ 8,849,317
============== ============= ===========
Net income (loss) per share ($2.53) $ 0.05 $ 1.21
======= ====== ======
Net income (loss) per share
assuming dilution ($2.53) $ 0.05 $ 1.20
======= ====== ======
See accompanying notes.
15
American Medical Technologies, Inc.
Consolidated Balance Sheets
December 31
2000 1999
-------------------------------
ASSETS
Current assets:
Cash $1,549,747 $ 3,230,647
Accounts receivable, less allowance of
$230,000 in 2000 and $188,000 in 1999 3,371,341 4,716,252
Inventories 6,897,157 9,938,205
Deferred taxes --- 870,000
Prepaid expenses and other current assets 440,077 569,903
Notes receivable 243,593 775,000
---------- -----------
Total current assets 12,501,915 20,100,007
Deferred taxes --- 3,874,000
Property and equipment, net 2,389,951 2,447,906
Intangible assets, net:
Goodwill 2,295,966 11,850,523
Air abrasive technology rights --- 551,838
Other 1,103,165 1,523,539
--------- -----------
3,399,131 13,925,900
Total assets $18,290,997 $40,347,813
=========== ==========
See accompanying notes.
16
American Medical Technologies, Inc.
Consolidated Balance Sheets
December 31
2000 1999
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,627,496 $ 2,311,903
Compensation and employee benefits 286,211 217,141
Other accrued liabilities 702,459 427,108
---------- -----------
Total current liabilities 2,616,166 2,956,152
Other non-current liabilities 172,964 223,278
Notes payable 2,500,000 5,150,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares; none outstanding
Common stock, $.04 par value, authorized
12,500,000 shares; outstanding: 7,081,097
shares in 2000; and 7,367,847
shares in 1999 283,247 294,717
Additional paid-in capital 41,934,608 42,312,636
Warrants and options 801,000 801,000
Accumulated deficit (29,525,094) (11,121,624)
Foreign currency translation (491,894) (268,346)
------------- -------------
Total stockholders' equity 13,001,867 32,018,383
---------- -----------
Total liabilities and stockholders' equity $18,290,997 $40,347,813
=========== ===========
See accompanying notes.
17
American Medical Technologies, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
2000 1999 1998
---------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) ($ 18,403,470) $ 391,606 $8,849,317
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 502,624 413,977 244,566
Amortization 1,466,407 1,454,401 1,225,344
Impairment of intangible assets 9,233,907 --- ---
Deferred taxes 4,744,000 558,619 (5,212,619)
Provision for slow-moving inventory 873,298 256,615 (159,900)
Provision for doubtful accounts 42,000 13,000 (75,000)
Net (gain) loss on disposal of assets 1,243,887 (179,368) ---
Changes in operating assets and liabilities:
Accounts receivable 1,282,575 198,110 (2,146,040)
Inventories 864,588 1,144,392 (3,628,470)
Prepaid expenses and other current assets 111,056 400,884 (300,218)
Other receivables --- --- 200,000
Accounts payable (689,035) (556,620) 1,580,876
Compensation and employee benefits 68,535 (187,112) 157,977
Other accrued liabilities 130,164 (248,727) 99,240
Other non-current liabilities (50,314) (798,880) 172,982
------------- ----------- ------------
Net cash provided by operating activities 1,420,222 2,860,897 1,008,055
INVESTING ACTIVITIES
Acquisition of businesses --- --- (3,315,000)
Purchases of property, plant & equipment (399,981) (986,982) (1,242,296)
Proceeds from sales of assets 1,000 769,367 ---
Collections on notes receivable 531,407 300,000 ---
Increase in intangible assets (173,544) (231,480) (307,787)
------------ ------------ -------------
Net cash used in investing activities (41,118) (149,095) (4,865,083)
FINANCING ACTIVITIES
Payments on note payable (2,650,000) (800,000) (5,800,000)
Proceeds from note payable --- --- 7,600,000
Repurchase of common stock (389,498) (91,339) ---
Proceeds from exercise of warrants --- --- 1,564,000
Proceeds from exercise of stock options --- 42,903 59,742
--------------- ----------- -----------
Net cash provided by (used in) financing activities (3,039,498) (848,436) 3,423,742
----------- ----------- ---------
Increase (decrease) in cash (1,660,394) 1,863,366 (433,286)
Effect of exchange rates on cash (20,506) (42,123) 11,007
------------- ----------- ----------
Increase (decrease) in cash (1,680,900) 1,821,243 (422,279)
Cash at beginning of year 3,230,647 1,409,404 1,831,683
--------- --------- ---------
Cash at end of year $1,549,747 $3,230,647 $1,409,404
========== ========== ==========
See accompanying notes.
18
American Medical Technologies, Inc
Consolidated Statements of Stockholders' Equity
Additional Warrants Foreign
Common Stock Paid-In and Accumulated Currency
Shares Amount Capital Options Deficit Translation Total
--------------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,948,011 $277,923 $40,446,624 $ -- $(20,362,547) $(104,564) $20,257,436
Net income for 1998 8,849,317 8,849,317
Foreign currency translation (1,193) (1,193)
----------
Comprehensive income 8,848,124
----------
Issuance of common stock for
acquisition of business (Note 2) 61,500 2,460 305,040 307,500
Exercise of stock options 18,748 750 58,992 59,742
Issuance of options for intangible
assets 52,500 52,500
Exercise of warrants 391,000 15,640 1,548,360 1,564,000
Issuance of warrants for
acquisition of business (Note 2) 720,000 720,000
--------------------------------------------------------------------------------------------------
Balance at December 31, 1998 7,419,259 296,773 42,359,016 772,500 (11,513,230) (105,757) 31,809,302
Net income for 1999 391,606 391,606
Foreign currency translation (162,589) (162,589)
----------
Comprehensive income 229,017
----------
Exercise of stock options 12,788 512 42,391 42,903
Issuance of common stock for
intangible assets 28,500 28,500
Repurchase of common stock (64,200) (2,568) (88,771) (91,339)
--------------------------------------------------------------------------------------------------
Balance at December 31, 1999 7,367,847 294,717 42,312,636 801,000 (11,121,624) (268,346) 32,018,383
Net loss for 2000 (18,403,470) (18,403,470)
Foreign currency translation (223,548) (223,548)
-----------
Comprehensive loss (18,627,018)
Repurchase of common stock (286,750) (11,470) (378,028) (389,498)
--------------------------------------------------------------------------------------------------
Balance at December 31, 2000 7,081,097 $283,247 $41,934,608 $801,000 $(29,525,094) $(491,894) $13,001,867
========= ======== =========== ======== ============= ========== ===========
See accompanying notes.
19
Notes to Consolidated Financial Statements
December 31, 2000
1. Organization and Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
American Medical Technologies, Inc. (the "Company") develops, manufactures,
markets and sells high technology products primarily for dentistry. The
consolidated financial statements include the accounts and operations of the
Company and its subsidiary. All intercompany transactions and balances have been
eliminated.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in
first-out method, or market. At December 31, inventories consisted of the
following:
2000 1999
-----------------------------
Finished goods $ 1,277,189 $ 1,310,448
Raw materials, parts and supplies 5,619,968 8,627,757
------------- ------------
$ 6,897,157 $ 9,938,205
============ ============
Inventories at December 31, 2000 and 1999 are net of valuation allowances of
$1,685,013 and $811,715, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of the related assets, which range from three to thirty-nine years. At
December 31, property and equipment consisted of the following:
2000 1999
----------------------------
Building and improvements $ 1,561,219 $ 1,546,745
Machinery and equipment 1,357,287 1,234,692
Office furniture and computers 843,140 1,788,516
Vehicles 118,144 ---
------------------------------
3,879,790 4,569,952
Accumulated depreciation (1,489,839) (2,122,046)
------------- -------------
$ 2,389,951 $ 2,447,906
=========== ============
REVENUE RECOGNITION
The Company recognizes revenue when each of the following four criteria are met:
1) a contract or sales arrangement exists; 2) products have been shipped or
services have been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured. The Company
recognizes the related estimated warranty expense when title is transferred to
the customer, generally upon shipment. The Company recognizes revenue on certain
sales to two of its largest distributors under terms that require shipment to a
local independent warehouse. In September 2000, the Emerging Issues Task Force
issued EITF 00-10 which requires disclosure of shipping and handling costs that
are not included in costs of goods sold. The Company's policy is to include
shipping and handling cost , net of the related revenues, in costs of goods
sold.
20
Notes to Consolidated Financial Statements
December 31, 2000
1. Organization and Significant Accounting Policies (continued)
INTANGIBLE ASSETS
Intangible assets consist of goodwill, air abrasive technology rights, patents,
distribution rights and organization costs and are stated at cost less
accumulated amortization. The Company is amortizing goodwill over periods
ranging from 15 to 25 years, air abrasive technology rights over 10 years and
other intangible assets over lives ranging from 5 to 17 years. Accumulated
amortization was $3,097,675 and $5,806,049 at December 31, 2000 and 1999,
respectively.
The Company periodically evaluates intangible assets for indicators of
impairment in value. When impairment is indicated, the Company revalues the
assets based on their estimated fair value. In 2000, the continued decline in
sales of the Company's KCP and camera units, and the underperformance of the
dental probe units, served as indicators of impairment for certain intangible
assets associated with the previous acquisitions of Texas Airsonics, Inc.,
Dental Vision Direct, Inc., and Dental Probe, Inc. Following the guidance of
FASB Statement No. 121 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company projected future cash flows
for these products based on management's best estimates of likely future sales,
less costs of goods sold and selling expenses. The undiscounted future cash
flows were less than the recorded value of the assets related to these product
lines, indicating impairment existed. To determine the amount of the impairment,
the fair value of the related assets was determined by comparing the future cash
flows discounted at a rate of 8% to the fair value of the related long-lived
assets based on current market selling prices of similar equipment. The Company
recorded an impairment of approximately $9.2 million to reduce the carrying
value of the long-lived assets associated with the aforementioned acquisitions
to the fair value of those assets. This impairment expense is included in
Selling General and Administrative Expenses on the Statement of Operations.
NET INCOME PER SHARE
The following table sets forth the computation for basic and diluted earnings
per share:
2000 1999 1998
---- ---- ----
Numerator:
Net income (loss) ($ 18,403,470) $ 391,606 $8,849,317
=============== ========== ==========
Numerator for basic and diluted earnings per
share - income available to common
stockholders after assumed conversions ($ 18,403,470) $ 391,606 $8,849,317
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,284,443 7,424,433 7,310,510
Effect of dilutive securities:
Employee stock options --- 21,736 51,626
Warrants --- --- 12,858
---------- ---------- ------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted-average
shares after assumed conversions 7,284,443 7,446,169 7,374,994
========= ========= =========
Net income (loss) per share ($2.53) $0.05 $1.21
====== ===== =====
Net income (loss) per share assuming dilution ($2.53) $0.05 $1.20
====== ===== =====
21
Notes to Consolidated Financial Statements
December 31, 2000
1. Organization and Significant Accounting Policies (continued)
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Statement 130, REPORTING
COMPREHENSIVE INCOME. The adoption of this Statement has no impact on the net
income or stockholders' equity. Statement 130 requires foreign currency
translation adjustments, which prior to adoption were reported in stockholders'
equity, to be included, along with net income, in comprehensive income. Prior
years' data have been conformed to the requirements of Statement 130.
For 2000, 1999 and 1998 the Company's Comprehensive Income (Loss) was
($18,627,018), $229,017, and $8,848,124, respectively.
The components of Accumulated Other Comprehensive Income (Loss) are as follows:
2000 1999 1998
----------------- ----------------- -----------------
Foreign currency translation adjustments $ (223,548) $ (162,589) $ (1,193)
----------------- ----------------- -----------------
Accumulated other comprehensive income $ (491,894) $ (268,346) $ (105,757)
================= ================= =================
TRANSLATION OF NON-U.S. CURRENCY AMOUNTS
For non-U.S. subsidiaries that operate in a local currency environment, assets
and liabilities are translated to U.S. dollars at the current exchange rates at
the balance sheet date. Income and expense items are translated at average rates
of exchange prevailing during the year. Translation adjustments are accumulated
in a separate component of stockholders' equity.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price no less than the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and, accordingly,
recognizes no compensation expense for the stock option grants.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense
approximated $867,000, $1,544,000, and $1,354,000 in 2000, 1999 and 1998,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, note receivable and
accounts payable approximates their carrying value due to their short term
nature. The fair value of the Company's note payable to the bank approximates
its carrying value due to the variable interest rate.
22
Notes to Consolidated Financial Statements
December 31, 2000
1. Organization and Significant Accounting Policies (continued)
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform to the presentation used in 2000.
2. Business Acquisitions
DENTAL VISION DIRECT
On August 1, 1998, the Company acquired 100% of the outstanding stock of Dental
Vision Direct ("DVD"), which manufactures and markets intra oral cameras and
related equipment. The total consideration paid was $7,620,000, including
$3,000,000 in cash, a promissory note of $3,900,000 and warrants to purchase
600,000 shares of Company common stock at a price of $5.50 per share. The
$3,900,000 promissory note was repaid in October 1998 with proceeds from the
line of credit as described in Note 4. The acquisition was accounted for as a
purchase and, accordingly, the total consideration paid of $7,620,000 has been
allocated to the acquired assets and assumed liabilities based on their
estimated fair values as of the acquisition date and the excess consideration of
$4,367,000 has been allocated to goodwill to be amortized over a 25 year period.
The results of operations for DVD have been included in the consolidated
statements of operations for the Company from the acquisition date.
The following unaudited pro forma financial information for the twelve months
ended December 31, 1998 assumes the DVD acquisition occurred as of the beginning
of the respective period, after giving effect to certain adjustments, including
the amortization of intangible assets, interest expense on acquisition debt and
income tax effects. The pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the results of operations
which may occur in the future or that would have occurred had the acquisition of
DVD been consummated on the date indicated, nor are they necessarily indicative
of the Company's future results of operations.
Year Ended
December 31, 1998
-----------------
Revenues $32,313,902
Net income 8,402,401
Net income per share $1.14
THE DENTAL PROBE
On February 15, 1998, the Company acquired 100% of the outstanding stock of The
Dental Probe, Inc. ("TDP") in exchange for $250,000 in cash and 61,500 shares of
common stock. The acquisition was accounted for as a purchase and accordingly,
the total consideration paid of $557,500, has been allocated to the acquired
assets and assumed liabilities based on their estimated fair values as of the
acquisition date and the excess consideration of $392,500 has been allocated to
goodwill to be amortized over a fifteen year period. The results of operations
for TDP have been included in the Consolidated Statements of Operations for the
Company from the acquisition date.
3. Agreements with Related Parties
DENICS CO., LTD.
In December 1999, the Company agreed to convert $675,000 of outstanding accounts
receivable from Denics to a note receivable, with interest payable at 8.5%, due
February 2001.
23
Notes to Consolidated Financial Statements
December 31, 2000
3. Agreements with Related Parties (continued)
In February 1998, the Company agreed to convert $500,000 of outstanding accounts
receivable from Denics to a note receivable, with interest payable at 10.5% due
in September 1998. In August 1998, the Company agreed to modify the repayment
terms of the note receivable to $200,000 due August 31, 1998 and five monthly
installments of $60,000 commencing in April 1999. The note was paid in full in
September 1999.
Denics previously owned 4.89% of the Company's common stock and had warrants to
acquire an additional 1.43% of the Company's common stock. These warrants
expired in 1999 without being exercised and Denics is no longer considered a
"related party." Accordingly, trade sales and accounts receivable balances with
Denics are no longer presented as a "related party" on the face of the financial
statements for all periods presented to provide consistent disclosure.
4. Line of Credit and Other Non-Current Liabilities
On September 21, 2000, the Company renewed an agreement for a $7,500,000
revolving line of credit from a bank, with interest at prime or the LIBOR rate
(Eurodollar rates, which were approximately 5.7% at December 31, 2000) plus a
margin of 1.5%, which expires in September 2002. The agreement contains several
qualitative and financial covenants. As of December 31, 2000 the Company was not
in compliance with some of the financial covenants and the bank issued a letter
waiving the event of default. Subsequent to December 31, 2000, the agreement was
amended to include, among other things, a borrowing base formula based on the
Company's levels of inventory, accounts receivable and fixed assets, and a
change to a variable eurodollar loan margin rate based on certain Company
performance ratios. As of December 31, 2000 the Company had $2.5 million
outstanding. Under the terms of the amended agreement, the Company had
approximately $5 million available to borrow at December 31, 2000.
The Company leases certain manufacturing equipment under capital leases.
Equipment related to these capital leases had a net book value of approximately
$178,000 at December 31, 2000. Amortization related to assets held under capital
leases is included in depreciation expense. The Company leases office space,
vehicles, and office machines under operating leases. Future minimum lease
payments under capital and operating leases as of December 31, 2000 are as
follows:
Operating Capital
Year Leases Leases
---- -----------------------------
2001 $ 401,210 $ 124,195
2002 283,664 79,066
2003 96,070 47,777
--------- ---------
$ 780,944 251,038
=========
Less amount representing interest (31,021)
---------
$ 220,017
=========
Capital lease obligations at December 31, 2000 consisted of the following:
Current portion $ 105,348
Non-current portion 114,669
---------
Total capital lease obligations $ 220,017
=========
Rental expense for operating leases in 2000, 1999 and 1998 approximated
$344,000, $94,000, and $144,000, respectively.
The Company paid interest of approximately $322,000, $401,000 and $207,000 in
2000, 1999 and 1998, respectively.
24
Notes to Consolidated Financial Statements
December 31, 2000
5. Stockholders' Equity, Stock Options and Warrants
The Company has authorized three stock option plans for employees, officers,
directors, consultants and other key personnel. As of December 31, 2000, the
Nonqualified Stock Option Plan has 287,500 shares reserved, 62,351 shares
available for issuance and 186,112 shares outstanding; the Long-Term Incentive
Plan has 625,000 shares reserved, 56,871 shares available for issuance and
497,243 shares outstanding; and the Stock Option Plan for Employees has 17,405
shares reserved, 2,401 shares available and 13,536 shares outstanding.
The Company also authorized and granted 81,392 stock options exclusive of the
above described plans, none of which were ever exercised prior to their
expiration in 2000.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1999 and 2000, respectively: risk-free interest rate of 6.5%; dividend yield of
0%; volatility factors of the expected market price of the Company's common
stock of .373, 1.437 and .771 and a weighted-average expected life of the option
of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the option is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
2000 1999 1998
---------- --------- --------------
Proforma net income (loss) ($ 18,429,417) $366,875 $8,438,709
Proforma net income (loss) per share ($ 2.53) $0.05 $1.15
Proforma net income (loss) per share
assuming dilution ($ 2.53) $0.05 $1.14
25
Notes to Consolidated Financial Statements
December 31, 2000
5. Stockholders' Equity, Stock Options and Warrants (continued)
Stock option activity is summarized as follows:
Number Weighted-Average
Of Shares Exercise Price
-------------------------------------------
Outstanding at January 1, 1998 744,619 5.57
=======
Exercisable at January 1, 1998 541,811 5.64
=======
Options granted 51,560 4.72
Options exercised (18,748) 3.19
Options canceled (38,323) 5.55
-------
Outstanding at December 31, 1998 739,108 5.57
=======
Exercisable at December 31, 1998 535,598 5.63
=======
Options granted 111,872 3.47
Options exercised (12,788) 3.36
Options canceled (182,928) 6.29
---------
Outstanding at December 31, 1999 655,264 5.06
=======
Exercisable at December 31, 1999 535,598 6.19
=======
Options granted 401,248 1.38
Options exercised --- ---
Options canceled (326,951) 4.49
---------
Outstanding at December 31, 2000 729,561 3.24
=======
Exercisable at December 31, 2000 309,786 5.49
=======
The weighted-average fair value of options granted during the year was $.92,
$3.46 and $1.07 in 2000, 1999 and 1998, respectively. Exercise prices for
options outstanding as of December 31, 2000 ranged from $1.38 to $50. The
weighted-average remaining contractual life of those options is 7.2 years.
Warrant activity is summarized as follows: Weighted-Average
Shares Exercise Price
---------- ----------------
Outstanding at January 1, 1998 2,846,868 5.04
==========
Exercisable at January 1, 1998 2,846,868 5.04
==========
Warrants issued 600,000 5.50
Warrants exercised (391,000) 4.00
Warrants canceled (125,000) 4.00
----------
Outstanding at December 31, 1998 2,930,868 5.46
==========
Exercisable at December 31, 1998 2,930,868 5.46
==========
Warrants issued 50,000 4.13
Warrants exercised --- ---
Warrants canceled (2,232,618) 5.50
----------
Outstanding at December 31, 1999 748,250 5.21
==========
Exercisable at December 31, 1999 748,250 5.21
==========
Warrants issued --- ---
Warrants exercised --- ---
Warrants canceled --- ---
---------- ----
Outstanding at December 31, 2000 748,250 5.21
==========
Exercisable at December 31, 2000 748,250 5.21
==========
26
Notes to Consolidated Financial Statements
December 31, 2000
5. Stockholders' Equity, Stock Options and Warrants (continued)
There were no warrants granted in 2000. The weighted average fair value of
warrants granted during 1999 was $4.13. Exercise prices for warrants outstanding
as of December 31, 2000 ranged from $4 to $5.50. The weighted-average remaining
contractual life of those warrants is 3.2 years.
6. Transfer of License
In June 1997, the Company agreed to the transfer of the licenses for the sales
of dental lasers and air abrasive instruments from Sunrise Technologies, Inc.
("Sunrise") to Lares Co. ("Lares") in connection with the sale of Sunrise's
dental business to Lares. The Company received a payment of $275,000 and a note
receivable for $100,000, due in June 2000. The Company will also continue to
receive royalties on air abrasive and dental lasers from Lares. This note is
still outstanding as of December 31, 2000.
In 1999, the Company sold a license to ESC Medical Systems, Ltd. for $300,000
for the use of certain patents. The Company delivered the license to ESC Medical
Systems, Ltd. in 1999 and recorded the income in 1999 as a license transfer fee
since the Company has no additional requirements under this license.
7. Income Taxes
At December 31, 2000, the Company had approximately $12 million of net operating
loss carryforwards for federal income tax purposes, which expire in various
amounts in the years 2006 through 2020.
Deferred taxes represent the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows:
December 31
2000 1999
-----------------------------
Allowance for doubtful accounts $ 78,000 $ 77,000
Inventory valuation reserves 611,000 402,000
Depreciation 322,000 261,000
Compensation and employee benefits 72,000 51,000
Alternative minimum tax credit carryforward 195,000 245,000
Warranty reserve 88,000 51,000
Other 266,000 155,000
Net operating loss carryforwards 4,064,000 3,746,000
---------- ----------
Deferred tax asset 5,696,000 4,988,000
Deferred tax liabilities (47,000) (244,000)
----------- ----------
Net deferred tax asset $5,649,000 $4,744,000
Valuation allowance 5,649,000 ---
---------- ----------
Net deferred tax asset $ --- $4,744,000
========== ==========
27
Notes to Consolidated Financial Statements
December 31, 2000
7. Income Taxes (continued)
The Company's income tax provision included the following:
2000 1999 1998
----------------------------------------------
Current expense $ --- $ 58,000 $ 140,000
Deferred expense (benefit) 4,744,000 558,000 (5,212,000)
---------- ---------- -------------
$4,744,000 $ 616,000 $ (5,072,000)
========== ========== =============
Income taxes (benefit) at
US statutory rate ($4,644,000) $ 343,000 $ 1,284,000
State taxes --- 58,000 65,000
Non-deductible amortization 3,248,000 251,000 367,000
Deferred tax asset valuation
allowance adjustment 5,649,000 --- (6,738,000)
Other 491,000 (36,000) (50,000)
---------- ---------- -------------
$4,744,000 $ 616,000 $ (5,072,000)
========== ========== ==============
In 2000, uncertainties exist as to the future realization of the deferred tax
asset under the criteria set forth under FASB Statement No. 109. Therefore, the
Company has established a valuation allowance for the deferred tax asset of
$5,649,000 at December 31, 2000.
The Company paid no income tax during 2000. Income taxes paid were approximately
$41,000 and $134,000 in 1999 and 1998, respectively.
In 1998, the Company reversed its previously recorded deferred tax asset
valuation allowance as the Company determined that it was more likely than not
that they would realize the related deferred tax asset. The effect of the
reversal was to increase net income by $5,072,000 for this income tax benefit.
The Company's investment in its foreign subsidiary is considered to be
permanently invested and no provision for U.S. federal and state income taxes on
these translation adjustments have been provided.
8. Operations by Industry Segment, Geographic Area and Significant Customers
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, for the year ended December 31, 1999. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of the enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.
The Company develops, manufactures, markets and sells high technology dental
products, such as air abrasive equipment, lasers, curing lights and intra oral
cameras. With the adoption of its new business model in February of 2000, the
Company utilizes two distinct sales methods for these products. Domestically,
the Company sells its products direct to the consumer through its nationwide
network of sales and service branch offices. Internationally, the Company
continues to sell its products through regional dental distributors. The
reportable segments are managed separately because selling techniques and market
environments differ from direct selling versus selling through a distributor
network. The remaining activities of the Company, which are reported as "Other",
include industrial, parts and accessories and royalty income.
28
Notes to Consolidated Financial Statements
December 31, 2000
8. Operations by Industry Segment, Geographic Area and Significant Customers
(continued)
The accounting policies of the business segments are consistent with those
described in Note 1. Operating results for Domestic, substantially all of which
is attributable to the United States, include the effects of the business
acquisitions, as described in Note 2. The Company's Chief Operating Decision
Maker evaluates segmental performance and allocates resources based on
operational earnings (gross profit less selling and marketing expenses).
2000 1999 1998
------------------------------------------------
Revenues:
Domestic $ 8,724,106 $14,045,796 $19,608,098
International 7,990,695 7,981,420 6,328,014
------------ ------------ ------------
$ 16,714,801 $22,027,216 $25,936,112
============ =========== ===========
Reconciliation of revenues:
Total segment revenues $ 16,714,801 $22,027,216 $25,936,112
Other 3,187,445 2,342,311 2,348,608
------------ ------------- ------------
Total revenues $ 19,902,246 $24,369,527 $28,284,720
============ =========== ===========
Operational earnings (loss):
Domestic ($ 1,815,833) $1,094,190 $ 4,825,240
International 3,214,002 2,843,931 2,392,519
----------- ----------- -----------
$ 1,398,169 $3,938,121 $ 7,217,759
=========== ========== ===========
Reconciliation of operational earnings to income from operations:
Total segment operational earnings $ 1,398,169 $ 3,938,121 $ 7,217,759
Other operational earnings 171,521 782,868 1,356,004
Research & development expenses (966,382) (931,189) (947,202)
Administrative expenses (14,024,076) (3,902,872) (3,784,571)
------------- ------------- -----------
Income (loss) from operations ($13,420,768) $ (113,072) $ 3,841,990
============= ============= ===========
Long lived assets (excluding deferred taxes):
Domestic $ 2,370,204 $ 2,436,122 $ 2,546,779
International 19,747 11,784 15,968
----------- ----------- -----------
$ 2,389,951 $ 2,447,906 $ 2,562,747
=========== =========== ===========
Sales to Patterson Dental Company, a major domestic distributor of the Company's
products, were approximately 3%, 16% and 30% of total revenues in 2000, 1999 and
1998, respectively. Sales to Denics for certain Asian and Pacific markets,
primarily Japan, were approximately 21%, 19% and 12% of total revenues in 2000,
1999 and 1998, respectively.
9. Litigation and Contingencies
In July of 2000, the Company filed a lawsuit in the District Court of Nueces
County, Texas against Henry Schein, Inc. to recover approximately $293,000 of
past due receivables plus interest and cost of collection. The lawsuit is in the
discovery stage and the Company expects to prevail on substantially all of its
claims.
All of the litigation involving Kreativ, Inc. was settled during 1999 as
previously disclosed. The Company received a $580,000 settlement from Kreativ,
Inc. in the false advertising suit and received $300,000 in exchange for a
paid-up license in settlement of the two patent suits. The proceeds from the
false advertising suit are included in other income in the Statement of
Operations and the proceeds from the patent suits are included in the license
transfer fees in the Statement of Operations.
30
Notes to Consolidated Financial Statements
December 31, 2000
10. Selected Quarterly Financial Data (unaudited)
Three Months Ended
March 31 June 30 September 30 December 31
2000 2000 2000 2000
--------------------------------------------------------------------
Revenues $4,700,106 $5,489,878 $4,557,731 $5,154,532
Gross profit 1,955,616 3,126,379 2,589,671 1,100,202
Net income (loss) (745,980) 138,117 (247,908) (17,547,669)(1)
Net income (loss) per share
assuming dilution $(0.10) $0.02 $(0.03) $(2.43)
Three Months Ended
March 31 June 30 September 30 December 31
1999 1999 1999 1999
--------------------------------------------------------------------
Revenues $6,116,754 $6,268,805 $4,576,128 $6,807,840
Gross profit 3,140,391 2,732,188 2,210,448 2,907,836
Net income (loss) 128,676 36,870 (49,889) 275,949
Net income (loss) per share
assuming dilution $0.02 $0.01 $(0.01) $0.04
- ----------------------
(1) Includes impairment charges of $9.2 million related to intangibles
associated with the air abrasion and camera product lines, a charge to
increase the reserve for slow moving inventory by $.8 million, a write off
of demonstration inventory of $1.2 million related to the change in the
business model, and a deferred income tax valuation allowance of $5.6
million. Such adjustments were booked in the fourth quarter, as the effects
of the implementation of the new business model could not be evaluated
until management deemed the transition to the new business model was
substantially completed.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included in the Company's definitive Proxy Statement to
be distributed in connection with its 2001 Annual Meeting of Stockholders (the
"2001 Proxy Statement"), under the headings "Election of Directors" (but
excluding the information in the Audit Committee Report) and "Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information included in the 2001 Proxy Statement under the heading
"Executive Compensation" (but excluding the information in the Compensation
Committee Report and under "Stock Performance Graph") is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information included in the 2001 Proxy Statement under the heading
"Principal Stockholders of the Company and Security Ownership of Management" is
incorporated herein by reference.
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included in the 2001 proxy Statement under the heading
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: The following financial statements of
American Medical Technologies, Inc.are included in Item 8, "Financial
Statements and Supplementary Data":
Report of Independent Auditors
Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999, and 1998
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999, and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: The following financial
statement schedule is attached to this report.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not required,
or the information is included in the financial statements or the notes thereto.
3. Exhibits: The exhibits included as part of this report are
listed in the attached Exhibit Index, which is incorporated herein by reference.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended December 31, 2000.
31
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AMERICAN DENTAL TECHNOLOGIES, INC.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------------------------------------------------- ---------------- ---------------- ----------------- -------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE OF PERIOD
----------------------------------------------------- ---------------- ---------------- ----------------- -------------
Year Ended December 31, 1998
Valuation allowance for accounts receivable 250,000 --- 75,000(1) 175,000
Valuation allowance for inventories 715,000 --- 160,000(2) 555,000
Valuation allowance for deferred taxes 6,738,000 --- 6,738,000(3) ---
Year Ended December 31, 1999
Valuation allowance for accounts receivable 175,000 13,000(4) --- 188,000
Valuation allowance for inventories 555,000 257,000(5) --- 812,000
Valuation allowance for deferred taxes --- --- --- ---
Year Ended December 31, 2000
Valuation allowance for accounts receivable 188,000 42,000(6) --- 230,000
Valuation allowance for inventories 812,000 873,000(7) --- 1,685,000
Valuation allowance for deferred taxes --- 5,649,000(8) --- 5,649,000
(1) Uncollectible accounts charged off net of recoveries.
(2) Inventory valuation write-offs.
(3) Reversal of valuation allowance.
(4) Increase in accounts receivable valuation allowance.
(5) Increase in inventory valuation allowance.
(6) Increase in accounts receivable valuation allowance.
(7) Increase in inventory valuation allowance.
(8) Recording of valuation allowance.
32
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Corpus Christi, State of Texas, on the 28th day of March, 2001.
AMERICAN MEDICAL TECHNOLOGIES, INC.
/s/ BEN J. GALLANT
---------------------------------
Ben J. Gallant, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 28, 2001.
/s/ BEN J. GALLANT
- ------------------------------------
Ben J. Gallant President, CEO, Director and
Chairman of the Board
(Principal Executive Officer)
/s/ JUSTIN W. GRUBBS
- ------------------------------------
Justin W. Grubbs Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
/s/ JOHN E. VICKERS III
- ------------------------------------
John E. Vickers III Chief Operating Officer and Director
/s/ GARY A. CHATHAM
- ------------------------------------
Gary A. Chatham Director
/s/ WAYNE A. JOHNSON II
- ------------------------------------
Wayne A. Johnson II Director
/s/ WILLIAM D. MARONEY
- ------------------------------------
William D. Maroney Director
/s/ CHARLES A. NICHOLS
- ------------------------------------
Charles A. Nichols Director
/s/ WILLIAM S. PARKER
- ------------------------------------
William S. Parker Director
/s/ BERTRAND R. WILLIAMS, SR.
- ------------------------------------
Bertrand R. Williams, Sr. Director
33
EXHIBIT INDEX
Certain of the following exhibits have been previously filed with the Securities
and Exchange Commission pursuant to the requirements of the Securities Act of
1933 and the Securities Exchange Act of 1934. Such exhibits are identified by
the parenthetical references following the listing of each such exhibit and are
incorporated herein by reference. The Company's Commission file number is
0-19195.
Exhibit Number Description of Document
- -------------- -----------------------
3.1 Amended and Restated Certificate of Incorporation effective as
of July 13, 2000 (Form 10-Q for quarter ended September 30,
2000)
3.4 Amended and Restated Bylaws, dated December 15, 1993 (Form
10-K for year ended December 31, 1998)
4.1 Nontransferable Common Stock Purchase Warrant, dated August 5,
1998, 540,000 shares (Form 10-Q for quarter ended September
30, 1998)
4.2 Nontransferable Common Stock Purchase Warrant, dated August 5,
1998, 60,000 shares (Form 10-Q for the quarter ended September
30, 1998)
4.3 Line of Credit of Agreement between Bank One and American
Medical Technologies, Inc. effective September 21, 2000 (Form
10-Q for quarter ended September 30, 2000)
4.4 Revolving Business Credit Note (LIBOR - Based Interest Rate)
between Bank One and American Medical Technologies, Inc.
effective September 21, 2000 (Form 10-Q for quarter ended
September 30, 2000)
4.5 Non-transferable Common Stock Purchase Warrant dated March 24,
1999 (Form 10-Q for quarter ended March 31, 1999)
4.6 Non-transferable Common Stock Purchase Warrant dated March 24,
1999 (Form 10-Q for quarter ended March 31, 1999)
4.7 Amendment to Line of Credit Agreement between Bank One and
American Medical Technologies, Inc. dated March 23, 2001
10.1* Amended and Restated Nonqualified Stock Option Plan
(Registration No. 33-40140)
10.2* Stock Option Plan for Employees (Registration No. 33-40140)
10.3* Amended and Restated Long-Term Incentive Plan (Form 10-Q for
quarter ended September 30, 1996)
10.4* Ben J. Gallant Employment Agreement (Form 10-K for year ended
December 31, 1996)
10.5 License Agreement between Texas Airsonics, Inc., a wholly
owned subsidiary of American Medical Technologies, Inc. and
Texas Airsonics, L.P. (Form 10-K for year ended December 31,
1996)
10.6** Patent License Agreement dated October 18, 1997 between
Danville Engineering, Inc. and the Company (Form 10-Q for
quarter ended September 30, 1997)
10.7 Assignment from Sunrise Technologies International, Inc. to
Lares Research dated June 24, 1997 (Form 10-K for year ended
December 31, 1997)
10.8 Patent License Agreement dated June 29, 1998 Prep-Technology
Corp. and American Medical Technologies, Inc. (Form 10-Q for
quarter ended June 30, 1998)
10.9** Patent License Agreement dated as of January 21, 1999 between
ESC Medical Systems, Ltd. and American Medical Technologies,
Inc. (Form 10-Q for quarter ended March 31, 1999)
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10.10 Patent licensing agreement dated June 10, 1999 between
American Medical Technologies, Inc. and Kreativ, Inc. (Form
10-Q for quarter ended June 30, 1999)
10.11 Promissory Note between the Company and Denics Co Ltd. dated
December 15, 1999 (Form 10-K for year ended December 31, 1999)
10.12* Amended employment agreement dated August 1, 1999 between
American Medical Technologies, Inc. and Ben J. Gallant (Form
10-Q for quarter ended September 30, 1999)
10.13* Amended employment agreement dated March 15, 2001 between
American Medical Technologies, Inc. and Ben J. Gallant
21.1 Subsidiaries of the Registrant (Form 10-K for year ended
December 31, 1999)
23.1 Consent of Independent Auditors
------------
*Identifies current management contracts or compensatory plans or
arrangements.
**Portions of this agreement were filed separately with the Commission
pursuant to Rule 24b-2 of the Securities Act of 1934 governing requests
for confidential treatment of information.
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