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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, 1999, 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 DENTAL 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 $10,500,000 on March 30,
2000, 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 five percent of registrant's common stock are
assumed to be affiliates. There were 7,432,047 shares of the registrant's Common
Stock issued and outstanding on March 30, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants' Proxy Statement for its 2000
Annual Meeting of Stockholders are incorporated by
reference into Part III of this report on Form 10-K
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PART I
ITEM 1. Description of Business
INTRODUCTION
American Dental Technologies, Inc. ("American Dental" or "Company")
develops, manufactures and markets high technology dental products designed for
general dentistry. American Dental's primary products are air abrasive kinetic
cavity preparation systems ("KCP"); pulsed dental lasers, primarily the
PulseMaster models; high speed curing lights ("PAC"); and intra oral cameras
("Ultracam") which are developed and manufactured at its manufacturing facility
in Corpus Christi, Texas. American Dental also develops, manufactures and
markets precision air abrasive jet machining ("AJM") systems for industrial
applications. American Dental, incorporated in Delaware in November 1989,
completed its initial public offering in June 1991.
On February 14, 2000, American Dental announced that it would now sell its
dental products in the United States directly to dentists through its own sales
force. The Company plans to establish twenty sales and service centers in 2000
and add twenty additional sales and service centers over the next two years.
American Dental plans to continue to sell outside the United States through its
distributor network. The goal of the Company is to become an equipment
distributor which 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
KCP Cavity Preparation Systems
American Dental currently offers several KCP models which vary in size,
power and features, from the KCP 5 counter top model to the deluxe KCP 1000PAC
model. American Dental'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 Dental also markets a Plasma Arc Curing System ("PAC") as an
accessory to its KCP and as a stand alone unit. The PAC 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.
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 and PAC represented approximately 41%, 65%, and 76%
of American Dental's total revenues in 1999, 1998 and 1997, respectively.
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Laser Products
The PulseMaster 600-IQ, one of two instruments in American Dental'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,
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 Dental 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 Dental's dental lasers, components and accessories are sold
primarily in certain Asian and Pacific markets, Europe and North America. Lasers
represented approximately 27%, 17% and 15% of American Dental's total revenues
during 1999, 1998 and 1997, respectively.
American Dental 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 Dental'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 Dental
Technologies received U.S. Food & Drug Administration ("FDA") clearance to
market the PulseMaster for the selective removal of enamel decay. American
Dental 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."
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 recently
introduced Digital Docking Station greatly enhances the value of an intra oral
camera by allowing the storage of up to 40 images on a 3 1/2" computer floppy
disk.
Ultracam products are sold primarily in North America and Europe. Since its
acquisition in August 1998, the Ultracam products represented approximately 22%
and 11% of American Dental's total revenue in 1999 and 1998, respectively.
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Industrial Products
American Dental also develops, manufactures and markets precision air
abrasive jet machining ("AJM") systems for industrial applications. AJM 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 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 Dental's total
revenues in 1999, 1998, and 1997, respectively.
Probe 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 1999, 1998
and 1997.
MARKETING, SALES AND TRAINING
General
Prior to February 14, 2000, American Dental 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%, 30%, and 34% of total revenues in 1999, 1998, and 1997,
respectively.
On February 14, 2000, American Dental 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 Dental intends to become a distributor of
dental equipment by establishing the infrastructure to support direct selling.
American Dental will not only sell dental products it manufactures, but also
intends to actively pursue OEM or strategic relationships with other
manufacturers. Within five years, it hopes to be able to supply 80% to 90% of
the equipment used by dentists.
The new business model calls for the establishment of 20 dental sales and
service centers in the year 2000 and 20 more in the following two years. Each
center will be staffed with an office coordinator responsible for scheduling,
coordinating local marketing and reporting to corporate headquarters.
Additionally, each center will have a technician for installation and technical
service support. Outside the United States, including Canada, American Dental
will continue selling its dental products through its strong distributor
network.
American Dental's products are exclusively marketed in Japan by Denics Co.
Ltd. ("Denics") or its affiliates. As of March 2000, American Dental has
purchase commitments of approximately $4,560,675 through March 2001. Sales to
Denics for certain Asian and Pacific markets, primarily Japan, were
approximately 19%, 12%, and 10% of total revenues in 1999, 1998, and 1997,
respectively.
In most of Europe, American Dental's products are marketed through
exclusive dental distributors, such as DLMedica in Italy, Casa Schmidt in Spain
and Dentex in Russia. In Germany, the Company's primary European market,
American Dental is selling directly to the end user as well as selling through
distributors. An agreement was signed February 15, 2000 authorizing Plessing
Dental Handel GmbH and their affiliate, Sirona, to
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act as the exclusive laser distributor for Germany, provided these two firms
sell a minimum of 72 laser units during the balance of 2000. This agreement only
covers distributor sales in Germany and allows American Dental's German
subsidiary to continue to sell all of American Dental's products directly to the
end user.
The loss of American Dental'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 Dental'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 Dental presently has several industrial product distributors. Such
distributors have been and are anticipated to be the primary source of sales for
American Dental's industrial products in the future. Industrial product
distributors are supported by American Dental primarily through advertising in
the Thomas Register and trade journals, and by participation in trade shows.
American Dental 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.
INSTALLATION, TRAINING AND SERVICE
Because American Dental's dental products represent new approaches to
dentistry, installation and training are considered to be significant aspects of
its marketing efforts. Shortly after any purchase, American Dental or the
selling distributor install the product, verify that it is in proper working
order and provide training on its lasers and large air abrasion units. American
Dental also encourages each purchaser to participate in ongoing continuing
education regarding the use of American Dental's dental products and endeavors
to share new developments as soon as reliable scientific support has been
established.
American Dental or its distributors generally provide warranty service for
American Dental's products in the United States. To service its dental products,
American Dental has five full-time service employees in the United States and
has service arrangements with independent distributors for products in other
markets. Additionally, new service employees will be added as the sales and
service centers are opened. If such arrangements are unavailable, certain of
American Dental's sales personnel are trained to make minor service repairs. To
date, American Dental has not experienced significant service problems.
Previously, the warranty for a KCP, PAC, camera or laser was one year. The
general warranty was extended to two years in the United States for sales after
February 14, 2000. American Dental provides a limited five year warranty that a
PAC will deliver full curing energy in the calibrated time of ten seconds or
less.
The Company has a service center in Keltern, Germany which 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 Dental's dental products represent new approaches to
dentistry, American Dental believes a substantial effort is required to educate
dentists regarding the advantages of its technology. American Dental actively
supports educational activities relating to the use of its products.
Dr. Terry Myers, an American Dental consultant, is the executive director
of The Institute for Advanced Dental Technologies, formerly The Institute for
Laser Dentistry (the "Institute"). Under the auspices of the Institute, Dr.
Myers 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 Dental 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 Dental sales representative is typically
available to answer questions concerning American Dental's products.
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COMPETITION
In general, American Dental's products are subject to intense competition,
both from other advanced dental technology companies and from makers of
conventional dental equipment. American Dental believes there are approximately
ten companies which presently sell competing dental air abrasive products and
approximately eleven companies which presently sell competing intra oral camera
systems. American Dental believes there are approximately eight competing
companies which presently offer Nd:YAG, diode, argon, erbium, holmium or CO2
lasers for use in dentistry. American Dental has patents in the basic
technologies, both in air abrasion and lasers, which the Company believes
provide a competitive advantage.
American Dental's KCP, PAC and Laser products must also compete with
conventional treatment methods using dental instruments or equipment which 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 Dental. American
Dental'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 Dental believes its products are
competitive in terms of capabilities, quality and price, competition has, and
may in the future, adversely affect American Dental's business.
PATENTS
American Dental believes its patents provide a competitive advantage in
those countries where they have been issued. American Dental believes its air
abrasive technology patents and other patent rights provide a proprietary means
to utilize that technology in dentistry. In the United States, American Dental
has patents related to 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, dental laser method and technology patents that have expiration
dates ranging from 2002 to 2016, and industrial air abrasive patents that have
expiration dates ranging from 2004 to 2016. American Dental also holds several
industrial air abrasive patents in various other countries.
MANUFACTURING AND SUPPLIERS
American Dental 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 Dental'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 Dental has modern machining
capability allowing it to control the production of certain non-standard parts.
American Dental 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 Dental 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 Dental's relationship with a particular supplier might result in some
production delays, such a loss is not expected to materially affect American
Dental'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 Dental by consultants. The Texas facility has an
engineering and CAD/CAM drafting staff which is capable of producing new product
prototypes. Although American Dental expects to continue to conduct most of its
own research and development activities, American Dental 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.
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American Dental's research and development expenditures for 1999, 1998 and
1997 were $931,189, $947,202 and $641,984, respectively. American Dental's
current research and development efforts are focused on new complementary
products for the dental market.
GOVERNMENTAL REGULATION
American Dental'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 Dental must
comply with procedures and standards established by the United States Food and
Drug Administration ("FDA") and comparable foreign regulatory agencies. Changes
in existing regulations or adoption of additional regulations may adversely
affect American Dental'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 which
have already received FDA clearance. Such clearances, if obtained, may take from
three months to several years to receive.
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. In the latter part of 1996, approval to
market the KCP in Japan was obtained. American Dental'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 which have no
regulations. Regulation of medical devices in other countries is also subject to
change and there can be no assurance American Dental 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 Dental's
manufacturing facility received ISO 9001 certification in 1997.
PRODUCT LIABILITY EXPOSURE
American Dental's business involves the inherent risk of product liability
claims. If such claims arise, they could have an adverse effect on American
Dental. American Dental 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 Dental 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
See "American Dental Technologies, Inc. Notes to Financial Statements, Note
8."
EMPLOYEES
On March 1, 2000, American Dental had 95 full-time employees and 2
part-time employees. Of these employees, 24 were engaged in direct sales and
marketing activities and 55 in manufacturing activities. The remaining employees
are in finance, administration, customer service, and research and development.
American Dental has no collective bargaining agreements with any unions and
believes that its overall relations with its employees are good.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning each of the current
executive officers of American Dental who are elected to serve at the discretion
of the Board of Directors.
Name Age Position
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Ben J. Gallant 66 President, Chief Executive Officer and Director
Barbara A. Danieli 37 Chief Financial Officer
John E. Vickers 53 Executive Vice President, Secretary and Director
William S. Parker 54 Senior Vice President - Dental
Hans Nahme 60 Senior Vice President - Sales
William E. Graham 41 Vice President - Eastern Sales
John A. Miller 40 Vice President - Western Sales
William D. Myers 58 Chairman of the Board of Directors
Ben J. Gallant - Mr. Gallant was appointed President of American Dental in
September 1996 and Chief Executive Officer in November 1996. He became a
director in July 1996. Mr. Gallant was a founder of Texas Airsonics, Inc.
("Texas Air"), which was acquired by American Dental on July 31, 1996, served as
a director and chairman of the board since that company's inception in 1982, and
became its president and chief executive officer in 1991.
Barbara A. Danieli - Ms. Danieli was appointed Chief Financial Officer in April
1999. She had been the Controller of American Dental since 1998 and prior to
that, the Accounting Manager for American Dental since 1997. Prior to joining
American Dental, Ms. Danieli was a financial analyst for Kmart Corporation from
1995 to 1997, and an accountant for a local Michigan accounting firm from 1990
to 1995.
John E. Vickers III - Mr. Vickers was appointed Executive Vice President in
August 1998. He had been the Senior Vice President - Operations of American
Dental since November 1996 and became a director in July 1996. Mr. Vickers had
served as Texas Air's chief financial officer and legal counsel since June 1993
and had various operating responsibilities with Texas Air. From December 1991
until September 1994, Mr. Vickers was of counsel to the law firm of Novak,
Vickers and Burt. Mr. Vickers had been engaged in the practice of law for 25
years.
Hans Nahme - Mr. Hahme was appointed Senior Vice President - Sales in August
1999. He had been the Vice President - International Sales since May 1999. Prior
to joining American Dental, Mr. Nahme had been general manager with IDEA
Associates, Inc., a Portland, Oregon firm that had been responsible for export
sales of American Dental 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.
William S. Parker - Mr. Parker was appointed Senior Vice President - Dental in
August 1998. 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. He is
chiefly responsible for the Company's product development.
William E. Graham - Mr. Graham was appointed Vice President - Eastern Sales in
May 1999. Mr. Graham had been Vice President - Sales and prior to that National
Sales Manager - Ultracam from August 1998 to May 1999. Prior to joining American
Dental, Mr. Graham was a high tech product consultant for Meer Dental, a large
regional dental distributor, from November 1996 until August 1998. From August
1993 to November 1996 he was a sales representative for Insight Imaging, Inc.,
an intra oral camera manufacturer.
John A. Miller - Mr. Miller was appointed Vice President - Western Sales in May
1999. Prior to joining American Dental, 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.
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William D. Myers, M.D. - Dr. Myers is one of the founders of American Dental and
a co-inventor of the Company's first dental laser. He has been Chairman of the
Board of American Dental since January 1990. Dr. Myers has been a practicing
ophthalmologist for more than 20 years and is the founder and director of the
Michigan Eyecare Institute. Dr. William Myers and Dr. Terry Myers are brothers.
FORWARD LOOKING STATEMENTS
This report and other reports filed by the Company, as well as our press
releases and other investor communications, contain statements which are
"forward looking statements" within the meaning of the Securities Exchange Act
of 1934, as amended, and are subject to uncertainties which could cause our
results and performance to differ materially from the Company's expectations.
Such uncertainties include, without limitation, the possible failure to maintain
its lines of credit, ability to hire and retain qualified sales and service
personnel, the potential for an extended decline in sales, the inability of
revenues to offset additional costs associated with the new approach, the
negative effects of competition on prices and sales volumes and the other risks
and uncertainties set forth in this report.
ITEM 2. DESCRIPTION OF PROPERTIES
American Dental 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.
The office building in Southfield, Michigan was sold in November, 1999 as
part of the move to consolidate administrative operations in Corpus Christi,
Texas. American Dental maintains a lease on a total of 1,800 square feet office
space in Southfield, Michigan and a total of 1,200 square feet in San Carlos,
California for its product development, clinical and service activities. As of
March 15, 2000, twelve locations were leased for sales and service centers. The
leases are generally for one to two year terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation at December 31, 1999.
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 suit are included in the license
transfer fees in the statement of operations.
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 Dental'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 Dental common stock as reported
by Nasdaq for each quarterly period during the last two fiscal years.
Closing Price
High Low
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1998
First Quarter $ 5.375 $ 4.750
Second Quarter 5.563 4.438
Third Quarter 5.063 3.500
Fourth Quarter 4.375 3.438
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
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As of March 30, 2000, there were approximately 4,000 beneficial and record
holders of American Dental 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. Any payment of cash dividends in the future will depend upon earnings,
capital requirements and other factors considered relevant by the Board of
Directors.
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
Dental. 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)
1999 1998 1997 1996 1995
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Operating data:
Net revenues $ 24,370 $ 28,285 $ 21,652 $ 20,510 $ 13,617
Net income (loss) $ 392 $ 8,849(2) $ 3,622 $ 5,628(2) $ (1,274)
Net income (loss)
per common share
assuming dilution $ .05 $ 1.20 $ .47 $ .90 $ (.34)
Weighted average number
of common shares 7,446 7,375 7,640 6,284 3,836
Balance Sheet Data:
Total assets $ 40,348 $ 41,855(3) $ 22,530 $ 21,280(4) $ 12,984
Long-term obligations 5,373 6,271 135 577 3,664
Stockholders' equity(5) 32,018 31,809 20,257 16,809 1,832
Working capital (deficit) 17,144 17,504 8,290 5,153 (1,437)
- -----------------
(dollars in thousands)
(1) Includes $5,072 income tax benefit related to reversal of a previously
recorded deferred tax asset valuation allowance
(2) Includes $2,700 related party royalty income and a $560 restructuring
expense.
(3) Includes goodwill of $4,230 and other assets of $3,948 recorded in
connection with the acquisitions of The Dental Probe and Dental Vision
Direct in February 1998 and August 1998, respectively.
(4) Includes goodwill of $6,125 and other assets of $2,447 recorded in
connection with the acquisition of Texas Airsonics, Inc. on July 31, 1996.
(5) No dividends were paid on the common stock during the periods presented.
10
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
For the year ended December 31, 1999, income before taxes was $1,007,606
compared to $3,777,200 for 1998. The decline in income before taxes was
primarily attributable to a decline in revenues and gross margins, and an
increase in selling and marketing expenses for the first half of 1999 as a
percentage of revenues.
For the year ended December 31, 1998, income before taxes was $3,777,200
compared to $3,621,770 for 1997. The increase in income before taxes was
primarily due to increased revenues, which was partially offset by increased
legal fees incurred during 1998 for defending the Company's business reputation
and patents.
For the year ended December 31, 1999, the Company's revenues decreased 14%
compared to 1998. This decrease in revenues is 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 is
primarily due to a decrease in KCP sales caused by the liquidation of dealer
inventories and a soft air abrasion market. The Company is attempting to reduce
fluctuations resulting from dealer inventory adjustments by implementing the new
business model described in Item I. 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 are mainly attributable to the
addition of new distributors in 1999.
For the year ended December 31, 1998, the Company's revenues increased 31%
compared to 1997. This increase in revenues is primarily due to a 32% increase
in revenues in North America, a 44% increase in revenues in Japan and a 2%
increase in Europe. The increase in North America is due to the addition of the
Ultracam intra oral product line as a result of the acquisition of Dental Vision
Direct in August 1998 and increased sales of the stand alone curing light. The
Japanese and European distributors had reduced purchasing in 1997 and 1996 to
lower their inventory levels.
Gross profit as a percentage of revenues was 48% for the year ended
December 31, 1999, compared to 54% in 1998 and 57% in 1997. The decrease in
gross profit as a percentage of revenues in 1999 compared to 1998 and 1997 is
due to price discounts extended to North American distributors and a change in
product mix with lower gross profit as a percentage of revenues on the Ultracam
product line acquired in August 1998.
Selling, general and administrative expenses were $10,772,746 in 1999,
$10,618,210 in 1998 and $8,418,271 in 1997. The increase in 1999 is 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. The increase in 1998 is attributable to
increased selling and marketing expenses in North America and legal expenses
in excess of $500,000 for the purpose of defending the Company's business
reputation and patents.
Research and development expenses were $931,189 in 1999, $947,202 in 1998,
and $641,984 in 1997. The expenditures related primarily to the development of a
new PAC light and two new products which have not been completed. The increase
in research and development expense during 1998 was due to expenses relating to
clinical reports for regulatory approvals and the completion of two new
products.
License transfer fees increased $665,000 for the year ended December 31,
1999 compared to 1998. This increase is primarily due 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 increased $715,050 for the year ended December 31, 1999
compared to 1998. This increase is primarily due to the Kreativ lawsuit
settlement of $580,000 and a gain on the sale of the Michigan building of
$180,000.
Interest expense was $401,438 in 1999, $206,856 in 1998, and $52,857 in
1997. The increase in interest expense in 1999 and 1998 is primarily due to the
debt incurred to fund the acquisition of DVD in August 1998.
In 1999, the Company recorded a $616,000 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, 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. The effect of the reversal was to increase net
income by $5,072,117 for this income tax benefit. The Company's income taxes at
U. S.
11
12
statutory rates differs from its recorded income tax benefit primarily due to
the reversal of a previously recorded deferred tax valuation allowance in 1998.
At December 31, 1999, the Company had net deferred tax assets totaling
$4,744,000, primarily consisting of a net operating loss carryforward of
$3,746,000. These net operating loss carryforwards expire in various amounts in
the years 2006 through 2011.
Liquidity and Capital Resources
The Company's operating activities provided $2,818,774 in cash resources in
1999. Cash provided by operating activities in 1999 was due to net income of
$391,606, a decrease in inventories of $1,401,007, a decrease in accounts
receivable of $211,110, $558,619 of non-cash change in deferred taxes and
$1,868,378 of non-cash depreciation and amortization expense. Cash provided by
operating activities was primarily offset by reductions in liabilities totaling
$1,833,462.
The Company's investing activities used $149,095 in cash resources in 1999.
The cash used in investing activities in 1999 related primarily to the expansion
of the Company's facility in Corpus Christi, Texas, partially offset by the sale
of its office in Southfield, Michigan.
On September 30, 1999, 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 6.0% at December 31, 1999) plus
1.5%, which expires in September 2001. The Company's borrowing is secured by a
pledge of the Company's accounts receivable, inventory, equipment, instruments,
patents, copyrights and trademarks. As of December 31, 1999, the Company had
$5,150,000 outstanding and $2,350,000 available under this line of credit. The
borrowings were used to fund the Company's acquisition of DVD.
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.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. During 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
incurred costs of approximately $50,000 in connection with remediating its
systems and anticipates no further costs. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
will continue to monitor critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
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, interest rates and raw material prices.
Foreign Currency
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.
12
13
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, 1999 and 1998, the Company's net assets (defined as
current assets less current liabilities) subject to foreign currency translation
risk were $1,562,051 and $964,512 in 1998. The potential decrease in net assets
from a hypothetical 10% adverse change in quoted foreign currency exchange rates
would be approximately $156,205 and $96,541 for 1999 and 1998, 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. At December 31, 1999, the
weighted average interest rate on the $5,150,000 debt was 7.22% and the fair
value of the debt approximates its carrying value.
The Company had interest expense of $401,438 in 1999 as compared to
$206,856 in 1998. The potential increase in interest expense from a hypothetical
2% adverse change, assuming the December 31, 1999 and 1998 debt was outstanding
for the entire year, would be approximately $103,000 and $118,000 for the year
ended December 31, 1999 and 1998, respectively.
13
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
Report of Independent Auditors
Stockholders and Board of Directors
American Dental Technologies, Inc.
We have audited the accompanying consolidated balance sheets of American Dental
Technologies, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. 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 Dental Technologies, Inc. at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of three
years in the period ended December 31, 1999, 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.
/s/ Ernst & Young LLP
Detroit, Michigan
February 25, 2000
14
15
American Dental Technologies, Inc.
Consolidated Statements of Operations
Year Ended December 31
1999 1998 1997
------------- ------------ ------------
Revenues:
Equipment:
Trade $ 19,665,156 $ 24,545,421 $ 19,386,836
Related party (Note 3) 4,536,007 3,465,819 2,060,505
------------- ------------ -------------
24,201,163 28,011,240 21,447,341
Royalties 168,364 273,480 204,533
------------- ------------ -------------
24,369,527 28,284,720 21,651,874
Cost of sales 12,778,664 12,877,318 9,371,342
------------- ------------ ------------
Gross profit 11,590,863 15,407,402 12,280,532
Selling, general and administrative 10,772,746 10,618,210 8,418,271
Research and development 931,189 947,202 641,984
------------- ------------ ------------
Income (loss) from operations (113,072) 3,841,990 3,220,277
Other income (expense)
License transfer fee 665,000 --- 375,000
Other income 857,116 142,066 79,350
Interest expense (401,438) (206,856) (52,857)
------------- ------------ ------------
Income before income taxes 1,007,606 3,777,200 3,621,770
Income tax (benefit) expense 616,000 (5,072,117) ---
------------- ------------ ------------
Net income $ 391,606 $ 8,849,317 $ 3,621,770
============= =========== ============
Net income per share $ 0.05 $ 1.21 $ 0.52
====== ====== =======
Net income per share
assuming dilution $ 0.05 $ 1.20 $ 0.47
====== ====== =======
See accompanying notes.
15
16
American Dental Technologies, Inc.
Consolidated Balance Sheets
December 31
1999 1998
------------------------------
ASSETS
Current assets:
Cash $ 3,230,647 $ 1,409,404
Accounts receivable:
Trade, less allowance of $188,000
in 1999 and $175,000 in 1998 3,584,559 4,423,633
Related party (Note 3) 1,131,693 1,143,475
----------- -----------
4,716,252 5,567,108
Inventories (Note 1) 9,938,205 11,225,208
Deferred taxes 870,000 1,857,143
Prepaid expenses and other current assets 569,903 919,633
Other receivable (Note 6) 100,000 --
Note receivable-related party (Note 3) 675,000 300,000
----------- -----------
Total current assets 20,100,007 21,278,496
Deferred taxes 3,874,000 3,445,476
Property and equipment, net (Note 1) 2,447,906 2,462,747
Intangible assets, net (Notes 1,2 and 3):
Goodwill 11,850,523 12,170,149
Air abrasive technology rights 551,838 730,878
Other 1,523,539 1,667,439
----------- -----------
13,925,900 14,568,466
Other receivable (Note 6) -- 100,000
----------- -----------
Total assets $40,347,813 $41,855,185
=========== ===========
See accompanying notes.
16
17
American Dental Technologies, Inc.
Consolidated Balance Sheets
December 31
1999 1998
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,311,903 $ 2,877,517
Compensation and employee benefits 217,141 405,850
Accrued warranty 150,000 194,732
Other accrued liabilities 277,108 296,448
------------ ------------
Total current liabilities 2,956,152 3,774,547
Other non-current liabilities (Note 4) 223,278 321,336
Notes payable (Note 4) 5,150,000 5,950,000
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: 7,367,847
shares in 1999; and 7,419,259 shares in 1998 294,717 296,773
Additional paid-in capital 42,312,636 42,359,016
Warrants and options 801,000 772,500
Accumulated deficit (11,121,624) (11,513,230)
Foreign currency translation (268,346) (105,757)
------------ ------------
Total stockholders' equity 32,018,383 31,809,302
------------ ------------
Total liabilities and stockholders' equity $ 40,347,813 $ 41,855,185
============ ============
See accompanying notes.
17
18
American Dental Technologies, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1999 1998 1997
---------------------------------------------
OPERATING ACTIVITIES
Net income $ 391,606 $ 8,849,317 $ 3,621,770
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 413,977 244,566 121,435
Amortization 1,454,401 1,225,344 990,742
Deferred taxes 558,619 (5,212,619) (45,000)
Net gain on disposal of property and equipment (179,368) -- --
Other non-cash gains -- -- (100,000)
Changes in operating assets and liabilities:
Accounts receivable 211,110 (2,221,040) 124,343
Inventories 1,401,007 (3,788,370) (905,068)
Prepaid expenses and other current assets 400,884 (300,218) (29,098)
Notes and other receivables -- 200,000 (600,000)
Accounts payable (556,620) 1,580,876 (754,470)
Compensation and employee benefits (187,112) 157,977 11,243
Other accrued liabilities (248,727) 99,240 (694,750)
Other non-current liabilities (841,003) 183,989 (41,780)
----------- ----------- -----------
Net cash provided by operating activities 2,818,774 1,019,062 1,699,367
INVESTING ACTIVITIES
Acquisition of businesses -- (3,315,000) --
Purchases of property, plant & equipment (986,982) (1,242,296) (126,718)
Proceeds from sales of property, plant & equipment 769,367 -- --
Collections on notes receivable 300,000 -- --
Increase in intangible assets (231,480) (307,787) (1,087,639)
----------- ----------- -----------
Net cash used in investing activities (149,095) (4,865,083) (1,214,357)
FINANCING ACTIVITIES
Payments on note payable to related party -- -- (500,000)
Payments on note payable (800,000) (5,800,000) (250,000)
Proceeds from note payable -- 7,600,000 --
Repurchase of common stock (91,339) -- --
Proceeds from exercise of warrants -- 1,564,000 --
Proceeds from exercise of stock options 42,903 59,742 264,481
----------- ----------- -----------
Net cash provided by (used in) by financing activities (848,436) 3,423,742 (485,519)
----------- ----------- -----------
Increase (decrease) in cash 1,821,243 (422,279) (509)
Cash at beginning of year 1,409,404 1,831,683 1,832,192
----------- ----------- -----------
Cash at end of year $ 3,230,647 $ 1,409,404 $ 1,831,683
=========== =========== ===========
See accompanying notes.
18
19
American Dental Technologies, Inc
Consolidated Statements of Stockholders' Equity
Additional Warrants
Common Stock Paid-In and
Shares Amount Capital Options
------------ ------------ ------------- --------------
Balance at January 1, 1997 6,936,353 $ 277,457 $ 40,515,943 $ --
Net income for 1997
Foreign currency translation
Comprehensive income
Exercise of stock options 65,205 2,608 261,872
Redemption of stock cancellation
of joint venture (Note 3) (53,547) (2,142) (331,191)
------------ ------------ ------------ ------------
Balance at December 31, 1997 6,948,011 277,923 40,446,624 --
Net income for 1998
Foreign currency translation
Comprehensive income
Issuance of common stock for
acquisition of business (Note 2) 61,500 2,460 305,040
Exercise of stock options 18,748 750 58,992
Issuance of options for intangible
assets 52,500
Exercise of warrants 391,000 15,640 1,548,360
Issuance of warrants for
acquisition of business (Note 2) 720,000
------------ ------------ ------------ ------------
Balance at December 31, 1998 7,419,259 296,773 42,359,016 772,500
Net income for 1999
Foreign currency translation
Comprehensive income
Exercise of stock options 12,788 512 42,391
Issuance of common stock for
intangible assets 28,500
Repurchase of common stock (64,200) (2,568) (88,771)
------------ ------------ ------------ ------------
Balance at December 31, 1999 7,367,847 $ 294,717 $ 42,312,636 $ 801,000
============ ============ ============ ============
Foreign
Accumulated Currency
Deficit Translation Total
------------ ------------- ------------
Balance at January 1, 1997 $(23,984,317) $ (43,588) $ 16,765,495
Net income for 1997 3,621,770 3,621,770
Foreign currency translation (60,976) (60,976)
-------------
Comprehensive income 3,560,794
-------------
Exercise of stock options 264,480
Redemption of stock cancellation
of joint venture (Note 3) (333,333)
------------ ------------- ------------
Balance at December 31, 1997 (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) 307,500
Exercise of stock options 59,742
Issuance of options for intangible
assets 52,500
Exercise of warrants 1,564,000
Issuance of warrants for
acquisition of business (Note 2) 720,000
------------ ------------- ------------
Balance at December 31, 1998 (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 42,903
Issuance of common stock for
intangible assets 28,500
Repurchase of common stock (91,339)
------------ ------------- ------------
Balance at December 31, 1999 $(11,121,624) $ (268,346) $ 32,018,383
============ ============= ============
See accompanying notes.
19
20
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Significant Accounting Policies
Principles of Consolidation
American Dental Technologies, Inc. (the "Company") develops, manufactures,
markets and sells high technology products 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:
1999 1998
------------ -------------
Finished goods $ 1,310,448 $ 1,255,608
Raw materials, parts and supplies 8,627,757 9,969,600
------------ -------------
$ 9,938,205 $ 11,225,208
============ =============
Inventories at December 31, 1999 and 1998 are net of valuation allowances of
$811,715 and $555,000, 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:
1999 1998
------------ -----------
Building and improvements $ 1,546,745 $ 1,469,583
Office furniture and equipment 3,023,207 2,737,837
------------ -----------
4,569,952 4,207,420
Accumulated depreciation (2,122,046) (1,744,673)
------------ -----------
$ 2,447,906 $ 2,462,747
============ ===========
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 $5,806,049 and $4,351,647 at December 31, 1999 and 1998,
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.
Revenue Recognition
The Company recognizes revenues and related estimated warranty expense when
title is transferred to the customer, generally upon shipment. The Company
recognized revenue on certain sales to two of its largest distributors under
terms which require shipment to a local independent warehouse during 1997 and
1998.
20
21
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Significant Accounting Policies (continued)
Net Income Per Share
The following table sets forth the computation for basic and diluted earnings
per share:
1999 1998 1997
---------- ---------- ----------
Numerator:
Net income $ 391,606 $8,849,317 $3,621,770
---------- ---------- ----------
Numerator for basic and diluted earnings per
share - income available to common
stockholders after assumed conversions $ 391,606 $8,849,317 $3,621,770
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,424,433 7,310,510 6,933,740
Effect of dilutive securities:
Employee stock options 21,736 51,626 138,409
Warrants -- 12,858 568,231
---------- ---------- ----------
Dilutive potential common shares
Denominator for diluted earnings per
share - adjusted weighted-average
shares after assumed conversions 7,446,169 7,374,994 7,640,380
========== ========== ==========
Net income per share $ 0.05 $ 1.21 $ 0.52
========== ========== ==========
Net income per share assuming dilution $ 0.05 $ 1.20 $ 0.47
========== ========== ==========
Translation of non-U.S. currency amounts
For non-U.S. subsidiaries which 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 $603,400, $1,353,500 and $1,042,000 in 1999, 1998 and 1997,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals 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.
21
22
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The fair value of the Company's cash, accounts receivable, note receivable,
accounts payable and note payable to the bank approximates their carrying value
due to their short term nature.
Reclassifications
Certain amounts in prior year financial statements have been reclassified to
conform with the presentation used in 1999.
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 and 1997 assume the DVD acquisition occurred as of the
beginning of the respective periods, 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 dates indicated, nor are they
necessarily indicative of the company's future results of operations.
Year Ended December 31
1998 1997
----------- -----------
Revenues $32,313,902 $29,081,521
Net income 8,402,401 2,270,229
Net income per share $ 1.14 $ 0.30
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.
22
23
Notes to Consolidated Financial Statements
December 31, 1999
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.
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.
Sales of lasers and KCPs to Denics were $4,536,007, $3,465,819 and $2,060,505 in
1999, 1998 and 1997, respectively. The Company had accounts receivable of
$1,131,693 and, $1,143,475 from Denics at December 31, 1999 and 1998,
respectively.
Denics owned 4.89% and had warrants to acquire an additional 1.43% of the
Company's common stock. These warrants expired in 1999 and Denics is no longer
considered a "related party". However, the Company has disclosed its trade sales
and accounts receivable balances with Denics as a "related party" on the face of
the financial statements for all periods presented to provide consistent
disclosure.
Other
The Company obtained consulting and research services from related parties and
paid approximately $159,200 in 1997 for such services. There was no such expense
in 1999 and 1998.
4. Line of Credit and Other Non-Current Liabilities
On September 30, 1999, 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 6.0% at December 31, 1999) plus
1.5%, which expires in September 2001. The Company's borrowing is secured by a
pledge of the Company's accounts receivable, inventory, equipment, instruments,
patents, copyrights and trademarks. As of December 31, 1999, the Company had
$5,150,000 outstanding and $2,350,000 available under this line of credit.
The Company leases certain equipment under capital leases. Equipment related to
these capital leases had a net book value of approximately $281,525 at December
31, 1999. Future minimum lease payments under capital and operating leases as of
December 31, 1999 are as follows:
Year Operating Capital
Leases Leases
--------- ----------
2000 $ 83,388 $ 124,195
2001 33,120 124,195
2002 24,840 79,066
2003 47,776
2004 and thereafter --
--------- ---------
$ 141,348 375,232
Less amount representing interest (53,897)
---------
$ 321,335
=========
Capital lease obligations at December 31, 1999 consisted of the following:
Current portion $ 98,057
Non-current portion 223,278
--------
Total capital lease obligations $321,335
========
Rental expense, primarily office facilities, for operating leases in 1999, 1998
and 1997 approximated $94,227, $144,000 and $154,000, respectively.
The Company paid interest of approximately $401,438, $207,000 and $63,000 in
1999, 1998 and 1997, respectively.
23
24
Notes to Consolidated Financial Statements
December 31, 1999
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, 1999, the
Nonqualified Stock Option Plan has 287,500 shares reserved, 72,804 shares
available for issuance and 172,409 shares outstanding; the Long-Term Incentive
Plan has 625,000 shares reserved, 108,802 shares available for issuance and
436,649 shares outstanding; and the Stock Option Plan for Employees has 17,405
shares reserved, 1,166 shares available and 13,536 shares outstanding
The Company also authorized and granted 81,392 stock options exclusive of the
above described plans, of which 48,721 options have been exercised or canceled
and 32,670 options were outstanding at December 31, 1999.
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 1997,
1998 and 1999, 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 1.1, .373 and 1.437 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 which 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:
1999 1998 1997
--------- ---------- ----------
Proforma net income $ 366,875 $ 8,438,709 $ 3,213,783
Proforma net income per share $ 0.05 $ 1.15 $ 0.46
Proforma net income per share
assuming dilution $ 0.05 $ 1.14 $ 0.42
24
25
Notes to Consolidated Financial Statements
December 31, 1999
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, 1997 576,158 5.52
==========
Exercisable at January 1, 1997 576,158 5.52
==========
Options granted 251,872 5.44
Options exercised (65,205) 3.66
Options canceled (18,185) 9.29
----------
Outstanding at December 31, 1997 744,619 5.57
==========
Exercisable at December 31, 1997 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
==========
The weighted-average fair value of options granted during the year was $3.46,
$1.07 and $4.51 in 1999, 1998 and 1997, respectively. Exercise prices for
options outstanding as of December 31, 1999 ranged from $2.00 to $50.00. The
weighted-average remaining contractual life of those options is 4.7 years.
Warrant activity is summarized as follows: Weighted-Average
Shares Exercise Price
---------- ----------------
Outstanding at January 1, 1997 2,846,868 5.04
==========
Exercisable at January 1, 1997 1,097,639 4.08
==========
Warrants issued -- --
Warrants canceled -- --
-----------
Outstanding at December 31, 1997 2,846,868 5.04
===========
Exercisable at December 31, 1997 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 5.29
===========
Exercisable at December 31, 1999 748,250 5.29
===========
25
26
Notes to Consolidated Financial Statements
December 31, 1999
5. Stockholders' Equity, Stock Options and Warrants (continued)
The weighted-average fair value of warrants granted during 1999 was $4.13 and
$1.20 in 1998. Exercise prices for warrants outstanding as of December 31, 1999
ranged from $4.00 to $5.64. The weighted-average remaining contractual life of
those warrants is 4 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.
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, 1999, the Company had a $11,018,472 net operating loss
carryforward for federal income tax purposes, which expire in various amounts in
the years 2006 through 2011.
Deferred tax assets 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
1999 1998
----------- -----------
Allowance for doubtful accounts $ 77,000 $ 72,000
Inventory valuation reserves 402,000 189,000
Depreciation 261,000 287,000
Compensation and employee benefits 51,000 236,000
Alternative minimum tax credit carryforward 245,000 212,000
Other 206,000 328,000
Net operating loss carryforwards 3,746,000 4,047,000
----------- -----------
Deferred tax asset 4,988,000 5,371,000
Deferred tax liabilities (244,000) (68,000)
----------- -----------
Net deferred tax asset $ 4,744,000 $ 5,303,000
=========== ===========
The Company's income tax provision included the following
1999 1998 1997
----------- ----------- -----------
Current expense $ 58,000 $ 140,000 $ 45,000
Deferred benefit 558,000 (5,212,000) (45,000)
----------- ----------- -----------
$ 616,000 $(5,072,000) $ --
=========== =========== ===========
Income taxes (benefit) at
US statutory rate $ 343,000 $ 1,284,000 $ 1,231,000
State taxes 58,000 65,000 --
Non-deductible amortization 251,000 367,000 247,000
Deferred tax asset valuation
allowance adjustment -- (6,738,000) (1,420,000)
Other (36,000) (50,000) (58,000)
----------- ----------- -----------
$ 616,000 $(5,072,000) $ --
=========== =========== ===========
26
27
Notes to Consolidated Financial Statements
December 31, 1999
7. Income Taxes (continued)
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 paid no income tax during 1999. Income taxes paid were approximately
$134,400 and $94,100 in 1998 and 1997.
The Company's investment in its foreign subsidiary are 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. The Company sells these products to national and regional dental
distributors in its four fundamental business segments: North America, Japan,
Europe and Other International. The reportable segments are managed separately
because selling techniques and market environments differ from country to
country. The remaining activities of the Company, which are reported as "Other",
include industrial, parts and accessories and royalty income.
The accounting policies of the business segments are consistent with those
described in Note 1. Operating results for North America, 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).
27
28
Notes to Consolidated Financial Statements
December 31, 1999
8. Operations by Industry Segment, Geographic Area and Significant Customers
(continued)
1999 1998 1997
------------ ------------ ------------
Revenues:
North America $ 15,175,956 $ 20,874,298 $ 15,826,885
Europe 2,493,165 1,765,065 1,726,766
Japan 4,341,895 3,130,000 2,170,219
Other international 16,200 166,749 114,428
------------ ------------ ------------
$ 22,027,216 $ 25,936,112 $ 19,838,298
============ ============ ============
Reconciliation of revenues:
Total segment revenues $ 22,027,216 $ 25,936,112 $ 19,838,298
Other 2,342,311 2,348,608 1,813,576
------------ ------------ ------------
Total revenues $ 24,369,527 $ 28,284,720 $ 21,651,874
============ ============ ============
Operational earnings:
North America $ 1,636,667 $ 5,521,650 $ 5,167,694
Europe 165,565 139,284 (231,651)
Japan 2,127,529 1,491,754 1,073,979
Other international 8,360 65,071 (66,793)
------------ ------------ ------------
$ 3,938,121 $ 7,217,759 $ 5,943,229
============ ============ ============
Reconciliation of operational earnings
to income from operations:
Total segment operational earnings $ 3,938,121 $ 7,217,759 $ 5,943,229
Other operational earnings 782,868 1,356,004 889,476
Research & development expenses (931,189) (947,202) (641,984)
Administrative expenses (3,902,872) (3,784,571) (2,970,444)
----------- ----------- -----------
Income (loss) from operations $ (113,072) $ 3,841,990 $ 3,220,277
=========== =========== ===========
Long lived assets (excluding deferred taxes):
North America $ 2,436,122 $ 2,546,779 $ 2,693,441
Europe 11,784 15,968 5,794
Japan -- -- --
Other international -- -- --
----------- ----------- -----------
$ 2,447,906 $ 2,562,747 $ 2,699,235
=========== =========== ===========
Sales to Patterson Dental Company, a major domestic distributor of the Company's
kinetic cavity preparation units, were approximately 16%, 30% and 34% of total
revenues in 1999, 1998 and 1997, respectively. Sales to Denics for certain Asian
and Pacific markets, primarily Japan, were approximately 19%, 12% and 10% of
total revenues in 1999, 1998 and 1997, respectively.
9. Litigation and Contingencies
The Company is not a party to any material litigation at December 31, 1999. 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 the 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 suit are included in the license transfer fees in
the statement of operations. The Company also received $300,000 from Kreativ
during 1999 for a paid-up license for patents in suit.
28
29
Notes to Consolidated Financial Statements
December 31, 1999
10. Selected Quarterly Financial Data (unaudited)
Three Months Ended
March 31 June 30 September 30 December 31
1999 1999 1999 1999
------------ ------------ ------------ ------------
Revenues $ 6,416,754 $ 6,568,805 $ 4,576,128 $ 6,807,840
Gross profit 3,440,391 3,032,188 2,210,448 2,907,836
Net income (loss) 128,676 36,870 (49,889) 275,949
Net income per share
assuming dilution $ 0.02 $ 0.01 $ (0.01) $ 0.04
Three Months Ended
March 31 June 30 September 30 December 31
1998 1998 1998 1998
------------ ------------ ------------ ------------
Revenues $ 5,707,667 $ 6,396,913 $ 6,571,648 $ 9,608,492
Gross profit 3,128,833 3,678,363 3,374,039 5,226,167
Net income 840,664 1,002,397 549,859 6,456,397(1)
Net income per share
assuming dilution $ 0.12 $ 0.13 $ 0.07 $ 0.87
(1) Includes $5,072,117 income tax benefit related to reversal of a previously
recorded deferred tax asset valuation allowance.
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 2000 Annual Meeting of Stockholders (the
"2000 Proxy Statement"), under the headings "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information included in the 2000 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 2000 Proxy Statement under the heading
"Principal Stockholders of the Company and Security Ownership of Management" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
29
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: The following financial statements of American
Dental 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,
1999, 1998, and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998, and 1997 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, 1999.
30
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, 1997
Valuation allowance for accounts receivable 280,000 -- 30,000(3) 250,000
Valuation allowance for inventories 395,000 320,000 -- 715,000
Valuation allowance for deferred taxes 8,185,000 -- 1,420,000(4) 6,738,000
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(5) --
Year Ended December 31, 1999
Valuation allowance for accounts receivable 175,000 13,000(5) -- 188,000
Valuation allowance for inventories 555,000 257,000(7) -- 812,000
Valuation allowance for deferred taxes -- -- -- --
(1) Uncollectible accounts charged off net of recoveries.
(2) Inventory valuation write-offs.
(3) Reduction in valuation allowance.
(4) Utilization of NOL on current year income.
(5) Reversal of valuation allowance.
(6) Increase in accounts receivable valuation allowance.
(7) Increase in inventory 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 19th day of March, 2000.
AMERICAN DENTAL 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 30, 2000.
/s/ BEN J. GALLANT
- ------------------------- President, CEO and Director
Ben J. Gallant (Principal Executive Officer)
/s/ BARBARA A. DANIELI
- ------------------------- Chief Financial Officer (Principal Financial
Barbara A. Danieli Officer and Principal Accounting Officer)
/s/ WILLIAM D. MYERS
- ------------------------- Chairman of the Board
William D. Myers and Director
/s/ GARY A. CHATHAM Director
- -------------------------
Gary A. Chatham
/s/ WAYNE A. JOHNSON II
- ------------------------- Director
Wayne A. Johnson II
/s/ WILLIAM D. MARONEY
- ------------------------- Director
William D. Maroney
/s/ CHARLES A. NICHOLS
- ------------------------- Director
Charles A. Nichols
/s/ WILLIAM A. PARKER
- ------------------------- Director
William A. Parker
/s/ JOHN E. VICKERS III
- ------------------------- Director
John E. Vickers III
/s/ BERTRAND R. WILLIAMS, SR
- ------------------------- Director
Bertrand R. Williams, Sr.
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 No. is 0-19195.
Exhibit
Number Description of Document
- ------- ------------------------
3.1 Amended and Restated Certificate of Incorporation of American Dental
Technologies, Inc. filed on August 7, 1997 with the Delaware Secretary
of State (Form 10-Q for the quarter ended June 30, 1997, Exhibit 3.5)
3.4 Amended & Restated By-Laws of the Company, dated December 15, 1993 (Form
10-K for the year ended December 31, 1998, Exhibit 3.4)
4.1 Nontransferable Common Stock Purchase Warrant, dated August 5, 1998,
540,000 shares (Form 10-Q for the 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 Promissory Note to Ultrak, Inc.(Form 8-K filed August 5, 1998)
4.4 Line of Credit of Agreement between Bank One and American Dental
Technologies, Inc. dated September 28, 1999
4.5 Revolving Business Credit Note (LIBOR - Based Interest Rate) between
Bank One and American Dental Technologies, Inc. dated September 28, 1999
4.8 Non-transferable Common Stock Purchase Warrant dated March 24, 1999
(Form 10-Q for the quarter ended March 31, 1999, Exhibit 4.20).
4.9 Non-transferable Common Stock Purchase Warrant dated March 24, 1999
(Form 10-Q for the quarter ended March 31, 1999, Exhibit 4.21).
10.1* American Dental Laser, Inc. Amended and Restated Nonqualified Stock
Option Plan. (Registration No. 33-40140, Exhibit No. 10.16)
10.2* American Dental Laser, Inc. Stock Option Plan for Employees.
(Registration No. 33-40140, Exhibit No. 10.18)
10.3* Amended and Restated Long-Term Incentive Plan (Form 10-Q for the quarter
ended September 30, 1996, Exhibit 4.1)
10.4 Voting Agreement between William D. Myers and Ben J. Gallant
(Registration No. 333-6663, Exhibit 9.1)
10.5* Ben J. Gallant Employment Agreement (Form 10-K for the year ended
December 31, 1996, Exhibit 10.44)
10.6 License Agreement between Texas Airsonics, Inc., a wholly owned
subsidiary of American Dental Technologies, Inc. and Texas Airsonics,
L.P. (Form 10-K for the year ended December 31, 1996, Exhibit 10.45)
10.7** Patent License Agreement dated October 18, 1997 between Danville
Engineering, Inc. and the Company (Form 10-Q for the quarter ended
September 30, 1997, Exhibit 10.53)
34
10.8 Assignment from Sunrise Technologies International, Inc. to Lares
Research dated June 24, 1997 (Form 10-K for the year ended December
31,1997)
10.9 Patent License Agreement dated June 29, 1998 Prep-Technology Corp. and
American Dental Technologies, Inc. (Form 10-Q for the quarter ended June
30, 1998)
10.10** Patent License Agreement dated as of January 21, 1999 between ESC
Medical Systems, Ltd. and American Dental Technologies, Inc. (Form 10-Q
for quarter ended March 31, 1999)
10.11 Patent licensing agreement dated June 10, 1999 between American Dental
Technologies, Inc. and Kreativ, Inc. (Form 10-Q for quarter ended June
30, 1999)
10.12 Employment agreement dated September 7, 1999 between American Dental
Technologies, Inc. and Barbara A. Danieli (Form 10-Q for quarter ended
September 30, 1999, Exhibit 10.59)
10.13 Promissory Note between the Company and Denics Co Ltd. dated December
15, 1999.
10.14 Amended employment agreement dated August 1, 1999 between American
Dental Technologies, Inc. and Ben J. Gallant (Form 10-Q for quarter
ended September 30, 1999, Exhibit 10.61)
10.15 Change in Control Agreement dated October 16, 1999 between American
Dental Technologies, Inc. and Ben J. Gallant, John E. Vickers, III,
William A. Parker and William E. Graham
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
---------------
*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.