UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

AMERICAN MEDICAL TECHNOLOGIES, INC.

(Exact Name of Registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code:

(361) 289-1145

 

Indicate by check mark whether the registrant (1) has filed all reports required 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.

 

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

 

Number of shares outstanding of the registrant’s common stock as of May 1, 2003:

 

7,362,348 Shares

 

 

PART I           FINANCIAL INFORMATION

 

ITEM 1.          Financial Statements

 

American Medical Technologies, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended March 31
		2003			2002
Revenues		$	876,895		$	3,019,998
Royalties		147,717			34,973
		1,024,612			3,054,971
Cost of sales		891,346			1,782,007
Gross profit		133,266			1,272,964
Selling, general and administrative		658,408			1,907,981
Research and development		77,235			112,548
Loss from operations		(602,377		)	(747,565		)
Other income (expense):
Other income		87,268			10,912
Interest expense		(51,894		)	(52,093		)
Loss before income taxes		(567,003		)	(788,746		)
Income tax expense		50			—
Net Loss		$	(567,053	)	$	(788,746	)
Net Loss per share		$	(0.08	)	$	(0.11	)
Net Loss per share assuming dilution		$	(0.08	)	$	(0.11	)

 

See accompanying notes.

 

2

 

American Medical Technologies, Inc.

Condensed Consolidated Balance Sheets

 

		March 31 2003			December 31 2002
		(Unaudited)
ASSETS
Current assets:
Cash		$	390,555		$	566,436
Accounts receivable, less allowance of $163,699 in 2003 and $261,118 in 2002		518,765			472,354
Inventories		2,503,898			3,113,060
Prepaid expenses and other current assets		154,682			197,577
Total current assets		3,567,900			4,349,427
Property and equipment, net		1,678,497			1,753,997
Intangible assets, net:
Goodwill		1,971,427			1,971,427
Other		26,212			27,847
		1,997,639			1,999,274
Total assets		$	7,244,036		$	8,102,698

 

See accompanying notes.

 

3

 

American Medical Technologies, Inc.

Condensed Consolidated Balance Sheets

 

		March 31 2003			December 31 2002
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	2,468,960		$	2,714,003
Compensation and employee benefits		83,501			81,538
Accrued restructuring costs		405,230			418,335
Other accrued liabilities		289,124			318,728
Current notes payable		2,332,075			2,332,075
Total current liabilities		5,578,890			5,864,679
Other non-current liabilities		—			4,103
Series B Preferred Stock, $0.01 par value, authorized 575,000 shares, 300,000 shares outstanding		300,000			300,000
Stockholders’ equity:
Series A Preferred stock, $.01 par value, authorized 10,000,000 shares; none outstanding
Common stock, $.04 par value, authorized 12,500,000 shares; outstanding: 7,362,348 shares in 2003 and 2002		294,497			294,497
Warrants and options		927,046			927,046
Additional paid-in capital		41,717,178			41,717,178
Accumulated deficit		(41,113,918		)	(40,546,865		)
Foreign currency translation		(459,656		)	(457,940		)
Total stockholders’ equity		1,365,148			1,933,916
Total liabilities and stockholders’ equity		$	7,244,037		$	8,102,698

 

See accompanying notes.

 

4

 

American Medical Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

		Three Months Ended March 31
		2003			2002
OPERATING ACTIVITIES:
Net loss		$	(567,053	)	$	(788,746	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		75,500			82,275
Amortization		1,635			26,634
Provision for warranty expense		—			(41,352		)
Provision for doubtful accounts		—			(7,000		)
Provision for slow-moving inventory		98,697			127,823
Loss on disposal of assets		—			181
Changes in operating assets and liabilities:
Accounts receivable		(46,411		)	537,040
Inventories		510,465			109,746
Prepaid expenses and other current assets		42,895			(172,768		)
Accounts payable		(245,044		)	(588,775		)
Compensation and employee benefits		1,963			(34,555		)
Other accrued liabilities		(29,604		)	46,403
Other non-current liabilities		(4,104		)	(18,245		)
Restructuring Accrual		(13,105		)	—
Net cash used in operating activities		(174,166		)	(721,339		)
INVESTING ACTIVITIES:
Purchases of property and equipment		—			(13,000		)
Proceeds from sales of assets		—			729
Net cash used in investing activities		—			(12,271		)
FINANCING ACTIVITIES:
Proceeds from notes payable		—			335,000
Net cash provided by financing activities		—			335,000
Decrease in cash		(174,166		)	(398,610		)
Effect of exchange rates on cash		(1,715		)	1810
Decrease in cash		(175,881		)	(396,800		)
Cash at beginning of period		566,436			579,667
Cash at end of period		$	390,555		$	182,867

 

See accompanying notes.

 

5

 

1.     Basis of Presentation and Other Accounting Information

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of American Medical Technologies, Inc. (the “Company” or “American Medical”) have been prepared by management in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for other quarters of 2003 or for the year ended December 31, 2003.  The accompanying unaudited condensed consolidated financial statements should be read with the annual consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

 

Revenue Recognition

 

The Company recognizes revenue when all of the following criteria are met: 1) a contract or sales arrangement exists; 2) products have been shipped, and if necessary installed, and title has been transferred or services have been rendered; 3) the price of the products or services is fixed or determinable; 4) no further obligation exists on the part of the Company (other than warranty obligations); and 5) collectibility is reasonably assured. The Company recognizes the related estimated warranty expense when title is transferred to the customer, generally upon shipment. The Company recognizes revenue on certain sales to two of its international distributors under terms that require shipment to a local independent warehouse. The Company’s policy is to include shipping and handling costs, net of the related revenues, in costs of goods sold. Only the Company’s Anthos dental chairs and its networked camera systems require installation, and revenue is not recorded until the installation is complete. There are no significant estimates or assumptions involved in determining the appropriate recognition of revenues.

 

Inventories - Inventories consist of the following:

 

		March 31, 2003			December 31, 2002
Finished goods		$	1,168,159		$	1,566,978
Raw materials, parts and supplies		1,335,739			1,546,082
		$	2,503,898		$	3,113,060

 

The Company’s reserve for slow moving inventory is evaluated periodically based on its current and projected sales and usage.  Prior to the fourth quarter 2002, the Company’s inventory reserve was calculated by comparing on hand quantities as of the measurement date to the prior twelve months’ sales.  The reserve calculation assumed that sales for each unit or part will not be less than sales for the prior twelve months.  If sales are significantly different than prior year’s sales for the unit or part, the reserve could be materially impacted.  Changes to the reserves are included in costs of goods sold and have a direct impact on the Company’s financial position and result of operations.  The reserve is calculated differently for finished units than it is for parts.  For parts, when the on hand quantity exceeded the prior twelve months’ sales and usage, the excess inventory was calculated by subtracting the greater of the prior twelve months’ sales and usage or a base quantity of 50 from the quantity on hand.  This excess was then 100% reserved.  The base quantity of 50 represented management’s determination of the minimum quantity of parts needed to fulfill its service, repair, and warranty obligations.  All parts or units with less than twelve months of sales or usage history were excluded from the calculation.

 

In the fourth quarter of 2002, the Company changed certain assumptions it uses in computing the inventory valuation allowance.  The inventory reserve calculation remained the same for finished units, but was changed for parts.  For parts, the new policy assumes that three years of projected parts usage of any given part will not be

 

6

 

subject to a valuation allowance.  Any parts on hand exceeding three years of projected usage are subject to a 100% valuation allowance.  For purposes of computing the valuation allowance at March 31, 2003, part usage was projected at 50% of the prior 12 months part usage.

 

The Company booked a $98,697 increase to the reserve for the three-month period ended March 31, 2003 and a $127,823 increase to the reserve for the three-month period ended March 31,2002.   The Company’s reserve for slow moving inventory was $4,342,042 as of March 31, 2003 and $4,243,345 as of December 31, 2002. The valuation allowance could change materially, either up or down, if actual part usage in future years is materially different than the usage projected at March 31, 2003.

 

Property and equipment - Accumulated depreciation aggregated $2,208,253 at March 31, 2003 and $2,132,698 at December 31, 2002.

 

Intangible Assets - Accumulated amortization aggregated $2,345,573 at March 31, 2003 and $2,343,938 at December 31, 2002.

 

Net Income Per Share - The following table sets forth the computation for basic and diluted loss per share:

 

		Three Months Ended March 31
		2003			2002
Net Loss		$	(567,053	)	$	(788,746	)
Numerator for basic and diluted loss per share		$	(567,053	)	$	(788,746	)
Denominator for basic and diluted loss per share - weighted average shares		7,362,348			6,862,348
Basic and diluted loss per share		$	(0.08	)	$	(0.11	)

 

 

2.     Employee Stock Options

 

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, as amended by  Statement of Financial Accounting Standard  No. 148, “Accounting for Stock Based Compensation Transition and Disclosure,” 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 2000, 2001 and 2002, respectively: risk-free interest rate of 6.5%, 4.4% and 1.84%; dividend yield of 0%; volatility factors of the expected market price of the Company’s common stock of .771, .913 and .999 and a weighted-average expected life of the option of three to five years.

 

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable.  In addition, option valuation models require the

 

7

 

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:

 

		March 2003			March 2002
Net loss, as reported		$	(567,053	)	$	(788,746	)
Net loss per share, primary and dilutive, as reported		$	(0.08	)	$	(0.11	)
Stock based employee compensation, net of tax effects, included in net loss, as reported		$	—		$	—
Stock based compensation, net of tax effects, under the fair value method		$	(8,284	)	$	—
Pro forma net loss		$	(575,337	)	$	(788,746	)
Pro forma net loss per share, primary and dilutive		$	(0.08	)	$	(0.11	)

 

3.                               Segment Reporting

 

The Company develops, manufactures, markets and sells high technology dental products, such as air abrasive equipment, lasers, curing lights and intra oral cameras.  Domestically, prior to the adoption of its new business model in February 2000, the Company maintained a nationwide sales force to generate sales and assist its dealer network.  Subsequent to the adoption of the new business model, the Company sells its products direct to the consumer through its nationwide network of sales and service branch offices. Internationally, with the exception of a small number of personnel in Germany, the Company has not maintained its own sales force and continues to sell its products through regional dental distributors.  The reportable segments are reviewed and managed separately because selling techniques and market environments differ from selling domestically versus selling through international distributor networks.  The remaining revenues of the Company, which are reported as “Other”, include industrial products and royalty income.

 

The accounting policies of the business segments are consistent with those described in Note 1.

 

		Three Months Ended March 31
		2003			2002
Revenues:
Domestic		$	641,493		$	2,437,204
International		235,402			524,000
		$	876,895		$	2,961,204
Reconciliation of revenues:
Total segment revenues		$	876,895		$	2,961,204
Other		147,717			93,767
Total revenues		$	1,024,612		$	3,054,971
Operational earnings (loss):
Domestic		$	(253,567	)	$	(112,298	)
International		25,338			72,064
		$	(228,229)		$	(40,234	)
Reconciliation of operational loss to loss from operations:
Total segment operational losses		$	(228,229	)	$	(40,234	)
Other operational earnings		147,717			64,055
Research & development expenses		(77,235		)	(112,548		)
Administrative expenses		(444,630		)	(658,838		)
Income (loss) from operations		$	(602,377	)	$	(747,565	)
International revenues by country:
Japan		$	29,980		$	—
Germany		93,603			122,098
Italy		43,797			153,886
Canada		22,716			63,981
Other		45,306			184,035
		$	235,402		$	524,000

 

8

 

		March 31, 2003			December 31, 2002
Long-lived assets:
Domestic		$	1,676,662		$	1,753,997
International		1,835			1,835
		$	1,678,497		$	1,755,832

 

4.                           Comprehensive Loss

 

Total comprehensive loss, net of the related estimated tax, was ($568,768) and ($801,689) for the three months ended March 31, 2003 and 2002, respectively.  The only component of other comprehensive loss is foreign currency translation.

 

5.               Restructuring Costs

 

In the second quarter of 2002 the Company adopted a restructuring plan that called for the closure of its remaining sales and service branches and significant reductions in the number of employees in mid-June.  As part of the restructuring, a total of 49 employees were terminated, comprised of field sales and service personnel, manufacturing employees and administrative personnel.  As of September 30, 2002 the Company had vacated all of its former sales and service centers.  Costs such as employee severance, lease termination costs and other exit costs have been recorded as of the date the restructuring plan was finalized.  Other restructuring costs include approximately $5,000 in accrued attorney’s fees related to the termination of several of the Company’s German employees, approximately $34,000 in non-cash expenses associated with the write-off of abandoned leasehold improvements and property due to the closure of the branch offices and approximately $18,500 of forfeited security deposits related to the abandoned offices.  None of the expenses accrued as part of the restructuring have any benefit for future operations.  Certain costs were estimated based on the latest available information.  The breakdown of the Company’s restructuring costs follows:

 

		Employee Severance			Office Lease Terminations			Vehicle Lease Terminations			Other			Total
Adoption of restructuring plan		$	402,363		$	218,056		$	136,366		$	70,894		$	827,679
Additions (Reductions)		(16,167		)	(44,173		)	(66,109		)	2,190			(119,437		)
Non-cash expenses		—			(33,525		)	—			—			(33,525		)
Payments		(140,905		)	(37,108		)	(15,758		)	(70,894		)	(256,382		)
Balance at March 31, 2003		$	245,291		$	103,250		$	54,499		$	2,190		$	405,230

 

6.   Subsequent Event

 

On May 12, 2003, the Company entered into an Asset Purchase Agreement with Biolase Technologies, Inc. (“Biolase”) for the sale of the Company’s laser assets for cash and stock with an aggregate value of approximately $5.3 million.  The sale is expected to be consummated on May 21, 2003.  The purchase price consists of $1,825,000, to be paid to Bank One to retire the Company’s debt to Bank One, and 307,500 shares of Biolase common stock.

 

9

 

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

The Company makes forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission.  The Company may also make forward-looking statements in its press releases or other public shareholder communications.  The Company’s forward-looking statements are subject to risks and uncertainties and include information about its expectations and possible or assumed future results of operations.  When the Company uses any of the words “believes”, “expects”, “anticipates”, “estimates” or similar expressions, it is making forward-looking statements.

 

The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of its forward-looking statements.  While the Company believes that its forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made.  Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control or are subject to change, actual results could be materially different.  Factors that might cause such a difference include, without limitation, the following:  the Company’s inability to generate sufficient cash flow to meet its current liabilities, the potential inability of the Company to meet its covenants to the bank under the forbearance agreement, the impact of recently filed patent infringement litigation on relationships with the Company’s licensees, distributors and customers, the Company’s potential inability to hire and retain qualified sales and service personnel, the potential for an extended decline in sales, the possible failure of revenues to offset additional costs associated with its change in business model, the potential lack of product acceptance, the Company’s potential inability to introduce new products to the market, the potential failure of customers to meet purchase commitments, the potential loss of customer relationships, the potential failure to receive or maintain necessary regulatory approvals, the extent to which competition may negatively affect prices and sales volumes or  necessitate increased sales expenses, the failure of negotiations to conclude OEM agreements or strategic alliances and the other risks and uncertainties set forth in this report.

 

Other factors not currently anticipated by management may also materially and adversely affect the Company’s results of operations.  Except as required by applicable law, the Company does not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements and related footnotes. These estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information the Company believes to be reasonable under the circumstances. There can be no assurance that actual results will conform to the Company’s estimates and assumptions, and that reported results of operations will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time.  The policies the Company believes to be the most sensitive to estimates and judgments are described in Item 7 of the Company’s 2002 Annual Report on Form 10-K.  There have been no material changes to that information during the first three months of 2003.

 

Results of Operations

 

The Company had revenues of $1,024,612 for the three-month period ended March 31, 2003 compared to $3,054,971 for the same period in 2002, a decrease of 66%. For the three-month period, domestic revenues declined 73%, while international revenues declined 55% over the same period.  The decrease in domestic revenues is partially attributable to the continued decline in unit sales under the direct sales model and a slowdown in sales activity during the initial transition back to the dealer sales model.  Continued restructuring to offset declining cash

 

10

 

flow resulted in reduced sales activities and reduced ability to purchase parts for manufacturing and to attend industry trade shows.

 

Gross profit as a percentage of revenues was 13% for the three-month period ended March 31, 2003, compared to 42% for the same period in 2002.  The decreases in the margins are primarily due to increases in the inventory valuation allowance as a result of the inventory obsolescence accounting policy adopted in the fourth quarter of 2002, which resulted in an increase in the reserve for slow moving inventory and a consequent decrease in gross profit.

 

Selling, general and administrative expenses were $658,408, for the three-month period ended March 31, 2003 compared to $1,907,981 for the same period in 2002, constituting a decrease of 66%.  The decrease is due primarily to the restructuring program adopted in June of 2002 and continued throughout the first quarter of 2003.

 

Research and development expenses were $77,235 for the three -month period ended March 31, 2003 compared to $112,548 for the same period in 2002, a decrease of 31%.  The decreases are primarily due to there being fewer projects in the research and development pipeline in 2003 and the reduction of employees in 2002.

 

For the three-month period ended March 31, 2003, the net loss was ($567,053) compared to a net loss of ($788,746) for the same period in 2002.  The reduction in losses for the three-month period was primarily due to reduced expenses resulting from the implementation of the restructuring program in 2002.

 

Liquidity and Capital Resources

 

The Company’s operating activities used $174,166 in cash resources during the three-month period ended March 31, 2003.

 

On May 12, 2003, the Company entered into an Asset Purchase Agreement with Biolase Technologies, Inc. (“Biolase”) for the sale of the Company’s laser assets for cash and stock with an aggregate value of approximately $5.3 million, based on the closing price for Biolase stock of $11.26 on the date the agreement was signed.  The sale is expected to be consummated on May 21, 2003.  The cash portion of the purchase price is $1.825 million to be paid directly to Bank One, N.A., the Company’s principal creditor (“Bank One”), to retire in full the Company’s debt to Bank One.  The noncash portion of the purchase price is 307,500 shares of Biolase common stock, which Biolase is required to register to enable the Company to sell as soon as practicable.  The Company will be required to sell the stock, or obtain a loan secured by the stock, to obtain funds to settle its obligations to other creditors and to pursue its business.  The actual value of the stock consideration to be received by the Company in this transaction will be subject to fluctuations in value of the Biolase stock until the shares are sold.  Because the market for Biolase stock has been fairly volatile recently, there is considerable uncertainty as to the actual value of the transaction until the Biolase stock is ultimately sold.

 

The Company’s $7,500,000 revolving line of credit with Bank One is secured by a pledge of the Company’s accounts receivable, inventory, equipment, patents, copyrights and trademarks. The Company is in default under the credit facility and under the Forbearance Agreement which the Company has been operating under since November 6, 2001.   Bank One has agreed to forbear the exercise of its legal remedies under the credit agreement until May 31, 2003, in consideration for which  the Company granted Bank One a warrant to purchase up to 721,510 shares of the Company’s common stock for five years at a price of $.11 per share, the market price on the date of grant. Should the Biolase sale not close and the Bank One debt not be paid in full by May 31, 2003, the Company would be forced to pay penalties aggregating $150,000, and Bank One would have the right to accelerate the outstanding indebtedness and exercise its remedies under the related legal documents, including selling the Company’s assets to repay the outstanding indebtedness. As of March 31, 2003, the outstanding principal on this line of credit and related credit card debt amounted to $1.8 million.

 

The Company believes that the cash generated from its operations, together with the proceeds from the sale of Biolase stock received in the sale of assets to Biolase, will be sufficient to meet the Company’s current needs for cash.  It is the Company’s intent to settle its other obligations to creditors and continue the remainder of its historical medical, dental and industrial products business.  Management is in the process of re-evaluating its strategic plan in view of the Biolase sale, and is unable to state with any degree of certainty at this time what the results of that re-

 

11

 

evaluation will be.  Alternatives being considered include expanding historical businesses with increased sales and marketing efforts, strategic acquisitions of complementary businesses or product lines, and other potential business opportunities.  Management will continue to explore opportunities for strategic alternatives for the Company to pursue to enhance its operations and maximize value for its shareholders.

 

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risks

 

Reference is made to the response to Item 7A of Form 10-K for the year ended December 31, 2002.  There have been no material changes in the information required to be disclosed from December 31, 2002 to March 31, 2003.

 

ITEM 4.          Controls and Procedures

 

As of March 31, 2003, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and the principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and principal accounting officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2003.

 

PART II OTHER INFORMATION

 

ITEM 1.          Legal Proceedings.

 

As part of the consideration in the execution of the Asset Purchase Agreement with Biolase, the Company and Biolase agreed to enter into a Stipulation for Dismissal with Prejudice in the patent infringement lawsuit filed by Biolase against the Company in the U.S. District Court for the Central District of California, Southern District.  That stipulation, which is expected to be filed at the closing currently set for May 21, 2003, will settle all matters between the parties arising from that lawsuit, dismiss the complaint and prohibit Biolase from bringing any further action based on the alleged patent infringement.  Management believes that the resolution of this lawsuit was in the best interests of the Company and its shareholders.

 

Also in connection with the Asset Purchase Agreement with Biolase, the Company agreed to cooperate with Biolase in the defense of the patent infringement lawsuit filed in the Federal District Court for the Central District of California by Diodem LLC. That suit, in which the Company has not been served, alleges patent infringement on four patents and seeks injunctive relief and an unspecified amount of actual and trebled damages.   Because the assets which were alleged to infringe on Diodem patents were sold to Biolase in the Asset Purchase Agreement, the Company assigned to Biolase its rights to recovery under that lawsuit, and Biolase agreed to indemnify the Company against any loss it may incur as a result of its cooperation with Biolase to take action it would not otherwise have taken in the defense of the suit.

 

ITEM 2           Changes in Securities and Use of Proceeds.

 

None

 

ITEM 3           Defaults Upon Senior Securities

 

Reference is made to the description of the Company’s credit facility in Part I, Section 2 of this report, entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, which description is incorporated by reference herein.

 

12

 

ITEM 4.          Submission of Matters to a Vote of Security Holders

 

None

 

ITEM 5.          Other Information

 

On May 12, 2003, the Company entered into the Asset Purchase Agreement with Biolase for the sale of the Company’s laser assets for cash and stock with an aggregate value of approximately $5.3 million, based on the closing price for Biolase stock of $11.26 on the date the agreement was signed. The sale is expected to be consummated on May 21, 2003.  The Asset Purchase Agreement provides, among other things, for the sale to Biolase of the Company’s inventory, equipment, patents, trademarks and other intellectual property, and rights under certain contracts, relating to the laser business.

 

The cash portion of the purchase price is $1.825 million, to be paid directly to Bank One, the Company’s principal creditor, to retire in full the Company’s debt to Bank One.  As a result of the retirement of this debt, the Company’s assets will no longer be pledged as collateral, with the exception of the real estate owned by the Company, which is pledged to secure a loan from Value Bank with an outstanding principal balance of approximately $675,000 at March 31, 2003. The noncash portion of the purchase price is 307,500 shares of Biolase common stock, which Biolase is required to register to enable the Company to sell as soon as practicable.  The Company will be required to sell the stock, or obtain a loan secured by the stock, to obtain funds to settle its obligations to other creditors and to pursue its business.  The actual value of the stock consideration to be received by the Company in this transaction will be subject to fluctuations in value of the Biolase stock until the shares are sold.  Because the market for Biolase stock has been fairly volatile recently, there is considerable uncertainty as to the actual value of the transaction until the Biolase stock is ultimately sold.

 

In connection with the execution of the Asset Purchase Agreement, the parties agreed to settle the lawsuit filed by Biolase against the Company and to dismiss with prejudice the complaint filed in that lawsuit.  In addition, the Company assigned to Biolase its rights to recovery in a lawsuit filed by Diodem LLC against Biolase and the Company, in exchange for the agreement of Biolase to indemnify the Company against any liability it may incur as a result of its cooperation with Biolase to take action it would not otherwise have taken in the defense of the suit.

 

With the consummation of the transactions contemplated by the Asset Purchase Agreement, the Company will cease operations in the dental laser business.  In connection with the sale, the Company agreed not to engage in the dental laser market for four years following the closing of the Asset Purchase Agreement.  It is the intention of management to focus its research and development, manufacturing and sales efforts on expanding its remaining product lines into the dental, medical and industrial markets and to explore other opportunities for strategic alternatives to enhance Company operations and to maximize value for its shareholders.

 

ITEM 6.          Exhibits and Reports on Form 8-K:

 

(a)           Exhibits.

 

	2.1		Asset Purchase Agreement dated as of May 12, 2003 between Biolase Technologies, Inc. and the Company.
	3.1	First Restated Certificate of Incorporation, as amended (Form 10-Q for quarter ended September 30, 2000)
	3.2	Second Restated Certificate of Incorporation (filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2002)
	3.3	Certificate of Correction to the Second Restated Certificate of Incorporation (Form 10-K for year ended December 31, 2002.)
	3.4	Certificate of Designation of Series B Preferred Stock (Form 10-K for year ended December 31, 2002.)

 

13

 

	3.5	Amended and Restated Bylaws (Form 10-K for year ended December 31, 1998)
	4.1	Line of Credit Agreement between Bank One and American Medical Technologies, Inc. effective September 21, 2000 (Form 10-Q for quarter ended September 30, 2000)
	4.2	Revolving Business Credit Note (LIBOR — Based Interest Rate between Bank One and American Medical Technologies, Inc. effective September 21, 2000 (Form 10-Q for quarter ended September 30, 2000)
	4.3	Stock Purchase Warrant dated October 30, 2003 for 721,510 shares issued to BankOne, N.A.(Form 10-K for year ended December 31, 2002.)
	4.4		Fourth Amended and Restated Forbearance Agreement between Bank One and American Medical Technologies, Inc., effective February 1, 2003 (Form 10-K for the year ended December 31, 2003.)
	10.1 *		Employment Agreement dated effective as of June 1, 2002, between American Medical Technologies, Inc. and Roger W. Dartt  (Form 10-Q for the quarter ended June 30, 2002)
	99.1		Certification of CEO and principal accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)                                 During the quarter ended March 31, 2002, the Company filed one report on Form 8-K reporting the delisting of its securities from the Nasdaq SmallCap Market effective March 26, 2003.

 

14

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	AMERICAN MEDICAL TECHNOLOGIES, INC.
Dated:  May 15, 2003	By:	/s/ Roger W. Dartt
		Roger W. Dartt, President and Chief
		Executive Officer

 

15

 

CERTIFICATION

 

I, Roger W. Dartt, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of American Medical Technologies, Inc.;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.             The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have:

 

                (a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

                (b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

                (c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.             The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

                (a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

                (b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.             The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Dated:  May 15, 2003	/s/ Roger W. Dartt
	Roger W. Dartt
	Chief Executive Officer

 

16

 

CERTIFICATIONS

 

I, Barbara Woody, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of American Medical Technologies, Inc.;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.             The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have:

 

                (a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

                (b)  evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

                (c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.             The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

                (a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

                (b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.             The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Dated:  May 15, 2003	/s/ Barbara Woody
	Barbara Woody
	Controller and principal accounting officer

 

17

 

EXHIBIT LIST

 

	2.1		Asset Purchase Agreement dated as of May 12, 2003 between Biolase Technologies, Inc. and the Company.
	3.1	First Restated Certificate of Incorporation, as amended (Form 10-Q for quarter ended September 30, 2000)
	3.2	Second Restated Certificate of Incorporation (filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2002)
	3.3	Certificate of Correction to the Second Restated Certificate of Incorporation (Form 10-K for year ended December 31, 2002.)
	3.4	Certificate of Designation of Series B Preferred Stock (Form 10-K for year ended December 31, 2002.)
	3.5	Amended and Restated Bylaws (Form 10-K for year ended December 31, 1998)
	4.1	Line of Credit Agreement between Bank One and American Medical Technologies, Inc. effective September 21, 2000 (Form 10-Q for quarter ended September 30, 2000)
	4.2	Revolving Business Credit Note (LIBOR — Based Interest Rate between Bank One and American Medical Technologies, Inc. effective September 21, 2000 (Form 10-Q for quarter ended September 30, 2000)
	4.3		Stock Purchase Warrant dated October 30, 2003 for 721,510 shares issued to BankOne, N.A.(Form 10-K for year ended December 31, 2002.)
	4.4		Fourth Amended and Restated Forbearance Agreement between Bank One and American Medical Technologies, Inc., effective February 1, 2003 (Form 10-K for the year ended December 31, 2003.)
	10.1 *		Employment Agreement dated effective as of June 1, 2002, between American Medical Technologies, Inc. and Roger W. Dartt  (Form 10-Q for the quarter ended June 30, 2002)
	99.1		Certification of CEO and principal accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

18