-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/9MfWBn02Hvv53zRyi5Fs9jZXDm2tbFKq6QIKr08SEdfTmpVn7r2T3CZVYkUSXE BljPEk6B6YXoUv2Wh8mFPw== 0000891618-96-001079.txt : 19960701 0000891618-96-001079.hdr.sgml : 19960701 ACCESSION NUMBER: 0000891618-96-001079 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960628 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO DENTAL TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000858752 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 841104386 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19293 FILM NUMBER: 96588488 BUSINESS ADDRESS: STREET 1: 11291 SUNRISE PARK DR CITY: RANCHO CORDOVA STATE: CA ZIP: 95742 BUSINESS PHONE: 9166388020 MAIL ADDRESS: STREET 1: 11291 SUNRISE PARK DRIVE CITY: RANCHO CORDOVA STATE: CA ZIP: 95742 FORMER COMPANY: FORMER CONFORMED NAME: SPRINGFIELD CAPITAL CORP DATE OF NAME CHANGE: 19600201 10KSB 1 FORM 10-KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE /X/ SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1996 ------------------------------------- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES / / EXCHANGE ACT OF 1934 For the transition period from to ----------- ------------ Commission file number 0-19293 BIO-DENTAL TECHNOLOGIES CORPORATION ----------------------------------- (Name of small business issuer in its charter) California 84-1104386 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11291 Sunrise Park Drive, Rancho Cordova, CA 95742 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number ( 916 ) 638-8147 ----- ---------- Securities registered under Section 12(b) of the Exchange Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock NASDAQ $ .01 Par Value Securities registered under Section 12(g) of the Exchange Act: None -------- - -------------------------------------------------------------------------------- (Title of Class) - -------------------------------------------------------------------------------- (Title of Class) 2 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. / / State issuer's revenue for its most recent fiscal year: $33,091,216 ------------ State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. $18,057,814 as of May 31, 1996 ------------------------------ (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS) Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No ----- ----- (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock ($.01 par value): 6,427,134 shares as of May 31, 1996. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The list documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990). Transitional Small Business Disclosure Format (Check One): Yes No X ----- ----- 2 3 BIO-DENTAL TECHNOLOGIES CORPORATION FORM 10-KSB (FOOTNOTE 1) ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1996 PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL. Bio-Dental Technologies Corporation, formerly Springfield Capital Corporation (hereinafter referred to as the "Company" or the "Registrant"), was organized under the laws of the State of Colorado on April 5, 1988, to evaluate, structure and complete a merger with or acquisition of private corporations, partnerships or sole proprietorships. On July 13, 1990, the Company changed its name from "Springfield Capital Corporation" to "Bio-Dental Technologies Corporation," providing a name and image more accurately reflecting its business plan. (1) The material set forth in this Form 10-KSB and its accompanying exhibits includes forward-looking statements and references to anticipated future events and developments that are based on management's beliefs and expectations. There is no assurance that such statements and references will prove to be correct. Such statements and references are set forth herein in reliance upon numerous assumptions that may or may not prove to be accurate or correct. The major assumptions upon which these forward-looking statements and references are based include the following: (1) the consummation of the proposed merger transaction between the Company and Zila, Inc.; (2) the consummation of the Company's proposed transaction with Young Innovations, Inc. ("Young"), which would involve Young's cash buy-out of the Company's rights to receive future royalties from Denticator International, Inc.; (3) the successful restructuring of the operations of the Company's IDT operating subsidiary and the redirection of IDT's marketing focus away from hardware-based comprehensive computer solutions and towards the sale of practice management software systems and intra-oral cameras; (4) the growing market demand for IDT's technology products; (5) the improvements of operating margins on products sold by the Company's dental products distribution unit, The Supply House; (6) the continued growth in sales and market share of The Supply House; (7) the success of The Supply House in obtaining additional contracts with managed dental care insurance companies and in increasing its sales as a result of such contracts; (8) the obtaining of FDA approval of Zila, Inc.'s oral cancer diagnostic product, OraTest; (9) the successful realization of the anticipated market benefits of combining the market appeal of the OraTest product with the strength of the Company's existing 3 4 product distribution network; (10) the adequacy of available debt and equity capital to fund inventories, receivables, product introduction and marketing; (11) the Company's ability to settle the Wildwood litigation on terms favorable to the Company; and (12) the retention of key management personnel following consummation of the Company's proposed merger with Zila, Inc. Formation and Disposition of Denticator International, Inc. Subsidiary. In March 1991, the Company incorporated a wholly owned subsidiary, Denticator International, Inc. ("DII") and transferred the Company's manufacturing operations into DII in exchange for the issuance of a $600,282 note to the Company with monthly principal payments of $10,005 plus interest at 150% of the Company's cost of funds from April 1, 1994 through March 31, 1999. Interest only payments were made from March 1991 through March 31, 1994. Effective with the date of incorporation, the Company entered into a licensing agreement with DII for the manufacture and sale of certain dental products owned by the Company. Under this agreement DII pays the Company a monthly royalty equal to the greater of $30,000 or 17% of net sales of DII. In addition, the agreement provides for further royalties to be paid to the Company if DII achieves certain levels of profitability. On March 31, 1991, the Company sold all of the outstanding capital stock of DII to DII's former operations manager, thus allowing the Company to cease operating as a manufacturing concern, and to focus on its distribution operations. The sales agreement incorporated the licensing agreement described above. The details of this transaction are described in the Company's Form 8-K dated March 31, 1991, which is hereby incorporated by this reference. Effective April 1, 1994, the licensing agreement was amended. The terms included herein reflect all amendments. In March 1999, DII has the option to purchase the rights under this licensing agreement. The purchase price is equal to the greater of 1.5 times average annual sales of DII during the period covered by the amended agreement (April 1, 1994 - March 31, 1999) or six times the average pre-tax income of DII after certain adjustments. The purchase price will be reduced by 50% of the additional royalties paid by DII between April 1, 1994 and March 31, 1999. In connection with the amendments to the licensing agreement, warrants to purchase 50,000 shares of the Company's restricted common stock were issued to DII at an exercise price of $4.00 per share. These warrants expire on March 31, 2004. 4 5 Effective January 1995, DII increased the minimum royalty to the Company to $43,000 per month in exchange for the Company waiving the provision in the agreement whereby the Company could purchase products made by DII at specified prices. The Company's revenues are affected, in part, by the revenue levels and successful operations of the Denticator product line, as operated and controlled by DII. On January 19, 1996, the Company entered into an agreement to defer principal payments on the note payable from DII, beginning with the principal payment due for the month of October 1995 and extending through September 1996. The agreement expires September 30, 1996. Additionally, this agreement provides a basic understanding between the Company and DII with respect to the proceeds of any sale of DII which may occur prior to September 30, 1996. On May 10, 1996, the Company executed a letter of intent which sets forth a general understanding of a transaction by which Young Innovations Inc. (Young) will purchase certain assets and liabilities of DII. If the transaction contemplated by the letter of intent is consummated, it is expected the Company would receive approximately $7.5 million in exchange for the cancellation of its March 31, 1991, as amended, licensing agreement dated March 31, 1991, with DII. Under the terms of the Young letter of intent any amounts owed and outstanding to the Company by DII as of the closing date of this transaction would be assumed by Young. Young would issue a credit to the Company against future purchases (Product Credit) in an amount equal to, and payment in full for, all accrued royalties, notes current and long term and accrued interest owed by DII to the Company. The Product Credit would be usable by the Company for future purchase of products from Young and any of its affiliates at prevailing prices in effect at the time of the purchases. The Company, Young and DII currently are engaged in negotiations of the final terms and conditions of the transaction which is expected to close by the end of July 1996. THE ACQUISITION OF SAN DIEGO DENTAL SUPPLY, INC. ("SDDS"). Acquisition of SDDS. On March 4, 1991, the Company purchased all of the outstanding stock of SDDS of El Cajon, California, in exchange for the issuance of 390,000 shares of the Company's restricted common stock. Subsequently, 37,500 of these shares were surrendered by the former shareholders in accordance with specific terms of the agreement. The terms of this purchase, along with the financial statements of SDDS, are set forth in the Company's Form 8-K filing dated July 29, 1990, and filed in April, 1991, and hereby incorporated by this reference. 5 6 SDDS was incorporated under the laws of the State of California on November 20, 1987. SDDS, which operated under the trade name "The Supply House", was subsequently merged into Ryker Dental of Kentucky, Inc. ("Ryker"), as described below, and the surviving entity (Ryker) continues to operate as "The Supply House", a distributor of professional dental supplies and an authorized dealer for several lines of dental products. THE MERGER OF SAN DIEGO DENTAL SUPPLY, INC. INTO RYKER DENTAL OF KENTUCKY, INC. Merger of Ryker Dental of Kentucky. On January 3, 1994 (but effective after the close of business on December 31, 1993), the Company acquired all of the outstanding capital stock of Ryker Dental of Kentucky, Inc. ("Ryker") pursuant to the merger ("Merger") of the Company's wholly-owned subsidiary, San Diego Dental Supply, Inc. ("SDDS"), with and into Ryker with Ryker being the surviving entity. Pursuant to the Merger, the Company issued an aggregate of 220,000 shares of its previously unissued restricted Common Stock to the shareholders of Ryker in cancellation of the shares of Ryker Common Stock owned by such shareholders. The Company became the sole shareholder of Ryker through the conversion of each outstanding share of Common Stock of SDDS into one share of Common Stock of Ryker. As part of the transaction, the Company retired approximately $720,000 of Ryker's debt, thereby releasing the former shareholders of Ryker from their personal guarantees on such debt. The Articles of Merger were filed with the Secretary of State of Kentucky on January 3, 1994. The transaction was accounted for as a purchase. The purchase price was allocated to the fair value of Ryker's assets and liabilities and the excess of $388,186 was allocated to goodwill. The goodwill is being amortized on the straight line method over a period of twenty years, in accordance with the Company's accounting policies. The depreciable assets acquired are being depreciated over the remaining useful life on a straight line basis, in accordance with the Company's accounting policies. The two former shareholders of Ryker each entered into employment agreements to continue managing Ryker for a period of three (3) years. As a part of these employment agreements, each former shareholder received $40,000 in cash bonuses over the first year of the agreement, in addition to an annual salary of $80,000 each. Under the terms of the employment agreements, each shareholder may also earn performance bonuses each year of up to $10,000 cash and options to purchase 10,000 shares of the Company's common stock, exercisable at the fair market value of the common stock on the date of the option grant. In addition, 6 7 the two former shareholders of Ryker each received $60,000 cash as consideration for entering into a non-competition agreement with the Company. These non-competition agreements extend for a period of eighteen months following the employee's termination of employment with the Company. The assets of Ryker consist mainly of trade inventory and accounts receivable. The amount of consideration given was determined by good-faith, arms-length negotiations between the parties. The shareholders of Ryker were Danny D. Ramsey and George Barton Mahan. As a result of the merger, Mr. Mahan was appointed to the Company's Board of Directors in January 1994. Ryker distributes professional dental supplies and equipment to dental offices nationwide under the trade name, "The Supply House". In addition, Ryker also sells large equipment, such as sterilizers, compressors, and dental lights and chairs, previously not sold by the Company. Ryker also has an in-house design department to assist dentists in the architectural design of their offices. Effective June 1994, the Company began to utilize Ryker's strategic location as its eastern distribution center, saving the Company up to several thousands of dollars per month in freight costs. Ryker also augments the Company's existing product line, allowing the Company to offer a much broader range of products to its customers nationwide. Ryker now operates from two (2) leased facilities: one in Rancho Cordova, California and one in Lexington, Kentucky, and has approximately ninety-two (92) employees. MANAGEMENT AGREEMENTS AND SUBSEQUENT ACQUISITION OF ORAL VISION, INC. Marketing Agreement with Oral-Vision, Inc. In August 1992, the Company was granted exclusive U.S. marketing rights to the intra-oral camera manufactured by Oral-Vision, Inc. ("Oral Vision") of New Albany, Indiana. The agreement provided that the Company would receive a commission on all sales of Oral-Vision cameras over a three year period. The camera allows a patient to see into the recesses of his own mouth to better understand the treatment plans being recommended by his dentist. The goal of this tool is to enhance dentist-patient communication and to improve a patient's understanding of his dental needs, thereby increasing his acceptance of recommended treatment options. This greater acceptance leads to better patient care and increased revenue 7 8 levels for those dentists using the Oral-Vision intra-oral camera. Management Agreement with Oral-Vision, Inc. Effective June 1, 1993, the Marketing Agreement outlined above was replaced and superseded by a Management Agreement under which Bio-Dental was hired by Oral Vision to manage the business operations of Oral Vision. Under the terms of this Management Agreement, Oral Vision agreed to pay all expenses related to the business as well as financing any necessary investment in inventory, accounts receivable, fixed assets, etc. All of the assets remained with Oral Vision, while the Company was responsible for managing those assets on Oral Vision's behalf. The Company was paid a management fee by Oral Vision, on a monthly basis, equal to one-half of Oral Vision's pre-tax income after reimbursing the Company for any expenses incurred on Oral Vision's behalf. As discussed below, the Company purchased all the assets and certain liabilities of Oral Vision effective January 1, 1994. The Management Agreement was terminated on the effective date of the purchase. Net revenues received prior to acquisition were $502,209 in 1994. Acquisition of Oral Vision Assets and Liabilities. On July 6, 1994, the Company signed an agreement and purchased the assets and certain liabilities of Oral Vision, Inc. The acquisition was effective as of January 1, 1994, as the Company effectively maintained control of the operations, assets and liabilities of Oral Vision, Inc. as of that date. In connection with this purchase, the Company issued 272,727 shares of its previously unissued restricted common stock to the sole shareholder of Oral Vision, Inc., Dr. William Oakes. The assets acquired consist mainly of trade inventory and accounts receivable. As part of the transaction, on July 6, 1994, the Company retired approximately $515,000 of the assumed liabilities, thereby 8 9 releasing certain security interests held by a vendor of Oral Vision, Inc. The transaction has been accounted for as a purchase. The purchase price was allocated to the fair value of Oral Vision's assets and liabilities and the excess of $215,919 was allocated to goodwill. The goodwill is being amortized on the straight line method over a period of twenty years, in accordance with the Company's accounting policies. The assets and liabilities are held in Integrated Dental Technologies, Inc. ("IDT") a wholly-owned subsidiary of the Company formed for this purpose. In addition, Dr. William Oakes agreed to remain with the Company under the terms of a four year consulting agreement. Under the terms of the consulting agreement, Dr. Oakes received $30,000 in the first year and will receive $75,000 per year for each of the following three years. The Company expanded the scope of products offered through IDT beyond the Oral Vision cameras to include such innovative technologies as filmless x-ray systems, automated patient and periodontal charting systems, and multi-media patient-education systems. Beginning in March 1995, IDT began selling personal computer hardware to its customers. The Company integrates all of these technologies through a proprietary common-user interface developed by the Company. All of these modular technologies were marketed via IDT's education-based seminar series and a national outside sales force. These seminars are accredited for continuing education credits by the American Dental Association and the Academy of General Dentistry. Effective January, 1996, the Company began a restructuring of its IDT operations. This restructure reduced the emphasis on the integration of the technologies discussed previously, including computer hardware and filmless x-ray, and focused IDT's marketing and selling effort on the intra-oral camera and software products offered by IDT. These products are believed to 9 10 have the largest market potential and offer the highest gross margins of the various products which made up the IDT product line. IDT's education-based seminar series continued with emphasis on the use of the intra-oral camera and related products. Acquisition of Crown Systems Assets and Liabilities. On November 14, 1994, the Company signed an agreement and purchased the assets and certain liabilities of Crown Systems, Inc. ("Crown"), effective November 1, 1994. In connection with this purchase, the Company issued 47,501 shares of its previously unissued restricted common stock to Crown. The assets acquired consisted mainly of accounts receivable and dental practice management software rights. As part of the transaction, the Company retired approximately $205,000 of assumed liabilities. The transaction was accounted for as a purchase. The purchase price was allocated to software rights and the fair value of Crown's assets and liabilities. Software rights were valued at $287,985 and are being amortized on the straight line method over a period of five years, in accordance with the Company's accounting policies. The depreciable assets acquired will be depreciated over the remaining useful life on a straight line basis, in accordance with the Company's accounting policies. The assets and liabilities of Crown are held in IDT. Crown developed and marketed dental practice management software systems and will continue to develop additional software for IDT. As part of the transaction, the principals of Crown entered into one year employment agreements and three year non-compete agreements with IDT. Since the date of the acquisition, the former principals of Crown have been instrumental in developing IDT's common user interface, which allowed for the integration of all of IDT's technology based products. 10 11 Current Operations - The Supply House. Ryker Dental of Kentucky, one of the Company's operating subsidiaries, operates under the trade name "The Supply House." The Supply House is a national distributor of professional dental supplies, carrying brand names such as Eastman Kodak, Dentsply, Hu-Friedy, Premier and 3M. Most of The Supply House's sales are through telemarketing and direct mail, as opposed to deploying the more traditional outside sales force. As a result, The Supply House believes it can operate more efficiently than its major competitors. There are estimated to be over 120,000 practicing dentists in the United States. The annual market for dental supplies in the U.S. is approximately $2.0 billion, representing approximately $16,000 per dentist. Currently, the Company represents the products of over 400 dental manufacturers. It is believed that these products constitute the vast majority of supplies used in the day-to-day operations of a dental practice. For example, the Company carries a broad line of dental alloys, x-ray film, composite filling materials, impression materials, latex gloves, diamond and carbide cutting instruments, anesthetics, asepsis and infection control products, operative, hygiene and surgical instruments, and a variety of other widely used items. Historically, the Company has carried only consumable supplies and very small equipment, such as hand pieces. With the Ryker acquisition, the Company is now distributing a select group of large items of dental equipment, such as compressors, sterilizers, dental lights and chairs. Traditionally, dentists have purchased their supplies from local full-service supply companies, or from mail-order firms. The Supply House is attempting to combine the level of service typically associated with the local dealer with the convenience and competitive prices found with most mail-order firms. The Supply House can do this partially as a result of the increased 11 12 efficiencies brought about by telemarketing. Where a traditional outside sales person might call on 10 to 15 accounts per day, a telemarketer can reach 50 to 70 offices. Additionally, telemarketing has been shown to significantly increase the response to direct mail pieces (like catalogs), giving The Supply House a decided advantage over mail order firms which do not follow-up by phone. The Supply House's Competition. There are approximately 300 dental supply dealers and mail order supply houses in the United States, some of which have significantly greater financial resources than the Company. The Company's sales make up less than 2% of the total market for dental supplies. The Company's position with respect to its competitors is difficult to determine since most of the companies are privately-held and do not disclose financial information. However, the Company believes that approximately 50 percent of the market is dominated by three (3) public companies: Patterson Dental, Sullivan Dental, and Henry Schein. Current Operations - IDT. Integrated Dental Technologies, Inc. ("IDT") represents the Company's other wholly-owned operating subsidiary. IDT was formed on the premise that there was a growing market demand for integrated, computer-based technology dental systems, yet there was no company prepared to deliver such a product. Through the fiscal year 1995 acquisitions of Crown Systems Inc. and Oral Vision Inc., and distribution agreements for other key products, IDT developed a broad array of products designed to enhance the efficiency and profitability of the dental practice. These products included an intra-oral camera, filmless x-ray system, patient and periodontal charting system, practice management computer system, electronic claims processing, and multi-media patient education. In addition, through some proprietary Windows(TM) software written by IDT's own programmers, IDT integrated all of these technologies into one system, thereby creating the first virtually "paperless" dental office. 12 13 In addition to marketing the product, IDT also provided full installation, training and support for both hardware and software elements of the system. While this market is reported to be one of the fastest growing segments of the dental products industry, IDT found that the present market demand was not sufficient to allow IDT to operate profitably with this type of product offering. As a result of lower-than-expected sales coupled with higher marketing and support costs, IDT incurred substantial losses during the fiscal year ending March 31, 1996. Thus, in the fourth quarter of fiscal year 1996, IDT announced its plan to restructure its operations to focus exclusively on the Company's software and intra-oral camera products. It is believed that the software and intra-oral camera products have the largest existing market potential, are well positioned to compete in their respective markets, and offer higher margins to the Company. As a part of this restructuring, the Company discontinued its promotion and sales of computer hardware, of the Schick filmless x-ray system, and fully-integrated "paperless" systems. This restructuring, which was phased in during the fourth quarter of fiscal 1996, has allowed the Company to reduce its ongoing operating expenses while focusing more attention on those products which the Company believes currently have the broadest market appeal and offer the Company the greatest margins. The Company took a $271,631 restructuring charge in the fourth quarter of fiscal 1996 to cover employee severance and other reserves for expenses related to the business operations being phased out. As a result of the restructuring, $307,331 of inventory was written off to cost of products sold and the reserve for returned product was increased by $250,000. In addition, as the Company introduced its new, upgraded camera system, a $312,026 inventory reserve was taken against old intra-oral camera and related inventory. Total restructuring charges, inventory writedowns and the reserve increases totaled $1,140,988. As previously mentioned, IDT ceased selling its own line of computer hardware (although it still supports those existing customers who already have IDT hardware in their office) as part of this restructuring. 13 14 In an effort to continue to provide its customers with a "one-stop-shop" for their computer needs, IDT entered into an agreement with DELL Computer Corporation to provide a line of specially-configured computers directly to IDT customers. DELL will also agree to support their hardware through their contracted field-support organization during the full warranty period. SECURITIES ISSUANCES AND OTHER EVENTS. In September of 1991, the Company initiated a private placement, offering to sell a total of 600,000 units at $2.25 per unit, with each unit consisting of one share of 7 3/4% Series A Participating Convertible Preferred Stock and one Series A Redeemable Common Stock Purchase Warrant. The Company sold 90,667 units under this private placement. On October 1, 1991, the Company entered into a letter agreement with Ladenburg, Thalmann & Co., Inc., a New York investment banking firm ("Ladenburg"). The Company retained Ladenburg to provide investment banking advice and services. The term of the letter agreement extended through September 30, 1992. In lieu of Ladenburg's normal retainer, the Company agreed to issue to Ladenburg a common stock purchase warrant, expiring on September 30, 1996, providing Ladenburg the right to purchase 200,000 shares of the Company's common stock at an exercise price of $3.50 per share. The exercise price was subsequently adjusted to $3.11 per share pursuant to a ratchet anti-dilution provision contained in the warrant, which was triggered by the issuance of the ICP warrants described below. In April 1994, 96,333 shares of the Company's common stock were issued to Ladenburg as a result of a cashless exercise of the common stock purchase warrant, which reduced the purchase rights from 200,000 shares to 96,333 shares. On January 6, 1992, the Company entered into a letter agreement with Josephberg Grosz & Co., Inc., a New York investment banking firm ("JG"). The Company retained JG to assist the Company in raising capital through a financing transaction the nature of which was undecided at the time of the letter agreement. As partial consideration for their services, JG received 12,000 shares of the Company's restricted common stock, which became "freely tradeable" upon the effectiveness of the Company's Form S-1 registration statement on June 30, 1992 (described below). 14 15 On May 1, 1992, the Company filed a registration statement on Form S-1 (which is incorporated herein by this reference) with the Securities and Exchange Commission to register shares of common stock issued in an earlier private placement, as well as other outstanding shares of the Company. The Form S-1 registration statement, which was declared effective on June 30, 1992, registered a total of 1,622,656 shares of the Company's common stock. The registration significantly increased the total number of "freely tradeable" shares of the Company's common stock outstanding. On September 7, 1992, the Company issued 1,004,000 shares of unregistered common stock to 34 investors (the "Investors") at a price of $1.50 per share in a private placement. In connection with the transaction, the Company issued warrants for the purchase of 150,000 shares of common stock to International Capital Partners, Inc., a Connecticut corporation ("ICP") and lead member of the investor group. The transaction was pursuant to a Stock Purchase Agreement, dated August 31, 1992, by and among the Company, ICP and the Investors (the "Agreement"). The Agreement features a purchase price adjustment provision whereby the Company agreed to adjust the purchase price retroactively by the issuance of additional shares to the Investors upon the occurrence of certain events. Specifically, a provision of this Agreement allowed for the issuance of 220,390 additional shares of common stock if certain earnings benchmarks were not achieved in fiscal 1995. Due to the various strategic investments and other factors cited earlier, these benchmarks were not, in fact, achieved. However, since the 1995 earnings per share benchmark was achieved in fiscal 1994 (a full year ahead of schedule), the Company requested a waiver to this additional shares provision. The waiver request was denied and the Company issued the additional 220,390 shares of common stock on October 17, 1995. The Agreement gives to the Investors demand registration rights for up to 20% of their common stock and all of their warrants (one time only), and piggyback registration rights on the balance of their shares. The proceeds from the private placement were used primarily to retire existing debt and to expand inventories to meet increasing demand for the Company's products. In May 1994, the Company offered to sell up to 300,000 shares of its restricted common stock in a private placement. Sale of the stock was restricted to non-"U.S. persons" within the 15 16 meaning of Regulation S as promulgated by the United States Securities and Exchange Commission. The placement was completed in June 1994 when the Company issued 100,000 shares of restricted common stock, with net proceeds of approximately $380,000, after commissions and other expenses. Certain transfer restrictions apply to the shares. On April 1, 1996, the Company issued two (2) Term Notes in a private placement to two (2) institutional investors in connection with the borrowing of $1,250,000. These Term Notes accrue interest at a rate of 12% per annum and accrued interest is due and payable on September 30, 1996 and March 29, 1997. The principal amounts of the Term Notes are due not later than March 29, 1997. As additional consideration for the Term Notes, the Company issued warrants to the Lenders which totaled 250,000 warrants at an exercise price of $3.03 and 50,000 warrants at an exercise price of $3.03 to International Capital Partners, Inc. as part payment for the placement fee. For additional information on the Term Notes and associated warrants, see the section on Debt Financing under Item 6 below (Management Discussion and Analysis of Financial Condition and Results of Operations). EMPLOYEES. As of May 31, 1996, the Company and its operating subsidiaries employed one hundred and twenty-four (124) people. Of these employees, three (3) are executive officers and fifty (50) employees are involved in sales functions. The accounting and administration departments employ forty-two (42) people, with twenty-nine (29) employees in the purchasing and distribution departments. No employees are represented by a labor union, nor are there any current labor relations complaints on file with any agency. ITEM 2. PROPERTIES. The Company holds leases on three (3) separate facilities and is a guarantor on a fourth lease. The Company leases 25,000 square feet of office/warehouse space in a concrete building located at 11291 Sunrise Park Drive, Rancho Cordova, California. The current lease rate for the Rancho Cordova facility is $9,270 per month, and is constant for the duration of the lease. The lease for the Rancho Cordova facility expires on November 30, 16 17 1996, however the Company has an option to renew the lease for two subsequent five-year terms. The Company's executive offices are located in the Rancho Cordova facility. The Company leases 19,200 square feet in an office/warehouse complex at 172 Lisle Road, Lexington, Kentucky. The current lease rate is $2,800 per month, and expires on October 31, 1998. The Company also leases 1,500 square feet of office space located at 3935 Eagle Creek Parkway in Indianapolis, Indiana. The current lease rate is $1,715 per month. The lease expired in September 1995, and continued on a month to month basis pending evaluation of other suitable space. On May 31, 1996, IDT entered into a three year lease for 2,000 square feet beginning July 15, 1996 in an office complex at 6021-A West 71st Street, Indianapolis, Indiana. The current lease rate is $1,783 per month, and expires on July 14, 1999. The Company is a guarantor of this lease. The Company anticipates terminating its lease at 3935 Eagle Creek Parkway, Indianapolis, Indiana. In addition, the Company is a guarantor of a lease obligation of its former subsidiary, Denticator International, Inc. ("DII"). This guarantee will terminate upon the sale of DII, should the sale occur. DII leases 6,400 square feet of office/warehouse space in a one-story concrete building in Rancho Cordova, California. The lease rate on this facility is $2,100 per month, and remains fixed until its expiration in May 1997. ITEM 3. LEGAL PROCEEDINGS. Oral Vision, Inc. (still owned by Dr. Oakes) filed a claim against a former consultant alleging breach of contract, misappropriation of trade secrets, and other similar causes of action. Oral Vision, Inc. sought to secure a judgment against this consultant and his affiliate companies. The Company has subsequently been advised that the Consultant, and his resulting firm, have since ceased operation. As a result, the Company, as the current owner of the Oral Vision claim, agreed to settle the litigation in March of 1996 for $22,000 in cash payable to the Company. To date, however, no payments have been received toward this settlement amount. 17 18 Also, in 1993 Oral Vision, Inc. received a letter from a product manufacturer alleging that the Oral Vision product, which was manufactured for Oral Vision by a sub-contractor, infringed upon one or more patents held by the complaining product manufacturer. The Company is no longer marketing the camera upon which this original complaint was alleged. As reported earlier in the Company's Form 10-QSB for the quarter ended September 30, 1995, dated November 13, 1995 and the Company's Form 10-QSB for the quarter ended December 31, 1995, dated February 13, 1996, the Company was been served with a lawsuit (the "Wildwood litigation") which was filed on July 6, 1995, in the California Superior Court, County of Sacramento, against the Company, its transfer agent, OTR, Inc., and Mr. G. Michael Montross, a shareholder of the Company (Wildwood Limited Partnership Oversight Committee, et al, v. Bio-Dental Technologies Corporation, et al; Sacramento Superior Court No. 95A503733). The Wildwood litigation alleges that in 1992, G. Michael Montross pledged 200,000 shares of the Company's common stock owned by Mr. Montross to an agent for the plaintiffs, to secure debts allegedly owing by Mr. Montross to the plaintiffs. The lawsuit further alleges that Mr. Montross subsequently executed a fraudulent affidavit of loss claiming that the certificates for the 200,000 shares had been lost or destroyed. Mr. Montross thereby achieved a reissuance of such shares through the Company's transfer agent, OTR, Inc. The plaintiffs allege that Mr. Montross subsequently defaulted on his debts to the plaintiffs and that plaintiffs foreclosed on the Company's shares that their agent held as security for Mr. Montross' debts. The Wildwood litigation seeks the recovery of general and special damages from the defendants, or in the alternative, that the 200,000 shares in dispute be reissued in their names. Plaintiffs claim that they have lost security for more than $320,000 in debts owed by Mr. Montross, and have suffered damages in the amount of the highest fair market value that the 200,000 shares have obtained since October 16, 1992, estimated by the plaintiffs at $1,250,000. The Company has referred this matter to outside counsel with the directions that counsel vigorously defend against the claims set forth in the Wildwood litigation. The Company has filed an Answer, which denies all of the material allegations of the Wildwood litigation and asserts various affirmative defenses. 18 19 The Company and OTR have tendered the defense of this lawsuit to each other. Both tenders have been denied. The parties to this lawsuit have been unable to locate Mr. Montross and thus have been unable to serve him personally with any of the pleadings in this matter. Mr. Montross has been served with the Company's summonses and complaint by publication and a default was then entered against him. The Company has also filed a Cross-Complaint for Indemnity, Negligence, Fraudulent Misrepresentation, Conversion, Imposition of a Constructive Trust and Conspiracy against Mr. Montross, OTR, Inc. and the Plaintiffs. Specifically, the Company alleges that its transfer agent, OTR, was negligent for not securing a surety bond from Mr. Montross at the time Mr. Montross filed an affidavit of loss claiming the certificates for the 200,000 shares had been lost or destroyed. OTR has filed a Cross-Complaint against Mr. Montross and the Company for Implied Indemnity, Contractual Indemnity, Negligence, Fraudulent Misrepresentation, Conversion and Imposition of Constructive Trust. The Company has filed an Answer which denies all of the material allegations of the Cross-Complaint. The Company has tendered the defense of this lawsuit to its insurance carriers. The insurance carriers have denied coverage by claiming that one or more policy exclusions apply. While the Company disagrees with the insurance carriers' position, it does not appear likely that the insurance carriers will become involved voluntarily in this litigation. The Wildwood litigation was referred by the Court to non-binding arbitration. After a brief hearing, the court-appointed arbitrator rendered a decision unfavorable to the Company. In his ruling, the arbitrator found that the Company was liable to the plaintiffs for either 200,000 shares of the Company's stock or $1,250,000. The Company has now filed a request for Trial De Novo, which has the effect of vacating the arbitration award. Because formal discovery is at an early stage in this matter, the Company is not in a position at this time to evaluate the merits of the various claims. On April 5, 1996, an action was filed whereby Ryker Dental of Kentucky, Inc. dba The Supply House, and Curtis Rocca, along with Dr. Woody Oakes, Dr. Travis McFee, and Excellence in Dentistry, Inc., were alleged to have written and/or published 19 20 libelous statements about a dental management consulting group, the "Practice Builder". This allegedly libelous letter was written by Mr. Rocca as a "Letter to the Editor" to the dental newsletter published by Doctors Oakes and McFee. This letter was written in response to the Practice Builder's introduction of a multi-level marketing program designed to sell dental supplies to dentists. Under this program, the Practice Builder made certain claims about how much money a dentist would save on his supplies, along with how much money he could make through downstream "commissions". Mr. Rocca and the Company continue to believe that the statements made in Mr. Rocca's letter are true, and the Company plans to defend this action vigorously. In addition, the Company has been notified that, subject to a reservation of rights, the defense of this action will be covered under the Company's general liability insurance policy. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fourth quarter of the Company's fiscal year ended March 31, 1996. PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock trades on The Nasdaq Stock Market under the symbol "BDTC". The Company's market makers are Hill-Thompson Magid & Co.;Herzog, Heine, Geduld, Inc.; Troster-Singer Corp.; Nash Weiss/Div of Shatkin Inv.; Ernst & Company,; Wedbush Morgan Securities, Inc.; Sherwood Securities Corp.; Mayer & Schweitzer, Inc.; Southwest Securities, Inc.; Sutro & Co. Inc.; Wien Securities Corp.; and Knight Securities L.P. The table below illustrates the stock's approximate high and low trading prices, as determined by the bid and ask price for the securities through August 1994 and by the high and low sales price from April 1994 through March 1996. The source of the following information was the NASDAQ System. Over-the-counter market quotations reflect inter-dealer prices, without retail 20 21 mark-up, mark-downs or commissions and may not necessarily represent actual transactions.
FISCAL YEAR 1994-95 FISCAL YEAR 1995-96 High Low Dividend High Low Dividend ---- --- -------- ---- --- -------- Quarter 1 5.88 3.75 -0- 4.75 3.13 -0- Quarter 2 5.38 3.88 -0- 4.13 2.75 -0- Quarter 3 4.25 2.75 -0- 3.88 2.38 -0- Quarter 4 5.38 2.88 -0- 3.50 2.25 -0-
There were approximately 857 shareholders of record as of March 31, 1996. ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Year Ended March 31, 1996 -- Results of Operations. Fiscal 1996 marked the second full year of operations of both Ryker Dental of Kentucky, Inc. and Oral Vision, following the Company's acquisition of these entities effective January 1, 1994. In addition, it was the first full year of operations following the November 1, 1994 acquisition of Crown Systems, Inc. For fiscal 1996, the Company's net revenues rose to $33,091,216, a 5 percent increase over revenues of $31,582,277 for fiscal 1995. The growth in net revenues was attributable mainly to the ability of the Company's distribution subsidiary, "The Supply House", to increase its average volume per customer. Sales for The Supply House rose to $24,270,762, up 13 percent from $21,550,535 last year. The Company's other operating subsidiary, Integrated Dental Technologies ("IDT") experienced a decline in revenues from $8,366,043 in fiscal 1995 to $7,441,783 this year. This decline in revenues resulted mainly as a result of the Company's launch of the IDT "paperless" dental office. This product offering, while very popular in concept, was met with little initial demand. Previously, IDT had sold only dental practice management software systems and intra-oral cameras on a stand-alone basis. When the Company began focusing on these larger, "integrated" systems, sales of the individual components declined. In December 1995, the Company announced that it was discontinuing its "paperless" dental office offering, and 21 22 returning to its previously-successful strategy of selling just intra-oral cameras and dental practice management software packages. The Company believes that these products represent the greatest market opportunity for IDT for a number of reasons. Among these are: 1) these markets are believed to be the most developed markets in the dental technology field at this time, 2) the Company believes that IDT's products are well positioned to compete in these markets, and 3) these products offer the highest gross margins and lowest service costs. As a result of this strategic change in market positioning and product focus, the Company should post significantly improved results from IDT in fiscal 1997. It is management's belief that the large dedication of both human and financial resources devoted to IDT during the past year also had an adverse effect on the operations of The Supply House. As a relatively small company, much of the available resources were channeled toward addressing the many challenges inherent in the IDT business strategy and operation. With IDT's simpler product offerings and market strategy designed for fiscal 1997, the Company believes that it should be able to turn more of its attention and resources to continuing to grow The Supply House. The Company has received three endorsements from Managed Dental Care insurance companies wherein such insurance companies are endorsing the services of The Supply House and IDT to its member dentists. Currently, these three organizations represent nearly 18,000 dentists. Under the terms of these endorsements, The Supply House is offering preferred pricing to dentists associated with these insurance companies. Through the endorsements and the attractive pricing offers, the Company hopes to rapidly expand its sales to participating dentists. Managed care sales are expected to provide slightly lower gross margins but the sales volume increase from these contracts should improve the net income of The Supply House. The Company has identified this niche as a growing area within dentistry, and is actively seeking out additional relationships similar to those which it has arranged thus far. The Company believes that The Supply House's "Guaranteed Lowest Prices" approach is ideally positioned to appeal to those dentists opting to participate in a managed care environment. In addition, the productivity-enhancing tools of IDT create an additional opportunity for the dentist to more easily operate 22 23 his practice profitably under the lower-reimbursement policies of managed care. Thus, the Company believes that it is well positioned to continue to win additional contracts and endorsements as more dentists are forced to cut costs and look for more cost-effective and efficient ways to run their practice. Royalty revenues from Denticator International, Inc. ("DII") decreased from $1,665,699 last year to $1,408,671 this fiscal year. This reduction came mainly as a result of lower levels of profitability at DII, which had a resulting effect on royalties payable to the Company. It is believed that the lower profitability levels were due mainly to increased competition in the marketplace, an expanded marketing budget, more favorable employee benefit programs, and increased legal expenses. Subsequent to the end of fiscal 1996, the Company signed a letter of intent to sell its economic interest in the future royalty payments from DII to Young Innovations, Inc. of Earth City, MO ("Young"). The terms of this transaction call for the Company to receive approximately $7.5 million in cash in lieu of future royalties. In addition, any monies owing to the Company from DII at the time of the closing shall be converted to a "product credit" upon which The Supply House can draw free product at a specified rate until depleted. This product credit is expected to be approximately $1 million. The transaction with Young is part of a larger transaction whereby Young will be acquiring the assets and liabilities of DII. The transaction, expected to close in July 1996, is subject to due diligence of both parties, as well as the parties' ability to execute a mutually acceptable definitive agreement. Cost of products sold rose from $21,252,851 in fiscal 1995 to $23,926,770 this year. This 13 percent increase was directly attributable to increased sales volume and, to a lesser degree, a change in the Company's mix of products and services. Cost of products sold increased as a percentage of net revenues, from 67 percent in fiscal 1995 to 72 percent this year. This increase was a result of a variety of factors. Foremost among these were: 1) decreased gross margins at The Supply House, 2) the changing product mix to include lower margin items (filmless x-ray and computer hardware) at IDT, and 3) decreased royalty revenues. Additionally, $307,331 of inventory was written off as a result of the IDT restructuring program implemented during the fourth 23 24 quarter. Also, a reserve of $312,026 was established in recognition of a potential degradation of inventory value of older model intra-oral camera inventory, as the Company released its newer model camera. The inventory writedown and the reserve were not included as "restructuring charges", but rather were taken against cost of products sold. The Company believes that newly-adopted pricing and product-mix strategies adopted during the first quarter of fiscal 1997 should enable the Company to reverse this trend toward lower gross margins. Selling, general and administrative costs rose from $10,653,386 in fiscal 1995, or 34 percent of revenues, to $11,829,832, or 36 percent of revenues this year. While part of this increase is directly attributable to the higher revenue level, the bulk of the increase related to the higher than expected costs of marketing, selling and supporting the various products of IDT. Particularly expensive to support were the Company's filmless x-ray and computer hardware products. Since these products are no longer part of the revised IDT product offerings for fiscal 1997, management believes that its selling, general and administrative expenses , as a percentage of sales, should decline. In addition, IDT's more focused marketing approach should further reduce sales and marketing expense, as the Company will strive to communicate a more limited, yet more direct, marketing message. Operating expenses for The Supply House were slightly less than expected, resulting partly from lower-than-anticipated sales, as well as effective cost-containment methods invoked by the Company. Additional expenses incurred this fiscal year, but not last year, were $271,631 of restructuring charges taken by the Company related to the restructuring of its IDT subsidiary. The restructuring charges are specifically outlined as follows: Writedown of other assets $90,002 Future contractual obligations 85,000 Employee severance 13,800 Other 82,829
As mentioned earlier, management's decision to restructure its IDT operation also resulted in an inventory writedown of 24 25 $307,331 and an increase to the reserve for returned product of $250,000. In addition, a reserve of $312,026 was established in recognition of a potential degradation in value of older model intra-oral cameras and related inventory. The inventory writedown and the reserve for older cameras were charged against cost of products sold. The reserve for returned product was charged against net revenes. Total restructuring charges, inventory writedowns and the reserve increase totaled $1,140,988. Management decided to restructure its IDT operations largely as a result of a change in marketing focus. Beginning in late fiscal 1995, IDT endeavored to be the first Company in the United States to be able to provide a dentist with a "paperless" dental office, combining such state-of-the-art dental technologies as: 1) digital, filmless x-ray, 2) intra-oral camera, 3) computerized patient charting, 4) multi-media patient education, and 5) Windows(TM) based dental practice management software. It was believed that there was a growing trend toward greater automation of dental practices in the United States. However, while the Company still believes this to be true, this trend was not sufficiently developed nor large enough in scope to support the extensive marketing and support costs necessary to bring a revolutionary new product like this to market. IDT provided, and continues to provide, nationwide support for its customers for any software or hardware products purchased from IDT. It quickly became very expensive for IDT to provide this level of customer support to its users on a nationwide basis. As a result of these and other factors, in January 1996 the Company decided to initiate the restructuring of its IDT operations in order to focus on selling just intra-oral cameras and dental practice management software, as outlined above. Management believes that this restructuring will enable IDT to produce significantly more positive results as the Company focuses strictly on those products which have large established markets, offer the Company attractive profit margins, and are well positioned to compete in their respective markets. The restructuring was largely completed during the fourth quarter, and the few remaining aspects should be fully executed during the first quarter of fiscal 1997. 25 26 Interest and other income decreased from $203,130 last year to $81,849 this fiscal year. The majority of the decrease was due to the termination of lease revenues from DII in March 1995, as scheduled. These lease charges were billed to DII throughout all of last fiscal year but there were no lease charges to DII in this fiscal year. Interest expense increased from $127,185 last year to $231,722 this fiscal year. The increase was due to the increased borrowings from the bank, both on the line of credit and on a term note. The Company reported a loss before taxes of ($3,563,977), compared to a pre-tax loss of ($599,437) last year. This year's after tax loss was ($2,265,977), or ($0.36)per share, compared to a net loss of ($419,437), or ($0.07) per share, in fiscal 1995. This loss resulted primarily from the poor financial performance of IDT, although lower gross margins within The Supply House and higher interest expense also contributed somewhat. The Company believes that the strategic changes outlined above should enable the Company to report significantly improved results in fiscal 1997. Liquidity and Capital Resources. As of March 31, 1996, the Company held total assets of $10,966,592. Of these, $8,626,608 (78%) consisted of cash, accounts receivable, inventories, deferred income taxes and other current assets. As of this same date, the Company had total liabilities of $7,165,756, all being current liabilities. The Company's current ratio at March 31, 1996 was 1.20, down from 1.65 at the end of fiscal 1995. The debt to equity ratio was 1.87, up from 1.07 at the end of fiscal 1995. These ratios, specifically debt to equity, were affected by the net loss for the year. Cash and cash equivalents were $612,911 for fiscal 1996 compared to $322,848 for fiscal 1995. Inventory decreased from $5,318,845 at March 31, 1995 to $3,667,161 at March 31, 1996. This decrease resulted primarily from the Company's restructure of IDT and the write down of inventory value for discontinued products and other inventory allowances in the fourth quarter of fiscal 1996. 26 27 Accounts receivable decreased from $2,137,276 at March 31, 1995 to $1,973,943 at March 31, 1996. This decrease resulted primarily from continued focus on managing the Company's credit and collection efforts and higher credit card sales for The Supply House during fiscal 1996. Prepaid expenses and other current assets decreased from $471,931 for fiscal 1995 to $272,197 for fiscal 1996. The decrease in prepaids and other assets results from reduced direct mailing expenditures and marketing costs associated with seminars, trade shows and other special events for IDT. Deferred income taxes totaled $1,614,500 at March 31, 1996 compared to $474,500 at March 31, 1995. The $1,140,000 increase relates to the tax benefit resulting from the current year operating results. The tax benefit is expected to be recognized by the Company as a result of the sale of DII in fiscal 1997. Property and equipment was $717,152 at March 31, 1996 compared to $888,410 at March 31, 1995. Additions to property and equipment before current year depreciation were $172,424. Accumulated depreciation increased $306,891 during fiscal 1996. Assets of business transferred under contractual arrangements decreased from $490,518 at March 31, 1995 to $440,354 at March 31, 1996. The decrease resulted from principal payments made by DII on the Company's note receivable. Intangible assets were $1,227,862 at March 31, 1996, compared to $1,354,852 at March 31, 1995. The net decrease of $126,990 resulted primarily from the amortization of these assets during fiscal 1996. Software rights are amortized using a five year amortization in accordance with the Company's accounting policies. Accounts payable and accrued expenses increased from $4,303,907 at March 31, 1995 to $4,851,628 at March 31, 1996. The $547,721 increase results from accruals (approximately $272,000) related to the IDT restructuring initiated during the fourth quarter of fiscal 1996 with the remainder related to increases in vendor accounts payable. Notes payable at March 31, 1996 totaled $2,109,459, all classified as a current liability. Total notes payable at March 31, 1995 were $2,034,000, of which $1,311,770 was classified as a 27 28 current liability. The increase in the current portion of notes payable results from a modification to the Company's bank agreements whereby the Term Note is due September 30, 1996 compared to the previous maturity date of May 1, 1998. Deferred revenues were $204,669 at March 31, 1996, compared to $125,035 at March 31, 1995. Deferred revenues represent prepaid customer support fees, prepaid seminar fees from customers and customer deposits or pre-payments on sales orders not yet delivered or completed. The $79,634 increase results primarily from an increase in prepaid customer support fees related to IDT's software products. Total stockholders' equity at March 31, 1996 was $3,830,836, which represents a decrease of $2,200,249 from March 31, 1995. Retained earnings decreased $2,265,977 during fiscal 1996 as a result of operations. Common stock and capital contributed in excess of par value increased $65,728 with the increase resulting from the issuance of additional shares related to the Crown Systems, Inc. acquisition in fiscal 1995, fiscal 1995 employee stock option contribution, and the issuance of additional shares of common stock to lecturing dentists pursuant to the acquisition agreement of Oral Vision, Inc. In accordance with generally accepted accounting principles, the balance sheet does not reflect the future interest and royalty income which Bio-Dental contractually receives from DII, its former manufacturing subsidiary. This royalty was a monthly minimum of $30,000 for the year ended March 31, 1994 and from April through December 1994. Effective January 1995, the monthly minimum royalty payment increased to $43,000 per month. However, actual royalty payments have continued to be higher than the minimum requirements. If the Company were to repeatedly have losses similar to that which it experienced in fiscal 1996, the Company could run into liquidity problems and eventually have difficulty meeting its credit obligations. The Company believes, however, that these levels of losses are unlikely to continue in fiscal 1997 and, in fact, believes that the Company will return to profitability in fiscal 1997. Debt Financing. In December 1992, the Company secured a $1 million line of credit from The Bank of California. In December 1993, the Company obtained an increase to this line of credit 28 29 from $1 million to $1.5 million. In August 1994, the line was increased again, from $1.5 million to $3 million. In addition to the line of credit, a $1 million term note with the bank was secured in March 1995. In July 1995, the bank amended certain covenants regarding tangible net worth, total indebtedness and profitability requirements. The line expired on August 31, 1995. The bank subsequently extended the agreement through November 19, 1995. Effective October 31, 1995, the bank modified the agreement and a Second Amended and Restated Credit Agreement was executed with a February 29, 1996 expiration date. The Second Amended and Restated Credit Agreement changed the interest rate on both the line of credit and term loan to prime plus 1.25%, compared to the previous rate of prime plus 0.75%. Since the Company's eligible inventory and accounts receivable have never been sufficient to take full advantage of a $3 million credit line, the maximum borrowing base on the line of credit was reduced to $2.5 million, an amount more consistent with the Company's eligible asset base. The Second Amended and Restated Credit Agreement expired on February 29, 1996 and the Company and the bank subsequently executed a Replacement Revolving Credit Note and Modification Agreement effective March 31, 1996. The Modification Agreement amended the maximum borrowing base to $1,394,000 and the interest rate on the line of credit and term note was changed to prime plus 2.5%, compared to the previous rate of prime plus 1.25%. The line of credit and term note each expire September 30, 1996. In addition to monthly interest payments on the line of credit and term note, monthly principal payments of $27,777 are due on the term note. On April 1, 1996, in accordance with the terms of the Modification Agreement, the Company secured additional funding pursuant to an agreement to borrow $1,250,000 from two institutional investors (Lenders). The Term Notes accrue interest at the rate of 12% per annum and accrued interest is due and payable on September 30, 1996 and March 29, 1997. As additional consideration for the Term Notes, the Company issued warrants to the Lenders which totaled 250,000 warrants at an exercise price of $3.03 and 50,000 warrants at an exercise price of $3.03 to International Capital Partners, Inc. as part payment for the placement fee. Under the terms of the agreement, 29 30 the Company is required to repay the outstanding principal of the Term Notes and accrued and unpaid interest before July 31, 1996 in order to avoid the issuance of additional warrant shares, but in no event will the repayment occur later than March 29, 1997. On June 7, 1996, the Company filed a Form 8-K (which is incorporated herein by this reference) describing the details of these subordinated loans. The Company's debt agreements with The Bank of California contain various covenants regarding working capital, net worth and total indebtedness among other items, which became effective January 1, 1996 and thereafter. Effective March 31, 1996, the Company was not in compliance with the covenant regarding the maintenance of current assets in an amount not less than $2,500,000 in excess of current liabilities. The Company's failure in the future to comply with these covenants would constitute technical defaults under its credit arrangements and the bank could theoretically exercise certain creditor rights with the Company. The Company has used its line of credit for working capital to finance it operations, specifically in information systems and in IDT. The term loan with the bank was used primarily to fund the retirement of existing debt associated with the acquisitions of Ryker, Oral Vision and Crown Systems. The balance outstanding on the line of credit as of March 31, 1996 was $1,394,000 and the balance on the note was $715,459. Because the subordinated Term Notes were not funded until April 1, 1996, there was no balance on these notes outstanding as of March 31, 1996. Effect of Inflation and Price Increases on the Company's Operations. As mentioned earlier, The Supply House experienced decreased gross margins in fiscal 1996. This was due mostly to suppliers of The Supply House's products increasing the costs of such products at a greater rate than The Supply House could raise its selling prices, due to price competition in the marketplace and the timing of its catalog release. The Supply House estimates that price increases for products it sells will average approximately 4 percent in fiscal 1997. The Supply House believes that new pricing strategies adopted during the first quarter of fiscal 1997 will address these anticipated cost increases and should enable The Supply House to prevent a decrease in gross margins for its non-managed care sales. Managed care sales are expected to provide slightly lower gross margins but the sales volume increase from these contracts should improve the net income of The Supply House. 30 31 The current rate of inflation is not believed to have any material effect on the operations of the Company's IDT subsidiary. The Year Ended March 31, 1995 -- Results of Operations. The year ended March 31, 1995 represented the fourth full year of operations following the Company's acquisition of SDDS and the disposition of DII. In addition, fiscal 1995 included one full year of operations of both Ryker Dental of Kentucky, Inc. and Oral Vision, following the Company's acquisition of these entities effective January 1, 1994. For fiscal 1995, the Company's net revenues rose to $31,582,277, a 58% increase over revenues of $20,017,039 for fiscal 1994. The growth in revenues was attributable mainly to the acquisitions of these two entities, although revenues of previously existing distribution operations also continued to grow. Of the $11,600,000 increase in product sales, approximately $5,200,000 came as a result of Oral Vision (and the subsequent formation of IDT), while an additional $4,000,000 came from the acquisition of Ryker. The remaining $2.4 million of revenue growth was internally generated by The Supply House, the Company's dental products distribution subsidiary. While these acquisitions provided substantial revenue growth, they were not without their share of associated costs. The growth in revenues from operations existing prior to the acquisitions was somewhat affected by a number of start-up and non-recurring events which occurred during the year. First, the Company's acquisition of Ryker Dental Corporation in January, 1994 required a significant amount of resources be dedicated to incorporating Ryker's method of operation within that of The Supply House. In addition, the Company converted The Supply House (both California and Kentucky operations), and later Integrated Dental Technologies (IDT), to a completely new computer system. The $5.2 million growth in IDT revenues was approximately $2 million less than expected for fiscal 1995. The acquisition of Oral Vision, the subsequent formation of IDT, and the significant efforts required to build the IDT business unit caused management attention to be focused more on this entity's product and organizational development rather than short-term 31 32 revenue growth. In addition, the development of IDT's fully-integrated system was not completed until after year-end. The Company believes that this shift in sales focus to the integrated system, coupled with the inability of the Company to deliver this system prior to year-end, also affected revenues. All of these issues imposed a drain on the Company's management and staff resources, which impeded the Company's attainment of its growth goals for fiscal 1995. The Company believed that many of these issues had been resolved, which would enable management to refocus its attention on revenue and earnings growth. As anticipated, royalty revenues from DII were virtually unchanged from last year, indicating the stability of Denticator's position within the marketplace and the relatively mature nature of this market. Royalty revenues were $1,665,699 for 1995 compared to fiscal 1994's $1,665,664. The Company sold DII in March 1991 in exchange for a royalty arrangement. Cost of products sold rose from $12,703,618, or 69 percent of product sales, in fiscal 1994 to $21,252,851, or 71 percent of product sales in fiscal 1995. The reduction in gross margin percent arose largely as a result of a delay in the production of The Supply House's catalog, which forced the Company to honor last year's pricing for several additional months, even after cost increases had been imposed upon The Supply House from its suppliers. In addition, during the first nine months of fiscal 1994 the Company earned profit-sharing dollars associated with its role as the manager of Oral Vision, Inc. These dollars earned were recorded as revenues with no costs associated with them, thereby providing 100 percent gross margin on these dollars. Subsequent to the acquisition of Oral Vision in January 1994, the Company records all operational activity (revenues, cost of sales and expenses) and, as such, gross margins were naturally reduced. Selling, general and administrative expenses for the year totaled $10,653,386, or 34% of net revenues, as compared to $5,123,874, or 26% of net revenues, in 1994. The increase in expenses came primarily as a result of two factors. First, the acquisition of Ryker added the staff, facility and ongoing operations associated with that 32 33 organization. Secondly, the formation, development and marketing of the new IDT business unit added a very large portion of this increased cost structure. Costs associated with IDT were both start-up and recurring in nature. Included in the start-up category are: 1) product development costs, 2) up-front marketing costs associated with securing the distribution rights for IDT's filmless x-ray system, 3) the recruiting, hiring and training of new lecturers as well as a team of product sales representatives, 4) costs associated with the Company's conversion to a more sophisticated computer system, 5) designing and implementing a new series of educational seminars, and 6) the actual acquisition of Oral Vision, Inc. and Crown Systems, Inc. Recurring costs associated with IDT include: 1) company marketing and promotion, 2) product marketing and sales activity, educational seminars and symposiums, 3) technical support services, and 4) general administrative support and overhead. Operating costs and expenses for the year totaled $32,257,659, or 102% of net revenues, as compared to $17,971,646, or 90% of net revenues, in 1994. Many of the above factors which served to increase the Company's expense structure had a corresponding effect on the Company's profitability. For the fourth quarter ended March 31, 1995, the Company lost approximately $(993,000), as compared to net earnings of $455,523 for the fourth quarter ended March 31, 1994. In the fourth quarter of fiscal 1995 the Company recorded certain adjustments, aggregating approximately $485,000, which were required to adjust recorded accounts payable to agree to the actual amounts payable. The adjustments were required because of the Company's prior failure to recognize payable obligations at the time when products had been received and were on hand, but the invoices from the product vendor had not yet been processed. The result of this increased the net loss by approximately $291,000, or $.05 per share, net of taxes. The Company incurred a net loss of $(419,437) in fiscal 1995, as compared to net earnings of $1,553,953 in the prior year. 33 34 Total fiscal 1995 net loss per share was $(0.07) as compared to net income per share of $0.27 for the year prior. The decrease in profitability can be mainly attributed to the large start up (and to a lesser degree, the ongoing operating) expenses of Bio-Dental's new IDT subsidiary, as cited above. To the best of Management's knowledge, IDT was the first company in the United States to be able to provide a dentist with a complete, virtually "paperless" dental office, combining such state-of-the-art dental technologies as: 1) filmless x-ray, 2) intra-oral camera, 3) computerized charting, 4) multi-media patient education, and 5) Windows(TM)-based practice management software. There is a growing trend toward automation of dental practices within the United States. IDT was positioning itself to be the leader within the field of integrating these new technologies into the dental practice. The Company believed that each of the products represented in its IDT product line were, or would be, among the highest quality products available in their respective categories. System prices generally range from $4,000 for software only, to around $100,000 for a ten-user system, completely networked into every operatory within the dentist's practice. IDT has nationwide support capabilities for both hardware and software service such that one call to IDT should serve to resolve any user problem - whether it be hardware or software related. The Company charges an annual support fee for this service. With regard to The Supply House, several non-recurring expenses caused an increase in operating expenses here too. Most noteworthy of these are the costs associated with integrating Ryker Dental into the operations of The Supply House, and the 34 35 computer conversions of both the California and Kentucky operations. To a lesser degree, the Company's investment in the redesign of its revised catalog format, featuring full-color photographs and expanded product descriptions for virtually every product, also affected the year's expenses. This new catalog design required significant one-time investments in photography, design, and copy writing. The benefits of this re-design should be realized for many years, yet the up-front development has been expensed (with some allocation carried over through June 1995, the expiration date of the first catalog). In addition, virtually all of the start-up and development expenses associated with IDT were similarly expensed. There are very few capitalized development expenditures (other than those associated directly with the acquisition of Oral Vision and Crown Systems) carried on the balance sheet. Liquidity and Capital Resources. As of March 31, 1995, the Company held total assets of $12,512,119. Of these, $9,526,185 (76%) consisted of cash, accounts receivable, inventories, and other current assets. As of this same date, the Company had total liabilities of $6,481,034, with $5,757,297 of these being current liabilities. The Company's current ratio at March 31, 1995 was 1.65, down slightly from 1.70 at the end of fiscal 1994. The debt to equity ratio was 1.07, up from 0.84 at the end of fiscal 1994. These ratios, specifically debt to equity, were affected by the net loss for the year. Cash and cash equivalents were $322,848 for fiscal 1995 compared to $487,174 for fiscal 1994. Inventory increased from $4,869,402 at March 31, 1994 to $5,318,845 at March 31, 1995. This increase resulted primarily from the Company's expansion of its product lines and to meet the higher level of sales from fiscal 1994 to 1995. Accounts receivable increased only slightly from $2,125,679 at March 31, 1994 to $2,137,276 at March 31, 1995. Considering the increase in revenues of $11,565,238 from fiscal 1994 to fiscal 1995, this slight increase in accounts receivable reflects the Company's success in managing its credit and collection efforts. 35 36 Prepaid expenses and other current assets increased from $274,740 for fiscal 1994 to $471,931 for fiscal 1995. The majority of this $197,191 increase results from marketing and direct mailing expenditures which will benefit future periods. Income taxes receivable was $565,720 as of March 31, 1995 compared to $0 at March 31, 1994. The Company made estimated tax deposits based on interim earnings in early fiscal 1995 and now expects a refund of $531,000. Also included is a $34,720 overpayment on a prior year return. Property and equipment was $888,410 at March 31, 1995 compared to $680,922 at March 31, 1994. Additions to property and equipment before current year depreciation were approximately $470,000, with approximately $250,000 expended for Ryker Dental and the remainder for IDT. Ryker continued to expand its computer system which accounts for a majority of their capital expenditures. IDT acquired certain assets of Crown Systems, Inc. and the development of the business during the fiscal year required capital investment into computer systems, furniture and equipment and leasehold improvements. Accumulated depreciation increased $224,362 during fiscal 1995. Assets of business transferred under contractual arrangements decreased from $600,282 at March 31, 1994 to $490,518 at March 31, 1995. This decline results from the receipt of principal payments made by DII on the Company's note receivable. Intangible assets were $1,354,852 at March 31, 1995, compared to $1,123,822 at March 31, 1994. The net increase of $231,030 resulted primarily from the November 1, 1994 acquisition of certain assets and liabilities of Crown Systems, Inc. This acquisition included certain software rights totaling $275,981. Software rights are amortized using a five year amortization in accordance with the Company's accounting policies. Deferred income taxes increased by $180,000 in fiscal 1995. This increase relates to the tax benefit resulting from the current year operating results. Accounts payable and accrued expenses increased from $3,967,991 at March 31, 1994 to $4,303,907 at March 31, 1995. The $335,916 increase results from an increase of inventory 36 37 attributable to the increased sales, and breadth of product line, and accrued payroll and payroll related expenses for IDT as this business expanded during fiscal 1995. Notes payable at March 31, 1995 totaled $2,034,000, of which $1,311,770 was classified as a current liability. Total notes payable at March 31, 1994 were $600,679, of which the entire amount was current. The increase of $1,433,321 relates to expanded operations of IDT during fiscal 1995 and the working capital requirement to develop the business. Deferred revenues were $125,035 at March 31, 1995, compared to $197,466 at March 31, 1994. Deferred revenues represent prepaid seminar fees from customers and customer deposits or pre-payments on sales orders not yet delivered or completed. Total stockholders' equity at March 31, 1995 was $6,031,085, which represents an increase of $77,581 from March 31, 1994. Retained earnings decreased $419,437 during fiscal 1995 as a result of operations. However, common stock and capital contributed in excess of par value increased $497,018 during fiscal 1995. The majority of the increase came from a sale of the Company's restricted common stock in a private placement. In accordance with generally accepted accounting principles, the balance sheet does not reflect the future interest and royalty income which Bio-Dental contractually receives from DII, its former manufacturing subsidiary. This royalty was a monthly minimum of $30,000 for the year ended March 31, 1994 and from April through December 1994. Effective January 1995, the monthly minimum royalty payment increased to $43,000 per month. However, actual royalty payments continued to be higher than the minimum requirements. If the Company were to repeatedly have losses similar to that which it experienced in the fourth quarter of fiscal 1995, the Company could run into liquidity problems and eventually have difficulty meeting its credit obligations. Debt Financing. In December 1992, the Company secured a $1 million line of credit from The Bank of California. In December 1993, this line was expanded to $1.5 million and in August 1994, the line was expanded to $3 million. In addition to the line of credit, a $1 million term note with the bank was secured in March 37 38 1995. The line expires August 25, 1995 and the note is due on May 1, 1998 with monthly principal payments of $27,777 beginning June 1, 1995. The line and note bear interest at prime plus 0.75% with an option at the Company's discretion to allocate part of the line balance to a fixed rate for short periods of time. The line and note are secured by the inventories, accounts receivable and various other assets of the Company. The Company has used this line of credit for working capital to finance its growth, specifically in information systems and in IDT. The note was used primarily to fund the retirement of existing debt associated with the acquisitions of Ryker, Oral Vision and Crown Systems. The Company's debt agreements contain various covenants regarding working capital, net worth and profitability, among other items. At March 31, 1995, the Company was not in compliance with the covenants regarding profitability and debt to tangible net worth ratio, but received a waiver and modification on those covenants from The Bank of California on July 12, 1995. The Bank of California also modified the tangible net worth and working capital requirements on July 12, 1995. Proposed Mergers, Acquisitions or Divestitures. Denticator International, Inc. On May 10, 1996, the Company signed a letter of intent with Young Innovations, Inc. which contemplates Young's buy out of the Company's rights to receive royalties through March 1999 from Denticator International, Inc. (DII) for a lump sum cash payment of $7.5 million. Denticator, a former subsidiary of Bio-Dental, was sold in 1991, and since that time Bio-Dental has been receiving royalties from Denticator. The Company estimates that the $7.5 million payment approximates the net-present-value of Bio-Dental's projected future royalties, including a scheduled lump-sum payment that would have been due in April 1999. The letter of intent is part of a transaction in which Denticator International Inc., will be acquired by Young Innovations, Inc., located in Earth City, Missouri. The transaction is subject to due diligence and other contingencies and is scheduled to close by the end of July 1996. 38 39 The sale of these royalty payments will significantly strengthen the Company's balance sheet. The Company anticipates that the transaction will eliminate all of its currently outstanding bank debt and notes payable, and provide the Company with additional cash. Zila, Inc. On May 31, 1996 The Company signed a letter of intent to merge Bio-Dental into Zila, Inc. The transaction will involve the exchange of Zila stock for all of Bio-Dental's outstanding stock. Zila's acquisition of Bio-Dental is subject to a number of conditions, including satisfactory completion of due diligence by both companies, execution of definitive agreements, the ability to account for the transaction as a pooling-of-interests, and the approval of Bio-Dental's shareholders. The terms of the letter of intent call for Zila to exchange between 0.75 and 0.825 shares of its stock for each of Bio-Dental's 6.4 million shares, with the actual rate to be based upon the average closing bid prices of Zila's stock during the ten (10) day "calculation period" ending on the trading date that is five trading days prior to the closing date. In no event, however, will Zila issue less than $4.95 worth of its stock for each share of Bio-Dental. If Zila's stock averages between $6 and $7.75 during the valuation period, then the exchange rate will be 0.825:1. If Zila's stock averages over $8.52, then the exchange rate shall be 0.75:1. If Zila's stock averages between $7.75 and $8.25 during the valuation period, then Zila will issue that fractional number of shares necessary to provide each Bio-Dental share with $6.39 worth of Zila stock. If Zila's stock averages below $6.00 during the valuation period, then Zila shall issue that number of shares necessary to provide $4.95 per share of value for each share of Bio-Dental. The table below illustrates the above information: 1. ZILA SHARE PRICE $5.00 $ 6.00 $ 7.00 $ 7.75 $8.00 $8.25 $8.52 $9.00 $10.00 $11.00 $12.00 2. # SHARES ZILA FOR BDTC 0.99 0.825 0.825 0.825 .8 0.77 0.75 0.75 0.75 0.75 0.75 3. BDTC SHAREHOLDER GETS $4.95 $ 4.95 $ 5.78 $ 6.39 $6.39 $6.39 $6.39 6.75 $ 7.50 $ 8.25 $ 9.00
Note 1. If Zila share price during valuation period averages these amounts. 2. BDTC shareholders receive these # shares of Zila for each BDTC share owned. 3. Equates to this dollar value for each BDTC share exchanged. 39 40 Zila, headquartered in Phoenix, Arizona, markets a rapidly growing line of non-prescription oral health care products, and is introducing what the Company believes to be the first oral cancer diagnostic, OraTest(TM). FDA approval to market OraTest in the U.S. is pending. OraTest is a patented, inexpensive, highly accurate diagnostic adjunct used to examine patients at high risk of oral cancer -- those 40 and over who use tobacco or drink heavily. According to Zila, clinical studies have shown OraTest to be highly sensitive for detecting squamous cell carcinoma. It is also used to delineate sites for biopsy and surgery, and has proven to be a highly effective smoking cessation counseling tool. The Company will become the exclusive distributor of OraTest in the U.S. when regulatory approval is granted. As the exclusive distributor of OraTest, the Company anticipates that it will have the opportunity to significantly expand its market share by cross-selling other dental supplies to new OraTest customers. Oral cancer is reportedly the eighth most common form of cancer in the U.S. and Europe, with approximately 30,000 new cases diagnosed each year, accounting for approximately 8,000 deaths. OraTest is a simple solution that the patient gargles with, causing any cancerous lesions to be stained an almost-florescent blue color so they can be easily identified. It is currently contemplated that management for both companies will remain in place, and the Company does not believe that any material personnel changes will occur as a result of this merger. Zila will continue to run their existing operations out of Phoenix and Bio-Dental will continue to run its operations out of its existing facilities. No definitive changes in employee benefits have been identified. It is anticipated that the merger will be consummated during the third quarter of the current fiscal year following Bio-Dental 40 41 Shareholder approval of the proposed merger. Until that time Bio-Dental, will continue its normal business operations. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company and reports of independent certified public accountants thereon are attached hereto as exhibits. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company continues to retain Grant Thornton as its independent auditors. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Name Office Since Curtis M. Rocca III President, Chief Executive Officer, Director 1990 Timothy J. Purdy Treasurer, Director 1991 Terry E. Bane Chief Financial Officer 1995 Maxine A. Holland Secretary 1994 Joseph J. Battle, DDS Director 1991 James H. Ellis Director 1991 Douglas L. Ayer Director 1992 B. Mason Flemming, Jr. Director 1992 G. Barton Mahan Director 1994
Directors are elected annually at the annual meeting of shareholders and serve at the pleasure of the shareholders. The Company's executive officers are appointed by the Board of Directors and serve at the discretion of the Board. Any other officers are appointed by the Chief Executive Officer and serve at his discretion. No current officer or director of the Company has been involved in any bankruptcy, criminal proceeding, or securities or commodities violation during the past five (5) years. 41 42 A brief summary of each officer and director is outlined below. Curtis M. Rocca III. Curtis M. Rocca III serves as the Company's President, Chief Executive Officer and Director. Mr. Rocca has been with the Company since March 1990 when he was hired as Chief Operating Officer. Prior to joining the Company, Mr. Rocca was Executive Vice President and Director of Celebrity, Inc. of Placerville, California. Celebrity, Inc. is a manufacturer and distributor of automotive aftermarket accessories. During his 5 years with Celebrity, Inc., Mr. Rocca helped build Celebrity, Inc.'s sales from $600,000 per year to revenues in excess of $6 million per year. This substantial growth in revenues earned Celebrity, Inc. a spot on the prestigious "Inc. 500" list of America's fastest growing private companies. In addition, the company was named to Arthur Andersen's "Fast Track 25" list of the most innovative and successful companies in Northern California. Prior to joining Celebrity, Inc., Mr. Rocca was employed as a marketing manager in Pacific Bell's Fast Track management program. It was here that he obtained his training in professional telemarketing. Both Celebrity, Inc. and the Company have increased sales by utilizing professional telephone sales people selling to businesses. Mr. Rocca holds a B.A. degree in economics from the University of California, Davis, where he graduated with honors. Mr. Rocca currently serves as a director of Pacific Grain Products, Inc., Woodland, California. 42 43 Timothy J. Purdy. Timothy J. Purdy currently serves as President of Ryker Dental of Kentucky, Inc. and as Treasurer and Director of the Company. Mr. Purdy served as the Chief Financial Officer for the Company from December 1990 through March 1995. Prior to joining the Company, Mr. Purdy was the controller, treasurer, and later, director of a NASDAQ listed natural resource company. From 1983 to 1986 Mr. Purdy was the chief financial officer of Sacramento Telematics, a group of four California corporations involved in the telecommunications industry. Prior to 1983, Mr. Purdy spent three years with the public accounting firm of Arthur Young & Co. He is a certified public accountant and graduated with honors from California State University, Sacramento, with a Bachelor of Science degree in Accounting. Terry E. Bane. Terry E. Bane has served as the Company's Chief Financial Officer since April 1995. Prior to joining the Company, Mr. Bane was employed at Eskaton, a multi-facility health care company. He spent fourteen years with Eskaton and served as their Chief Financial Officer for the last ten years. Prior to joining Eskaton, Mr. Bane worked with the public accounting firm of Coopers & Lybrand. He is a certified public accountant and graduated from California State University, Sacramento, with a Bachelor of Science degree in Business (accounting concentration). Maxine A. Holland. Maxine Holland joined the Company in 1991 as an Executive Assistant and in 1994 became the Company's Secretary. Prior to joining Bio-Dental, Mrs. Holland worked in her family's architectural graphics company. Mrs. Holland majored in Management at California State University at Sonoma. 43 44 Joseph J. Battle, DDS. Dr. Battle has been a full-time practicing dentist for the past twenty seven-years. Dr. Battle graduated from the University of Detroit School of Dentistry and is currently a member of The Association of Medical Surgeons, The International Association of Oral Implantologists, and the National Dental Practitioners Association. In addition, Dr. Battle is a licensed real estate broker and Chief of Dental Services for the 347 th General Hospital U.S. Army reserves serving with a rank of Colonel. James H. Ellis. Mr. Ellis has been employed for seven years as Executive Director of Interim Physician/Western Physician Registry, a permanent and temporary placement service for physicians. For eight years prior to his association with Interim Physicians Mr. Ellis was a partner of Mosher & Ellis, a personal financial planning firm. Mr. Ellis is the uncle of Curtis M. Rocca III. Douglas L. Ayer. Mr. Ayer has served as President of International Capital Partners, Inc. ("ICP") since July 1989. Prior to forming ICP, Mr. Ayer was Chairman and CEO of Cametrics, Inc., a precision metal fabricating company, Executive Vice President of Paine, Webber, Jackson and Curtis Inc. and a consultant with McKinsey and Co, Inc. in New York and London. Mr. Ayer currently serves as a director with Molded Container Corporation, Portland, Oregon; AmPro Corporation, Melbourne, Florida; Biopool International, Ventura, California; Age Wave, Inc., Emeryville, California; Coffee People, Inc., Portland, Oregon; DES, Inc., Santa Clara, California and Med Max, Inc., Detroit, Michigan. B. Mason Flemming, Jr. Mr. Flemming is Chairman of Flemming & Lessard, Inc., a private investment banking firm with offices in San Francisco and La Jolla, California. Prior to forming Flemming & Lessard, Inc. in 1989, Mr. Flemming was Executive Vice President and Director of Robert C. Brown & Co., Inc., a financial services company. Mr. Flemming currently serves on the Board of Directors of 44 45 Specialty Foods, Inc., Tacoma, Washington, a food blender company. G. Barton Mahan. G. Barton Mahan has served as Vice President, Eastern Operations, for Ryker Dental Corporation since the Company's acquisition of Ryker in January 1994. Prior to joining the Company, Mr. Mahan served as President of Ryker Dental Corporation, which he founded in 1986 along with four other partners. Prior to that, Mr. Mahan was sales manager for Kentucky Dental Supply Company. Mr. Mahan attended the University of Kentucky and currently serves as Chairman of the Lexington Chamber of Commerce Council of Smaller Enterprises, Vice Chairman of the University of Kentucky College of Dentistry Development Council and is on the Board of Directors for Fifth Third Bank of Central Kentucky and UK College of Dentistry Development Council. Compliance with Section 16(a) of the Securities Exchange Act of 1934. Based on a review of Forms 3, 4 and 5 furnished to the Company during its most recent fiscal year, the following officers, directors or beneficial owners of more than ten (10) percent of the Company's registered securities failed to file, on a timely basis, reports required by Section 16(a) of the Securities Exchange Act of 1934.
No. of Late Reports/Transactions Name Position Form 3 Form 4 ---- -------- -------------- Maxine A. Holland Secretary 1
45 46 ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table Long Term Compensation --------------------- Annual Compensation Awards --------------------------------------------- (a) (b) (c) (d) (g) (I) All Other Name and Principal Year Ended Options/ Compensa- Position March 31, Salary($) Bonus($) SARs(#) tion($) - -------------------------------------------------------------------------------- Curtis M. Rocca III, 1996 132,213 0 0 0 CEO 1995 129,107 0 0 0 1994 124,200 25,000 0 0 Timothy J. Purdy, 1996 83,197 0 0 0 Treasurer 1995 72,974 0 0 0 1994 65,000 6,000 0 0 Terry E. Bane 1996 70,000 0 40,000 0 Chief Financial Officer 1995 0 0 0 0 1994 0 0 0 0 G. Barton Mahan 1996 84,158 0 10,000 0 V.P., Ryker Dental 1995 80,000 40,000 0 0 1994 20,000 0 0 60,000 Dan Ramsey 1996 81,358 0 10,000 0 Equipment Sales Mgr., 1995 80,000 40,000 0 0 Ryker Dental 1994 20,000 0 0 60,000 - --------------------------------------------------------------------------------
Footnotes to Column (d): In the fiscal year ended March 31, 1995, as part of the acquisition of Ryker Dental, G. Barton Mahan and Dan Ramsey, the former shareholders of Ryker Dental, each received $40,000 cash as consideration for their continued employment with the Company. Footnotes to Column (g): In the fiscal year ended March 31, 1996, Terry E. Bane was granted 40,000 stock options at $4.75 per share of common stock. Vesting for these options began as of March 31, 1996 and continues on a straight-line basis over three years. As of March 31, 1996, 10,000 of these options had vested for Mr. Bane. 46 47 Footnotes to Column (g): Mr. G. Barton Mahan and Mr. Dan Ramsey have each been granted 10,000 options effective April 1, 1996. These options will vest on March 31, 1997 if the Company achieves certain specific performance benchmarks for the year ended March 31, 1997. These options will have an exercise price equal to the fair market value of the common stock on the date of grant. Footnotes to Column (I): In January 1994, as part of the acquisition of Ryker Dental, G. Barton Mahan and Dan Ramsey each received $60,000 cash as consideration for entering into a non-competition agreement with the Company.
Options/SAR Grants in Last Fiscal Year Individual Grants --------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) Percent of Total Options/SARs Market Options/ Granted to Price on SARs Employees in Exercise or Date Expiration Name Granted($) Fiscal Year Base Price ($/sh) of Grant Date --------------------------------------------------------------------------------------------------------- Curtis M. Rocca III, 0 0 CEO Timothy J. Purdy, Treasurer 0 0 Terry E. Bane 40,000 46.5% $4.75 $4.13 5-10-05 Chief Financial Officer G. Barton Mahan 0 0 V.P.,Ryker Dental Dan Ramsey 0 0 Equipment Sales Mgr., Ryker Dental ---------------------------------------------------------------------------------------------------------
47 48
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values - ------------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) Value of Number of Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at FY-End(#) FY-End($) Shares Acquired Exercisable/ Exercisable/ Name on Exercise Value Realized($) Unexercisable Unexercisable - -------------------------------------------------------------------------------------------------------------------- Curtis M. Rocca III, 0 0 Exercisable 208,150 $332,673 CEO Unexercisable 0 0 Timothy J. Purdy, Treasurer 0 0 Exercisable 50,000 $119,500 Unexercisable 0 0 Terry E. Bane 0 0 Exercisable 10,000 0 Unexercisable 30,000 0 G. Barton Mahan 0 0 Exercisable 0 0 V.P., Ryker Dental Unexercisable 10,000 0 Dan Ramsey 0 0 Exercisable 0 0 Equipment Sales Mgr., Unexercisable 10,000 0 Ryker Dental - --------------------------------------------------------------------------------------------------------------------
Long Term Incentive Plans. The Company does not have any Long-Term Incentive Plans. Compensation of Directors. Directors who are not employees of the Company will receive options to purchase 5,000 shares of the Company's common stock per year. These options will have an exercise price equal to the fair market value of the common stock at the beginning of each term as a director (usually the day of the Annual Shareholders Meeting). Employment Contracts. Under an employment agreement entered into between the Company and Curtis M. Rocca III, the Company's President and Chief Executive Officer, effective April 1, 1993 for a period of two years, Mr. Rocca received an annual salary in the first year 48 49 of $120,000 and an automobile allowance of $4,200. In the second year Mr. Rocca received an annual salary of $125,000 and an automobile allowance of $5,000. Additionally Mr. Rocca received a bonus in the first year ended March 31, 1994 of $25,000. As the Company did not achieve its performance benchmarks for fiscal 1995 and 1996, Mr. Rocca received no bonus for these years. While the term of Mr. Rocca's employment agreement expired in April 1995, Mr. Rocca continues to perform services and receive compensation in accordance with the terms of the expired employment agreement. The Company entered into employment agreements with Mr. G. Barton Mahan and Mr. Dan Ramsey as part of the acquisition of Ryker Dental of Kentucky, Inc. The agreements were for a three year period beginning January 1, 1994 and expire on December 31, 1996. An annual salary of $80,000, for each Mr. G. Barton Mahan and Mr. Dan Ramsey, is required under the terms of the contracts. If the Company's subsidiary "The Supply House" attains specific sales and profit goals as established by the Company's Board of Directors annually, performance-based bonuses could be earned up to $10,000 cash and the granting of options to acquire ten thousand (10,000) shares of the Company's common stock at the fair market value of such shares on the date of grant. During the term of employment, the employees shall each receive a monthly car allowance in an amount which is the greater of $350 per month or the employee's expenses of operating a car during based on the $.25 per mile for each mile actually driven for business purposes. During the term of the agreements, the employees are also entitled to all other benefits the Company provides to all other employees of the Company. No other employees, officers or directors have employment agreements. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (a) The following persons hold actual and/or beneficial ownership of greater than 5% of the Company's common stock, $.01 par value. 49 50
Amount and Nature Title of Name and Address of Beneficial Percent Class of Beneficial Owner Ownership(1) of Class - ----- ------------------- ------------ -------- Common Zesiger Capital Group LLC 1,367,017 (2) 20.17% .01 320 Park Avenue New York, NY 10022 Common Curtis M. Rocca, III 396,600 (3) 5.85% .01 President, Chief Executive Officer, Director
(b) Shares held by Management and Directors.
Amount of Title of Name and Title Beneficial Percent Class of Beneficial Owner Ownership(1) of Class - ----- ------------------- ------------ -------- Common Curtis M. Rocca III, 396,600 shares(3) 5.85% .01 par President, Chief Executive Officer Director Common G. Barton Mahan, 110,000 shares 1.62% .01 par Director Common Timothy J. Purdy, 52,750 shares(4) 0.78% .01 par Treasurer, Director Common Joseph J. Battle, 51,247 shares(5) 0.76% .01 par Director Common B. Mason Flemming,Jr., 36,000 shares(6) 0.53% .01 par Director Common James H. Ellis, 21,911 shares(7) 0.32% .01 par Director Common Maxine Holland, 10,125 shares(8) 0.15% .01 par Secretary Common Douglas L. Ayer, 15,000 shares(9) 0.22% .01 par Director Common Terry E. Bane, 10,000 shares(10) 0.15% .01 par Chief Financial Officer Common All directors and officers 703,633 shares 10.38% .01 par as group (9 persons)
Notes. (1) Except as otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them, subject to community property laws where applicable. (2) All 1,367,017 shares are held on behalf of individuals pursuant to an understanding whereby Zesiger Capital Group LLC has sole voting power over the shares, with the various individuals retaining sole investment power. Because the 50 51 individual beneficial owners for whom Zesiger Capital Group LLC holds the shares have acted individually, and not under an agreement to act as a group, in the acquisition and disposition of the shares, the individuals appear not to be members of a "group," pursuant to Rules 13d-3 and 13-5 promulgated under the Securities Exchange Act of 1934, as amended, for purposes of reporting the beneficial ownership of those shares. (3) Includes 188,450 shares owned of record by such person individually; options to purchase 170,000 shares which have vested pursuant to the Company's Stock Option Plan; options to purchase 38,150 shares pursuant to the Employment Agreement by and between the Company and Mr. Rocca. (4) Includes 2,750 shares owned of record by such person individually; and options to purchase 50,000 shares which have vested pursuant to the Company's Stock Option Plan. (5) Includes 30,000 shares owned of record by such person individually; and options to purchase 21,247 shares which have vested pursuant to the Company's Stock Option Plan. (6) Includes 21,000 shares owned of record by such person individually; and options to purchase 15,000 shares which have vested pursuant to the Company's Stock Option Plan. (7) Includes 2,500 shares owned of record by such person individually; and options to purchase 19,411 shares which have vested pursuant to the Company's Stock Option Plan. (8) Includes options to purchase 10,125 shares which have vested pursuant to the Company's Stock Option Plan. (9) Includes options to purchase 15,000 shares which have vested pursuant to the Company's Stock Option Plan. (10) Includes options to purchase 10,000 shares which have vested pursuant to the Company's stock option plan. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company has not been a party to any transaction, occurring during the past two years, requiring disclosure pursuant to Item 404 of Regulation SB. 51 52 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Except as otherwise indicated, all exhibits listed below have previously been filed with, and are incorporated by this reference into this Item 13 of Form 10-KSB from, the Company's Form S-1 Registration Statement and Exhibits thereto under file No. 33-47617, as filed with the SEC on May 1, 1992, the Company's Amendment No. 1 to Form S-1 Registration Statement and Exhibits thereto under file No. 33-47617, as filed with the SEC on June 26, 1992, the Company's Form 10-KSB and exhibits thereto for the year ended March 31, 1993, as filed with the SEC on June 28, 1993, the Company's Form 10-KSB and exhibits thereto for the year ended March 31, 1994, as filed with the SEC on July 12, 1994, the Company's Form 10-QSB and exhibits thereto for the quarter ended December 31, 1994, as filed with the SEC on February 20, 1995, the Company's Form 8-K and exhibits thereto dated January 3, 1994, as filed with the SEC on January 13, 1994, the Company's Form 10-KSB and exhibits thereto for the year ended March 31, 1995, as filed with the SEC on July 12, 1995, the Company's Form 10-QSB and exhibits thereto for the quarter ended December 31, 1995, as filed with the SEC on February 13, 1996 and the Company's Form 8-K and exhibits thereto dated March 29, 1996, as filed with the SEC on June 7, 1996. Exhibits marked with an asterisk (*) are attached to this Form 10-KSB as exhibits. 2.1 Agreement for Purchase and Sale of Corporate Stock dated March 31, 1991 between the Registrant and Jose Mendoza regarding the sale of Denticator International, Inc. including all Clarifications and Exhibits thereto. 2.2 Plan and Agreement of Reorganization, dated March 4, 1991, by and among the Registrant and the former shareholders of San Diego Dental Supply, Inc. regarding the purchase of San Diego Dental Supply, Inc. 3.1 The Registrant's Articles of Incorporation as amended. 3.2 The Registrant's merger documents adopting the Colorado Corporation's Articles of
52 53 Incorporation as the surviving Articles subsequent to the merger of the Registrant into a California Corporation of the same name. 3.3 The Registrant's bylaws, as amended. 4.1 Certificate of Determination of Rights, Privileges and Preferences of Security holders of the Registrant's Series A Participating Convertible Preferred Stock. 4.2 Copy of Registrant's Series A Redeemable Common Stock Purchase Warrant. 4.3 Draft of Ladenburg, Thalmann Common Stock Purchase Warrant. 10.1 Investment Banking Agreement, by and between the Registrant and Ladenburg, Thalmann and Co., Inc., dated October 1, 1991. 10.2 Accord and Satisfaction and Settlement Agreement, dated March 31, 1991, between the Registrant and Mr. and Mrs. R. D. Eversole. 10.3 Letter Agreement, by and between the Registrant and Josephberg, Grosz and Co., Inc., dated January 6, 1992. 10.4 Employment Agreement, by and between the Company and Curtis M. Rocca III, dated March 20, 1991. 10.5 Exclusive Licensing Agreement, dated March 31, 1991, by and between the Registrant and Denticator International, Inc. 10.6 Agreement by and between the Registrant and Silverman, Heller Associates, dated February 26, 1992, wherein the Registrant engages Silverman, Heller Associates to perform certain corporate and financial communications on behalf of the Company.
53 54 10.7 Agreement by and between the Registrant and Riviera Finance Corporation, dated March 20, 1991, relating to the Company's $700,000 line of credit, including letter extending limit from $500,000 to $700,000. 10.8 Facility Lease Agreement, dated March 15, 1988, by and between Syndex Laboratories and D. Benvenuti, Jr. (assumed by the Registrant) relating to the real property at 11277 Sunrise Park Drive, Rancho Cordova, California 95742. 10.9 Facility Sublease Agreement, dated November 15, 1991, by and between the Registrant and Oak & Brass Furniture, Inc., relating to the real property at 7550 Miramar Road, San Diego, California 92126. 10.10 Facility Lease, by and between Denticator International, Inc. and D. Benvenuti, Jr., dated February 23, 1991, which lease is currently guaranteed by the Registrant. 10.11 The Registrant's Employee Stock Ownership Plan, as adopted by the board on April 1, 1990. 10.12 Stock Purchase Agreement, dated August 31, 1992, by and among the Company, ICP and the investors listed on Exhibit A of the Stock Purchase Agreement (attached as Exhibit 6.1 to the Company's Form 10-Q, filed with the SEC on November 14, 1992, and incorporated herein by this reference). 10.13 Facility Lease Agreement, dated October 28, 1992, by and between the Registrant and D. Benvenuti Company, Inc./Joseph Wolf, relating to the real property at 11291 Sunrise Park Drive, Rancho Cordova, California 95742. 10.14 Amendment to Facility Lease Agreement, dated May 5, 1993, by and between the Registrant and D. Benvenuti Company, Inc./Joseph Wolf, relating to the real property at 11291 Sunrise Park Drive, Rancho Cordova, California 95742.
54 55 10.15 Marketing Agreement, dated August 24, 1992, by and between The Supply House, the Registrant's subsidiary, and Oral-Vision, Inc., relating to the sale of Oral-Vision Intra-Oral Camera Systems. 10.16 Credit Agreement, dated December 16, 1992, by and between the Registrant and The Bank of California, relating to a $1,000,000 line of credit established for the Registrant at The Bank of California 10.17 Letter of Intent, dated April 5, 1993, by and between the Registrant and Ryker Dental of Kentucky, Inc., relating to the Registrant's intent to issue shares of its common stock as part of a plan to merge the operations of its subsidiary, The Supply House, with Ryker Dental of Kentucky, Inc. 10.18 Plan and Agreement of Merger and Exhibits thereto dated November 29, 1993 by and among Ryker Dental of Kentucky, Inc., doing business as Ryker Dental Corporation, a Kentucky corporation, G. Barton Mahan and Danny D. Ramsey, the only shareholders of Ryker Dental, Bio-Dental Technologies Corporation, a California corporation, and San Diego Dental Supply, Inc., a California corporation and wholly-owned subsidiary of Bio-Dental Technologies Corporation. 10.19 Employment Agreement, by and between the Company and Curtis M. Rocca, III, dated April 1, 1993. 10.20 Credit Agreement, dated January 26, 1994, by and between the Registrant and The Bank of California, relating to a $1,500,000 line of credit established for the Registrant at The Bank of California 10.21 Extension and Modification of Exclusive License Agreement, dated April 1, 1994, by and between the Registrant and Denticator International, Inc., a California corporation. 10.22 Plan and Agreement of Reorganization with Exhibits and Schedules thereto, dated June 24, 1994, by and among Oral Vision, Inc., Dr. William Oakes, Bio-Dental Technologies Corporation, and Integrated Dental
55 56 Technologies, Inc. for the purchase of all assets and certain liabilities of Oral Vision, Inc. 10.23 Plan and Agreement of Reorganization with Exhibits and Scheduled thereto, dated November 1, 1994, by and among Crown Systems, Inc., Joel E. Kozikowski, Christopher J. Bell, Brian A. Smith, Bio-Dental Technologies Corporation and Integrated Dental Technologies, Inc., for the purchase of all assets and certain liabilities of Crown Systems, Inc. 10.24 Amended and Restated Credit Agreement, dated August 25, 1994, and Amendments thereto, dated January 9, 1995 and March 31, 1995, by and among the Registrant, Ryker Dental of Kentucky, Inc., Integrated Dental Technologies Inc., and the Bank of California, relating to a $3,000,000 line of credit established for the Registrant at the Bank of California. 10.25 C/D Rate Option Agreement, Eurodollar Rate Option Agreement, and Base Rate Option Agreement, all dated October 14, 1994, by and between the Registrant and the Bank of California, relating to short-term, fixed-rate alternatives for the $3,000,000 line of credit established for the Registrant at the Bank of California. 10.26 Commercial Loan Note, dated March 31, 1995, by and between the Registrant and the Bank of California relating to a $1,000,000 note payable from the Registrant to the Bank of California. 10.27 Amendment to Exclusive License Agreement dated January 1, 1995, by and between the Registrant and Denticator International, Inc., wherein the Registrant and Denticator International, Inc. agreed to amend their Exclusive License Agreement dated April 1, 1991. 10.28 Second Amended and Restated Credit Agreement dated October 31, 1995, and Addendums thereto, dated October 26, 1995, by and among the Registrant, Ryker Dental of Kentucky, Inc., Integrated Dental Technologies, Inc., and The Bank of California, relating to a $2,500,000 line of credit established for the Registrant at the Bank of California.
56 57 10.29 Commercial Loan Note, dated October 31, 1995, as defined in the Second Amended and Restated Credit Agreement dated October 31, 1995 by and between the Registrant and the Bank of California relating to a $854,344 note payable from Registrant to the Bank of California. 10.30 C/D Eurodollar Rate Option Agreement, dated October 26, 1995, by and between Registrant and the Bank of California, relating to short-term, fixed-rate alternatives for the $2,500,000 line of credit established for the Registrant at the Bank of California. 10.31* Modification Agreement dated March 31, 1996 by and among the Registrant, Integrated Dental Technologies, Inc. and Ryker Dental of Kentucky, Inc. and The Bank of California, relating to a $1,394,000 Revolving Credit Note and a $715,459 Term Note payable from Registrant to The Bank of California. 10.32* Replacement Revolving Credit Note dated March 31, 1996 by and among the Registrant and The Bank of California, relating to the $1,394,000 Revolving Credit Note. 10.33* Subordination Agreement dated March 29, 1996 by and among the Registrant, State of Oregon ZCG/PERS and City of Stamford Fireman's Pension Fund and The Bank of California. 10.34* Letter of Intent dated January 19, 1996 by and among the Registrant, Denticator International, Inc., and Jose L. Mendoza, relating to an agreement to enter formal negotiations to form an agreement for the sale of Denticator International, Inc. 10.35* Letter of Understanding dated May 10, 1996 by and among the Registrant, Young Innovations, Inc., Denticator International, Inc., relating to the intention of Young Innovations, Inc. to purchase certain assets and liabilities of Denticator International, Inc.
57 58 10.36* Letter of Intent dated May 24, 1996 by and among the Registrant and Zila, Inc. relating to a proposed merger between the Registrant and Zila, Inc. wherein Zila, Inc. will be the surviving entity. 10.37 Note and Warrant Purchase Agreement among the Registrant, the State of Oregon ZCG/PERS ("Oregon") and the City of Stamford Fireman's Pension Fund ("Stamford") dated March 29, 1996, and all related material thereto, relating to $1,250,000 Notes Payable from the Registrant to Oregon and Stamford and the issuance of common stock purchase warrants to Oregon and Stamford. 11.1* Statement Regarding Computation of Earnings Per Share. 16.1 Letter regarding change in certifying accountant. 21.1 List of Subsidiaries.
58 59 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIO-DENTAL TECHNOLOGIES CORPORATION, a California Corporation Date: June , 1996. By /s/Curtis M. Rocca, III --------------------------------- Curtis M. Rocca III, Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: June , 1996. /s/Curtis M. Rocca, III, ----------------------------------------- CURTIS M. ROCCA III, President, Chief Executive Officer and Director (principal executive officer) Date: June , 1996. /s/Timothy J. Purdy, ----------------------------------------- TIMOTHY J. PURDY, Treasurer and Director Date: June , 1996. /s/Terry E. Bane ------------------------------------------ TERRY E. BANE, Chief Financial Officer (principal financial officer and principal accounting officer) Date: June, 1996. /s/Douglas L. Ayer ------------------------------------------ Douglas L. Ayer, Director Date: June , 1996. /s/Joseph J. Battle, DDS ------------------------------------------ Joseph J. Battle, DDS, Director Date: June , 1996. /s/James H. Ellis ------------------------------------------ James H. Ellis, Director Date: June , 1996. /s/B. Mason Flemming, Jr. ------------------------------------------ B. Mason Flemming, Jr., Director Date: June , 1996. /s/G. Barton Mahan ------------------------------------------ G. Barton Mahan, Director 59 60 EXHIBIT INDEX
Sequential Page Exhibit Number Exhibit Number 10.31 Modification Agreement dated March 31, 1996 by and among the Registrant, Integrated Dental Technologies, Inc. and Ryker Dental of Kentucky, Inc. and The Bank of California, relating to a $1,394,000 Revolving Credit Note and a $715,459 Term Note payable from Registrant to The Bank of California. 10.32 Replacement Revolving Credit Note dated March 31, 1996 by and among the Registrant and The Bank of California, relating to the $1,394,000 Revolving Credit Note. 10.33 Subordination Agreement dated March 29, 1996 by and among the Registrant, State of Oregon ZCG/PERS and City of Stamford Fireman's Pension Fund and The Bank of California. 10.34 Letter of Intent dated January 19, 1996 by and among the Registrant, Denticator International, Inc., and Jose L. Mendoza, relating to an agreement to enter formal negotiations to form an agreement for the sale of Denticator International, Inc. 10.35 Letter of Understanding dated May 10, 1996 by and among the Registrant, Young Innovations, Inc., Denticator International, Inc., relating to the intention of Young Innovations, Inc. to purchase certain assets and liabilities of Denticator International, Inc. 10.36 Letter of Intent dated May 24, 1996 by and among the Registrant and Zila, Inc. relating to a proposed merger between
60 61 the Registrant and Zila, Inc. wherein Zila, Inc. will be the surviving entity. 11.1 Statement Regarding Computation of Earnings Per Share. 27.1 Financial Data Schedule
62 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES March 31, 1996 63 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET F-4 CONSOLIDATED STATEMENTS OF OPERATIONS F-5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 64 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES We have audited the accompanying consolidated balance sheet of BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES as of March 31, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bio-Dental Technologies Corporation and Subsidiaries as of March 31, 1996 and the consolidated results of their operations and their consolidated cash flows for the years ended March 31, 1996 and 1995 in conformity with generally accepted accounting principles. Sacramento, California June 14, 1996 65 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 1996 ASSETS Current assets Cash and cash equivalents $ 612,911 Accounts receivable, net (notes C and I) 1,973,943 Other receivables 425,896 Merchandise inventories (notes D and I) 3,667,161 Prepaid expenses and other current assets 272,197 Current maturities of assets of business transferred under contractual arrangements (note K) 60,000 Deferred income taxes (note H) 1,614,500 ----------- Total current assets 8,626,608 Property and equipment, net (note E and I) 717,152 Other assets Assets of business transferred under contractual arrangements (note K) 380,354 Intangible assets, net (note F) 1,227,862 Other assets 44,616 ----------- Total other assets 1,652,832 ----------- $10,996,592 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses (note G) $ 4,851,628 Notes payable (note I) 2,109,459 Deferred revenue 204,669 ----------- Total current liabilities 7,165,756 Commitments and contingencies (notes J and S) -- Stockholders' equity Preferred stock, $.01 par value; authorized 1,000,000 shares; none issued and outstanding -- Common stock, $.01 par value; authorized 50,000,000 shares; 6,427,134 issued and outstanding 64,271 Capital contributed in excess of par value 3,711,979 Retained earnings 54,586 ----------- Total stockholders' equity 3,830,836 ----------- $10,996,592 ===========
The accompanying notes are an integral part of this statement. F-4 66 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year ended March 31,
1996 1995 ----------- ------------ Revenue from product sales $31,682,545 $29,916,578 Royalty revenue 1,408,671 1,665,699 ----------- ----------- Net revenues 33,091,216 31,582,277 Operating costs and expenses Cost of products sold 23,926,770 21,252,851 Selling, general, and administrative 11,829,832 10,653,386 Restructuring (note P) 271,631 -- Depreciation and amortization 477,087 351,422 ----------- ----------- 36,505,320 32,257,659 ----------- ----------- Operating loss (3,414,104) (675,382) Interest and other income 81,849 203,130 Interest expense (231,722) (127,185) ----------- ----------- Loss before provision for income taxes (3,563,977) (599,437) Income tax benefit (note H) (1,298,000) (180,000) ----------- ----------- Net loss $(2,265,977) $ (419,437) =========== =========== Net loss per common share $ (0.36) $ (0.07) =========== =========== Weighted average common shares outstanding (note B) 6,285,471 6,118,295 =========== ===========
The accompanying notes are an integral part of these statements. F-5 67 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended March 31, 1996 and 1995
COMMON PAID-IN RETAINED SHARES STOCK CAPITAL EARNINGS TOTAL ------ ----- ------- -------- ----- Balances, March 31, 1994 5,922,291 $ 59,223 $ 3,154,281 $ 2,740,000 $ 5,953,504 Issuance of shares to ESOP 7,619 76 11,067 -- 11,143 Exercise of warrants (cashless) 96,333 963 (963) -- -- Private placement, net of costs 100,000 1,000 394,804 -- 395,804 Issuance of shares to lecturers 8,571 86 19,413 -- 19,499 Purchase of Crown Systems, Inc. 36,191 362 70,210 -- 70,572 Net loss -- -- -- (419,437) (419,437) ----------- ----------- ----------- ----------- ----------- Balances, March 31, 1995 6,171,005 61,710 3,648,812 2,320,563 6,031,085 Issuance of shares to ESOP 8,000 80 18,120 -- 18,200 Exercise of stock options 5,000 50 6,850 -- 6,900 Issuance of shares per agreement (cashless) 220,390 2,204 (2,204) -- -- Issuance of shares to lecturers 11,429 114 18,458 -- 18,572 Purchase of Crown Systems, Inc. 11,310 113 21,943 -- 22,056 Net loss -- -- -- (2,265,977) (2,265,977) ----------- ----------- ----------- ----------- ----------- Balances, March 31, 1996 6,427,134 $ 64,271 $ 3,711,979 $ 54,586 $ 3,830,836 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of this statement. F-6 68 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended March 31,
1996 1995 ----------- ----------- Cash flows from operating activities: Net loss $(2,265,977) $ (419,437) Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 477,087 351,422 Compensation paid in stock 18,572 30,642 Changes in operating assets and liabilities: Accounts receivable 163,333 10,920 Other receivables (13,631) (47,610) Inventories 1,651,684 (449,443) Prepaid expenses and other current assets 199,734 (197,191) Deferred income taxes (1,298,000) (180,000) Other assets 35,227 3,652 Accounts payable and accrued expenses 565,921 168,092 Deferred revenue 79,634 (72,431) Income taxes receivable (payable) 723,720 (718,741) ----------- ----------- Net cash provided by (used in) operating activities 337,304 (1,520,125) ----------- ----------- Cash flows from investing activities: Additions to equipment (172,424) (471,721) Increase in intangible assets -- (67,554) Collection of note receivable 50,164 109,764 Proceeds from sale of equipment 10,752 -- ----------- ----------- Net cash used in investing activities (111,508) (429,511) ----------- ----------- Cash flows from financing activities: Net draws on line of credit 360,000 433,321 Proceeds from bank loan -- 1,000,000 Payments on bank loan (284,541) -- Payments on leases payable and long-term debt (18,092) (43,815) Exercise of stock options 6,900 -- Sale of common stock -- 395,804 ----------- ----------- Net cash provided by financing activities 64,267 1,785,310 ----------- ----------- Net increase (decrease) in cash 290,063 (164,326) Cash and cash equivalents, beginning of year 322,848 487,174 ----------- ----------- Cash and cash equivalents, end of year $ 612,911 $ 322,848 =========== ===========
(Continued) F-7 69 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Year ended March 31,
1996 1995 -------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $232,000 $127,185 Income taxes 2,400 691,000 SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Noncash aspects of acquisitions: Fair value of assets acquired other than cash and cash equivalents $ -- $273,399 Liabilities assumed -- 202,827 Stock issued - Crown -- 70,572
The accompanying notes are an integral part of these statements. F-8 70 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE A - ORGANIZATION AND NATURE OF BUSINESS Bio-Dental Technologies Corporation (the Company) was incorporated April 5, 1988. The Company is a dental products marketing organization which sells professional dental products nationally through the operations of two wholly-owned subsidiaries. Ryker Dental of Kentucky, Inc., (Ryker) markets consumable dental merchandise and supplies and equipment via telemarketing and catalog sales under the trade name "The Supply House." The Company's other subsidiary, Integrated Dental Technologies, Inc., (IDT) markets high-technology dental products such as intra-oral cameras and practice software to dentists. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. 2. Use of estimates In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Cash and cash equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 4. Inventories All Company inventories are valued at the lower of cost or market. The Company utilizes a method which approximates first in - first out to determine cost. 5. Property and equipment Property and equipment are stated at cost. Depreciation is computed using the straight line method over the estimated useful lives of the assets ranging from two to ten years. Leasehold improvements are amortized over the lease term or the estimated useful life, whichever is shorter. F-9 71 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. Intangible assets Intangible assets consist of goodwill, software rights, organizational costs, and covenants not to compete. All intangible assets are amortized on a straight line basis. Organizational costs and goodwill are being amortized over 20-40 years and covenants are amortized over the term of the agreement. Software rights are being amortized over five years. On an ongoing basis, management reviews the valuation and amortization of intangible assets. As part of this review, the Company estimates the value and future benefits of the cash flows generated by the related subsidiaries to determine whether impairment has occurred. 7. Income taxes The Company utilizes an asset and liability approach in accounting for income taxes. This approach requires the recognition of the deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. 8. Loss per share Loss per share is based upon the weighted average number of common shares outstanding. 9. Financial instruments The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, assets of business transferred under contractual arrangements, and notes payable approximated fair value as of March 31, 1996 because of the relatively short maturity of these instruments. F-10 72 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 10. Stock-based compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. That opinion requires that compensation cost related to fixed stock option plans be recognized only to the extent that the fair value of the shares at the grant date exceeds the exercise price. Accordingly, the Company recognizes no compensation expense for its stock option grants. 11. Future effect of recently issued accounting pronouncement In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121). SFAS 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest) is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of that loss would be based on the fair value of the assets. SFAS 121 also generally requires long-lived assets and certain identifiable intangibles to be disposed of, to be reported at the lower of the carrying amount or the fair value less cost to sell. SFAS 121 is effective for the Company's 1997 fiscal year end. The Company has made no assessment of the potential impact of adopting SFAS 121 at this time. NOTE C - ACCOUNTS RECEIVABLE Accounts receivable consist of the following at March 31, 1996: Trade receivables $2,112,487 Less allowance for doubtful accounts 138,544 ---------- Accounts receivable, net $1,973,943 ==========
Financial instruments which potentially subject the Company to credit risk consist principally of trade receivables. The Company provides credit, in the normal course of business, to dentists. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. IDT sales are generally transacted on a pre-approved, lease, credit card, or prepaid basis, thereby minimizing credit risk. F-11 73 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE D - INVENTORY Ryker inventory includes consumable dental products and supplies as well as dental equipment. IDT inventory includes intra-oral cameras, their components, filmless x-rays and computer hardware. Due to a restructuring (note P), the Company will no longer sell the filmless x-ray or computer hardware. As a result of this restructuring, a writedown of approximately $300,000 has been made to the related inventory. An unrelated writedown of approximately $300,000 has been made for potentially obsolete intra-oral cameras. The writedown was due to the introduction of a new intra-oral camera. Inventory balances as of March 31, 1996 are as follows: Ryker $2,770,574 IDT 896,587 ---------- $3,667,161 ==========
NOTE E - PROPERTY AND EQUIPMENT Property and equipment consist of the following at March 31, 1996: Office furniture and equipment $1,398,161 Molds and dies 590,900 Leasehold improvements 90,145 Production and warehouse equipment 89,336 ---------- 2,168,542 Less accumulated depreciation and amortization 1,451,390 ---------- $ 717,152 ==========
NOTE F - INTANGIBLE ASSETS Intangible assets consist of the following at March 31, 1996: Goodwill $ 969,637 Software rights 287,985 Organizational costs 113,626 Covenants not to compete 120,000 ---------- 1,491,248 Less accumulated amortization 263,386 ---------- $1,227,862 ==========
F-12 74 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following at March 31, 1996: Trade accounts payable $3,532,987 Accrued expenses 1,318,641 ---------- Total $4,851,628 ==========
NOTE H - INCOME TAXES The consolidated income tax benefit consists of the following:
1996 1995 ----------- --------- Current: Federal $ -- $ -- State -- -- ----------- ---------- -- -- ----------- ---------- Deferred: Federal (1,088,000) (124,200) State (210,000) (55,800) ----------- ---------- (1,298,000) (180,000) ----------- ---------- $(1,298,000) $ (180,000) =========== ==========
The reconciliation of the federal statutory rate to the effective tax rate is as follows:
1996 1995 ------ ------ Federal statutory rate (34.0)% (34.0)% Adjustments: State income taxes, net of federal benefit (6.0) (6.0) Non-deductible meal, entertainment and other expenses 6.0 10.0 Other (3.0) - ------ ------ Effective tax rate (37.0)% (30.0)% ====== ======
F-13 75 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE H - INCOME TAXES - CONTINUED The components of the Company's deferred tax assets and liabilities at March 31, 1996 are shown below: Current deferred tax assets: Accrued vacation $ 28,000 Allowance for doubtful accounts 70,000 Product warranty allowance 114,000 Allowance for obsolete or discontinued inventory 404,000 Net operating loss carryforwards 1,006,500 ---------- 1,622,500 Non-current deferred tax liability: Federal depreciation (8,000) ---------- Net deferred tax asset $1,614,500 ==========
At March 31, 1996, the Company had federal net operating loss carryforwards of approximately $2,700,000 and state net operating loss carryforwards of approximately $1,300,000. Approximately $300,000 of the net operating loss carryforward is subject to a yearly maximum carryforward of $86,000. The remaining balance is not subject to limitation. These carryforwards will begin to expire in 2005, if not previously utilized. NOTE I - BANK LOANS At March 31, 1996, the Company had available a line of credit and a term note with a bank. The line of credit and the note are collateralized by inventory, accounts receivable and equipment of the Company. F-14 76 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE I - BANK LOANS - CONTINUED Interest is payable monthly at the rates specified below. The line of credit expires, and the note is due, on September 30, 1996. Line of credit, variable rate of prime plus 2.5 percent (10.75% as of March 31, 1996) $ 1,394,000 Note, variable rate of prime plus 2.5 percent (10.75% as of March 31, 1996) 715,459 ----------- $ 2,109,459 ===========
Certain financial covenants with which the Company was not in compliance as of March 31, 1996 were waived by the Bank until April 1, 1996. The bank has the right to make all principal and interest on the loans immediately due and payable as the result of noncompliance with the covenants. The Company's future ability to comply with such covenants is uncertain. However, the Company expects that the sale of Denticator International, Inc. (note K) will result in compliance with the covenants. NOTE J - OPERATING LEASE OBLIGATIONS The Company leases its offices, warehouse facilities and certain equipment, under operating leases which expire through 2000. Future minimum lease payments under these noncancellable leases are as follows:
Year ending March 31, 1997 $ 135,727 1998 49,507 1999 23,242 2000 1,214 2001 - -------- $ 209,690 =========
Rental expense for the years ended March 31, 1996 and 1995 totaled $152,338 and $170,936, respectively. F-15 77 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE K - ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS (NOTE RECEIVABLE) In March 1991, the Company incorporated a wholly owned subsidiary, Denticator International, Inc. (DII) and transferred the Company's manufacturing operations into DII in exchange for the issuance of a $600,282 note to the Company with monthly principal payments of $10,005 plus interest at 150% of the Company's cost of funds from April 1, 1994 through March 31, 1999. Interest only payments were made from March 1991 through March 31, 1994. Effective with the date of incorporation, the Company entered into a licensing agreement with DII for the manufacture and sale of certain dental products owned by the Company. Under this agreement, DII will pay the Company a monthly royalty equal to the greater of $30,000 or 17% of net sales of DII. In addition, the agreement provides for further royalties to be paid to the Company if DII achieves certain levels of profitability. On March 31, 1991, the Company sold all of the outstanding capital stock of DII to DII's former operations manager. The sales agreement incorporated the licensing agreement described above. Effective April 1, 1994, the licensing agreement was amended. The terms included herein reflect all amendments. In March 1999, DII has the option to purchase the rights under this licensing agreement. The purchase price is equal to the greater of 1.5 times average annual sales of DII during the period covered by the amended agreement (April 1, 1994 - March 31, 1999) or six times the average pre-tax income of DII after certain adjustments. The purchase price will be reduced by 50% of the additional royalties paid by DII between April 1, 1994 and March 31, 1999. During the year ended March 31, 1995, the Company earned royalties under the DII licensing agreement totaling $1,665,699, which is included in royalty revenue, and interest on the note payable totaling $69,418, which is included in interest and other income. DII paid the Company $58,652 in lease payments for equipment leased by DII from the Company. Effective January 1995, DII increased the minimum monthly royalty to the Company to $43,000 per month in exchange for the Company waiving the provision in the agreement whereby the Company could purchase products made by DII at specified prices. At March 31, 1995, DII owed $312,263 in royalties and interest to the Company. The Company purchased products from DII amounting to $142,480 during the fiscal year and owed DII $1,004 at March 31, 1995. During the year ended March 31, 1996, the Company earned royalties under the DII licensing agreement totaling $1,408,671, which is included in royalty revenue, and interest on the note payable totaling $72,178, which is included in interest and other income. At March 31, 1996 DII owed the Company $424,690 in royalties and interest. The Company purchased products from DII amounting to $364,899 during the fiscal year and owed DII $2,741 at March 31, 1996. F-16 78 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE K - ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS (NOTE RECEIVABLE) - CONTINUED The Company continues to guarantee DII's lease for its office and warehouse space due to the fact that DII was a wholly-owned subsidiary of the Company at the time this contract was originated, and the lessor is unwilling to release the guarantee. On May 10, 1996 the Company signed a letter of intent to sell the DII licensing agreement to Young Innovations, Inc. (Young) for approximately $7.5 million in cash. Young will also issue to the Company a credit against future purchases in the amount equal to all accrued royalties and notes payable by DII to the Company as payment for such items. As of the closing date, the Company will cancel 50,000 Company stock options that are currently held by DII. The transaction is subject to due diligence, and the obtaining of bank financing by Young. NOTE L - STOCK OPTION PLAN The Company provided the following common stock options under their stock plan to employees and directors:
Number of Option shares price --------- ------------ Shares under option at March 31, 1994 567,808 $ .10 - 5.06 Granted 184,000 3.25 - 5.00 Exercised -- -- ------- Shares under option at March 31, 1995 751,808 .10 - 5.06 Granted 66,000 2.63 - 4.75 Exercised (5,000) 1.38 Forfeitures (46,667) 3.88 - 5.06 ------- Outstanding at March 31, 1996 766,141 .10 - 5.06 ------- Exercisable at March 31, 1996 423,516 $ .10 - 5.06
All directors who are not employees of the Company are to receive options to purchase 5,000 shares of common stock per year. These options are to have an exercise price equal to the fair market value of the common stock at the beginning of each term as a director (usually the day of the annual shareholders meeting). F-17 79 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE L - STOCK OPTION PLAN - CONTINUED As determined by the Board of Directors, certain options vest immediately while other options have a vesting period that ranges from one to five years. Options that have a vesting period greater than one year vest on a straight-line basis during each year. Option expiration dates range from September 25, 1997 through August 16, 2006. Currently 1,000,000 stock options are authorized to be issued. NOTE M - BENEFIT PLAN The Company adopted an Employee Stock Ownership Plan (ESOP) during the fiscal year ended March 31, 1991. The benefits allocated to each participant are in direct proportion to that person's annual compensation. All employees who meet the following criteria are eligible for benefits: (1) must be 18 years of age or older; (2) must have worked at least 1,000 hours in the given plan (fiscal) year; and (3) must be employed on the last day of the plan year. All participants become fully vested after 5 years of continuous employment with the Company. Once vested, a person may receive benefits under the plan: A) No later than 6 years from the date of termination of employment with the Company; or B) Upon reaching the age of 60. NOTE N - ACQUISITION OF CROWN SYSTEMS ASSETS AND LIABILITIES On November 14, 1994, the Company signed an agreement and purchased the assets and certain liabilities of Crown Systems, Inc. (Crown), effective November 1, 1994. In connection with this purchase, the Company issued 36,191 shares of its previously unissued restricted common stock to Crown. The assets acquired consisted mainly of accounts receivable and dental practice management software rights. As part of the transaction, the Company retired approximately $205,000 of assumed liabilities. On October 25, 1995, the Company issued an additional 11,310 shares of restricted common stock to the previous owners of Crown due to a change in the calculated purchase price. The transaction was accounted for as a purchase. The depreciable assets acquired are being depreciated over their remaining useful lives on a straight line basis, in accordance with the Company's accounting policies. The software rights which were acquired are being amortized over a period of five years. The assets and liabilities are held in Integrated Dental Technologies, Inc., a wholly-owned subsidiary of the Company. F-18 80 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE N - ACQUISITION OF CROWN SYSTEMS ASSETS AND LIABILITIES - CONTINUED Crown develops and markets dental practice management software systems and will continue to develop additional software for IDT. As part of the transaction, the principals of Crown entered into one year employment agreements and three year non-compete agreements with IDT. NOTE O - WARRANTS TO PURCHASE RESTRICTED COMMON STOCK In connection with certain capital financing activities during the years ended March 31, 1991 and 1992, the Company issued 350,000 stock purchase warrants at $2.25 to $3.11 per share. As a result of a cashless exercise of 200,000 warrants, 96,333 shares were issued at $3.11 on April 20, 1994. The remaining warrants expire in August 1997, unless sooner exercised. Options to purchase 50,000 shares of the Company's restricted common stock were issued to DII in connection with the amendments to the licensing agreement, as described in note K. These options expire on the earlier of March 31, 2004, or upon closing of the DII sale described in note K. NOTE P - RESTRUCTURING During the quarter ending March 31, 1996, the Company recorded a charge of $271,631 for the restructuring of IDT. As a result of the restructuring, IDT no longer sells computer hardware or filmless x-ray systems. Costs included in the restructuring charge include contract costs and other costs. These costs involve the use of estimates as described in note B. The Company expects that the liabilities associated with such costs will be paid or settled within the next fiscal year. As a result of management's decision to restructure its operations, approximately $300,000 of inventory was written off to cost of products sold and management reserved approximately $250,000 for sales returns related to these discontinued items. Total restructuring charges, inventory writedowns, and return reserves amount to approximately $822,000. F-19 81 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE Q - ADDITIONAL FINANCING On March 29, 1996, the Company signed term notes in the aggregate principal amount of $1,250,000. As additional consideration for the term notes, the Company issued 250,000 warrants to purchase the common stock of the Company at an initial exercise price of $3.03 per share. In conjunction with the transaction, the Company paid to a third-party, a placement fee of $100,000 and issued warrants to purchase 50,000 shares of the Company's stock at an initial exercise price of $3.03 per share. The transaction was completed on April 1, 1996, when the purchasers of the notes transferred cash to the Company. The notes bear interest at a rate of 12%. Accrued interest is due on September 30, 1996 and March 31, 1997. Thereafter, interest is due on a quarterly basis. Principal is due on the earliest of (i) March 29, 1997, or (ii) the disposition of either or both of (A) the Company's Supply House division or (B) the Company's royalty rights from Denticator, or (iii) a disposition of the Company. An additional 27,778 warrants to purchase Company stock at an initial exercise price of $3.03 per share will be issued to the purchasers of the notes on a monthly basis beginning July 31, 1996, for each month in which the principal and accrued interest on the term notes is not repaid in full. The purchase price and number of shares purchasable upon exercise of warrants may be adjusted upon the occurrence of certain events. The maximum number of warrants issued to the purchasers of the notes is 500,000. The warrants expire on the earlier of (i) March 29, 2001, or (ii) the closing of a consolidation or merger of the Company with or into another corporation or a sale of all or substantially all of the assets of the Company. NOTE R - PROPOSED MERGER On May 31, 1996, the Company signed a letter of intent to merge into Zila, Inc. (Zila), a marketer of non-prescription oral healthcare products. Zila will exchange no less than 0.75 and no more than 0.825 shares of its common stock for each share of the Company's common stock, with the final rate to be based upon the price at which Zila's stock trades during the "calculation period" preceding the close of the transaction. The transaction is subject to the completion of due diligence by both parties, execution of a definitive agreement, the ability to account for the transaction as a pooling-of-interests, and Company shareholder approval. F-20 82 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED March 31, 1996 and 1995 NOTE S - CONTINGENT LIABILITY In July 1995, the Company was named as a defendant, along with the Company's transfer agent and a shareholder of the Company (Shareholder), in a lawsuit. The lawsuit alleges that the Company wrongfully failed to register 200,000 Company shares in the name of the plaintiffs which were pledged as security by the Shareholder for a debt owed by the Shareholder to the plaintiffs. The Company denies all of the material allegations of the lawsuit against it and asserts various affirmative defenses. The Company will vigorously defend against the claims set forth in the lawsuit. Nonetheless, there is a reasonable possibility that the Company will sustain a loss in this matter, estimated in a range from $320,000 to $1,250,000, or the re-issuance of 200,000 shares of the Company's common stock. However, because of the inherent uncertainties associated with litigation and other factors, no accrual for a loss contingency has been made in the financial statements for the year ended March 31, 1996. F-21 EX-10.31 2 MODIFICATION AGREEMENT 1 EXHIBIT 10.31 MODIFICATION AGREEMENT This Agreement is made as of March 31, 1996 between and among THE BANK OF CALIFORNIA, N.A. ("Bank"), BIO-DENTAL TECHNOLOGIES CORPORATION ("Borrower"), and INTEGRATED DENTAL TECHNOLOGY, INC. ("IDT") and RYKER DENTAL OF KENTUCKY ("RDK"). RECITALS This Agreement is made and entered into in reliance on the accuracy of the following recitals, which are acknowledged by Borrower, Guarantors and Bank to be true and accurate: A. BORROWER'S OBLIGATIONS TO BANK. Borrower is liable to Bank (collectively "Liabilities") pursuant to the terms of that certain Second Amended and Restated Credit Agreement dated as of October 31, 1995, as amended ("Credit Agreement") by and between Bank and Borrower and as further evidenced (a) that certain Revolving Credit Note dated effective as of October 31, 1995 in the maximum principal amount of $2,500,000.00, as modified ("Revolving Note"), which Revolving Note matured February 26, 1996, and (b) that certain Term Note dated effective as of October 31, 1995, in the original principal amount of $854,344.17, which Term Note matures May 1, 1998. As of March 20, 1996, the outstanding principal balance under the Revolving Note was $1,394,000.00, together with accrued and unpaid interest in the amount of $7,357.22. As of March 20, 1996, the outstanding principal balance under the Term Note was $715,459.17, together with accrued and unpaid interest in the amount of $3,587.24. Borrower may have liabilities to the Bank under other credit facilities; Bank and Borrower intend that such other facilities shall not be affected by this Agreement and shall remain in full force and effect in all respects. The Revolving Loan and the Term Loan are hereinafter referred to collectively as the "Loans." B. SECURITY FOR BORROWER OBLIGATIONS. To secure Borrower's obligations to Bank, Borrower, IDT and RDK have each granted to Bank a security interest in certain of their assets (collectively the "Collateral") pursuant to (i) that certain Security Agreement - Accounts and Inventory executed by Borrower and dated January 26, 1994 (the "Borrower Security Agreement") (ii) that certain Security Agreement - Equipment executed by Borrower and dated January 26, 1994, (iii) that certain Security Agreement - Accounts and Inventory executed by IDT and dated October 26, 1995, (iv) that certain Security Agreement - Equipment executed by IDT and dated October 26, 1995, (v) that certain Security Agreement - Accounts and Inventory executed by RDK and dated October 26, 1995, and (vi) that certain Security Agreement - Equipment executed by RDK and dated October 26,1995. In addition, to further support the obligations of Borrower to Bank, Curtis M. Rocca, III, as the insured party, and Borrower, as beneficiary, have assigned to Bank certain life insurance pursuant to that certain Assignment of Life Insurance Policy as Collateral dated "December 22", as acknowledged by Kemper Life Insurance Companies by letter with attachments dated January 19, 1993. The security agreements and life insurance assignment identified above are hereinafter collectively referred to as the "Security Agreements." C. GUARANTIES. To induce Bank to make the Loans available to Borrower, IDT and RDK (each A "Guarantor and collectively the "Guarantor" have each executed and delivered to Bank a Continuing Guaranty each dated October 26, 1995, as amended, guaranteeing the payment and performance of Borrower's obligations to Bank (each a "Guaranty" and collectively the "Guaranties"). D. LOAN DOCUMENTS. The following documents evidence Borrower's obligations to and relationship with Bank: this Agreement, the Notes, the Credit Agreement, the Security Agreements, the Guaranties and, 2 upon execution, the Replacement Revolving Credit Note, the Subordination Agreement and the escrow assignment documents described in Section 3.2 below. The documents described above, to-ether with any other documents executed by or among the parties in connection with the Liabilities, and any and all amendments and modifications thereto, are referred to collectively in this Agreement as "Loan Documents". There are no written or oral agreements concerning or affecting the Liabilities between Borrower and/or Guarantors on the one hand and Bank on the other, other than the Loan Documents. Unless otherwise defined herein, all capitalized terms shall have the meanings assigned to them in the Loan Documents. E. DEFAULT. Based upon the information that Borrower has provided to Bank, Bank is aware that Borrower is and has been in default under the Notes as follows: (i) The Revolving Note matured on February 26, 1996, on which date all sums outstanding thereunder were due and payable in full, and Borrower has failed to pay these sums by said date. (ii) Failure to pay sums owed under the Revolving Note is also an event of default under the Term Note. (iii) In addition, Borrower has failed to satisfy minimum Tangible Net Worth and minimum working capital requirements established in the Credit Agreement. The foregoing defaults are collectively referred to hereinafter as the "Designated Defaults." Borrower and Guarantors each acknowledge that it has received adequate and reasonable notice of the Designated Defaults from Bank. Upon execution of this Agreement, Bank agrees to waive the Designated Defaults identified in (iii) above, and Bank further agrees that Borrower shall not be required to comply with these two financial covenants, as modified by this Agreement, until April 1, 1996 and thereafter. Borrower and Guarantor acknowledge that, except as expressly provided above, Bank has not waived any of its rights with respect to any breach by Borrower of any Loan Documents. F. BANK'S DEFAULT RIGHTS. Because of the existence of the Designated Defaults, Bank has no obligation to make any further Advances under the Revolving Note and has advised the Borrower that no such Advances are available until due execution of this Agreement. Bank also has the current right to exercise any and all of its other rights and remedies against Borrower, Guarantors or otherwise under applicable law and the Loan Documents. Such remedies include, without limitation, the right to charge interest at the post-default or postmaturity rate established in the other Loan Documents and to foreclose upon the Collateral. G. EXTENSION/MODIFICATION. At Borrower's and Guarantors' request, Bank is willing to modify the Loan Documents as set forth herein, provided that the conditions set forth herein are satisfied within the time periods required under this Agreement. Borrower has represented to Bank that it and Jose Mendoza are actively pursuing the sale of Denticator International, Inc. ("Denticator"), a corporation wholly owned by Mendoza. Borrower has represented to Bank that Borrower is contractually entitled to certain of the proceeds of the sale of Denticator, and that such sums will be paid to Borrower concurrently with the completion of such sale. Borrower has represented to Bank that Borrower will use such proceeds received by Borrower from the sale of Denticator to repay the Liabilities in full. AGREEMENT NOW THEREFORE, in consideration of the foregoing and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged Bank, Borrower and Guarantor hereby agree as follows: 1. INCORPORATION OF RECITALS. Each of the above recitals is incorporated herein and deemed to be the agreement of the Bank, Borrower and Guarantors and is relied upon by each party to this Agreement in agreeing to the terms of this Agreement. 2 3 2. CONFIRMATION OF COLLATERAL. Borrower, IDT and RDK each respectively grants and confirms that all obligations of Borrower to Bank are secured by a perfected first-priority security interest in the Collateral pledged by each pursuant to the respective Security Agreements executed by each. 3. CONDITIONS PRECEDENT. Each of Borrower and Guarantors understands that this Agreement shall not be effective and Bank shall have no obligation to amend the terms of the Loan Documents as provided herein unless and until each of the following conditions precedent has been satisfied not later than the respective date set forth below: 3.1 On or before April 30, 1996, Borrower and Guarantors each shall have executed and delivered to Bank this Agreement. 3.2 On or before April 30, 1996, Borrower shall have executed and delivered to Bank a replacement for the Revolving Note in the maximum principal amount of S1,394,000.00 (subject to Borrowing Base), in form and substance satisfactory to Bank (the "Replacement Revolving Credit Note"). 3.3 On or before such time as Bank may require, Borrower shall have taken any and all actions and executed and delivered to Bank any and all documents necessary or appropriate in Bank's sole discretion to effectuate this Agreement and the grant, perfection, and/or priority of the Collateral; and 3.4 On or before April 30, 1996, Borrower shall have reimbursed Bank for Bank's costs and expenses, including, without limitation, reasonable attorneys' fees and expenses (including the fees of Bank's inside counsel), incurred in connection with the negotiation and drafting of this Agreement and the transactions contemplated hereby; 4. ADDITIONAL CONDITIONS. No later than March 31, 1996, State of Oregon ZCG/PERS and City of Stamford Fireman's Pension Fund (collectively, the "Creditors") shall (a) lend the collective sum of $1,250,000.00 to Borrower, such loan(s) to be evidenced by one or more promissory note(s) made by Borrower and payable to Creditors, respectively (the "Subordinated Note(s)"), (b) duly execute and deliver to Bank one or more Subordination Agreement(s) in form and substance satisfactory to Bank pursuant to which Creditors will subordinate Borrower's obligations to Creditors to Borrower's obligations to Bank (the "Subordination Agreement"), and (c) deliver the Subordinated Note(s) to the Bank. 5. MODIFICATION OF LOAN DOCUMENTS. Borrower, Bank and the Guarantors agree that the Loan Documents are hereby supplemented and modified as follows, which modifications shall supersede and prevail over any conflicting provisions of the Loan Documents: 5.1 Section 1.6 of the Credit Agreement is hereby modified by deleting subsection (a) only, and by substituting the following therefor: (a) ONE MILLION THREE HUNDRED NINETY-FOUR THOUSAND AND NO/100 DOLLARS ($1,394,000.00); or 5.2 Section 1.29 of the Credit Agreement is hereby deleted in its entirety, and the following substituted therefor: "1.29 "TERMINATION DATE" means the earlier of (a) September 30, 1996, for the Revolving Credit, (b) September 30, 1996, for the Term Loan or (c) the date Bank may terminate making Advances, C, accelerate the Term Loan and/or make all sums of principal and interest under the Credit immediately due and payable pursuant to the rights of Bank under Article Eight." 3 4 5.3 Section 2.1 of the Credit Agreement is hereby deleted in its entirety and the following substituted therefor: "2.1 ADVANCES AND REVOLVING CREDIT NOTE. From time to time prior to the Termination Date for the Revolving Credit, upon request by Borrower, Bank has made and will continue to make Advances to Borrower which, in the aggregate, shall not exceed at any time the Borrowing Base, and which shall otherwise be subject to the terms hereof. The Revolving Credit shall be evidenced by that certain Revolving Credit Note, in form and substance satisfactory to Bank, which shall be written in the maximum amount of $1,394,000.00 and shall be repayable in accordance with the terms thereof. The Revolving Credit Note shall replace and supersede the Revolving Note for all purposes. Borrower may borrow, repay and reborrow under the Revolving Credit, as Borrower may elect, in minimum amounts of ONE THOUSAND AND NO/100 DOLL ARS ($1,000.00). Borrower shall pay to Bank all sums outstanding under the Revolving Credit and due under this Agreement no later than the Termination Date for the Revolving Credit." 5.4 Section 2.6 of the Credit Agreement is hereby amended by deleting the words "the Prime Rate plus one and one-quarter percent (I - 1/4%)" and by substituting "the Prime Rate plus two and one-half percent (2.50%)" therefor. 5.5 Section 2.7 of the Credit Agreement is hereby amended by deleting the words "the Prime Rate plus one and one-quarter percent (I - 1/4%)" and by substituting 'the Prime Rate plus two and one-half percent (2.500/o)" therefor. 5.6 Section 6. 1 (a) and (b) of the Credit Agreement are hereby deleted in their entirety and the following substituted therefor: "(a) Beginning January 1, 1996 and thereafter, maintain current assets in an amount not less than $2,500,000.00; (b) Beginning April 1, 1996 and thereafter, maintain a Tangible Net Worth of at least $2,200,000.00; and not permit Borrower's total indebtedness to exceed 2.75 times Borrower's Tangible Net Worth." 5.7 Sections 63(a), (c), (d), (e), (f) and (g) of the Credit Agreement are hereby modified by replacing the words "30 days" with the words "15 days" in each. 5.8 The Term Note is hereby modified by deleting the words "the Prime Rate plus one and one-quarter percent (1-1/4%)" and by substituting the words "the Prime Rate plus two and one-half percent (2.50%)" therefor. 5.9 The Term Note is hereby modified by deleting the second unnumbered paragraph in its entirety, and by substituting the following therefor: "Interest shall be payable on the first day of each consecutive month, continuing through September 1, 1996. Principal shall be payable in consecutive monthly installments of $27,777.00 each on the first day of each consecutive month through September 1, 1996, plus a final installment equal to the entire unpaid principal balance and all accrued and unpaid interest on September 30, 1996." 5.10 The Borrower Security Agreement is hereby amended to provide expressly that Collateral, as defined therein, includes all royalties or other sums payable by Denticator to Borrower under the Exclusive License Agreement. In this regard, sums owed and/or paid by Denticator to Borrower under the 4 5 Exclusive License Agreement are included within the meaning of the words "royalties," "proceeds" and "Rights to Payment" in Section 1.3 of the Borrower Security Agreement, and within the definition of "Rights to Payment" in Section 1. 1 3 of the Borrower Security Agreement. Borrower and Bank expressly agree that this is not a modification to the Collateral supporting Borrower's obligations to Bank, but is merely intended to clarify the nature of certain items included within the definition of Collateral. 6. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement each of Borrower and Guarantors hereby represents and warrants to Bank as follows: 6.1 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT; SURVIVAL. All representations and warranties contained in this Agreement and in any and all of the other Loan Documents are true and correct as of the date of this Agreement, and all such representations and warranties shall survive the execution of this Agreement; 6.2 NO VIOLATION. The execution, delivery and performance by Borrower and Guarantors of this Agreement and all documents contemplated hereunder are within Borrower's and each powers, have been duly authorized, and are not in conflict with Borrower's or any Guarantor's articles of incorporation or bylaws, or the terms of any charter or other organizational document of Borrower or any Guarantor; and all such documents constitute valid and binding obligations of Borrower and each respective Guarantor, enforceable in accordance with their terms. In addition, such execution, delivery and performance by Borrower and each Guarantor will not violate any law, rule or order of any court or governmental agency or body to which Borrower or any Guarantor is subject; and cannot (except as expressly provided or contemplated herein) result in the creation or imposition of any lien, security interest or encumbrance on any now owned or hereafter acquired property of Borrower or any Guarantor; 6.3 NO BREACH. With the exception of the Designated Defaults, no event has occurred or failed to occur that is, or, with notice or lapse of time or both would constitute A default, an event of default, or a breach or failure of any condition under any Loan Document; 6.4 UNCONDITIONAL OBLIGATION; NO DEFENSES. Each of the Notes represents an unconditional, absolute, valid and enforceable obligation against Borrower. Borrower has no claims or defenses against Bank or any other person or entity which would or might affect (a) the enforceability of any provisions of the Loan Documents or (b) the collectability of sums advanced by Bank in connection with the Liabilities. Borrower understands and acknowledges that the Bank is entering into this Agreement in reliance upon, and in partial consideration for, this acknowledgment and representation, and agrees that such reliance is reasonable and appropriate. 7. BORROWER'S AND GUARANTORS' COVENANTS. Unless Bank otherwise consents in writing during remaining term of the Notes, each of Borrower and Guarantors will do the following: 7.1 Comply with all requirements of all Loan Documents to the extent not inconsistent with this Agreement: 7.2 Not enter into any agreements with any of its other creditors that might impair its ability to perform under this Agreement. Borrower shall promptly provide the Bank copies of any and all such agreements that Borrower may have entered into before the date of this Agreement and any agreements with any other creditor that may constitute such an agreement that Borrower may enter into during the term of the Notes. 7.3 Pay on a current basis all of its other creditors for indebtedness incurred during the term of the Notes. 5 6 7.4 Ensure that Bank is fully informed at all times of all matters relating to the operation of Borrower's business, including any planned changes in key personnel or manner of operating its business. 7.5 Take any and all actions of any kind or nature whatsoever, either directly or indirectly, that are necessary to prevent Bank from suffering a loss with respect to the Liabilities or being deprived of the Collateral or of any rights or remedies of Bank with respect to the Loan, the Loan Documents or this Agreement in the event of a default by Borrower under this Agreement or any other Loan Documents (or the ability to exercise such any rights or remedies. 8. ADDITIONAL EVENTS OF DEFAULT. In addition to the events of default set forth in the Loan Documents, the occurrence of any of the following events of default other than a Designated Default shall be an event of default and, at Bank's option, may make all obligations of Borrower immediately due and payable, all without demand, presentment or notice, all of which requirements Borrower hereby waives: 8.1 SALE OF BUSINESS. The sale of part or all of Borrower, RDK, IDT and/or Denticator, or the sale of a material part of the assets of any of the foregoing; 8.2. FAILURE TO PERFORM. Failure to perform any of the obligations set forth in this Agreement or in any other Loan Documents (as the same may be modified by this Agreement); 8.3 REPRESENTATIONS AND WARRANTIES. Any representation or warranty of Borrower or Guarantors herein or in any other Loan Document shall be false, misleading or incorrect; 8.4 MATERIAL ADVERSE CHANGES. If there is any further substantial impairment of the prospect of Borrower's satisfaction of its obligations to Bank or substantial impairment of the value of the Collateral or any substantial impairment of the priority of Bank's security interest in or lien on any Collateral or if there is any substantial impairment of the ability of any Guarantor to perform under its respective Guaranty. 9. REMEDIES. Upon the occurrence of an event of default and at all times thereafter, Bank, without the necessity of obtaining any prior approval of any court, shall be entitled to (a) terminate all Advances under the Revolving Note; (b) return any and all checks drawn against Borrower's account at Bank upon payment of all checks issued prior to the occurrence of such event of default, (c) apply all funds in Borrower's account at Bank to Liabilities; and (d) exercise in respect of any Collateral it may hold all rights and remedies of a secured creditor available to it under applicable laws, and Bank shall also be entitled to exercise all rights and remedies available to Bank as a creditor generally, including without limitation all remedies available to Bank under the Loan Documents, as well as rights and remedies available to Bank at law or in equity. All such rights and remedies shall be cumulative. No failure or delay on the part of Bank in exercising any power, right or remedy under any of the Loan Documents shall operate as a waiver thereof, and no single or partial exercise of any such power, right or remedy shall preclude any further exercise thereof or the exercise of any other party, right or remedy. 10. RELEASE. Borrower and each Guarantor each hereby, for itself, its successors, heirs, executors, administrators and assigns, releases, acquits and forever discharges Bank, its directors, officers, employees, agents, affiliates, successors, administrators and assigns ("Released Parties") of and from any and all claims, actions, causes of action, demands, rights, damages, costs, loss of service, expenses and compensation whatsoever which Borrower or any Guarantor, or both, might have because of anything done, omitted to be done, or allowed to be done by any of Released Parties and in any way connected with the Liabilities or this Agreement or the other Loan Documents as of the date of execution of this Agreement, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, including without limitation, any specific claim raised by Borrower and/or any Guarantor, and also including without limitation any settlement negotiations and also including without limitation, any damages 6 7 and the consequences thereof resulting or to result from the events described, referred to or inferred hereinabove ("Released Matters"). Borrower and each Guarantor each further agrees never to commence, aid or participate in (except to the extent required by order or legal process issued by a court or governmental agency of competent jurisdiction) any legal action or other proceeding based in whole or in part upon the foregoing. In furtherance of this general release, Borrower and each Guarantor each acknowledges and waives the benefits of California Civil Code section 1542 (and all similar ordinances and statutory, regulatory, or judicially created laws or rules of any other jurisdiction), which provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Borrower and each Guarantor each agrees that this waiver and release is an essential and material term of this Agreement and that the agreements in this paragraph are intended to be in full satisfaction of any alleged injuries or damages in connection with the Released Matters. Borrower and each Guarantor each represents and warrants that it has not purported to convey, transfer or assign any right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a Ml and complete release of the Released Matters. Borrower and each Guarantor also understands that this release shall apply to all unknown or unanticipated results of the transactions and occurrences described above, as well as those known and anticipated. Borrower and each Guarantor each has consulted with legal counsel prior to signing this release, or had an opportunity to obtain such counsel and knowingly chose not to do so, and executes such release voluntarily, with the intention of fully and finally extinguishing all Released Matters. 11. DISPUTE RESOLUTION. 11.1 MANDATORY MEDIATION/ARBITRATION. Any controversy or claim between or among the parties, their agents, employees and affiliates, including but not limited to those arising out of or relating to this Agreement or any related agreements or instruments ("Subject Documents"), including without limitation any claim based on or arising from an alleged tort, shall, at the option of any party, and at that party's expense, be submitted to mediation, using either the American Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services, Inc. ("JAMS"). If mediation is not used, or if it is used and it fails to resolve the dispute within 30 days from the date AAA or JAMS is engaged, then the dispute shall be determined by arbitration in accordance with the rules of either JAMS or AAA (at the option of the party initiating the arbitration) and Title 9 of the U. S. Code, notwithstanding any other choice of law provision in the Subject Documents. All statutes of limitations or any waivers contained herein which would otherwise be applicable shall apply to any arbitration proceeding under this subparagraph 11.1. The parties agree that related arbitration proceedings may be consolidated. The arbitrator shall prepare written reasons for the award. Judgment upon the award rendered may be entered in any court having jurisdiction. This subparagraph 11.1 shall apply only if, at the time of the proposed submission to AAA or JAMS, none of the obligations to Bank described in or covered by any of the Subject Documents are secured by real property collateral or, if so secured, all parties consent to such submission. 11.2 JURY WAIVER/JUDICIAL REFERENCE. If the controversy or claim is not submitted to arbitration as provided and limited in subparagraph I 1. 1, but becomes the subject of a judicial action, each party hereby waives its respective right to trial by jury of the controversy or claim. In addition, any party may elect to have all decisions of fact and law determined by a referee appointed by the court in accordance with applicable state reference procedures. The party requesting the reference procedure shall ask AAA or JAMS to provide a panel of retired judges and the court shall select the referee from the designated panel. The referee shall prepare written findings of fact and conclusions of law. Judgment upon the award rendered shall be entered in the court in which such proceeding was commenced. 7 8 11.3 PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. No provision of, or the exercise of any rights under, subparagraph I 1. I shall limit the right of any party to exercise self help remedies such as setoff, to foreclose against any real or personal property collateral, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any mediation or arbitration. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to mediation or arbitration. 11.4 CONFLICT. To the extent any provision of the dispute resolution clause is different than the terms of this Agreement, the terms of this dispute resolution clause shall prevail. 12. WAIVER OF STATUTE OF LIMITATIONS. Borrower and each Guarantor each shall not plead the statute of limitations to any action brought by Bank with respect to the Liabilities, Notes, Credit Agreement, Guaranties, Security Agreements and any other Loan Document, and the Collateral, and hereby waives the statute of limitations in respect of any and all sums due from it under the Notes. 13. CONFIRMATION OF GUARANTIES; UNCONDITIONAL OBLIGATIONS; WAIVER. Each Guarantor reaffirms its obligations under its Guaranty and reaffirms and restates each and every term, condition, and provision of its Guaranty. In addition each, Guarantor hereby agrees that its obligations under its Guaranty shall be unconditional, irrespective of (i) the absence of any attempt to collect the Liabilities from Borrower or any other guarantor or other action to enforce the same, (ii) the waiver or consent by Bank with respect to any provision of any instrument evidencing the Liabilities, or any part thereof, or any other agreement now or hereafter executed by Borrower and delivered to Bank, (iii) Bank's election, in any proceeding instituted under Chapter 11 of Title 1 of the United States code (11 U.S.C. Section101 et seq.) (the "Bankruptcy Code"), of the application of Section 111l(b)(2) of the Bankruptcy Code, (iv) any borrowing or grant of a security interest by Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code, or (v) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of Bank's claim(s) for repayment of the Liabilities. Each Guarantor further reaffirms that its obligations under its Guaranty are primary and are separate and distinct from Borrower's obligations. Each Guarantor further represents and warrants that it has no defenses or claims against Bank that would or might affect the enforceability of its Guaranty and that its Guaranty remains in full force and effect. Each Guarantor irrevocably and permanently (even if such Guarantor pays said obligations in full) waives any and all rights of subrogation, reimbursement indemnity, contribution or any other claim arising from the existence of performance of its Guaranty which Guarantor may now or hereafter have against Borrower or any other Person (or their respective properties) directly or contingently liable for said obligations. 7 14. MISCELLANEOUS 14.1 AGREEMENT TO COOPERATE. All the parties hereto agree to and will cooperate fully with each other in the performance of this Agreement and the Loan Documents, including without limitation executing and additional documents and instruments reasonable or necessary to the full performance of this Agreement. Without limiting the generality of the foregoing, Borrower agrees to execute such other and further documents and instruments as Bank may request to implement the provisions of this Agreement and to perfect and protect the liens and security interests created by this Agreement, the Security Agreements or the Guaranties or any other Loan Document. 14.2 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, their respective successors and assigns. No other person or entity 8 9 shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third party beneficiary hereunder. 14.3 EFFECT OF AGREEMENT. Bank, Borrower and each Guarantor agree that except as expressly provided herein, the Loan Documents shall remain in full force and effect in accordance with their respective terms, and this Agreement shall not be construed to: 14.3.1 Impair the validity, perfection or priority of any lien or security interest securing Borrower's obligations to Bank; 14.3.2 Waive or impair any rights, powers or remedies of Bank under the Loan Documents; 14.3.3 Constitute an agreement by Bank or require Bank to grant forbearance periods or extend the term of the Credit Agreement or the time for payment of any of Borrower's obligations to Bank except as expressly provided herein, none of which Bank agrees or has agreed to do, and all of which matters are in Bank's sole and absolute discretion; or 14.3.4 Make any other loans or other extension of credit to Borrower or any Guarantor. In the event of any inconsistency between the terms of this Agreement and any other Loan Document, this Agreement shall govern. Borrower and each Guarantor each acknowledges that it has consulted with counsel and with such other experts and advisors as it has deemed necessary in connection with the negotiation, execution and delivery of this Agreement, or has had an opportunity to so consult and has knowingly chosen not to do so. This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted. The headings used in this Agreement are for convenience only and shall be disregarded in interpreting the substantive provisions of this Agreement. 14.4 LIMITATION ON RELATIONSHIP. This Agreement and the other Loan Documents shall not be deemed or construed to create a partnership, tenancy in common, joint tenancy, joint venture, co-ownership or any other relationship aside from a continuing debtor-creditor relationship between Borrower and any Guarantor on the one hand and Bank on the other. 14.5 INTEGRATION. This Agreement and the other Loan Documents are intended by the parties as the final expression of their agreement and therefore incorporate all negotiations of the parties hereto and are the entire Agreement of the parties hereto. Borrower and each Guarantor each acknowledges that it is relying on no written or oral agreement, representation, warranty, or understanding of any kind made by Bank or any employee or agent of Bank except for the agreements of Bank set forth herein or in the other Loan Documents. Except as expressly set forth in this Agreement, the other Loan Documents remain unchanged and in full force and effect. 14.6 SEVERABILITY. In case any provision in this Agreement shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Agreement and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 14.7 REVERSAL OF PAYMENTS. If Bank receives any payments or proceeds of Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be paid to a trustee, debtor-in-possession, receiver or any other party under any bankruptcy law, common law, equitable cause or otherwise, then, to such extent, the obligations or part thereof intended to be satisfied by 9 10 such payments or proceeds shall be reserved and continue as if such payments or proceeds had not been received by Bank. 14.8 MODIFICATION. This Agreement may not be amended, waived or modified in any manner without the prior written consent of the party against whom the amendment, waiver or modification is sought to be enforced. 14.9 REIMBURSEMENT. Borrower shall reimburse Bank for all costs and expenses, including without limitation reasonable attorneys' fees and disbursements (and fees and disbursements of Bank's in-house counsel) expended or incurred by Bank in any arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the negotiation, preparation, amendment, interpretation and enforcement of the Loan Documents, including without limitation during any workout, attempted workout, and/or in connection with the rendering of legal advice as to Bank's rights, remedies and obligations under the Loan Documents, (b) collecting any sum which becomes due Bank under any Loan Document, (c) any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (d) the protection, preservation or enforcement of any rights of Bank. For the purposes of this section, attorneys' fees shall include, without limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection with a bankruptcy proceeding or case arising out of or relating to any petition under Title 11 of the United States Code, as the same shall be in effect from time to time, or any similar law; (4) garnishment, levy, and debtor and third party examinations; and (5) postjudgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment. All of such costs and expenses shall bear interest from the time of demand at the rate then in effect under the Notes. 14.10 APPLICABLE LAW; JURISDICTION. Except as otherwise provided herein, this Agreement and all other Loan Documents and the rights and obligations of the parties hereto shall be governed by the laws of the State of California without regard to principles concerning choice of law. In any action arising out of or connected with this Agreement, Borrower and each Guarantor each hereby expressly consents to the personal jurisdiction of any state or federal court located in the State of California and also consents to service of process by any means authorized by federal or governing state law. 14.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts which, when taken together, shall constitute but one agreement. 14.12 SURVIVAL. All representations, warranties, covenants, agreements, waivers and releases of Borrower and each Guarantor contained herein shall survive the payment in full of Borrower's obligations to Bank. 14.13 NOTICES. Any notices required or contemplated under this Agreement shall be provided as specified in Section 9.1 of the Credit Agreement. 14.14 TRANSFER BY BANK. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of Bank's rights and obligations under the Loan Documents. In that connection, Bank may disclose all documents and information which Bank may now or hereafter have relating to the Liabilities, Borrower or any Guarantor or the business of any of the foregoing. IN WITNESS WHEREOF, Bank, Borrower and each Guarantor have executed this Agreement as of the date SET forth in the preamble. "BORROWER" "BANK" 10 11 BIO-DENTAL TECHNOLOGIES CORPORATION THE BANK OF CALIFORNIA, N.A. By: By: ------------------------------------ --------------------------- Title: Title: ---------------------------------- -------------------------- "GUARANTORS" INTEGRATED DENTAL TECHNOLOGY, INC. By: ------------------------------------ Title: --------------------------------- RYKER DENTAL OF KENTUCKY By: ------------------------------------ Title: --------------------------------- 11 EX-10.32 3 REPLACEMENT REVOLVING CREDIT NOTE DATED 3/31/96 1 EXHIBIT 10.32 REPLACEMENT REVOLVING CREDIT NOTE $1,394,000.00 March 31, 1996 (Subject to Borrowing Base) Each signer of this Note ("Borrower") promises to pay to the order of The Bank of California, N.A. ("Bank") at its office at 400 California Street, San Francisco, CA 94014 or at such other place as Bank may designate in writing, in lawful money of the United States of America, the principal sum of ONE MILLION THREE HUNDRED NINETY FOUR THOUSAND DOLLARS ($1,394,000.00), or so much thereof as may be advanced and outstanding under the Borrowing Base, with interest on each Advance from the date it is disbursed until maturity, whether scheduled or accelerated, at a fluctuating rate per annum at all times equal to the rate Bank announces to be in effect from time to time as its prime rate (the "Prime Rate") plus 2.50%. The Prime Rate is a rate set by Bank based upon various factors including general economic and market conditions, and is used as a reference point for pricing certain loans. Bank may price its loans at, above, or below the Prime Rate. During the term of this Note, Borrower may borrow, repay and reborrow as Borrower may elect, in minimum amounts of ONE THOUSAND DOLLARS ($1,000.00) and subject to all limitations, terms and conditions contained herein and in that certain Second Amended and Restated Credit Agreement between Bank and Borrower dated October 31, 1995, as amended from time to time ("Credit Agreement"), provided however, that the outstanding principal balance of this Note shall at no time exceed the amount available under the Borrowing Base. Interest shall be payable on the first day of each consecutive month and continuing through the Termination Date, on which date all accrued interest and principal remaining unpaid shall be due and payable in full. Borrower hereby authorizes Bank to debit Borrower's account no. _________ at Bank's Sacramento office for the payment of interest hereunder. Borrower shall ensure that the balance of such account is adequate to fully pay all such interest when due. Any unpaid payments of principal or interest on this Note shall bear interest from their respective maturities, whether scheduled or accelerated, at a fluctuating rate per annum at all times equal to the Prime Rate plus 5%, until paid in full, whether before or after judgment. Borrower shall pay such interest on demand. Interest, charges and fees shall be calculated for actual days elapsed on the basis of a 360-day year, which results in higher interest, charge or fee payments than if a 365-day year were used. Each change in the rate of interest, charges or fees based on the Prime Rate shall become effective on the date each Prime Rate change is announced within the Bank. In no event shall Borrower be obligated to pay interest, charges or fees at a rate in excess of the highest rate permitted by applicable law from time to time in effect. Each Advance shall be made as provided in the Credit Agreement. Advances may be requested in writing, by telephone, telex or otherwise on behalf of Borrower. Borrower recognizes and agrees that Bank cannot effectively determine whether a specific request purportedly made by or on behalf of Borrower is actually authorized or authentic. As it is in Borrower's best interest that Bank advance funds in response to these forms of request, Borrower assumes all risks regarding the validity, authenticity and due authorization of any request purporting to be made by or on behalf of Borrower. Borrower promises to repay any sums, with interest, that are advanced by Bank pursuant to any request which Bank in good faith believes to be authorized, or when the proceeds of any Advance are deposited to the account of Borrower with Bank, regardless of whether any individual or entity ("Person") other than Borrower may have authority to draw against such account. 2 This Note is the Revolving Credit Note defined in the Credit Agreement and is governed by the terms thereof. Each capitalized term not otherwise defined in this Note shall have the meaning set forth in the Credit Agreement. The occurrence of any Event of Default as defined in the Credit Agreement shall (1) terminate any obligation of Bank to make or continue the Revolving Credit; and shall, at Bank's option, (2) make all sums of interest, principal and any other amounts owing under any Loan Documents immediately due and payable (including without limitation the right to require cash collateral for all issued and outstanding Commercial Letters of Credit, Standby Letters of Credit, and Acceptances) without notice of default presentment or demand for payment, protest or notice of nonpayment or dishonor or any other notices or demands; and (3) give Bank the right to exercise any other right or remedy provided by contract or applicable law. Borrower shall reimburse Bank for all costs and expenses, including without limitation reasonable attorneys' fees, as set forth in the Credit Agreement. This Note shall be governed by, and construed in accordance with, the laws of the State of California. BIO-DENTAL TECHNOLOGIES CORPORATION By: _______________________________ Title: ___________________________ 2 EX-10.33 4 SUBORDINATION AGREEMENT 1 EXHIBIT 10.33 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT ("Agreement") is entered into as of ______ 1996, among BIO-DENTAL TECHNOLOGIES CORPORATION ("Borrower"), STATE OF OREGON ZCG/PERS and CITY OF STAMFORD FIREMAN'S PENSION FUND (referred to both individually and collectively as "Creditor"), and THE BANK OF CALIFORNIA, N.A. ("Bank"). 1. SUBORDINATION. Borrower and Creditor acknowledge that the giving of this Subordination is for Bank's benefit and is a material condition of Bank's extending credit to Borrower. Creditor has derived or expects to derive material financial advantages or other benefits commensurate in value to the obligations being undertaken by Creditor hereunder. 2. INDEBTEDNESS SUBORDINATED. In consideration of the foregoing, add for other valuable consideration. Creditor hereby subordinates all Borrower's Indebtedness to Creditor ("Indebtedness to Creditor') to all Borrower's Indebtedness to Bank ("Indebtedness to Bank"). "Indebtedness" means all debts, obligations and liabilities of Borrower to Bank or to Creditor, as the caw may be, whether absolute or contingent, direct or indirect, liquidated or unliquidated, arising in any manner, and whether Borrower may be liable individually or jointly, or whether recovery, upon such debt may be or become unenforceable for any reason and, without limiting the generality of the foregoing, shall include, for purposes of Indebtedness to Bank, all of Borrower's outstanding business credit card balances', and all renewals, extensions and modifications to any and all of the foregoing. 3. NO ENFORCEMENT, PAYMENT, TRANSFER OR WAIVER. Without Bank's prior written consent so long as any Indebtedness to Bank or any commitment of Bank to extend credit to Borrower shall exist: (a) Creditor shall not enforce or apply any security or other support now or hereafter existing for the Indebtedness to Creditor or sue upon, collect, or receive payment of any such Indebtedness, (b)Borrower shall not make any payments on the Indebtedness to Creditor, (c) Creditor shall not sell, assign, transfer, endorse or grant security interests in any Indebtedness to Creditor, subject to the terms and conditions of this Agreement, (d) Creditor shall not participate or pin in any proceedings described in Section 5, (e) Borrower shall not grant and Creditor shall not take any lien or security on any of Borrower's property, and (f) no gift or loan shall be made by Borrower to Creditor. 2 4. ASSIGNMENT OF CREDITOR'S RIGHTS. Creditor hereby assigns all rights against Borrower of any nature to Bank to secure the performance of this Agreement and the payment of the Indebtedness to Bank. Creditor shall, and Bank is authorized in the name of Creditor from time to time to, execute and file financing and continuation statements and execute such other documents and take such other action as Bank in its sole discretion deems necessary or advisable to perfect, preserve or enforce its rights under this Agreement. 5. BANKRUPTCY/PROBATE OR BORROWER. In the event a petition or action for relief shall be filed by or against Borrower under any bankruptcy, insolvency, reorganization, moratorium, general assignment for the benefit of creditors or creditor composition law, or any other law for the relief of or relating to debtors, or in any probate proceeding, Bank's claim against the assets or estate of Borrower shall be paid in full before any payment is made to Creditor, whether such payment is in cash, securities or any other form of Proper or rights. Bank may collect Creditor's claim directly from the receiver, trustee, custodian, liquidator or representative of Borrower's estate in such proceeding. Creditor and Borrower shall furnish all assignments, powers or other documents requested by Bulk to facilitate such direct collection by Bank. Bank is hereby authorized by Creditor to file a claim in any such on Creditor's, behalf, or compel Creditor to file such claim. In any such proceeding or at any meeting of creditors, Credit-or hereby grants to Bank an irrevocable proxy to vote its claim and Bank is authorized to execute all documents necessary to the exercise of this proxy. 6. CREDITOR AS TRUSTEE FOR BANK. Should Creditor receive any payment or distribution in conflict with the provision, hereof, Creditor shall hold such funds or property as trustee for Bank, and pay or transfer to Bank all such funds or property promptly upon receipt on account of the Indebtedness to Bank. 7. EVIDENCE OF INDEBTEDNESS. All evidence of Indebtedness to Creditor shall contain a statement referring to the existence of this Agreement. Borrower shall provide Bank with die originals or copies of all such instruments of documents existing on or after the date hereof 8. SUBORDINATION CONTINUING. This Agreement shall continue whether or not any Indebtedness to Bank is outstanding at any time, provided a commitment to the Borrower still exists. 9. DILIGENT INQUIRIES. Creditor assumes the responsibility for being and keeping informed of the financial condition of 'Borrower and any other individual or entity liable on or with respect to any of the Indebtedness to Creditor or Bank and of all other 2 3 circumstances bearing upon the risk of nonpayment of the Indebtedness to Creditor or Bank and confirms that Bank "I have no duty to advise Creditor of any such information. 10. CREDITOR'S AUTHORIZATION. Creditor authorizes Bank, without notice, demand or consent, and without affecting Creditor's liability under this Agreement, from time to time, to (a) renew, compromise, extend, accelerate or otherwise change the time for payment or the terms of the Indebtedness to Bank or any part thereof, including changing the rate of interest thereon or the time for payment thereof, (b) accept partial payments on the indebtedness, (c) extend credit to Borrower on an unsecured basis or take security or other support for the Indebtedness to Bank and exchange, enforce, waive or release any such security or other support or any part thereof; (d) accept new or additional documents, instrument or agreements relative to Indebtedness to Bank, (e) apply any security or other support and direct the order or manner of sale or other disposition of such property as Bank, in its sole discretion, may determine; and (f) release or substitute any party liable on the Indebtedness to Bank, any guarantor of the Indebtedness to Bank, or any other party providing support for the Indebtedness to Bank. 11. BREACH OF AGREEMENT. If Borrower or Creditor breaches any provision of this Agreement, Bank shall have the right to declare any or all Indebtedness to Bank immediately due and payable, and pursue all of its rights and remedies under contract or applicable law. 12. DISPUTE RESOLUTION 12.1 MANDATORY MEDIATION/ARBITRATION. Any controversy or claim between or among the parties, their agents, employees and affiliates, including but not limited to those arising out of or relating to this Agreement or any related agreements or instruments ('Subject Documents), including without limitation any claim based on or arising from an alleged tort, shall, at the option of any party, and at that party's expense, be submitted to mediation, using either the American Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services, Inc. ("JAMS"). If mediation is not used, or if it is used and it fails to resolve the dispute within 30 days from the date AAA or JAMS is engaged, then the dispute shall be determined by arbitration in accordance with the rules of either JAMS or AAA (at the option of the party initiating the arbitration) and Title 9 of the U. S. Code, notwithstanding any other choice of law provision in the Subject Documents. All statutes of limitations or any waivers contained herein which would otherwise be applicable shall apply to any arbitration proceeding under this subparagraph (a). The parties agree that related arbitration proceedings may be consolidated. The Arbitrator shall prepare written reasons for the award. Judgment upon the award 3 4 rendered may be entered in any court having jurisdiction. This subparagraph 12.1 shall apply only if. at the time of the proposed submission to AAA or JAMS, none of the obligations to Bunk described in or covered by any of the Subject Documents arc seemed by real property collateral or, if so secured, all parties consent to such submission. 12.2 JURY WAIVER/JUDICIAL REFERENCE. If the controversy or claim is not submitted to arbitration as provided and limited in subparagraph 12. 1, but becomes the subject of a judicial action, each party hereby waives in respective right to trial by jury of the controversy or claim. In addition, any party may elect to have all decisions of fact and law determined by a referee appointed by the court in accordance with applicable state reference procedures. The party requesting the reference procedure shall ask AAA or JAMS to provide a panel of retired judges. and the court shall select the referee from the designated panel. The referee shall prepare written findings or fact and conclusions of law. Judgment upon the award rendered 12.3 PROVISIONAL REMEDIES, SELF HELP, AND FORECLOSURE. No provision of, or the exercise of any rights under, subparagraph 12.1 shall limit the right of any party to exercise self help remedies such as setoff, to foreclose against any real or personal property collateral, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any mediation or arbitration. At Bank's option. foreclosure under a dead of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or the exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to mediation or arbitration. To the extent any provision of the dispute resolution clause is different than the terms of this, Agreement; the terms of this dispute resolution clause shall prevail. 13. MODIFICATION AND WAIVER. Any forbearance, failure or delay by Bank, in exercising any right, power or remedy hereunder shall not be a waiver thereof, and any single or partial exercise of any right, power or remedy, shall not preclude the further exercise thereof, No waiver or consent shall be effective unless it is in writing and signed by an officer of Bank. No waiver of a current breach shall be deemed a waiver of a future breach. 4 5 14. MULTIPLE BORROWERS/CREDITORS. In all cases where there is more than one Borrower, or when this Agreement is executed by more than one Creditor, the term "Borrower' and the term "Creditor" shall mean all and any one or more of them, and all terms appearing in the singular shall be deemed to have been used in the plural where the context and construction so require. The term "Creditor" and "Borrower" shall include each Creditor or Borrower, as the case may be. The breach of any provision of this Agreement by any Borrower or any Creditor shall be a breach by all Borrowers or Creditors. 15. JOINT AND SEVERAL. The obligations of Borrower and Creditor under this Agreement are joint and several. Should more than one party sign this Agreement as Borrower or Creditor, the obligations of each signer shall be joint and several. 16. ASSIGNMENT. Neither Borrower nor Creditor may assign or transfer its obligations hereunder without Bank's prior written consent. Bank reserves the right to sell. assign or transfer its rights and duties under this Agreement, in whole or in part, without notice to Borrower or Creditor. In that connection, Bank may disclose all documents and information which Bank may have pertaining to this Agreement, Borrower, Creditor or their businesses. This agreement benefits Banks successors and assigns and binds Borrower's and Creditors heirs, legatees, personal representatives, successors and assigns, Borrower and Creditor each agrees not to assert against any assignee of Bank any claim or defense it may have against Bank. 17. MISCELLANEOUS. Time is of the essence of this Agreement and all its provisions. Borrower and Creditor will execute any additional agreements, assignments, notices, filings or documents reasonably required by Bank to effectuate this Agreement or to preserve and protect Bank's rights. This Agreement shall be governed by the laws of the State of California Titles preceding any paragraph of this agreement are for convenience only and are not a part of this agreement All rights herein are cumulative and in addition to all rights available under law or contract. Any notices or other communications provided for or allowed hereunder shall be effective only when given by one of the following a methods and addressed to the respective party at its address given with the signatures at the end of this Agreement and shall be considered to have been validly given (a) upon delivery, if delivered personally, or (b) upon receipt, if mailed upon placement in the United States mail, first class postage prepaid or if sent by overnight courier service of recognized standing and (c) upon telephoned confirmation of receipt, if sent by telecopy or facsimile. Unless separate notice is requested in writing by any Borrower or Creditor, notice given to any Borrower or Creditor shall constitute, respectively, notice to all Borrowers or Creditors. Should any oat or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions. nevertheless shall be 5 6 effective. Except for the documents and instruments referenced herein, this agreement and any exhibits. schedules and addenda constitute the entire agreement between Bank, Borrower and Creditor in connection with the subject matter hereof. and supersede all prior understandings or agreements concerning the subject matter hereof. 18. INDEMNIFICATION. Creditor shall pay and protect, defend and indemnify Bank and Bank's employees, officers, directors, shareholders, affiliates, correspondents, agents and representatives (other than Bank, collectively "Agents") against, and hold Bank and each Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, expenses (including without limitation attorneys' fees and costs) and other amounts incurred by Bank and each Agent, arising from the matters contemplated by this Agreement; provided however, that this indemnification shall not apply to any of the foregoing incurred solely as the result of Bank's or any Agent's gross negligence or willful misconduct. This indemnification shall survive the payment and satisfaction of all Indebtedness to Bank. 19. REIMBURSEMENT. Creditor shall reimburse Bank for all costs and expenses, including without limitation reasonable attorneys' fees and disbursements (and fees and disbursements of Bank's in-house counsel) expended or incurred by Bank in any arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the negotiation, preparation, amendment, interpretation and enforcement of this Agreement, (b) any workout or attempted workout, (c) the rendering of legal advice as to Bank's rights, remedies and obligations under this Agreement, (d) collecting any sum which becomes due Bank under this Agreement, (e) any proceeding for declaratory relief, counterclaim to any proceeding, appeal, contempt proceeding, discovery, or post-judgment motions and proceedings of any kind, including without limitation any action taken to collect or enforce any judgment, (f) the protection, preservation or enforcement of any rights of Bank, (g) any motion proceeding or other activity in connection with a case under Title II of the United States Code or any similar law, or (h) garnishment, levy and third party examinations. 6 7 20. COPY. Borrower and Creditor each acknowledges receipt of a copy of this Agreement. IN WITNESS WHEREOF, Creditor, Borrower and Bank have duly executed this Agreement as the date first written above. STATE OF OREGON ZCG/PERS By: __________________________ Title:_________________________ Address: Zesiger Capital Group LLC 320 Park Avenue New York, N.Y. 10022 CITY OF STAMFORD FIREMAN'S PENSION FUND By:________________________ Title:______________________ Address: Zesiger Capital Group LLC 320 Park Avenue New York, N.Y. 10022 [SIGNATURES CONTINUE ON NEXT PAGE] BIO-DENTAL TECHNOLOGIES CORPORATION By:_______________________ Title:_____________________ 7 8 Address: 11277 Sunrise Park Drive Rancho Cordova, CA 95742 THE BANK OF CALIFORNIA, N.A. By:____________________________ Title:___________________________ Address: 400 California Street San Francisco, CA 94104 LIMITED POWER OF ATTORNEY The undersigned, as agent of the Oregon Investment Council, does by these presents nominate, constitute and appoint Zesiger Capital Group LLC, 320 Park Avenue, New York, NY 10022, or any member manager thereof to be designated by it, as a true and lawful attorney-in-fact of the State Treasurer of Oregon, acting on behalf of the Oregon Public Employees' Retirement Fund ("The Fund"), a trust fund, with full power and authority for the Fund and in the Fund's name, to make, execute, deliver and acknowledge, any agreements, certificates, representation letters, counterparts and documents, including without limitation subscription documents, purchase agreements, registration rights agreements, shareholders' agreements and documents of a similar nature, each containing such agreements, representations, indemnification's, restrictions and other terms by and for the Fund, as in the judgment of Zesiger Capital Group LLC may deem necessary or appropriate to (1) affect the purchase on behalf of the Fund in transactions not registered under the Securities Act of 1933, as amended ("private placement"), and (ii) subsequent to the purchase thereof, to administer (including without limitation execution any amendments or consents under any such agreements) or effect the sale of such private placements, as duly authorized from time to time by the Oregon Investment Council. This Limited Power of Attorney shall remain in full force and effect so long as the Fund continues to be an advisory client of Zesiger Capital Group LLC. 8 9 IN WITNESS WHEREOF, the undersigned has hereunto set his, or her or its hand this ____ day of November, 1995. _________________________ W. Dan Smith Director, Investment Division Oregon State Treasury 9 10 City of Stamford Firemen's Pension Fund EXHIBIT C LIMITED POWER OF ATTORNEY The undersigned does by these present nominate, constitute and appoint Zesiger Capital Group LLC, 320 Park Avenue, New York, NY 10022, any member manager thereof to be designated by it, as his, her or its true and lawful attorney-in-fact, with full power and authority for the undersigned, and in the undersigned's name, to make, execute, deliver and acknowledge, any agreements, certificates, representation letters, counterparts and documents, including without limitation subscription documents, purchase agreements and documents of a similar nature, each containing such agreements, representations, indemnifications, restrictions and other terms by and for the undersigned, as in the judgment of Zesiger Capital Group LLC may be necessary or appropriate to (i) effect the purchase on behalf of the undersigned in transactions not registered under the Securities Act of 1933, as amended ("private placement"), and (ii) subsequent to the purchases thereof, to administer (including without limitation executing any amendments or consents under any such agreements) or effect the sale of such private placements. This Power of Attorney shall remain in full force and effect so long as the undersigned continues to be an advisory of Zesiger Capital Group LLC. IN WITNESS WHEREOF, the undersigned has hereunto set his, her or its had this ______ day of _____, 1995. Stamford Firemen's Pension Board (Plan Administrator) By:_________________________ Name: Title: 10 EX-10.34 5 LETTER OF INTENT DENTICATOR INT'L & JOSE MENDOZA 1 EXHIBIT 10.34 LETTER OF INTENT Denticator International, Inc. (hereinafter DII), Jose L. Mendoza (hereinafter JLM) and Bio-Dental Technologies Corporation (hereinafter BDTC) hereby agree to enter into formal negotiations to form an agreement among the parties for the sale of DII's Stock and the license between BDTC and DII to an unrelated purchaser based upon the following: 1. All parties agree to bargain with good faith and fair dealing. 2. All parties agree to total disclosure of all terms and conditions that could or will affect the final sales price in any way. 3. DII will surrender to BDTC the 50,000 BDTC options at the close of escrow and the options will be canceled by BDTC. 4. Any and all offers must be submitted to JLM, DII and BDTC for consideration and any offer must be approved by JLM, DII and BDTC before an offer is accepted. Such approval must be in writing by each party. 5. As a result of the sale of DII and the cancellation of the licensing agreement between DII and BDTC, BDTC will receive all consideration in excess of the amounts paid to JLM as noted in this Letter of Intent. 6. Should the need arise, all parties agree to retain a neutral party to assist in the completion of the sale. No neutral party shall be retained unless all parties agree to all the terms and conditions concerning said retention. Costs of said neutral party shall reduce the sales price for purposes of computing the amount to be paid to Jose L. Mendoza under paragraph 22. 7. BDTC will have no continuing relationship of any kind with DII or the purchaser of DII, it assigns or its successors other than as distributor which operates in accordance with normal arms-length procedures. BDTC may purchase product(s) from DII or the purchaser of DII, its assigns or it successors. 8. The purchaser of DII will pay all amounts and obligations owed to BDTC by DII through escrow on the closing date. All amounts owed to BDTC by DII which are not past due as of the closing date shall be 'added to the sales price for the purpose of computing the amount to be paid to JLM under paragraph 12 of this Letter of Intent. Royalty/consulting amounts not paid within 60 days from the last day of the month to which the royalty/consulting payments apply will be considered past due. For example, royalty/consulting payments due for the month of January 1996 are considered past due if not paid to BDTC by March 31, 1996. For purposes of the calculation of the past due amount owed, the past due amount shall be reduced by the amount owed for product to DII by BDTC. DII will make timely payments to BDTC in accordance with the Extension and Modification of the Exclusive Licensing Agreement. RDTC will defer principal payments on the Promissory Note dated March 31, 1991 from October 1995 through September 1996. Any principal payments made by DII to BDTC to date for the months of October 1995 through January 1996 will be applied by BDTC against the royalty/consulting receivable from DII and the Promissory Note 2 balance will be adjusted accordingly. DII agrees the following expenditures will not be made without prior written authorization/approval from BDTC while principal payments are being deferred: - capital expenditures of any type; - research and development of any type; - debt of any type which does not exist on DII's balance sheet as of September 30, 1995: A fluctuation in accounts payable will not be considered an increase in debt; - compensation increases or benefit increases to any DII employees beyond planned annual cost of living adjustments (Exhibit B reflects all pay raises given since October 1, 1995); - no bonuses except those disclosed in Exhibit A. 9. DII agrees to prepare an operating budget to assist BDTC in projecting anticipated cash flows. 10. Any and all sums paid or to be paid to JLM in excess of $120,000 per annum by the purchaser, its assigns or successors shall be deemed to be an increase in the sales price. The not present value of said excess shall be computed on a monthly basis using a 10% discount factor for the period of time JLM receives compensation in any form after the sale of DII from the purchaser, its assigns or successors. The net present value shall be added to the sales price for purposes of computing the amount to be paid to JLM under paragraph 12 of the Letter of Intent. After Computing the amount due to JLM under paragraph 12, the net present value of the amount in excess of $120,000 per annum shall reduce the amount due JLM under paragraph 12. Compensation shall not include payments for the benefit of JLM for health and dental insurance premiums or currently paid automobile allowance. Increases in JLM's compensation package equal to the compensation package received by the senior officer of BDTC (currently Curtis Rocca) shall not be considered excess compensation. Unusual events that benefit BDTC and therefore increase Curt Rocca's compensation, that are unrelated to DII shall not be considered part of Curt Rocca's compensation package for purposes Of this paragraph. 11. BDTC guarantees JLM, regardless of the sales price of DII, the sum of $500,000 if the sale is agreed upon by June 30, 1996 and evidenced by an executed sales agreement and the sale is finalized by September 30, 1996. Otherwise the guarantee will be reduced by $100,000. 12. In addition to the minimum guarantee of paragraph 11, JLM will be paid: a. Five percent of the sales price up to eleven million dollars. b. Twenty five percent of the sales price between eleven million dollars and twelve million dollars. 2 3 c. One half of the sales price above twelve million dollars. The above amounts are not subject to right of claim, reduction or offset except as provided in this agreement. 13. All patents developed by DII and JLM after April 1, 1991 shall be assigned to JLM. To the extent the purchaser desires to utilize said patents, JLM promises to grant the purchaser a royalty free license limited to dental purposes only. JLM further agrees that all amounts paid by the purchaser for the royalty free license shall be treated as part of the sales price of DII. Dental purposes is defined as the maintenance and/or preservation of teeth; all procedures involving the underlying bone structure and medical applications are excluded from the definition of dental purposes. JLM reserves all other rights in the patents. 14. BDTC DII and JLM acknowledge that each party may be required to make certain representations and warranties to a prospective purchaser in connection with the transaction contemplated by this Letter of Intent such as representations and warranties as to the due authorization execution, delivery and enforceability of a purchase agreement; good, valid and marketable title free of any adverse liens relative to any assets or stock to be transferred by a party to a prospective purchaser and other representations and warranties about such party's legal and business affairs. BDTC agrees to provide all reasonable representations and warranties required by a prospective purchaser relative to BDTC and DII and JLM agree to provide all reasonable representations and warranties required by a prospective purchaser with respect to DII and JLM. Each party shall be solely responsible for all indemnity obligations relating to any breach of such party's representations and warranties. At the closing of the transaction contemplated by this Letter of Intent, BDTC, DII and JLM shall mutually release each other from any and all claims, liabilities and other matters arising prior to the closing. 15. Any controversy among the parties regarding the construction or application of this letter of intent and any claim arising out of this letter of intent or its breach, shall be submitted to arbitration upon the written request of one party after the service of that request on the other parties. BDTC shall appoint one person and DII and JLM shall jointly appoint one person to hear arid determine the dispute. The cost of the arbitration shall be borne by the losing party or in such proportions as the arbitrators shall decide. 16. This agreement shall terminate on October 1, 1996. Upon agreement of all parties, it may be extended. For: Bio-Dental Technologies Corporation For: Denticator International, Inc. For: Jose L. Mendoza 3 EX-10.35 6 LETTER OF UNDERSTANDING YOUNG INNOVATIONS, INC. 1 EXHIBIT 10.35 May 10, 1996 Mr. Curtis M. Rocca III Bio Dental Technologies Corp. 11291 Sunrise Park Drive Rancho Cordova, CA 95742 Mr. Jose Mendoza Denticator International Inc. 11330 Sunrise Park Drive Rancho Cordova, CA 95742 Dear Mr. Rocca and Mr. Mendoza: This letter will set forth the general understanding of a transaction by which Young Innovations Inc. or any of its affiliated or associated companies, (collectively, "Young") intends to purchase certain agreed assets and liabilities of Denticator International Inc. (hereinafter referred to as Denticator). It is understood and agreed that Young has not conducted a due diligence investigation of Denticator and that its proposal regarding the acquisition of certain of the Denticator assets and liabilities and this letter were prepared based upon certain limited information furnished to Young by Denticator and Bio Dental Technologies Corp. (hereinafter referred to as Bio Dental) which Young has assumed to be accurate and upon which it has relied. Subject to the conditions in this letter and the execution of final definitive agreements, an acquisition company affiliate of Young (hereinafter called New Denticator) will purchase certain agreed assets and liabilities of Denticator from Denticator in accordance with the following. 1. The assets and liabilities of Denticator at the date of closing of the transaction contemplated hereby (the "Closing Date") will include those at March 31, 1996 (unaudited) as set forth in Schedule A of this letter, subject to conditions set forth in paragraphs 2, 4, and 5 immediately below, and will include all intangible assets of Denticator including patents, contract rights, tradenames (including the name Denticator), copyrights, secrecy and noncompete agreements, and all other property, assets and agreements necessary for Young to continue the business of Denticator without interruption immediately following the Closing Date. 2. At the Closing Date, Denticator will have retired the entire amount of current and long-term bank indebtedness, which at March 31, 1996 totaled ($21,823 + $32,000) $53,823. 3. Denticator will surrender to Bio Dental the 50,000 Bio Dental options at the Closing date and the options will be canceled by Bio Dental. 4. At the Closing Date, the royalty contract (dated March 31, 1991) and all amendments and/or modifications of said contract, between Denticator and Bio Dental, will be canceled and/or completed and Denticator will be free to transfer the right to the Denticator name and right to manufacture and distribute all of its products free from any future royalties and free from any other liabilities from said contract. Denticator, Jose Mendoza (hereinafter referred to as Mendoza) and Bio Dental agree that the "Letter of Intent" executed on January 19, 1996, shall be superseded by the agreements related to this purchase agreement and shall be terminated on the closing date. 5. At the Closing Date, Young will pay to Bio Dental, subject to the limitations set forth below, cash in the amount of $7,549,087 (see Schedule B), such amount referred to hereinafter as the "Cash Purchase Price". Young will also issue a credit against future purchases (hereinafter referred to as the 'Product Credit"). Said Product Credit shall be in the amount equal to, and payment in full, for all accrued 2 royalties to Bio Dental and notes current and long term to Bio Dental as reflected on the audited balance sheet of Denticator at the Closing Date. It is contemplated that this amount will be approximately $953,581 (see Schedule B), plus any additions, less any payments, made and/or incurred in the normal course of business (as reflected in the Denticator financials dated March 31, 1996) between March 31, 1996 and the closing date. Said Product Credit shall be usable by Bio Dental, or any of its affiliates, for the future purchase of products from Young and any of its affiliates, including New Denticator, at prevailing prices in effect at the time of the purchases. Denticator will make timely payment to Bio Dental in accordance with the Extension and Modification of the Exclusive License Agreement through the closing date. However, it is expressly agreed that Denticator may deviate from said license agreement for purposes of retiring its debt to the Bank of California, per paragraph two (2) above. 6. At the Closing Date, Young will purchase Denticator's agreed assets and assume its agreed liabilities as reflected on its audited balance sheet on the Closing Date. For payment of said assets Young will pay to Denticator $50,000 and assume said liabilities. It is understood that these agreed assets and liabilities will be substantially the same as those reflected on Schedule A, except that the Bank of California debt shall have been retired per paragraph two (2) and paragraph five (5) above. 7. At the Closing Date, Mendoza will enter into an employment agreement, at his same compensation that he presently receives from Denticator and a noncompete agreement which will be acceptable to both Young and Mendoza and will generally follow the discussion held between Young and Mendoza. As part of said employment, Young will enter into a stock option contract or stock bonus plan with Mendoza, for the purchase of Young common stock, in the total amount of $800,000 of said stock. Such stock option contract shall be exercisable by Mendoza upon the meeting of certain financial performance goals of New Denticator, as mutually agreed. As part of said stock option contract or stock bonus plan, at the option of Mendoza, Young will repurchase for cash up to 40% of the stock received by Mendoza under said stock option or bonus. 8. To assure the continuity of the management team, Young agrees, as part of said employment agreement, per paragraph seven (7) above, to pay Mendoza an amount equal to $305,000 in four equal three month installments, the first payment being paid on the Closing Date. 9. It is the intention of Young that upon the purchase of the agreed assets and liabilities by said New Denticator acquisition company, that said company will be renamed Denticator International Co. and that Mendoza will be the president and CEO, subject to the terms of the Mendoza employment contract. It is also the intention of Young that said New Denticator will operate independently 'of Young in its general business operations, however, there may be certain common and/or joint practices such as banking, purchasing, accounting, planning and legal functions. 10. In consideration for on going expenses of Young for incorporating the New Denticator in its family of affiliates, New Denticator will pay annually to Young the amount of $50,000 per year, subject to change upon mutual agreement. The above provisions are not binding on Young, Bio Dental, or Denticator, in that it is understood that all binding agreements concerning the transaction described above will be contained in the definitive agreements executed by Young, Denticator and Bio Dental. The following items are binding agreements of the parties to this letter as evidenced by their respective signatures: 2 3 A. Mendoza, Denticator and Bio Dental will fully cooperate with Young's due diligence investigation of Denticator's assets, liabilities and operations. B. Young agrees to keep confidential all information concerning Denticator, its business operations and assets, the transaction contemplated by this letter of intent and agrees not to discuss or disclose the terms set forth in this letter with any other party, except that Young may share such information with its financial and legal advisors. C. Denticator and Bio Dental shall not directly or indirectly negotiate with or solicit offers from any potential purchaser of Denticator. Bio Dental and Denticator agree that under no circumstances will Bio Dental or Denticator announce the transaction contemplated by this letter of intent or discuss the terms set forth in this letter with any other potential purchaser, or agent of such purchaser, provided, however, that in the event a definitive agreement has not been entered into within sixty days from the signing of this letter of intent, Denticator and Bio Dental's obligation under this paragraph will cease. D. From the date of acceptance of this letter through the Closing Date or termination of the agreements set forth in this letter, Denticator shall not engage in any business activity or practice or enter into any transaction outside the ordinary course of its business, or incur any of the following: 1. capital expenditures of any type; 2. research and development expenses of any type; 3. debt of any type which do not exist on the Schedule A; 4. compensation increases or benefit increases to any Denticator employees beyond planned annual cost of living adjustments; 5. bonuses, except those included in the Managers quarterly profit sharing plan. E. All fees, costs and expenses incurred by Young with respect to its due diligence investigations will be the sole responsibility of Young. All fees, expenses and costs in regard to the negotiation and execution of the definitive agreements and the consummation of the transactions contemplated by this letter will be paid by the respective parties who incurred such costs. F. Young, Denticator and Bio Dental recognize that time is of the essence and will proceed without delay to close the transaction on or before June 30, 1996 or a mutually agreeable date as soon thereafter as possible. Young will immediately begin its due diligence investigation and prepare a definitive acquisition agreement incorporating the terms set forth above, and other terms customary for agreements of this type, with the objective of entering into a definitive agreement with Denticator and Bio Dental no later than 30 calendar days from the date of the acceptance of this letter. G. The terms of this letter represent all of the terms and conditions of Young to Denticator, Mendoza and Bio Dental regarding the offer to purchase certain assets and liabilities of Denticator and the Exclusive License Agreement as extended and modified between Bio Dental and Denticator and the employment agreement between Young and Mendoza. All parties agree to total disclosure among the parties of all terms and conditions that may or will affect the transactions in any way. 3 4 H. Mendoza and Young understand that Bio Dental, as a public company, may be required by state and/or federal securities laws to make a disclosure of this Letter of Intent. In such case Bio Dental agrees to immediately notify Mendoza and Young. If the foregoing correctly states our present and mutual understandings, please execute one copy of this letter and return the same by mail or facsimile (314) 3440021 to the undersigned on or before 12:01 PM, CDT May 13, 1996, after which time this proposal will expire. Very Truly yours, George E. Richmond Chairman and President Young Innovations, Inc. Curtis Rocca President Bio Dental Technologies Corporation Jose Mendoza President Denticator International Inc. 4 5
SCHEDULE A - --------------------------------------------------------------------------------------------------------------- CURRENT ASSETS AMOUNT - --------------------------------------------------------------------------------------------------------------- PETTY CASH $ 200.00 CASH $ 64,383.70 ACCOUNTS RECEIVABLE $ 642,927.52 LESS. ALLOWANCE FOR TRADE REFUNDS $ (128.60) LESS. ALLOWANCE FOR TRADE DISCOUNTS $ (7,963.20) EMPLOYEE ADVANCES $ (2,625.13) ADVANCE - PROFIT SHARING $ 1,200.00 DEFERRED COMPENSATION $ 11,835.00 RAW MATERIALS $ 109,114.73 FINISHED GOODS $ 49,599.61 INVENTORY OVERHEAD BURDEN $ 17,157.00 LESS: OBSOLETE INVENTORY $ (2,935.57) PREPAID EXPENSES $ (3,423.58) DEPOSITS $ 835.00 PREPAID INVENTORY $ 5,235.00 - ---------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS $ 885,411.48 $885,411.48 FIXED ASSETS FURNITURE & FIXTURES $ 12,217.55 LEASEHOLD IMPROVEMENTS $ 13,811.23 COMPUTER EQUIPMENT $ 55,577.38 WAREHOUSE EQUIPMENT $ 17,438.33 PRODUCTIION MACHINERY $ 279,173.87 ACCRUED DEPRECIATION - FURN. & FIXTURES $ (6,936.76) ACCRUED DEPRECIATION - LEASEHOLD IMPR $ (4,087.23) ACCRUED DEPRECIATION - COMPUTER EQUIP. $ (42,667.42) ACCURED DEPRECIATION - WAREHOUSE EQUIP. $ (14,065.03) ACCRUED DEPRECIATION - PRODUCTION MACH. $(118,893.01) - --------------------------------------------------------------------------------------------------------------------------- TOTAL FIXED ASSETS $ 191,568.91 $191,568.91 OTHER ASSETS ORGANIZATIONAL COSTS $ 6,360.01 LESS: ACCUM. AMORT. ORGANIZATION COST $ (6,360.00) INTANGIBLE ASSETS PATENTS $ 29,708.36 INTANGIBLE ASSETS ADA SEAL $ 4,000.00 INTANGIBLE ASSETS PATENTS REC. $ 14,513.85
5 6
SCHEDULE A - --------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS AMOUNT - --------------------------------------------------------------------------------------------------------------------------- AMORTIZATION INTANGIBLE ASSETS $(3,528.00) AMORTIZATION PATENTS $(1,295.85) - --------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS $43,398.37 $ 43,398.37 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,120,378.76 =============
LIABILITIES & EQUITY CURRENT LIABILITIES AMOUNT ACCOUNTS PAYABLE $ 202,500.06 ACCRUED ACCOUNTS PAYABLE $ 8,052.06 PROFIT SHARING PAYABLE $ 10,001.41 ACCRUED PAYROLL $ 33,918.00 ACCRUED VACATION PAY $ 20,604.58 TAX PAYABLE/RECEIVABLE, FED $ (145.00) TAX PAYABLE/RECEIVABLE, STATE $ 695.00 SALES TAX PAYABLE $ 11.66 SALES INCENTIVES PAYABLE $ 20,000.00 CURRENT PORTION/BI0 DENTAL $ 60,028.20 CURRENT PORTION/TERM OTHER $ 21,823.36 ACCRUED ROYALTIES PAYABLE $ 459,403.48 - --------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES $ 836,892.81 $ 836,892.81 LONG-TERM LIABILITIES NOTE PAYABLE - BIO DENTAL $ 380,325.93 NOTE PAYABLE BANK - OF CALIFORNIA $ 31,999.96 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LONG TERM LIABILITIES $ 412,325.89 $ 412,325.89 ------------- ------------- TOTAL LIABILITIES $1,249,218.70 ============= EQUITY CAPITAL STOCK $ 200.00 RETAINED EARNINGS $(136,334.46) RETAINED EARNINGS-CURRENT YEAR $ 7,294.52 ---------------------------------------------------------- TOTAL EQUITY $(128,839.94) $ (128,839.94) ---------------------------------------------------------- ------------- TOTAL LIABILITIES AND EQUITY $1,120,378.76 =============
6 7 SCHEDULE B
- ------------------------------------------------------------------------------- DESCRIPTIONS AMOUNTS - ------------------------------------------------------------------------------- AGREED DENTICATOR EBITDA $1,700,000.00 LESS: INTEREST EXP $ (77,587.00) - ------------------------------------------------------------------------------- NET EBTDA $1,622,413.00 =============================================================================== AGREED MULTIPLE 5.25 - ------------------------------------------------------------------------------- GROSS PURCHASE PRICE $8,517,668.00 LESS BANK AND BIO DENTAL DEBT $ (953,581.00) - ------------------------------------------------------------------------------- SUBTOTAL $7,564,087.00 - ------------------------------------------------------------------------------- LESS: MENDOZA ADJUSTMENT $ (15,000.00) - ------------------------------------------------------------------------------- TOTAL CASH PAYMENT $7,549,087.00 ===============================================================================
7 EX-10.36 7 LETTER OF INTENT ZILA, INC. 1 EXHIBIT 10.36 [ZILA LETTERHEAD] ZILA, INC. May 24, 1996 CONFIDENTIAL Mr. Curtis M. Rocca III President BioDental Technologies Corporation 11291 Sunrise Drive Rancho Cordova, California 95742 RE: PROPOSED ACQUISITION OF BIODENTAL TECHNOLOGIES CORPORATION ("BDTC") BY ZILA, INC. ("ZILA") Dear Curt: This letter sets forth a proposal with respect to the principal terms for the acquisition of all of the outstanding stock of BDTC by Zila (the "Transaction"). If accepted by you, this letter will evidence the mutual intention of BDTC and Zila to proceed diligently and in good faith to attempt to negotiate the terms and conditions of a definitive written agreement regarding the Transaction. Except for Sections 6 through 14 hereof, this letter shall not constitute an agreement or binding obligation with respect to the subject matter hereof, but shall only express the intent of the parties with respect thereto. Any such agreement or binding obligation shall be evidenced solely by a definitive agreement between BDTC and Zila (the "Agreement"). Subject to the foregoing, we propose the following: 1. The Transaction. Zila will acquire all of the outstanding stock of BDTC (the "BDTC Stock"). Zila will issue 0.825 shares of Zila common stock (the "Zila Stock") for each share of BDTC stock; provided that if the average closing bid prices of the Zila Stock as reported by the NASDAQ Small Cap Market during the ten trading days ending on the trading day that is five trading days prior to the closing date (the "Calculation Period") is less than $6.00, Zila 2 Mr. Curtis M. Rocca III May 24, 1996 Page 2 shall pay for each share of BDTC Stock no less than $4.95 ($6.00 x 0.825) in equivalent value of Zila Stock; provided further that if the average of the closing bid prices of the Zila Stock as reported by the NASDAQ Small Cap Market during the Calculation Period is greater than $7.75, Zila shall pay for each share of BDTC Stock no more than $6.39 ($7.75 x 0.825) in equivalent value of Zila Stock; provided however, that in no event will Zila issue less than 0.75 shares of Zila Stock for each share of BDTC Stock. On the closing date of the Transaction there will be no more than 6,428,000 shares of BDTC Stock issued and outstanding, plus any shares issued upon exercise of presently outstanding options and warrants, and no more than 1,311,308 shares of BDTC Stock issuable pursuant to options and warrants, less any shares issued upon exercise of presently outstanding options and warrants. All shares of Zila Stock issued to the holders of BDTC Stock will be registered with the Securities and Exchange Commission ("SEC"), and at the closing date, such shares will not constitute "restricted securities" under applicable federal and state securities laws. 2. Board Representation. On the closing date of the Transaction, at least two persons nominated by BDTC will be appointed to serve on Zila's Board of Directors. 3. Options. As of the date of this letter, BDTC has outstanding employee stock options to purchase 861,308 shares of BDTC Stock. In the Transaction, provision will be made to exchange each such option to purchase a share of BDTC Stock for an option to purchase one share of registered Zila Stock on the same terms as such BDTC option so long as the holder of the Zila option remains employed by Zila for one year following the closing date of the Transaction. If the holder of the Zila option terminates his or her employment with Zila within one year of the closing date of the Transaction, then each such Zila option shall be exercisable in accordance with its terms for 0.825 shares of Zila Stock. As of the date of this letter, BDTC also has outstanding warrants to purchase 450,000 shares of BDTC Stock. In the Transaction, provision will be made to exchange each such warrant for a warrant to purchase that number of shares of Zila Stock which the holder of such warrant would have received in the Transaction if such holder had exercised the warrant and acquire BDTC Stock prior to the Transaction. 4. Employment Arrangements/Employees. On the closing date of the Transaction, Zila will enter into employment arrangements with each of Curt Rocca, Terry Bane and Tim Purdy on mutually acceptable terms and conditions. All BDTC employees who are employed by Zila on the closing date of the Transaction shall, for purposes of participating in Zila's employee stock option plans, receive credit for each month of service to BDTC. Zila's executive officers prior to the closing date of the Transaction will continue in their respective positions after the closing date. 3 Mr. Curtis M. Rocca III May 24, 1996 Page 3 5. Payoff of BDTC's Debt. BDTC has entered into a letter of intent to sell its economic interest in royalties due from Denticator International, Inc., which, if consummated, will produce sale proceeds which will be sufficient and will be used to pay off all of BDTC's bank debt. If such letter of intent is abandoned or does not result in such sale prior to the closing of the Transaction, then, at the closing, Zila will pay off all of BDTC's bank debt and subordinated debt, which shall not exceed $3.5 million in the aggregate. 6. Agreement. Commencing upon the execution hereof, and continuing until the Termination Date (as hereinafter defined), the parties will use their good faith efforts to attempt to negotiate the Agreement. The Agreement shall contain provisions consistent with the intentions of the parties set forth herein, together with customary covenants, conditions, representations and warranties for a transaction of this type, and such other terms and conditions as the parties shall determine to be mutually acceptable. In the event that, for any reason, the Agreement is not executed prior to the Termination Date, either party may terminate negotiations with respect to the Transaction without liability to the other. 7. Term. This letter and the agreements of the parties hereto shall expire on July 1, 1996, or such later date as the parties may mutually agree (the "Termination Date"). 8. Due Diligence; Access to Books, Records and Personnel. The proposal set forth herein is subject to the satisfactory completion of your and our respective due diligence investigations. During the term hereof, Zila and its attorneys, accountants, consultants and representatives shall have access to the books and records of BDTC and such other information pertaining to the business and assets of BDTC as Zila shall reasonably request, and BDTC and its attorneys, accountants, consultants and representatives shall have access to the books and records of Zila and such other information pertaining to the business and assets of Zila as BDTC shall reasonably request. Each of BDTC and Zila shall provide the other with reasonable access to its officers and other personnel for the purpose of conducting due diligence. 9. Conditions. The proposal contained herein is subject to (i) execution of mutually acceptable definitive agreements; (ii) receipt of required approvals of Zila's and BDTC's respective stockholders; (iii) compliance with all applicable securities laws and regulations; (iv) the ability of Zila to account for the Transaction under the "pooling-of-interests" method of accounting; and (v) if necessary, approval of the transaction by BDTC's lender. 10. Confidentiality. During the course of negotiations and due diligence, BDTC and Zila each from time to time may provide the other with certain information regarding the business, operations and financial condition of the other. Other than as described in subparagraph 4 Mr. Curtis M. Rocca III May 24, 1996 Page 4 (b) below, any information delivered by one party to the other in accordance with this letter is referred to as the "Information." BDTC and Zila acknowledge and agree that any Information provided to the other is proprietary and highly confidential and that the unrestricted disclosure of any Information by one party would result in substantial damage to the other, which damage would be irreparable and extremely difficult to quantify. Accordingly, in consideration of the furnishing of such information by BDTC and Zila to each other, BDTC and Zila agree to maintain the confidentiality of any Information obtained from the other, on the following terms and conditions: (a) Each party hereto agrees that it will hold in strict confidence all Information obtained from the other party in connection with or during the course of any discussions or negotiations respecting the Transaction and will use such Information only for the purposes of the discussions or negotiations respecting the Transaction. Each party shall restrict access to the Information to those officers, directors, employees, agents and representatives whose duties require them to have access to the Information. Before disclosing any Information to any such person, each party shall require such person to be subject to the same restrictions and requirements respecting use, nondisclosure and confidentiality as contained herein. (b) It is understood and agreed that neither party has an obligation to maintain confidential any information that: (i) Such party can establish to have been known to it at the time the information was disclosed; (ii) Such party can establish to have been or become known to the general public, other than as a result of a violation of this letter or any other agreement with the other party; or (iii) Such party can establish to have become known to it from any independent third party who had the right to disclose such information. (c) Neither party nor any of its officers, directors, employees, agents or representatives shall use any of the Information, directly or indirectly, for competitive purposes or for any purpose other than in connection with discussions and negotiations respecting the Transaction. 5 Mr. Curtis M. Rocca III May 24, 1996 Page 5 (d) Each party accepts full responsibility for any use or disclosure of any Information by it or any of its officers, directors, employees, agents or representatives in contravention of this letter. (d) Neither party nor any of its officers, directors, employees, agents or representatives may provide originals, copies or other reproductions of any of the Information to any third party without the prior written consent of the other party, except as required by law, legal process, rule, regulation or regulatory authority. Any consent given by the other party may be conditioned on the requirement that the party seeking consent obtain from the third party a written agreement providing for the third party to be subject to the same restrictions and requirements respecting use, nondisclosure and confidentiality as contained in this letter. (f) If either party or any of its officers, directors, employees, agents or representatives is requested in any judicial or administrative proceedings, or by any governmental or regulatory authority to disclose any Information provided hereunder, that party will give the other written notice of such request as promptly as practicable. If in the absence of a protective order, that party or any of its officers, directors, employees, agents or representatives are nonetheless compelled to disclose any Information, that party may make such disclosure without liability hereunder provided that party gives the other written notice of the Information to be disclosed as far in advance of its disclosure as is practicable and uses its reasonable good faith efforts to obtain reasonable assurance that confidential treatment will be accorded to such Information. (g) All Information will remain the property of the party providing such Information. All documents provided by one party to the other or any one or more of its officers, directors, employees, agents or representatives in connection with any discussions or negotiations respecting the Transaction and all copies or other reproductions of any and all of such documents, shall, at the request of the party providing such documents, on or after the Termination Date, be returned to such party, at the other party's cost and expense, and the other party and its officers, directors, employees, agents or representatives shall maintain strictly confidential all Information contained in the documents. (h) Each party acknowledges and agrees that any violation of this Section 9 would result in substantial and irreparable injury to the other party, and that the other party would not have an adequate remedy at law with respect to any such violation. Accordingly, each party agrees that, in the event of any actual or threatened violation hereof, the other party shall have the right and privilege to obtain, in addition to any other remedies that may be available, equitable 6 Mr. Curtis M. Rocca III May 24, 1996 Page 6 relief, including temporary and permanent injunctive relief, to cease or prevent any actual or threatened violation of any provision hereof. 11. Expenses. Except as otherwise provided in the Agreement, each party shall bear its own expenses incurred in connection with the proposed transaction. 12. Exclusivity. During the term hereof, BDTC and Zila each agree that they will not directly or indirectly solicit, entertain or encourage inquiries or proposals to enter into an agreement, or negotiate with any third party, to sell or enter into any merger or consolidation with respect to each of their respective businesses and/or assets; provided, however, that (a) BDTC shall be permitted to seek a buyer for its economic interest in royalties due from Denticator International, Inc.; and (b) nothing herein shall require BDTC to take any action or refrain from taking any action with respect to any unsolicited third party proposal if such action or inaction is likely to result in the breach of the fiduciary duties of BDTC's officers and/or directors, as determined in good faith by BDTC's legal counsel. Further, during the term hereof, Zila will not directly or indirectly solicit, entertain or encourage inquiries or proposals to enter into an agreement, or negotiate with any third party, with regard to the distribution of OraTest in the United States, other than as contemplated by the Transaction. 13. Communications. Except to the extent required by law, neither BDTC nor Zila will make any public announcement or disclosure of the Transaction or the existence or terms of the proposal set forth in this letter without the prior approval of the other, which approval shall not be unreasonably withheld or delayed. The parties agree to cooperate with each other to make a joint release regarding the execution of this letter and the proposed forms of the Transaction as soon as practicable after its acceptance by BDTC. 14. General Provisions. (a) To the extent this letter constitutes a binding agreement between the parties, this letter shall be binding upon and inure to the benefit of their respective successors. (b) To the extent this letter constitutes a binding agreement between the parties, this letter is the sole agreement of the parties as to the subject matter hereof, and supersedes all prior agreements and understandings, written or oral, between the parties as to such subject matter. (c) either party may assign its rights or obligations under this letter without the prior written consent of the other party hereto. 7 Mr. Curtis M. Rocca III May 24, 1996 Page 7 (d) This letter may not be amended or supplemented except by written agreement of the parties hereto. If the foregoing is acceptable, please sign, date and return the enclosed copy of this letter. ZILA, INC. By: /s/ JOSEPH HINES ----------------------------- Joseph Hines, President ACCEPTED this 31st day of May , 1996: -- BIODENTAL TECHNOLOGIES CORPORATION By: /s/ C.M. ROCCA III ------------------------------- Name: Curtis M. Rocca III ------------------------ Title: President ------------------------ EX-11.1 8 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 BIO-DENTAL TECHNOLOGIES CORPORATION AND SUBSIDIARIES COMPUTATION OF (LOSS) EARNINGS PER COMMON SHARE
Years Ended March 31, -------------------------- 1996 1995 ----------- ---------- (LOSS) EARNINGS: Net (loss) earnings $(2,265,977) $ (419,437) Preferred Stock dividend ----------- ---------- Net (loss) earnings applicable to common stock $(2,265,977) $ (419,437) =========== ========== SHARES: Weighted average number of common shares outstanding 6,285,471 6,118,295 Additional shares assuming conversion of: Stock warrants 0(a) 0(a) Stock options 0(b) 0(b) ----------- ----------- Average common shares and common share equivalents outstanding 6,285,471 6,118,295 =========== =========== (LOSS) EARNINGS PER COMMON SHARE: Net (loss) earnings $ (0.36) $ (0.07) =========== ===========
(a) Warrants to acquire 150,000 shares of common stock at $2.25 per share were outstanding at March 31, 1996 and 1995. Warrants to acquire 50,000 shares of common stock at $4.00 per share were outstanding at March 31, 1996 and 1995. Also, warrants to acquire 200,000 shares of common stock at $3.11 per share were outstanding for part of the year ended March 31, 1995. The effects of these warrants were antidilutive at March 31, 1996 and 1995 and therefore are not included in the calculation of loss per common share for the years ended March 31, 1996 and 1995. (b) Options to acquire 430,516 and 378,808 shares of common stock at prices ranging from $0.10 to $5.06 were outstanding at March 31, 1996 and March 31, 1995 respectively. The effects of these options were antidilutive at March 31, 1996 and 1995 and therefore are not included in the calculation of loss per common share for the years ended March 31, 1996 and 1995. EX-27.1 9 FINANCIAL DATA SCHEDULE
5 0000858752 BIO-DENTAL TECHNOLOGIES CORP. 1 U.S. DOLLARS YEAR MAR-31-1996 APR-01-1995 MAR-31-1996 1 612,911 0 2,112,487 138,544 3,667,161 8,626,608 2,168,542 1,451,390 10,996,592 7,165,756 0 64,271 0 0 3,766,565 10,996,592 31,682,545 33,091,216 23,926,770 23,926,770 0 87,356 231,722 (3,563,977) (1,298,000) (2,265,977) 0 0 0 (2,265,977) (0.36) (0.36)
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