10-Q 1 y42804e10-q.txt AMERICAN FILM TECHNOLOGIES, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the Quarter Ended September 30, 2000. Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the Transition Period from to Commission file number 1-9748 AMERICAN FILM TECHNOLOGIES, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified its charter) Delaware 23-2359277 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification Number) incorporated or organization) 300 Park Avenue, 17th Floor, New York, NY 10022 ----------------------------------------------- (Address of principal executive offices) Registrant's telephone number including area code: (212) 572-6370 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No X APPLICABLE ONLY TO CORPORATE ISSUERS. As of September 30, 2000, there were 150,333,048 shares of common stock outstanding. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements American Film Technologies, Inc. Condensed Consolidated Balance Sheet

See accompanying notes to financial statements. 3 AMERICAN FILM TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)

See accompanying notes to financial statements. 4 AMERICAN FILM TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)

See accompanying notes to financial statements. 5 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 1. The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position as of September 30, 2000 and June 30, 2000, and the results of operations and cash flows for the three months ended September 30, 2000 and 1999. The results of operations for the three months ended September 30, 2000 and 1999, are not necessarily indicative of the results to be expected for the full year. 2. REORGANIZATION UNDER CHAPTER 11 On October 16, 1993, the Company filed for protection from its creditors under Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing was the result of continuing defaults related to the Company's loans, recurring operating losses and cash flow problems. The filing of a Chapter 11 petition operates as a stay of, among other actions, the commencement or continuation of a judicial administrative or other action or proceeding against a debtor that was or could have been initiated before the commencement of a Chapter 11 case or the enforcement against the debtor or against the property of the estate or a judgment obtained before the commencement of the case. Under Chapter 11, substantially all prepetition liabilities of debtors are subject to settlement under a plan of reorganization. The consummation of a plan of reorganization is dependent upon the satisfaction of numerous conditions, including, among other things, the acceptance by several classes of interests and confirmation by the Bankruptcy Court. The Company's Plan of Reorganization (the "Plan") was approved by the Bankruptcy Court on October 6, 1995, and became effective October 17, 1995. 6 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company The Company's business is the production of color versions of motion pictures and television programs originally produced in black and white. The Company has produced colorized films for its own library and owns the copyrights on eleven such films. These films are available for sale and or distribution. Consolidation The consolidated financial statements include the accounts of Midtech de Mexico, S.A., the Company's wholly-owned, inactive, Mexican subsidiary. All intercompany transactions have been eliminated in consolidation. Depreciation and Amortization Depreciation and amortization are provided over the estimated useful lives of the underlying assets using primarily the straight-line method over a five-year period. The Film Library is being amortized over a three-year period. Leasehold improvements are amortized over the life of the lease or the estimated useful life of the assets. Loss per Share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share are calculated utilizing weighted average shares outstanding and exclude any dilutive effects of options, warrants and convertible securities. Diluted earnings per share include the effect of dilutive securities outstanding. All earnings per share amounts for all period presented, where necessary, have been restated to conform to the SFAS 128 requirements. Stock Options The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, for those Company employee stock options issued with an exercise price not less than the market price of the underlying stock on the date of grant, no compensation expense is recognized. 7 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the consolidated financial statements, related notes and management's discussion and analysis of financial conditions and results of operations included in the Company's annual report on Form 10-K for the year ended June 30, 2000. Overview and Reorganization. As stated previously, the Company's Plan of Reorganization (the "Plan") was approved by the Bankruptcy Court and became effective October 17, 1995. Success of the Company will, among other things, depend upon the resumption of production in Mexico. That will require reemployment of selected former Mexican employees. Since the Mexican operation was suspended in October 1993, the Company believes most of the former employees have found other jobs. If the Company is unable to rehire certain former employees, it will have to recruit and train a new work force. That would delay the resumption of production and increase the cost of production. As such, it could have a materially adverse effect on the Company. Although the Company expects to benefit from the devaluation of the peso, there is no assurance of how long those expected benefits will last. Since emerging from bankruptcy, the Company has actively pursued new product development and opportunities, as well as strategic alliances, partners and other sources of financing. The Company is in discussions with other potential investors regarding the purchase of equity securities or other investments in the Company, however, there can be no assurance that any transaction can be negotiated or, if negotiated, that such a transaction can be consummated. Results of Operations. The financial results of the Company for each of the periods addressed by this report do not reflect the earnings capacity of the Company. The financial data for the periods ending September 30, 2000 and 1999 reflects the adoption of Fresh Start Accounting. As such, the financial data is considered that of a Successor Company and is not comparable to prior periods. 8 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) Since the filing under Chapter 11 in October, 1993, the Company has not generated any income from film colorization, animation or fee for service orders. For the quarter ended September 30, 2000 the Company recorded net interest expense of approximately $23,000 as compared to $23,000 for the period ended September 30, 1999. For the quarters ended September 30, 2000 and 1999 the Company recorded compensation and benefits for its administration and officers of approximately $60,000 and $60,000 respectively. For the quarters ended September 30, 2000 and 1999, the Company recorded selling, general and administrative expenses of approximately $60,256 and $340,000 respectively. For the quarters ended September 30, 2000 and 1999, the Company recorded depreciation and amortization expense of approximately $6,300 and $23,000 respectively. For the quarters ended September 30, 2000 and 1999, the Company had a net loss of approximately $149,000 and $1,200,000 respectively, or less than $0.01 cent per share for each period. Liquidity and Capital Resources. During fiscal 2000, the Company's operations were financed almost entirely by remaining working capital and proceeds from private placements of its securities and purchases and option exercises. During this period $156,627 in stock was issued in a private placement. The Company is continuing to experience cash flow difficulties. The Company was required to make a payment in October 1998 of approximately $405,000 plus interest to unsecured creditors in connection with its 1995 bankruptcy reorganization but has not made such payment. No creditor has filed a complaint or objection or instituted any legal action to date because of such failure. To the extent outside financing is not obtained in the immediate future, the Company may be liquidated or it may seek further relief in the previously instituted bankruptcy preceding. In the event of liquidation the shareholders in all likelihood will receive nothing in respect of their stock. 9 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) In addition, the Company needs funding sufficient to enable it to become operational again, although, the amount of funding required is contingent on a number of variables such as the speed of the start up and initial production capacity required; the Company believes that the minimum amount of funding required (including working capital) would be approximately $4,000,000. 10 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) PART II: OTHER INFORMATION Item 1. Legal Proceedings On December 6, 1999, a Judgment was entered against the Company in the amount of $45,724.46. The Company has paid $22,399.76 of this amount and will attempt to negotiate a settlement of the balance of this Judgment and to arrange for a reasonable payout. In addition, an arbitration award was granted against the Company in the amount of $36,693.41 in January, 2000. A judgement was entered in New York State for the amount of the award. That judgement was satisfied. Grant & Eisenhofer, PA ("Grant") claim that the Company owes them $298, 225.06 for legal services performed on behalf of AFT. In September 2000, the Board of Directors initially agreed to issue 3,313,611 shares of the Company's common stock to Grant in settlement of this matter. A shareholder of the Company has questioned the authority of the Board of Directors to issue shares of stock under such circumstances. This issue is presently under review and no shares have been issued by the Company. 11 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) Item 2. Changes In Securities and Use of Proceeds Sale of Unregistered Securities - Between July 1, 2000 and November 14, 2000 4,300,000 shares of common stock were issued in a private placement for proceeds in the amount of $150,000. The common stock was issued without the benefit of an effective registration statement under the Securities Act of 1933, as amended (the "Act") in reliance upon the private placement exemptions under Section 4(2) of the Act. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information As a result of the Plan, as of the Effective Date of the Plan, the Company adopted "fresh start" accounting, which reflects the payment or discharge of certain debts in accordance with the plan. "Fresh start accounting" allows a reorganized entity to reflect its reorganization value, which approximates its fair value at the date of reorganization. In addition, the accumulated deficit of the Company is eliminated and its capital structure is recast in conformity with the Plan. The Company continues to be in default under the terms of the Settlement Agreement, dated December 31, 1999, between the Company, Gerald Wetzler and certain other individuals. Representatives of the Company are engaged in discussions with Mr. Wetzler in an attempt to resolve the Company's default under the Settlement Agreement. There can be no assurance that a solution will be reached. In the event that a resolution is not reached, Mr. Wetzler will attempt to seize the assets of the Company or to have the Company transfer all of his assets to him. The Company, or unsecured creditors of the Company, may attempt to resist these efforts, however, this will negatively impact the ability of the Company to obtain necessary financing. The Board of Directors has authorized the Company to engage the firm of GTH Capital to assist in discussions with Mr. Wetzler. The Board of Directors has accepted the resignations of Jeffrey Yapp, Chairman and Chief Executive Officer of the Company, and Barry Sandrew, President and Chief Operating Officer of the Company. Subsequently, Messrs. Anthony Chan and Jack Hoagland have resigned as directors of the Company. Porter Bibb remains as the sole director of the Company. 12 AMERICAN FILM TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) Item 6. Exhibits and Reports on Form 8-K None. 13 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN FILM TECHNOLOGIES, INC. Date: November 15, 2000 By: /s/ Porter Bibb November 15, 2000 ----------------- Porter Bibb Director

AMERICAN FILM TECHNOLOGIES INC /DE/ 10-Q