The SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB MARK ONE:
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-12850
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3185553
- -------------------------------- ----------------
(State or other jurisdiction (IRS Employer
of incorporation or Identification
organization) No.)
200 N. WESTLAKE BLVD., SUITE 202, WESTLAKE VILLAGE, CA 91362
-----------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code (805) 381-2700.
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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of registrant's common stock outstanding as of August 13,
1999: 6,344,998
Transitional Small Business Disclosure Format Yes [ ] No [X]
Page 1
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of June 30, 1999 3
Condensed Consolidated Statements of Operations 4
For the Three and Six Month Periods Ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows 5
For the Six Month Periods Ended June 30, 1999 and 1998
Consolidated Statements of Comprehensive Income 6
For the Three and Six Month Periods Ended June 30, 1999 and 1998
Notes to Interim Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults in Senior Securities 17
Item 4. Submission of Matters to Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
(a) Exhibits 18
(b) Reports on Form 8-K 18
Signatures 18
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 2,701,144
Accounts receivable, net 6,673,567
Inventories 8,350,968
Prepaid expenses and other current assets 2,758,878
-----------
Total current assets 20,484,557
Property and equipment, net of accumulated depreciation 1,255,232
Intangible assets, net of accumulated amortization 2,278,378
Loans to related parties 70,000
Other assets 380,125
-----------
Total assets $24,468,292
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 22,440
Current portion of long-term debt 2,878,242
Borrowings under revolving line of credit 4,000,000
Accounts payable 3,799,003
Accrued liabilities 1,464,725
Customer deposits 209,324
-----------
Total current liabilities 12,373,734
Long-term debt 119,404
Capital lease obligations 12,022
-----------
Total liabilities 12,505,160
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per
share;
1,000,000 shares authorized, none issued and
outstanding -
Common stock, par value $.01
per share; 20,000,000 shares authorized:
5,441,998 shares issued and outstanding 54,419
Paid in capital 14,779,686
Accumulated deficit (2,722,512)
Accumulated translation adjustment (148,461)
-----------
Total stockholders' equity 11,963,132
-----------
Total liabilities and stockholders' equity $24,468,292
===========
</TABLE>
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
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<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 10,963,894 $ 2,618,513 $ 21,178,379 $ 4,729,044
Cost of sales 5,227,050 1,946,906 10,139,525 3,496,995
--------------------------------------------------
Gross profit 5,736,844 671,607 11,038,854 1,232,049
Selling, general and
administrative expenses 4,080,719 2,134,639 7,470,799 3,864,258
Research and development
expenses 76,682 182,302 219,262 324,689
--------------------------------------------------
Total operating expenses 4,157,401 2,316,941 7,690,061 4,188,947
Operating income (loss) 1,579,443 (1,645,334) 3,348,793 (2,956,898)
Interest income 99,872 64,057 131,430 108,330
Interest expense (125,641) (549,497) (631,173) (633,290)
Amortization of debt issuance
costs - (75,000) (64,519) (85,484)
--------------------------------------------------
Income (loss) before income
taxes 1,553,674 (2,205,774) 2,784,531 (3,567,342)
Provision for income taxes 90,000 - 161,080 -
--------------------------------------------------
Net income (loss) $ 1,463,674 $(2,205,774) $ 2,623,451 $(3,567,342)
==================================================
Earnings (loss) per share
Basic $ 0.27 $ (0.43) $ 0.49 $ (0.70)
Diluted $ 0.20 $ (0.43) $ 0.36 $ (0.70)
Weighted average number of shares:
Basic 5,438,900 5,119,265 5,379,964 5,117,531
Diluted 7,496,689 5,119,265 7,281,218 5,117,531
</TABLE>
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
Page 4
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $2,623,451 $(3,567,342)
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Depreciation and amortization 337,327 206,480
Inventory write-down - 156,620
Amortization of debt discount 348,434 461,677
Changes in operating assets and liabilities:
Accounts receivable (3,664,742) 343,819
Inventories (2,840,510) (1,317,880)
Prepaid expenses and other (1,614,382) (61,724)
Other assets (167,686) 466,950
Accounts payable 1,413,889 (359,398)
Accrued liabilities and income taxes 232,672 (500,377)
Customer deposits 148,491 25,906
----------- -----------
Net cash used by operating activities (3,183,056) (4,145,269)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (347,696) (339,881)
----------- -----------
Net cash used in investing activities (347,696) (339,881)
----------- -----------
Cash flows from financing activities:
Borrowings from revolving line of credit 4,000,000 -
Net proceeds from issuance of notes payable 2,953,890 4,467,686
Repayment of notes payable (4,919,538) -
Repayments on borrowings to related parties - (33,929)
Principal payments on capital lease obligations (10,913) (7,506)
Issuance of common stock through exercise of options 168,192 15,002
Net cash provided by financing activities 2,191,631 4,441,253
----------- -----------
Net (decrease) in cash and cash equivalents (1,339,121) (43,897)
Effect of exchange rate changes on cash and cash equivalents 98,960 (22,849)
Cash and cash equivalents, beginning of period 3,941,305 3,981,062
----------- -----------
Cash and cash equivalents, end of period $2,701,144 $3,914,316
=========== ===========
Non-cash investing and financing activities:
Acquisitions of businesses
Issuance of common stock $1,143,750 -
Forgiveness of receivables 592,497 -
Supplemental cash flow information:
Interest paid $167,480 $8,223
Income taxes paid 18,840 13,400
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
</TABLE>
Page 5
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $1,463,674 $(2,205,774) $2,623,451 $(3,567,342)
Other comprehensive income (loss):
Foreign currency translation
adjustment (20,515) 696 (149,666) 696
---------- --------- ---------- ----------
Comprehensive income (loss) $1,443,159 $(2,205,078) $2,473,785 $(3,566,646)
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these
interim consolidated financial statements.
Page 6
<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying unaudited interim condensed consolidated financial
statements include the accounts of Dental/Medical Diagnostic Systems, Inc.
and Subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
The interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB and Item 10 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and
six-month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB
for the period ended December 31, 1998.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Dental
Medical Diagnostics Systems, Inc. and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. Also, at various times throughout the year, cash balances are
maintained in excess of Federally insured deposit limits.
For the three-month periods ended June 30, 1999 and 1998, international
customers accounted for 51% and 48% of sales, respectively. For the
six-month periods ended June 30, 1999 and 1998, international customers
accounted for 49% and 33% of sales, respectively. At June 30, 1999 and
1998, international customers accounted for approximately 76% and 87% of
trade accounts receivable, respectively. For the six month period ended
June 30, 1999 there was one customer who accounted for more than 10% of
revenues. There were no customers that accounted for more than 10% of
revenues for the three month period ended June 30, 1999 and 1998 and
six-months periods ended June 30, 1998. Five customers accounted for 38% of
the Company's accounts receivable at June 30, 1999.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Estimated credit
losses and returns have been provided for in the financial statements.
The majority of the Company's current customers consist of dental
professionals and independent distributors. Certain of the dental
professionals lease the Company's products through third party leasing
companies. Under the terms of the sales, the leasing companies have no
recourse against the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The significant estimates made in
the preparation of the consolidated financial statements relate to the
assessment of the carrying value of accounts receivable, inventories and
warranty provisions. Actual results could differ from those estimates.
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Risks and Uncertainties
The Company buys certain key components from one supplier or from a limited
number of suppliers. Although there are a limited number of suppliers of
the key components, management believes that other suppliers could provide
similar components on comparable terms. Changes in key suppliers could
cause delays in manufacturing and distribution of products and a possible
loss in sales, which could adversely affect operating results.
The Company has derived substantially all of its revenues from the sales of
two product families. The Company believes that the inability to attract
new customers, the loss of one or more of its major customers, a
significant reduction in business from such customers, or the
uncollectibility of amounts due from any of its larger customers, could
have a material adverse affect on the Company.
Revenue Recognition
The Company recognizes revenue from the sales of systems and supplies at
the time of shipment, net of an allowance for estimated sales returns. The
Company generally provides warranties on its systems for one year. A
provision for estimated future costs relating to warranty is recorded when
systems are shipped.
Computation of Earnings Per Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. Net income (loss) per common share assuming dilution is
computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding plus the number of additional common
shares that would have been outstanding if all dilutive potential common
shares had been issued. Potential common shares related to stock options
and stock warrants are excluded from the computation when their effect is
antidilutive.
The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share (EPS) computations for the three and
six-month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
Numerator:
Basic and diluted income available to common stockholders:
<S> <C> <C> <C> <C>
Net income (loss) $1,463,674 $(2,205,774) $2,623,451 $(3,567,342)
========= ========= ========= =========
Denominator:
Basic weighted average shares 5,438,900 5,119,265 5,379,964 5,117,531
Effect of dilutive securities:
Stock options and warrants 2,057,789 - 1,901,254 -
--------- --------- --------- ---------
Diluted weighted average shares 7,496,689 5,119,265 7,281,218 5,117,531
========= ========= ========= =========
</TABLE>
Common shares related to stock options and stock warrants that are
antidilutive amounted to approximately 10,000 and 1,180,262 for the
three-month periods ended June 30, 1999 and 1998, respectively. For the
six-month periods ended June 30, 1999 and 1998, the antidilutive stock
options and stock warrants amounted to 53,000 and 1,529,862, respectively.
Comprehensive Income
SFAS 130 "Reporting Comprehensive Income" establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in financial statements. SFAS 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Page 8
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No tax effect has been allocated to the foreign currency translation
adjustment for the periods presented.
The following is a reconciliation of accumulated other comprehensive income
balance for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Beginning balance $ 1,205
Current period change (149,666)
---------
Ending balance $(148,461)
==========
</TABLE>
3. Related Party Transactions
On May 27, 1997, the Company loaned Dewey Perrigo, Vice President of Sales
of the Company, and Andrea Niemiec-Perrigo, an employee of the Company,
$126,000 for the purpose of buying a home. The Promissory Notes evidencing
such loans bear interest at prime plus .25% (presently 8.75%), and are due
and payable on August 27, 1999. On August 19, 1998, a principal payment of
$56,000 and an interest payment of $6,152 were made leaving a loan balance
of $70,000.
4. Inventories
Inventories consisted of the following at June 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $4,572,815
Work in process 718,547
Finished goods 3,059,606
-----------
$8,350,968
===========
</TABLE>
5. Capital Transactions
On March 2, 1998, the Company entered into an agreement with accredited
investors and institutional purchasers for the private placement (the "Debt
Placement") of its 12% Senior Subordinated Notes due 1999 (the "Notes") and
450,000 warrants (the "1998 Warrants"). The Debt Placement was consummated
on March 19, 1998. The 1998 Warrants are (i) exercisable commencing on May
15, 1998, and for five years thereafter for the purchase of one share of
Common Stock per Warrant; and (ii) at an exercise price of $5.812 per
share. The Notes (i) bear interest payable semi-annually at a rate of 12%
per annum; (ii) mature on the first anniversary of the date of issuance;
and (iii) may be repaid by the Company prior to maturity at one hundred and
two (102%) percent of the amount of the unpaid principal plus interest due
as of the date of repayment. As a result of the warrant issuance, the
Senior Subordinated Notes were discounted by $1,620,225, which is being
amortized over the term of the Notes. On September 16, 1998, accrued
interest of $270,000 was paid to the Note holders in accordance with the
Debt Placement agreement. On January 27, 1999, the Company repaid the
Senior Subordinated Notes, in full, plus $189,000 of accrued interest. As a
result, the remaining unamortized debt discount of $348,434 was written-off
in the period ended March 31, 1999.
6. Segment Information
The Company operates in one segment - dental medical equipment which, at
June 30, 1999, comprised three main products: TeliCam Systems - an
intraoral camera and dental networking system; Apollo 95E tooth whitening
and curing system; and other accessories including the Apollo Secret
whitening product. Accordingly no separate segment information is provided
other than Enterprise Wide disclosures as required by SFAS No. 131.
Page 9
<PAGE>
The following are sales by product lines for the three and six month
periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended Ended
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
TeliCam $ 1,341,095 $1,251,338 $ 2,721,354 $2,867,107
Apollo 95E 8,392,072 1,133,129 16,360,939 1,431,279
Other 1,230,727 234,046 2,096,086 430,658
------------- -------------- ------------- --------------
$ 10,963,894 $ 2,618,513 $ 21,178,379 $4,729,044
============= ============== ============= ==============
</TABLE>
The Company ships products from its operations in the US and Europe. The
following are sales by its US and European locations for the three and six
months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended Ended
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales by geography:
United States 6,824,256 $1,364,159 $14,055,604 $3,321,505
Europe 4,139,638 1,254,354 7,122,775 1,407,539
------------- -------------- ------------- --------------
$10,963,894 $2,618,513 $21,178,379 $4,729,044
============= ============== ============= ==============
</TABLE>
The following is long-lived asset information by geographic area as of
June 30, 1999:
<TABLE>
<CAPTION>
June 30, 1999
----------------
Long Lived assets:
<S> <C>
United States $1,025,390
Europe 229,842
----------------
$1,255,232
================
</TABLE>
7. Subsequent events
On July 16, 1999, we raised approximately $5,000,000 in additional capital
by selling 901,000 shares of Common Stock to eight investors. The shares
were issued in a private placement and were then registered for resale on a
Form S-3 Registration Statement filed on July 23, 1999 and subsequently
declared effective. The proceeds of the offering are being used for working
capital purposes.
Item 2. - Management's Discussion and Analysis or Plan of Operation
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND NOTES THERETO
INCORPORATED ELSEWHERE IN THIS FORM 10QSB.
EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES AND ARE BASED
UPON JUDGMENTS CONCERNING VARIOUS FACTORS THAT ARE BEYOND OUR CONTROL. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE FACTORS DESCRIBED BELOW UNDER
THE CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."
INTRODUCTION
We design, develop, manufacture and sell high technology dental equipment and
related consumables. Our highest grossing product is the tooth curing and
whitening device known as the "Apollo 95E." We also market and sell a line of
whitening products known as "Apollo Secret" for use in conjunction with the
Apollo 95E, and in the second quarter of 1999, we introduced a line of composite
resin materials known as "ASAP - Accelerated Solutions for Aesthetic
Procedures," also for use in conjunction with the Apollo 95E. In addition, we
continue to manufacture and sell intraoral camera systems, known as the "TeliCam
II System," and "TeliCam Elite," and a multi-operatory intraoral camera system,
known as the InTELInet, for use in connection with the TeliCam II System and
TeliCam Elite
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<PAGE>
From early 1996 to mid 1998, we were primarily involved in designing,
developing, manufacturing, and marketing the TeliCam Systems. The first
shipments to customers of the TeliCam System commenced in early February 1996.
On October 2, 1997, we purchased the assets of S.E.D. Gerant, a company
organized under the laws of France. Among the acquired assets was a patent for
S.E.D.'s "Biotron" curing and whitening device products. From this technology,
we developed the "Apollo 95E" a unique, visible-light curing instrument which is
designed for two different applications: the hardening of tooth-colored dental
composite materials in three seconds or less and for single appointment,
in-office tooth whitening in less than forty minutes. This plasma-arc lamp uses
a high-frequency electrical field to generate plasma energy, which is ideal for
the fast-curing (hardening) of photosensitive composites. The Apollo 95E also
produces light and heat which, when used in conjunction with the Apollo Secret
whitening materials, activates the whitening chemicals in the Apollo Secret. The
result of this activation is dramatic whitening of discolored teeth. The rapid
performance of the Apollo 95E in both hardening composite materials and
whitening teeth enables an average dental practice to save about 5 to 8 hours
per month of a dentists examination time.
The Apollo 95E was introduced into markets outside of the US and Canada in
March 1998, and in the US and Canadian markets in August 1998. The Apollo 95E
has accounted for $8,392,072 for the three month period ended June 30, 1999 and
$16,360,939 in revenues for the six-month period ended June 30, 1999, as
compared to $1,133,129 and $1,431,279 for the same periods in 1998. Revenues
attributed to the TeliCam intraoral cameras have increased slightly to
$1,341,095 for the three month period ended June 30, 1999 and declined slightly
$2,721,354 for the six month period ended June 30, 1999 as compared to
$1,251,338 and $2,867,107 for the same periods in 1998.
RESULTS OF OPERATIONS
We derive our revenues primarily from the sale of three product lines:
TeliCam intra-oral camera systems, Apollo 95E curing and whitening devices, and
Apollo Secret and ASAP tooth whitening chemicals for use in conjunction with the
Apollo 95E, which began shipping in the fourth quarter of 1998 and second
quarter 1999, respectively. Through June 30, 1999, the sales of ASAP have been
immaterial.
Revenues by product line for the three and six month periods ended June 30,
1999 and 1998, are reflected in the following table:
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
------------------------------------------ -----------------------------------------
1999 % 1998 % 1999 % 1998 %
---- -- ---- -- ---- -- ---- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apollo 95E $ 8,392,072 77% $1,133,129 43% $16,360,939 77% $1,431,279 30%
TeliCam 1,341,095 12% 1,251,338 48% 2,721,354 13% 2,867,107 61%
Other 1,230,727 11% 234,046 9% 2,096,086 10% 430,658 9%
------------ ---- ---------- ---- ------------ ---- ---------- ----
$10,963,894 100% $2,618,513 100% $21,178,379 100% $4,729,044 100%
============ ==== ========== ==== ============ ==== ========== ====
</TABLE>
NET SALES. Net sales for the three-month periods ended June 30, 1999 and
1998, were $10,963,894 and $2,618,513 respectively. For the six-month periods
ended June 30, 1999 and 1998, net sales totaled $21,178,379 and $4,729,044,
respectively.
Net sales for the three-month period ended June 30, 1999 increased
approximately 319% from the three-month period ended June 30, 1998. Net sales
for the six-month period ended June 30, 1999 increased approximately 348% from
the six-month period ended June 30, 1998. For the three-month period ended June
30, 1998, TeliCam System sales represented 48% of total sales whereas for the
three-month period ended June 30, 1999 Apollo 95E represented 77% of total sales
which began shipping in Europe during the first quarter of 1998 and in the
United States during the third quarter of 1998. Comparing product line sales in
dollars for the three-month period ended June 30, 1998 to the three-month period
ended June 30, 1999, Apollo sales increased $7,258,943 while TeliCam sales
increased $89,757. Comparing product line sales in dollars for the six-month
period ended June 30, 1998 to the six-month period ended June 30, 1999, Apollo
sales increased $14,929,660 while TeliCam sales decreased $145,753. We expect,
but do not guarantee that, the steady trend in TeliCam sales will continue into
the future. No assurance can be given that the Apollo 95E sales growth will
continue in the future.
COST OF SALES. Cost of sales for the three-month periods ended June 30, 1999
and 1998, were $5,227,050, or 48% of net sales, and $1,946,906, or 74% of net
sales, respectively. Cost of sales for the six-month periods ended June 30, 1999
and June 30,
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<PAGE>
1998, were $10,139,525, or 48% of net sales, and $3,496,995, or 74%
of net sales, respectively. Cost of sales as a percentage of net sales for the
three-month period ended June 30, 1999 decreased from the period in 1998
primarily due to more favorable margins on the Apollo 95E, which represented 77%
of net sales opposed to 43% for the three-month period ended June 30, 1998. Cost
of sales as a percentage of net sales for the six-month period ended June 30,
1999 decreased from the period in 1998 primarily due to more favorable margins
on the Apollo 95E, which represented 77% of net sales opposed to 30% for the
six-month period ended June 30, 1998. While the more favorable margins on the
Apollo 95E have helped to decrease the cost of sales as a percentage of net
sales, we expect that margins on the sale of the TeliCams will continue to
shrink, and thus the cost of sales of the TeliCams as a percentage of net sales
of the TeliCams is expected to increase in the future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses totaled $4,080,719, or 37% of net sales, and $2,134,639,
or 82% of net sales, for the three-month periods ended June 30, 1999 and 1998,
respectively. . Selling, general and administrative expenses totaled $7,470,799,
or 35% of net sales, and $3,864,258 or 82% of net sales, for the six-month
periods ended June 30, 1999 and 1998, respectively. The absolute dollar
increases in this expense category for both the three and six month periods
ended June 30, 1999 and 1998 are primarily attributed to a combination of
increased sales commissions resulting from increased sales volumes ($520,000 and
$1,070,000, respectively), increased salaries ($746,000 and $1,035,000,
respectively), and increased marketing costs ($600,000 and $639,000,
respectively) resulting from enhanced marketing efforts. The decrease in
selling, general and administrative expenses as a percentage of net sales from
1998 to 1999 can be attributed to the substantial increase in net sales. These
expenses are expected to continue to increase on an absolute dollar basis as
sales volumes increase and additional marketing costs are incurred for the
introduction of new products.
RESEARCH AND DEVELOPMENT. Research and development expenses totaled 76,682,
or 1% of net sales, and $182,302, or 7% of net sales, for the three-month
periods ended June 30, 1999 and 1998, respectively. Research and development
expenses totaled $219,262, or 1% of net sales, and $324,689, or 7% of net sales,
for the six-month periods ended June 30, 1999 and 1998, respectively. Spending
in this category is slightly down as development of the digital x-ray is largely
complete. We expect research and development expenses to increase in future
periods if we are able to identify and continue to pursue the development of new
technologies.
INTEREST INCOME. Interest income totaled $99,872, and $64,057 for the
three-month periods ended June 30, 1999 and 1998. Interest income totaled
$131,430, and $108,330 for the six-month periods ended June 30, 1999 and 1998,
respectively. This income is primarily attributable to the interest earned by
investing available cash in a short-term management account through Imperial
Bank and Comerica Bank.
INTEREST EXPENSE. Interest expense totaled $125,641, and $549,497 for the
three-month periods ended June 30, 1999 and 1998, respectively. Interest expense
totaled $631,173, and $633,290 for the six-month periods ended June 30, 1999 and
1998, respectively. This expense category includes interest paid on capital
lease obligations, on bridge notes, on notes payable to related parties, on our
senior subordinated notes and amortization of debt discount. The substantial
decrease in the three-month period ended June 30, 1999 is primarily due to the
repayment of the $4.5 million of senior subordinated notes, which were repaid in
January 1999 with proceeds from the new credit facility with Imperial Bank and
the corresponding full amortization of the debt discount associated with the
warrants issued with the $4.5 million notes
Amortization of debt issuance costs was $75,000 for the three-month period
ended June 30, 1998. For the three-month period ended June 30, 1999, there was
no amortization of debt issuance costs. Amortization of debt issuance costs
totaled $64,519 and $85,484 for the six-month periods ended June 30, 1999 and
1998, respectively. This represents the amortization of the issuance costs
incurred in connection with the $4.5 million Senior Subordinated Notes issued in
March 1998. These costs were amortized over the term of the Notes, with the
remaining unamortized costs written-off in January 1999 when we repaid the
Senior Subordinated Notes out of the proceeds of our new credit facility with
Imperial Bank.
NET INCOME (LOSS). Net income for the three-month period and six-month period
ended June 30, 1999 totaled $1,463,674 or $0.20 per share on a diluted basis and
$2,623,451 or $.36 per share on a diluted basis, respectively. Net loss for the
three-month period and six-months ended June 30, 1998 totaled $2,205,774, or
$0.43 per share and $3,567,342, or $0.70 per share.
CAPITAL RESOURCES AND LIQUIDITY
For the six-month period ended June 30, 1999, we used net cash of $3,183,056
in operations. Accounts receivable increased from $3,757,865 at the prior year
end to $6,673,567 at June 30, 1999, primarily as a result of the increase in
sales during the three-month period ended June 30, 1999. Accounts payable and
accrued liabilities totaling $5,263,728 at June 30, 1999 increased from
$3,653,831 at the prior year end primarily due to increased inventory purchases.
Inventory levels increased approximately
Page 12
<PAGE>
$2,791,000 to accommodate the increased sales volume generated by the Apollo 95E
and in preparation of the product launch of our digital x-ray planned in the
third quarter.
Capital expenditures for the six-month period ended June 30, 1999 were
approximately $348,000, with approximately $84,000 spent for the purchase of
furniture and fixtures approximately $204,000 spent for computer equipment with
the remainder consisting of equipment and software acquisitions. Cash and cash
equivalents on hand at the end of the period were $2,701,144.
On January 4, 1999, we replaced our credit agreements with our previous
lender, Comerica, with a $6,950,000 facility with Imperial Bank. The Imperial
facility comprises a $2,500,000 fixed rate non-revolving line of credit due May
31, 2000; a $4,000,000 variable rate revolving line of credit due May 31, 2000;
and a $450,000 variable interest rate loan repayable in 16 monthly installments.
The facilities are collateralized by our assets. We intend to use the credit
facilities, when needed, for working capital, capital expenditures and general
corporate purposes. On January 21, 1999, we borrowed against the Imperial
facility to repay the balance owing on the Comerica capital credit line of
$343,890 plus accrued interest of $1,120. On January 25, 1999, we borrowed
against the Imperial facility to repay the $4,500,000 12% Senior Subordinated
Notes plus accrued interest of $189,000. At June 30, 1999, $6,878,242 was
outstanding under the Imperial facility.
As of the end of June 1999, the expenditures for continued research and
development for products incorporating digital x-ray technology (including the
additional development fee due to Suni upon acceptance by us of the final
prototype subsystem), the minimum purchase obligations under the distribution
agreement with Boston Marketing, the minimum purchase obligations under the
manufacturing agreement with Suni Microsystems, and the minimum purchase
obligations under the Exclusive License Agreement with Chrysalis Dental are the
only significant future commitments. These commitments will be financed by cash
from continuing operations, the proceeds of the Imperial credit facility and
approximately $5,000,000 in additional capital which we raised on July 16, 1999
by selling 901,000 shares of common stock to eight investors. The shares were
issued in a private placement and were then subsequently registered for resale
on a Form S-3 Registration Statement filed on July 23, 1999 and subsequently
declared effective. We believe that we will need to raise additional capital in
order to finance inventory and meet our cash requirements during the next twelve
months. We are currently considering a number of financing alternatives. No
assurance can be given that additional financing will be available when needed
or that, if available, it will be on terms favorable to us. If needed funds are
not available, we may be required to limit or forego the development of new
products, limit purchases of inventory or even limit current operations, which
could have a material adverse effect on our business, operating results and
financial condition.
FLUCTUATIONS IN QUARTERLY RESULTS
Our business is subject to certain quarterly influences. Net sales and
operating profit are generally higher in the fourth quarter due to the
purchasing patterns of dentists in the United States and are generally lower in
the first quarter due primarily to the effect upon demand or increased purchases
in the prior quarter. We also expect that our business will experience lower
sales in the summer months as a consequence of holiday vacations and a lesser
number of trade shows.
Quarterly results may be adversely affected in the future by a variety of
other factors, including the possible costs of obtaining capital, as well as the
release of new products and promotions taking place within the quarter. The
Company plans to continue to fund research and development and to increase
working capital requirements for the new products. Also, the expenses of the
Company are to a large extent fixed and not susceptible to rapid reduction. To
the extent that such expenses precede or are not subsequently followed by
increased revenues, our business, operating results and financial condition will
be adversely affected.
YEAR 2000 ISSUE
The Year 2000 readiness issue, which is common to most businesses, arises
from the inability of information systems, and other time and date sensitive
products and systems, to properly recognize and process date-sensitive
information or system failures. Estimates of the potential cost and effects of
Year 2000 issues vary significantly among businesses, and it is extremely
difficult to predict the actual impact. Recognizing this uncertainty, management
is continuing to actively analyze, assess and plan for various Year 2000 issues
across its businesses.
The Year 2000 issue has an impact on both information technology systems and
non-information technology systems, such as manufacturing systems and physical
facilities including, but not limited to, security systems and utilities. We
have tested all of our information technology systems and non-information
technology systems for Year 2000 readiness. All of our non-
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<PAGE>
information technology systems are Year 2000 compliant. With respect to
information technology systems, our strategy is to replace all non-Year 2000
compliant information technology systems by June 30, 1999. As of June 30, 1999,
our in-house data network and workstations are Year 2000 compliant.
The Year 2000 readiness of our customers varies. We are not investigating
whether or not our customers are evaluating and/or preparing their own systems
to be Year 2000 compliant. These efforts by customers to address Year 2000
issues may affect the demand for certain products and services; however, the
impact on our revenue is highly uncertain.
We have investigated the Year 2000 readiness of our key suppliers. Our
direction of this effort is to ensure that there are adequate components and
supplies available to us to minimize any potential business interruptions. Our
assessment of our key suppliers is now complete and we have determined that our
policy of maintaining an inventory of components and supplies sufficient to last
a minimum of a one to three months will be adequate to minimize almost any
potential business interruptions. We believe that our one to three month
inventories will allow enough time for our suppliers to remedy Year 2000
problems that may arise in their respective businesses.
The Year 2000 issue presents a number of other risks and uncertainties that
could impact us, such as public utilities failures, potential claims against us
for damages arising from products and services that are not Year 2000 compliant,
and the response ability of certain government commissions of the various
geographic areas where Dental/Medical conducts business. While we continue to
believe the Year 2000 issues described above will not materially affect our
financial position, it remains uncertain as to what extent, if any, we may be
impacted.
If we, our customers or suppliers are unable to resolve any Year 2000
compliance problems in a timely manner, we could face business interruptions or
a shutdown, financial loss, regulatory actions, reputational harm and/or legal
liability. We will have adequate components and supplies in our inventories to
minimize any potential business interruptions that may result from Year 2000
compliance problems suffered by our suppliers. As a result, we have determined
that we will not be developing any contingency plans that address a reasonably
likely worst case scenario.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR LIKELIHOOD OF
SUCCESS.
We have only manufactured and distributed our TeliCam systems since October
1995 and manufactured and distributed our Apollo 95E since March 1998.
Therefore, we have a limited relevant operating history upon which to evaluate
the likelihood of our success. Factors such as the risks, expenses and
difficulties frequently encountered in the operation and expansion of a
relatively new business and the development and marketing of new products must
be considered in evaluating the likelihood of success of our company.
WE HAVE A HISTORY OF LOSSES AND ACCUMULATED DEFICIT AND THIS TREND OF LOSSES MAY
CONTINUE IN THE FUTURE.
For the period from October 23, 1995 to March 2, 1996 we had a net loss of
$1,625,213. For the fiscal year ended December 31, 1997 we had a net loss of
$2,044,729 and for the fiscal year ended December 31, 1998 we had a net loss of
$1,816,702. For the three and six-month periods ended June 30, 1998, we incurred
a net losses of $2,205,774 and $3,567,342, respectively, while for the three and
six-month periods ended June 30, 1999 we had net income of $1,463,674 and
$2,623,451, respectively. At June 30, 1999, our accumulated deficit was
$2,722,512. Our ability to obtain and sustain profitability will depend, in
part, upon the successful marketing of our existing products and the successful
and timely introduction of new products. Although the Company was profitable in
the quarter and six-months period ended March 31, 1999 and June 30, 1999,
respectively, there can be no assurance that the Company will continue to be
profitable.
FLUCTUATION IN QUARTERLY RESULTS MAY RESULT IN DECLINES IN OUR STOCK PRICE.
Certain quarterly influences may affect our business. Sales are generally
higher in the fourth quarter due to the purchasing patterns of dentists in the
United States and are generally lower in the first quarter due primarily to the
effect upon demand of increased purchases in the prior quarter. It is also
expected that our business will experience lower sales in the summer months as a
consequence of holiday vacations and a lesser number of trade shows. These
fluctuations could result in significant fluctuations, including significant
declines in our stock price.
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<PAGE>
ONE OF OUR PRIMARY PRODUCTS HAS HAD A SIGNIFICANT DECLINE IN SALES AND IF THIS
DECLINE CONTINUES WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY.
The TeliCam systems, together with related products such as the InTELInet
system, and the Apollo 95E have been our primary products and during the first
six months have made up a substantial portion of our revenue. We believe that
the market for intraoral cameras, such as the TeliCam systems, is a market that
has declined. TeliCam systems sales have recently been at or below levels of
prior comparable periods, a trend that we expect to continue.
AS A RESULT OF DECLINING INTRAORAL CAMERA MARKET, OUR FUTURE DEPENDS ON OUR
ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.
As a result of the decline in the intraoral camera market, our future depends
upon our ability to increase demand for our related products and our ability to
develop and successfully introduce new products to make up for the diminished
sales of the Telicam systems. Development of new product lines is risk intensive
and often requires:
o long-term forecasting of market trends;
o the development and implementation of new designs;
o compliance with extensive governmental regulatory requirements; and
o a substantial capital commitment.
Also, the medical and dental device industry is characterized by rapid
technological change. As technological changes occur in the marketplace, we may
have to modify our products in order to become or remain competitive or ensure
that our products do not become obsolete. If we fail to anticipate or respond in
a cost-effective and timely manner to government requirements, market trends or
customer requirements, or if there are any significant delays in product
development or introduction, this could have a material adverse effect on our
business.
IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL TO FINANCE RESEARCH AND DEVELOPMENT
OF OUR NEW PRODUCTS WE MAY BE FORCED TO FOREGO THE DEVELOPMENT OF NEW PRODUCTS
AND POSSIBLY EVEN LIMIT CURRENT OPERATIONS.
If our secondary public offering is not successful, we anticipate that we
will need additional capital during the next 12 months to satisfy our expected
increased working capital and research and development requirements for our
planned new products. If our secondary offering does not close, we will explore
alternatives to fulfill these requirements, but cannot assure you that
additional financing will be available when needed or that, if available, it
will be on terms favorable to us. If needed funds are not available, we may be
required to limit or forego the development of new products or even limit
current operations, which could have a material adverse effect on our business,
operating results and financial condition.
WE SUBSTANTIALLY DEPEND UPON THIRD PARTIES FOR SEVERAL CRITICAL ELEMENTS OF OUR
BUSINESS, INCLUDING THE DEVELOPMENT AND LICENSING FOR DISTRIBUTION OF OUR
PRODUCTS AND IF THESE THIRD PARTIES DO NOT DELIVER WE MAY BE FORCED TO LIMIT
OPERATIONS.
We are dependent upon third party developers and suppliers for the
development and manufacture of all of the components used in our dental
equipment and for the development and manufacture of our consumable products.
Outside of updating our current products, we do not develop any of our
technology. Instead of developing technology, we continually seek out third
parties that own new and innovative technology that they may be willing to
license to us or develop into new dental products under a development agreement.
We have had problems in the past obtaining a marketable product from companies
with whom we had entered into a licensing arrangement. We entered into a
licensing agreement with Ion Laser Technology under which ILT was unable to
develop a product in accordance with the delivery schedule established by our
agreement that met our specifications; as a result, we were forced to find an
alternative product to that which we had contracted with ILT.
Under licensing and development arrangements we have obtained exclusive
marketing rights to products for the dental market incorporating certain digital
x-ray technology developed by Suni. We have paid significant non-refundable
advances to, and are dependant upon Suni to successfully develop the digital
x-ray technology and to commercialize the digital x-ray technology. We do not
guarantee that Suni will be successful in this endeavor. If Suni should not
develop a digital x-ray product which is accepted in the marketplace, and has
sufficient sales to achieve profits, this could have a material adverse effect
on our future prospects.
IF WE DO NOT MAKE CERTAIN REQUIRED MINIMUM ROYALTY PAYMENTS TO SUNI, WE WILL
LOSE OUR EXCLUSIVE RIGHTS TO THE DIGITAL X-RAY TECHNOLOGY DEVELOPED FOR US BY
SUNI.
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<PAGE>
In order to maintain our rights to be the exclusive dental licensee of the
digital x-ray technology developed by Suni, our agreement with Suni requires us
to make minimum royalty payments. The royalty payments begin coming due when
products incorporating the developed technology are introduced to the market. We
cannot guarantee that we will be able to make the minimum royalty payments
required to maintain our rights to be the exclusive distributor. If we do not
make the required royalty payments, Suni will be able to license the developed
technology to our competitors, or grant an exclusive license to a competitor,
which could have a material adverse effect on our operating results and
financial condition.
THE GOVERNMENT EXTENSIVELY REGULATES OUR PRODUCTS AND FAILURE TO COMPLY WITH
APPLICABLE REGULATIONS COULD RESULT IN FINES, SUSPENSIONS, SEIZURE ACTIONS,
PRODUCT RECALLS, INJUNCTIONS AND CRIMINAL PROSECUTIONS.
The United States Food and Drug Administration, as well as state and foreign
agencies, regulate almost all aspects of our medical devices including:
o entry into the marketplace;
o design;
o testing;
o manufacturing procedures;
o reporting of complaints;
o labeling; and
o promotional activities.
Under the Federal Food, Drug, and Cosmetic Act, FDA has the authority to
control the introduction of new products into the marketplace. Unless
specifically exempted by the agency, medical devices enter the marketplace
through either FDA clearance of premarket approval application or FDA approval
of an application for 510k clearance. FDA conducts periodic inspections to
assure compliance with it's regulations.
Unless specifically exempted by FDA's regulations, we will need to file a
510k submission or PMA application for any new products developed in the future
including any using digital x-ray technology. The process of obtaining a
clearance or approval can be time-consuming and expensive. Compliance with FDA's
regulatory requirements can be expensive and time consuming. We do not guarantee
that the required regulatory approvals or clearances will be obtained. Any
approval or clearance obtained from FDA may include significant limitations on
the use of the medical device which is the subject of the approval or clearance.
We cannot market a medical device if needed FDA approval or clearance is not
granted. Inability to obtain such approval or clearance could result in a delay
or suspension of the manufacture and sale of affected medical devices. Any such
delay or suspension would have a material adverse effect on our business. In
addition, changes in existing regulations or the adoption of new regulations
could make regulatory compliance by us more difficult in the future. The failure
to obtain the required regulatory clearances or to comply with applicable
regulations could result in one or more of the following:
o fines;
o delays or suspensions of device clearances;
o seizure actions;
o mandatory recalls;
o injunction action; and
o criminal prosecution.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER COULD RESULT IN THE LOSS OF A
SIGNIFICANT PORTION OF OUR BUSINESS BECAUSE OF HIS PERSONAL RELATIONSHIPS IN THE
INDUSTRY.
Our success is highly dependent upon our Chairman of the Board and Chief
Executive Officer, Robert H. Gurevitch. Unlike larger companies, we rely heavily
on a small number of officers to conduct a large portion of our business. The
loss of service of Robert H. Gurevitch along with the loss of his numerous
contacts and relationships in the industry would have a material adverse effect
on our business. We have entered into an Employment Agreement with Robert H.
Gurevitch under which he has agreed to render services to us until October 1,
1999. We have obtained "key person" life insurance on Mr. Gurevitch in the
amount of $2,000,000, of which we are the sole beneficiary, but there can be no
assurance that the proceeds of such insurance will be sufficient to offset the
loss to us in the event of his death.
Page 16
<PAGE>
NONE OF OUR PRODUCTS HAVE SIGNIFICANT PROTECTION FROM PATENTS, AND THEREFORE,
THEY MAY NOT BE ADEQUATELY PROTECTED FROM COPYING BY COMPETITORS.
Our future success and ability to compete is dependent in part upon our
proprietary technology used in the Apollo 95E. The Apollo 95E is currently only
protected by a patent in France. Patent protection is being sought in all of the
countries of the world in which this technology can be marketed. There can be no
assurance that patents outside of France will be granted for the Apollo 95E
system, and, if granted, the patents will provide adequate protection for the
Company's technologies. Consequently, we rely primarily on trademark, trade
secret and copyright laws to protect our technology. However, there can be no
assurance that third parties will not try to copy our products. In addition,
many foreign countries' laws may not protect us from improper use of our
proprietary technology overseas. We may not have adequate remedies if our
proprietary rights are breached and therefore a breach of our proprietary rights
could have a material adverse effect on our financial condition.
WE ARE SUSCEPTIBLE TO PRODUCT LIABILITY SUITS AND IF A LAWSUIT IS BROUGHT
AGAINST US IT COULD RESULT IN US HAVING TO PAY LARGE LEGAL EXPENSES AND/OR
JUDGMENTS.
Although we have not yet had any product liability claims, because of the
nature of the medical/dental device industry, there can be no assurance that we
will not be subject to such claims in the future. Our products come into contact
with more vulnerable areas of the human body, such as the mouth, tongue, teeth
and gums, and, therefore, the sale and support of dental products makes us
susceptible to the risk of such claims. A successful product liability claim or
claim arising as a result of use of our products brought against us, or the
negative publicity brought up by such claim, could have a material adverse
effect upon our business. We maintain product liability insurance with coverage
limits of $10,000,000 per occurrence and $11,000,000 per year. While we believe
that we maintain adequate insurance coverage, we do not guarantee that the
amount of insurance will be adequate to satisfy claims made against us in the
future, or that we will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On July 16, 1999, we raised approximately $5,000,000 in additional capital
by selling 901,000 shares of Common Stock to eight investors. The shares were
issued in a private placement and were then registered for resale on a Form S-3
Registration Statement filed on July 23, 1999 and subsequently declared
effective. The proceeds of the offering are being used for working capital
purposes.
Item 3. Defaults in Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of its Shareholders held on June 10, 1999
(the "Annual Meeting ") the stockholders of the company approved the following
proposals:
PROPOSAL 1. ELECTION OF DIRECTORS
The following persons were elected as directors of the Company at the
Annual Meeting to hold office for a term one year or until their successors have
been duly elected and qualified:
<TABLE>
<CAPTION>
Directors Votes For Votes Against Votes Withheld Broker Non-Votes
- --------------------------- ------------------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert H. Gurevitch 3,624,410 0 3,600 0
Marvin H. Kleinberg 3,622,610 0 5,400 0
Page 17
<PAGE>
Jack D. Preston 3,622,610 0 5,400 0
John A. Khademi 3,622,610 0 5,400 0
</TABLE>
PROPOSAL 2. ADMENDMENT TO THE 1997 STOCK INCENTIVE PLAN
The proposed amendment to the Company's 1997 Stock Incentive Plan to
increase from 700,000 to 1,200,000, the number of shares of Common Stock was
authorized for issuance thereunder was approved with 1,060,646 votes for the
proposal, 202,262 votes against the proposal, 5,200 votes abstaining
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, thereto duly authorized.
Dental/Medical Diagnostic Systems, Inc.
Date AUGUST 13, 1999 By: /S/ ROBERT H. GUREVITCH
----------------------------------------
Robert H. Gurevitch
Chairman and Chief Executive Officer
Date AUGUST 13, 1999 By: /S/ STEPHEN F. ROSS
----------------------------------------
Stephen F. Ross
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
interim condensed consolidated financial statements of Dental/Medical Diagnostic
Systems, Inc. as of and for the six-month period ended June 30, 1999 included in
this report on Form 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000738194
<NAME> ENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
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