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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[ X ]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended _____July 31, 1996_____
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______________ to _______________
Commission file number: ____________1-11032____________
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
--------------------------------------
(Exact name of small business issuer as
specified in its charter)
Nevada 71-0644350
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
633 Lawrence Street, Batesville, Arkansas 72501
------------------------------------------------
(Address of Principal Executive Offices)
(501) 698-2300
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(Issuer's telephone number)
----------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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 _______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant 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 court.
Yes _______ No _______.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of August 31, 1996: 14,100,000
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<CAPTION>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
JULY 31 OCTOBER 31
1996 1995
(unaudited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 753,734 $ 898,641
Accounts Receivable:
Trade - net of allowance for doubtful accounts of $40,500 1,843,443 1,344,804
Affiliates 99,466 150,160
Inventory 2,125,887 2,379,984
Deferred Income Taxes 175,000 175,000
Income Tax Receivable --- ---
Other Current Assets 302,409 493,106
----------- -----------
Total Current Assets 5,299,939 5,441,695
Property and Equipment - Net 1,990,059 1,513,264
Other Assets - net of accumulated amortization 102,184 131,460
Investments - at equity (Note 1) 459,584 622,786
----------- -----------
Total Assets $ 7,851,766 $ 7,709,205
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 779,995 $ 932,984
Accounts Payable - Trade 731,057 1,199,487
Other Accrued Liabilities 1,199,222 915,128
Long-term debt - current portion 294,548 343,048
----------- -----------
Total Current Liabilities 3,004,822 3,390,647
Long-Term Debt - net of current portion 867,277 526,511
----------- -----------
Total Liabilities 3,872,099 3,917,158
----------- -----------
Stockholders' Equity:
Common Stock $0.01 par value: 30,000,000
shares authorized: 14,100,000 shares and 14,000,000
issued and outstanding in
1995 and 1994, respectively 141,000 141,000
Additional Paid-in Capital 257,416 238,667
Retained Earnings 3,592,527 3,423,656
Equity Adjustment from Foreign Currency Translation ( 11,276) ( 11,276)
----------- -----------
Total Stockholders' Equity 3,979,667 3,792,047
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,851,766 $ 7,709,205
----------- -----------
See Notes to the Financial Statements
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<TABLE>
<CAPTION>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For The Three And Nine Month Periods Ended July 31, 1996 and 1995
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31 JULY 31
-------------------------------- ----------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $ 5,212,365 $ 5,502,207 $ 16,394,432 $ 18,211,504
Cost of Goods Sold 2,084,072 2,029,527 6,650,322 7,277,283
------------ ------------ ------------ ------------
Gross Profit 3,128,293 3,472,680 9,744,110 10,934,221
Operating Expenses 2,970,878 3,154,557 9,098,709 10,062,776
------------ ------------ ------------ ------------
Income
from Operations 157,415 318,123 645,401 871,445
Other Income (Expenses) ( 146,626) ( 191,575) ( 378,020) ( 538,205)
------------ ------------ ------------ ------------
Net Income
before Taxes 10,789 126,548 267,381 333,240
Provision for ( 1,108) ( 48,038) ( 98,510) ( 126,498)
Income Taxes ------------ ------------ ------------ ------------
Net Income $ 9,681 $ 78,510 $ 168,871 $ 206,742
------------ ------------ ------------ ------------
Net Income per Share $ .00 $ .01 $ .01 $ .01
------------ ------------ ------------ ------------
Weighted average
number of shares
outstanding 14,476,298 14,988,313 14,476,298 14,988,313
---------- ---------- ---------- ----------
See Notes to the Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(unaudited)
For the Nine Month Periods Ended July 31, 1996 and 1995
<S> <C> <C>
Cash Flows from Operating Activities 1996 1995
---- ----
Net Income $ 168,871 $ 206,742
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 255,578 246,767
Deferred compensation expense 18,750 18,750
Decrease (increase) in:
Accounts Receivable:
Trade - Net ( 498,639) ( 150,019)
Due from Affiliate 50,694 ( 60,332)
Inventory 254,097 ( 12,497)
Income Taxes Receivable --- ---
Other Current Assets 190,697 98,887
Increase (decrease) in:
Accounts Payable - Trade ( 468,430) ( 590,124)
Other Accrued Liabilities 284,094 103,693
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Net Cash Provided by Operations 255,712 ( 138,133)
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Cash Flows from Investing Activities:
Decrease (increase) in Other Assets* ( 151) ( 110)
Purchase of Property and Equipment ( 702,947) ( 212,133)
Investment in Joint Ventures 163,202 ( 201,444)
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Net Cash (used) for Investing Activities ( 539,896) ( 413,687)
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Cash Flows from Financing Activities:
Increase (Decrease) in Notes Payable ( 201,489) 155,857
Issuance of long-term debt 478,155 159,447
Payment of long-term debt ( 137,389) ( 184,311)
----------- -----------
Net Cash (used) for Financing Activities 139,277 130,993
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Effect of Exchange Rate
Changes on Cash --- ---
----------- -----------
Increase (decrease) in Cash ( 144,907) ( 420,827)
Cash and Cash Equivalents -
Beginning of Period 898,641 1,243,693
----------- -----------
End of Period $ 753,734 $ 822,866
=========== ===========
Supplemental Schedule of
Non-Cash Investing & Financing Activities
*During December, 1993 the Company issued 100,000 shares of stock in exchange for trade secrets relating to marketing and
developing dental products valued at $225,000.
</TABLE>
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three And Nine Month Periods Ended July 31, 1996 and 1995
Note 1: Summary of Significant Accounting Policies
Nature of Organization:
Professional Dental Technologies, Inc. (the Company) is
engaged in the business of designing, manufacturing, and
marketing innovative products and services for dental
professionals for the diagnosis, treatment, and prevention
of periodontal and other dental diseases in the general
dental practice. The company extends credit to its
customers in the normal course of business. Customers of
the Company are dentists located throughout the world with
the primary customer base in the United States.
Principles of Consolidation:
The consolidated financial statements include the results of
operations, account balances and changes in cash flows of
the Company and its wholly-owned subsidiaries: Professional
Dental Hygienists, Inc., Professional Dental Therapeutics,
Inc., Pro-Dentec FSC, Inc., PDT Image, Inc., PDT Byte, Inc.
(formerly PDT Computer Associates, Inc.), PDT Production
Company, and PDP, Inc. All significant intercompany
accounts and transactions have been eliminated.
Cash Equivalents:
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments and time
deposits with an original maturity of three months or less,
in addition to all checking, savings and money market
accounts, to be cash equivalents.
Inventory:
Inventory is recorded at the lower of cost (determined on a
first-in, first-out basis) or market.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is
calculated using straight-line and accelerated methods and
is expensed based on the estimated useful lives of the
assets.
Expenditures for additions and improvements are capitalized,
while repairs and maintenance are expensed as incurred.
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three And Nine Month Periods Ended July 31, 1996 and 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Investments in and Advances to Affiliates:
The equity method of accounting is used to account for
investments made when the Company has the ability to
exercise significant influence over the operating and
financial polices of an investee, generally involving a 20%
to 50% interest in those investees.
Under the equity method, original investments are recorded
at cost adjusted for the Company's share of undistributed
earnings or losses of the investee (Note 5).
Accrued Warranty Costs:
Accrued warranty costs consist of the estimated replacement
cost of product returned to the Company pursuant to the
terms of their product warranties and is computed based upon
historical information.
Net Income Per Share:
Net income per share was computed based on the weighted
average number of shares actually outstanding plus the
shares that would be outstanding assuming exercise of
options which are considered to be common stock equivalents,
less the shares assumed to be acquired by the Company using
the proceeds from the assumed exercise of options assuming
this acquisition was based on the average market price per
share.
Revenue Recognition:
Revenue is recognized at the time that ownership transfers
to the customer, principally at the time of shipment.
Income Taxes:
In 1994, the Company adopted the liability method of
accounting for income taxes pursuant to Statement of
Financial Accounting Standards NO. 109 (SFAS 109),
Accounting for Income Taxes. The Company previously
utilized the provisions of Accounting Principle Board
Opinion No. 11.
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three And Nine Month Periods Ended July 31, 1996 and 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Income Taxes (continued):
Under SFAS 109, income taxes are provided for the tax
effects of transactions reported in the financial statements
and consists of taxes currently due plus deferred taxes, if
any. Deferred taxes represent the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Foreign Currency Translation:
The functional currency of Pro-Dentec Canada, a U.S.
partnership, accounted for under the equity method (Note 5),
is the Canadian dollar. The adjustment resulting from the
translation of the Canadian financial statement is reflected
as a separate component of stockholders' equity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED JULY 31, 1996 AND 1995
-------------------------------------------------------
Results of Operations. For the nine month period ended July 31,
1996 net sales were $16.4 million, as compared with $18.2 million
during the same period in 1995. This decrease is primarily
attributable to the decrease in the sale of Prism[TRADEMARK] intra-
oral cameras and Rota-dent[REGISTERED TRADEMARK] units. The
decrease in Prism shipments is a direct result of the decision by
management to no longer sell units based purely on price. Severe
price competition in the camera market has resulted in sales of
fewer units by the Company.
The Company's total sales revenues during the nine months ended
July 31, 1996 and 1995 have been substantially attributable to sales
of the Rota-dent and accessories. During the first nine months of
1996 revenue from such sales, including foreign sales of $0.7
million, amounted to $12.1 million as compared with $12.7 million
for the same period in 1995, during which period there was $0.8 mil-
lion of foreign sales. Other significant sources of revenue included
the Company's sales of Victor[TRADEMARK], Prism and other computer-
based products, amounting to $1.6 million for the first nine months
of 1996. Sales of these systems amounted to $2.7 million in the
nine month period ended July 31, 1995. Revenue received during the
period ended July 31, 1996 from the sale of fluoride products and
Sensor Sc/RP[TRADEMARK] totaled $2.1 million. Sales of these
products were $2.2 million during the same period of 1995.
The cost of goods sold for the nine months ended July 31, 1996
was $6.7 million, including $0.4 million of costs related to
commercial printing projects for third party customers, of which
there were none in the prior year, compared with $7.3 million for
the same period ended July 31, 1995. The 1996 cost of goods sold
amount also includes an expense of $0.2 million, taken to establish
a reserve for obsolete and slow moving inventory. Management
anticipates that this inventory will be written off at year-end.
Adjusting for these differences, cost of goods sold in the 1996
period would have been 36.3% of revenue, compared to 40.0% for the
same period in 1995. This difference is due partially to an increase
in operating efficiencies, and partially to a favorable change in
product mix, primarily lower sales of high cost Prism units.
Operating expenses decreased to $9.1 million during the first
nine months of 1996, compared to $10.1 million during the first nine
months of 1995. The 1995 figure includes $0.4 million of costs
related to commercial printing projects for third party customers,
of which there were none in 1996. Adjusting for this difference,
operating expense in the 1996 period was 55.3% of revenue, compared
to 53.3% for the same period in 1995. The increase in 1996 is due
primarily to product development costs relating to not-yet-released
new products, increased legal expenses relating to litigation with
our Canadian joint venture partner, and increased marketing expenses
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relating to the Rota-dent product line. Due to the expansion of the
field sales force and the considerable investment required to make
new outside sales representatives profitable, selling expenses have
been and continue to be the most scrutinized of the operating
expenses.
Other income and expenses netted an expense of $0.4 million for
the first nine months of 1996 compared with a net expense of $0.5
million for the same period in 1995. The decrease in expense is due
to improvement in the performance of the joint ventures, in which
the Company holds an equity position, during the first nine months
of 1996.
Net income for the nine month period ended July 31, 1996 was
$169,000, a small decrease compared to net income of $207,000 during
the same period of 1995. This decrease is due to the combination of
the factors previously noted.
Capital Resources and Liquidity. On July 31, 1996 the Company's
total assets were $7.9 million, as compared with $7.7 million at
October 31, 1995. Total liabilities were $ 3.9 million, as compared
with $3.9 million at year end. Stockholders' equity increased to
$4.0 million, primarily as a result of earnings.
During the period ended July 31, 1996 and 1995 net cash provided
from operations of $255,000 and $(138,000), respectively, was used
in combination with loan proceeds to increase capital items,
including vehicle, computer and manufacturing equipment by $703,000
and $212,000, respectively, and repay long-term debt by $137,000 and
$184,000 respectively.
FOR THE THREE MONTH PERIODS ENDED JULY 31 1996 AND 1995
-------------------------------------------------------
Results of Operations. For the three month period ended
July 31, 1996 net sales were $5.2 million as compared with $5.5
million the comparable period in 1995. This decrease can be
attributed to the decrease in sales of the Prism intra-oral camera
and a decrease in Rota-dent sales.
The Company's total sales revenues during the three month period
ended July 31, 1996 and 1995 have been principally attributable to
sales of the Rota-dent. During the third quarter of 1996 revenue
from such sales, including accessory and foreign sales amounted to
$3.9 million as compared with $4.1 million for the same period in
1995. Other significant sources of revenue included the Company's
sale of technology based products, including the Prism, which
amounted to $0.5 million for the third quarter of 1996, and to $0.6
million in the three month period ended July 31, 1995; revenue
during the period from the sale of fluoride products and Sensor
Sc/RP totaled $0.7 million in 1996 and $0.7 million in 1995.
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The cost of goods sold for the third quarter ended July 31, 1996
was $2.1 million, including $0.1 million of costs related to
commercial printing projects for third party customers, of which
there were none in the prior year. During the same period in 1995,
the cost of goods sold was $2.0 million. The 1996 third quarter cost
of goods sold includes an expense of $0.2 million, taken to estab-
lish a reserve for obsolete and slow moving inventory. Management
anticipates that this inventory will be written off at year-end.
Operating expenses decreased to $3.0 million during the three
month period ended July 31, 1996 from $3.2 million during the same
period of 1995. The 1995 figure includes $0.1 million of cost
related to commercial printing projects for third party customers,
of which there was none in 1996.
Other income and expenses netted an expense of $147,000 for the
third quarter of 1996 compared with a net expense of $192,000 for
the same period in 1995. The decrease in net expense is due to
improvement in the performance of the joint ventures, in which the
Company holds an equity position.
Net income for the three month period ended July 31, 1996 was
$10,000 as compared with $78,000 during the same period of 1995.
This decrease is due to the combination of the factors previously
noted.
Capital Resources and Liquidity. On July 31, 1996 the Company's
total assets were $7.9 million, as compared with $7.7 million at
October 31, 1995. Total liabilities were $3.9 million, the same as
the total at year end. Stockholders' equity was $4.0 million, a
slight increase over October 31, 1995, primarily as a result of
earnings.
During the period ended July 31, 1996 and 1995 net cash provided
from operations of $255,000 and $(138,000), respectively, was used
in combination with loan proceeds to increase capital items, includ-
ing vehicle, computer and manufacturing equipment by $703,000 and
$212,000, respectively, and repay long-term debt by $137,000 and
$184,000 respectively.
The Company's wholly owned subsidiary, PDT Production
Corporation, exercised the "forced put" clause in its partnership
agreement with LYCO, Inc., regarding Prolyco Production Company,
which is the joint venture which produces the company's Sc/RP scaler
product. PDT Production Corporation offered to buy or sell its
interest in the joint venture for $20,000. LYCO has declined the
offer to purchase and in doing so has accepted the offer to sell its
interest in the partnership to PDT Production, and the Company
anticipates that the transaction will close in late September, 1996.
The Company has obtained from NBD Bank, Detroit, Michigan, a
$3.0 million asset based line of credit. Documents were signed on
June 25, 1996. The new credit line will be secured by receivables,
inventory and equipment. This agreement replaces the Company's
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previous line of credit with First Commercial Bank of Little Rock,
Arkansas. Citizen's Bank of Batesville will continue to provide
required financing for real estate and equipment.
The Company has established reserves for potential warranty
claims on it primary products, and such claims have historically
been within management's expectation.
The Company defines liquidity as the ability of the Company to
generate adequate amount of cash to meet the Company's needs. The
Company has historically relied on cash provided from operations to
meet a majority of its financial needs
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, on June 26, 1995, PDT Image, Inc., (a
wholly-owned subsidiary of Professional Dental Technologies, Inc.)
filed its Petition for Declaratory Decree and Restraining Order
against Source-1 Dental Image, Inc., et al, its partner in a
partnership known as Pro-Dentec Canada.. The Company was granted a
Temporary Restraining Order by the Court, and later it amended its
claim to include damages for fraud, breach of fiduciary duty and
unjust enrichment. In July 1995, Source-1 Dental Image, Inc., filed
its response and a Petition to dissolve the partnership. The
lawsuit is in the discovery stage, and is currently set for trial
commencing September 16, 1996. The Company intends to vigorously
prosecute this action and has recently amended its complaint to
include malicious interference with business relations and breach of
contract against Source-1 Dental Image and its owners Dr. David Gane
and Mr. Wayne Rees. Regardless of the outcome, the Company expects
to continue distributing its products in Canada.
The Company knows of no other material litigation involving the
Company or any officer or director of the Company.
ITEM 2. CHANGES IN SECURITIES
"NONE"
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
"NONE"
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
"NONE"
ITEM 5. OTHER INFORMATION
"NONE"
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
"NONE"
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROFESSIONAL DENTAL
TECHNOLOGIES, INC.
------------------------------
(Registrant)
9/9/96 /s/ William T. Evans
------------------------- ------------------------------
Date William T. Evans
President
9/9/96 /s/ N.E. Deskin
------------------------- ------------------------------
Date N.E. Deskin
VP Administration
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 754
<SECURITIES> 0
<RECEIVABLES> 1,944
<ALLOWANCES> 40
<INVENTORY> 2,126
<CURRENT-ASSETS> 5,300
<PP&E> 3,617
<DEPRECIATION> 1,627
<TOTAL-ASSETS> 7,852
<CURRENT-LIABILITIES> 3,005
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 3,839
<TOTAL-LIABILITY-AND-EQUITY> 7,852
<SALES> 16,394
<TOTAL-REVENUES> 16,394
<CGS> 6,650
<TOTAL-COSTS> 9,100
<OTHER-EXPENSES> 275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 267
<INCOME-TAX> 99
<INCOME-CONTINUING> 169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<PAGE>
</TABLE>
