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 APRIL 30, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number: 1-11032
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
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(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
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(Address of Principal Executive Offices)
(870) 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 May 30, 1997: 14,100,000
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
APRIL 30 OCTOBER 31
1997 1996
(UNAUDITED)
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 714,415 $ 727,825
Certificates of Deposit -- 400,000
Accounts Receivable:
Trade - net of allowance for doubtful
accounts of $43,000 1,769,163 1,572,449
Affiliates 149,234 160,150
Inventory 2,120,100 2,212,987
Other Current Assets 722,015 450,041
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Total Current Assets 5,474,927 5,523,452
Property and Equipment - Net 2,468,561 1,980,103
Other Assets - net of accumulated
amortization 129,957 149,074
Investments - at equity (Note 1) 313,305 324,393
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Total Assets $ 8,386,750 $ 7,977,022
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of Credit $ 688,510 $ 726,503
Accounts Payable - Trade 824,499 982,342
Other Accrued Liabilities 1,023,666 982,553
Long-term debt - current portion 216,755 216,756
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Total Current Liabilities 2,753,430 2,908,154
Long-term debt 1,326,665 983,060
Total Liabilities 4,080,095 3,891,214
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Stockholders' Equity:
Common Stock $0.01 par value:
30,000,000 shares authorized;
14,100,000 shares issued and
outstanding 141,000 141,000
Additional Paid-in Capital 276,167 263,667
Retained Earnings 3,889,714 3,681,367
Equity Adjustment from Foreign
Currency Translation (226) (226)
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Total Stockholders' Equity 4,306,655 4,085,808
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Total Liabilities and Stockholders'
Equity $ 8,386,750 $ 7,977,022
=========== ===========
See Notes to Financial Statements
2
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<TABLE>
<CAPTION>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30 APRIL 30
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1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 5,946,451 $ 5,525,048 $ 10,736,848 $ 11,061,980
Cost of Goods Sold 2,534,837 2,391,021 4,477,824 4,862,430
------------ ------------ ------------ ------------
Gross Profit 3,411,614 3,134,027 6,259,024 6,199,550
Operating Expenses 3,106,136 2,888,848 5,619,092 5,711,565
------------ ------------ ------------ ------------
Income
from Operations 305,478 245,179 639,932 487,985
Other Income (Expenses) (145,819) (97,683) (302,065) (231,394)
------------ ------------ ------------ ------------
Net Income
before Taxes 159,659 147,496 337,867 256,591
Provision for
Income Taxes (63,563) (55,990) (129,370) (97,402)
------------ ------------ ------------ ------------
Net Income $ 96,096 $ 91,506 $ 208,497 $ 159,189
============ ============ ============ ============
Net Income per Share $ .01 $ .01 $ .01 $ .01
============ ============ ============ ============
Weighted average
number of shares
outstanding 14,103,737 14,476,298 14,103,737 14,476,298
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
3
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 208,497 $ 159,189
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 298,736 174,696
Deferred compensation expense 12,500 12,500
Decrease (increase) in:
Accounts Receivable:
Trade - Net (196,714) (426,853)
Due from Affiliate 10,916 50,891
Inventory 92,887 94,713
Other Current Assets (271,974) 214,176
Other Deferred Items: 8,620 --
Increase (decrease) in:
Accounts Payable - Trade (157,843) (29,895)
Other Accrued Liabilities 41,113 38,707
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Net Cash Provided by Operations 46,738 288,124
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (777,180) (661,866)
Loss on Disposal of Equipment 333 --
Certificates of Deposit 400,000 --
Increase (Decrease) in Other Assets -- (650)
Investment in Joint Ventures 11,088 83,431
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Net Cash (used) for Investing
Activities (365,759) (579,085)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Notes Payable (37,993) (110,339)
Issuance of long-term debt 489,660 453,592
Payment of long-term debt (146,056) (84,073)
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Net Cash (used) for
Financing Activities 305,611 259,180
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Increase (decrease) in Cash (13,410) (31,781)
Cash and Cash Equivalents -
Beginning of Period 727,825 898,641
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End of period $ 714,415 $ 866,860
========= =========
See Notes to Financial Statements
4
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
Professional Dental Technologies, Inc. (the Company) is engaged
primarily in the business of designing, manufacturing, and marketing
innovative products and services for dental professionals, to be
used in 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
Marketing, Inc., Professional Dental Hygienists, Inc., Professional
Dental Technologies Therapeutics, Inc., Pro-Dentec FSC, Inc., PDT
Image, Inc., PDT Byte, Inc., Professional Dental Manufacturing,
Inc., (F.K.A. PDP, Inc.), Professional Dental Printing, Inc. and
Professional Dental Probes, Inc. All significant intercompany
accounts and transactions have been eliminated.
In October, 1996, the Company initiated the liquidation of PDT
Production Corporation. The final settlement of all assets and
liabilities of this company, as a result of the liquidation, is
expected to occur during 1997. Professional Dental Printing, Inc.
and Professional Dental Marketing, Inc., commenced operations on
January 1, 1997. Professional Dental Probes, Inc., has had no
activity or account balances during the year to date.
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 and
equivalents.
Certificates of Deposit:
Certificates of deposit consist of time deposits in financial
institutions with maturities at date of purchase of six months. Such
instruments are carried at cost which approximates market value.
5
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Long-Lived Assets:
The Company will adopt Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121) in fiscal 1997. SFAS
121 is effective for years beginning after December 15, 1995 and
requires the Company to review long lived assets and certain
identifiable intangibles for impairment, by estimating the future
cash flows expected to result from the use and disposal of the asset
in comparison with the carrying value of the asset. The Company has
not yet determined what effect, if any, adoption of SFAS 121 will
have on the 1997 financial statements.
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,
increased for subsequent investments in and advances to the
investee, and adjusted for the Company's share of undistributed
earnings or losses of the investee.
6
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash and
accounts receivable. The Company maintains cash in bank deposit
accounts and certificates of deposit which, at times, may exceed
federally insured limits. The Company believes it has its cash
deposits at high quality financial institutions. The Company
believes no significant credit risk exists with respect to these
deposits.
Accounts receivable arise from the sale of dental products to dental
professionals located throughout the world but principally in the
United States. The Company performs ongoing credit evaluations of
its customers' financial condition, and
7
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk (Continued)
generally requires no collateral from its customers. The Company's
credit losses are subject to general economic conditions of the
dental industry.
Income Taxes:
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist 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.
Stock-Based Compensation:
The Company will adopt Statement of Financial Accounting SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) in fiscal
1997. SFAS 123 is effective for years beginning after December 15,
1995 and prescribes accounting and reporting standards for all
stock-based compensation plans. Since the Company intends to elect
continued recognition of certain stock-based compensation using the
intrinsic value method prescribed under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued To Employees, no effect
on the Company's expense recognition is expected.
Foreign Currency Translation:
The functional currency of Pro-Dentec Canada, a U.S. partnership,
accounted for under the equity method, is the Canadian dollar. The
adjustment resulting from the translation of the Canadian financial
statement is reflected as a separate component of stockholders'
equity.
Reclassifications:
Certain reclassifications have been made to the 1996 financial
statements in order to conform with 1997 financial statement
presentation. These reclassifications had no effect on stockholders
equity or net income, as previously reported.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
RESULTS OF OPERATIONS. For the six month period ended April 30, 1997,
net sales were $10.7 million, a decrease of about 3%, compared to $11.1
million for the same period in 1996. This result is attributable to
decreases in sales within both the Company's equipment and clinical
product lines. Sales of the intra-oral camera decreased as a direct result
of management's decision to hold the line on the price of the Company's
product in the face of severe price competition in the market. Computer
system revenues were also down, primarily as a result of the Company's
decision to transition sales responsibility to independent value-added
resellers (VARs), who typically supply the hardware portion of the system,
which was previously sold by the Company. A decrease in Rota-dent(R)
revenues, which occurred chiefly during the first quarter of 1997, was
likely the result of anticipatory buying by customers during the previous
quarter, in reaction to an announced 6% price increase. These decreases
were partially offset by an increase in sales of the Company's
pharmaceutical and scaler product lines, which benefitted from the
introduction, in the second quarter of 1997, of the all-new Pro-Select 3
ultrasonic scaler, and the continued growth and expansion of the
pharmaceutical product line.
The Company's sales revenues during the six months ended April 30, 1997
and 1996 have been substantially attributable to sales of the Rota-dent
and accessories. During the first six months of 1997, revenue from such
sales, including foreign sales, amounted to $7.8 million compared to $8.2
million for the same period in 1996. Revenue received during the first
half of 1997 from the sale of pharmaceutical and scaler products totaled
$1.9 million compared to $1.4 million in the 1996 period. Other sources of
revenue included the Company's sales of the Prism camera, Victor and other
computer-based products, which amounted to $0.5 million for the first half
of 1997 and $1.1 million in the six month period ended April 30, 1996. The
balance of the Company's revenue in both years resulted from seminar fees
and sale of printed literature.
The cost of goods sold for the six months ended April 30, 1997 was $4.5
million, compared to $4.9 million for the period ended April 30, 1996.
Gross profit percentage improved to 58.3% in the 1997 period from 56.0% in
1996. This improvement is attributable to increased manufacturing
effectiveness, resulting from investments the Company made in 1996 in
plastic injection molding machinery with which to produce Rota-dent parts
previously purchased from outside vendors.
Operating expenses were $5.6 million during the first six months of
1997, as compared to $5.7 million during the first half of 1996. Selling
expense was up shightly in the 1997 period as a result of hiring to
increase the size of the outside sales force, and increased promotional
expenditures for the Rota-dent. General and administrative expense was
also up slightly, primarily as a result of litigation expense relating to
the lawsuit with the Company's Canadian joint venture partner (See LEGAL
PROCEEDINGS). Reductions in product development expense, resulting from
the completion of the scaler development project, more than offset these
increases.
9
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Other income and expense, consisting primarily of the profit or loss
from non-consolidated affiliates, and interest income/expense, netted an
expense of $302,000 for the first six months of 1997, compared with an
expense of $231,000 for the same period in 1996. The increase is primarily
a result of higher interest expense in 1997, resulting from debt incurred
in the acquisition of fixed assets, and from the continued writedown of
investment in the PerfectByte partnership.
As a result of the changes noted above, net income for the six month
period ended April 30, 1997 was $208,000, an increase of 31%, compared to
$159,000 for the same period in 1996.
CAPITAL RESOURCES AND LIQUIDITY. On April 30, 1997 the Company's total
assets were $8.4 million, compared to $8.0 million at October 31, 1996,
resulting primarily from an increase in fixed assets. Total liabilities
were $ 4.1 million, an increase of $0.2 million compared to year-end
liabilities of $3.9 million, resulting from long term debt incurred to
acquire the additional fixed assets. Stockholders' Equity increased by
$0.2 million, to $4.3 million, as a result of earnings during the period.
For the six month period ended April 30, 1997, net cash provided from
operations was $47,000 compared to $288,000 in the 1996 period. Cash from
operations was adversely affected in the 1997 period by an increase in
accounts receivable, resulting from increased sales in the second quarter,
a decrease in accounts payable, resulting from a reduction in parts
purchases, and an increase in other current assets, resulting from an
increase of prepaid literature and prepaid state and federal income taxes.
FOR THE THREE MONTH PERIODS ENDED APRIL 30, 1997 AND 1996
RESULTS OF OPERATIONS. For the three month period ended April 30, 1997,
net sales increased 7% to $5.9 million, compared to $5.5 million in the
1996 period. This result is primarily attributable to an increase in the
sale of the Company's scaler and pharmaceutical product lines, partially
offset by a decline in sales of computer equipment. The pharmaceutical
product line continues to grow, resulting from increased market
penetration and an expanding product line. Revenues from the sale of
ultrasonic scalers increased as a result of the introduction of the
Pro-Select 3, a newly designed scaler-irrigator product, which commenced
shipping at the beginning of the 1997 second quarter. Computer system
revenues were down compared to the 1996 second quarter as a result of the
Company's decision to transition sales responsibility to independent
value-added resellers (VARs), who typically supply the hardware portion of
the system previously sold by the Company.
The Company's sales revenue during the three months ended April 30,
1997 and 1996 were principally attributable to the Rota-dent. Sales of
this product, including accessories and foreign sales, were $4.1 million
in the 1997 second quarter, compared to $4.2 million in the 1996 period.
Other clinical products, (the scaler and pharmaceutical product lines)
generated revenues of $1.2 million in the second quarter of 1997, compared
to $0.8 million in the 1996 period. Revenue from the sale of
computer-based products amounted to $0.2 million in the 1997 quarter
10
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compared to $0.6 million in the second quarter of 1996. Revenues from
seminar fees and the sale of printed literature also increased in 1997,
and accounted for the balance of the Company's revenue in both years.
Cost of goods sold for the three months ended April 30, 1997 was $2.5
million, compared to $2.4 million in 1996. In percentage terms, the
increase in cost of goods was less than the increase in revenue. The
resulting approximate 1% improvement in gross profit margin is
attributable to increased manufacturing efficiency, resulting form
investments the Company made in 1996 in plastic injection molding
machinery with which to manufacture Rota-dent parts previously purchased
from outside vendors.
Operating expense was $3.1 million in the second quarter of 1997
compared to $2.9 million in the 1996 period, in line with the increase in
revenues. Other income and expense, consisting primarily of the
profit/loss of non-consolidated affiliates and interest income/expense,
was an expense of $146,000 in the 1997 second quarter, compared to an
expense of $98,000 in the 1996 period. The increase in expense resulted
primarily from higher interest cost.
As a result of the changes noted above, net income for the three month
period ended April 30, 1997, was $96,000 compared to $92,000 in the 1996
period, in line with the increase in revenue for the quarter.
CAPITAL RESOURCES AND LIQUIDITY. On April 30, 1997 the Company's total
assets were $8.4 million, compared to $8.0 million at October 31, 1996,
resulting from an increase in fixed assets. Total liabilities were $4.1
million, an increase of $0.2 compared to year end liabilities of $3.9
million, resulting from long term debt incurred to acquire the additional
fixed assets. Stockholders' Equity increased by $0.2 million, to $4.3
million, as a result of earnings during the period since October 31, 1996.
For the three month period ended April 30, 1997, net cash provided from
operations was ($36,000). Cash from operations was adversely affected in
the 1997 period by an increase in accounts receivable, resulting from
increased sales in the second quarter, and an increase in other current
assets, resulting from an increase of prepaid literature and prepaid state
and federal income taxes.
The Company has established reserves for potential warranty claims on
its primary products, and such claims have historically been within
management's expectation.
The Company defines liquidity as the ability to generate adequate
amounts of cash to meet the its needs. The Company has historically relied
on cash provided from operations to meet its working capital needs, and
anticipates this will continue in the near term. However, the Company
currently has a revolving line of credit with NBD Bank under which it can
draw up to $3 million, subject to the availability of collateral. This
line of credit is primarily secured by receivables and inventory, and may
be used to finance the additional working capital requirements of the
Company. The Company also has other sources of credit with which it can
finance the purchase of fixed assets, and anticipates that these or other
credit sources will be utilized for most future fixed asset additions. The
Company believes these sources of credit combined with cash flow from
operations will be sufficient to meet its foreseeable cash requirements.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 26, 1995, PDT Image, Inc., a wholly owned subsidiary of
Professional Dental Technologies, Inc., filed a Petition for Declaratory
Decree and Restraining Order against Source-1 Dental Image, Inc., ("SDI")
and its two principal officers. SDI and PDT Image are partners in the
partnership known as Pro-Dentec Canada. PDT Image was granted a Temporary
Restraining Order by the Court, and later it amended its claim to include,
among other matters, damages for fraud, breach of fiduciary duty and civil
conspiracy. In July, 1995, SDI filed its response and a counterclaim for
dissolution of the partnership. Trial was held in the Chancery Court of
Independence County, Arkansas, in September, 1996.
In its decree dated April 22, 1997, the Court issued its ruling in the
matter. SDI and its two principal officers were found to have breached
their fiduciary responsibility, committed actual and constructive fraud
and engaged in civil conspiracy. They were also found to be in contempt of
the Temporary Restraining Order.
The Court has ruled that the partnership agreement be rescinded, that
SDI's license rights in software developed be awarded to PDT Image, and
that SDI and its principals are to make restitution to PDT Image in the
amount of approximately $909,000. The SDI principals are personally and
individually responsible for the payment of the restitution. The Temporary
Restraining Order has been made permanent.
On May 5, 1997, SDI and its two principal officers filed Notice of
Appeal. They have not posted an appeal bond. PDT Image is therefore
proceeding with efforts to have the judgement enforced.
The Company cautions that the value of the license rights assigned to
PDT Image is in question due to the existance in the market of competing
software. Also, there can be no assurance that PDT Image will be able to
collect any or all of the amount of the ordered restitution.
On April 24, 1997, the Company and its subsidiary PDT Production
Corporation ("PDT Production") were served with a complaint by Lysta
Production A/S ("Lysta"), the parent of the Company's former partner in
the Prolyco Production Company ("Prolyco"), which manufactured the PDT
Sc/RP ultrasonic scaler, previously sold by the Company.
On June 18, 1996, PDT Production offered to buy Lysta's interest in
Prolyco for $20,000. Under the terms of the partnership agreement, Lysta
had the option to accept the offer, or in the alternative, to purchase the
Company's interest for the same amount. By letter dated August 22, 1996,
Lysta elected to sell its partnership interest rather than buy the
interest owned by the Company. The sale was closed on September 20, 1996.
This transaction terminated the Prolyco partnership, and PDT Production
became the successor in interest. In conjunction with the closing, PDT
Production and the Company signed a promissory note for approximately
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$45,000, representing the balance of the amount owed under the minimum
guaranteed royalty provision of the license agreement then in effect
between Lysta and Prolyco ("License") for the previous year.
On October 31, 1996, PDT Production executed an Assignment for the
Benefit of Creditors ("Assignment"). The effect of the Assignment was to
terminate the License by its terms. The termination of the License caused
the termination of the partnership agreement by its terms. With the
termination of the License, the Company's obligation to make annual
minimum guaranteed royalty payments was terminated. As of the date of the
Assignment, the only creditors of PDT Production were Lysta and the
Company. The Assignee subsequently caused the assets of PDT Production to
be liquidated, and the cash proceeds from the liquidation are currently in
his possession.
The complaint alleges that absent termination of the License, the
Company would have been obligated to pay guaranteed minimum royalties
through the year 2050. Lyco thereby claims $8.8 million in actual losses
plus unspecified punitive damages. The Company believes this claim is
without merit. The complaint also alleges additional damages totalling
approximately $112,000 relating to purported wrongful detention of, and
damage to, equipment belonging to Lysta. The Company believes this
assertion is without merit. The complaint also alleges that the Company is
utilizing confidential and proprietary know-how owned by Lysta to
manufacture its new dental scaler, and seeks a preliminary injunction to
prevent the Company from manufacturing or selling dental scalers. The
Company believes this claim is without merit.
The complaint also asks that the note for $45,000 plus accrued
interest, as well as certain actual and guaranteed royalties, amounting to
approximately $50,000, which became due prior to the Assignment, be paid.
The Company does not deny its obligation to pay amounts owed. Payment was
to be made from the proceeds of the liquidation of the assets of PDT
Production, with funds now in the possession of the Assignee.
On May 29, 1997, the Company was served with a lawsuit by a former
employee, alleging discrimination on the basis of her sex. At the time
this report was filed, the Company and its attorneys had reached no
conclusions as to the merits of the claim. However, the Company does have
a strict, written policy of non-discrimination.
The Company knows of no other material litigation involving the
Company or any officer or director of the Company.
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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)
June 10, 1997 /s/ William T. Evans
- ---------------------------------- ---------------------------------
Date William T. Evans
President & CEO
June 10, 1997 /s/ Richard L. Land
- ---------------------------------- ---------------------------------
Date Richard L. Land
Vice Predident & Controller
15
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