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 January 31, 1997
------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from___________________to_______________________
Commission file number: 1-11032
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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
(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 February 28, 1997: 14,100,000
---------------------------------
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31 OCTOBER 31
1997 1996
(unaudited)
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 753,462 $ 727,825
Certificates of Deposit 200,000 400,000
Accounts Receivable:
Trade - net of allowance for doubtful accounts of $43,000 1,652,305 1,572,449
Affiliates 248,057 160,150
Inventory 2,211,105 2,212,987
Other Current Assets 601,624 450,041
-------------- --------------
Total Current Assets 5,666,553 5,523,452
Property and Equipment - Net 2,455,447 1,980,103
Other Assets - net of accumulated
amortization 139,930 149,074
Investments - at equity (Note 1) 256,612 324,393
-------------- --------------
Total Assets $ 8,518,542 $ 7,977,022
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Line of Credit $ 811,447 $ 726,503
Accounts Payable - Trade 782,379 982,342
Other Accrued Liabilities 1,108,945 982,553
Long-term debt - current portion 216,756 216,756
------- -------
Total Current Liabilities 2,919,527 2,908,154
Long-term debt 1,403,817 983,060
Total Liabilities 4,323,344 3,891,214
-------------- --------------
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 269,917 263,667
Retained Earnings 3,784,507 3,681,367
Equity Adjustment from Foreign
Currency Translation ( 226) ( 226)
--------------- ---------------
Total Stockholders' Equity 4,195,198 4,085,808
--------------- --------------
Total Liabilities and Stockholders'
Equity $ 8,518,542 $ 7,977,022
=============== ===============
See Notes to Financial Statements
</TABLE>
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For The Three Month Periods Ended January 31, 1997 and 1996
THREE MONTHS ENDED
JANUARY 31
--------------------------------------------
1997 1996
---- ----
Sales $ 4,790,397 $ 5,536,932
Cost of Goods Sold 1,942,987 2,471,409
--------------- ----------------
Gross Profit 2,847,410 3,065,523
Operating Expenses 2,512,956 2,822,717
--------------- ---------------
Income
from Operations 334,454 242,806
Other Income (Expenses) ( 156,246) ( 133,710)
---------------- ---------------
Net Income
before Taxes 178,208 109,096
Provision for
Income Taxes 65,807 41,413
---------------- --------------
Net Income $ 112,401 $ 67,683
================ ==============
Net Income per Share $ .01 $ .00
================ ==============
Weighted average
number of shares
outstanding 14,103,737 14,476,298
================ ==============
See Notes to Financial Statements
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(unaudited)
For The Three Month Periods Ended January 31, 1997 and 1996
Cash Flows from Operating Activities 1997 1996
---- ----
Net Income $ 112,401 $ 67,683
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 128,852 69,912
Deferred compensation expense 6,250 6,250
Decrease (increase) in:
Accounts Receivable:
Trade - Net ( 79,856) ( 317,130)
Due from Affiliate ( 87,907) 22,913
Inventory 1,882 17,448
Other Current Assets ( 151,583) 168,835
Increase (decrease) in:
Accounts Payable - Trade ( 199,963) ( 37,650)
Other Accrued Liabilities 126,392 250,759
------------- ---------------
Net Cash Provided by Operations ( 143,532) 249,020
------------- ---------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment ( 604,312) ( 151,630)
Certificates of Deposit 200,000 ---
Investment in Joint Ventures 67,781 21,245
------------- ------------
Net Cash (used) for Investing
Activities ( 336,531) ( 130,385)
------------- ------------
Cash Flows from Financing Activities:
Increase (Decrease) in Notes Payable 84,944 ( 250,548)
Issuance of long-term debt 489,660 49,880
Payment of long-term debt ( 68,904) ( 94,074)
------------ ------------
Net Cash (used) for
Financing Activities 505,700 ( 294,742)
------------- --------------
Increase (decrease) in Cash 25,637 ( 176,107)
Cash and Cash Equivalents -
Beginning of Period 727,825 898,641
--------------- --------------
End of period $ 753,462 $ 722,534
=============== ==============
See Notes to Financial Statements
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended January 31, 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. had no activity or account balances during the
quarter.
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.
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended January 31, 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.
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.
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended January 31, 1997 and 1996
Note 1: Summary of Significant Accounting Policies (Continued)
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
generally requires no collateral from its customers. The
Company's credit losses are subject to general economic
conditions of the dental industry.
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended January 31, 1997 and 1996
Note 1: Summary of Significant Accounting Policies (Continued)
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JANUARY 31, 1997 AND 1996
-----------------------------------------------------------
RESULTS OF OPERATIONS. For the period ended January 31, 1997, net
sales were $4.8 million compared with $5.5 million in the 1996 first
quarter. This result is attributable to decreases in sales within both
the Company's clinical and equipment 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
destructive 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. There was also a reduction in
revenue from the sale of ultrasonic scalers as the Company transitioned
to the sale of a newly designed scaler product, the Pro-Select-3(R).
Shipments of the Pro-Select-3 did not commence until the beginning of
the second quarter of 1997. Rota-dent(R) revenues were also down, 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 product line.
The Company's total sales revenue during the three months ended
January 31, 1997 and 1996 have been principally attributable to the
Rota-dent. Sales of the Rota-dent, including accessories and foreign
sales, were $3.7 million in the 1997 first quarter compared to $4.0
million in the 1996 period. Other clinical products, (the scaler and the
pharmaceutical product line) generated revenues of $0.6 million in the
first quarter of both years. Revenue from the sale of the camera and
computer-based products amounted to $0.3 million in 1997 compared to
$0.7 million in the first quarter of 1996.
The cost of goods sold for the three months ended January 31,
1997, decreased to $1.9 million (41% of sales) from $2.5 million (45% of
sales) for the same period in 1996. The improvement in gross margin
resulted from lower cost to manufacture the Rota-dent, due to a
significant investment in new manufacturing equipment in the second half
of 1996, better enforcement of the Company's returned goods policy, and
a favorable change in product mix.
Operating expenses decreased to $2.5 million during the first
three months of 1997, from $2.8 million during the first three months of
1996, in line with the year-to-year decrease in revenue, except that
general and administrative expense increased, largely as a result of
legal costs incurred in connection with the Canadian litigation. (See
Part II, Item 1). Other income and expense, consisting primarily of the
profit/loss of non-consolidated affiliates and interest income/expense,
was up slightly in 1997, due to higher interest expense and a continuing
writedown of investment in the PerfecfByte partnership.
As a result of the changes noted above, net income for the three
month period ended January 31, 1997, was $112,000 compared to $68,000 in
the 1996 period, an increase of approximately 65%.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY. On January 31, 1997 the Company's
total assets were $8.5 million, compared to $8.0 million at October 31,
1996. The increase was primarily attributable to the addition of fixed
assets. Total liabilities were $4.3 million, compared to $3.9 million at
October 31, 1996. The increase is due to additional long term debt,
incurred to finance the fixed asset additions. Stockholders' equity was
$4.2 million, an increase of $0.1 million from the October 31, 1996
total, the result of earnngs during the period. During the three months
ended January 31, 1997, net cash provided from operations was ($144,000)
compared to $249,000 in the 1996 period. The negative cash from
operations in the 1997 period largely resulted from a paydown of trade
accounts payable.
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.
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.
By letter dated February 24, 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 were awarded to PDT
Image, and that SDI and its principals are to make restitution to PDT
Image in an amount which will be determined after the final decree is
signed by the Court, but which may approximate $900,000.
<PAGE>
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
The SDI principals are personally and individually responsible for the
payment of the restitution. The Temporary Restraining Order has been
made permanent.
Company officials caution 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.
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
Form 8-K dated February 28, 1997, announcing the decision of the
Court in the SDI litigation. See PART II, ITEM 1, "LEGAL
PROCEEDINGS".
<PAGE>
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)
March 13, 1997 /s/ William T. Evans
- ------------------------------ ----------------------------------
Date William T. Evans
President & CEO
March 13, 1997 /s/ R.L. Land
- ----------------------------- ----------------------------------
Date R. L. Land
Controller
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