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, 1998
[ ] 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)
(870) 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 August 31, 1998: 14,100,000
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31 OCTOBER 31
1998 1997
(unaudited)
----------- ----------
ASSETS (In thousands)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,765 $ 1,267
Accounts Receivable:
Trade - Net of allowance for doubtful accounts of $59,000 2,084 1,741
and $60,000 respectively
Affiliates 232 133
Inventory 2,992 2,791
Other Current Assets 1,164 457
-------------- --------------
Total Current Assets 8,237 6,389
Property and Equipment - Net 2,511 2,494
Other Assets - Net of Accumulated
Amortization 103 131
-------------- --------------
Total Assets $ 10,851 $ 9,014
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Line of Credit $ 922 $ 390
Accounts Payable - Trade 1,221 1,135
Other Accrued Liabilities 1,794 1,276
Long-term Debt - Current Portion 195 206
Capital Lease Obligations - Current Portion 173 173
-------------- --------------
Total Current Liabilities 4,305 3,180
Long-term Debt - Net of Current Portion 630 755
Capital Lease Obligations - Net of Current Portion 439 505
-------------- --------------
Total Liabilities 5,374 4,440
Stockholders' Equity:
Common Stock $0.01 par value: 30,000,000 shares
authorized; 14,100,000 shares issued and outstanding 141 141
Additional Paid-in Capital 308 289
Retained Earnings 5,028 4,144
-------------- --------------
Total Stockholders' Equity 5,477 4,574
--------------- --------------
Total Liabilities and Stockholders'
Equity $ 10,851 $ 9,014
=============== ==============
</TABLE>
See Notes to Financial Statements
2
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND NINE MONTH PERIODS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
July 31 July 31
--------------------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 6,672 $ 6,276 $ 20,504 $ 17,013
Cost of Goods Sold 2,713 2,745 8,133 7,560
----------- --------- ----------- ----------
Gross Profit 3,959 3,521 12,371 9,453
Operating Expenses 3,649 3,358 11,289 8,649
----------- --------- ---------- ----------
Income from Operations 310 173 1,082 804
Other Income (Expenses) ( 67) ( 46) 349 ( 339)
----------- --------- ----------- ----------
Net Income before Taxes 243 127 1,431 465
Provision for Income Taxes ( 91) ( 48) ( 547) ( 178)
----------- --------- ----------- -----------
Net Income $ 152 $ 79 $ 884 $ 287
=========== ========= =========== ===========
Net Income per Share:
Basic $ .01 $ .01 $ .06 $ .02
=========== ========= =========== ===========
Diluted $ .01 $ .01 $ .06 $ .02
=========== ========= =========== ===========
Weighted average shares
outstanding:
Basic 14,121,000 14,104,000 14,121,000 14,104,000
========== ========== ========== ==========
Diluted 14,121,000 14,104,000 14,121,000 14,104,000
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 884 $ 288
Adjustments to reconcile net income
to net cash from operations:
Depreciation and Amortization 520 456
Gain/(loss) on disposal of property & equipment (10) ---
Deferred Compensation Expense 19 18
Decrease (increase) in:
Accounts Receivable (441) (247)
Inventory (201) (372)
Other Assets (695) (328)
Increase (decrease) in:
Accounts Payable - Trade 86 190
Other Accrued Liabilities 518 189
------------- -------------
Net Cash Provided by Operations 680 194
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (457) (854)
Proceeds from Sale of Fixed Assets 20 13
Certificates of Deposit --- 400
Investment in Joint Ventures --- 275
------------- -------------
Net Cash (used) for Investing Activities (437) (166)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Line of Credit 532 (326)
Issuance of Long-term Debt 20 497
Payment of Capital Lease Obligations (141) ---
Payment of Long-term Debt (156) (239)
------------- -------------
Net Cash (used) for Financing Activities 255 (68)
------------- -------------
Increase (decrease) in Cash 498 (40)
Cash and Cash Equivalents -
Beginning of Period 1,267 728
------------- -------------
End of period $ 1,765 $ 688
============= =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Month Periods Ended July 31, 1998 and 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ORGANIZATION - Professional Dental Technologies, Inc. is a group
of companies headquartered in Batesville, Arkansas engaged primarily in
the business of designing, manufacturing and marketing products and
services for dental professionals to be used in the diagnosis, treatment
and prevention of periodontal and other dental diseases.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Professional Dental Technologies, Inc. and its
wholly-owned subsidiaries: PDT Byte, Inc., Pro-Dentec FSC, Inc.,
Professional Dental Hygienists, Inc., PDT Image, Inc., Professional Dental
Manufacturing, Inc., Professional Dental Marketing, Inc., Professional
Dental Printing, Inc., Professional Dental Probes, Inc., (inactive at July
31, 1998), and Professional Dental Technologies Therapeutics, Inc.
(collectively the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
CASH AND CASH EQUIVALENTS - For the purpose of presentation in the
consolidated statements of cash flows, the Company considers all cash on
hand and on deposit with depository institutions with maturity at the time
acquired of three months or less to be cash and 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 less
accumulated depreciation. Depreciation is calculated using accelerated
methods and is expensed based on the estimated useful lives of the assets.
LONG-LIVED ASSETS - The Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF in the year ended October 31, 1997. The Company
reviews long-lived assets and certain identifiable intangibles to be held
and used, for impairment, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of SFAS No. 121 had no effect on the Company's consolidated
financial statements for the period ended July 31, 1998.
5
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN AND ADVANCES TO AFFILIATES - The Company uses the equity
method to account for investments in affiliates, primarily joint ventures,
in which the Company has a 20% to 50% interest.
NET INCOME PER SHARE - The Company has adopted SFAS No. 128, Earnings per
Share, during the year ended October 31, 1997; accordingly, both Basic and
Diluted EPS were presented for the quarters ended July 31, 1998 and 1997.
Basic and diluted weighted average number of shares outstanding for the
quarters ended July 31, 1998 and 1997 were 14,121,000 and 14,104,000
shares, respectively. Common stock equivalents have less than a 3%
dilutive effect.
REVENUE RECOGNITION - Revenue is recognized at the time that product
ownership transfers to the customer, principally at the time of shipment.
Revenue from computer software maintenance agreements is deferred and
amortized over the term of the related agreements.
ACCRUED WARRANTY COSTS - The Company provides by a current charge to
income, an amount it estimates will be needed to cover future warranty
obligations for products sold during the year.
CONCENTRATION OF CREDIT RISK - Accounts receivable arise from the sale of
dental products to dental professionals located throughout the world but
principally in the United States. The Company extends credit to its
customers in the normal course of business. 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.
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 has adopted SFAS No. 123,
Accounting for Stock-Based Compensation during the year ended October 31,
1997. SFAS No. 123 establishes accounting and reporting standards for
companies who have stock-based compensation plans. Those plans include all
arrangements by which employees and non-employees receive shares of stock
or other equity instruments of the company. SFAS No. 123 defines a fair
value based method of accounting for a stock option or similar equity
instrument. Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
Accounting Principles Board ("APB") Opinion 25, requires compensation cost
for stock-based employee compensation plans to be recognized based on the
difference, if any, between the quoted market price of the stock and the
amount an employee must pay to acquire the stock. SFAS No. 123 permits an
entity in determining its net income to continue to apply the accounting
provisions of APB Opinion 25 to its stock-based employee compensation
6
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
arrangements. An entity that continues to apply APB Opinion 25 must comply
with the disclosure requirements of SFAS 123. The Company has elected to
continue to apply the accounting provisions of APB Opinion No. 25 and
related interpretations to its employee stock options.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1997
financial statements in order to conform with 1998 financial statement
presentation. These reclassifications had no effect on stockholders'
equity or net income, as previously reported.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED JULY 31, 1998 AND 1997
-------------------------------------------------------
RESULTS OF OPERATIONS. For the nine month period ended July 31,
1998, net sales were $20.5 million, an increase of approximately 21%
compared to $17.0 million for the same period in 1997. This result is
largely attributable to increases in sales of each of the Company's
three major product lines, Rota-dent and accessories, ultrasonic scaler
and accessories, and dental pharmaceutical products. Computer system
revenues were down as a result of fewer systems being sold.
Approximately $0.5 million of the increase in revenue can be attributed
to the net impact of consolidating Canadian revenue with that of the
Company in the first six months of 1998, whereas such revenue was not
consolidated in the first half of 1997. (Consolidation of Canadian
revenues began on May 1, 1997, concurrent with the termination of the
Pro-Dentec Canada Partnership.)
The Company's sales revenue during the nine months ended July 31,
1998 and 1997 has been substantially attributable to sales of the
Rota-dent and accessories. During the first nine months of 1998, revenue
from such sales, excluding foreign sales, amounted to $12.2 million
compared to $11.1 million for the same period in 1997. Revenue received
during the first nine months of 1998 from the sale of pharmaceutical and
scaler products totaled $5.5 million, compared to $3.1 million in the
1997 period. Scaler sales in 1998 more than doubled compared to the 1997
period, and pharmaceutical sales increased by more than 40%.
International sales were $1.4 million in 1998 (including consolidated
Canadian sales), compared to $1.0 million in the 1997 period (when
Canadian sales were not consolidated for the first six months). The
balance of the Company's revenue in both years resulted from sales of
computer software, seminar fees and the sale of printed literature.
Cost of goods sold for the nine months ended July 31, 1998 was
$8.1 million or 39.7% of sales, compared to $7.6 million or 44.4% of
sales for the period ended July 31, 1997. The improvement in gross
margin is primarily attributable to increased manufacturing
effectiveness. In addition, the manufacturing cost of the scaler in the
first nine months of 1998 was lower than in 1997, since startup costs
for the new scaler were incurred in 1997.
7
<PAGE>
Operating expenses were $11.3 million during the first nine months
of 1998 compared to $8.6 million during the 1997 period. Selling expense
was up significantly in the 1998 period as a result of continued hiring
to increase the size of the field sales force, and increased promotional
expenditures for the Rota-dent and the new scaler. The average number of
field salespersons in the first nine months of 1998 was approximately
40% greater than in the 1997 period. General and administrative expenses
increased as a result of higher legal costs relating to the settlement
of litigation, and higher medical expenses. Product development expense
also increased in the 1998 period as a result of increased software
development cost.
Other income and expense, which primarily consists of the profit
or loss from non-consolidated affiliates, interest income/expense and
non-recurring income/expense relating to the settlement of lawsuits
netted to income of $349,000 for the first nine months of 1998, compared
with expense of $339,000 for the same period in 1997. Interest expense
was higher and losses in non-consolidated affiliates were lower in 1998
than in the 1997 period.
As a result of the changes noted above, net income for the nine
month period ended July 31, 1998 was $884,000 compared to $287,000 for
the same period in 1997. If the non-recurring amount relating to the
settlement of lawsuits, recorded in the second quarter, was to be
disregarded, net income would have been $463,000 in the 1998 period,
resulting in a 61% increase compared to net income in the 1997 period.
FOR THE THREE MONTH PERIODS ENDED JULY 31, 1998 AND 1997
--------------------------------------------------------
RESULTS OF OPERATIONS. For the three month period ended July 31,
1998, net sales increased approximately 6% to $6.7 million, compared to
$6.3 million in the 1997 period. This result is largely attributable to
increases in sales of each of the Company's three major product lines,
Rota-dent and accessories, ultrasonic scaler and accessories, and dental
pharmaceutical products. Computer system revenues were down as a result
of fewer systems being sold.
The Company's sales revenue during the three months ended July 31,
1998 and 1997 were principally attributable to the Rota-dent. Domestic
sales of the Rota-dent and accessories were $4.0 million in the 1998
third quarter, compared to $3.9 million in the 1997 period. Sales of the
scaler and pharmaceutical products generated revenues of $1.8 million in
the third quarter of 1998, compared to $1.4 million in the 1997 period.
Revenue from the sale of computer-based products amounted to $0.1
million in the 1998 quarter compared to $0.2 million in the second
quarter of 1997. International sales (including Canadian sales) were
$0.5 million in the third quarter of both years. Revenues from seminar
fees and the sale of printed literature accounted for the balance of the
Company's revenue.
Cost of goods sold for the three month periods ended July 31, 1998
and 1997 was $2.7 million, or 40.7% of sales in 1998 compared to 43.7%
of sales in 1997. The improvement in gross margin is principally
attributable to increased manufacturing effectiveness. In addition, the
manufacturing cost of the scaler in the third quarter of 1998 was lower
than in the 1997 third quarter because manufacturing startup costs for
the new scaler were incurred in the second and third quarters of 1997.
8
<PAGE>
Operating expense was $3.6 million in the third quarter of 1998
compared to $3.4 million in the 1997 period. Selling expense increased
as a result of continued hiring to increase the size of the field sales
force and increased promotional expenditures for the Rota-dent and the
scaler. General and administrative expense was down slightly as a result
of lower legal expenses. Product development expense increased as a
result of increased software development cost.
Other income and expense, consisting primarily of the profit or
loss from non-consolidated affiliates and interest income/expense,
netted to expense of $67,000 for the third quarter of 1998, compared
with an expense of $46,000 for the same period in 1997.
As a result of the changes noted above, net income for the quarter
ended July 31, 1998 was $152,000, compared to $79,000 for the same
period in 1997, and increase of 92%.
CAPITAL RESOURCES AND LIQUIDITY. On July 31, 1998 the Company's
total assets were $10.9 million, compared to $9.0 million at October 31,
1997. The increase in assets results primarily from increases in cash,
receivables and inventory, resulting from increasing revenues. Total
liabilities were $5.4 million, an increase of $1.0 million compared to
year end liabilities of $4.4 million. This results primarily from
increases in the draw on the line of credit and increased accrued
liabilities. Stockholders' Equity increased by $0.9 million, to $5.5
million, as a result of earnings since October 31, 1997.
For the nine month period ended July 31, 1998, net cash provided
from operations was $680,000 compared to $194,000 for the same period in
1997.
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 its needs. The Company has historically relied
primarily 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. 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
The Company knows of no material litigation involving the Company
or any of its officers or directors.
ITEM 2. CHANGES IN SECURITIES
NONE
9
<PAGE>
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
<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)
6/8/98 /s/ William T. Evans
- ----------------------------- -----------------------------------
Date William T. Evans
President & CEO
6/8/98 /s/ Richard L. Land
- ----------------------------- ------------------------------------
Date Richard L. Land
Vice President & Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 1,765
<SECURITIES> 0
<RECEIVABLES> 2,316
<ALLOWANCES> 59
<INVENTORY> 2,992
<CURRENT-ASSETS> 8,237
<PP&E> 5,060
<DEPRECIATION> 2,549
<TOTAL-ASSETS> 10,851
<CURRENT-LIABILITIES> 4,305
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 5,477
<TOTAL-LIABILITY-AND-EQUITY> 10,851
<SALES> 21,191
<TOTAL-REVENUES> 20,504
<CGS> 8,133
<TOTAL-COSTS> 11,289
<OTHER-EXPENSES> (349)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 1,431
<INCOME-TAX> 547
<INCOME-CONTINUING> 884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
