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, 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 May 29, 1998: 14,100,000
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
APRIL 30 OCTOBER 31
1998 1997
(unaudited)
----------- ----------
ASSETS (In thousands)
Current Assets:
Cash and Cash Equivalents $ 1,568 $ 1,267
Accounts Receivable:
Trade - Net of allowance for doubtful
accounts of $59,000 and $60,000
respectively 2,001 1,741
Affiliates 249 133
Inventory 2,976 2,791
Other Current Assets 1,119 457
---------- ----------
Total Current Assets 7,913 6,389
Property and Equipment - Net 2,546 2,494
Other Assets - Net of Accumulated
Amortization 113 131
---------- ----------
Total Assets $ 10,572 $ 9,014
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of Credit $ 843 $ 390
Accounts Payable - Trade 1,127 1,135
Other Accrued Liabilities 1,765 1,276
Long-term Debt - Current Portion 195 206
Capital Lease Obligations -
Current Portion 173 173
---------- ----------
Total Current Liabilities 4,103 3,180
Long-term Debt - Net of Current Portion 683 755
Capital Lease Obligations - Net of
Current Portion 468 505
---------- ----------
Total Liabilities 5,254 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 301 289
Retained Earnings 4,876 4,144
---------- ----------
Total Stockholders' Equity 5,318 4,574
----------- ----------
Total Liabilities and Stockholders'
Equity $ 10,572 $ 9,014
=========== ==========
See Notes to Financial Statements
2
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND SIX MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30 APRIL 30
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Sales $ 7,243 $ 5,947 $ 13,832 $ 10,737
Cost of Goods Sold 2,805 2,727 5,420 4,815
-------- -------- -------- --------
Gross Profit 4,438 3,220 8,412 5,922
Operating Expenses 3,974 2,923 7,640 5,291
-------- -------- -------- --------
Income
from Operations 464 297 772 631
Other Income (Expenses) 472 (137) 416 (293)
-------- -------- -------- --------
Net Income
before Taxes 936 160 1,188 338
Provision for
Income Taxes (360) (64) (456) (130)
-------- -------- -------- --------
Net Income $ 576 $ 96 $ 732 $ 208
======= ======= ======= =======
Net Income per Share:
Basic $ .04 $ .01 $ .05 $ .01
======== ======= ======= =======
Diluted $ .04 $ .01 $ .05 $ .01
======== ======= ======= =======
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
========== ========== ========== ==========
See Notes to Financial Statements
3
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 732 $ 208
Adjustments to reconcile net income
to net cash from operations:
Depreciation and Amortization 339 299
Deferred Compensation Expense 12 12
Decrease (increase) in:
Accounts Receivable (376) (185)
Inventory (185) 93
Other Current Assets (62) (272)
Other Assets (601) 9
Increase (decrease) in:
Accounts Payable - Trade (8) (158)
Other Accrued Liabilities 489 41
------ ------
Net Cash Provided by Operations 340 47
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (325) (777)
Proceeds from Sale of Fixed Assets 11 --
Certificates of Deposit -- 400
Investment in Joint Ventures -- 11
------ ------
Net Cash (used) for Investing
Activities (314) (366)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Line of Credit 452 (38)
Issuance of Long-term Debt 20 490
Payment of Capital Lease Obligations (95) --
Payment of Long-term Debt (102) (146)
------ ------
Net Cash (used) for Financing
Activities 275 306
------ ------
Increase (decrease) in Cash 301 (13)
Cash and Cash Equivalents -
Beginning of Period 1,267 727
------ ------
End of period $ 1,568 $ 714
======= =======
See Notes to Financial Statements
4
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 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 January 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 April 30, 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 April 30, 1998 and 1997.
Basic and diluted weighted average number of shares outstanding for the
quarters ended April 30, 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 arrangements. An entity that continues to
apply APB
6
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 SIX MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
RESULTS OF OPERATIONS. For the six month period ended April 30, 1998,
net sales were $13.8 million, an increase of approximately 29% compared to
$10.7 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. This resulted from fewer systems being sold, and from 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. 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. Without this, revenue would have increased by 24% in 1998
compared to the 1997 period.
The Company's sales revenue during the six months ended April 30, 1998
and 1997 has been substantially attributable to sales of the Rota-dent and
accessories. During the first six months of 1998, revenue from such sales,
excluding foreign sales, amounted to $8.3 million compared to $7.4 million
for the same period in 1997. Revenue received during the first half of
1998 from the sale of pharmaceutical and scaler products totaled $3.8
million, compared to $1.7 million in the 1997 period. Scaler sales in 1998
more than doubled compared to the 1997 period, and pharmaceutical sales
increased by almost 50%. International sales were $1.0 million in 1998
(including consolidated Canadian sales), compared to $0.6 million in the
1997 period (when Canadian sales were not consolidated). 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 six months ended April 30, 1998 was $5.4
million or 39.2% of sales, compared to $4.8 million or 44.8% of sales for
the period ended April 30, 1997. The improvement in gross margin is
primarily attributable to increased manufacturing effectiveness, resulting
from investments the Company has made in plastic injection molding and
milling machinery used to produce Rota-dent and scaler parts which were
previously purchased from outside vendors. In addition, manufacturing
costs of the scaler in the first half of 1998 were lower than in 1997,
since startup costs for the new scaler were incurred in 1997.
Operating expenses were $7.6 million during the first six months of
1998 compared to $5.3 million during the first half of 1997. 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 six months of 1998 was 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 (See LEGAL PROCEEDINGS), and higher medical expenses. Product
development expense also increased in the 1998 period as a result of
increased software development cost.
7
<PAGE>
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 $416,000 for the first six months of 1998, compared
with an expense of $293,000 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 six month
period ended April 30, 1998 was $732,000 compared to $208,000 for the same
period in 1997. If the non-recurring amount relating to the settlement of
the lawsuits was to be disregarded, net income would have been $311,000 in
the 1998 period (SEE LEGAL PROCEEDINGS), resulting in a 50% increase in
net income compared to $208,000 in the 1997 period.
FOR THE THREE MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
RESULTS OF OPERATIONS. For the three month period ended April 30, 1998,
net sales increased 22% to $7.2 million, compared to $5.9 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. This resulted from fewer
systems being sold, and from 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.
Approximately $0.3 million of the increase in revenue can be attributed to
the net impact of consolidating Canadian revenue with that of the Company
in the second quarter of 1998, whereas such revenue was not consolidated
in the second quarter of 1997. Without this, revenue would have increased
by approximately 17% in the 1998 second quarter compared to the 1997
period.
The Company's sales revenue during the three months ended April 30,
1998 and 1997 were principally attributable to the Rota-dent. Domestic
sales of the Rota-dent and accessories were $4.4 million in the 1998
second quarter, compared to $3.9 million in the 1997 period. Sales of the
scaler and pharmaceutical products generated revenues of $1.9 million in
the second quarter of 1998, compared to $1.2 million in the 1997 period.
Revenue from the sale of computer-based products amounted to $0.1 million
in the 1998 quarter compared to $0.3 million in the second quarter of
1997. International sales were $0.5 million in the 1998 second quarter
(including consolidated Canadian sales), compared to $0.3 million in the
8
<PAGE>
1997 period (when Canadian sales were not consolidated). Revenues from
seminar fees and the sale of printed literature accounted for the balance
of the Company's revenue in both years.
Cost of goods sold for the three months ended April 30, 1998 was $2.8
million, or 38.7% of sales, compared to $2.7 million or 45.9% of sales in
1997. The improvement in gross margin is partially attributable to
increased manufacturing effectiveness, resulting from investments the
Company has made in plastic injection molding and milling machinery used
to produce Rota-dent and scaler parts which were previously purchased from
outside vendors. In addition, the cost of the scaler in the second quarter
of 1998 was significantly lower than in 1997, because manufacturing
startup costs for the new scaler were largely incurred in the second
quarter of 1997.
Operating expense was $4.0 million in the second quarter of 1997
compared to $2.9 million in 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. General and
administrative expense increased in 1998 as a result of increased medical
expenses. Product development expense also increased in the 1998 period as
a result of increased software development cost.
Other income and expense, consisting primarily 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 $472,000 for the second quarter of 1998, compared with
an expense of $137,000 for the same period in 1997. Interest expenses in
1998 were higher than in the 1997 period, and losses in the
non-consolidated affiliates were lower.
As a result of the changes noted above, net income for the quarter
ended April 30, 1998 was $576,000 compared to $96,000 for the same period
in 1997. If the non-recurring amount relating to the settlement of
lawsuits was to be disregarded, net income would have been $155,000 in
1998, resulting in a 60% increase in net income compared to $96,000 in the
1997 period.
CAPITAL RESOURCES AND LIQUIDITY. On April 30, 1998 the Company's total
assets were $10.6 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 $5.2 million, an increase of $0.8 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 $0.7 million, to $5.3
million, as a result of earnings since October 31, 1997.
For the six month period ended April 30, 1998, net cash provided from
operations was $340,000 compared to 47,000 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 the 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
9
<PAGE>
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
On February 7, 1998, the Company entered into an agreement with Lysta
Production A/S ("Lysta") to settle a lawsuit brought by Lysta against the
Company and one of its subsidiaries. The settlement significantly reduces
the amount of royalties the Company would have been required to pay if a
license agreement relating to the Company's ultrasonic dental scalers had
been enforced as Lysta claimed in its complaint. The parties agreed to a
mutual release of all claims against each other thereby freeing the
Company of any claim by Lysta that it cannot use certain information to
produce ultrasonic dental scalers. The impact of the settlement on the
Company's financial condition was not material.
On February 9, 1998, PDT Image, Inc. ("PDT"), a wholly-owned subsidiary
of the Company, entered into a settlement agreement with Source-1 Dental
Image Inc., David Gane and Wayne Rees; Raster Builders, Inc. and Eric
Chasanoff; and certain other Canadian companies and individuals. The
settlement provided for the payment of $750,000 in cash to PDT in
consideration for PDT relinquishing its proprietary interests in certain
computer software programs. The parties agreed to a mutual release of all
claims relating to claimed proprietary interests in the computer software
programs. The $750,000 settlement has been received and was reported in
the second fiscal quarter. The release of the Company's interest in the
software programs is not expected to have a material impact on the
Company's future operations.
On February 16, 1998, the Company settled a lawsuit brought by a
former employee who charged discrimination on the basis of her sex. The
settlement did not materially affect the Company's financial condition.
The Company knows of no other material litigation involving the
Company or any of its officers or directors.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on March 17, 1998. The
only matter submitted to a vote was the re-election of Directors. All
Directors stood for re-election. Over 90% of outstanding shares were
voted, and all Directors were re-elected by at least 99% of the shares
voted.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
11
<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
12
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<PERIOD-END> APR-30-1998
<CASH> 1,568
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<ALLOWANCES> 59
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0
0
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