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, 1998
-------------------------------
[ ] 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.
--------------------------------------
(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
--------------
(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 27, 1998: 14,100,000
--------------------------
<PAGE>
<TABLE>
<CAPTION>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<S> <C> <C>
JANUARY 31 OCTOBER 31
1998 1997
(unaudited)
----------- ----------
ASSETS (In thousands)
Current Assets:
Cash and Cash Equivalents $ 1,414 $ 1,267
Accounts Receivable:
Trade - net of allowance for doubtful accounts of $60,000 1,945 1,741
Affiliates 137 133
Inventory 3,038 2,791
Other Current Assets 496 457
------------ ----------
Total Current Assets 7,030 6,389
Property and Equipment - Net 2,392 2,494
Other Assets - net of accumulated
amortization 122 131
------------ ----------
Total Assets $ 9,544 $ 9,014
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of Credit $ 980 $ 390
Accounts Payable - Trade 1,020 1,135
Other Accrued Liabilities 1,260 1,276
Long-term debt - current portion 206 206
Capital lease obligations - current portion 173 173
------------ ----------
Total Current Liabilities 3,639 3,180
Long-term debt - net of current portion 705 755
Capital lease obligations - net of current portion 463 505
Total Liabilities 4,807 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 295 289
Retained Earnings 4,301 4,144
------------ ------------
Total Stockholders' Equity 4,737 4,574
------------ ------------
Total Liabilities and Stockholders'
Equity $ 9,544 $ 9,014
============ ============
</TABLE>
See Notes to Financial Statements
2
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTH PERIODS ENDED JANUARY 31, 1998 AND 1997
THREE MONTHS ENDED
JANUARY 31
------------------------------------
1998 1997
---- ----
(In thousands)
Sales $ 6,589 $ 4,790
Cost of Goods Sold 2,615 2,088
----------- -----------
Gross Profit 3,974 2,702
Operating Expenses 3,666 2,368
----------- -----------
Income
from Operations 308 334
Other Income (Expenses) ( 56) ( 156)
----------- -----------
Income Before
Income Taxes 252 178
Provision for
Income Taxes 96 66
----------- -----------
Net Income $ 156 $ 112
=========== ===========
Net Income per Share:
Basic $ .01 $ .01
=========== ===========
Diluted $ .01 $ .01
=========== ===========
Weighted average
number of shares
outstanding:
Basic 14,121,000 14,104,000
============ ===========
Diluted 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 THREE MONTH PERIODS ENDED JANUARY 31, 1998 AND 1997
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
---- ----
Net Income $ 156 $ 112
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 166 129
(Gain) Loss on Disposal of Property & Equipment (3) ---
Non-cash compensation 6 6
Decrease (increase) in:
Accounts Receivable:
Trade - Net ( 203) ( 80)
Due from Affiliate ( 4) ( 88)
Inventory ( 247) 2
Other Assets ( 41) ( 151)
Increase (decrease) in:
Accounts Payable - Trade ( 113) ( 200)
Other Accrued Liabilities ( 16) 126
-------- ---------
Net Cash Used by Operating Activities ( 299) ( 144)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment ( 54) ( 604)
Certificates of Deposit --- 200
Proceeds from Sale of Fixed Assets 3 ---
Investment in Joint Ventures --- 68
------- ---------
Net Cash Used by Investing Activities ( 51) ( 336)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Line of Credit 590 85
Issuance of long-term debt --- 490
Payment of Capital Lease Obligations ( 43) ---
Payment of long-term debt ( 50) ( 69)
------- ---------
Net Cash Provided by
Financing Activities 497 506
------- ---------
Increase in Cash 147 26
Cash and Cash Equivalents -
Beginning of Period 1,267 728
-------- ---------
End of period $ 1,414 $ 754
======== =========
See Notes to Financial Statements
4
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED JANUARY 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
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
5
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adoption of SFAS No. 121 had no effect on the Company's consolidated
financial statements for the period ended January 31, 1998.
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 January 31, 1998 and
1997. Basic and diluted weighted average number of shares outstanding for
the quarters ended January 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 nonemployees 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
6
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 THREE MONTH PERIODS ENDED JANUARY 31, 1998 AND 1997
-----------------------------------------------------------
RESULTS OF OPERATIONS. For the period ended January 31, 1998, net
sales were $6.6 million compared with $4.8 million in the 1997 first
quarter, an increase of 38%. This result is attributable to higher sales
of all three of the Company's principal product lines, Rota-dent and
accessories, Scaler and accessories and dental pharmaceutical products.
Approximately $0.2 million of the increase can be attributed to the net
impact of consolidating Canadian revenue with that of the Company in the
first quarter of 1998, whereas such revenue was not consolidated in the
first quarter of 1997. The increase was partially offset by a decrease
in revenue from the sale of computer systems and software.
The Company's total sales revenue during the three months ended
January 31, 1998 and 1997 have been principally attributable to the
Rota-dent. Sales of the Rota-dent, including accessories and foreign
sales, were $4.3 million in the 1998 first quarter compared to $3.7
million in the 1997 period. Other clinical products, (the ultrasonic
scaler and pharmaceutical product lines) generated revenues of $1.9
million in the first quarter of 1998 compared to $0.6 million in the
first quarter of 1997. Much of this increase is due to the introduction
of the Pro-Select-3 scaler, which was not sold prior to February, 1997.
Revenue from the sale of computer-based products amounted to $0.2
million in 1998 compared to $0.3 million in the first quarter of 1997.
The balance of revenue in the first quarter of both years was
attributable to the sale of printed literature and seminar fees.
The cost of goods sold for the three months ended January 31,
1998, was $2.6 million compared to $2.1 million in the first quarter of
1997. As a percentage of revenue, cost of goods sold was approximately
40% and 44% in the first quarters of 1998 and 1997 respectively. The
reduction in cost of goods sold as a percentage of revenue is
attributable to improved manufacturing efficiencies and lower material
content of products, resulting primarily from the decision to produce
the plastic parts for the Rota-dent rather than purchase them from
outside vendors.
Operating expense increased to $3.7 million during the first three
months of 1998, from $2.4 million during the comparable 1997 period.
Selling expenses increased significantly as a result of costs associated
with the field sales force, which is about 40% larger at January 31,
1998 than it was at January 31, 1997; and as a result of consolidating
Canadian selling expenses with those of the Company, whereas such
7
<PAGE>
expenses were not consolidated in the comparable 1997 period. General
and administrative expenses also increased, largely as a result of legal
costs incurred in connection with the prosecution and settlement of the
litigation described in Legal Proceedings (Part II, Item 1). Other
income and expense, consisting primarily of the profit/loss of the
non-consolidated affiliate (the PerfectByte Limited Partnership) and
interest income/expense, was significantly reduced in the 1998 first
quarter, predominantly as a result of lower losses in PerfectByte and
the fact that the Canadian operation is now a consolidating entity.
As a result of the changes noted above, net income for the three
month period ended January 31, 1998 was $156,000 compared to $112,000 in
the 1997 period, an increase of approximately 39%.
CAPITAL RESOURCES AND LIQUIDITY. On January 31, 1998 the Company's
total assets were $9.5 million, compared to $9.0 million at October 31,
1997. The increase was primarily attributable to increases in trade
receivables and inventory. Total liabilities were $4.8 million, compared
to $4.4 million at October 31, 1997. This is primarily due to an
increase in the draw on the credit line, used to finance the increases
in receivables and inventory. Stockholders' equity was $4.7 million, an
increase of $0.1 million from the October 31, 1997 total, the result of
earnings during the period. During the three months ended January 31,
1998, net cash used by operations was $299,000 compared to $144,000 in
the 1997 period. The negative cash from operations in the 1998 period
largely resulted from cash consumed in financing increases in
receivables and inventory.
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.
8
<PAGE>
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 current financial
condition will not be 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 provides for the immediate 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 amount will be reported as other income in the Company's
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 will not materially affect on the Company's financial
condition.
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 7, 1998 announcing the settlement of two
matters of litigation. See PART II, ITEM 1, "LEGAL PROCEEDINGS".
9
<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)
3/13/98 /s/ William T. Evans
- ----------------------------- ------------------------------
Date William T. Evans
President & CEO
3/13/98 /s/ Richard L. Land
- ----------------------------- ------------------------------
Date Richard L. Land
Controller
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 1,414
<SECURITIES> 0
<RECEIVABLES> 2,082
<ALLOWANCES> 60
<INVENTORY> 3,038
<CURRENT-ASSETS> 7,030
<PP&E> 4,738
<DEPRECIATION> 2,346
<TOTAL-ASSETS> 9,544
<CURRENT-LIABILITIES> 3,639
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 4,596
<TOTAL-LIABILITY-AND-EQUITY> 9,544
<SALES> 6,589
<TOTAL-REVENUES> 6,589
<CGS> 2,615
<TOTAL-COSTS> 3,666
<OTHER-EXPENSES> (9)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 252
<INCOME-TAX> 96
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
