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, 1999
----------------
[ ] 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 February 27, 1999: 14,100,000
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PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
JANUARY 31 OCTOBER 31
1999 1998
(UNAUDITED)
----------- ----------
ASSETS (In thousands)
Current Assets:
Cash and Cash Equivalents $ 1,621 $ 1,735
Certificates of Deposit 99 98
Accounts Receivable:
Trade - net of allowance for doubtful
accounts of $78 2,344 2,444
Affiliates 213 137
Inventory 2,797 3,216
Other Current Assets 547 683
---------- ----------
Total Current Assets 7,621 8,313
Property and Equipment - Net 2,671 2,731
Other Assets - net of accumulated
amortization 131 135
---------- ----------
Total Assets $ 10,423 $ 11,179
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of Credit $ 440 $ 865
Accounts Payable - Trade 985 1,045
Other Accrued Liabilities 1,279 1,579
Long-term debt - current portion 461 461
Capital lease obligations - current portion 209 209
---------- ----------
Total Current Liabilities 3,374 4,159
Long-term debt - net of current portion 772 835
Capital lease obligations - net of current
portion 321 366
---------- ----------
Total Liabilities 4,467 5,360
---------- ----------
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 316 314
Retained Earnings 5,499 5,364
---------- ----------
Total Stockholders' Equity 5,956 5,819
----------- ----------
Total Liabilities and Stockholders'
Equity $ 10,423 $ 11,179
=========== ===========
See Notes to Financial Statements
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<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTH PERIODS ENDED JANUARY 31, 1999 AND 1998
THREE MONTHS ENDED
JANUARY 31
1999 1998
---- ----
(In thousands)
Sales $ 6,496 $ 6,452
Cost of Goods Sold 2,786 2,660
---------- -----------
Gross Profit 3,710 3,792
Operating Expenses 3,434 3,484
---------- ----------
Income
from Operations 276 308
Other Income (Expenses) ( 46) ( 56)
--------- --------------
Income Before
Income Taxes 230 252
Provision for
Income Taxes 95 96
----------- -----------
Net Income $ 135 $ 156
=========== ==============
Net Income per Share:
Basic $ .01 $ .01
=========== =============
Diluted $ .01 $ .01
=========== =============
Weighted average
number of
shares outstanding:
Basic 14,148,000 14,121,000
=========== =============
Diluted 14,148,000 14,121,000
=========== =============
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, 1999 AND 1998
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
---- ----
Net Income $ 135 $ 156
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 176 166
(Gain) Loss on Disposal of Property &
Equipment ---- (3)
Non-cash compensation 2 6
Decrease (increase) in:
Accounts Receivable:
Trade - Net 100 ( 203)
Due from Affiliate ( 76) ( 4)
Inventory 420 ( 247)
Other Assets 136 ( 41)
Increase (decrease) in:
Accounts Payable - Trade ( 60) ( 113)
Other Accrued Liabilities ( 301) ( 16)
-------- ----------
Net Cash Provided (Used)
by Operating Activities 532 ( 299)
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment ( 111) ( 54)
Certificates of Deposit ( 1) ---
Proceeds from Sale of Fixed Assets ---- 3
Investment in Joint Ventures ---- ---
-------- ----------
Net Cash Used by Investing Activities ( 112) ( 51)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Line of Credit ( 425) 590
Issuance of long-term
debt ---- ----
Payment of Capital Lease Obligations ( 46) ( 43)
Payment of long-term debt ( 63) ( 50)
------- ---------
Net Cash Provided (Used) by
Financing Activities ( 534) 497
----------- ---------
Increase (Decrease) in Cash ( 114) 147
Cash and Cash Equivalents -
Beginning of Period 1,735 1,267
----------- ---------
End of period $ 1,621 $ 1,414
=========== =========
4
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See Notes to Financial Statements
5
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED JANUARY 31, 1999 AND 1998
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, 1999), 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
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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, 1999.
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.
EARNINGS PER SHARE - The Company 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, 1999 and 1998. Basic
and diluted weighted average number of shares outstanding for the quarters
ended January 31, 1999 and 1998 were 14,148,000 and 14,121,000 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,
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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
IMPACT OF NEW ACCOUNTING STANDARDS - In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement No. 128, EARNINGS PER
SHARE. SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS"). The previous presentation of primary EPS is
replaced with a presentation of basic EPS. Dual presentation of basic and
diluted EPS is required on the face of the income statements, as well as a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is computed similarly to
fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15.
The Company adopted SFAS No. 128 for the year ended October 31, 1998.
In June 1997, the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company will be
required to classify items of other comprehensive income by their nature in
a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the stockholders' equity section of the balance sheet.
Also in June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishing standards
for the way public enterprises report information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS 130 and 131 are effective for fiscal years
beginning after December 15, 1997, with reclassification of earlier
periods. The adoption of SFAS 130 and 131 is not expected to have a
material effect on the Company's consolidated financial statements.
In February 1998, the FASB issued Statement No. 132, EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, an amendment of FASB
Statements No. 87, 88 and 106. The Statement revises employers' disclosures
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about pensions and other postretirement benefits. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful
as they were when FASB Statements No. 87, 88, and 106 were issued. The
Statement is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS 132 is not expected to have a material effect on the
Company's consolidated financial statements.
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This statement is
effective for fiscal years beginning after June 15, 1999. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
consolidated financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1998
financial statements in order to conform with 1999 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, 1999 AND 1998
-----------------------------------------------------------
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this Report and other such Company filings (collectively, "SEC filings")
under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended (as well as information communicated orally or in
writing between the dates of such SEC filings) contains or may contain
information that is forward looking. Such forward-looking information
involves important risks and uncertainties that could significantly affect
expected results. The Company cautions investors that any such
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements. The factors that could cause actual results to
differ materially from estimates contained in the Company's forward-looking
statements were detailed in the Company's 1998 Form 10-KSB filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS. For the three month period ended January 31,
1999 and 1998, net sales were $6.5 million. The Company's total sales
revenue in each period has principally been attributable to the Rota-dent.
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Sales of the Rota-dent, including accessories and foreign sales, were $4.3
million in each period. Other clinical products, (the ultrasonic scaler and
pharmaceutical product lines) generated revenues of $2.0 million in the
first quarter of 1999 compared to $1.9 million in the first quarter of
1998. The balance of revenue in the first quarter of both years was
attributable to the sale of printed literature, seminar fees and
computer-related products, which decreased slightly in the 1999 period.
The cost of goods sold for the three months ended January 31, 1999,
was $2.8 million compared to $2.7 million in the first quarter of 1998.
This is primarily attributable to increased material and labor content in
the Rota-dent product, resulting from the decision, made in mid-1998, to
ship four necks with each instrument sold, rather than two, as had
previously been the case. Cost reduction efforts now in process are
expected to reduce the cost per Rota-dent unit to its previous level by
year-end. The cost of goods sold for the pharmaceutical product line also
increased in the 1999 quarter as a result of purchasing a product for
resale that had previously been manufactured by the Company. The Company
plans to re-commence manufacturing this product by year-end.
Operating expense was essentially flat at $3.4 million for the first
three months of 1999, compared to $3.5 million in the 1998 period. Other
income and expense, consisting primarily of the profit/loss of the
non-consolidated affiliate (the PerfectByte Limited Partnership) and
interest income/expense, was reduced in the 1999 first quarter, as a result
of lower interest expense in the 1999 period.
As a result of the changes noted above, net income for the three month
period ended January 31, 1999 was $135,000 compared to $156,000 in the 1998
period.
CAPITAL RESOURCES AND LIQUIDITY. On January 31, 1999 the Company's
total assets were $10.4 million, compared to $11.2 million at October 31,
1998. The decrease was primarily attributable to decreases in cash and
inventory. Total liabilities were $4.5 million, compared to $5.4 million at
October 31, 1998. This is primarily due to decreases in the draw on the
credit line used to finance the increases in receivables and inventory and
in trade payables. Stockholders' equity was $6.0 million, an increase of
$0.1 million from the October 31, 1998 total, the result of earnings during
the period. During the three months ended January 31, 1999, net cash
provided by operations was $532,000 compared to a net cash used of $299,000
in the 1998 period. The positive cash from operations in the 1999 period
largely resulted from cash provided by a successful inventory reduction
initiative.
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
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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.
YEAR 2000. Certain software and hardware systems are time sensitive.
Older time sensitive systems often use a two digit dating convention ("00"
rather than "2000") that could result in system failure and disruption of
operations as the Year 2000 approaches. The Year 2000 problem will impact
the Company, its suppliers, customers, and other third parties that
interface with the Company to the extent that they are not Year 2000
compliant.
With regard to its internal Year 2000 program, the Company has adopted
a five-phase conversion plan. In completing the first two phases, awareness
and assessment, the Company has identified numerous project initiatives
throughout its business units and has begun the third phase, the purchase
and installation of new computer equipment and upgrading of software
systems, in most areas. A steering team comprised of members from the key
functional areas - accounting, finance, legal, manufacturing systems, and
information systems - has been established to monitor and oversee the
progress of each project. The Company believes that it will complete the
conversion process by mid-fiscal year 1999 and have contingency plans in
place for all mission-critical functions at that time.
The impact of Year 2000 issues on the Company will depend not only on
corrective actions that the Company takes, but also on the way in which
Year 2000 issues are addressed by governmental agencies, business and other
third parties that provide goods, services or data to, or receive goods,
services or data from, the Company, or whose financial condition or
operational capability is important to the Company. To reduce this
exposure, the Company has an ongoing process of identifying and contacting
mission-critical third party vendors and other significant third parties to
determine their Year 2000 plans and target dates. Notwithstanding the
Company's efforts, there can be no assurance that the Company,
mission-critical third party vendors, or other significant third parties
will adequately address their Year 2000 issues.
Upon review of the software developed and distributed by the Company
through its wholly-owned subsidiary, PDT Computers, it appears that the
software is Year 2000 compliant. The Company is advising and working with
customers to resolve their Year 2000 problems; however, it believes it has
no material exposure to contingencies related to the Year 2000 issue for
the software products it has sold.
The total cost of the modifications and upgrades to date has not been
material. The estimated probable cost to complete the conversion is $0.05
million, and the Company anticipates that it will spend no more than $0.08
million. Estimates of Year 2000 related costs are based on numerous
assumptions; there is no certainty that estimates will be achieved, and
actual costs could be materially greater than anticipated.
Although no assurances can be given as to the Company's compliance,
particularly as it relates to third parties, based upon the progress to
date, the Company does not expect that modifications will have a material
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adverse effect on the Company's financial position or results of
operations. Accordingly, the Company believes that the most reasonably
likely worst case Year 2000 scenario would not have a material adverse
effect on the Company's financial position or results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company knows of no 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
NONE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROFESSIONAL DENTAL
TECHNOLOGIES, INC.
------------------------
(Registrant)
3/10/99 /s/ William T. Evans
--------------------------- ------------------------
Date William T. Evans
President & CEO
3/10/99 /s/ Richard L. Land
--------------------------- ------------------------
Date Richard L. Land
Vice President - Finance
13
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,720
<SECURITIES> 0
<RECEIVABLES> 2,617
<ALLOWANCES> 60
<INVENTORY> 2,797
<CURRENT-ASSETS> 7,621
<PP&E> 5,641
<DEPRECIATION> 2,970
<TOTAL-ASSETS> 10,423
<CURRENT-LIABILITIES> 3,374
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 5,815
<TOTAL-LIABILITY-AND-EQUITY> 10,423
<SALES> 6,496
<TOTAL-REVENUES> 6,496
<CGS> 2,786
<TOTAL-COSTS> 3,434
<OTHER-EXPENSES> (9)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 230
<INCOME-TAX> 95
<INCOME-CONTINUING> 135
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<CHANGES> 0
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<EPS-PRIMARY> .01
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