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, 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 August 30, 1999: 14,100,000
----------
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
JULY 31 OCTOBER 31
1999 1998
(UNAUDITED)
----------- ---------
ASSETS (In thousands)
Current Assets:
Cash and Cash Equivalents $ 1,722 $ 1,735
Certificates of Deposit 111 98
Accounts Receivable:
Trade - Net of allowance for 2,367 2,444
doubtful accounts of $95,000
and $78,000 respectively
Affiliates 298 137
Inventory 2,395 3,216
Other Current Assets 430 683
---------- ----------
Total Current Assets 7,323 8,313
Property and Equipment - Net 2,697 2,731
Other Assets - Net of Accumulated
Amortization 131 135
---------- ----------
Total Assets $ 10,151 $ 11,179
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of Credit $ 108 $ 865
Accounts Payable - Trade 802 1,045
Other Accrued Liabilities 1,044 1,579
Long-term Debt - Current Portion 461 461
Capital Lease Obligations - Current Portion 209 209
---------- ----------
Total Current Liabilities 2,624 4,159
Long-term Debt - Net of Current Portion 748 835
Capital Lease Obligations - Net of Current Portion 215 366
---------- ----------
Total Liabilities 3,587 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 6,107 5,364
---------- ----------
Total Stockholders' Equity 6,564 5,819
Total Liabilities and Stockholders' ---------- ----------
Equity $ 10,151 $ 11,179
========== ==========
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, 1999 AND 1998
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31 JULY 31
----------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Sales $ 6,958 $ 6,561 $ 20,837 $ 20,078
Cost of Goods Sold 2,833 2,733 8,681 8,346
-------- --------- --------- ---------
Gross Profit 4,125 3,828 12,156 11,732
Operating Expenses 3,701 3,518 10,795 10,650
Income -------- --------- --------- ---------
from Operations 424 310 1,361 1,082
Other Income (Expenses) ( 42) ( 67) ( 126) 349
-------- --------- --------- ---------
Net Income
before Taxes 382 243 1,235 1,431
Provision for
Income Taxes ( 152) ( 91) ( 492) ( 547)
-------- --------- --------- ---------
Net Income $ 230 $ 152 $ 743 $ 884
======== ========= ========= =========
Net Income per Share:
Basic $ .02 $ .01 $ .05 $ .06
======== ========= ========= =========
Diluted $ .02 $ .01 $ .05 $ .06
======== ========= ========= =========
Weighted average
shares outstanding:
Basic 14,148,000 14,121,000 14,148,000 14,121,000
========== ========== ========== ==========
Diluted 14,148,000 14,121,000 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 NINE MONTH PERIODS ENDED JULY 31, 1999 AND 1998
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 743 $ 884
Adjustments to reconcile net income
to net cash from operations:
Depreciation and Amortization 522 520
Gain/(loss) on disposal of property (5) (10)
& equipment
Deferred Compensation Expense 2 19
Decrease (increase) in:
Accounts Receivable (85) (441)
Inventory 822 (201)
Other Assets 254 (695)
Increase (decrease) in:
Accounts Payable - Trade (243) 86
Other Accrued Liabilities (536) 518
-------------- ---------------
Net Cash Provided by Operations 1,474 680
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (490) (457)
Proceeds from Sale of Fixed Assets 11 20
Certificates of Deposit (13) ---
Investment in Joint Ventures --- ---
Net Cash (used) for Investing -------------- ---------------
Activities (492) (437)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Line of Credit (758) 532
Issuance of Long-term Debt 84 20
Payment of Capital Lease Obligations (170) (141)
Payment of Long-term Debt (151) (156)
Net Cash (used) for Financing -------------- ---------------
Activities (995) 255
-------------- ---------------
Increase (decrease) in Cash (13) 498
Cash and Cash Equivalents -
Beginning of Period 1,735 1,267
--------------- ---------------
End of period $ 1,722 $ 1,765
=============== ===============
See Notes to Financial Statements
4
<PAGE>
PROFESSIONAL DENTAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIODS ENDED JULY 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 July 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 adoption of SFAS
No. 121 had no effect on the Company's consolidated financial statements for
the period ended July 31, 1999.
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 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, 1999 and 1998. Basic and
diluted weighted average number of shares outstanding for the quarters ended
July 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 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.
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
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
7
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 NINE MONTH PERIODS ENDED JULY 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 nine month period ended July 31, 1999,
net sales were $20.8 million, an increase of approximately 3.8% compared
to $20.1 million for the same period in 1998. This result is 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.
The Company's sales revenue during the nine months ended July 31, 1999
and 1998 has been substantially attributable to sales of the Rota-dent and
accessories. During the first nine months of 1999, revenue from such
sales, excluding foreign sales, amounted to $12.5 million compared to
$12.2 million for the same period in 1998. Revenue received during the
first nine months of 1999 from the sale of pharmaceutical and scaler
products totaled $6.1 million, compared to $5.5 million in the 1998
period. International sales were $1.4 million in 1999, the same as in the
1998 period. The balance of the Company's revenue in both years resulted
from sales of computer software and printed literature.
8
<PAGE>
Cost of goods sold for the nine months ended July 31, 1999 was $8.7
million or 41.8% of sales, compared to $8.3 million or 41.2% of sales for
the period ended July 31, 1998. The higher cost of goods sold percentage
in 1999 is due to the additional cost of providing four necks with each
Rota-dent unit, a change that was made in the second half of fiscal year
1998. Cost reductions sufficient to offset this increase are expected to
be in place prior to the end of fiscal 1999, although cost of goods sold
for the full year are expected to be slightly higher than in 1998 as a
percentage of sales.
Operating expenses were $10.8 million during the first nine months of
1999 compared to $10.7 million during the 1998 period.
Other income and expense, which primarily consists of the profit or
loss from non-consolidated affiliates, interest income/expense and
non-recurring income/expense netted to expense of $126,000 for the first
nine months of 1999, compared with an income of $349,000 for the same
period in 1998. Interest expense was higher and losses in non-consolidated
affiliates were lower in 1999 than in the 1998 period. The 1998 figure
includes non-recurring income received in the second quarter of that year,
relating to the settlement of lawsuits.
As a result of the changes noted above, net income for the nine month
period ended July 31, 1999 was $743,000 compared to $884,000 for the same
period in 1998. 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 compared to $743,000 in
the 1999 period.
FOR THE THREE MONTH PERIOD ENDED JULY 31, 1999 AND 1998
-------------------------------------------------------
RESULTS OF OPERATIONS. For the three month period ended July 31, 1999,
net sales increased approximately 4.5% to $7.0 million, compared to $6.6
million in the 1998 period. This result is 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.
The Company's sales revenue during the three months ended July 31, 1999
and 1998 were principally attributable to the Rota-dent. Domestic sales of
the Rota-dent and accessories were $4.2 million in the 1999 third quarter,
compared to $4.0 million in the 1998 period. Sales of the scaler and
pharmaceutical products generated revenues of $2.0 million in the third
quarter of 1999, compared to $1.8 million in the 1998 period.
International sales were $0.4 million in the third quarter of 1999,
compared to $0.5 million in the 1998 period. Revenues from the sale of
printed literature accounted for the balance of the Company's revenue.
Cost of goods sold for the three month period ended July 31, 1999 was
$2.8 million, or 40.0% of sales, compared with $2.7 million or 40.9% of
sales for the same period in 1998.
Operating expense was $3.7 million in the third quarter of 1999
compared to $3.5 million in the 1998 period.
9
<PAGE>
Other income and expense, consisting primarily of the profit or loss
from non-consolidated affiliates and interest income/expense, netted to
expense of $42,000 for the third quarter of 1998, compared with an expense
of $67,000 for the same period in 1998. Interest expenses and losses in
the non-consolidated affiliates were lower in the 1999 period than in
1998.
As a result of the changes noted above, net income for the quarter
ended July 31, 1999 was $230,000, compared to $152,000 for the same period
in 1998.
CAPITAL RESOURCES AND LIQUIDITY. On July 31, 1999 the Company's total
assets were $10.1 million, compared to $11.2 million at October 31, 1998.
The decrease in assets results primarily from an inventory-reduction
program the Company began in October 1998. Total liabilities were $3.6
million at July 31, 1999 compared to year end liabilities of $5.4 million.
This results primarily from a decrease in the draw on the line of credit
and lower accrued liabilities. Stockholders' Equity increased by $0.7
million, to $6.5 million, as a result of earnings since October 31, 1998.
For the nine month period ended July 31, 1999, net cash provided from
operations was $1.5 million compared to $0.7 million for the same period
in 1998.
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.
The Company has scheduled a meeting for September 21, 1999 to vote on a
proposed amendment to the Company's Certificate of Incorporation that will
reduce the number of shares of common stock of the Company to 3,000 shares
and increase the par value of each share from $.01 to $100 by effecting a
reverse stock split in the ratio of 10,000 shares of pre-split common
stock to 1 share of post-split common stock. As a result of the proposed
transaction, the Company anticipates that the number of record
shareholders will be reduced from 947 to less than 50, thereby terminating
the Company's obligation to file periodic reports with the Securities and
Exchange Commission. In the event that the proposed transaction is
approved, the Company's stock will also be de-listed from the American
Stock Exchange. For additional information, see the Company's Proxy
Statement, dated July 30, 1999.
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
10
<PAGE>
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; the five phases are awareness, assessment,
renovation, validation, and implementation. In completing the first two
phases, awareness and assessment, the Company has identified numerous
project initiatives throughout its business units and has completed the
third phase, the purchase and installation of new computer equipment and
upgrading of software systems, in most areas. The majority of the
validation and implementation phases are also complete. 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, including
testing and contingency planning, by fiscal year end.
The Company has reviewed its internal systems and identified what it
believes to be the worst case scenario associated with those systems. The
inability to produce goods has been defined as the worst case scenario for
the Company's manufacturing units. Based on discussions with suppliers of
its manufacturing equipment, it appears that the Company's ability to
produce goods will not be affected by the Year 2000 issue. However, to
ensure that the Company will be able to continue shipping in the event of
a manufacturing system failure, the manufacturing units determined what
levels of inventory of finished goods and work-in-process should be
maintained to prevent a stock-out; those levels have been achieved. The
worst case scenario for the Company's sales and administrative units would
be either hardware and/or software failure. The accounting, inventory, and
MRP software that the Company uses has been certified Year 2000 compliant
by its manufacturer and distributor. The Company has tested and upgraded
or replaced its computer hardware, as necessary. The sales and
administrative functions of the Company will, in the event of a failure,
be accomplished through a manual system very similar to the one used prior
to automation. While the Company might experience minor disruptions in
operations, it does not believe that its ability to meet customer demands
during that period would be inhibited.
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. A letter addressing
specific Y2K questions was sent to every vendor the Company has purchased
from in the last 12 months; the Company has received responses to a large
portion of the mailing. Telephone conversations, requesting written
documentation concerning Y2K issues, have taken place between the Company
and its mission-critical vendors; the information received from those
vendors has been very positive. Upon completion of this process, the
11
<PAGE>
Company may make adjustments in the stocking levels of raw materials it
maintains and negotiate with additional suppliers, if necessary.
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.
A Year 2000 rollover test of the software developed and distributed by
the Company through its wholly-owned subsidiary, PDT Computers, has been
completed. The software is Year 2000 compliant. The Company is also
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. Other
products sold by the Company have no Year 2000 issues.
The total cost of the modifications and upgrades to date has not been
material. The estimated probable cost to complete the conversion is
$10,000, and the Company anticipates that it will spend no more than $0.08
million. The Year 2000 conversion has been funded through normal
operations, and no projects have been deferred or cancelled due to the
Year 2000 efforts. 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
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 of its officers or directors.
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
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A Form 8-K was filed by the Company on July 23, 1999, reporting the
issuance of a press release on that same date that announced that a
Special Meeting of the Shareholders was set for September 21, 1999,
for holders of record of August 2, 1999, to vote on the proposed
transaction that would result in taking the Company private.
13
<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)
8/30/99 /s/ William T. Evans
---------------- -----------------------------
Date William T. Evans
President & CEO
8/30/99 /s/ Richard L. Land
---------------- -----------------------------
Date Richard L. Land
Vice President, Controller
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000873753
<NAME> PROFESSIONAL DENTAL TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 1,722
<SECURITIES> 111
<RECEIVABLES> 2,760
<ALLOWANCES> 95
<INVENTORY> 2,395
<CURRENT-ASSETS> 7,323
<PP&E> 5,928
<DEPRECIATION> 3,231
<TOTAL-ASSETS> 10,151
<CURRENT-LIABILITIES> 2,624
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 6,423
<TOTAL-LIABILITY-AND-EQUITY> 10,151
<SALES> 20,837
<TOTAL-REVENUES> 20,837
<CGS> 8,681
<TOTAL-COSTS> 10,795
<OTHER-EXPENSES> 126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 1,235
<INCOME-TAX> 492
<INCOME-CONTINUING> 743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 743
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
