<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER: 0-23092
NATIONAL DENTEX CORPORATION
---------------------------
MASSACHUSETTS 04-2762050
------------------------ ---------------------------
(State of Incorporation) (I.R.S. Identification No.)
526 BOSTON POST ROAD, WAYLAND, MA 01778
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(508) - 358 - 4422
-------------------------------
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
----- -----
Number of shares of Common Stock outstanding as of May 8, 1998: 3,486,710.
---------
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<PAGE> 2
NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and
March 31, 1998 (Unaudited) 3
Consolidated Statements of Income for the three months 4
ended March 31, 1997 and March 31, 1998 (Unaudited)
Consolidated Statements of Stockholders' Equity for the 5
three months ended March 31, 1998 (Unaudited)
Consolidated Statements of Cash Flows for the three months
ended 6 March 31, 1997 and March 31, 1998 (Unaudited)
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 9
AND RESULTS OF OPERATIONS
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION 13
Signatures 15
<PAGE> 3
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and equivalents ...................................... $ 4,912,097 $ 3,885,580
Accounts receivable:
Trade, less allowance of $146,000 in 1997 and
$158,000 in 1998 ....................................... 6,708,260 7,033,161
Other ................................................... 208,799 208,753
Inventories ............................................... 3,091,800 3,190,591
Prepaid expenses .......................................... 493,781 936,527
Deferred tax asset ........................................ 364,979 366,742
----------- -----------
Total current assets ..................................... 15,779,716 15,621,354
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings ........................................ 3,590,720 3,681,402
Leasehold and building improvements ....................... 3,142,342 3,224,632
Laboratory equipment ...................................... 6,491,244 6,634,862
Furniture and fixtures .................................... 1,832,982 1,928,580
Capital leases ............................................ 342,819 342,819
----------- -----------
15,400,107 15,812,295
Less - Accumulated depreciation and
amortization .......................................... 7,981,989 8,193,026
----------- -----------
Net property and equipment ................................ 7,418,118 7,619,269
----------- -----------
OTHER ASSETS, net:
Goodwill .................................................. 8,254,191 9,697,256
Noncompetition agreements ................................. 3,508,875 3,667,335
Other ..................................................... 768,953 867,594
----------- -----------
12,532,019 14,232,185
----------- -----------
$35,729,853 $37,472,808
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable .......................................... $ 1,137,701 $ 1,127,598
Accrued liabilities:
Payroll and employee benefits ........................... 2,826,089 2,502,726
Current portion of deferred purchase price .............. 1,868,577 1,517,652
Other ................................................... 336,661 1,076,414
----------- -----------
Total current liabilities ............................... 6,169,028 6,224,390
----------- -----------
LONG TERM LIABILITIES:
Deferred tax liability .................................... 195,827 162,615
Deferred purchase price ................................... 696,367 1,341,634
----------- -----------
Total long-term liabilities ............................. 892,194 1,504,249
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred stock, $.01 par value
Authorized - 500,000 shares
None issued and outstanding ............................. - -
Common stock, $.01 par value
Authorized - 8,000,000 shares
Issued and outstanding - 3,460,829 shares at
December 31, 1997, and 3,462,882 shares at
March 31, 1998 .......................................... 34,608 34,629
Paid-in capital ........................................... 13,968,731 13,989,980
Retained earnings ......................................... 14,665,292 15,719,560
----------- -----------
Total stockholders' equity .............................. 28,668,631 29,744,169
----------- -----------
$35,729,853 $37,472,808
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, March 31,
1997 1998
----------- -----------
<S> <C> <C>
Net sales ............................................. $13,980,931 $15,140,373
Cost of goods sold .................................... 7,999,524 8,717,688
----------- -----------
Gross profit ....................................... 5,981,407 6,422,685
Total operating expenses .............................. 4,442,453 4,715,089
----------- -----------
Operating income ................................... 1,538,954 1,707,596
Other income .......................................... 31,152 14,400
Interest income ....................................... 18,669 29,281
----------- -----------
Income before provision for income taxes ........... 1,588,775 1,751,277
Provision for income taxes ............................ 632,333 697,009
----------- -----------
Net income ......................................... $ 956,442 $ 1,054,268
=========== ===========
Net income per share - Basic .......................... $ .28 $ .30
=========== ===========
Net income per share - Diluted ........................ $ .27 $ .30
=========== ===========
Weighted average shares outstanding - Basic ........... 3,441,088 3,461,780
=========== ===========
Weighted average shares outstanding - Diluted ......... 3,498,813 3,568,033
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- -------------------
Number of $.01 Par Number of $.01 Par Paid-in Retained
Shares Value Shares Value Capital Earnings Total
-------- -------- --------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 ................... -- $ -- 3,460,829 $34,608 $13,968,731 $14,665,292 $28,668,631
Issuance of 2,053 shares of common stock
under the employee stock purchase plan ..... -- -- 2,053 21 21,249 -- 21,270
Net income ................................... -- -- -- -- -- 1,054,268 1,054,268
---- ---- --------- ------- ----------- ----------- -----------
BALANCE, March 31, 1998 ...................... -- $ -- 3,462,882 $34,629 $13,989,980 $15,719,560 $29,744,169
==== ==== ========= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 956,442 $ 1,054,268
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization .............................. 400,220 477,384
Increase in accounts receivable ............................ (311,246) (90,098)
Increase in inventories .................................... (11,609) (33,791)
Increase in prepaid expenses ............................... (182,000) (441,598)
Increase in deferred tax asset ............................. (9,118) (1,763)
Increase in other assets ................................... (34,292) (110,484)
Increase in accounts payable and
accrued liabilities ....................................... 365,000 236,723
Decrease in deferred tax liability ......................... (58,260) (33,213)
----------- -----------
Net cash provided by operating activities .................. 1,115,137 1,057,428
----------- -----------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired ............... (2,425,863) (1,340,357)
Payment of deferred purchase price ........................... (238,961) (414,641)
Additions to property and equipment, net ..................... (162,925) (350,217)
----------- -----------
Net cash used in investing activities ...................... (2,827,749) (2,105,215)
----------- -----------
Cash flows from financing activities:
Net payments of current and long-term obligations ............ 767 -
Proceeds from issuance of common stock ....................... 6,089 21,270
----------- -----------
Net cash provided by financing activities .................. 6,856 21,270
----------- -----------
Net decrease in cash ........................................... (1,705,756) (1,026,517)
Cash at beginning of period .................................... 4,959,038 4,912,097
----------- -----------
Cash at end of period .......................................... $ 3,253,282 $ 3,885,580
----------- -----------
Supplemental disclosures of cash flow information:
Interest paid ................................................ $ 2,776 $ 2,500
----------- -----------
Income taxes paid ............................................ $ 115,569 $ 8,500
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(1) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for fair presentation of the results of operations for the
periods presented. Interim results are not necessarily indicative of the results
to be expected for a full year.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as allowed by Form 10-Q. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements for the year
ended December 31, 1997 as filed with the Securities and Exchange Commission on
Form 10-K.
(2) ACQUISITIONS
In March, 1998 the Company acquired all of the capital stock of Continental
Dental Laboratory, Inc. in Phoenix, Arizona. The acquisition, which has been
reflected in the accompanying consolidated balance sheet as of March 31, 1998
has been accounted for as a purchase in accordance with Accounting Principles
Board Opinion No.
16.
(3) EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the
weighted-average common shares outstanding. Diluted earnings per share was
computed by giving the effect to all dilutive potential common shares
outstanding. These shares include shares issuable upon the exercise of options
and warrants as determined by the application of the treasury stock method. The
effect of SFAS No. 128 on previously reported earnings per share data was as
follows:
Three Months
Ended
March 31, 1997
-------------------
(Per share amounts)
-------------------
Primary EPS as reported $.27
Effect of SFAS No. 128 .01
----
Basic EPS as restated $.28
====
Fully diluted EPS as reported $.27
Effect of SFAS No. 128 -
----
Diluted EPS as restated $.27
====
7
<PAGE> 8
(4) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and displaying comprehensive income
and its components. The Company has adopted the statement in its quarter ending
March 31, 1998. The Company does not have any other items of comprehensive
income. As such, comprehensive income is equal to net income as presented on the
consolidated statements of income.
8
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $9,611,000 at December 31, 1997 to
$9,397,000 at March 31, 1998. Cash and equivalents decreased $1,026,000 from
$4,912,000 at December 31, 1997. Operating activities provided $1,057,000 in
cash flow for the three months ended March 31,1998. Cash outflows related to
dental laboratory acquisitions totaled $1,755,000 for the same period.
The Company maintains a financing agreement (the "Agreement") with
State Street Bank and Trust Company (the "Bank"). The Agreement, as amended and
extended on June 27, 1997, includes revolving lines of credit of $4,000,000 and
$8,000,000. The interest rate on both revolving lines of credit is the prime
rate minus 0.5% or the LIBOR rate plus 1.5%, at the Company's option. Both
revolving lines of credit mature on June 1, 2001. A commitment fee of one eighth
of 1% is payable on the unused amount of both revolving lines of credit. At
March 31, 1998 the full principal amount was available to the Company under both
revolving lines of credit.
Management believes that cash flow from operations and the Company's
existing financing will be sufficient to meet contemplated operating and capital
requirements, including costs associated with anticipated acquisitions, if any,
in the foreseeable future.
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that could affect capital expenditures, the Company's
requirements for capital, the costs associated with anticipated acquisitions and
the Company's results of operations include general economic conditions, the
availability of laboratories for purchase by the Company, the ability of the
Company to acquire and successfully operate additional dental laboratories,
governmental regulation of health care, trends in the dental industry towards
managed care, other factors affecting patient visits to the Company's clients,
increases in labor and materials costs and other risks indicated in filings with
the Securities and Exchange Commission.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of net sales represented by certain items in the Company's Consolidated
Financial Statements:
Three Months Ended
------------------------
March 31, March 31,
1997 1998
--------- ---------
Net sales 100.0% 100.0%
Cost of goods sold 57.2 57.6
----- -----
Gross profit 42.8 42.4
Total operating expenses 31.8 31.1
----- -----
Operating income 11.0 11.3
Other income 0.2 0.1
Interest income 0.1 0.2
----- -----
Income before provision for income taxes 11.4 11.6
Provision for income taxes 4.5 4.6
----- -----
Net income 6.8% 7.0%
----- -----
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
Net Sales
Net sales increased $1,159,000 or 8.3% in the three months ended March
31, 1998 over the corresponding period of the prior year. Approximately $747,000
of this increase is attributable to business at dental laboratories owned less
than one year, with the remaining increase representing unit growth at dental
laboratories owned during both the three months ended March 31, 1998 and the
comparable three months ended March 31, 1997.
Cost of Goods Sold
Cost of goods sold, which consists principally of labor and related
benefits, cost of materials, and laboratory overhead, increased by $718,000. As
a percentage of sales, cost of goods sold increased from 57.2% to 57.6%,
representing a gross margin decrease of .4%. Increases in materials costs and
laboratory overhead expenses were partially offset by improvements in labor
productivity. The rising cost of palladium, a component of dental alloys used in
the manufacture of many of the Company's goods, was a factor in the increased
materials costs. The Company has attempted to address the cost of this material
in each marketplace and has made appropriate efforts to recover costs through
price increases,temporary surcharges and the use of substitute metals in place
of palladium-based materials.
10
<PAGE> 11
Total Operating Expenses
Total operating expenses, which consist of (i) selling expenses, the
cost of the Company's pick-up and delivery services and administrative expenses
at the dental laboratory level, and (ii) costs of operation by the Company's
corporate headquarters and field support services, increased by $273,000 or 6.1%
during the three months ended March 31, 1998 over the corresponding period in
1997.
Operating expenses decreased as a percentage of net sales from 31.8%
to 31.1% during the three months ended March 31, 1998 over the corresponding
period in 1997.
Operating Income
Operating income increased by $169,000 or 11.0% for the three months
ended March 31, 1998 over the corresponding period in 1997. The increase was the
result of higher sales volume and reductions in operating expenses as a
percentage of net sales, partially offset by an increase in cost of goods sold.
Other Income
Other income decreased $17,000 in the three months ended March 31, 1998
compared to the same period in 1997. This decrease was primarily due to
increased usage of credit cards from customers and a reduction in accounts
receivable service charge income on past due balances.
Interest Income
Interest income increased by $10,000 or 56.8% in the three months ended
March 31, 1998 over the corresponding period in 1997. The increase was primarily
due to increased investment principal.
Provision for Income Taxes
The Company's provision for income taxes for three months ended March
31, 1998 increased to $697,000 from $632,000 in the corresponding period in
1997. The effective tax rate remained constant at 39.8%.
Net Income
As a result of the factors discussed above, net income for the three
months ended March 31, 1998 increased by $98,000 or 10.2% over the corresponding
period in 1997. Net income per share, on a diluted basis, increased from $0.27
per share to $0.30 per share.
Year 2000 Compliance
The Company's computer software systems are licensed from outside vendors. The
Company's principal outside vendors have released upgrades of their software
which the vendors represent are "Year 2000 compliant." Once these software
upgrades are installed, the Company believes that its computer systems will be
Year 2000 compliant. The Company believes that the costs of such compliance will
not be material to the Company's results of operations or financial condition.
The Company also has relationships with customers, vendors and other third
parties that have computer software systems that may not be Year 2000 compliant.
As these systems are outside of the Company's control, there can be no assurance
that potential systems interruptions would not have a material adverse effect on
the Company.
11
<PAGE> 12
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
No material legal proceedings are pending to which the Company is a
party or of which any of its property is subject.
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable.
ITEM 3. Defaults upon Senior Securities:
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders:
The Company's Annual Meeting of Stockholders was held on April 8, 1998.
On February 17, 1998, the record date for the meeting, there were 3,461,623
shares of Common Stock outstanding, of which 2,537,747 shares or 73.3% were
represented at the meeting by proxy or in person. At the meeting, the following
matters were voted upon and approved:
(a) Proposal to fix the number of directors at five and to elect the
following persons as directors.
Name Number of Votes Cast Number of Votes Withheld
---- FOR Nominee FROM Nominee
-------------------- ------------------------
William M. Mullahy 2,533,985 3,762
Jack R. Crosby 2,535,693 2,054
William H. McClurg 2,535,693 2,054
David V. Harkins 2,535,793 1,954
Norman F. Strate 2,535,793 1,954
(b) Proposal to approve the amendment of the Company's 1992 Long Term
Incentive Plan to increase the number of shares available for issuance by
150,000.
Number of Votes Cast Number of Votes Cast Number of Votes
FOR Proposal AGAINST Proposal ABSTAINED
-------------------- -------------------- ---------------
2,501,009 32,724 4,014
13
<PAGE> 14
(c) Proposal to approve the appointment of Arthur Andersen, LLP as
auditors.
Number of Votes Cast Number of Votes Cast Number of Votes
FOR Proposal AGAINST Proposal ABSTAINED
-------------------- -------------------- ---------------
2,531,663 4,845 1,239
ITEM 5. Other Information:
Not applicable.
ITEM 6. Exhibits and Reports on form 8-K:
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: A current report on Form 8-K , including
items 5 and 7, was filed on April 17, 1998 in order to file
restated Financial Data Schedules pursuant to Financial
Accounting Standards Board Statement No. 128, earnings per
share.
14
<PAGE> 15
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.
NATIONAL DENTEX CORPORATION
---------------------------
Registrant
May 12, 1998 By: /s/ William M. Mullahy
-----------------------------------------------
William M. Mullahy, President
Chief Executive Officer and Director
(Principal Executive Officer)
May 12, 1998 By: /s/ David L. Brown
-----------------------------------------------
David L. Brown, Vice President, Chief Financial
Officer, Treasurer and Assistant Clerk
(Principal Financial Officer)
May 12, 1998 By: /s/ Richard F. Becker
-----------------------------------------------
Richard F. Becker, Jr.
Vice President, Finance
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1998 AND 1997(UNAUDITED) AND
THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 3,253,282 3,885,580
<SECURITIES> 0 0
<RECEIVABLES> 7,147,740 7,241,914
<ALLOWANCES> 183,478 158,165
<INVENTORY> 2,976,202 3,190,591
<CURRENT-ASSETS> 14,469,359 15,621,354
<PP&E> 14,073,331 15,812,295
<DEPRECIATION> 7,526,524 8,193,026
<TOTAL-ASSETS> 32,462,994 37,472,808
<CURRENT-LIABILITIES> 6,613,759 6,224,390
<BONDS> 0 0
0 0
0 0
<COMMON> 34,414 34,629
<OTHER-SE> 24,964,595 29,709,540
<TOTAL-LIABILITY-AND-EQUITY> 32,462,994 37,472,808
<SALES> 13,980,931 15,140,373
<TOTAL-REVENUES> 13,980,931 15,140,373
<CGS> 7,999,524 8,717,688
<TOTAL-COSTS> 4,442,453 4,715,089
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (18,669) (29,281)
<INCOME-PRETAX> 1,588,775 1,751,277
<INCOME-TAX> 632,333 697,009
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 956,442 1,054,268
<EPS-PRIMARY> .28 .30
<EPS-DILUTED> .27 .30
</TABLE>
