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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 JUNE 30, 1999 COMMISSION FILE NUMBER: 000-23092
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 AUGUST 6, 1999: 3,549,413.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
- -------
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND JUNE 30,
1999 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1998 AND JUNE 30, 1999 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX
MONTHS ENDED JUNE 30, 1999 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1999 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II. OTHER INFORMATION 14
- --------
SIGNATURES 15
</TABLE>
<PAGE> 3
NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents .......................................... $ 8,525,648 $ 7,778,572
Accounts receivable:
Trade, less allowance of $146,000 in 1998 and
$171,000 in 1999 ........................................... 7,322,515 8,277,321
Other ....................................................... 272,280 303,344
Inventories ................................................... 3,338,103 3,519,104
Prepaid expenses .............................................. 714,066 793,677
Deferred tax asset ............................................ 373,800 407,760
----------- -----------
Total current assets ......................................... 20,546,412 21,079,778
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings ............................................ 3,683,402 3,683,402
Leasehold and building improvements ........................... 3,297,586 3,504,723
Laboratory equipment .......................................... 6,797,200 7,111,089
Furniture and fixtures ........................................ 1,940,580 2,112,496
Capital leases ................................................ 342,819 342,819
----------- -----------
16,061,587 16,754,529
Less - Accumulated depreciation and
amortization .............................................. 8,561,566 8,917,953
----------- -----------
Net property and equipment .................................... 7,500,021 7,836,576
----------- -----------
OTHER ASSETS, net:
Goodwill ...................................................... 9,763,813 11,514,804
Non competition agreements .................................... 3,639,302 3,821,024
Other ......................................................... 1,020,016 1,122,572
----------- -----------
14,423,131 16,458,400
----------- -----------
$42,469,564 $45,374,754
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 1,383,928 $ 1,344,770
Accrued liabilities:
Payroll and employee benefits ............................... 3,682,551 3,323,886
Current portion of deferred purchase price .................. 1,839,856 2,475,988
Other ....................................................... 421,158 154,565
----------- -----------
Total current liabilities ................................... 7,327,493 7,299,209
----------- -----------
LONG TERM LIABILITIES:
Deferred tax liability ........................................ 101,277 21,414
Deferred purchase price ....................................... 1,163,300 1,013,300
----------- -----------
Total long-term liabilities ................................. 1,264,577 1,034,714
----------- -----------
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 -
3,513,148 shares at
December 31, 1998, and 3,549,413 shares at
June 30, 1999 ............................................... 35,131 35,494
Paid-in capital ............................................... 14,493,655 14,893,735
Retained earnings ............................................. 19,348,708 22,111,602
----------- -----------
Total stockholders' equity .................................. 33,877,494 37,040,831
----------- -----------
$42,469,564 $45,374,754
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ..................................... $16,710,055 $18,233,360 $31,850,428 $35,245,232
Cost of goods sold ............................ 9,268,325 10,427,794 17,986,013 20,241,797
----------- ----------- ----------- -----------
Gross profit ............................... 7,441,730 7,805,566 13,864,415 15,003,435
Total operating expenses ...................... 4,982,514 5,282,567 9,697,603 10,479,223
----------- ----------- ----------- -----------
Operating income ........................... 2,459,216 2,522,999 4,166,812 4,524,212
Other income (expense) ........................ (3,676) (21,236) 10,724 (23,972)
Interest income ............................... 27,448 50,828 56,729 119,985
----------- ----------- ----------- -----------
Income before provision for income taxes ... 2,482,988 2,552,591 4,234,265 4,620,225
Provision for income taxes .................... 988,229 999,263 1,685,238 1,857,331
----------- ----------- ----------- -----------
Net income ................................. $ 1,494,759 $ 1,553,328 $ 2,549,027 $ 2,762,894
=========== =========== =========== ===========
Net income per share - Basic $ .43 $ .44 $ .73 $ .78
=========== =========== =========== ===========
Net income per share - Diluted $ .42 $ .44 $ .71 $ .78
=========== =========== =========== ===========
Weighted average shares outstanding - Basic 3,484,304 3,548,927 3,473,104 3,537,589
=========== =========== =========== ===========
Weighted average shares outstanding - Diluted 3,589,490 3,566,469 3,577,621 3,555,845
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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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, 1998 ........ -- $ -- 3,513,148 $35,131 $14,493,655 $19,348,708 $33,877,494
Issuance of 18,813 shares of
common stock under the
employee stock option plan ...... -- -- 18,813 189 178,535 -- 178,724
Issuance of 16,624 shares of
common stock under the employee
stock purchase plan ............. -- -- 16,624 166 209,547 -- 209,713
Issuance of 828 shares of common
stock as director's fees ........ -- -- 828 8 11,998 -- 12,006
Net income ........................ -- -- -- -- -- 2,762,894 2,762,894
------ ----- --------- -------- ----------- ----------- -----------
BALANCE, June 30, 1999 ............ -- $ -- 3,549,413 $ 35,494 $14,893,735 $22,111,602 $37,040,831
====== ===== ========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 2,549,027 $ 2,762,894
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization ............................... 979,795 1,118,145
Increase in accounts receivable ............................. (588,412) (622,504)
Increase in inventories ..................................... (49,145) (96,699)
Increase in prepaid expenses ................................ (198,385) (79,611)
Increase in deferred tax asset .............................. (4,263) (17,960)
Increase in other assets .................................... (189,152) (112,191)
Increase (decrease) in accounts payable and
accrued liabilities ........................................ 88,517 (880,818)
Decrease in deferred tax liability .......................... (80,300) (79,863)
----------- -----------
Net cash provided by operating activities ................... 2,507,682 1,991,393
----------- -----------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired ................ (1,340,357) (2,112,123)
Payment of deferred purchase price ............................ (433,690) (350,165)
Additions to property and equipment, net ...................... (516,043) (676,624)
----------- -----------
Net cash used in investing activities ....................... (2,290,090) (3,138,912)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock ........................ 398,257 400,443
----------- -----------
Net cash provided by financing activities ................... 398,257 400,443
----------- -----------
Net increase (decrease) in cash ................................. 615,849 (747,076)
Cash at beginning of period ..................................... 4,912,097 8,525,648
----------- -----------
Cash at end of period ........................................... $ 5,527,946 $ 7,778,572
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid ................................................. $ 5,056 $ 5,056
=========== ===========
Income taxes paid ............................................. $ 1,333,150 $ 2,071,415
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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, 1998 as filed with the Securities and Exchange Commission on
Form 10-K.
(2) 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 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 calculation
of basic earnings per share and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income applicable to common stock $1,494,759 $1,553,328 $2,549,027 $2,762,894
========== ========== ========== ==========
COMPUTATION OF BASIC EARNINGS PER SHARE:
- ----------------------------------------
Weighted average common shares outstanding 3,484,304 3,548,927 3,473,104 3,537,589
Basic earnings per share $.43 $.44 $.73 $.78
COMPUTATION OF DILUTED EARNINGS PER SHARE:
- ------------------------------------------
Weighted average common shares outstanding 3,484,304 3,548,927 3,473,104 3,537,589
Shares issuable from assumed exercise of
options and warrants (as determined by
the application of the treasury stock
method) 105,186 17,542 104,517 18,256
---------- ---------- ---------- ----------
Weighted average common shares outstanding
as adjusted 3,589,490 3,566,469 3,577,621 3,555,845
Diluted earnings per share $.42 $.44 $.71 $.78
</TABLE>
7
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Options to purchase 202,437 shares of common stock at exercise prices ranging
from $16.25 to $25.00 per share were outstanding during the second quarter of
1999 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares. The options, which expire through September 2008, were still
outstanding at June 30, 1999.
(3) 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 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 in the
consolidated statements of income.
(4) ACQUISITIONS
- ----------------
In April, 1999 the Company acquired certain assets of Oratech Dental Laboratory
in Dallas, Texas. The acquisition, which has been reflected in the accompanying
consolidated balance sheet as of June 30, 1999, has been accounted for as a
purchase in accordance with Accounting Principles Board Opinion No. 16.
In April, 1999 the Company also acquired certain assets of Southside Dental
Laboratory in Orlando, Florida. The acquisition, which has been reflected in the
accompanying consolidated balance sheet as of June 30, 1999, has been accounted
for as a purchase in accordance with Accounting Principles Board Opinion No. 16.
(5) SUBSEQUENT EVENTS
- ---------------------
In July, 1999 the Company acquired certain assets of Jobe Dental Ceramics in
Tulsa, Oklahoma.
On July 19, 1999 the Company announced that William M. Mullahy, co-founder and
Chief Executive Officer of the Company, had passed away on July 18, 1999. Mr.
Mullahy, who as a result of his health had stepped aside from any active duties
with the Company late last year, was a member of the Board of Directors of the
Company.
8
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ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
===========================================================
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased from $13,219,000 at December 31, 1998 to
$13,781,000 at June 30, 1999. Cash and equivalents decreased $ 747,000 from
$8,526,000 at December 31, 1998. Operating activities provided $1,991,000 in
cash flow for the six months ended June 30, 1999. Cash outflows related to
dental laboratory acquisitions totaled $2,462,000 for the six months ended June
30, 1999 compared to $1,774,000 for the same period in 1998. Capital
expenditures totaled $677,000 for the six months ended June 30, 1999 compared to
$516,000 for the same period in 1998.
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, 1998, 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 June
30, 1999 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 from time to
time in filings with the Securities and Exchange Commission.
9
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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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
June 30, June 30,
1998 1999
-------- -------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 56.5 57.4
----- -----
Gross profit 43.5 42.6
Total operating expenses 30.4 29.7
----- -----
Operating income 13.1 12.9
Other income (expense) -- (0.1)
Interest income 0.2 0.3
----- -----
Income before provision for income taxes 13.3 13.1
Provision for income taxes 5.3 5.3
---- -----
Net income 8.0% 7.8%
----- -----
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------------------------
Net Sales
Net sales increased $3,395,000 or 10.7% in the six months ended June
30, 1999 over the corresponding period of the prior year. Approximately
$2,269,000 of this increase was attributable to acquisitions, with the remaining
increase representing same laboratory sales growth.
Cost of Goods Sold
Cost of goods sold, which consists principally of labor and related
benefits, cost of materials, and laboratory overhead, increased by $2,256,000.
As a percentage of sales, cost of goods sold increased from 56.5% to 57.4%,
representing a gross margin decrease of .9%. Increases in materials costs and
labor costs were partially offset by decreases in laboratory overhead. The
continued rising cost of palladium, a component of dental alloys used in the
manufacture of many of the Company's goods, continues to be a factor in the
increased materials costs. The average cost of palladium during the first six
months of 1999 increased 22.0% over the average cost for the first six months of
1998. This increase, while still substantial, decreased from a 79% increase in
the prior year. The Company has continued to address the cost of this material
in each marketplace and has made 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, (ii) costs of operation by the Company's
corporate headquarters and field support services and (iii) amortization
expense, increased by $782,000 or 8.1% during the six months ended June 30, 1999
over the corresponding period in 1998.
While labor and benefit costs increased with the acquisition of
additional laboratories, labor and benefit costs as a percentage of sales
remained consistent from year to year. In addition, expenses related to the
Laboratory Incentive Compensation plan and the Executive Incentive Compensation
plan increased as a result of increased operating income. The remainder of the
increase was attributable to the amortization expenses associated with acquired
dental laboratories.
Operating expenses decreased as a percentage of net sales from 30.4%
to 29.7% during the six months ended June 30, 1999 compared with the
corresponding period in 1998.
Operating Income
Operating income increased by $357,000 or 8.6% for the six months ended
June 30, 1999 over the corresponding period in 1998. The increase was the result
of higher sales volume and reductions in operating expenses as a percentage of
net sales, slightly offset by the increase in cost of goods sold.
Other Income
Other income decreased $35,000 in the six months ended June 30, 1999
compared to the same period in 1998. The decrease was primarily attributable to
the disposal of property and equipment of approximately $7,000, a decrease in
rental income of $9,000 and an increased cost of $20,000 due to customer use of
credit cards.
Interest Income
Interest income increased by $63,000 or 111.5% in the six months ended
June 30, 1999 over the corresponding period in 1998. The increase was primarily
due to increased investment principal throughout the period.
Provision for Income Taxes
The Company's provision for income taxes for the six months ended June
30, 1999 increased to $1,857,000 from $1,685,000 in the corresponding period in
1998. The effective tax rate has increased from 39.8% to 40.2%. The increase in
the tax provision is primarily attributable to non-deductible costs related to
the acquisition of dental laboratories. The tax provision in future periods may
increase depending in part on the level and nature of the Company's acquisition
activities.
Net Income
As a result of the factors discussed above, net income for the six
months ended June 30, 1999 increased by $214,000 or 8.4% over the corresponding
period in 1998. Net income per share, on a diluted basis, increased from $0.71
per share to $0.78 per share.
11
<PAGE> 12
YEAR 2000 (Y2K) COMPLIANCE
- --------------------------
The Company faces Year 2000 ("Y2K") compliance issues in the areas of
computerized data processing using the Company's own equipment along with third
party software, and to a lesser extent, exposure to vendor compliance issues in
procuring raw materials and difficulties with embedded microprocessors in
communications systems and dental laboratory equipment.
Information Technology Issues
The central focus of the Company's Y2K plan has been to mitigate the
data processing issues. The areas that are being addressed are the Company's
centralized corporate financial systems along with individual laboratory billing
systems. The corporate systems embody the Company's general ledger and accounts
payable systems. The laboratory systems handle production scheduling, billing
and accounts receivable. Purchasing and inventory control records are generally
kept manually.
The Company is in the final stages of the implementation of an upgrade
of its central corporate financial systems. The Company has licensed an upgrade
from an existing vendor. While the vendor has represented that the software is
Y2K compliant and the Company has conducted internal testing and analysis of the
upgrade, the Company will continue to monitor the software during the remainder
of the year. It is expected that the new software will be fully operational
during the third quarter of 1999.
The Company has also licensed an upgrade for each laboratory system.
The Company has successfully implemented the upgrade at most of its locations
and expects to complete implementation by August 1999. While the vendor has
represented that the software is Y2K compliant, the Company performed its own
internal testing and has discovered some programming errors. The vendor has
provided program revisions which are currently being installed. The Company has
scheduled additional testing in August, 1999 to determine whether the revisions
have corrected the programming errors.
The costs of both the upgrade of the central corporate financial
systems and the laboratory systems totaled approximately $60,000. While the
Company is currently unable to estimate a cost for the replacement of
non-compliant hardware, management is confident that these costs when identified
and prioritized will not materially increase the Company's normal capital
expenditure requirements.
The Company's laboratories use personal computers for word processing
and spreadsheets. An effort is underway to identify non-compliant hardware and
software. While these computers are not critical to business operations, the
Company expects to upgrade necessary equipment during the course of 1999.
Business Partners
The Company does business with a multitude of vendors and is in the
process of gathering Y2K assurances from its key business partners. To date the
Company has received favorable assurances of compliance from approximately 55%
of the vendors surveyed, including our top seventeen suppliers and approximately
eighty percent of the dollar volume of our purchases of goods and services. This
response and the fact that the Company does not rely on a single vendor for raw
materials inventory leads management to believe that inventory levels will be
sufficient to absorb temporary delays in raw materials shipments.
Alternative materials and vendors are generally readily available.
Embedded Systems
The Company uses equipment in manufacturing. While some equipment uses
computer chips for the purpose of temperature regulation and timing, most of the
manufacturing process does not rely on computerized machinery. In most cases,
the equipment uses timers operating at an hourly level. The Company has not yet
identified equipment which is date sensitive. Should equipment fail an
individual laboratory can make use of older backup equipment. The Company is
continuing the process of identifying communications
12
<PAGE> 13
equipment and other systems which may lose needed functionality due to Y2K
issues.
Most Reasonably Likely Worst Case Scenario
The Company believes that its Y2K remediation efforts will be
sufficient to protect the Company from Y2K related losses. However, in the worst
case the Company may continue to encounter difficulties with laboratory billing
and scheduling systems. Should the vendor be unable to repair our systems, the
Company would need to process billings manually. This could negatively impact
the Company by increasing administrative costs and temporarily reducing cash
flow (due to billing delays). Additionally, the loss of functionality in these
systems could slow production scheduling, further increasing administrative
costs and reducing manufacturing productivity.
The Company may experience difficulties with communications equipment
and/or communication service providers at some locations. The Company
participates in an industry with a characteristic of frequent contact with the
customer. Difficulties in communicating with customers would most likely damage
customer relationships and have an adverse effect on sales.
The Company may encounter product quality problems should equipment
fail and backup equipment be found to be inadequate. The most likely result
would be an increase in labor and materials costs due to the need to rework
substandard products. Emergency purchasing would likely result in higher costs.
Contingency Plans
The Company believes it would be able to process billings using a
combination of laboratory administrative staff, the central office staff and a
pool of temporary and part-time workers until a permanent solution to the
problem could be implemented. Production scheduling would revert to former
manual systems in operation prior to the computerization of our dental
laboratories over the last ten years.
The Company believes it can readily obtain replacement dental equipment
should existing equipment fail. The Company believes that its network of dental
laboratories will be able to work together to solve the production difficulties
of any particular laboratory by lending equipment or production capacity.
Communication equipment failures would be more difficult to remedy due to our
reliance on third party vendors. While equipment is covered under maintenance
contracts, timely performance by third parties cannot be guaranteed.
ITEM 3.
- -------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE> 14
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:
- -------
Not applicable.
ITEM 5. Other Information:
- -------
See footnotes 4 and 5 to the Consolidated Financial Statements for
information regarding recent acquisitions and other matters.
ITEM 6. Exhibits and Reports on form 8-K:
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: None
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, there unto duly authorized.
NATIONAL DENTEX CORPORATION
Registrant
August 12, 1999 By: /s/ David L. Brown
-------------------------------------------------
David L. Brown, President, Treasurer and Director
(Principal Executive Officer)
August 12, 1999 By: /s/ Richard F. Becker
-------------------------------------------------
Richard F. Becker, Jr.
Chief Financial Officer, Vice President of
Finance and Assistant Treasurer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1999 AND 1998 (UNAUDITED) AND
THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,778,572
<SECURITIES> 0
<RECEIVABLES> 8,580,665
<ALLOWANCES> 171,424
<INVENTORY> 3,519,104
<CURRENT-ASSETS> 21,079,778
<PP&E> 16,754,529
<DEPRECIATION> 8,917,953
<TOTAL-ASSETS> 45,374,754
<CURRENT-LIABILITIES> 7,299,209
<BONDS> 0
35,494
0
<COMMON> 0
<OTHER-SE> 37,005,337
<TOTAL-LIABILITY-AND-EQUITY> 45,374,754
<SALES> 35,245,232
<TOTAL-REVENUES> 35,245,232
<CGS> 20,241,797
<TOTAL-COSTS> 10,479,223
<OTHER-EXPENSES> 23,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (119,985)
<INCOME-PRETAX> 4,620,225
<INCOME-TAX> 1,857,331
<INCOME-CONTINUING> 2,762,894
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,762,894
<EPS-BASIC> .78
<EPS-DILUTED> .78
</TABLE>
