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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 SEPTEMBER 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 NOVEMBER 10, 1999: 3,549,983.
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NATIONAL DENTEX CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND
SEPTEMBER 30, 1999 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
(UNAUDITED) 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 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, September 30,
1998 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents .......................................... $ 8,525,648 $10,025,544
Accounts receivable:
Trade, less allowance of $145,000 in 1998 and
$184,000 in 1999 ........................................... 7,322,515 7,708,879
Other ....................................................... 272,280 343,053
Inventories ................................................... 3,338,103 3,705,804
Prepaid expenses .............................................. 714,066 831,333
Deferred tax asset ............................................ 373,800 394,921
----------- -----------
Total current assets ......................................... 20,546,412 23,009,534
----------- -----------
PROPERTY AND EQUIPMENT:
Land and buildings ............................................ 3,683,402 3,887,403
Leasehold and building improvements ........................... 3,297,586 3,591,347
Laboratory equipment .......................................... 6,797,200 7,274,201
Furniture and fixtures ........................................ 1,940,580 2,148,931
Capital leases ................................................ 342,819 342,819
----------- -----------
16,061,587 17,244,701
Less - Accumulated depreciation and
amortization .............................................. 8,561,566 9,140,508
----------- -----------
Net property and equipment .................................... 7,500,021 8,104,193
----------- -----------
OTHER ASSETS, net:
Goodwill ...................................................... 9,763,813 11,346,979
Non competition agreements .................................... 3,639,302 3,650,699
Other ......................................................... 1,020,016 1,176,322
----------- -----------
14,423,131 16,174,000
----------- -----------
$42,469,564 $47,287,727
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 1,383,928 $ 1,175,764
Accrued liabilities:
Payroll and employee benefits ............................... 3,249,460 3,302,472
Current portion of deferred purchase price .................. 1,839,856 2,498,825
Other ....................................................... 421,158 29,932
----------- -----------
Total current liabilities ................................... 6,894,402 7,006,993
----------- -----------
LONG TERM LIABILITIES:
Deferred tax liability ........................................ 101,277 73,473
Payroll and employee benefits ................................. 433,091 1,177,184
Deferred purchase price ....................................... 1,163,300 816,666
----------- -----------
Total long-term liabilities ................................. 1,697,668 2,067,323
----------- -----------
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 3,549,983 shares at
September 30, 1999 .......................................... 35,131 35,499
Paid-in capital ............................................... 14,493,655 14,901,230
Retained earnings ............................................. 19,348,708 23,276,682
----------- -----------
Total stockholders' equity .................................. 33,877,494 38,213,411
----------- -----------
$42,469,564 $47,287,727
----------- -----------
</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 Nine months ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales ........................................ $15,800,533 $ 17,146,259 $47,650,961 $ 52,391,491
Cost of goods sold ............................... 9,434,612 10,141,905 27,420,625 30,383,702
----------- ------------ ----------- ------------
Gross profit .................................. 6,365,921 7,004,354 20,230,336 22,007,789
Total operating expenses ......................... 4,752,640 5,142,861 14,450,243 15,622,084
----------- ------------ ----------- ------------
Operating income .............................. 1,613,281 1,861,493 5,780,093 6,385,705
Other income (expense) ........................... 12,902 (19,182) 23,626 (43,154)
Interest income .................................. 62,058 84,088 118,787 204,073
----------- ------------ ----------- ------------
Income before provision for income taxes ...... 1,688,241 1,926,399 5,922,506 6,546,624
Provision for income taxes ....................... 671,919 761,319 2,357,157 2,618,650
----------- ------------ ----------- ------------
Net income .................................... $ 1,016,322 $ 1,165,080 $ 3,565,349 $ 3,927,974
=========== ============ =========== ============
Net income per share - Basic ..................... $ .29 $ .33 $ 1.02 $ 1.11
=========== ============ =========== ============
Net income per share - Diluted ................... $ .29 $ .33 $ 1.00 $ 1.10
=========== ============ =========== ============
Weighted average shares outstanding - Basic ...... 3,493,441 3,549,646 3,479,954 3,541,652
=========== ============ =========== ============
Weighted average shares outstanding - Diluted .... 3,555,919 3,577,688 3,572,046 3,563,414
=========== ============ =========== ============
</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, 1998 ........... -- $-- 3,513,148 $35,131 $14,493,655 $19,348,708 $33,877,494
Issuance of 19,383 shares of
common stock under the employee
stock option plan ................. -- -- 19,383 194 186,030 -- 186,224
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 ........................... -- -- -- -- -- 3,927,974 3,927,974
--- ---- --------- ------- ----------- ----------- -----------
BALANCE, September 30, 1999........... -- $-- 3,549,983 $35,499 $14,901,230 $23,276,682 $38,213,411
=== ==== ========= ======= =========== =========== ===========
</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 nine months ended September 30,
-----------------------------------------
1998 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 3,565,349 $ 3,927,974
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of acquisitions:
Depreciation and amortization .............................. 1,479,994 1,702,944
Increase in accounts receivable ............................ (143,926) (93,771)
Increase in inventories .................................... (28,618) (283,399)
Increase in prepaid expenses ............................... (256,816) (117,267)
Increase in deferred tax asset ............................. (3,842) (5,121)
Increase in other assets ................................... (237,750) (167,789)
Decrease in accounts payable and
accrued liabilities ....................................... (435,668) (1,044,356)
Decrease in deferred tax liability ......................... (18,759) (27,804)
----------- ------------
Net cash provided by operating activities .................. 3,919,964 3,891,411
----------- ------------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired ............... (1,385,357) (2,112,123)
Payment of deferred purchase price ........................... (646,153) (515,165)
Additions to property and equipment, net ..................... (645,282) (1,189,041)
Proceeds from officer's life insurance policy ................ -- 1,016,871
----------- ------------
Net cash used in investing activities ...................... (2,676,792) (2,799,458)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ....................... 478,291 407,943
----------- ------------
Net cash provided by financing activities .................. 478,291 407,943
----------- ------------
Net increase (decrease) in cash ................................ 1,721,463 1,499,896
Cash at beginning of period .................................... 4,912,097 8,525,648
----------- ------------
Cash at end of period .......................................... $ 6,633,560 $ 10,025,544
----------- ------------
Supplemental disclosures of cash flow information:
Interest paid ................................................ $ 9,333 $ 7,611
----------- ------------
Income taxes paid ............................................ $ 2,330,266 $ 3,035,875
----------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
NATIONAL DENTEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1999 September 30, 1998 September 30, 1999
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Net income applicable to common stock $1,016,322 $1,165,080 $3,565,349 $3,927,974
========== ========== ========== ==========
COMPUTATION OF BASIC EARNINGS PER SHARE:
Weighted average common shares
outstanding 3,493,441 3,549,646 3,479,954 3,541,652
Basic earnings per share $.29 $.33 $1.02 $1.11
COMPUTATION OF DILUTED EARNINGS PER SHARE:
Weighted average common shares
outstanding 3,493,441 3,549,646 3,479,954 3,541,652
Shares issuable from assumed exercise of
options and warrants (as determined by
the application of the treasury stock method) 62,478 28,042 92,092 21,762
---------- ---------- ---------- ----------
Weighted average common shares
outstanding as adjusted 3,555,919 3,577,688 3,572,046 3,563,414
Diluted earnings per share $.29 $.33 $1.00 $1.10
</TABLE>
7
<PAGE> 8
Options to purchase 192,227 shares of common stock at exercise prices ranging
from $17.63 to $25.00 per share were outstanding during the third 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 September 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) OFFICER'S LIFE INSURANCE
In August, 1999 the Company received approximately $1,000,000 in proceeds from
an officer's life insurance policy. Related to these proceeds, the Company
simultaneously recorded an obligation of approximately $1,000,000 in accordance
with the terms of the officer's employment agreement. The obligation has been
classified in accrued payroll and employee benefits in the Company's
consolidated balance sheet.
(5) ACQUISITION ACTIVITY
In July, 1999 the Company acquired certain assets of Jobe Dental Ceramics in
Tulsa, Oklahoma. Shortly thereafter, the acquisition agreement was rescinded by
mutual agreement of the owner of Jobe Dental Ceramics and the Company.
8
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $13,652,000 at December 31, 1998 to
$16,003,000 at September 30, 1999. Cash and equivalents increased $ 1,500,000
from $8,526,000 at December 31, 1998. Operating activities provided $3,891,000
in cash flow for the nine months ended September 30, 1999. Cash outflows related
to dental laboratory acquisitions totaled $2,627,000 for the nine months ended
September 30, 1999 compared to $2,032,000 for the same period in 1998. Capital
expenditures totaled $1,189,000 for the nine months ended September 30, 1999
compared to $645,000 for the same period in 1998. The increase in capital
expenditures is primarily attributable to increased spending on facilities of
approximately $400,000.
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
September 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
<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:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
September 30, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 57.5 58.0
----- -----
Gross profit 42.5 42.0
Total operating expenses 30.3 29.8
----- -----
Operating income 12.1 12.2
Other income (expense) -- (0.1)
Interest income 0.2 0.4
----- -----
Income before provision for income taxes 12.4 12.5
Provision for income taxes 4.9 5.0
----- -----
Net income 7.5% 7.5%
----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net Sales
Net sales increased $4,741,000 or 9.9% in the nine months ended
September 30, 1999 over the corresponding period of the prior year.
Approximately $3,386,000 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 $2,963,000.
As a percentage of sales, cost of goods sold increased from 57.5% to 58.0%,
representing a gross margin decrease of .5%. 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 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 $1,172,000 or 8.1% during the nine months ended September
30, 1999 over the corresponding period in 1998. Operating expenses decreased as
a percentage of net sales from 30.3% to 29.8% during the nine months ended
September 30, 1999 compared with the corresponding period in 1998.
While labor and benefit costs increased in dollar amount due to the
acquisition of additional laboratories, labor and benefit costs as a percentage
of net sales remained consistent from year to year. Selling expenses, delivery
expenses and administrative expenses also increased in amount while decreasing
as a percentage of net sales. The remainder of the increase in total operating
expenses was attributable to the amortization expenses associated with acquired
dental laboratories which increased in amount and as a percentage of net sales.
Operating Income
Operating income increased by $606,000 or 10.5% for the nine months
ended September 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, partially offset by the increase in cost of goods sold.
Other Income
Other income decreased $67,000 in the nine months ended September 30,
1999 compared to the same period in 1998. The decrease was primarily
attributable to an increase in the loss on disposal of property and equipment of
approximately $23,000, a decrease in rental income of $15,000 and increased
expenses of $29,000 due to customer use of credit cards.
Interest Income
Interest income increased by $85,000 or 71.8% in the nine months ended
September 30, 1999 over the corresponding period in 1998. The increase was
primarily due to increasing investment principal throughout the period as well
as increased short-term interest rates.
Provision for Income Taxes
The Company's provision for income taxes for the nine months ended
September 30, 1999 increased to $2,619,000 from $2,357,000 in the corresponding
period in 1998. The effective tax rate increased from 39.8% to 40.0%. The
increase in the tax provision was 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 nine
months ended September 30, 1999 increased by $363,000 or 10.2% over the
corresponding period in 1998. Net income per share, on a diluted basis,
increased from $1.00 per share to $1.10 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 has completed the implementation of an upgrade of its
central corporate financial systems. The Company has licensed the 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.
The Company has also licensed an upgrade for each laboratory system.
The Company has successfully implemented the upgrade at all of its locations.
While the vendor had represented that the software was Y2K compliant, the
Company performed its own internal testing and discovered some programming
errors. Thereafter, the vendor provided program revisions which were installed
at all locations. The Company performed additional testing in August, 1999 and
has determined that 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.
Communication of the potential impact of the Y2K date change is being
shared throughout the Company. Laboratory Presidents and other employees have
been notified that Y2K may impact not only the major applications addressed
above, but also desktop applications including personal computer software and
hardware. While these applications are not critical to business operations they
will continue to be assessed and repaired during the remainder of 1999. Testing
of this equipment will involve the use of various standardized utility programs.
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 83%
of the vendors surveyed, including our top seventeen suppliers and approximately
60% of the dollar volume of our purchases of goods and services. This response
rate, 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, although certain dental
alloys, such as palladium, are produced in foreign countries which may be
unprepared for Y2K.
12
<PAGE> 13
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 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. An important
characteristic of the dental laboratory industry is the need for 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.
Due to the fact that a large portion of the Company's potential Y2K
risk is in the hands of third parties or cannot be definitively eliminated,
there can be no advance assurance regarding the ultimate outcome of the Y2K date
change.
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 acquisition activity 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
November 12, 1999 By: /s/ David L. Brown
----------------------------------------------
David L. Brown
President, Treasurer and Director
(Principal Executive Officer)
November 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 SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,025,544
<SECURITIES> 0
<RECEIVABLES> 8,051,932
<ALLOWANCES> 184,365
<INVENTORY> 3,705,804
<CURRENT-ASSETS> 23,009,534
<PP&E> 17,244,701
<DEPRECIATION> 9,140,508
<TOTAL-ASSETS> 47,287,727
<CURRENT-LIABILITIES> 7,006,993
<BONDS> 0
35,499
0
<COMMON> 0
<OTHER-SE> 38,213,411
<TOTAL-LIABILITY-AND-EQUITY> 47,287,727
<SALES> 52,391,491
<TOTAL-REVENUES> 52,391,491
<CGS> 30,383,702
<TOTAL-COSTS> 22,007,789
<OTHER-EXPENSES> 43,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (204,073)
<INCOME-PRETAX> 6,546,624
<INCOME-TAX> 2,618,650
<INCOME-CONTINUING> 3,927,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,927,974
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.10
</TABLE>
