-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdKLhZhGacn4OvtHmH/KxHfyhthTivio71v5rp1bVLfaLUcBT+FzBG49tvuPaMpR UljeNWpv6VUne/UKooJiSQ== 0000950135-99-004056.txt : 19990817 0000950135-99-004056.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950135-99-004056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL DENTEX CORP /MA/ CENTRAL INDEX KEY: 0000913616 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 042762050 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23092 FILM NUMBER: 99690269 BUSINESS ADDRESS: STREET 1: 526 BOSTON POST ROAD CITY: WAYLAND STATE: MA ZIP: 01778 BUSINESS PHONE: 5083584422 MAIL ADDRESS: STREET 1: 526 BOSTON POST ROAD CITY: WAYLAND STATE: MA ZIP: 01778 10-Q 1 NATIONAL DENTEX CORPORATION 1 ================================================================================ 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. ================================================================================ 2 NATIONAL DENTEX CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS -----------------
PAGE ---- 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
3 NATIONAL DENTEX CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, June 30, 1998 1999 ----------- ----------- (Unaudited) 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 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 NATIONAL DENTEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------- ------------------------------ JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1998 1999 1998 1999 ------------ ------------ ------------ ------------ 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 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 NATIONAL DENTEX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
PREFERRED STOCK COMMON STOCK ----------------------- ---------------------- NUMBER OF $.01 PAR NUMBER OF $.01 PAR PAID-IN RETAINED SHARES VALUE SHARES VALUE CAPITAL EARNINGS TOTAL --------- -------- --------- --------- ----------- ------------ -------- 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 ====== ===== ========== ======== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 NATIONAL DENTEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, --------------------------------- 1998 1999 ----------- ----------- 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 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 6 7 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:
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 -------------- -------------- -------------- ------------- 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
7 8 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 9 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 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:
SIX MONTHS ENDED ----------------------------- June 30, June 30, 1998 1999 -------- ------- 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% ----- -----
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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 6-MOS DEC-31-1999 JUN-30-1999 7,778,572 0 8,580,665 171,424 3,519,104 21,079,778 16,754,529 8,917,953 45,374,754 7,299,209 0 35,494 0 0 37,005,337 45,374,754 35,245,232 35,245,232 20,241,797 10,479,223 23,972 0 (119,985) 4,620,225 1,857,331 2,762,894 0 0 0 2,762,894 .78 .78
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