National Dentex (NADX) 10-Q 2009 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 000-23092

NATIONAL DENTEX CORPORATION

(Exact name of registrant as specified in its charter)

MASSACHUSETTS	04-2762050
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)
2 Vision Drive, Natick, MA	01760
(Address of Principal Executive Offices)	(Zip Code)

(508) 907-7800
(Registrant’s Telephone No., including Area Code)

     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 þ   No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

     

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ 
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

     As of May 1, 2009, 5,657,904 shares of the registrant’s Common Stock, par value $.01 per share, were outstanding.

NATIONAL DENTEX CORPORATION

FORM 10-Q

QUARTER ENDED MARCH 31, 2009

TABLE OF CONTENTS

	Page
PART I. Financial Information
Item 1. Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2008 and March 31, 2009	3
Unaudited Condensed Consolidated Statements of Income for the three month periods ended March 31, 2008 and 2009	4
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2009	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II. Other Information
Item 1. Legal Proceedings	26
Item 1A. Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3. Defaults Upon Senior Securities	26
Item 4. Submission of Matters to a Vote of Security Holders	26
Item 5. Other Information	26
Item 6. Exhibits	26
Signatures	27
Exhibit Index	28
EX-31.1 Certification Pursuant to Section 302 Chief Executive Officer
EX-31.2 Certification Pursuant to Section 302 Chief Financial Officer
EX-32.1 Certification Pursuant to Section 906 Chief Executive Officer
EX-32.2 Certification Pursuant to Section 906 Chief Financial Officer

2 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NATIONAL DENTEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	December 31,			March 31,
	2008			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,109,943		$	1,971,865
Accounts receivable:
Trade, less allowance of $492,000 in 2008 and $503,000 in 2009		16,701,139			17,188,945
Other		2,527,168			1,690,662
Inventories		6,991,385			7,442,343
Prepaid expenses		3,688,057			3,395,863
Deferred tax asset		931,919			998,141
Property held for sale		69,822			69,822
Total current assets		33,019,433			32,757,641
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings		7,535,015			7,535,015
Leasehold and building improvements		18,890,911			19,413,341
Laboratory equipment		22,503,086			22,904,495
Furniture and fixtures		8,721,724			8,893,582
		57,650,736			58,746,433
Less — Accumulated depreciation and amortization		24,213,721			25,342,772
Net property, plant and equipment		33,437,015			33,403,661
OTHER LONG-TERM ASSETS:
Goodwill		69,384,320			69,331,892
Trade names		9,977,917			9,968,908
Customer relationships		6,210,176			5,981,444
Non-competition agreements		1,583,895			1,509,331
Other assets		7,902,147			7,835,423
Total other assets		95,058,455			94,626,998
Total assets	$	161,514,903		$	160,788,300
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving line of credit	$	2,939,978		$	—
Current portion of long-term debt		5,115,032			5,105,938
Accounts payable		3,541,996			4,093,377
Accrued liabilities:
Payroll and employee benefits		7,574,971			7,329,375
Current portion of deferred acquisition costs		300,000			300,000
Other accrued expenses		4,019,992			4,644,237
Total current liabilities		23,491,969			21,472,927
LONG-TERM LIABILITIES:
Long-term debt		34,142,891			32,991,412
Deferred compensation		6,114,609			6,285,689
Other accrued expenses		1,419,561			1,751,053
Deferred tax liability		5,853,821			5,732,024
Total long-term liabilities		47,530,882			46,760,178
COMMITMENTS AND CONTINGENCIES (Note 7)
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 — 5,663,749 shares at December 31, 2008 and 5,664,206 shares at March 31, 2009		56,637			56,642
Paid-in capital		19,522,536			19,632,710
Retained earnings		71,312,895			73,371,754
Other comprehensive loss		(400,016	)		(505,911	)
Total stockholders’ equity		90,492,052			92,555,195
Total liabilities and stockholders’ equity	$	161,514,903		$	160,788,300

The accompanying notes are an integral part of these consolidated financial statements.

3

NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Three Months Ended
	March 31,		March 31,
	2008		2009
Net sales	$	43,528,664	$	41,259,709
Cost of goods sold		25,318,316		23,637,927
Gross profit		18,210,348		17,621,782
Selling, general and administrative expenses		14,820,946		13,723,717
Operating income		3,389,402		3,898,065
Other expense		158,183		219,588
Interest expense		507,849		344,833
Income before provision for income taxes		2,723,370		3,333,644
Provision for income taxes		1,042,740		1,274,785
Net income	$	1,680,630	$	2,058,859
Net income per share — basic	$	.30	$	.36
Net income per share — diluted	$	.30	$	.36
Weighted average shares outstanding — basic		5,584,944		5,656,547
Weighted average shares outstanding — diluted		5,660,266		5,749,649

The accompanying notes are an integral part of these consolidated financial statements.

4

NATIONAL DENTEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2008			2009
Cash flows from operating activities:
Net income	$	1,680,630		$	2,058,859
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions:
Depreciation and amortization		1,368,243			1,480,384
Loss (gain) on disposal of property, plant and equipment		2,790			(3,282	)
Benefit for deferred income taxes		(117,922	)		(67,190	)
Provision for bad debts		39,347			27,815
Losses on write-down of inventories		41,812			33,595
Stock-based compensation expense		103,591			110,180
Other non-cash items		(27,778	)		—
Changes in operating assets and liabilities, net of effects of acquisitions:
(Increase) decrease in accounts receivable		(956,499	)		309,419
Increase in inventories		(519,253	)		(489,960	)
Decrease in prepaid expenses		511,654			291,744
Decrease in other assets		295,135			35,080
Increase in accounts payable and accrued liabilities		692,349			811,343
Net cash provided by operating activities		3,114,099			4,597,987
Cash flows from investing activities:
Payment of deferred purchase price		(1,277,720	)		—
Premiums paid for life insurance policies		(4,968	)		(2,598	)
Proceeds received from life insurance policies		—			25,200
Additions to property, plant and equipment		(2,857,745	)		(651,335	)
Cash proceeds from the disposition of property, plant, and equipment		400			4,300
Net cash used in investing activities		(4,140,033	)		(624,433	)
Cash flows from financing activities:
Borrowings of revolving line of credit		14,594,072			13,536,382
Repayments of revolving line of credit		(15,909,878	)		(16,355,932	)
Borrowings of long-term debt		3,800,000			—
Repayments of long-term debt		(1,267,314	)		(1,280,691	)
Net proceeds from issuance of common stock		189,001			—
Net cash provided by (used in) financing activities		1,405,881			(4,100,241	)
Effect of exchange rate changes on cash		(16,890	)		(11,391	)
Net increase (decrease) in cash and cash equivalents		363,057			(138,078	)
Cash and cash equivalents at beginning of period		1,689,391			2,109,943
Cash and cash equivalents at end of period	$	2,052,448		$	1,971,865

The accompanying notes are an integral part of these consolidated financial statements.

5

NATIONAL DENTEX CORPORATION

Notes to Condensed Consolidated Financial Statements
March 31, 2009
(Unaudited)

(1) Interim Financial Statements

     The accompanying unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement 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. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2008 as filed with the SEC on March 16, 2009 in its Annual Report on Form 10-K for the year ended December 31, 2008.

(2) Acquisitions

     The Company has participated in the acquisition of dental laboratories that have been recorded as business combinations. Certain factors, such as the laboratory’s assembled workforce, technical skills, and value as a going concern result in the recognition of goodwill. All acquisitions consummated prior to December 31, 2008 have been reflected in the accompanying condensed consolidated financial statements from the date of acquisition and have been accounted for as purchase business combinations in accordance with SFAS No. 141,“Business Combinations”(“FAS 141”).In connection with certain acquisition agreements, the Company incurred contractual obligations associated with deferred purchase price payments, which are not contingent on any future actions or performance measures. These deferred payments were recorded as a liability upon consummation of the acquisition and were included in the acquisition purchase price.

     In December 2007, the FASB issued FAS No. 141 (Revised 2007), “Business Combinations” (“FAS 141 (R)”). FAS 141 (R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of business combinations. FAS 141 (R) is effective on a prospective basis for financial statements issued for fiscal years beginning after December 15, 2008. Accordingly, any future business combination we enter into will be subject to this new standard. FAS 141(R) will impact financial statements at the acquisition date and in subsequent periods.

     In certain transactions, the Company executes non-compete agreements with the former owners and other key employees. The fair value of these agreements is recognized in purchase accounting as an identifiable intangible asset and is amortized over the estimated economic life of the agreement. Additionally, the Company recognizes certain other acquired intangible assets including trade names and customer relationships.

     During 2008, the Company acquired the following dental laboratory operations:

Acquisition	Form of Acquisition	Location	Period Acquired
Dental Art Laboratories, Inc.	All Outstanding Capital Stock	Lansing, MI	September, 2008

     There were no acquisitions of dental operations in the first quarter of 2009.

6

Notes to Condensed Consolidated Financial Statements (Continued)

     The following pro forma operating results of the Company assume this acquisition had been made as of January 1, 2008. Such information includes adjustments to reflect additional depreciation, amortization and interest expense and is not necessarily indicative of what the results of operations would actually have been, or the results of operations to be expected in future periods.

	Three Months Ended
	March 31,		March 31,
	2008		2009
	(unaudited)
Net sales	$	45,473,000	$	41,260,000
Net income		1,854,000		2,059,000
Net income per share:
Basic	$	0.33	$	0.36
Diluted	$	0.33	$	0.36

(3) Goodwill and Other Intangible Assets

     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, the Company continually evaluates whether events and circumstances have occurred that indicate that the value of goodwill has been impaired. In accordance with SFAS No. 142, goodwill is evaluated for possible impairment on an annual basis, based on a two-step process. The Company’s annual goodwill impairment assessment has historically been completed at the end of the second quarter. Based on the Company’s initial assessment for 2008, the fair value of its business units exceeded their carrying value and therefore its goodwill was not deemed to be impaired. As economic conditions worsened in the fourth quarter and the Company’s business performance and outlook was not as strong as anticipated, management determined that circumstances had changed enough to perform an additional goodwill impairment test as of December 31, 2008. The Company’s analysis resulted in the determination that the fair value of ten dental laboratories in the NDX Laboratories operating segment (See Note 11) was less than their carrying value, resulting in goodwill impairment of $6,950,000 in the fourth quarter of fiscal 2008. There were no circumstances in the first quarter of 2009 that would trigger an evaluation of goodwill.

     In accordance with SFAS No. 142, a reporting unit is an operating segment or one level below an operating segment (referred to as a component). The Company has determined that the individual laboratories are reporting units. The goodwill impairment analysis is a two-step process. The first step is used to identify potential impairment and involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. The second step of the goodwill impairment process involves the calculation of an implied fair value of goodwill for the laboratories which step one indicated were impaired.

     The changes in the carrying amount of goodwill for the three months ended March 31, 2009 are as follows:

	As of
	March 31, 2009
Beginning of year	$	69,384,000
Effects of exchange rate changes		(52,000	)
Goodwill— End of period	$	69,332,000

     The effects of exchange rate changes in the consolidated goodwill balance as of March 31, 2009 as summarized in the above table relate to the NDX Laboratories reportable segment. For the quarter ended March 31, 2009 the goodwill balances for the Company’s operating segments are as follows:

	As of
	March 31, 2009
NDX Laboratories	$	37,981,000
Green Dental Laboratory		15,208,000
Keller Group		16,143,000
Total	$	69,332,000

7

Notes to Condensed Consolidated Financial Statements (Continued)

Trade Names

     Trade names, as acquired, are valued using a quantification of the income generated based on the recognition afforded by the trade name in the marketplace, using the relief-from-royalty valuation approach. Company practice is to use existing and acquired trade names in perpetuity, and consequently they have been treated as indefinite-lived intangibles. While these assets are not subject to amortization, they are tested for impairment on an annual basis in accordance with SFAS No. 142. The Company uses the relief-from-royalty valuation approach at each fiscal year end to determine the value of the asset. Trade name impairment charges result from a decline in forecasted revenue at specific laboratories in comparison to revenue forecasts used in previous valuation calculations.

     The changes in the carrying amount of trade names for the three months ended March 31, 2009 are as follows:

	As of
	March 31, 2009
Beginning of year	$	9,978,000
Effects of exchange rate changes		(9,000	)
Trade Names, end of period	$	9,969,000

Customer Relationships

Acquired dental laboratories have customer relationships in place with dentists within their market areas. Based on the criteria of EITF 02-17, the Company recognizes customer relationship assets when established relationships exist with customers through contracts or other contractual relationships such as purchase orders or sales orders. Customer relationships are valued based on an analysis of revenue and customer attrition data and amortized over their useful lives. The amounts assigned to customer relationships are amortized on a straight-line basis over their useful lives, ranging over periods of 9 to 12 years. The Company has determined that the straight-line method is appropriate based on an analysis of customer attrition statistics.

	As of
	March 31, 2009
Beginning of year	$	9,439,000
Effects of exchange rate changes		(6,000	)
Customer relationships, gross		9,433,000
Less: Accumulated amortization		(3,452,000	)
Customer relationships, net	$	5,981,000

     Amortization expense associated with customer relationships totaled approximately $224,000 for the three months ended March 31, 2009 and is recorded in selling, general and administrative expenses. Future amortization expense of the current customer relationship balance will be approximately:

For the remainder of fiscal 2009	$	667,000
2010		890,000
2011		890,000
2012		820,000
2013		609,000
2014		478,000
Thereafter		1,627,000
	$	5,981,000

8

Notes to Condensed Consolidated Financial Statements (Continued)

Non-competition Agreements

     In connection with acquisitions, the Company has executed non-compete agreements with certain individuals, ranging over periods of 2 to 15 years. The amounts assigned to non-competition agreements are amortized on a straight-line basis over the economic useful life of the agreement, and are recorded as operating expenses.

	As of
	March 31, 2009
Beginning of year	$	10,696,000
Effects of exchange rate changes		(1,000	)
Non-competition agreements, gross		10,695,000
Less: Accumulated amortization		(9,186,000	)
Non-competition agreements, net	$	1,509,000

     Amortization expense associated with non-competition agreements totaled approximately $74,000 for the three months ended March 31, 2009.

     Future amortization expense of non-competition agreements will be approximately:

For the remainder of fiscal 2009	$	221,000
2010		285,000
2011		245,000
2012		192,000
2013		170,000
2014		115,000
Thereafter		281,000
	$	1,509,000

(4) Earnings per Share

     In accordance with the disclosure requirements of SFAS No. 128,“Earnings per Share,” basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding and diluted earnings per share reflects the dilutive effect of potential common shares. The weighted average number of shares outstanding, the dilutive effects of outstanding stock options, and the shares under option plans that were anti-dilutive for the three months ended March 31, 2009 and 2008 are as follows:

	Three Months Ended
	March 31,
	2008		2009
Weighted average number of shares used in basic earnings per share calculation		5,584,944		5,656,547
Incremental shares under option plans		75,322		93,102
Weighted average number of shares used in diluted earnings per share calculation		5,660,266		5,749,649
Shares under option plans excluded in computation of diluted earnings per share due to anti-dilutive effects		119,875		717,330

(5) Inventories

     Inventories consist of the following:

	December 31, 2008		March 31, 2009
Raw Materials	$	5,783,468	$	5,933,745
Work in Process		985,278		1,302,482
Finished Goods		222,639		206,116
	$	6,991,385	$	7,442,343

9

Notes to Condensed Consolidated Financial Statements (Continued)

     Inventories are stated at the lower of cost (first-in, first-out) or market. Work in process represents an estimate of the value of specific orders in production yet incomplete at period end. Finished goods consist of completed orders that were shipped to customers immediately subsequent to period end.

(6)Comprehensive Income

     SFAS No. 130, “Reporting Comprehensive Income,” requires disclosure of all components of comprehensive income on an annual and interim basis. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances derived from non-owner sources. The Company’s total comprehensive income was as follows for the periods presented:

	March 31,
	2008			2009
Net income (loss)	$	1,680,630		$	2,058,859
Foreign currency translation adjustments		(153,343	)		(105,895	)
Total comprehensive income (loss)	$	1,527,287		$	1,952,964

     Accumulated other comprehensive loss at December 31, 2008 and March 31, 2009 of $400,016 and $505,911, respectively, as presented in the equity section of the consolidated balance sheet is attributable to accumulated foreign currency translation adjustments.

(7) Lines of Credit and Term Loan Facility

     On August 9, 2005, the Company entered into an amended and restated financing agreement (the “Amended Agreement”) with Bank of America, N.A. (the “Bank”). The Amended Agreement included a revolving line of credit of $5,000,000, a revolving acquisition line of credit of $20,000,000 and a term loan facility of $20,000,000. The interest rate on both revolving lines of credit and the term loan was the prime rate or, at the Company’s option, LIBOR, a cost of funds rate or the Bank’s fixed rate plus a range of 1.25% to 2.25%, depending on the ratio of consolidated funded debt to consolidated “EBITDA”, as defined in the Amended Agreement. The Amended Agreement required monthly payments of principal, based on a seven year amortization schedule, with a final payment due on the fifth anniversary of the Amended Agreement. The Amended Agreement required compliance with certain covenants, including the maintenance of specified net worth, income and other financial ratios.

     In October 2006, the Company borrowed against its acquisition line of credit to finance the acquisition of Keller Group, Incorporated (“Keller”). In order to refinance the borrowings incurred for the Keller acquisition, the Company and the Bank executed a Second Amended and Restated Loan Agreement as of November 7, 2006 (the “Second Agreement”) comprised of uncollateralized senior credit facilities totaling $60,000,000. The Second Agreement amended and restated the Amended Agreement (a) to increase the term loan facility to an aggregate principal amount of $35,000,000 and used the proceeds of the increase in the term loan to repay the outstanding principal balance under the acquisition line of credit and (b) to adjust the allocation of availability under the lines of credit by increasing the revolving line of credit to $10,000,000 ($5,000,000 of which may be used for future acquisitions) and decreasing the acquisition line of credit from $20,000,000 to $15,000,000. The interest rate on both lines of credit and the term loan was the prime rate or, at the Company’s option, LIBOR, a cost of funds rate or the Bank’s fixed rate, plus, in each case, a range of 1.25% to 3.00%, depending on the ratio of consolidated total funded debt to consolidated “EBITDA”, as each is defined in the Second Agreement. The term loan facility portion of the Second Agreement requires monthly interest payments and monthly payments of principal, based on a seven year amortization schedule, with a final payment due on the fifth anniversary of the Second Agreement. The Second Agreement requires compliance with certain covenants, including the maintenance of specified net worth, minimum consolidated total “EBITDA”, debt to income ratio and other financial ratios.

     The Second Agreement was amended on May 9, 2008, effective March 31, 2008, to revise certain financial targets within these covenants. Additionally, the Bank and the Company agreed to consolidate the revolving line of credit with the acquisition line of credit into a single line of credit of $25,000,000 to be used by the Company for

10

Notes to Condensed Consolidated Financial Statements (Continued)

general corporate purposes, including potential acquisitions. The Second Agreement was also amended on September 2, 2008 on account of the acquisition of Dental Art, which increased the Company’s outstanding debt and therefore required an adjustment to an affected financial covenant. The Company further amended the agreement on December 16, 2008 to extend the maturity of the line of credit to November 7, 2011. The amendment changed the interest rate on both the line of credit and the term loan to prime rate or, at the Company’s option, LIBOR, a cost of funds rate, or the Bank’s fixed rate, plus, in each case, a range of 2.50% to 3.50%, depending on the ratio of consolidated total funded debt to consolidated “EBITDA,” as each is defined in the Second Agreement and also increased the commitment fee on the unused portion of the line of credit from 0.125% to 0.50%. In addition, the amendment revised certain financial targets within the covenants. Finally, on March 13, 2009, the Second Agreement was further amended to exclude the $6,950,000 goodwill impairment discussed above from the calculation of “EBITDA,” used in determining compliance with certain financial covenants. These amendments did not change the total availability under the Second Agreement.

     As of March 31, 2009, $11,080,000 was available under the consolidated revolving line of credit.

Long-Term Debt:

	December 31,		March 31,
	2008		2009
Term note	$	24,583,000	$	23,333,000
Borrowings classified as long term under the revolving line of credit		13,800,000		13,920,000
Borrowings classified as short term under the revolving line of credit		2,940,000		—
Other long-term debt		875,000		844,000
Total debt		42,198,000		38,097,000
Less: current maturities		5,115,000		5,106,000
Long-term debt, less current portion	$	37,083,000	$	32,991,000

     The table below reflects the expected repayment terms associated with the long-term debt at March 31, 2009. The weighted average interest rate associated with the Company’s borrowings as of March 31, 2009 was 3.4%.

	March 31, 2009
	Principal Due
For the remainder of fiscal 2009	$	5,083,000
Fiscal 2010		5,083,000
Fiscal 2011		27,338,000
Fiscal 2012		84,000
Fiscal 2013		85,000
Thereafter		424,000
Total	$	38,097,000

(8) Fair Value Measurements

     Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157) and SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value which are provided in the table below. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The adoption of both SFAS 157 and SFAS 159 had no material impact on the Company’s financial statements.

11

Notes to Condensed Consolidated Financial Statements (Continued)

     In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2 that (1) partially deferred the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain leasing transactions from the scope of SFAS 157. SFAS 157 as amended by this FSP is effective for nonfinancial assets and liabilities in fiscal years beginning after November 15, 2008 and will be applied prospectively. The provisions of SFAS 157 did not have a material impact on the Company’s consolidated financial statements.

     The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the three months ended March 31, 2009. The Company’s financial assets and liabilities are primarily comprised of investments in insurance contracts held as assets to satisfy outstanding retirement liabilities.

     SFAS No. 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates, and yield curves.
Level 3: Inputs are unobservable data points that are not corroborated by market data.

     The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2009 and December 31, 2008. There were no liabilities that require disclosure:

					Significant
			Quoted		Other		Significant
			Prices in		Observable		Unobservable
	As of		Active Markets		Inputs		Inputs
Description	March 31, 2009		(Level 1)		(Level 2)		( Level 3)
Financial Assets
Cash Surrender Value of Life Insurance	$	5,446,000		—	$	5,446,000		—
Total Financial Assets	$	5,446,000		—	$	5,446,000		—

					Significant
			Quoted		Other		Significant
			Prices in		Observable		Unobservable
	As of		Active Markets		Inputs		Inputs
Description	December 31, 2008		(Level 1)		(Level 2)		( Level 3)
Financial Assets
Cash Surrender Value of Life Insurance	$	5,479,000		—	$	5,479,000		—
Total Financial Assets	$	5,479,000		—	$	5,479,000		—

(9) Income Taxes

     The Company adopted FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109”, (“FIN 48”) on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of March 31, 2009, the Company’s unrecognized tax benefits approximated $1,497,000. The Company believes that it is reasonably possible unrecognized tax benefits of $1,497,000 and accruals for interest and penalties of $70,000 will reverse in 2009 as a result of the Internal Revenue Service examination of the Company’s U.S. income tax returns for 2003 through 2006.

(10) Recent Accounting Pronouncements

      In April 2009, the FASB issued FSP FAS 157-4,“Determining Fair Value When the Volume and Level Activity for the Asset of Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. This FSP provides additional guidance for estimating fair value in accordance with FASB 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The adoption of this FSP will not have an impact on our consolidated financial statements.

12

Notes to Condensed Consolidated Financial Statements (Continued)

(11) Segment Information

     The Company follows Statement of Financial Accounting Standards No. 131 (“SFAS 131”),“Disclosures about Segments of an Enterprise and Related Information”.SFAS 131 establishes standards for disclosing information about reportable segments in financial statements. Laboratory operating income includes the direct profits generated by laboratories owned by the Company and excludes general and administrative expenses of the Company’s corporate location, including amortization expenses associated with the Company’s intangible assets, as well as interest expense.

     In March 2005, the Company acquired Green Dental Laboratories, Inc. of Heber Springs, Arkansas. The Company identified Green as a separate operating segment since it met the quantitative thresholds of SFAS 131. In October 2006, the Company acquired Keller Group, Incorporated, a privately-held dental laboratory business with production facilities in both St. Louis, Missouri and Louisville, Kentucky. The Company has also identified Keller as a separate operating segment as it meets the quantitative thresholds of SFAS 131. As a result, the Company has three reportable segments. The accounting policies of these segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies.

     The following table sets forth information about the Company’s operating segments for the three months ended March 31, 2008 and 2009.

	Three Months		Three Months
	Ended		Ended
	March 31, 2008		March 31, 2009
Revenue:
NDX Laboratories	$	32,009,336	$	30,383,358
Green Dental Laboratory		5,299,209		5,029,821
Keller Group		6,440,721		6,098,689
Subtotal		43,749,266		41,511,868
Inter-segment Revenues:
NDX Laboratories		94,336		80,204
Green Dental Laboratory		57,644		85,030
Keller Group		68,622		86,925
Net Sales	$	43,528,664	$	41,259,709
Laboratory Operating Income:
NDX Laboratories	$	4,597,227	$	4,590,361
Green Dental Laboratory		1,137,845		1,172,236
Keller Group		846,718		1,071,498
	$	6,581,790	$	6,834,095
Total Assets:
NDX Laboratories	$	92,440,267	$	93,761,985
Green Dental Laboratory		26,699,190		26,387,287
Keller Group		26,103,455		25,596,814
Corporate		13,753,852		15,042,214
	$	158,996,764	$	160,788,300
Capital Expenditures:
NDX Laboratories	$	3,222,433	$	963,523
Green Dental Laboratory		69,026		12,434
Keller Group		113,321		39,100
Corporate		161,410		113,198
	$	3,566,190	$	1,128,255
Depreciation & Amortization on Property, Plant & Equipment:
NDX Laboratories	$	687,413	$	736,820
Green Dental Laboratory		87,682		85,579
Keller Group		127,253		136,091
Corporate		185,965		208,400
	$	1,088,313	$	1,166,890

13

Notes to Condensed Consolidated Financial Statements (Continued)

Reconciliation of Laboratory Operating Income with reported Consolidated Operating Income:

	Three Months		Three Months
	Ended		Ended
	March 31, 2008		March 31, 2009
Laboratory Operating Income	$	6,581,790	$	6,834,095
Less:
Corporate Selling, General and Administrative Expenses		3,070,649		2,842,124
Amortization Expense — Intangible Assets		279,922		313,494
Add:
Other Expense		158,183		219,588
Consolidated Operating Income	$	3,389,402	$	3,898,065

14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial
Statements and the related notes that appear elsewhere in this document.

     Certain statements in this Quarterly Report, particularly statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “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 words “anticipate”, “believe”, “estimate”, “expect”, “plan”, “intend” and other similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Forward-looking statements included in this Quarterly Report or hereafter included in other publicly available documents filed with the Securities and Exchange Commission (“SEC”), reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties, and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon our best estimates based upon current conditions and the most recent results of operations. Various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this Quarterly Report. These include, but are not limited to, those described under “Factors that may Affect Future Results” as well as under Item 1A of our most recently filed Annual Report onForm 10-K. We assume no obligation to update these forward-looking statements contained in this report, whether as a result of new information, future events, or otherwise.

Overview

     We own and operate 46 dental laboratories located in 30 states and one Canadian province, serving an active customer base of over 24,000 dentists. Our business consists of the design, fabrication, marketing and sale of custom dental prosthetic appliances for dentists located primarily in North America.

     Our products are grouped into the following three main categories:

     Restorative Products.Restorative products that our dental laboratories sell consist primarily of crowns and bridges. A crown replaces the part of a tooth that is visible, and is usually made of gold, porcelain or zirconia. A bridge is a restoration of one or more missing teeth that is permanently attached to the natural teeth or roots. In addition to the traditional crown, we also make porcelain jackets, which are crowns constructed entirely of porcelain; onlays, which are partial crowns which do not cover all of the visible tooth; and precision crowns, which are restorations designed to receive and connect a removable partial denture. We also make inlays, which are restorations made to fit a prepared tooth cavity and then cemented into place.

     Reconstructive Products.Reconstructive products sold by our dental laboratories consist primarily of partial dentures and full dentures. Partial dentures are removable dental prostheses that replace missing teeth and associated structures. Full dentures are dental prostheses that substitute for the total loss of teeth and associated structures. We also sell precision attachments, which connect a crown and an artificial prosthesis, and implants, which are fixtures anchored securely in the bone of the mouth to which a crown, partial or full denture is secured by means of screws or clips.

     Cosmetic Products.Cosmetic products sold by our dental laboratories consist primarily of porcelain veneers and ceramic crowns. Porcelain veneers are thin coverings of porcelain cemented to the front of a tooth to enhance personal appearance. Ceramic crowns are crowns made from ceramic materials that most closely replicate natural teeth. We also sell composite inlays and onlays, which replace silver fillings for a more natural appearance, and orthodontic appliances, which are products fabricated to move existing teeth to enhance function and appearance.

15

Recent Trends

     We believe that the economic recession in the United States has negatively impacted the entire dental laboratory industry, as price-sensitive consumers postpone elective dental work. The increasing severity of the current economic crisis, coupled with rising unemployment and problems in the housing and credit markets has further eroded consumer confidence. Additionally, we believe that the low cost segment for United States manufactured dental prosthetics has declined as competition from offshore laboratories, primarily those located in China, has become more intensive. While our business has not traditionally focused on this low cost segment of the market, certain customers are sensitive to price competition. As a result, these increasing competitive pressures have restrained somewhat our ability to increase prices. Since 2007, these increasing competitive pressures in the form of low price competition have been partially responsible for decreasing revenues or revenue growth in several marketplaces. In 2008, we partnered with Dentsply-Prident to offer a high quality, economical restoration manufactured in China with FDA registered materials for those practices that are more price focused than our typical customer. We believe that this strategic product offering, which has been made available in select marketplaces based upon individual customer needs and is coupled with patient level disclosures regarding country of origin, materials and our satisfaction guarantee, provides our dentists with a risk-free, outsourced restoration. In addition, we face growing competition from technology-based solutions that allow dentists to fabricate their own restorations without the use of a dental laboratory. These trends appear to be restraining industry growth, and have impacted our results of operations.

     The main components of our costs are labor and related employee benefits as well as raw materials, including precious metals such as gold and palladium. Over the past several years competition for labor resources and increases in medical insurance costs, as well as volatility in the prices of many precious metals that we use have driven these costs higher. In 2007, we evaluated and adjusted staffing levels, as appropriate, at each of our locations, while continuing to recognize the need to maintain an available and properly trained workforce. Beginning in the fourth quarter of 2008 and continuing into 2009, we have continued to proactively reduce staffing levels to improve profitability and eliminate excess capacity in response to the economic recession and the decline in consumer discretionary spending. As a result of reductions in staffing levels, our costs for labor and related benefits in the first quarter of 2009 were significantly lower than in 2008. We have also focused on reducing discretionary operating expenses to manage through the current recessionary environment, and as a result our operating expenses were reduced in the first quarter of 2009. Additionally, technology-based dental laboratory CAD-CAM manufacturing solutions have required us to make additional investments in capital equipment. Our ability to afford and utilize these CAD-CAM systems provides us the opportunity to centrally produce product for many of our laboratories at more efficient and profitable levels. We believe we have begun to recognize these efficiencies and will continue to focus on more completely leveraging this technology investment to reduce labor costs. Therefore, we believe that these investments are critical to our long-term business strategy.

Acquisitions

     We continue to pursue strategic acquisitions, which have played an important role in helping us increase sales from $111,753,000 in 2004 to $171,674,000 in 2008. In March 2005, we completed the acquisition of Green Dental Laboratories, Inc. (“Green”). Green is treated as a separate reportable segment for financial reporting purposes. In October 2006, we completed our largest acquisition to date, that of Keller Group, Incorporated (“Keller”) of St. Louis, Missouri. Keller is also treated as a separate reportable segment for financial reporting purposes. Most recently, in September 2008, we completed the acquisition of Dental Art Laboratories, Inc. (“Dental Art”) of Lansing, Michigan.

     The acquisition of Keller has broadened our marketing strategies and product offerings. In recent years Keller has changed its focus from local markets in the Midwest to the national marketplace. In order to sustain this strategy, Keller invests significantly in product advertising, primarily in dental print publications and direct mail, on products that can generate strong revenue growth. One of these products is the NTI-tss plus^tm device, an alternative to full-coverage bite guards that is also approved by the FDA for use in the treatment of medically diagnosed migraine pain and jaw disorders.

16

     We have used long-term debt to finance the purchase of Green, Keller and Dental Art. Future acquisitions may also be funded using available debt financing. As a result of these acquisitions, we are more highly leveraged than we were previously. Our interest expense has therefore become a more significant component of our pre-tax earnings. Interest expense in 2006 was $1,523,000 compared to $2,803,000 in 2007 and $2,110,000 in 2008. The decline in 2008 was primarily a result of decreases in interest rates. Similarly, for the quarter ended March 31, 2009, interest expense declined $163,000 to $345,000 from $508,000 for the quarter ended March 31, 2008.

Overview of Results of Operations

     Sales for the quarter ended March 31, 2009 decreased by $2,269,000 from the quarter ended March 31, 2008. For the period, gross profit decreased by $589,000. Within our cost of sales, labor costs decreased by approximately $769,000 and employee benefits costs decreased by $357,000, as a result of reduced staffing levels. Materials costs declined by $706,000, as a result of lower volume and lower costs for precious metals. Operating expenses declined $1,097,000 in the first quarter of 2009, including decreases in labor and benefits of $1,480,000 and various other expense items as a result of cost reduction efforts and lower fuel prices. Decreases in interest expense also contributed $163,000 to pre-tax earnings. Primarily as a result of reductions in staffing levels, enhanced cost control efforts, and declines in commodity prices and interest rates, net income increased by $378,000, or 22.5% over the results from the first quarter of 2008.

     For our most recent fiscal year ended December 31, 2008, sales increased $1,314,000 to $171,674,000. Net sales increased by approximately $2,665,000 as a result of the Dental Art acquisition. Net sales decreased approximately $1,351,000 at dental laboratories owned for the full year ended December 31, 2008 and 2007. Furthermore, approximately $550,000 of sales growth was attributable to the effect of increased prices due to the underlying increases in the prices of precious metals passed through to customers, without which sales growth would have been further negative. The decline in sales was primarily attributable to decreased patient demand, particularly in the fourth quarter of 2008, resulting from the drop in consumer discretionary spending as the recession deepened. Excluding the acquisition of Dental Art, sales declined $2,112,000 in the fourth quarter of 2008 and $4,173,000 in the first quarter of 2009.

     For the year ended December 31, 2008, gross profit decreased by $3,132,000 compared to the year ended December 31, 2007. Within our cost of sales, employee benefits costs, primarily health insurance costs, increased by $489,000, as a result of higher claims experience. Labor costs increased by approximately $1,675,000, including $995,000 in cost of sales, over the prior year as a result of base pay increases, including raises related to a modification of the Laboratory Incentive Compensation plan (the “Laboratory Plan”). The former plan was designed to reward operating efficiency. The modified plan is now designed to provide incentives for growth in profits. As a result of these and other design changes, the reported amounts of laboratory incentive compensation were significantly less in 2008 than in the past. Laboratory incentive compensation decreased by $3,281,000 for the year ended December 31, 2008 compared to the prior year. Conversely, labor expenses were somewhat higher within both cost of goods sold and operating expenses.

     Our annual goodwill impairment assessment has historically been completed at the end of the second quarter. Based on our initial assessment for 2008, the fair value of our business units exceeded their carrying value and therefore our goodwill was not impaired. As economic conditions worsened in the fourth quarter and our business performance and outlook was not as strong as anticipated at the end of the second quarter, management determined that circumstances had changed enough to perform an additional goodwill impairment test as of December 31, 2008. Based on our evaluation of goodwill, we determined that the fair value of ten dental laboratories in the NDX Laboratories operating segment was less than their carrying value, resulting in goodwill impairment of $6,950,000. As a result of the factors discussed above, particularly the impairment of goodwill, income before provision for income taxes decreased by $9,391,000 or 89.6% to $1,095,000 for the year ended December 31, 2008 compared to 2007.

17

Liquidity and Capital Resources

     On August 9, 2005, we entered into an amended and restated financing agreement (the “Amended Agreement”) with Bank of America, N.A. (the “Bank”). The Amended Agreement included a revolving line of credit of $5,000,000, a revolving acquisition line of credit of $20,000,000 and a term loan facility of $20,000,000. The interest rate on both revolving lines of credit and the term loan was the prime rate or, at our option, LIBOR, a cost of funds rate, or the Bank’s fixed rate plus a range of 1.25% to 2.25% depending on the ratio of consolidated funded debt to consolidated “EBITDA”, as defined in the Amended Agreement. The Amended Agreement required monthly payments of principal on the term loan, based on a seven year amortization schedule, with a final payment due on the fifth anniversary of the Amended Agreement. The Amended Agreement required compliance with certain covenants, including the maintenance of specified net worth, income and other financial ratios.

     In October 2006 we borrowed against our acquisition line of credit to finance our acquisition of Keller. In order to refinance the borrowings incurred for the Keller acquisition, we and the Bank executed a Second Amended and Restated Loan Agreement as of November 7, 2006 (the “Second Agreement”) comprising uncollateralized senior credit facilities totaling $60,000,000. The Second Agreement amended and restated the Amended Agreement (a) to increase the term loan facility to an aggregate principal amount of $35,000,000 and used the proceeds of the increase in the term loan to repay the portion of the outstanding principal balance under the acquisition line of credit and (b) to adjust the allocation of availability under the lines of credit by increasing the revolving line of credit to $10,000,000 ($5,000,000 of which may be used for future acquisitions) and decreasing the acquisition line of credit from $20,000,000 to $15,000,000. The interest rate on both lines of credit and the term loan was the prime rate or, at our option, LIBOR, a cost of funds rate or the Bank’s fixed rate, plus, in each case, a range of 1.25% to 3.00%, depending on the ratio of consolidated total funded debt to consolidated “EBITDA”, as each is defined in the Second Agreement. The term loan facility portion of the Second Agreement requires monthly interest payments and monthly payments of principal, based on a seven year amortization schedule, with a final payment due on the fifth anniversary of the Second Agreement. The Second Agreement requires compliance with certain covenants, including the maintenance of specified net worth, minimum consolidated total “EBITDA”, debt to income ratio and other financial ratios.

     The Second Agreement was amended on May 9, 2008, effective March 31, 2008, to revise certain financial targets within these covenants. Additionally, we and the Bank agreed to consolidate the revolving line of credit with the acquisition line of credit into a single line of credit of $25,000,000 to be used by us for general corporate purposes, including potential acquisitions. The Second Agreement was also amended on September 2, 2008 on account of the acquisition of Dental Art, which increased our outstanding debt and therefore required an adjustment to an affected financial covenant. We further amended the agreement on December 16, 2008 to extend the maturity of the line of credit to November 7, 2011. The amendment changed the interest rate on both the line of credit and the term loan to prime rate or, at our option, LIBOR, a cost of funds rate, or the Bank’s fixed rate, plus, in each case, a range of 2.50% to 3.50%, depending on the ratio of consolidated total funded debt to consolidated “EBITDA,” as each is defined in the Second Agreement and also increased the commitment fee on the unused portion of the line of credit from 0.125% to 0.50%. In addition, the amendment revised certain financial targets within the covenants. Finally, on March 13, 2009, we amended the Second Agreement to exclude the $6,950,000 goodwill impairment discussed previously from the calculation of “EBITDA,” used in determining our compliance with certain financial covenants. These amendments did not change the total availability under the Second Agreement.

     As of March 31, 2009, $11,080,000 was available under the consolidated revolving line of credit.

Long-Term Debt:

	December 31,		March 31,
	2008		2009
Term note	$	24,583,000	$	23,333,000
Borrowings classified as long term under the revolving line of credit		13,800,000		13,920,000
Borrowings classified as short term under the revolving line of credit		2,940,000		—
Other long-term debt		875,000		844,000
Total debt		42,198,000		38,097,000
Less: current maturities		5,115,000		5,106,000
Long-term debt, less current portion	$	37,083,000	$	32,991,000

18

     The table below reflects the expected repayment terms associated with the long-term debt at March 31, 2009. The weighted average interest rate on all of our borrowings was 3.4% as of March 31, 2009.

	March 31, 2009
	Principal Due
For the remainder of fiscal 2009	$	5,083,000
Fiscal 2010		5,083,000
Fiscal 2011		27,338,000
Fiscal 2012		84,000
Fiscal 2013		85,000
Thereafter		424,000
Total	$	38,097,000

Liquidity:

     Operating activities provided $4,598,000 in cash flow for the three months ended March 31, 2009 compared to $3,114,000 during the three months ended March 31, 2008, an increase of $1,484,000. Our working capital increased by $1,758,000 from $9,527,000 at December 31, 2008 to $11,285,000 at March 31, 2009. The increase was primarily attributable to decreases in current bank debt of $2,950,000, as a result of repayments of borrowings under our credit line, increases in accounts receivable of $488,000, increases in inventory of $451,000 resulting primarily from increased work in process, offset by decreases in other receivables of $837,000, decreases in prepaid expenses of $292,000, increases in accrued liabilities of $379,000, and increases in accounts payable of $551,000 due to timing.

     Investing activities consumed $624,000 in cash flow for the three months ended March 31, 2009 compared to $4,140,000 during the three months ended March 31, 2008, a decrease of $3,516,000. Cash outflows related to deferred purchase price payments associated with prior period dental laboratory acquisitions totaled $1,278,000 for the three months ended March 31, 2008, while there were no payments in 2009. Capital expenditures decreased from $2,858,000 at March 31, 2008 to $651,000 at March 31, 2009, primarily due to lower spending on new facilities.

     For the three months ended March 31, 2009, financing activities consumed $4,100,000 compared to providing $1,406,000 for the three months ended March 31, 2008. The increased use of cash in financing activities of $5,506,000 is attributable to repayments on our revolving line of credit as a result of greater availability of cash, primarily due to lower investing activities and increases in cash provided by operating activities, as discussed above.

     We believe that cash flow from operations and available financing will be sufficient to meet contemplated operating and capital requirements such as those discussed below, for the foreseeable future.

19

Commitments and Contingencies

     The following table represents a list of our contractual obligations and commitments as of March 31, 2009:

	Payments Due By Period
			Less Than						Greater Than
	Total		1 Year		1 - 3 Years		4 - 5 Years		5 Years
Term Loan Facility	$	23,333,000	$	5,000,000	$	18,333,000	$	—	$	—
Line of Credit		13,920,000		—		13,920,000		—		—
Interest Expense		3,329,000		1,239,000		1,980,000		59,000		51,000
Capital Leases		844,000		101,000		169,000		171,000		403,000
Operating Leases:
Real Estate		21,196,000		3,907,000		6,950,000		5,059,000		5,280,000
Vehicles		778,000		495,000		283,000		—		—
Equipment		246,000		107,000		112,000		26,000		1,000
Laboratory Purchase Obligations		300,000		300,000		—		—		—
TOTAL	$	63,946,000	$	11,149,000	$	41,747,000	$	5,315,000	$	5,735,000

     Bank borrowings on the term loan facility, with repayment terms greater than one year, are classified as long-term debt on the balance sheet. Certain amounts borrowed for acquisitions on the line of credit have been classified as long-term debt. Interest expense payments, included in the above table, related to the term loan facility and line of credit have been projected using the weighted average interest rate associated with current borrowings which is 3.4%.

     We are committed under various non-cancelable operating lease agreements covering office space and dental laboratory facilities, vehicles and certain equipment. Certain of these leases also require us to pay maintenance, repairs, insurance and related taxes.

     Laboratory purchase obligations totaling $300,000, classified as deferred acquisition costs, are presented in the liability section of the balance sheet. These obligations, including deferred obligations associated with non-competition agreements, represent purchase price commitments arising from dental laboratory acquisitions.

Results of Operations

     Our results are reported within three operating segments, NDX Laboratories, Green Dental and Keller. The following table sets forth for the periods indicated the percentage of net sales represented by certain items in our Unaudited Consolidated Financial Statements:

	Three Months Ended March 31,
	2008			2009
Net sales		100.0	%		100.0	%
Cost of goods sold		58.2			57.3
Gross profit		41.8			42.7
Selling, general and administrative expenses		34.0			33.3
Operating income		7.8			9.4
Other expense		0.4			0.5
Interest expense		1.1			0.8
Income before provision for income taxes		6.3			8.1
Provision for income taxes		2.4			3.1
Net income		3.9	%		5.0	%

20

Three Months Ended March 31, 2009 compared with Three Months Ended March 31, 2008

Net Sales

     Net sales decreased $2,269,000 or 5.2% to $41,260,000 for the three months ended March 31, 2009 from $43,529,000 for the three months ended March 31, 2008. Net of sales of $1,904,000 from the acquisition of Dental Art in September 2008, sales decreased $4,173,000, or 9.6% for the first quarter of 2009 compared to the first quarter of 2008. On a sales per day basis, with two less sales days in the current quarter as compared to the first quarter of 2008, this decrease in sales was 6.7% for the first quarter of 2009 when compared to the first quarter of 2008. The decline in sales for laboratories held more than one year was primarily attributable to decreased patient demand, beginning in the fourth quarter of 2008, as consumers started to delay certain dental work due to economic uncertainties, and this trend has continued into 2009. Net sales decreased approximately $360,000, or 5.7%, in the Keller operating segment and decreased approximately $297,000, or 5.7%, in the Green operating segment. Net sales decreased approximately $1,612,000 in the NDX Laboratories operating segment. Excluding the Dental Art acquisition, NDX Laboratories operating segment sales decreased approximately $3,516,000 or 11.0%.

Cost of Goods Sold

     Our cost of goods sold decreased by $1,680,000 or 6.6% to $23,638,000 for the three months ended March 31, 2009 from $25,318,000 for the three months ended March 31, 2008. As a percentage of sales, cost of goods sold decreased from 58.2% to 57.3%, primarily resulting from decreases in labor and employee benefits and materials expense in all operating segments.

     Production labor decreased by approximately $769,000 and related benefits decreased by approximately $357,000 for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. Excluding the Dental Art Acquisition, production labor and benefits decreased approximately $1,809,000 or 12.4% for the quarter ended March 31, 2009, as compared to 2008. These decreases in expense resulted from a reduction in staffing levels. Production labor and benefits expense as a percentage of sales decreased to 32.6% for the three months ended March 31, 2009 from 33.4% for the three months ended March 31, 2008. Green’s production labor and benefits costs were 28.9% of sales for the three months ended March 31, 2009 compared to 29.3% for the three months ended March 31, 2008; Keller’s production labor and benefits costs were 21.9% of sales compared to 22.7%; and NDX Laboratories’ production labor and benefits costs were 35.3% of sales compared to 36.3%.

     The cost of raw materials as a percentage of sales decreased from 16.0% for the three months ended March 31, 2008 to 15.2% for the three months ended March 31, 2009. During the first quarter of 2009, the average cost of palladium, a precious metal used as a component of many dental alloys, decreased by approximately 55.2% over the average cost in the first quarter of 2008, while the average cost for gold was relatively stable in comparison.

Selling, General and Administrative Expenses

     Operating expenses, which consist of selling, delivery and administrative expenses both at the laboratory and corporate level, decreased by $1,097,000 or 7.4% to $13,724,000 for the three months ended March 31, 2009 compared to $14,821,000 for the three months ended March 31, 2008. Operating expenses as a percentage of net sales decreased from 34.0% in 2008 to 33.3% in 2009. As a percentage of net sales, delivery expenses decreased from 9.2% in the three months ended March 31, 2008 to 8.9% in 2009. Selling expenses decreased from 6.9% of sales for the three months ended March 31, 2008 to 6.5% in 2009. Selling expenses in 2009 for the Keller segment were 14.6% of sales, or $879,000 compared to 17.5% of sales or $1,124,000 for 2008. Laboratory incentive compensation increased from 0.4% of sales in 2008 to 1.2% in 2009, as the amount increased by $306,000 from $170,000 for the three months ended March 31, 2008 to $476,000 in 2009.

     The net decrease of $1,097,000 in our operating expenses in the first quarter of 2009 compared to the same period in 2008 was primarily attributable to the following items:

• Decreases in administrative expenses at the laboratory level, including $349,000 in decreased compensation and benefits and other broad-based decreases — $636,000;

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• Decreases in selling expenses, including $245,000 in decreased marketing expenses at Keller and decreased marketing and promotional expenses for other laboratories of $111,000 — $425,000;

• Decreases in delivery expenses, including decreases in labor and benefits of $211,000 and decreases in fuel and delivery services of $228,000 — $440,000;

• Decreases in the expense related to deferred compensation accruals for our supplemental executive retirement plans and the cost of the underlying life insurance policies — $177,000;

     Partially offset by:

• Additional operating and amortization expense associated with the Dental Art acquisition — $360,000;

• Increases in laboratory incentive compensation as a result of improved performance at certain laboratories — $306,000.

Operating Income

     As a result of the above factors, our operating income increased by $509,000 to $3,898,000 for the three months ended March 31, 2009 from $3,389,000 in the corresponding quarter of 2008. As a percentage of net sales, operating income increased to 9.4% for the first three months of 2009 from7.8% for the first three months of 2008.

Interest Expense

     Due primarily to lower interest rates, interest expense declined $163,000 to $345,000 for the three months ended March 31, 2009 from $508,000 for the three months ended March 31, 2008.

Provision for Income Taxes

     The provision for income taxes increased by $232,000 to $1,275,000 for the three months ended March 31, 2009 from $1,043,000 in 2008. The 38.2% effective tax rate estimated for the first three months ended March 31, 2009 remained essentially unchanged from the 38.3% effective tax rate for the three months ended March 31, 2008.

Net Income

     As a result of all the factors discussed above, net income increased $378,000, or 22.5% to $2,059,000 or $0.36 per share on a diluted basis for the three months ended March 31, 2009 from $1,681,000 or $0.30 per share on a diluted basis for the three months ended March 31, 2008.

Operating Segment Results

     Our business consists of a single industry segment, which is the design, fabrication, marketing and sale of custom dental prosthetic appliances for and to dentists in the United States and Canada. We report on three operating segments within this single industry segment. These three segments are known as Green Dental, representing the operations of Green Dental Laboratories, Inc. of Heber Springs, Arkansas, which we acquired in March 2005; Keller, representing the operations of Keller Group, Incorporated with laboratories in St. Louis, Missouri and Louisville, Kentucky, which we acquired in October, 2006; and NDX Laboratories, which represents our remaining laboratories, including Dental Art, which we acquired in September, 2008.

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	Three Months Ended March 31,
	2008		2009		$ Change			% Change
Revenue:
NDX Laboratories	$	32,009,336	$	30,383,358	$	(1,625,978	)		(5.1	)%
Green Dental Laboratory		5,299,209		5,029,821		(269,388	)		(5.1	)
Keller Group		6,440,721		6,098,689		(342,032	)		(5.3	)
Subtotal		43,749,266		41,511,868		(2,237,398	)		(5.1	)
Less: Intersegment Revenues		220,602		252,159		31,557			14.3
Net Sales	$	43,528,664	$	41,259,709	$	(2,268,955	)		(5.2	)
Laboratory Operating Income:
NDX Laboratories	$	4,597,227	$	4,590,361	$	(6,866	)		(0.1	)
Green Dental Laboratory		1,137,845		1,172,236		34,391			3.0
Keller Group		846,718		1,071,498		224,780			26.5
Laboratory Operating Income	$	6,581,790	$	6,834,095	$	252,305			3.8

NDX Laboratories

     For the three months ended March 31, 2009, before elimination of inter-segment revenues, sales in this segment decreased by $1,626,000 or 5.1%. Net of sales of $1,904,000 from the acquisition of Dental Art in September 2008, sales decreased $3,530,000, or 11.0% for the first quarter of 2009 compared to the first quarter of 2008. Gross profit as a percentage of sales remained relatively flat at 39.2% for the three months ended March 31, 2009 compared to 39.1% for the three months ended March 31, 2008. Net of Dental Art, production labor and benefits decreased $1,540,000 or 13.3% due to a reduction in staffing levels. Materials expense decreased to 14.9% of sales in 2009 from 15.0% of sales in 2008, primarily as a result of declines in the cost of precious metal. Net of Dental Art, materials costs declined $660,000 with approximately $170,000 attributable to lower materials costs and $490,000 attributable to lower volume. Net of Dental Art, cost of goods sold decreased $2,143,000.

     Operating expenses, net of Dental Art, decreased by $1,020,000 to $6,698,000 in 2009 from $7,718,000 in 2008. This decrease resulted from decreases in labor and benefits of $529,000, decreases in marketing and promotional expenses of $169,000, decreases in various administrative expenses of $206,000, and decreases in fuel and delivery service of $126,000.

     Laboratory operating income as a percentage of sales for NDX Laboratories increased to 15.1% for the three months ended March 31, 2009 from 14.4% for the three months ended March 31, 2008 as a result of the factors discussed above.

Green Dental Laboratory

     Sales decreases before elimination of inter-segment revenues for the three months ended March 31, 2009 in this segment was $269,000 or 5.1%. Gross profit as a percentage of sales, increased to 48.3% for the three months ended March 31, 2009 from 45.9% for the three months ended March 31, 2008. Production labor and benefit costs for the three months ended March 31, 2009 decreased $121,000 while materials costs decreased $217,000. Precious metal used declined as precious metal-based unit volume was down in favor of zirconia-based, CAD-CAM produced units. Increased expenses for implant parts, porcelain and zirconia materials resulted from this changing product mix.

     As a result of the factors discussed above, laboratory operating income as a percentage of sales for Green increased to 23.3% for the three months ended March 31, 2009 from 21.5% for the three months ended March 31, 2008 and increased in amount by $34,000.

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Keller Group

     For the three months ended March 31, 2009, sales decreases before elimination of inter-segment revenues in this segment were $342,000 or 5.3%. Gross profit as a percentage of sales increased to 55.8% for the three months ended March 31, 2009 from 52.2% for the three months ended March 31, 2008, primarily as a result of decreased materials cost, including precious metals, and decreased labor and benefit costs. Marketing expense decreased by $245,000 in the three months ended March 31, 2009 compared to 2008 primarily due to decreased advertising. As a result of this decrease, selling costs decreased to 14.6% of sales in 2009 from 17.5% of sales in 2008.

     As a result of the factors discussed above, laboratory operating income as a percentage of sales for Keller increased to 17.6% for the three months ended March 31, 2009 compared to 13.1% for the three months ended March 31, 2008, while increasing by $225,000.

Factors That May Affect Future Results

     Various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, statements contained in this Quarterly Report on Form 10-Q, including, but not limited to those described in Part II, Item 1A, “Risk Factors” of this Quarterly Report and in Item 1A, “Risk Factors” in our most recently filed Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Our market risk exposure includes potential price volatility of commodities we use in our manufacturing processes. We purchase dental alloys that contain gold, palladium and other precious metals. We have not participated in hedging transactions. We have relied on pricing practices that attempt to pass some portion, if not all, of our increased costs on to our customers, in conjunction with materials substitution strategies. Our market risk exposure also includes investments in insurance contracts held as assets to satisfy outstanding retirement liabilities, a portion of which are subject to market value fluctuations of the underlying investment.

     At March 31, 2009, we had variable rate debt of $37,254,000 associated with our credit facility. Based on this amount, the earnings and cash flows impact for the next year resulting from a one percentage point increase in interest rates would be approximately $230,000, net of tax, holding other variables constant.

     We have investments in a foreign subsidiary. The net assets of this subsidiary are exposed to volatility in current exchange rates. We have determined that the effect of a 1% change in exchange rates would be immaterial to our results of operations and financial position.

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.

     We carried out an evaluation, with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2009. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2009, our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e), were effective to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission is accumulated and communicated to management, including the CEO and CFO, to allow timely decisions regarding required disclosure.

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(b)Changes in Internal Controls.

     No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings:

We are involved from time to time in litigation incidental to our business. Our management believes that the outcome of litigation, individually or in the aggregate, will not have a material adverse effect upon our operations or financial condition and will not disrupt our normal operations. Refer to our Annual Report on Form 10-K for the year ended December 31, 2008 for a discussion of certain litigation matters.

Item 1A. Risk Factors:

There have been no material changes to the risk factors previously disclosed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC on March 16, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:

     In November 2002, we announced that our Board of Directors approved the repurchase by us of up to 300,000 shares of our common stock pursuant to a stock repurchase program. During the quarter ended March 31, 2009, we did not repurchase any shares of our common stock. We continue to consider repurchases on the open market or in privately-negotiated transactions, at management’s discretion, in each case subject to applicable securities law. In addition, before making any repurchases, we are required to obtain approval from our lender under the terms of the credit facility. The following table provides information about our repurchase activity during the first quarter of 2009 and the number of shares that may yet be purchased under our stock repurchase program.

Issuer Purchases of Equity Securities

							Maximum Number
					Total Number of		of Shares that
					Shares Purchased		May Yet Be
	Total Number		Average		as Part of Publicly		Purchased Under
	of Shares		Price Paid		Announced Plans		the Plans or
Fiscal Period	Purchased		per Share		or Programs		Programs
January 1, 2009 — March 31, 2009		—	$	—		—		206,700

We did not repurchase any of our equity securities during the fiscal quarter ended March 31, 2009 or engage in any transactions during such period reportable pursuant to Item 703 of Regulation S-K.

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:

     Not Applicable

Item 6. Exhibits:

     The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL DENTEX CORPORATION Registrant
May 6, 2009	By:	/s/ DAVID L. BROWN
		David L. Brown
		President, CEO and Director (Principal Executive Officer)

May 6, 2009	By:	/s/ WAYNE M. COLL
		Wayne M. Coll
		Vice President and Chief Financial Officer (Principal Financial Officer)

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Exhibit Index

Exhibit
No.	Description
10.1(1)*	Amended National Dentex Corporation Key Employee and Corporate Support Group Incentive Compensation Plan.
10.2 (1)	Amendment No. 5 to Second Amended and Restated Loan Agreement by and between Bank of America, N.A., National Dentex Corporation and the subsidiaries therein named dated March 13, 2009.
31.1	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act (Chief Executive Officer).
31.2	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act (Chief Financial Officer).
32.1	Certification pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer).
32.2	Certification pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer).

(1)	Incorporated by reference from the Form 10-K for the fiscal year ended December 31, 2008 as filed with the Commission on March 16, 2009.
*	This exhibit relates to a management contract or to a compensatory plan or arrangement.
	The file number for our Exchange Act reports is 0-23092.

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