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 SEPTEMBER 30, 1999 COMMISSION FILE NUMBER: 000-23092 NATIONAL DENTEX CORPORATION --------------------------- MASSACHUSETTS 04-2762050 - ------------------------ --------------------------- (STATE OF INCORPORATION) (I.R.S. IDENTIFICATION NO.) 526 BOSTON POST ROAD, WAYLAND, MA 01778 - ---------------------------------------- --------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (508) - 358 - 4422 ------------------------------ (REGISTRANT'S TELEPHONE NUMBER) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 10, 1999: 3,549,983. ---------- ================================================================================ 2 NATIONAL DENTEX CORPORATION FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED) 3 CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED) 4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED) 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 PART II. OTHER INFORMATION 14 SIGNATURES 15 3 NATIONAL DENTEX CORPORATION CONSOLIDATED BALANCE SHEETS December 31, September 30, 1998 1999 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents .......................................... $ 8,525,648 $10,025,544 Accounts receivable: Trade, less allowance of $145,000 in 1998 and $184,000 in 1999 ........................................... 7,322,515 7,708,879 Other ....................................................... 272,280 343,053 Inventories ................................................... 3,338,103 3,705,804 Prepaid expenses .............................................. 714,066 831,333 Deferred tax asset ............................................ 373,800 394,921 ----------- ----------- Total current assets ......................................... 20,546,412 23,009,534 ----------- ----------- PROPERTY AND EQUIPMENT: Land and buildings ............................................ 3,683,402 3,887,403 Leasehold and building improvements ........................... 3,297,586 3,591,347 Laboratory equipment .......................................... 6,797,200 7,274,201 Furniture and fixtures ........................................ 1,940,580 2,148,931 Capital leases ................................................ 342,819 342,819 ----------- ----------- 16,061,587 17,244,701 Less - Accumulated depreciation and amortization .............................................. 8,561,566 9,140,508 ----------- ----------- Net property and equipment .................................... 7,500,021 8,104,193 ----------- ----------- OTHER ASSETS, net: Goodwill ...................................................... 9,763,813 11,346,979 Non competition agreements .................................... 3,639,302 3,650,699 Other ......................................................... 1,020,016 1,176,322 ----------- ----------- 14,423,131 16,174,000 ----------- ----------- $42,469,564 $47,287,727 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .............................................. $ 1,383,928 $ 1,175,764 Accrued liabilities: Payroll and employee benefits ............................... 3,249,460 3,302,472 Current portion of deferred purchase price .................. 1,839,856 2,498,825 Other ....................................................... 421,158 29,932 ----------- ----------- Total current liabilities ................................... 6,894,402 7,006,993 ----------- ----------- LONG TERM LIABILITIES: Deferred tax liability ........................................ 101,277 73,473 Payroll and employee benefits ................................. 433,091 1,177,184 Deferred purchase price ....................................... 1,163,300 816,666 ----------- ----------- Total long-term liabilities ................................. 1,697,668 2,067,323 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS EQUITY: Preferred stock, $.01 par value Authorized - 500,000 shares None issued and outstanding ................................. -- -- Common stock, $.01 par value Authorized - 8,000,000 shares Issued and outstanding - 3,513,148 shares at December 31, 1998, and 3,549,983 shares at September 30, 1999 .......................................... 35,131 35,499 Paid-in capital ............................................... 14,493,655 14,901,230 Retained earnings ............................................. 19,348,708 23,276,682 ----------- ----------- Total stockholders' equity .................................. 33,877,494 38,213,411 ----------- ----------- $42,469,564 $47,287,727 ----------- ----------- 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 Nine months ended ------------------------------ ----------------------------- September 30, September 30, September 30, September 30, 1998 1999 1998 1999 ----------- ------------ ----------- ------------ Net sales ........................................ $15,800,533 $ 17,146,259 $47,650,961 $ 52,391,491 Cost of goods sold ............................... 9,434,612 10,141,905 27,420,625 30,383,702 ----------- ------------ ----------- ------------ Gross profit .................................. 6,365,921 7,004,354 20,230,336 22,007,789 Total operating expenses ......................... 4,752,640 5,142,861 14,450,243 15,622,084 ----------- ------------ ----------- ------------ Operating income .............................. 1,613,281 1,861,493 5,780,093 6,385,705 Other income (expense) ........................... 12,902 (19,182) 23,626 (43,154) Interest income .................................. 62,058 84,088 118,787 204,073 ----------- ------------ ----------- ------------ Income before provision for income taxes ...... 1,688,241 1,926,399 5,922,506 6,546,624 Provision for income taxes ....................... 671,919 761,319 2,357,157 2,618,650 ----------- ------------ ----------- ------------ Net income .................................... $ 1,016,322 $ 1,165,080 $ 3,565,349 $ 3,927,974 =========== ============ =========== ============ Net income per share - Basic ..................... $ .29 $ .33 $ 1.02 $ 1.11 =========== ============ =========== ============ Net income per share - Diluted ................... $ .29 $ .33 $ 1.00 $ 1.10 =========== ============ =========== ============ Weighted average shares outstanding - Basic ...... 3,493,441 3,549,646 3,479,954 3,541,652 =========== ============ =========== ============ Weighted average shares outstanding - Diluted .... 3,555,919 3,577,688 3,572,046 3,563,414 =========== ============ =========== ============ 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 19,383 shares of common stock under the employee stock option plan ................. -- -- 19,383 194 186,030 -- 186,224 Issuance of 16,624 shares of common stock under the employee stock purchase plan ............... -- -- 16,624 166 209,547 -- 209,713 Issuance of 828 shares of common stock as director's fees ... -- -- 828 8 11,998 -- 12,006 Net income ........................... -- -- -- -- -- 3,927,974 3,927,974 --- ---- --------- ------- ----------- ----------- ----------- BALANCE, September 30, 1999........... -- $-- 3,549,983 $35,499 $14,901,230 $23,276,682 $38,213,411 === ==== ========= ======= =========== =========== =========== 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 nine months ended September 30, ----------------------------------------- 1998 1999 ----------- ------------ Cash flows from operating activities: Net income ..................................................... $ 3,565,349 $ 3,927,974 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation and amortization .............................. 1,479,994 1,702,944 Increase in accounts receivable ............................ (143,926) (93,771) Increase in inventories .................................... (28,618) (283,399) Increase in prepaid expenses ............................... (256,816) (117,267) Increase in deferred tax asset ............................. (3,842) (5,121) Increase in other assets ................................... (237,750) (167,789) Decrease in accounts payable and accrued liabilities ....................................... (435,668) (1,044,356) Decrease in deferred tax liability ......................... (18,759) (27,804) ----------- ------------ Net cash provided by operating activities .................. 3,919,964 3,891,411 ----------- ------------ Cash flows from investing activities: Payment for acquisitions, net of cash acquired ............... (1,385,357) (2,112,123) Payment of deferred purchase price ........................... (646,153) (515,165) Additions to property and equipment, net ..................... (645,282) (1,189,041) Proceeds from officer's life insurance policy ................ -- 1,016,871 ----------- ------------ Net cash used in investing activities ...................... (2,676,792) (2,799,458) ----------- ------------ Cash flows from financing activities: Proceeds from issuance of common stock ....................... 478,291 407,943 ----------- ------------ Net cash provided by financing activities .................. 478,291 407,943 ----------- ------------ Net increase (decrease) in cash ................................ 1,721,463 1,499,896 Cash at beginning of period .................................... 4,912,097 8,525,648 ----------- ------------ Cash at end of period .......................................... $ 6,633,560 $ 10,025,544 ----------- ------------ Supplemental disclosures of cash flow information: Interest paid ................................................ $ 9,333 $ 7,611 ----------- ------------ Income taxes paid ............................................ $ 2,330,266 $ 3,035,875 ----------- ------------ The accompanying notes are an integral part of these consolidated financial statements. 6 7 NATIONAL DENTEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (1) INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements include all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for fair presentation of the results of operations for the periods presented. Interim results are not necessarily indicative of the results to be expected for a full year. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as allowed by Form 10-Q. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 1998 as filed with the Securities and Exchange Commission on Form 10-K. (2) EARNINGS PER SHARE Basic earnings per share was computed by dividing net income by the weighted-average common shares outstanding. Diluted earnings per share was computed by giving effect to all dilutive potential common shares outstanding. These shares include shares issuable upon the exercise of options and warrants as determined by the application of the treasury stock method. The calculation of basic earnings per share and diluted earnings per share is as follows: Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, 1998 September 30, 1999 September 30, 1998 September 30, 1999 ------------------- ------------------- ------------------- ------------------ Net income applicable to common stock $1,016,322 $1,165,080 $3,565,349 $3,927,974 ========== ========== ========== ========== COMPUTATION OF BASIC EARNINGS PER SHARE: Weighted average common shares outstanding 3,493,441 3,549,646 3,479,954 3,541,652 Basic earnings per share $.29 $.33 $1.02 $1.11 COMPUTATION OF DILUTED EARNINGS PER SHARE: Weighted average common shares outstanding 3,493,441 3,549,646 3,479,954 3,541,652 Shares issuable from assumed exercise of options and warrants (as determined by the application of the treasury stock method) 62,478 28,042 92,092 21,762 ---------- ---------- ---------- ---------- Weighted average common shares outstanding as adjusted 3,555,919 3,577,688 3,572,046 3,563,414 Diluted earnings per share $.29 $.33 $1.00 $1.10 7 8 Options to purchase 192,227 shares of common stock at exercise prices ranging from $17.63 to $25.00 per share were outstanding during the third quarter of 1999 but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. The options, which expire through September 2008, were still outstanding at September 30, 1999. (3) COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," establishes standards for reporting and displaying comprehensive income and its components. The Company adopted the statement in its quarter ending March 31, 1998. The Company does not have any other items of comprehensive income. As such, comprehensive income is equal to net income as presented in the consolidated statements of income. (4) OFFICER'S LIFE INSURANCE In August, 1999 the Company received approximately $1,000,000 in proceeds from an officer's life insurance policy. Related to these proceeds, the Company simultaneously recorded an obligation of approximately $1,000,000 in accordance with the terms of the officer's employment agreement. The obligation has been classified in accrued payroll and employee benefits in the Company's consolidated balance sheet. (5) ACQUISITION ACTIVITY In July, 1999 the Company acquired certain assets of Jobe Dental Ceramics in Tulsa, Oklahoma. Shortly thereafter, the acquisition agreement was rescinded by mutual agreement of the owner of Jobe Dental Ceramics and the Company. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ LIQUIDITY AND CAPITAL RESOURCES Working capital increased from $13,652,000 at December 31, 1998 to $16,003,000 at September 30, 1999. Cash and equivalents increased $ 1,500,000 from $8,526,000 at December 31, 1998. Operating activities provided $3,891,000 in cash flow for the nine months ended September 30, 1999. Cash outflows related to dental laboratory acquisitions totaled $2,627,000 for the nine months ended September 30, 1999 compared to $2,032,000 for the same period in 1998. Capital expenditures totaled $1,189,000 for the nine months ended September 30, 1999 compared to $645,000 for the same period in 1998. The increase in capital expenditures is primarily attributable to increased spending on facilities of approximately $400,000. The Company maintains a financing agreement (the "Agreement") with State Street Bank and Trust Company (the "Bank"). The Agreement, as amended and extended on June 27, 1998, includes revolving lines of credit of $4,000,000 and $8,000,000. The interest rate on both revolving lines of credit is the prime rate minus 0.5% or the LIBOR rate plus 1.5%, at the Company's option. Both revolving lines of credit mature on June 1, 2001. A commitment fee of one eighth of 1% is payable on the unused amount of both revolving lines of credit. At September 30, 1999 the full principal amount was available to the Company under both revolving lines of credit. Management believes that cash flow from operations and the Company's existing financing will be sufficient to meet contemplated operating and capital requirements, including costs associated with anticipated acquisitions, if any, in the foreseeable future. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that could affect capital expenditures, the Company's requirements for capital, the costs associated with anticipated acquisitions and the Company's results of operations include general economic conditions, the availability of laboratories for purchase by the Company, the ability of the Company to acquire and successfully operate additional dental laboratories, governmental regulation of health care, trends in the dental industry towards managed care, other factors affecting patient visits to the Company's clients, increases in labor and materials costs and other risks indicated from time to time in filings with the Securities and Exchange Commission. 9 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: Nine Months Ended ----------------------------------- September 30, September 30, 1998 1999 ------------- ------------- Net sales 100.0% 100.0% Cost of goods sold 57.5 58.0 ----- ----- Gross profit 42.5 42.0 Total operating expenses 30.3 29.8 ----- ----- Operating income 12.1 12.2 Other income (expense) -- (0.1) Interest income 0.2 0.4 ----- ----- Income before provision for income taxes 12.4 12.5 Provision for income taxes 4.9 5.0 ----- ----- Net income 7.5% 7.5% ----- ----- NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1998 Net Sales Net sales increased $4,741,000 or 9.9% in the nine months ended September 30, 1999 over the corresponding period of the prior year. Approximately $3,386,000 of this increase was attributable to acquisitions, with the remaining increase representing same laboratory sales growth. Cost of Goods Sold Cost of goods sold, which consists principally of labor and related benefits, cost of materials, and laboratory overhead, increased by $2,963,000. As a percentage of sales, cost of goods sold increased from 57.5% to 58.0%, representing a gross margin decrease of .5%. Increases in materials costs and labor costs were partially offset by decreases in laboratory overhead. The continued rising cost of palladium, a component of dental alloys used in the manufacture of many of the Company's goods, continues to be a factor in the increased materials costs. The Company has continued to address the cost of this material in each marketplace and has made efforts to recover costs through price increases, temporary surcharges and the use of substitute metals in place of palladium-based materials. 10 11 Total Operating Expenses Total operating expenses, which consist of (i) selling expenses, the cost of the Company's pick-up and delivery services and administrative expenses at the dental laboratory level, (ii) costs of operation by the Company's corporate headquarters and field support services and (iii) amortization expense, increased by $1,172,000 or 8.1% during the nine months ended September 30, 1999 over the corresponding period in 1998. Operating expenses decreased as a percentage of net sales from 30.3% to 29.8% during the nine months ended September 30, 1999 compared with the corresponding period in 1998. While labor and benefit costs increased in dollar amount due to the acquisition of additional laboratories, labor and benefit costs as a percentage of net sales remained consistent from year to year. Selling expenses, delivery expenses and administrative expenses also increased in amount while decreasing as a percentage of net sales. The remainder of the increase in total operating expenses was attributable to the amortization expenses associated with acquired dental laboratories which increased in amount and as a percentage of net sales. Operating Income Operating income increased by $606,000 or 10.5% for the nine months ended September 30, 1999 over the corresponding period in 1998. The increase was the result of higher sales volume and reductions in operating expenses as a percentage of net sales, partially offset by the increase in cost of goods sold. Other Income Other income decreased $67,000 in the nine months ended September 30, 1999 compared to the same period in 1998. The decrease was primarily attributable to an increase in the loss on disposal of property and equipment of approximately $23,000, a decrease in rental income of $15,000 and increased expenses of $29,000 due to customer use of credit cards. Interest Income Interest income increased by $85,000 or 71.8% in the nine months ended September 30, 1999 over the corresponding period in 1998. The increase was primarily due to increasing investment principal throughout the period as well as increased short-term interest rates. Provision for Income Taxes The Company's provision for income taxes for the nine months ended September 30, 1999 increased to $2,619,000 from $2,357,000 in the corresponding period in 1998. The effective tax rate increased from 39.8% to 40.0%. The increase in the tax provision was primarily attributable to non-deductible costs related to the acquisition of dental laboratories. The tax provision in future periods may increase depending in part on the level and nature of the Company's acquisition activities. Net Income As a result of the factors discussed above, net income for the nine months ended September 30, 1999 increased by $363,000 or 10.2% over the corresponding period in 1998. Net income per share, on a diluted basis, increased from $1.00 per share to $1.10 per share. 11 12 YEAR 2000 (Y2K) COMPLIANCE The Company faces Year 2000 ("Y2K") compliance issues in the areas of computerized data processing using the Company's own equipment along with third party software, and to a lesser extent, exposure to vendor compliance issues in procuring raw materials and difficulties with embedded microprocessors in communications systems and dental laboratory equipment. Information Technology Issues The central focus of the Company's Y2K plan has been to mitigate the data processing issues. The areas that are being addressed are the Company's centralized corporate financial systems along with individual laboratory billing systems. The corporate systems embody the Company's general ledger and accounts payable systems. The laboratory systems handle production scheduling, billing and accounts receivable. Purchasing and inventory control records are generally kept manually. The Company has completed the implementation of an upgrade of its central corporate financial systems. The Company has licensed the upgrade from an existing vendor. While the vendor has represented that the software is Y2K compliant and the Company has conducted internal testing and analysis of the upgrade, the Company will continue to monitor the software during the remainder of the year. The Company has also licensed an upgrade for each laboratory system. The Company has successfully implemented the upgrade at all of its locations. While the vendor had represented that the software was Y2K compliant, the Company performed its own internal testing and discovered some programming errors. Thereafter, the vendor provided program revisions which were installed at all locations. The Company performed additional testing in August, 1999 and has determined that the revisions have corrected the programming errors. The costs of both the upgrade of the central corporate financial systems and the laboratory systems totaled approximately $60,000. While the Company is currently unable to estimate a cost for the replacement of non-compliant hardware, management is confident that these costs when identified and prioritized will not materially increase the Company's normal capital expenditure requirements. Communication of the potential impact of the Y2K date change is being shared throughout the Company. Laboratory Presidents and other employees have been notified that Y2K may impact not only the major applications addressed above, but also desktop applications including personal computer software and hardware. While these applications are not critical to business operations they will continue to be assessed and repaired during the remainder of 1999. Testing of this equipment will involve the use of various standardized utility programs. Business Partners The Company does business with a multitude of vendors and is in the process of gathering Y2K assurances from its key business partners. To date the Company has received favorable assurances of compliance from approximately 83% of the vendors surveyed, including our top seventeen suppliers and approximately 60% of the dollar volume of our purchases of goods and services. This response rate, and the fact that the Company does not rely on a single vendor for raw materials inventory, leads management to believe that inventory levels will be sufficient to absorb temporary delays in raw materials shipments. Alternative materials and vendors are generally readily available, although certain dental alloys, such as palladium, are produced in foreign countries which may be unprepared for Y2K. 12 13 Embedded Systems The Company uses equipment in manufacturing. While some equipment uses computer chips for the purpose of temperature regulation and timing, most of the manufacturing process does not rely on computerized machinery. In most cases, the equipment uses timers operating at an hourly level. The Company has not yet identified equipment which is date sensitive. Should equipment fail an individual laboratory can make use of older backup equipment. The Company is continuing the process of identifying communications equipment and other systems which may lose needed functionality due to Y2K issues. Most Reasonably Likely Worst Case Scenario The Company believes that its Y2K remediation efforts will be sufficient to protect the Company from Y2K related losses. However, in the worst case the Company may continue to encounter difficulties with laboratory billing and scheduling systems. Should the vendor be unable to repair our systems, the Company would need to process billings manually. This could negatively impact the Company by increasing administrative costs and temporarily reducing cash flow (due to billing delays). Additionally, the loss of functionality in these systems could slow production scheduling, further increasing administrative costs and reducing manufacturing productivity. The Company may experience difficulties with communications equipment and/or communication service providers at some locations. An important characteristic of the dental laboratory industry is the need for frequent contact with the customer. Difficulties in communicating with customers would most likely damage customer relationships and have an adverse effect on sales. The Company may encounter product quality problems should equipment fail and backup equipment be found to be inadequate. The most likely result would be an increase in labor and materials costs due to the need to rework substandard products. Emergency purchasing would likely result in higher costs. Contingency Plans The Company believes it would be able to process billings using a combination of laboratory administrative staff, the central office staff and a pool of temporary and part-time workers until a permanent solution to the problem could be implemented. Production scheduling would revert to former manual systems in operation prior to the computerization of our dental laboratories over the last ten years. The Company believes it can readily obtain replacement dental equipment should existing equipment fail. The Company believes that its network of dental laboratories will be able to work together to solve the production difficulties of any particular laboratory by lending equipment or production capacity. Communication equipment failures would be more difficult to remedy due to our reliance on third party vendors. While equipment is covered under maintenance contracts, timely performance by third parties cannot be guaranteed. Due to the fact that a large portion of the Company's potential Y2K risk is in the hands of third parties or cannot be definitively eliminated, there can be no advance assurance regarding the ultimate outcome of the Y2K date change. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 13 14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings: No material legal proceedings are pending to which the Company is a party or of which any of its property is subject. ITEM 2. Changes in Securities and Use of Proceeds: Not applicable. ITEM 3. Defaults upon Senior Securities: Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders: Not applicable. ITEM 5. Other Information: See footnotes 4 and 5 to the Consolidated Financial Statements for information regarding recent acquisition activity and other matters. ITEM 6. Exhibits and Reports on form 8-K: a. Exhibits: (27) Financial Data Schedule b. Reports on Form 8-K: None 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized. NATIONAL DENTEX CORPORATION Registrant November 12, 1999 By: /s/ David L. Brown ---------------------------------------------- David L. Brown President, Treasurer and Director (Principal Executive Officer) November 12, 1999 By: /s/ Richard F. Becker --------------------------------------------- Richard F. Becker, Jr. Chief Financial Officer, Vice President of Finance and Assistant Treasurer (Principal Financial and Accounting Officer) 15