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 March 31, 1996 Commission File Number: 0-23092 NATIONAL DENTEX CORPORATION Massachusetts 04-2762050 (State or other jurisdiction (I.R.S. Identification Number) of incorporation or organization) 111 Speen Street, Framingham, MA 01701 (Address of Principal Executive Offices) (zip code) (508) - 820 - 4800 (Registrant's telephone number, 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 /X/ No / / Number of shares of Common Stock outstanding as of May 10, 1996: 3,438,823. 2 NATIONAL DENTEX CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 Table of Contents Page PART I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets as of December 31, 1995 and 31, 1996 (Unaudited) 3 Consolidated Statements of Income for the three months ended March 31, 1995 and March 31, 1996 (Unaudited) 4 Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1996 (Unaudited) 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and March 31, 1996 (Unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. Other Information 11 Signatures 12 3 NATIONAL DENTEX CORPORATION CONSOLIDATED BALANCE SHEETS December 31, March 31, 1996 1995 (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents $ 4,193,394 $ 3,892,180 Accounts receivable: Trade, less allowance of $180,000 in 6,024,953 6,101,065 1995 and $185,000 in 1996 Other 176,099 154,582 Inventories 2,519,143 2,662,489 Prepaid expenses 664,812 933,227 Deferred tax asset 367,275 369,337 Total current assets 13,945,676 14,112,880 PROPERTY AND EQUIPMENT: Land and buildings 3,773,720 3,773,589 Leasehold and building improvements 2,270,753 2,101,763 Laboratory equipment 5,360,351 5,428,837 Furniture and fixtures 1,264,513 1,348,600 Capital leases 342,819 342,819 13,012,156 12,995,608 Less - Accumulated depreciation and 6,891,909 6,872,907 amortization Net property and equipment 6,120,247 6,122,701 OTHER ASSETS, net: Goodwill 5,035,911 5,052,707 Other 3,019,950 2,992,195 8,055,861 8,044,902 $ 28,121,784 $ 28,280,483 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term 110,119 112,537 obligations Accounts payable 1,363,142 1,298,525 Accrued liabilities: Payroll and employee benefits 2,558,845 2,125,178 Deferred purchase price 1,728,565 1,275,823 Other 627,847 1,057,121 Total current liabilities 6,388,518 5,869,184 LONG TERM LIABILITIES: Deferred tax liability 452,195 418,793 Long-term obligations, less current 188,343 188,760 portion Deferred purchase price 1,137,147 923,331 Total long-term liabilities 1,777,685 1,530,884 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 3,271,468 shares at December 31, 1995, 32,715 33,964 and 3,396,405 shares at March 31, 1996 Paid-in capital 13,309,336 13,406,109 Retained earnings 6,613,530 7,440,342 Total stockholders' equity 19,955,581 20,880,415 $ 28,121,784 $ 28,280,483 The accompanying notes are an integral part of these consolidated financial statements. 4 NATIONAL DENTEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended March 31, 1995 March 31, 1996 Net sales $10,284,667 $12,348,598 Cost of goods sold 5,816,762 7,024,606 Gross profit 4,467,905 5,323,992 Total operating expenses 3,402,083 4,024,087 Operating income 1,065,822 1,299,905 Other income 49,244 41,421 Interest income 63,096 36,694 Income before provision for 1,178,162 1,378,020 income taxes Provision for income taxes 471,265 551,208 Net income $ 706,897 $ 826,812 Net income per share $ .21 $ .24 Weighted average shares 3,345,609 3,503,066 outstanding The accompanying notes are an integral part of these consolidated financial statements. 5 NATIONAL DENTEX CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) Preferred Stock Common Stock # $.01 # $.01 Paid-in Retained of Par of Par Capital Earnings Total Shares Value Shares Value ($) ($) ($) BALANCE, Dec. 31, --- --- 3,271,468 32,715 13,309,336 6,613,530 19,955,581 1995 Issuance of 124,937 --- --- 124,937 1,249 96,773 --- 98,022 shares of common stock under the stock option plan and upon exercise of out- standing warrants Net --- --- --- --- --- 826,812 826,812 income BALANCE, March 31, --- --- 3,396,405 33,964 13,406,109 7,440,342 20,880,415 1996 The accompanying notes are an integral part of these consolidated financial statements. 6 NATIONAL DENTEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1995 1996 Cash flows from operating activities: Net income $ 706,897 $ 826,812 Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effects of acquisitions: Depreciation and amortization 187,629 321,738 Increase in accounts receivable (296,681) (54,595) Increase in inventories (8,645) (142,578) Increase in prepaid expenses (65,350) (268,415) Increase in deferred tax asset (1,283) (2,062) (Increase) decrease in other assets 46,013 (52,866) Decrease in accounts payable and accrued liabilities (1,312,841) (71,139) Decrease in deferred tax liability (14,619) (33,402) Net cash provided by operating (758,880) 523,493 activities Cash flows from investing activities: Payment of deferred purchase price --- (774,558) Additions to property and (147,400) (151,006) equipment, net Net cash used in investing (147,400) (925,564) activities Cash flows from financing activities: Net payments of current and long- (2,887) 2,835 term obligations Proceeds from issuance of common 16,854 98,022 stock Net cash provided by financing 13,967 100,857 activities Net decrease in cash (892,313) (301,214) Cash at beginning of period 6,027,104 4,193,394 Cash at end of period $ 5,134,791 $ 3,892,180 Supplemental disclosures of cash flow information: Interest paid $ 3,289 $ 13,205 Income taxes paid $ 427,950 $ 89,500 The accompanying notes are an integral part of these consolidated financial st atements. 7 NATIONAL DENTEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (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, 1995 as filed with the Securities and Exchange Commission on Form 10-K. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Working capital increased from $7,557,000 at December 31, 1995 to $8,244,000 at March 31, 1996. Cash and equivalents declined $301,000 from $4,193,000 at December 31, 1995. The fundamental reason for the decline in cash was the payment of $775,000 of deferred acquisition costs. Operating activities provided $523,000 in positive cash flow. The Company maintains a financing agreement ("the Agreement") with State Street Bank and Trust Company (the "Bank"). The Agreement, as amended, 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 or Libor rate plus 2%, at the Company's option. The first revolving line of credit matures on June 1, 1998 and the second revolving line of credit matures on June 1, 1997. A commitment fee of one quarter of 1% is payable on the unused amount of the first revolving line of credit. In addition, a draw down fee equal to 3/8 of 1% of each advance under the second revolving line of credit is payable at the time of such advance. At March 31, 1996, the Company had the full principal amount available under both revolving lines of credit. Management believes that existing working capital and financing will be sufficient to meet contemplated operating and capital requirements, including costs associated with anticipated acquisitions, if any, in the foreseeable future. 9 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: Three Months Ended March 31, 1995 March 31, 1996 Net Sales 100.0% 100.0% Cost of goods sold 56.6 56.9 Gross profit 43.4 43.1 Total operating expenses 33.0 32.6 Operating income 10.4 10.6 Other income 0.5 0.3 Interest income 0.6 0.3 Income before provision 11.5 11.2 for income taxes Provision for income 4.6 4.5 taxes Net Income 6.9% 6.7% Quarter Ended March 31, 1996 Compared with Quarter Ended March 31, 1995 Net Sales Net sales increased $2,064,000 or 20.1% in the fiscal quarter ended March 31, 1996 over the corresponding period of the prior year. Approximately 1,823,000 of this increase is attributable to businesses acquired in 1995, with the remaining increase representing unit growth at dental laboratories operating in the fiscal quarter ended March 31, 1996 and in the comparison quarter ended March 31, 1995. Cost of Goods Sold Cost of goods sold, which consists principally of labor and related benefits, cost of materials, and laboratory overhead increased by $1,208,000. As a percentage of sales, cost of goods sold increased from 56.6% to 56.9%, representing a gross margin decrease of .3%. The increase was caused by higher costs of labor and related benefits, offset by decreases in materials costs. 10 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, and (ii) costs of operation of the Company's corporate headquarters and field support services increased by $622,000 or 18.3% during the first fiscal quarter 1996 over the corresponding period in 1995. The increase is primarily attributable to the operating and amortization expense associated with the eight dental laboratories acquired in 1995. Additionally, spending has increased in the areas of technical training and business development to further the Company's growth and productivity goals. Operating expenses decreased as a percentage of net sales from 33.0% to 32.6%. during the first fiscal quarter 1996 over the corresponding period in 1995. Operating Income Operating income increased by $234,000 or 22.0% for the first quarter in 1996 over the corresponding quarter in 1995. The increase was the result of higher sales volume and reductions in operating expenses as a percentage of net sales, offset by a slight increase in cost of goods sold. Interest Income Interest income decreased by $26,000 or 41.8% in the first quarter in 1996 over the corresponding quarter in 1995. The decrease increase was due to lower interest rates for short-term liquid investments and decreased investment principal. Provision for Income Taxes The Company's provision for income taxes for fiscal quarter 1996 increased to $551,000 from $471,000 in the corresponding period in 1995. The effective tax rate remained constant at 40%. Net Income As a result of the factors discussed above, net income for the fiscal quarter 1996 increased by $120,000 or 17.0% over the corresponding quarter in 1995. Net income per share increased from $0.21 per share to $0.24 per share. 11 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: 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: None Item 6. Exhibits and Reports on Form 8-K: a. Exhibits: (11) Statement Regarding Computation of Per Share Earnings b. Reports on Form 8-K: None 12 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned, thereunto duly authorized. NATIONAL DENTEX CORPORATION Registrant May 14, 1996 By: /s/ William M. Mullahy William M. Mullahy, President Chief Executive Officer and Director (Principal Executive Officer) May 14, 1996 By: /s/ David L. Brown David L. Brown, Vice President - Finance Chief Financial Officer, Treasurer and Assistant Clerk (Principal Financial Officer)