DTI Dental Technologies Inc.
TSX VENTURE : DTI

DTI Dental Technologies Inc.

August 29, 2005 19:17 ET

DTI Dental Technologies Reports Results for 6 Months Ended June 30, 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 29, 2005) - DTI Dental Technologies Inc. (TSX VENTURE:DTI), one of North America's leading operators of dental laboratories, today announced financial results for the three-month and six-month periods ended June 30, 2005. The results include:

- Revenue for the quarter amounted to $9.2 million, and revenue for the six-month period amounted to $17.2 million, representing increases of 0.4%, and 1.0% respectively over the comparable periods in 2004.

- Same-lab sales grew in Canada by 3.0% for the quarter and 3.5% for the six-month period.

- Same-lab sales in the USA declined by 0.5% for the quarter and 7.3% for the six-month period, in local currency.

- Lab operating income decreased 6.3% to $2.0 million for the quarter and 11.0% to $3.7 million year-to-date over the comparable periods in 2004.

- DTI generated EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1.3 million or 14.2% of sales for the quarter and $2.2 million or 12.9% for the six-month period compared to $1.5 million or 16.0% of sales and $2.9 million or 17.1% of sales for the same periods in 2004.

- Net income of $229,483 ($0.02 per share) for the quarter and $145,480 ($0.01 per share) on a year-to-date basis, compared to a net income of $203,549 ($0.03 per share) and net income of $494,305 ($0.07 per share) for comparable periods in 2004.

"I am pleased that the results confirm that the decision to implement changes in the management structure at different individual laboratories for the last year, was the proper strategy to prepare the labs for their next stage of growth. We expect continued improvement in the operating margins of our labs in future quarters," said Paolo Kalaw, Chief Executive Officer.

Sales increased 0.4% from $9.1 million in the first quarter of 2004 to $9.2 million in the same period in 2005, mainly as a result of the laboratory acquired in 2005.

On a year-to-date basis, sales increased 1.0% from $17.1 million in 2004 to $17.2 million in 2005, mainly as a result of the laboratories acquired in 2004 and 2005.

Same lab growth amounted to 3.0% for the quarter and 3.5% for the six-month period in labs operating in Canada. Same lab sales declined for labs operating in the United States by 0.5% for the quarter and by 7.3% for the six-month period (in local currency).

Lab operating income decreased by 6.3% for the quarter to $2.0 million and by 11.0% to $3.7 million year-to-date. As a percentage of sales, the lab operating income amounted to 21.6% for the quarter and 21.3% for the six-month period in 2005 compared to 23.1% for the quarter and 24.2% for the six-month period in 2004. The lab acquired during 2005 generated lab operating income equal to 14.3% of its sales for the quarter and 12.1% of its sales on a year-to-date basis. Notwithstanding the Company's operating performance compared to last year, this quarter reflects signs that the strategies implemented in prior quarters are beginning to yield benefits, even though the overall effects of the changes continue to have a negative impact on Company results. Management is of the opinion that the succession and expansion changes undertaken were necessary steps to ensure DTI is well-positioned for sustainable growth in the future. We expect a continued improvement in operating margins in the labs acquired and the labs impacted by changes in operating structures as benefits are realized during the 2005 year.

The company generated EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1.3 million or 14.2% of sales for the quarter and $2.2 million or 12.9% on a year-to-date basis, compared to $1.5 million or 16.0% of sales and $2.9 million or 17.1% of sales for the same periods in 2004.

Results returned to profitability in the second quarter, with a net income for the quarter at $229,483 or $0.02 per share and $145,480 or $0.01 per share on a year-to-date basis, compared to a net income of $203,549 or $0.03 per share and net income of $494,305 or $0.07 per share for the same periods in 2004.

The Company reported a $661,991 decrease in cash generated from operating activities for the quarter and a decrease of $1.2 million year-to-date. For the quarter, this was as a result of improved operating cash performance in the amount of $98,908 and the negative effect of changes in working capital of $760,899 compared to 2004. On a year-to-date basis, this was as a result of a decrease in operating cash performance in the amount of $115,244 and the negative effect of changes in working capital of $1.1 million compared to 2004.

Ongoing capital needs for equipment at the laboratories amounted to $193,254 for the quarter and $258,203 for the six-month period. In addition, the Company acquired a commercial building and related lands with a purchase price of $2.1 million, to be used for expansion of one of its dental laboratories and for its head office in Vancouver, B.C. This purchase was financed with a $1.7 million building loan and a $700,000 renovation loan. At June 30, 2005, $97,121 of capitalized renovations related to the building has been recorded.

The Company invested $489,308 in dental lab acquisitions in the first six-months of 2005 and $1.3 million in the same period of 2004.

About DTI Dental Technologies Inc.

DTI is a multi-site operator of premium quality dental laboratories, with fifteen labs in six U.S. states and three Canadian provinces. DTI's laboratories custom design and fabricate crowns, bridges, dentures, cosmetic appliances, and orthodontic appliances. DTI's experienced management team is committed to building shareholder value by increasing market share, revenue, and cash flow through carefully targeted acquisitions and improved marketing, training, and business processes. DTI is well-positioned to capitalize on growing demand by our aging population for high-quality cosmetic and restorative dental products.

Forward-Looking Statements

This news release contains forward-looking statements that are subject to various risks and uncertainties. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of numerous factors that may be beyond the Company's control. Forward-looking statements are based on the expectations and opinions of the Company's management on the date the statements are made, and the Company assumes no obligation to update forward-looking statements should circumstances in management's expectations or opinions change.



DTI DENTAL TECHNOLOGIES INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)

June 30, 2005 and December 31, 2004

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Jun 2005 Dec 2004
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Assets

Current assets:
Cash and cash equivalents $ 1,045,124 $ 2,289,798
Accounts receivable 3,891,190 3,386,668
Inventory 972,876 832,416
Prepaid expenses 129,138 148,366
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6,038,328 6,657,248

Property and equipment 4,155,325 1,779,413

Deferred charges 204,996 256,513

Goodwill 12,334,565 11,424,993

Future income taxes 2,051,491 2,137,234
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$ 24,784,705 $ 22,255,401
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Liabilities and Shareholders' Equity

Current liabilities:
Bank indebtedness $ 470,782 $ -
Accounts payable and accrued liabilities 2,484,566 3,184,496
Current portion of vendor notes payable 606,595 637,238
Current portion of long-term debt 123,766 37,911
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3,685,709 3,859,645

Vendor notes payable 238,225 351,042

Long-term debt 18,892,665 16,552,511

Shareholders' equity:
Capital stock 7,649,380 7,607,780
Contributed surplus 97,347 65,546
Deficit (3,057,936) (3,203,416)
Cumulative translation adjustment (2,720,685) (2,977,707)
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1,968,106 1,492,203
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$ 24,784,705 $ 22,255,401
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DTI DENTAL TECHNOLOGIES INC.
Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)

For the three and six month periods ended June 30, 2005 and 2004

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Three Three Six Six
months months months months
ended ended ended ended
Jun 2005 Jun 2004 Jun 2005 Jun 2004

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Sales $ 9,167,322 $ 9,134,888 $ 17,234,708 $ 17,060,715

Direct cost
of sales
(excluding
amortization):
Materials 1,581,765 1,605,083 2,918,987 2,950,419
Labour 2,879,567 2,865,453 5,585,664 5,327,429
Freight 379,292 336,544 716,855 593,831
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4,840,624 4,807,080 9,221,506 8,871,679
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Contribution
margin 4,326,698 4,327,808 8,013,202 8,189,036

Direct lab
overheads 2,347,019 2,214,959 4,345,970 4,068,313

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Lab operating
income 1,979,679 2,112,849 3,667,232 4,120,723

Head office lab
support and
other corporate
expenses 680,073 648,600 1,450,030 1,207,149

Other expenses
(income):
Amortization 195,219 216,017 383,374 408,545
Interest and
financing
costs on long-
term debt 770,735 860,273 1,501,601 1,709,468
Interest and
other income (3,527) (4,941) (17,891) (9,073)
Accretion of
discount on
vendor notes
payable 4,572 19,729 10,356 32,157
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966,999 1,091,078 1,877,440 2,141,097
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Income before
income taxes 332,607 373,171 339,762 772,477

Income tax
expense
(recovery)
Current 36,707 178,184 74,724 354,224
Future 66,417 (8,562) 119,558 (76,052)
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103,124 169,622 194,282 278,172
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Net earnings
for the period 229,483 203,549 145,480 494,305

Deficit,
beginning of
period (3,287,419) (3,119,131) (3,203,416) (3,367,493)

Retroactive
adjustment for
stock based
compensation
expense - - - (36,883)

Excess purchase
price of share
repurchases - (1,751) - (7,262)
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Deficit, end
of period $ (3,057,936) $ (2,917,333) $ (3,057,936) $ (2,917,333)
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Net earnings
(loss) per
share
Basic $ 0.02 $ 0.03 $ 0.01 $ 0.07
Diluted 0.02 0.02 0.01 0.05

Weighted
average shares
outstanding
Basic 13,857,067 7,026,920 13,857,067 7,026,920
Diluted 13,965,392 13,622,604 13,965,392 13,622,604

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DTI DENTAL TECHNOLOGIES INC.
Consolidated Statement of Cash Flows
(Expressed in Canadian dollars)

For the three and six month periods ended June 30, 2005 and 2004

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Three Three Six Six
months months months months
ended ended ended ended
Jun 2005 Jun 2004 Jun 2005 Jun 2004

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Cash provided
by (used in):

Operations:
Net earnings
(loss) for
the year $ 229,483 $ 203,549 $ 145,480 $ 494,305
Items not
affecting
cash:
Amortization 195,219 216,017 383,374 408,545
Accrued
interest
expense on
term loans 322,259 267,665 619,781 523,662
Accretion of
discounts on
vendor notes
payable 4,572 19,729 10,356 32,157
Deferred
charges - 12,459 - 12,459
Gain on sale
of property
and equipment (13,820) - (13,820) -
Stock based
compensation
expense 18,800 13,165 31,801 16,698
Future income
tax expense
(recovery) 66,417 (8,562) 119,558 (76,052)
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822,930 724,022 1,296,530 1,411,774

Changes in
non-cash
working
capital items:
Accounts
receivable (79,320) 589,437 (248,651) (142,575)
Inventory (13,284) 5,232 (80,499) (34,723)
Prepaid
expenses 27,352 (291) 22,148 (94,525)
Accounts
payable and
accrued
liabilities (631,079) (529,810) (920,678) 126,022
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Cash flows
provided by
operations 126,599 788,590 68,850 1,265,973

Investments:
Proceeds on sale
of property and
equipment 22,496 - 22,496 -
Purchase of
property and
equipment (2,257,970) (134,284) (2,322,920) (261,170)
Purchase of
dental
laboratories,
net of cash
acquired (5,080) 41,478 (489,308) (1,314,667)
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Cash flows
used in
investments (2,240,554) (92,806) (2,789,732) (1,575,837)

Financing:
Repayment of
vendor notes
payable (187,485) (204,120) (652,435) (204,120)
Repayment of
long-term debt (18,460) (5,564) (33,720) (10,409)
Issue of
common shares 41,600 231,750 41,600 231,750
Issue of long
term debt 1,725,000 - 1,725,000 -
Repurchase of
common shares - (2,340) - (9,325)
Deferred
charges
incurred (44,166) (48,297) (64,586) (56,906)
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Cash flows
provided by
(used in)
financing 1,516,489 (28,571) 1,015,859 (49,010)

Effect of
foreign
exchange on
cash flows (30,012) 28,924 (10,433) 64,576
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Increase
(decrease) in
cash and cash
equivalents (627,478) 696,137 (1,715,456) (294,298)

Cash and cash
equivalents,
beginning of
period 1,201,820 1,915,479 2,289,798 2,905,914
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Cash and cash
equivalents,
end of
period $ 574,342 $ 2,611,616 $ 574,342 $ 2,611,616
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Cash and cash
equivalents
include the
following:

--------------------------------------------------------------------
Cash 1,045,124 2,611,616 1,045,124 2,611,616
Bank
indebtedness (470,782) - (470,782) -
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$ 574,342 $ 2,611,616 $ 574,342 $ 2,611,616
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