<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 1996 Commission File Number: 0-28680
------------------ -------
DENTLCARE MANAGEMENT, INC.
Exact name of small business issuer as specified in its charter)
Nevada 88-0301637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8118 E. 63rd St., Tulsa, Oklahoma 74133
(Address of principal executive offices)
(918) 254-6600
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes / / No /X/
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the period covered by this report.
COMMON STOCK $0.001 PAR VALUE 11,071,700
----------------------------- -------------------
Class Outstanding at September 30, 1996
Transitional Small Business Disclosure Format: Yes / / No /X/
<PAGE> 2
DENTLCARE MANAGEMENT, INC.
Index
PART I. Financial Information
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1996 4
Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 1996 5
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1996 6-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-13
PART II. Other Information 14
</TABLE>
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<PAGE> 3
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- -----------
ASSETS
<S> <C> <C>
Cash $ 60,184 $ 5,127
Barter Currency (net of $184,900 & $204,163 reserves) 1,047,768 1,163,974
Marketable Securities 690,000 --
Due From Trustee 836,577 --
Accounts Receivable (net of $74,819 & $74,819 reserves) 957,889 226,284
Due From Employees -- 7,412
Supplies Inventory 131,324 79,063
Prepaid Expenses 86,015 8,548
----------- -----------
TOTAL CURRENT ASSETS 3,809,757 1,490,408
Net Property & Equipment 1,626,264 503,827
Barter Currency, less current (net of $184,900 & $204,164 reserves) 1,047,768 1,156,927
Due From Trustee 862,397 --
Goodwill (net of accumulated amortization of $269,636 & $157,080) 2,079,630 1,727,893
Deposits 16,720 11,260
----------- -----------
TOTAL ASSETS $ 9,442,536 $ 4,890,315
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Overdraft $ -- $ 12,180
Notes Payable and Current Portion of Long Term Debt 935,748 1,524,301
Accounts Payable - Trade 397,137 837,812
Accrued Expenses 220,917 851,135
Due to Stockholders 13,479 193,075
----------- -----------
TOTAL CURRENT LIABILITIES 1,567,281 3,418,503
----------- -----------
LONG TERM DEBT (LESS CURRENT PORTION) 767,811 --
----------- -----------
DEFERRED INCOME TAXES 20,748 20,748
----------- -----------
Preferred Stock 2,500,000 2,500,000
Common Stock 11,072 3,634
Additional Paid-In Capital 6,527,739 357,477
Retained Earnings (1,952,115) (1,410,047)
----------- -----------
TOTAL EQUITY 7,086,696 1,451,064
----------- -----------
TOTAL LIABILITIES & EQUITY $ 9,442,536 $ 4,890,315
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 4
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED 9/30/96 ENDED 9/30/96
------------- -------------
<S> <C> <C>
Management Fees $ 1,585,870 $ 3,393,505
Cost of Materials and Supplies 249,646 560,207
Selling, General and Administrative Expense 1,482,555 3,408,529
------------ -----------
Operating Loss (146,331) (575,231)
Other Income (Expense)
Other Income 93,400 101,519
Interest Expense (29,072) (68,356)
------------ -----------
Net Loss Before Income Taxes (82,003) (542,068)
Income Taxes nil nil
------------ -----------
Net Loss $ (82,003) $ (542,068)
============ ===========
Net Loss Per Common Share $ (0.01) $ (0.07)
============ ===========
Weighted Average Common Shares Outstanding 10,983,928 7,489,399
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 5
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ -------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 25,000 $2,500,000 3,634,200 $ 3,634
Issuance of Common Stock Under
Reg. D, Rule 504 2,000,000 2,000
Issuance of Common Stock in the
Acquisition of HPS-Nevada 1,350,000 1,350
Issuance of Common Stock for the
payment of liabilities 12,500 13
Issuance of Common Stock for
cash in exchange for
warrants exercised 25,000 25
Issuance of Common Stock for
marketable securities in
exchange for warrants
exercised 300,000 300
Issuance of Common Stock in the
Confirmation of a
subsidiary's Plan
of Reorganization 2,400,000 2,400
Issuance of Common Stock in the
Acquisition of HPS-Illinois 1,350,000 1,350
Net Loss for Period
------ ---------- ---------- -------
Balances September 30, 1996 25,000 $2,500,000 11,071,700 $11,072
====== ========== ========== =======
<CAPTION>
ADDITIONAL STOCK-
PAID-IN HOLDERS'
CAPITAL DEFICIT EQUITY
---------- ----------- -----------
<S> <C> <C> <C>
Balances at December 31, 1995 $ 357,477 $(1,410,047) $ 1,451,064
Issuance of Common Stock Under
Reg. D, Rule 504 998,000 1,000,000
Issuance of Common Stock in the
Acquisition of HPS-Nevada 1,350
Issuance of Common Stock for the
payment of liabilities 24,987 25,000
Issuance of Common Stock for
cash in exchange for
warrants exercised 49,975 50,000
Issuance of Common Stock for
marketable securities in
exchange for warrants
exercised 599,700 600,000
Issuance of Common Stock in the
Confirmation of a
subsidiary's Plan
of Reorganization 4,497,600 4,500,000
Issuance of Common Stock in the
Acquisition of HPS-Illinois 1,350
Net Loss for Period (542,068) (542,068)
---------- ----------- -----------
Balances September 30, 1996 $6,527,739 $(1,952,115) $ 7,086,696
========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 6
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INCREASE IN CASH
Cash Flows From Operating Activities
Cash Received From Customers $ 2,949,100
Cash Paid to Suppliers and Employees (3,472,371)
Interest Paid (68,356)
-----------
Net Cash Used by Operating Activities (591,627)
-----------
Cash Flows From Investing Activities
Capital Expenditures (160,789)
Cash acquired in acquisitions 7,578
-----------
Net Cash Used by Investing Activities (153,211)
-----------
Cash Flows from Financing Activities
Proceeds from Notes Payable 43,954
Repayments of Notes Payable (36,059)
Proceeds from Common Stock Offering 792,000
-----------
Net Cash Used Provided by Financing Activities 799,895
-----------
Net Increase in Cash 55,057
Cash, Beginning of Period 5,127
-----------
Cash, End of Period $ 60,184
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 7
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
RECONCILIATION OF NET LOSS TO NET CASH USED BY
OPERATING ACTIVITIES
<TABLE>
<S> <C>
Net Loss $(542,068)
Adjustments to Reconcile Net Loss to Net Cash used by
Operating Activities
Depreciation of Property and Equipment 64,600
Amortization of Goodwill 112,556
Unrealized gain from marketable securities (90,000)
Decrease (Increase) in Due from Trustee 336,379
Decrease (Increase) Barter Currency, Net 225,365
Decrease (Increase) in Accounts Receivable (545,924)
Decrease (Increase) in Due From Employees 7,412
Decrease (Increase) in Supplies Inventory (52,261)
Decrease (Increase) in Prepaids (76,977)
Decrease (Increase) in Deposits (2,743)
Increase (Decrease) in Accounts Payable and Accrued Expenses 44,599
Increase (Decrease) in Due to Stockholders (72,565)
---------
Net Cash Used in Operating Activities $(591,627)
=========
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisitions of HPS-Nevada and HPS-Illinois
Increase in Accounts Receivable 185,681
Increase in Dental Equipment 515,020
Increase in Other Assets 3,206
Increase in Goodwill 464,294
(Increase) in Accounts Payable (456,373)
(Increase) in Other Notes Payable (716,706)
(Increase) in Common Stock Issued (2,700)
=========
Cash received $ 7,578
=========
</TABLE>
Continued
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 8
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES, CONTINUED
<TABLE>
<S> <C>
Confirmation Of Plan of Reorganization
Increase in Due From Trustee - Current Asset $ 1,172,956
Increase in Due From Trustee - Other Asset 862,397
Decrease in Notes Payable Bank 773,571
Decrease in Accounts Payable-Trade 652,089
Decrease in Accrued Expenses 931,956
Decrease in Due To Stockholders 107,031
(Increase) in Common Stock Issued (2,400)
(Increase) in Additional Paid-In Capital (4,497,600)
Other Transactions
Real Estate acquired for debt from an affiliate 321,931
Capital leases exchanged for dental equipment 189,297
Common stock issued in exchange for notes payable 283,000
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 9
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING
The consolidated financial statements of DentlCare Management, Inc.
include the accounts of DentlCare Management, Inc. ("DCMI") and its
wholly-owned subsidiaries, Dental Management Systems, Inc. ("DMSI"),
DentureCare Services, Inc. ("DCSI"), HPS-Nevada and Hippocratic
Preservation Society, Inc. ("HPS-Illinois") (collectively referred to
as the "Company"). All material intercompany accounts and transactions
have been eliminated.
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation. These
financial statements have not been audited. The consolidated balance
sheet at December 31, 1995 included in this report has been derived
from the audited consolidated balance sheet.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report for the year ended December 31,
1995, which is included in the Company's Form 10-SB which was filed on
July 30, 1996. The financial data for the interim periods presented may
not necessarily reflect the results to be anticipated for the complete
year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current
presentation.
B. ACQUISITIONS
Effective March 1, 1996, the Company acquired HPS-Nevada, a Nevada
corporation, with dental operations in Las Vegas, Nevada, in exchange
for the issuance of 1,350,000 restricted shares of the Company's common
stock. Effective June 30, 1996, the Company acquired HPS-Illinois, an
Illinois corporation, with dental operations in the Chicago area, in
exchange for the issuance of 1,350,000 restricted shares of the
Company's common stock.
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<PAGE> 10
Both acquisitions have been accounted for utilizing the purchase method
of accounting with the assets acquired and the liabilities assumed
being recorded at their fair values. The assets acquired and
liabilities assumed are summarized on the Consolidated Statement of
Cash Flows within the Supplementary Schedule of Non-Cash Investing and
Financing Activities.
C. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Note payable to a bank with interest at
10.75%; due on demand; secured by an
automobile $ 20,638 26,598
Capital leases secured by dental equipment
with monthly payments of $4,300/month 181,091 --
Note payable to an affiliate; unsecured;
interest at 10% 460,085 491,132
Demand note payable with interest at 10% 25,000 --
Note payable to an affiliate; interest at 10%;
due and payable solely from the future cash
flows of a prospective managed care contract 400,000 --
Real estate mortgage with interest at 9.5% 63,000 --
Real estate second mortgage; interest at 9% 17,439 --
Installment note; interest at 8% 11,147 --
Installment note; interest at 10% 203,226 --
Real estate obligations due an affiliate with
interest at 10% 321,931 --
Notes payable exchanged for common stock
of the Company -- 233,000
Notes payable to a bank with interest at 9%;
in default; secured by certain accounts
receivable of the Company and the personal
guarantees of certain stockholders -- 773,571
---------- ----------
$1,703,559 $1,524,301
Less non-current portion 767,811 --
---------- ----------
Notes payable and current portion of
long-term debt $ 935,748 $1,524,301
========== ==========
</TABLE>
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<PAGE> 11
D. MARKETABLE SECURITIES
In July 1996, a warrant holder exercised a warrant for 300,000 shares
of the Company's common stock and transferred 240,000 shares of
Proactive Technologies, Inc. (AMEX:PTE) to the Company as consideration
for the warrant exercise. The Company has classified the securities as
trading securities. At September 30, 1996, the fair value of the
securities exceeded their recorded cost by $90,000 and this amount is
included in other income.
E. BANKRUPTCY PROCEEDINGS
In late June, 1996 the United States Bankruptcy Court for the Northern
District of Oklahoma confirmed the Company's Plan of Reorganization.
Pursuant to the Plan, the Company issued 2,400,000 shares of its common
stock to the Plan Trustee in satisfaction of all the liabilities of
DCSI.
F. CONCENTRATION
As of September 30, 1996, approximately 46% of the Company's recurring
management fee income is derived from management contracts with dental
practices in Las Vegas, Nevada, 23% from a management contract with a
dental practice in the Chicago, Illinois area and approximately 31%
from a contract with a dental practice in Tulsa, Oklahoma.
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements at pages 3-8 hereof.
CONSOLIDATED RESULTS OF OPERATIONS
Revenues from management fees for the nine months ended September 30, 1996 were
$3,394,000, an increase of $2,180,000 (180%) from the same 1995 period. The
revenue increase during the 1996 period consisted of a $248,000 (20%) increase
in the Oklahoma management fees, $1,562,000 increase resulting from the addition
of HPS-Nevada's management fees and $370,000 increase resulting from the
addition of HPS-Illinois' management fees.
The increase in the Oklahoma management fees was the result of an increased
volume of managed dental services. The Company began managing a fourth Tulsa
location effective January 1, 1996, which accounted for $234,000 of the current
period increase in revenue.
The HPS-Nevada management fees represents revenues for the months of March
through September, 1996. The Company added four Las Vegas locations when it
acquired HPS-Nevada effective February 29, 1996.
The HPS-Illinois management fees represents revenues for the months of July
through September, 1996. The Company added four Chicago area locations when it
acquired HPS-Illinois effective June 30, 1996.
During the nine months ended September 30, 1996, the Company's costs of
materials and supplies decreased to 16.5% of revenues, as compared to 23.5% for
the same 1995 period. Oklahoma's cost percentage reduced to 21% for the current
period, the cost percentage for HPS-Nevada was 12.0% and the cost percentage for
HPS-Illinois was 17%. The variation between locations is primarily due to the
higher concentration of prosthetics in the Oklahoma operation as compared to the
other locations.
Selling, general and administrative expense increased $1,685,000 (98%) to
$3,409,000 during the nine months ended September 30, 1996 as compared to the
same 1995 period. The increase consisted of higher legal and professional fees
in the amount of $140,000, the addition of $990,000 expenses for the HPS-Nevada
operation, the addition of $297,000 in expenses for the HPS-Illinois operation
and an overall increase of $258,000 in expenses of the Oklahoma operation. The
higher legal and professional costs include legal costs associated with the
Company becoming a reporting public company, the legal costs associated with the
Chapter 11 plan of reorganization of a subsidiary and the costs of a first time
audit. The expense increase of the Oklahoma operations resulted primarily from
the increased level of revenues due to the opening of an additional office in
1996.
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<PAGE> 13
Interest expense was approximately the same during the nine months ended
September 30, 1996 as compared to the same period in 1995. The expected decline
as a result of the non-accrual status of the debts of the Oklahoma operations
was offset by the interest on the debt of the two new subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's working capital totaled $2,242,000, as
compared to a deficit of $1,928,000 as of December 31, 1995, an increase of
$4,170,000. The working capital increase is primarily the result of the transfer
of $2,465,000 in current liabilities and recognition of a current receivable in
the amount of $1,173,000 from the confirmation of the plan of reorganization of
a subsidiary as discussed in the notes to the financial statements.
As of September 30, 1996, the Company stockholders' equity was $7,087,000 as
compared to $1,451,000 at December 31, 1995, an increase of $5,636,000. This
increase consists of $6,178,000 from the issuance of common stock, reduced by
the net loss for the period of $542,000.
During the nine months ended September 30, 1996, the Company expended a total of
$161,000 for capital expenditures and added tangible capital assets of $515,000
in connection with the acquisition of HPS-Nevada. The Company executed capital
leases in the amount of $189,297 for dental equipment during the nine months
ended September 30, 1996. In addition, the Company acquired for $321,931 in debt
from an affiliate the office building in Tulsa, Oklahoma currently utilized as
corporate headquarters.
In June 1996, the plan of reorganization of the Company's subsidiary,
DentureCare Services, Inc., was confirmed by the Bankruptcy Court of the
Northern District of Oklahoma. In connection therewith, the Company issued
2,400,000 shares of its common stock in complete satisfaction of the third party
liabilities of the subsidiary.
TRENDS
The Company continues to experience revenue growth in its areas of existing
operations and is continuing to expand into new market areas through
acquisitions. The Company acquired HPS-Nevada effective February 29, 1996 and
HPS-Illinois effective June 30, 1996 and continues to evaluate other potential
acquisition candidates.
There are no seasonal factors affecting the Company's business.
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<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS.
In late June 1996, the United States Bankruptcy Court for the Northern District
of Oklahoma confirmed the Company's Plan of Reorganization. Pursuant to the
Plan, the Company issued 2,400,000 shares of its common stock to the Plan
Trustee in satisfaction of all the liabilities of DCSI.
The Company is not a party to any material pending legal proceedings other than
ordinary routine litigation incidental to the business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURE
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.
DENTLCARE MANAGEMENT, INC.
Date: November 12, 1996 By: /s/J. Kenneth Hurst
----------------- -------------------
J. Kenneth Hurst
Chief Financial Officer and
Secretary
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (a)
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTH PERIOD THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (b) FORM 10-QSB FOR
THE QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 60,184
<SECURITIES> 690,000
<RECEIVABLES> 2,917,053
<ALLOWANCES> 74,819
<INVENTORY> 131,324
<CURRENT-ASSETS> 3,809,757
<PP&E> 1,766,349
<DEPRECIATION> 140,085
<TOTAL-ASSETS> 9,442,536
<CURRENT-LIABILITIES> 1,567,281
<BONDS> 0
0
2,500,000
<COMMON> 11,072
<OTHER-SE> 4,575,624
<TOTAL-LIABILITY-AND-EQUITY> 9,442,536
<SALES> 3,393,505
<TOTAL-REVENUES> 3,393,505
<CGS> 560,207
<TOTAL-COSTS> 560,207
<OTHER-EXPENSES> 3,408,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,356
<INCOME-PRETAX> (542,068)
<INCOME-TAX> 0
<INCOME-CONTINUING> (542,068)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (542,068)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
