<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, 1997 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.)
2360 Hassell Rd, Ste F, Hoffman Estates, Illinois 60195
-------------------------------------------------------
(Address of principal executive offices)
8118 E. 63rd St., Tulsa, Oklahoma 74133
---------------------------------------
(Former address of principal executive offices)
(847) 839-0891
--------------
(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.
<TABLE>
<S> <C>
Common Stock $0.001 par value 15,334,867
----------------------------- ----------------
Class Outstanding at September 30, 1997
</TABLE>
Transitional Small Business Disclosure Format: Yes |_| No |X|
<PAGE> 2
DENTLCARE MANAGEMENT, INC.
INDEX
Page
PART I. Financial Information
Item 1. Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 1997 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6-8
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1997 and 1996 9-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-15
PART II. Other Information 16
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<PAGE> 3
DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash $ 67,266 $ 42,113
Barter currency (net of $118,474 & $142,032 reserves) 78,956 94,688
Accounts receivable (net of $473,103 & $423,939 reserves) 533,068 582,525
Due from trustee of subsidiary's bankruptcy trust -- 449,375
Due from officers, stockholders and employees 21,491 19,042
Prepaid expenses and supplies inventory 79,909 90,454
----------- -----------
Total current assets 780,690 1,278,197
Net property & equipment 1,256,657 1,342,843
Barter currency, less current (net of $1,066,263 & $1,278,288 reserves) 710,611 852,194
Goodwill, net of amortization 175,847 --
Deposits and other 17,736 28,314
----------- -----------
Total assets $ 2,941,541 $ 3,501,548
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - affiliate $ 508,261 $ 496,684
Notes payable - other 25,000 --
Current portion of long-term obligations 217,438 208,202
Accounts payable 1,403,255 1,053,068
Accrued expenses 521,086 497,041
Due to stockholders 210,372 205,016
----------- -----------
Total current liabilities 2,885,412 2,460,011
----------- -----------
Long-term obligations, less current portion 227,078 512,328
Deferred revenue -- 22,462
Stockholders' equity
Preferred stock 2,500,000 2,500,000
Common stock 15,335 10,852
Additional paid-in capital 6,999,689 5,854,172
Deficit (8,562,217) (6,734,521)
Due from trustee of subsidiary's bankruptcy trust (1,123,756) (1,123,756)
----------- -----------
Total stockholders' equity (170,949) 506,747
----------- -----------
Total liabilities and stockholders' equity $ 2,941,541 $ 3,501,548
=========== ===========
</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 Ended Sept. 30, Nine Months Ended Sept. 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Management fee revenues $ 1,028,161 $ 1,585,870 $ 3,764,169 $ 3,393,505
Cost of dental services:
Clinical and operating compensation 697,967 554,793 2,153,633 1,408,870
Dental supplies and laboratory costs 224,565 249,646 855,819 560,207
Facility and equipment costs 192,959 131,297 579,711 300,175
Depreciation and amortization 42,802 64,706 128,351 169,306
Advertising 52,918 88,714 187,989 213,568
Other costs 128,376 182,901 338,421 372,865
------------ ------------ ------------ -----------
1,339,587 1,272,057 4,243,924 3,024,991
------------ ------------ ------------ -----------
Gross profit (loss) (311,426) 313,813 (479,755) 368,514
General and administrative expenses 227,840 446,196 1,171,450 945,607
Depreciation and amortization 3,900 2,500 11,417 7,500
------------ ------------ ------------ -----------
Operating loss (543,166) (134,883) (1,662,622) (584,593)
Other income (expense):
Other income -- 95,954 12,802 110,881
Interest expense (46,844) (43,072) (177,876) (68,356)
------------ ------------ ------------ -----------
Loss before income taxes (590,010) (82,001) (1,827,696) (542,068)
Income taxes -- -- -- --
------------ ------------ ------------ -----------
Net loss $ (590,010) $ (82,001) $ (1,827,696) $ (542,068)
============ ============ ============ ===========
Net loss per common share $ (0.05) $ (0.01) $ (0.16) $ (0.07)
============ ============ ============ ===========
Weighted average common shares outstanding 12,326,171 10,983,928 11,383,399 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, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Due From Stock-
Preferred Stock Common Stock Paid-in Bankruptcy holders'
Shares Amount Shares Amount Capital Deficit Trustee Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 25,000 $2,500,000 10,851,700 $10,852 $ 5,854,172 $(6,734,521) $(1,123,756) $ 506,747
Issuance of common stock
in the acquisition of
a denture laboratory
and dental practice 8,333 8 24,992 25,000
Issuance of common stock
for the employee benefit 16,500 17 (17)
Issuance of common stock in
exchange for note payable 58,334 58 174,942 175,000
Net proceeds from common
stock offering 4,400,000 4,400 945,600 950,000
Net loss for the period (1,827,696) (1,827,696)
------ ---------- ---------- ------- ----------- ----------- ----------- -----------
Balance at September 30,
1997 25,000 $2,500,000 15,334,867 $15,335 $ 6,999,689 $(8,562,217) $(1,123,756) $ (170,949)
====== ========== ========== ======= =========== =========== =========== ===========
</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, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Cash received from customers $ 3,918,626 $ 2,949,100
Cash paid to suppliers and employees (4,832,204) (3,743,597)
Interest paid (177,876) (68,356)
----------- -----------
Net cash used by operating activities (1,091,454) (862,853)
----------- -----------
Cash flows from investing activities:
Capital expenditures (46,647) (160,789)
Proceeds from sale of assets 450 --
Due to/from officers and employees 2,907 (65,153)
Cash received (utilized) in acquisitions (117,647) 7,578
----------- -----------
Net cash used by investing activities (160,937) (218,364)
----------- -----------
Cash flows from financing activities:
Proceeds from loans 775,000 43,954
Repayments of notes and capital
lease obligations (196,831) (36,059)
Proceeds from bankruptcy trustee 449,375 336,379
Proceeds from common stock offering, net 250,000 792,000
----------- -----------
Net cash provided by financing activities 1,277,544 1,136,274
----------- -----------
Net increase in cash 25,153 55,057
Cash at beginning of period 42,113 5,127
----------- -----------
Cash at end of period $ 67,266 $ 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, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Reconciliation of net loss to net cash used by
operating activities
Net loss $(1,827,696) $(542,068)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation 131,201 64,600
Amortization 8,569 112,556
Unrealized gain from marketable securities -- (90,000)
Interest accrued on related party notes payable 36,577 --
Gain on sale of property for debt (9,729) --
Decrease (increase) in barter currency, net 157,315 225,365
Decrease (increase) in accounts receivable 49,457 (545,924)
Decrease (increase) in prepaid expense and supplies inventory 12,245 (129,238)
Decrease (increase) in deposits 88 (2,743)
Increase (decrease) in accounts payable and accrued expenses 350,519 44,599
----------- ---------
Net cash used in operating activities $(1,091,454) $(862,853)
=========== =========
Supplementary schedule of noncash investing and
financing activities
Acquisition of dental practices and denture laboratory:
Increase in accounts receivable and other assets 1,700 188,887
Increase in dental equipment 59,485 515,020
Increase in goodwill 192,713 464,294
Deposit applied (10,000) --
(Increase) in accounts payable (1,251) (456,373)
(Increase) in other notes payable and long term debt (100,000) (716,706)
(Increase) in common stock (8) (2,700)
(Increase) decrease in additional paid in capital (24,992) --
----------- ---------
Cash received (used) $ (117,647) $ 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, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Supplementary schedule of noncash investing and
financing activities, continued
Confirmation of plan of reorganization:
Increase in due from trustee -- $ 2,035,353
Decrease in notes payable -- 773,571
Decrease in accounts payable -- 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
Common stock issued in exchange for notes payable 175,000 --
Common stock and note issued as partial consideration for
the acquisition of a denture laboratory and a dental practice 125,000 --
Common stock from offering issued in exchange for notes payable 700,000
</TABLE>
See accompanying notes to consolidated financial statements.
8 of 17
<PAGE> 9
DentlCare Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
A. Summary of significant accounting policies
The accompanying consolidated financial statements include the accounts of
DentlCare Management, Inc. (the "Company" or "DCMI") and its wholly-owned
subsidiaries, Dental Management Systems, Inc. ("DMSI"), DentureCare
Services, Inc. ("DCSI"), HPS-Nevada, Hippocratic Preservation Society,
Inc. ("HPS-Illinois") and National DentlCare Management, Inc. ("NDCMI").
All material intercompany accounts and transactions have been eliminated.
The interim consolidated financial statements included herein have been
prepared 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. The consolidated
financial statements as of September 30, 1997 and for the three months and
nine months ended September 30, 1997 and 1996 have not been audited. The
consolidated balance sheet as of December 31, 1996 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. The
consolidated results of operations for the nine months ended September 30,
1997 is not necessarily indicative of the results of operations which will
be realized for the year ending December 31, 1997. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report for the year ended December 31, 1996, which is
included in the Company's Form 10-KSB. 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 engaged in dental practice management, in exchange for
1,350,000 shares of the Company's common stock. Goodwill of $64,294, which
was recognized in connection with the acquisition, was written off prior
to December 31, 1996 based on expected consolidated future cash flows. On
June 30, 1996, the Company acquired HPS-Illinois, an Illinois corporation
engaged in dental practice management, in exchange for 1,350,000 shares of
the Company's common stock.
On January 31, 1997, HPS-Illinois acquired the net assets of RES, Inc. a
dental care related service provider in Chicago, Illinois for $250,000,
consisting of $125,000 in cash, 8,333 shares of the Company's common stock
valued at $3.00 per share and a $100,000 promissory note. Subsequent to
the acquisition, HPS-Illinois defaulted in the payment of the promissory
note and RES, Inc. filed a legal action against HPS-Illinois. The lawsuit
was settled by the Company and the Company agreed to pay RES, Inc. the
remaining $90,000 balance under the promissory note as follows: $25,000 on
or before September 30, 1997 and the remaining $65,000, with interest at
10% per annum, in 12 equal monthly installments of $5,715 commencing
October 1, 1997.
The above acquisitions have been accounted for by the purchase method of
accounting with the assets acquired and the liabilities assumed being
recorded at their fair values.
9 of 17
<PAGE> 10
C. Notes payable, long-term debt and capital lease obligations
During the six months ended June 30, 1997, the Company borrowed $600,000
from a bank and $100,000 from a private lender, with interest at 15%, and
utilized a portion of the proceeds to repay a $50,000 loan which had been
made earlier in the year. In addition, the Company utilized $117,647 of
this amount to fund the cash required to acquire RES, Inc. The remainder
of the loans were used for working capital and to reduce accounts payable.
The Company also incurred long-term debt in the amount of $100,000 as a
part of its acquisition of RES, Inc. In addition, the Company retired a
$175,000 note through the issuance of 58,334 shares of its common stock.
During the three months ended September 30, 1997, the Company retired the
$600,000 bank loan and the $100,000 loan from a private lender through the
issuance of 2,800,000 shares of its common stock. In addition, during the
third quarter of 1997, the Company borrowed $25,000 from a private lender,
which amount was repaid during the fourth quarter of 1997. Total cash
reductions in notes payable, long-term debt and capital lease obligations
amounted to $196,831 during the nine months ended September 30, 1997.
D. Bankruptcy proceedings
On March 23, 1995, the Company's wholly owned subsidiary DCSI, filed a
voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. In June 1996, the plan of reorganization (the "Plan"),
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 DCSI. Substantially all assets of DCSI are encumbered by liens which,
in the event of failure of Plan performance, would entitle the lienholders
to proceed against DCSI and its assets.
Advances from DCMI and DMSI to DCSI which occurred prior to the voluntary
petition are to be treated as unsecured claims while pre-petition and
post-petition advances to DCSI from DCMI and DMSI, which represent
advances for administrative purposes, are to be treated as priority
claims. In the opinion of the bankruptcy counsel for DCSI it is reasonably
possible that the following may occur and have an unfavorable outcome in
that DCSI may face certain loss contingencies:
In the event of a failure of performance of the terms of the Plan.
Such loss contingencies encompass all the claims asserted in the
Bankruptcy Case, covered by the Plan terms and such
post-confirmation claims as have or may arise within that Bankruptcy
Case proceeding, including professional fees and costs.
In the event of failure of performance of ongoing obligations in the
Bankruptcy Case proceedings, including but not limited to the
payment of U.S. Trustee fees and other post-confirmation claims,
including those of post-confirmation trade creditors and
professionals employed by DCSI.
In the event of failure to fulfill its ongoing obligations to
appoint and participate as a member of the Plan Trust Committee
established in the Plan, including failure to require the conduct of
Plan Committee meetings and the presentation of reports by the Plan
Trustee.
In the event that DCSI has been involved in procuring or has
received distributions from the Plan Trust before payments to
creditors having payment priority, in contravention of the order of
distribution set forth under the Plan terms.
10 of 17
<PAGE> 11
In the event that DCSI is charged with a breach of fiduciary
obligations imposed on DCSI in the Bankruptcy Case, including such
obligations arising from its status as debtor in possession, as
reorganized debtor under the Plan and as Plan Committee member.
E. Subsequent events and contingencies
The following are contingent liabilities of the Company due to provisions
included in the corporate bylaws and pursuant to indemnification
agreements between the Company and certain former officers:
On July 1, 1997, a District Court in Tulsa, Oklahoma granted a
judgment against certain former officers of the Company for
$347,762, plus interest, for failure to pay bank debt in accordance
with guarantees made by the former officers. The debt is scheduled
to be paid under DCSI's bankruptcy plan of reorganization however,
if the amount is not paid, the Company may be liable under an
indemnification agreement.
On July 17, 1997, the Internal Revenue Service (the "IRS") issued a
final notice of intent to levy civil penalties for $195,709 against
certain former officers of the Company relating to previous payroll
tax liabilities of DCSI. Although the underlying debt is scheduled
to be paid under DCSI's bankruptcy plan of reorganization, if the
amount is not paid, the Company may be liable under an
indemnification agreement. The IRS has verbally agreed to postpone
any attempt to levy as long as DCMI is current in its withholding
and payment of payroll taxes.
On June 16, 1997, a lawsuit was filed against DCMI in Nevada by a company
for $125,000. On September 19, 1997, the Court entered a default judgment
against DCMI, which was subsequently set aside. DCMI's management believes
that the lawsuit will be settled for less than $125,000.
On July 24, 1997, a lawsuit was filed in Texas against DCMI by an
individual for $175,000 alleging breach of contract and violation of
certain securities laws. The case was subsequently settled for $100,000
and the issuance of 50,000 shares of the Company's common stock.
On August 12, 1997, a lawsuit was filed against certain former officers of
DCMI who had previously entered into an agreement to purchase 42,717
shares of DCMI's common stock from the plaintiff on July 31, 1997 for
$3.50 per share. The lawsuit, which claims that the terms of the agreement
had been breached, was filed for damages of $175,000. The lawsuit was
settled by DCMI for $120,000 with payment to be made over a 3-year period.
On August 27, 1997, certain former officers of DCMI who had previously
entered into an agreement to purchase 17,932 shares of DCMI's common stock
on July 31, 1997 from an individual for $3.50 per share, entered into a
Forbearance and Revised Agreement for Repurchase of Shares (the "Revised
Agreement"). Under the Revised Agreement, the individual, who is currently
an employee of DCMI, agreed to extend the date at which the shares must be
purchased to September 30, 1997 for 1/2 of the shares and December 31,
1997 for the balance of the shares. The Company is currently in default
under the Revised Agreement.
In August 1997, DCMI entered into a restructuring agreement (the
"Restructuring Agreement") with certain former officers (the "Shareholder
Group"), a creditor, Bridge Bank, and the following investment entities
and advisors: Capital International Holdings, Inc. ("CIH"), Capital
International Securities Group, Inc. ("CISG"), Motivo Investments Limited
("Motivo"), James Goldberg ("Goldberg"), JLG Trading, Inc. ("JLG"), Hudson
Riverview Consulting, Inc. ("Hudson") and James Neifeld ("Neifeld")
whereby DCMI agreed to satisfy its indebtedness to Bridge Bank with the
proceeds from the sale of its common stock in two private placement
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<PAGE> 12
offerings through CISG (the "Offerings"). The terms of the Restructuring
Agreement are as follows:
The Shareholder Group agreed to deposit 3,698,218 shares of DCMI
common stock into escrow to be released 2/3 to Motivo, 1/6 to Hudson
and 1/6 to Neifeld pursuant to the following terms and conditions.
Upon receipt by DCMI of the minimum amount in the first Offering,
the common stock in escrow would be transferred into a voting trust
to be voted by the trustee in accordance with instructions of
Motivo, Hudson and Neifeld. Upon receipt by DCMI of the maximum
amount in the first Offering, 1,849,109 shares of common stock would
be transferred from the voting trust to Motivo, Hudson and Neifeld.
Upon receipt by DCMI of the minimum amount in the second Offering,
the remaining 1,849,109 shares of common stock would be transferred
from the voting trust to Motivo, Hudson and Neifeld.
The first Offering consisted of the sale of up to 10,000,000 shares
of the Company's common stock at $.25 per share. In the third and
fourth quarters of 1997, the Company sold 10,000,000 shares in the
first Offering and received $2,500,000, which was used to pay
certain liabilities, provide working capital and provide funds for
future acquisitions.
The second Offering is to consist of the sale of up to 1,800,000
shares of the Company's common stock at $2.50 per share. In May
1998, there was a reverse split of the Company's outstanding shares
of common stock whereby the common stockholders were issued one (1)
share of common stock for each five (5) shares held.
The Restructuring Agreement also provides that (i) upon receipt of
the minimum amount in the first Offering, Motivo shall have the
right to elect up to five additional directors of DCMI; (ii) upon
receipt of the maximum amount in the first Offering, DCMI shall
grant CIH warrants to purchase 2,500,000 shares of the Company's
common stock at an exercise price of $1.00 per share; and (iii) upon
receipt of the minimum amount in the second Offering, DCMI shall
grant to CIH warrants to purchase 5,000,000 shares of the Company's
common stock at an exercise price of $1.20 per share.
In August 1997, the Company entered into three-year employment agreements
with three of its employees. The employment agreements provide that each
employee receive an annual salary of $72,000 with increases of 6% per
year. In addition, the employees received options to purchase a total of
550,000 shares of the Company's common stock at the market value of the
common stock at September 1, 1997.
On August 28, 1997, the Company entered into an employment agreement with
Dr. Charles Mitchell which provides that Dr. Mitchell will serve as DCMI's
President and Chief Operations officer through December 31, 2002. As
compensation for his services, Dr. Mitchell is to receive an annual salary
of $96,000 with increases of 6% per year, 100,000 shares of the Company's
common stock, an annual cash bonus of 3% of the Company's annual pre-tax
earnings and options to purchase up to 3,100,000 shares of the Company's
common stock exercisable upon the achievement of certain earnings. In
addition, Dr. Mitchell agreed to cause the sale of the operating assets of
several dental practices (the "Practices") to DCMI in exchange for
$200,000 and $1,000,000 of preferred stock which is convertible into
2,000,000 shares of DCMI's common stock. Subsequent to the sale, DCMI will
assume the management of the Practices. The shares of common stock to be
issued under the employment agreement shall be decreased proportionally to
the extent the first six months pre-tax profits of the Practices do not
equal $125,000. On November 1, 1997, DCMI acquired the operating assets of
the Practices in a business combination accounted for as a purchase. The
acquisition was completed through the payment of $200,000 and the issuance
of 2,000,000 shares of the Company's common stock.
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<PAGE> 13
On October 31, 1997, DCMI acquired the assets and assumed certain
liabilities of a dental practice in a business combination accounted for
as a purchase.
The Series A preferred stock dividends of $100,000 ($.04 per share) are in
arrears through December 1, 1997. Under the Company's agreement with the
holders of the Series A preferred stock they have the right to appoint
members to the Board of Directors with voting power equal to 50% if the
dividends are not paid when due. In January 1998, the Company entered into
an agreement with the holders of the preferred stock whereby, they agreed
that the preferred stock dividends for the period November 1996 through
November 1998 would be paid through the issuance of the Company's common
stock.
F. Continuation of the Company as a Going Concern
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplates the
continuation of the Company as a going concern. As of September 30, 1997,
the Company had a deficiency in working capital of $2,105,000 and a
deficiency in assets of $171,000. In addition, the Company has sustained
substantial operating losses since its inception. Although, the Company
raised $2,500,000 from the sale of 10,000,000 shares of its common stock
in the third and fourth quarters of 1997, the Company will need additional
working capital to fund its future operations. In view of these matters,
realization of the assets included in the accompanying balance sheet is
dependent upon the continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements
and the success of its future operations. Management believes that actions
currently being taken to revise the Company's operating and financial
requirements provide the opportunity for the Company to continue as a
going concern.
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
From time to time, the Company may publish forward-looking statements relating
to certain matters, including anticipated financial performance, business
prospects, product development, and other similar matters. All statements other
than statements of historical fact contained in this Form 10-QSB or in any other
report of the Company are forward-looking statements. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of that safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. In addition,
the Company disclaims any intent or obligation to update those forward-looking
statements.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements included herein.
Consolidated Results of Operations
During the nine months ended September 30, 1997, the Company's dental practice
management revenues amounted to $3,764,169, which included $1,669,555 (44%) from
the Las Vegas operations, $1,021,630 (27%) from the Tulsa operations and
$1,072,984 (29%) from the Chicago operations. This compares to revenues of
$3,393,505 during the same period in 1996, which included $1,562,257 (46%) from
the Las Vegas operations, $1,461,474 (43%) from the Tulsa operations and
$369,774 (11%) from the Chicago operations. The Company acquired the Las Vegas
operations in March 1996 and the Chicago operations in July 1996.
On a pro forma basis, the Las Vegas operations would have had approximately
$2,009,000 in dental practice management revenues during the nine months ended
September 30, 1996. Accordingly, dental practice management revenues for the Las
Vegas operations have decreased approximately 17% during the nine months ended
September 30, 1997, as compared to the same period in 1996. The decrease is
primarily due to increased competition during 1997. During the nine months ended
September 30, 1997, the Las Vegas operations had a loss (before administrative
costs and other income and expenses) of $39,173 compared to a profit of $450,881
during the seven months ended September 30, 1996. The reduction is primarily due
to increases in the amounts being retained by the dentists and hygienists (33%
of gross patient services during the 1997, as compared to 21% during 1996), due
primarily to a shortage of licensed dentists and hygienists in Nevada. In
addition, other compensation costs were 56% of dental practice management
revenues during the nine months ended September 30, 1997 compared to 38% during
the seven months ended September 30, 1996.
During the nine months ended September 30, 1997, dental practice management
revenues from the Tulsa practices decreased $439,845 (30%) from the same period
in 1996. One office was closed as of the end of the third quarter of 1996 and a
second office was closed at the end of the second quarter of 1997, which
accounted for most of the decline During the nine months ended September 30,
1997, the Tulsa operations had a loss from operations (before administrative
costs and other income and expenses) of $296,005, compared to a loss of $244,094
during the same period in 1996. While all operating costs were lower in 1997
compared to 1996 because of the office closings, the increased loss is primarily
due to a significant reduction in practice management revenues during the third
quarter of 1997. Revenues declined $324,652 in the three months ended September
30, 1997, compared to the year earlier period, while costs declined $254,631
during the comparable periods.
During the six months ended June 30, 1997, dental practice management revenues
from the Chicago operations remained relatively stable as compared to the year
earlier period on a proforma basis. During
14 of 17
<PAGE> 15
the six months ended June 30, 1997 the Chicago operations had a loss from
operations (before administrative costs and other income and expenses) of
$23,829, the majority of which was attributed to start-up costs associated with
a dental insurance company during the first quarter of 1997, which was
discontinued during the fourth quarter of 1997. During the three months ended
September 30, 1997, the Chicago operations had revenues of $308,794 compared to
revenues of $369,774 during the same period in 1996, a decline of 16%. During
the three months ended September 30, 1997, the Chicago operations had a loss of
$102,021 compared to a profit of $5,114 during the 1996 period. Approximately
50% of the loss was due to higher compensation costs. The remainder of the loss
was due to lower revenues in the 1997 period and losses of the dental insurance
company that was discontinued during the fourth quarter of 1997.
During the nine months ended September 30, 1997, general and administrative
expenses of the Company amounted to $1,171,450 as compared to $945,607 for the
same period in 1996, an increase of 24%. The principal components of the
increase were higher compensation costs and higher travel costs associated with
the additional dental practices under management. The 1997 amount also includes
an increase in the allowance for bad debts of $66,954 in 1997. There was no
corresponding increase during the 1996 period. Commencing in early July 1997,
the Company made substantial reductions in administrative compensation,
professional fees and other administrative costs which resulted in
administrative costs for the three months ended September 30, 1997 being
$218,356 (49%) less than the corresponding 1996 period.
Interest expense increased $109,520 (160%) during the nine months ended
September 30, 1997 as compared to the same period in 1996. The increase is due
to the increased debt at both the Las Vegas and Chicago locations, as well as
the working capital loans which the Company initiated during the first month of
the year. The working capital loans were converted into common stock during
August 1997.
Liquidity and Capital Resources
As of September 30, 1997, the Company had a deficiency in working capital of
$2,104,722, as compared to a deficiency in working capital of $1,181,814 as of
December 31, 1996, an increase of $922,908. The increase was primarily due to
the loss of $1,827,696 during the nine months ended September 30, 1997. Current
assets declined $497,507, primarily due to the collection of $449,375 from the
trustee of the bankruptcy trust of a subsidiary of the Company. Current
liabilities increased during the same period by $425,401, which was primarily
due to increases in accounts payable of $350,187.
During the nine months ended September 30,1997, the Company purchased $47,000 in
capital equipment and added tangible capital assets of $59,485 in connection
with the acquisition of the denture laboratory and dental practice in January
1997.
During the nine months ended September 30, 1997, the Company borrowed $600,000
from a bank and $100,000 from a private lender and utilized the proceeds to
reduce other obligations. The loans were converted to common stock during August
1997. (See Note E of Notes To Consolidated Financial Statements.)
As of September 30, 1997, the Company had a deficiency in working capital of
$2,105,000 and a deficiency in assets of $171,000. In addition, the Company has
sustained operating losses since its inception. Although the Company raised
$2,500,000 from the sale of 10,000,000 shares of common stock during the third
and fourth quarters of 1997, the Company will need additional working capital to
fund its future operations. (See Note F of Notes To Consolidated Financial
Statements.)
Trends
There are no seasonal factors affecting the Company's business.
15 of 17
<PAGE> 16
PART II
ITEM 1. LEGAL PROCEEDINGS.
See Note F of Notes To Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K
On September 2, 1997, the Company filed a Current Report on Form 8-K
announcing a change in control of the Company and the appointment of
Charles R. Mitchell, D.D.S. as the Company's President and Chief
Operations Officer and a Director.
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: August 12, 1998 By: /s/ Ron Stoeppelwerth
------------------------------------
Ron Stoeppelwerth
Chief Financial Officer and
Principal Accounting Officer
16 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a)
Financial Statements as of September 30, 1997 and for the six month period
then ended and is qualified in its entirety by reference to such
(b) Form 10-QSB for the quarter ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 67,266
<SECURITIES> 0
<RECEIVABLES> 1,006,171
<ALLOWANCES> 473,103
<INVENTORY> 0
<CURRENT-ASSETS> 780,690
<PP&E> 1,580,950
<DEPRECIATION> 324,293
<TOTAL-ASSETS> 2,941,541
<CURRENT-LIABILITIES> 2,885,412
<BONDS> 0
0
2,500,000
<COMMON> 15,335
<OTHER-SE> (2,686,284)
<TOTAL-LIABILITY-AND-EQUITY> 2,941,541
<SALES> 3,764,169
<TOTAL-REVENUES> 3,764,169
<CGS> 4,243,924
<TOTAL-COSTS> 4,243,924
<OTHER-EXPENSES> 1,182,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,876
<INCOME-PRETAX> (1,827,696)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,827,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,827,696)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
