<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _________ TO _________.
COMMISSION FILE NUMBER
1-13725
PENTEGRA DENTAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-045043
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2999 NORTH 44TH STREET, STE. 650, PHOENIX, ARIZONA 85018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 952-1200
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 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 [ ]
The number of shares of Common Stock of the Registrant, par value $.001
per share, outstanding at February 4, 2000, was 10,693,491.
<PAGE> 2
FORM 10-Q REPORT INDEX
10-Q PART AND ITEM NO.
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1 - Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 1999 and
March 31, 1999............................................................................ 3
Consolidated Statements of Operations for the Three and Nine
Months Ended December 31, 1999 and December 31, 1998...................................... 4
Consolidated Statement of Changes in Shareholders'
Equity as of December 31, 1999............................................................ 5
Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1999 and December 31, 1998...................................... 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
Item 1 - Legal Proceedings..................................................................... 11
Item 2 - Change in Securities and use of Proceeds.............................................. 11
Item 3 - Defaults of Senior Securities......................................................... 11
Item 4 - Submission of Matters to a Vote of Security Holders................................... 11
Item 5 - Other Information..................................................................... 11
Item 6 - Exhibits and Reports on Form 8-K...................................................... 11
Signature...................................................................................... 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
PENTEGRA DENTAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 406 $ 1,047
Receivables from affiliated practices, net of
allowance for doubtful accounts of $309 and $125
at December 31, 1999 and March 31, 1999 5,209 5,659
Prepaid and other current assets 739 465
Notes receivable from affiliated practices - current 652 286
-------- --------
Total current assets 7,006 7,457
Property and equipment, net 6,927 6,171
Intangible assets, net 26,174 21,848
Notes receivable from affiliated practices, net 1,719 971
Other assets 90 --
Deferred tax asset 1,901 680
-------- --------
Total assets $ 43,817 $ 37,127
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 9,500 $ --
Current portion of long term debt 480 537
Accounts payable and accrued liabilities 1,921 1,756
Accrued employment agreement 470 940
-------- --------
Total current liabilities 12,371 3,233
Line of credit -- 8,000
Convertible subordinated notes 4,422 4,566
Shareholders' notes 459 568
Long term debt 1,558 --
Commitments and contingencies
Shareholders' equity
Common stock, $.001 par value 40,000,000 shares authorized,
10,995,866 and 9,102,503 shares outstanding at
December 31, 1999 and March 31, 1999, respectively 11 9
Additional paid-in capital 25,640 21,823
Accumulated deficit (203) (1,072)
Less: Treasury shares at cost, 302,375 shares at
December 31, 1999 (441) --
-------- --------
Total shareholders' equity 25,007 20,760
-------- --------
Total liabilities and shareholders' equity $ 43,817 $ 37,127
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 4
PENTEGRA DENTAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenue $ 14,967 $ 9,851 $ 43,025 $ 26,039
Operating expenses:
Clinical salaries, wages and benefits 5,720 3,583 17,240 9,952
Dental supplies and lab fees 2,886 2,030 7,967 4,836
Rent 1,032 788 3,020 2,042
Advertising and marketing 470 188 1,128 468
General and administrative 1,673 1,411 4,102 3,248
Other operating expenses 2,306 1,595 5,901 3,577
Depreciation and amortization 674 293 1,866 689
-------- -------- -------- --------
Total operating expenses 14,761 9,888 41,224 24,812
-------- -------- -------- --------
Earnings (loss) from operations 206 (37) 1,801 1,227
Interest expense (391) (167) (930) (170)
Interest income 62 89 148 172
Other income 131 -- 212 --
-------- -------- -------- --------
Income (loss) before income taxes and extraordinary item 8 (115) 1,231 1,229
Income tax expense (benefit) 49 (885) 579 (511)
-------- -------- -------- --------
Income (loss) before extraordinary item (41) 770 652 1,740
Extraordinary item-gain on debt forgiveness(net of tax
effect of $133) 217 -- 217 --
-------- -------- -------- --------
Net income $ 176 $ 770 $ 869 $ 1,740
======== ======== ======== ========
Basic and diluted earnings per share
Earnings before extraordinary item $ (0.00) $ 0.10 $ 0.06 $ 0.23
Extraordinary item 0.02 -- 0.02 --
-------- -------- -------- --------
Net earnings $ 0.02 $ 0.10 $ 0.08 $ 0.23
======== ======== ======== ========
Weighted average number of shares
outstanding - basic and diluted 10,802 7,961 10,249 7,457
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 5
PENTEGRA DENTAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Treasury Shareholders'
Shares Amount Capital Deficit Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1999 9,103 $ 9 $21,823 $(1,072) $ $20,760
Issuance of common stock 1,893 2 3,817 3,819
Shares repurchased (302) -- -- (441) (441)
Net income -- -- -- 869 869
------ ------- ------- ------- -------- -------
Balances, December 31, 1999 10,694 $ 11 $25,640 $ (203) $ (441) $25,007
====== ======= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 6
PENTEGRA DENTAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1999 1998
<S> <C> <C>
Net cash provided by used by operating activities $ (556) $ (4,376)
Cash flows from investing activities
Capital expenditures (245) (1,063)
Acquisitions of affiliated dental practices net of cash acquired (1,230) (6,314)
Issuance of notes receivable -- (1,168)
Repayment of notes receivable 121 --
-------- --------
Net cash used by investing activities (1,354) (8,545)
-------- --------
Cash flows from financing activities
Proceeds from issuance of common stock 2,930
Proceeds from line of credit 1,500 8,000
Repayment of long term debt (231)
-------- --------
Net cash provided by financing activities 1,269 10,930
-------- --------
Net change in cash and cash equivalents (641) (1,991)
Cash and cash equivalents, beginning of period 1,047 6,708
-------- --------
Cash and cash equivalents, end of period $ 406 $ 4,717
======== ========
Supplemental disclosures of cash flow information:
Convertible subordinated notes reduced to
offset Receivables from affiliated practices $ 144 $ --
Capital Leases $ 1,061 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE> 7
1. ORGANIZATION AND BASIS OF PRESENTATION
Pentegra Dental Group, Inc. (the "Company") provides practice management
services to dental practices throughout the United States. As of December 31,
1999, the Company managed 100 affiliated practices ("Affiliated Practices") in
30 states.
The unaudited consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the presentation and disclosures
herein are adequate to make the information not misleading, but do not purport
to be a complete presentation inasmuch as all note disclosures required by
generally accepted accounting principles are not included. In the opinion of
management, the consolidated financial statements reflect all elimination
entries and normal adjustments that are necessary for a fair presentation of the
results for the interim periods ended December 31, 1999 and 1998.
Fiscal operating results for interim periods are not necessarily indicative of
the results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements of Pentegra
Dental Group, Inc., and related notes thereto, and management's discussion and
analysis related thereto, all of which are included in the Company's annual
report on Form 10-K for the fiscal year ended March 31, 1999, as filed with the
SEC.
2. INCOME TAXES
Income tax expense approximated 47% of income before income taxes for the nine
months ended December 31, 1999. The Company expects the effective tax rate for
income generated during fiscal 2000 will be 47%. The effective rate of 47% for
fiscal 2000 results from permanent differences between financial reporting of
expense and deductible expenses for income tax purposes.
The income tax benefit for the nine months ended December 31, 1998 resulted from
the Company recognizing a deferred tax asset of $817,000.
3. EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of shares
of Common Stock and Common Stock equivalents outstanding during each period.
Diluted earnings per share are not separately presented because such amounts
would be the same as amounts computed for basic earnings per share.
Outstanding options to purchase 1,196,073 shares of Common Stock at exercise
prices above the market value of Common Stock were excluded from the calculation
of earnings per share for the three and nine months ended December 31, 1999,
respectively, because their effect would have been antidilutive.
4. EXTRAORDINARY ITEM
In December 1999, a member of the Board of Directors forgave $350,000 previously
due him by the Company. The net extraordinary gains to the Company after a tax
effect was $217,000.
5. ACQUISITION OF LIBERTY DENTAL ALLIANCE, INC.
The Company finalized the merger with Liberty Dental Alliance, Inc. ("Liberty")
in October 1999. The consideration paid for the corporate entity consisted of
approximately $420,000 in cash, 150,194 shares of Pentegra common stock, and
26,302 options to purchase Pentegra common stock. The merger was accounted for
under the purchase method of accounting.
6. PRACTICE AFFILIATIONS
During the nine months ended December 31, 1999, the Company entered into four
new affiliation agreements. These agreements call for a management service fee
which averages 7% in exchange for certain management services without the cost
of the acquisition of tangible and intangible assets. The Company also has
acquired an option to purchase the assets of these practices.
During the quarter ended December 31, 1999, the management services agreement
and asset ownership of two affiliated dental practices ceased, due to the
physical disability of one of the owner dentists and the disadvantageous nature
of the location of another. In exchange for the termination of the management
services agreements and the transfer of title of the assets back to the
practices, Pentegra received the majority of the stock provided to the owner
dentists at the time of acquisition and payment of all outstanding service
fees. Shares returned to the Company have been recorded as treasury stock. The
net result of these two transactions was a non-operating gain of approximately
$107,000 during the quarter ended December 31, 1999.
7
<PAGE> 8
returned to the Company have been recorded as treasury stock. The net result of
these two transactions was a non-operating gain of approximately $107,000 during
the quarter ended December 31, 1999.
7. NOTES RECEIVABLE
Notes receivable consists of notes from affiliate practices, bearing interest of
0-9% with terms ranging from one to fourteen years. The notes resulted from
advances made to certain practices to assist them in acquiring other practices
or working capital advances. As of December 31, 1999, notes receivable totaled
approximately $2.3 million. Notes totaling approximately $375,000 are due from
two affiliate dentist members on the board of directors.
8. COMMITMENTS AND CONTINGENCIES
In December 1999, twelve former owners of certain dental practices acquired by
the Company in March 1998 filed a lawsuit against the Company in the 190th
District Court of Harris County, Texas. The lawsuit alleges that the Company
committed a breach of contract relating to services rendered in connection with
the management services agreements. The Company believes that the asserted
claims are without merit and intends to defend itself vigorously. In the opinion
of management, resolution of these claims will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
However, if the Company does not prevail, it could have a material adverse
effect on the Company's financial position, results of operations or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THESE STATEMENTS ARE BASED ON CURRENT PLANS AND EXPECTATIONS OF THE
COMPANY AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL FUTURE
ACTIVITIES AND RESULTS OF OPERATIONS TO BE MATERIALLY DIFFERENT FROM THAT SET
FORTH IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER INCLUDE, AMONG OTHERS, RISKS ASSOCIATED WITH
AFFILIATIONS, FLUCTUATIONS IN OPERATING RESULTS BECAUSE OF AFFILIATIONS AND
VARIATIONS IN STOCK PRICE, CHANGES IN GOVERNMENT REGULATIONS, COMPETITION, RISKS
OF OPERATIONS AND GROWTH OF EXISTING AND NEW AFFILIATED DENTAL PRACTICES, AND
RISKS DETAILED IN THE COMPANY'S SEC FILINGS.
OVERVIEW
The Company provides practice management services to fee-for-service dental
practices in the United States. On March 30, 1998, the Company acquired
simultaneously with the closing of its initial public offering ("IPO"),
substantially all of the tangible and intangible assets, and assumed the
liabilities, of 51 founding affiliated practices. The Company also began to
provide practice management services to professional corporations or
associations owned by the dentist-owners of those affiliated practices (one of
which split into two separate dental practices immediately after the IPO)
pursuant to long-term management service agreements entered into at the time of
the affiliations. Since the IPO, the Company has affiliated with 49 additional
practices.
The expenses incurred by the Company in fulfilling its obligations under the
management service agreements will be generally of the same nature as the
operating costs and expenses that would have otherwise been incurred by the
affiliated practices, including salaries, wages and benefits of practice
personnel (excluding dentists and certain other licensed dental care
professionals), dental supplies and office supplies used in administering their
practices and the office (general and administrative) expenses of their
practices. In addition to the operating costs and expenses discussed above, the
Company incurs personnel and administrative expenses in connection with
maintaining a corporate office, which provides management, practice
enhancements, administrative and business development services.
RESULTS OF OPERATIONS (UNAUDITED)
Following completion of the IPO on March 30, 1998, the Company began operations
effective April 1, 1998. Management service fee recognition and related expenses
began April 1, 1998, and the Company began managing 51 dental practices in 18
states. On July 1, 1999, the Company completed its acquisition of Omega
Orthodontics, Inc., which included 15 orthodontic practices with annualized
practice revenue of approximately $11 million. In October 1999, the Company
finalized the merger with Liberty Dental Alliance, Inc.. At December 31, 1999,
the Company was affiliated with 101 practices in 30 states.
8
<PAGE> 9
COMPONENTS OF REVENUES AND EXPENSES
Under the terms of the typical management services agreement with an affiliated
practice, the Company becomes the exclusive manager and administrator of all
non-dental services relating to the operation of an affiliated practice. The
obligations of the Company include assuming responsibility for the operating
expenses incurred in connection with managing the dental centers. These expenses
include salaries, wages and related costs of non-dental personnel, dental
supplies and laboratory fees, rental and lease expenses, promotion and marketing
costs, management information systems and other operating expenses incurred at
the affiliated practices. In addition, the Company incurs general and
administrative expenses related to the financial and administrative management
of dental operations, insurance, training and development and other typical
corporate expenditures. As compensation for its services under the typical
services agreement and subject to applicable law, the Company is paid a
management fee comprised of two components: (1) the costs incurred by it on
behalf of the affiliated practice, and (2) a management fee either fixed in
amount, approximating 15% of the affiliated practice's operating profit (before
dentist compensation), 35% of the Affiliated practice's collected gross revenue
("Service Fee"). Therefore, net revenues represent amounts earned by the Company
under the terms of its management services agreements with the Affiliated
Practices, which generally equate to the sum of the Service Fees and the
operating expenses that the affiliated practices paid to the Company under the
service agreements.
NET REVENUE
Net revenue generated for the three months ended December 31, 1999 was
approximately $14.9 million, a $5.1 million increase over approximately $9.8
million generated for the three months ended December 31, 1998. Net revenue
generated for the nine months ended December 31, 1999 was approximately $43.0
million, a $17.0 million increase over approximately $26.0 million generated for
the nine months ended December 31, 1998. For the three months ended December 31,
1999 and 1998, dental center revenues aggregated to approximately $18.5 million
and $12.7 million, respectively. For the nine months ended December 31, 1999 and
1998, dental center revenues aggregated to approximately $54.3 million and $35.3
million, respectively. The dental center revenue and net revenue increases
resulted substantially through additional practice affiliations with 18 dental
practices since December 31, 1998.
OPERATING EXPENSES
The Company incurred operating expenses of approximately $14.8 million for the
three months ended December 31, 1999, a decrease of approximately $5.0 million
over approximately $9.8 million in operating expenses incurred for the three
months ended December 31, 1998. The Company incurred operating expenses of
approximately $41.2 million for the nine months ended December 31, 1999, an
increase of approximately $16.4 over approximately $24.8 million in operating
expenses incurred for the nine months ended December 31, 1998. Operating
expenses consisted primarily of salaries, wages and benefits, dental supplies
and laboratory fees, rent, advertising and marketing, and general and
administrative expenses. These operating expense increases were mainly due to
the affiliation of the Company with 18 additional practices since December 31,
1998.
General and administrative expenses consist of the corporate expenses of the
Company. These corporate expenses include salaries, wages and benefits, rent,
consulting fees, travel office costs and other general corporate expenses. For
the three months ended December 31, 1999, general and administrative expenses
were approximately $1.67 million, an increase of approximately $260,000 over
approximately $1.4 million in general and administrative expenses incurred for
the three months ended December 31, 1998. General and administrative expenses
represented 11.2% and 14.3% of net revenue for the three months ended December
31, 1999 and 1998, respectively. For the nine months ended December 31, 1999,
general and administrative expenses were approximately $4.1 million, an increase
of approximately $850,000 over approximately $3.2 million in general and
administrative expenses incurred for the nine months ended December 31, 1998.
General and administrative expenses represented 9.5% and 12.4% of net revenue
for the nine months ended December 31, 1999 and 1998, respectively. The increase
in general and administrative costs occurred to provide services to the
increased number of dental practices.
Depreciation and amortization expenses were approximately $674,000 for the three
months ended December 31, 1999 and approximately $293,000 for the three months
ended December 31, 1998, an increase of $381,000. Depreciation and amortization
represented 4.5% and 2.9% of expenses for the three months ended December 31,
1999 and 1998, respectively. The increase is due primarily to the acquisition of
fixed assets and management services agreements in conjunction with practice
affiliations. For the nine months ended December 31, 1999 and 1998, depreciation
and amortization expenses were approximately $1.9 million and $700,000
respectively. For the nine months ended December 31, 1999 and 1998, depreciation
and amortization expense represented 4.3 % and 2.6% respectively, of net
revenue.
9
<PAGE> 10
INCOME TAX EXPENSE
Income tax expense for the three months ended December 31, 1999 totaled
approximately $49,000. Income tax expense for the three months ended December
31, 1999 was $49,000, an amount greater than income before taxes of $8,000. This
occurred because certain amortization expenses were deducted to arrive at net
income, but are not deductible for income tax purposes. The company recognized a
tax asset of $817,000 during the three months ended December 31, 1998. The
company concluded that it was more likely then not it would utilize certain tax
assets in future years. Income tax expense for the nine months ended December
31, 1999 totaled approximately $579,000, an increase of approximately $1.1
million over the net tax benefit of $511,000 recognized for the nine months
ended December 31, 1998. Income tax expense approximated 47% for the nine months
ended December 31, 1999. The Company expects the effective tax rate for income
generated during fiscal 2000 will be 47%. The effective rate of 47% for fiscal
2000 results from permanent differences between financial reporting of expense
and deductible expenses for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Current assets at December 31, 1999 included approximately $406,000 in cash and
$5.2 million in accounts receivable, due from affiliated practices. At December
31, 1999 current liabilities consisted of approximately $1.9 million in accounts
payable and accrued liabilities, mostly related to expenses of affiliated
practices. Also included in current liabilities is the amount drawn on the line
of credit of $9.5 million due June 1, 2000. The Company is in the process of
refinancing the revolving bank credit facility. The Company believes that it
will be successful in refinancing the facility. The Company believes that cash
on hand, together with the availability under the current revolving line of
credit and other financing sources, will be sufficient to continue execution of
its affiliation strategy. Any significant limitation on the Company's ability to
obtain financing may have a material adverse effect on the Company.
The Company maintains a revolving line of credit of up to $15.0 million, to be
used for general corporate purposes including financing of acquisitions, capital
expenditures and working capital. The credit facility is collateralized by liens
on certain of the Company's assets, including its rights under the management
service agreements and accounts receivable. The credit facility contains
restrictions on the incurrence of additional indebtedness and payment of
dividends on the Common Stock. Additionally, compliance with certain financial
covenants is required and the lender has approval rights with respect with
acquisitions exceeding certain limits. At December 31, 1999 $9.5 million was
outstanding under the revolving line of credit.
On July 1, 1999, the revolving bank credit facility was amended to permit the
acquisition of Omega Orthodontics, Inc. In connection with the approval by the
bank, the Company paid $100,000 as an amendment fee, and the term of the credit
facility was shortened by one year. The term of the credit facility now will
expire on June 1, 2000.
Cash used in investing activities for the nine months ended December 31, 1999
and 1998 included approximately $245,000 and $1.1 million, respectively, for
purchases of capital equipment and approximately $1.2 million and $6.3 million,
respectively, for the purchase of intangibles associated with those new practice
affiliations, respectively.
For the nine months ended December 31, 1998, $1.2 million in notes receivable
were issued in conjunction with the acquisition of practice assets.
Cash generated from financing activities for the nine-month period ended
December 31, 1999 included draws on the revolving line of credit of $1.0
million. During the nine-month period ended December 31, 1998, 375,000 shares of
common stock were sold with the exercise of the underwriter's over-allotment
option that provided net proceeds to the company of approximately $2.9 million.
10
<PAGE> 11
PART II
ITEM 1. LEGAL PROCEEDINGS.
In December 1999, the Company obtained a temporary restraining order in Harris
County Texas, District Court against a practice related to its alleged breach of
certain employment covenants. In response, twelve former owners of certain
dental practices acquired by the Company in March 1998 intervened into that
lawsuit. The lawsuit alleges that the Company committed a breach of contract
relating to services rendered in connection with the management services
agreements. The Company continues to provide services under these agreements
and the practices continue to pay reimbursed expenses and service fees. The
Company has demanded arbitration of the claims as required by the agreements.
The Company believes that the asserted claims are without merit and intends to
defend itself vigorously and has asserted counter claims of its own. In the
opinion of management, resolution of these claims will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. However, if the Company does not prevail, it could have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS - none
ITEM 3. DEFAULTS OF SENIOR SECURITIES - none
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - none
ITEM 5. OTHER INFORMATION - none
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule.
- ----------
*Incorporated herein by reference as indicated.
(b) Reports of Form 8-K
Current Report on Form 8-K dated July 1, 1999 was filed on July 15,
1999 (Item 2. Acquisition or Disposition of Assets and Item 5.
Financial Statements and Exhibits), which contained the unaudited
financial statements of Omega Orthodontics, Inc. for the quarter ended
March 31, 1999.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Pentegra Dental Group, Inc., has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PENTEGRA DENTAL GROUP, INC.
Dated:
By: Sam H. Carr
Sr. Vice President - Chief Financial Officer
12
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EXHIBIT INDEX
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
From the company's Form 10-Q for the period ended December 31, 1999 and is this
Financial Data Schedule contains summary financial information extracted
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 406
<SECURITIES> 0
<RECEIVABLES> 5,517
<ALLOWANCES> (308)
<INVENTORY> 0
<CURRENT-ASSETS> 7,006
<PP&E> 8,601
<DEPRECIATION> (1,674)
<TOTAL-ASSETS> 43,817
<CURRENT-LIABILITIES> 12,371
<BONDS> 6,439
0
0
<COMMON> 11
<OTHER-SE> 24,996
<TOTAL-LIABILITY-AND-EQUITY> 43,817
<SALES> 43,025
<TOTAL-REVENUES> 43,025
<CGS> 41,224
<TOTAL-COSTS> 41,224
<OTHER-EXPENSES> (212)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782
<INCOME-PRETAX> 1,231
<INCOME-TAX> 579
<INCOME-CONTINUING> 652
<DISCONTINUED> 0
<EXTRAORDINARY> 217
<CHANGES> 0
<NET-INCOME> 869
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
