<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-20222
PRINCETON DENTAL MANAGEMENT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3484607
------------------------------ ----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7421 West 100th Place, Bridgeview, Illinois 60455-2442
(Address of principal executive offices)
(Zip Code)
(708) 974-4000
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR 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
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 2,130,965 SHARES OF THE
COMPANY'S COMMON STOCK ($.0001 PAR VALUE) PER SHARE OUTSTANDING AS OF
SEPTEMBER 30, 1998.
<PAGE> 2
PRINCETON DENTAL MANAGEMENT CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE (S)
CONDENSED CONSOLIDATED BALANCE SHEETS 3-4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-11
PART II - OTHER INFORMATION 12-17
<PAGE> 3
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS SEPTEMBER, 1998 DECEMBER 31, 1997
------ ------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash Equivalents $ 212,346 $ 46,644
Accounts Receivable, net of allowances
for doubtful accounts of $173,323 and
$189,000 respectively 697,067 922,383
Current portion of loan receivable - affiliate 128,218 298,637
Inventories 111,840 107,951
Other Current Assets 82,773 89,513
------------- ------------
Total Current Assets 1,232,244 1,465,128
Property and equipment, net 581,337 756,579
Goodwill, net of accumulated amortization of
$2,427,671 and 2,081,576,respectively 5,196,263 5,542,358
Loan Receivable - affiliate 50,000 50,000
Other Assets, net 385,358 441,936
------------- ------------
Total Other Assets 6,212,958 6,790,873
Total Assets $ 7,445,202 $ 8,256,001
============= ============
</TABLE>
<PAGE> 4
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ------------------------------------ ------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Current Liabilities:
Notes Payable $ 60,591 $ 60,591
Bank Debit Balance - 69,849
Current portion of capital lease obligations 4,408 18,849
Current portion of long-term debt 849,184 849,184
Convertible secured debt 2,133,428 2,133,428
Accounts Payable 855,831 922,994
Accrued salaries and wages 478,758 476,178
Other accrued expenses 1,235,182 711,930
------------- -------------
Total Current Liabilities 5,617,382 5,243,003
Long-term debt, excluding current portion 1,406,043 1,787,436
Capital lease obligations, excluding current portion 18,588 18,588
------------- -------------
Total Liabilities 7,042,013 7,049,027
------------- -------------
Shareholder's Equity:
Series A 11.75% Cumulative Convertible
Preferred Stock par value $1.00 per share;
authorized shares - 1,000,000; issued and
outstanding - 2,848 at December 31, 1997 2,848 2,848
Series B Preferred Stock, par value $1.00
per share; authorized shares - 100; issued
and outstanding - 100 at December 31, 1997 100 100
Common stock, par value $0.0001 per share;
authorized shares - 25,000,000; issued and
outstanding - 2,130,965 at September 30, 1998
and 2,024,465 at December 31, 1997 213 202
Less: 8,462 shares Common Stock held
in treasury, at cost (181,771) (181,771)
Additional Paid-In Capital 15,238,581 15,108,366
Accumulated Deficit (14,656,781) (13,722,771)
------------- -------------
Net Shareholders' Equity 403,189 1,206,974
------------- -------------
Total Liabilities and Stockholders' Equity $ 7,445,202 $ 8,256,001
============= =============
</TABLE>
<PAGE> 5
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
Revenue: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Practice Revenue $ 1,709,124 $ 2,319,942 $ 5,878,485 $ 7,909,268
Laboratory Revenue 1,010,343 957,286 3,150,313 3,118,771
------------ ----------- ----------- -----------
Total Revenue $ 2,719,467 $ 3,277,228 $ 9,028,798 $11,028,039
------------ ----------- ----------- -----------
Expenses:
Practice compensation and Benefits 1,483,686 1,682,311 4,610,014 5,680,190
Other Practice Expense 432,408 429,223 1,329,553 1,518,088
Cost of Laboratory Revenue & Expenses 751,010 848,170 2,364,028 2,568,665
General Corporate Expenses 160,434 216,798 397,136 622,055
Depreciation and Amortization 208,877 200,753 626,631 564,078
------------ ----------- ----------- -----------
Total Operating Expenses 3,036,415 3,377,255 9,327,362 10,953,076
------------ ----------- ----------- -----------
Operating Gain/(Loss) (316,948) (100,027) (298,564) 74,963
Gain from sale of practices & laboratory - 68,636 - 282,590
Interest Expense (227,887) 255,253 (651,293) (193,186)
Other Income 87 25,061 15,846 44,987
------------ ----------- ----------- -----------
Net Income (Loss) $ (544,747) $ 248,923 $ (934,010) $ 209,354
============ =========== =========== ===========
Net Loss Per Share $ (0.26) $ 0.12 $ (0.45) $ 0.10
============ =========== =========== ===========
Weighted Average
Number of Shares Outstanding 2,100,965 2,024,065 2,061,632 2,024,065
</TABLE>
<PAGE> 6
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Operating Activities:
Net Loss $ (934,010) $ 209,354
Cash Provided by (Used In) Operating Activities:
Depreciation and Amortization 626,631 564,078
Gain on sale of Dental Practices - (282,590)
Issuance of stock under Incentive Stock Bonus Plan 130,226 76,000
Changes in Operating Assets and Liabilities:
Accounts Receivable 225,316 (163,380)
Inventories (3,889) (11,654)
Other Current Assets 6,740 (968)
Accounts Payable (67,164) (477,882)
Accrued Expenses 525,832 (163,288)
------------ ----------
Net Cash Used In Operating Activities 509,682 (250,330)
------------ ----------
Cash Provided by (Used In) Investing Activities:
Other Assets 56,578 128,620
Proceeds from notes receivable 170,419 6,978
Purchase of property and equipment - Net (105,294) (162,774)
Proceeds from sale of Dental Practices - 710,000
------------ ----------
Net Cash Provided by Investing Activities 121,703 682,824
------------ ----------
Cash Provided by (Used In) Financing Activities:
Principal payments on capital lease obligations (14,441) (25,366)
Principal payments on notes payable (381,393) (98,409)
Principal payments on long term debt and
notes payable to shareholders - (356,773)
------------ ----------
Net Cash Used In Financing Activities (395,834) (480,548)
------------ ----------
Increase in Cash and Cash Equivalents 235,551 (48,054)
Cash and Cash Equivalents at beginning of period (23,205) 185,235
------------ ----------
Cash and Cash Equivalents at end of period $ 212,346 $ 137,181
============ ==========
</TABLE>
<PAGE> 7
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
Note 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by Princeton Dental Management
Corporation (the Company) for quarterly financial reporting purposes are the
same as those disclosed in the Company's annual financial statements. In the
opinion of management, the accompanying condensed consolidated financial
statements reflect all adjustments necessary for a fair presentation of the
information presented.
The quarterly condensed consolidated financial statements herein have
been prepared by the Company without audit. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Although the Company's management believes the disclosures are adequate to make
the information not misleading, it is suggested that these quarterly condensed
financial statements be read in conjunction with the audited annual financial
statements and footnotes thereto.
The Company had a one-to-five reverse stock split of its common stock
effective August 18, 1997. All share information and per share information in
these consolidated financial statements have been retroactively restated to
reflect the reverse stock split.
Note 2 - RECLASSIFICATIONS
The accompanying condensed consolidated financial statements contain
certain reclassifications of previously reported information. The
reclassifications have been made to more appropriately reflect the operating
results of the Company.
Note 3 - FINANCING AGREEMENT
1. On April 22, 1996, the Company entered into a financing arrangement
pursuant to which the Company issued Convertible Debt (the Convertible Debt) to
Amsterdam Equities Limited in the amount of $2,483,620 and 3,599.77 shares of
Series A 11.75% Cumulative Convertible Preferred Stock (the Preferred Stock) to
Amsterdam Equities Limited (195 shares), Frank Leonard Laport (1,904.77 shares),
and Beverly Trust Company, as custodian for the Frank Leonard Laport Rollover
Individual Retirement Account No. 75-49990 (1,500 shares) (collectively, the
Investor Group). The Convertible Debt and Preferred Stock replaced
indebtedness of the Company at April 22, 1996, in the amount of $1,976,700
incurred under that certain letter agreement dated December 7, 1994 (the Letter
Agreement) and that certain Secured Revolving Demand Note dated January 27, 1995
(the Secured Note). Under the terms of the Convertible Debt and Preferred Stock
Agreements (also referred to herein collectively as the Financing Arrangement)
the Investor Group could choose to lend additional funds, in increments to be
determined solely by the Investor Group. The Convertible Debt and Preferred
Stock were initially to bear interest and have a coupon rate, respectively of
11.75%, plus the payment of any withholding taxes which might be due and owing
with respect to any person which is a foreign entity. Payments on the
Convertible Debt/Preferred Stock were interest only due in quarterly
installments which were to begin in September 1996. The Convertible
Debt/Preferred Stock originally had a maturity of seven years from the date of
closing, subject to acceleration in the event of a default. Subsequent to
September 30, 1996 the Company was unable to pay the interest only requirements
of the Convertible Debt and Preferred Stock Agreements, therefore, effective
October 1, 1996 interest began to accrue at the default rate of 21.75%.
Pursuant to that certain Modification Agreement ("Modification
Agreement") entered into between the Investor Group and the Company and dated as
of July 1, 1997, the Investor Group agreed, conditioned upon continued listing
by the Company on the Nasdaq SmallCap Market and similar concessions by another
significant Company creditor, to waive all accumulated and ongoing interest
and/or dividends on the Convertible Debt/Preferred Stock for the period from
January 1, 1997 through December 31, 1997. That waiver ended on January 1,
1998, and interest and dividends have again been accruing.
7
<PAGE> 8
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
The waiver of interest and dividends during 1997 on the part of the
Investor Group resulted in a total savings to the Company in excess of $700,000.
In addition to the amounts owed under the Letter Agreement and the
Secured Note, the terms of the Convertible Debt and Preferred Stock Agreements
called for the conversion of 58,333 shares of the Company's Regulation D stock
held by the Investor Group into $350,000 of Convertible Debt and Preferred
Stock. The shares of common stock were held in treasury after the redemption.
An additional provision of the Convertible Debt and Preferred Stock
Agreements included the payment of $300,000 as a closing fee and required the
Company to reimburse the legal fees and costs and expenses of the Investor Group
in connection with the negotiation and the closing of the transaction which
totaled $216,897. The closing fees and reimbursement of the costs and expenses
were payable in the form of Convertible Debt and Preferred Stock. In total, the
Company incurred costs of $544,716 in connection with the refinancing which has
been capitalized and will be amortized over a period of seven years or until the
Convertible Debt/Preferred Stock is called.
The terms of the Convertible Debt and Preferred Stock Agreements
provided the Investor Group with certain rights pertaining to the registration
of any common stock to which the Investor Group may convert from Convertible
Debt or Preferred Stock, certain anti-dilution rights, and a right of first
refusal on any future offering of Company securities.
Under the terms of the transaction, the Company also issued a warrant
to purchase 100 shares of Series B Preferred Stock. The Series B Preferred Stock
entitled Amsterdam Equities Limited to elect a Class B director who would have
super-majority voting powers on the Company's Board of Directors.
The Convertible Debt and Preferred Stock may be converted into the
common stock of the Company, at the sole option of the Investor Group, at
various conversion rates as set forth in the conversion formula contained in the
Convertible Debt and Preferred Stock Agreements. Conversion pursuant to such
conversion formula would result in a conversion price per share of the Company's
common stock below present market levels. If the Investor Group were to convert
all outstanding Convertible Debt and Preferred Stock at the present time, and
exercise the default warrants (see below), the conversion would result in the
issuance to the Investor Group of a majority interest of the issued and
outstanding shares of Company's common stock (after conversion and assuming full
conversion and anti-dilution).
In addition, pursuant to the terms of the Financing Arrangement, the
Company issued to the holders of the Convertible Debt and the Preferred Stock a
series of default warrants to purchase an aggregate number of shares of common
stock equivalent to fifty percent (50.0%) of the issued and outstanding Common
Stock of the Company at an exercise price of $0.10 per share (subsequently
reduced to $0.01 per share under the terms of the Modification Agreement). This
modification effectively reduced the aggregate exercise price of approximately
$412,500 for the default warrants to an aggregate exercise price of
approximately $41,250 (not accounting for any adjustments due to the
anti-dilution provision of the Warrants and due to changes in the total issued
and outstanding shares of the Company's common stock). Initially, the Investor
Group could exercise the warrants only upon the occurrence of an event of
default under the terms of the Financing Arrangement or upon the failure by the
Company to achieve certain minimum financial goals of net income of at least one
dollar in the fiscal year ending December 31, 1996, and various net income tests
in subsequent years. The Company has been in ongoing default under the Financing
Arrangement and the stated financial goals have not been met, and, accordingly,
these default warrants have been capable of being exercised by the Investor
Group upon payment of a minimal exercise price since January 1, 1997. The
cumulative effect of the issuance of shares pursuant to the default warrants to
the Investor Group and the conversion of outstanding Convertible Debt/Preferred
Stock could result in ownership by
8
<PAGE> 9
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
the Investor Group of a majority of the Company's total issued and outstanding
common stock after such conversion and exercise.
Effective as of November 4, 1998, the Company was advised that (i)
Amsterdam Equities Limited had transferred any and all interest which they had
in the default warrants to Frank Leonard Laport, and (ii) that Mr. Laport had
proceeded to exercise such default warrants. Exercise of all of the default
warrants for the stated exercise price will result in Mr. Laport receiving
approximately 1,065,483 additional shares of Company Common Stock.
2. In August 1996, the Company entered into a Letter Agreement
by and among the Company; Dr. Charles R. Mitchell, a former President of the
Company; Stratum Management, Inc., a former consultant to the Company; John H.
Hagan, a former director of the Company; Dr. Seymour Kessler, a former director
of the Company; and Amsterdam Equities Limited, Frank Leonard Laport, and
Beverly Trust Company, as Custodian of the Frank Leonard Laport Rollover
Individual Retirement Account No. 75-49990, each members of the Investor Group.
Under the Letter Agreement, which became effective on August 9, 1996, the Series
B Preferred Stock previously referred to in the Convertible Debt Agreement
executed by the Company on April 22, 1996 was amended to be immediately
effective and Class B Preferred Stock was immediately issued to Amsterdam.
The Class B Preferred Stock entitled Amsterdam to elect a Director to
the Board of Directors of the Company who would have super majority voting
powers. In effect, the Class B director appointed by Amsterdam has the number of
votes on the Board of Directors as the current Board currently holds, plus one
vote. The amendment and activation of the Class B Preferred Stock occurred upon
the satisfaction of the following two conditions: (i) delivery to the Company
of a notice, pursuant to which the Investor Group would convert an aggregate
amount of U.S. $700,000 of currently outstanding Convertible Debt/Preferred
Stock into the Company's Common Stock in accordance with the contractual terms
of the Convertible Debt and Preferred Stock Agreements executed on April 22,
1996 and (ii) upon the advance to the Company of an additional $200,000.00
pursuant to the Convertible Debt and the Preferred Stock Agreements executed
April 22, 1996. Effective as of August 9, 1996, the Investor Group satisfied
these two conditions and the Class B Preferred Stock was issued to Amsterdam.
Frank Leonard Laport, Chairman and CEO of the Company, was elected as
the Series B Director effective as of August 9, 1996. The Series B Director has
not voted on any matters to date or taken any action whatsoever to date.
9
<PAGE> 10
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the period ended
December 31, 1997.
Results of Operations
Revenue for the nine month period ended September 30, 1998 was $9,028,798
compared with $11,028,039 for the nine month period ended September 30, 1997, a
decrease of $1,999,241 (18.13%). The change in revenue is due primarily to the
sale of three dental practices and one dental laboratory during 1997 and a
reduction of production at the dental practices. Operating expenses decreased
$1,625,714 (a decrease of 14.84%) to $9,327,362 for the nine month period
ended September 30, 1998 from $10,953,076 for the nine month period ended
September 30, 1997. This decrease is due in large part to the sales of the
practices and the dental laboratory, as well as several cost cutting measures
related to compensation, benefits, and various other practice expenses.
Interest expense increased $458,107 to $651,293 for the nine month period
ended September 30, 1998 versus $193,186 incurred in the comparable nine month
period last year. The increase is primarily the result of the Modification
Agreement and the Allonge (see Exhibits 10.55 and 10.56) having a material
positive effect upon the Company's interest expense in 1997.
The net loss for the nine month period ended September 30, 1998 was
$934,010. The net loss increased by $1,143,364 when compared with the nine month
period ended September 30, 1997. This increase in the net loss is primarily due
to the elimination of the practice sales gain, reduced production, increased
amortization and the Modification Agreement and the Allonge having a positive
effect upon the Company's interest expense in 1997. (See Exhibits 10.55 and
10.56).
Financial Condition
The Company continues in the process of developing revenue enhancement
programs in both the dental practice segment as well as the laboratory segment.
In addition, the Company is also working to improve the operating results of the
various operations by reducing the costs of patient services including a
significant reduction in payroll. The Company has begun steps to reduce general
and administrative expenses. However, the Company can make no assurances in
regards to the results of these programs.
In the past the Company did not pay certain state tax liabilities in the
State of Michigan. Currently the Company is in the process of negotiating with
the State to abate penalties with respect to the late payment. The Company
estimates its total liability in this regard to be $175,000.
Given the Company's recurring losses from operations, the significant
working capital deficits and the uncertainty in obtaining additional funding to
provide working capital in the short term, a substantial doubt has been raised
as to the Company's ability to continue as a going concern absent significant
improvement in operations or significant additional funding.
10
<PAGE> 11
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
Liquidity and Capital Resources
As of September 30, 1998, the Company had a working capital deficit of
$4,385,138 and a financial accumulated deficit of $14,656,701. Goodwill and
other intangibles comprise approximately 69% of total assets, leaving tangible
assets of approximately $2,248,939 and negative tangible net worth of
approximately $4,793,074.
During the nine month period ended September 30, 1998, the Company's cash
and cash equivalents increased $235,551. Cash generated from depreciation and
amortization was $626,631.
Many computer systems in use today were designed and developed using two
digits, rather than four to specify the year. As a result, such systems may
recognize the year 2000 as 00. This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. The Company utilizes software and related computer technologies
essential to its operations that may be affected by the Year 2000 issue. The
Company has reviewed the Year 2000 problem as it relates to the Company's
internal system and does not believe at this time that it will have a material
impact upon its business, operations or financial condition. However, the
Company's review is continuing and the Company can make no absolute assurances
in this regard.
As disclosed in Note 3, the Company's primary source of outside financing
is from the Investor Group. Given the Company's working capital deficit and
negative tangible net worth, the Company is heavily reliant on the Investor
Group. The Company has not needed to obtain additional material amounts of
funding from the Investor Group during the past year but remains in an ongoing
state of default under the terms of the Financing Arrangement. If the Investor
Group was to call a formal default on the Preferred Stock/Convertible Debt
issued by the Company, the Company would have no means of curing such default.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
a) On October 16, 1996, the Company was sued for $160,000 by Romajo
Partners Limited Partnership, a Partnership controlled by Dr.
Seymour Kessler, a former director of the Company. While the
Company is appealing this decision, the Company received an
adverse judgement in that suit in October, 1997 and has paid
Romajo Partners Limited Partnership $162,627 as the judgement
amount.
b) On June 12, 1998, the Company sued Dr. Charles Mitchell, a former
officer and director of the Company, and Stratum Management, Inc.
an affiliate of Dr. Mitchell and a former consultant to the
Company, for breach of contract and breach of fiduciary duty.
That lawsuit is still pending.
c) In October, 1998, the Company obtained judgement in a
lawsuit brought, in April 1998, against Dr. Richard Sokol, a
former officer and director of the company, and Lawrence Ceraulo
and Primecast Dental, former contractors for the Company, for
breach of contract and breach of fiduciary duty. The Company is
in the process of seeking to enforce such judgement.
d) The Company is the defendant in several pending employee
discrimination and vendor/creditor law suits in which it is the
defendant. Such law suits include law suits bought against the
Company by (i) J.F. Jelenko & Co. claiming $90,338 owed; (ii)
Office Max/Office Depot claiming $25,000 owed; (iii) Chuhak &
Tecson claiming approximately $50,000; (iv) a class action
discrimination suit bought against the Company in Michigan seeking
unspecified damages; and (v) a sexual discrimination suit bought
against the Company in Florida seeking unspecified damages. The
Company is vigorously defending these lawsuits.
11
<PAGE> 12
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
e) The Company is involved in a number of other legal proceedings
related to malpractice, worker's compensation, general employment
and contract disputes all in various stages of proceedings, most
of which will be covered by insurance.
Item 2. Changes in Securities
a) Effective August 18, 1997, the Company's shareholders approved a
one-to-five reverse Stock split of the company's common stock.
b) Sales of Unregistered Securities.
1. Effective as of July 13, 1998, the Company issued 45,000
shares of unregistered restricted common stock of the Company
to Mr. Ronald J. Frank for a total consideration of $48,750
in a private placement exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
2. Effective as of July 28, 1998, the Company issued 45,000
shares of unregistered restricted common stock of the Company
to Mr. Len J. Shapiro for a total consideration of $48,728.34
in a private placement exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
3. Effective as of November 4, 1998, the Company was advised
that (i) Amsterdam Equities Limited had transferred any and
all interest which they had in certain default warrants (See
Note 3 above) to Frank Leonard Laport, and (ii) that Mr.
Laport had proceeded to exercise such default warrants. The
default warrants in question have been outstanding since
April, 1996 and were issued in connection with debt
outstanding since December, 1994. The exercise of such
default warrants will result in Mr. Laport receiving
approximately 1,065,483 shares of unregistered restricted
common stock of the Company for an aggregate exercise price
of $41,250. The issuance of the Common Stock is exempt from
registration requirements pursuant to Section 4(2) of the
Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
a) While no formal default has been called to date by the Investor
Group (See Note 3 above), the Company has failed to pay any of the
interest and/or dividend payments called for under the Financing
Arrangement (See Note 3 above) and could be considered in a state
of ongoing default with respect to the Financing Arrangement. If
the Investor Group was to call a formal default with respect to
the Preferred Stock/Convertible Debt issued by the Company to the
Investor Group, the Company would have no means of curing such a
default.
Item 5. Other Information
a) Effective as of July 1, 1998 the Company entered into that certain
Allonge and Amendment to Balloon Promissory Note and All Related
Agreements with Dr. Glenn C. Lehr and certain related entities.
This Agreement serves to restructure the debt owed by the Company
in connection with the Amdent practices. (See Exhibit 10.61).
12
<PAGE> 13
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
b) Effective as of October 15, 1998, the Company was informed by The
Nasdaq Stock Market,Inc. ("Nasdaq") that the Company's securities
would be delisted from the Nasdaq SmallCap Market effective at the
close of business on October 15, 1998 due to the inability of the
Company to meet the Nasdaq listing requirement that the Company
maintain at least $2,000,000 in net tangible assets.
c) Effective as of November 4, 1998, the Company was advised that (i)
Amsterdam Equities Limited had transferred any and all interest
which they had in the default warrants to Frank Leonard Laport,
and (ii) that Mr. Laport had proceeded to exercise such default
warrants. Exercise of all of default warrants for the stated
exercise price will result in Mr. Laport receiving approximately
1,065,483 additional shares of Company Common Stock.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The following documents are filed as an exhibit to this Report:
(10.2) Letter Agreement dated December 7, 1994 between an
investment group and the Registrant (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-QSB/A (Amendment No. 1)
(Registration No. 33-43298-A) filed with the Commission on
December 20, 1994).
(10.4) Secured Revolving Demand Note dated January 27, 1995
between an investment group and the Registrant (incorporated by
reference to the Exhibit to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1994 (Registration Number
33-43298-1A) filed with the Commission on April 14, 1995).
(10.44) Series A 11.75% Cumulative Convertible Preferred Stock
Purchase Agreement by and between Frank Leonard Laport, Beverly
Trust Company, as Custodian of the Frank Leonard Laport Rollover
Individual Retirement Account Number 75-49990, and Amsterdam
Equities Limited, dated April 22, 1996 (incorporated by reference
to the exhibit to the Registrant's Form 10-QSB filed with the
Commission on September 23, 1996).
(10.45) Convertible Debt Agreement by and between the Company and
Amsterdam Equities Limited, dated April 22, 1996 (incorporated by
reference to the exhibit to the Registrant's Form 10-QSB filed
with the Commission on September 23, 1996).
(10.46) Letter of Agreement dated July 15, 1996 and effective
August 9, 1996, by and between the Company, Dr. Charles R.
Mitchell, Stratum Management Inc., John H. Hagan, Dr. Seymour
Kessler, Amsterdam Equities Limited, Frank Leonard Laport, and
Beverly Trust Company (incorporated by reference to the exhibit to
the Registrant's Form 10-QSB filed with the Commission on
September 23, 1996).
(10.51) Letter Agreement dated February 4, 1997 between Dr.
Richard Staller and the Registrant regarding the sale of the
assets of the Dental Team of Delray Beach. (Incorporated by
reference to Exhibit 10.51 to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1996 filed with the Commission on
March 31, 1997)
(10.52) Letter Agreement effective as of January 10, 1997 by and
among the Registrant and Drs. Barfield and Payne regarding the
sale of the assets of the Fairfield Dental Center practice.
(Incorporated by reference to Exhibit 10.52 to the Registrant's
Form 10-KSB for the fiscal year ended December 31, 1996 filed with
the Commission on March 31, 1997)
(10.53) Agreement effective as of May 20, 1997 by and among the
Registrant and Valley Forge Dental Associates regarding the sale
of the assets of the Century Dental Center practice, (Incorporated
by reference to Exhibit 10.53 to the Registrant's Form 10QSB for
the period ended June 30, 1997).
(10.54) Letter Agreement effective as of June 1, 1997 by and among
the Registrant and Mr. Larry Ceraulo d/b/a Certex Dental Studio
regarding the sale of the assets comprising Mason Dental
Southeast, Inc. and Renaissance Dental Studio, (Incorporated by
reference to Exhibit 10.54 to the Registrant's Form 10QSB for the
period ended June 30, 1997).
(10.55) Modification Agreement dated as of July 1, 1997 by and
among the Registrant, Amsterdam Equities Limited, Frank Leonard
Laport, and Beverly Trust Company, as Custodian of the Frank
Leonard Laport Rollover Individual Retirement Account No.
75-49990, (Incorporated by reference to Exhibit 10.55 to the
Registrant's Form 10QSB for the period ended June 30, 1997).
(10.56) Allonge and Fourth Amendment to Acquisition Promissory
Note dated as of July 1, 1997, the Company, Mason Dental Midwest,
Inc. and the Constituent Shareholders of the Delaware corporation
formally known as Mason Dental, Inc, (Incorporated by reference to
Exhibit 10.56 to the Registrant's Form 10QSB for the period ended
June 30, 1997).
13
<PAGE> 14
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(10.57) Promissory Note in the initial principal amount
of $96,357 executed by Lawrence Ceraulo, Victor Texidor, and
Certex Dental Studio, Inc. in favor of Mason Dental Southeast and
dated as of August 1, 1997, (Incorporated by reference to Exhibit
10.57 to the Registrant's Form 10QSB for the period ended June 30,
1997).
(10.58) Allonge & Fifth Amendment to Acquisition Promissory Note
dated as of July 1, 1997, among the Company, Mason Dental Midwest,
Inc. and the Constituent Shareholders of the Delaware Corporation
formally known as Mason Dental, Inc. (Incorporated by reference
to Exhibit 10.58 to the Registrant's Form 10KSB for the period
ended December 31, 1997).
(10.59) Agreement of Purchase and Sale dated as of May 1, 1997
between Princeton Medical Management Northeast, Inc. and Valley
Forge Dental Associates, Inc. (Incorporated by reference to
Exhibit 10.59 to the Registrant's Form 10KSB for the
period ended December 31, 1997).
(10.60) Financial Consulting Agreement between the Company and
BullsEye Marketing, Inc., dated as of July 14, 1998.
(10.61) Allonge and Amendment to Balloon Promissory Note and All
Related Agreements dated as of July 1, 1998 by and among the
Company, Dr. Lehr and certain related entities.
(b) Reports on Form 8-K The Registrant filed the following Form 8-K's during
the period from January 1, 1998 through November 1, 1998:
1) Effective as of July 14, 1998, PDMC announced that it had entered
into a Financial Consulting Agreement with BullsEye Marketing,
Inc.
The Agreement anticipated that BullsEye Marketing, Inc. would
assist PDMC in generally building market awareness of PDMC. As
specified in the Agreement, (see Exhibit 10.60), PDMC would pay
the consultant $1,000 per month plus reasonable expenses and issue
250,000 warrants to the consultant. The warrants would be
exercisable at the same exercise price as the current publicly
held warrants.
2) Effective as of September 18, 1998, PDMC announced that the Board
of Directors of Princeton Dental Management Corporation ("PDMC")
had announced that the expiration date of those certain warrants
issued pursuant to that certain Warrant Agreement dated April 15,
1992 by and between PDMC and Continental Stock Transfer & Trust
Company had been extended for a period of twelve (12) months,
expiring on October 11, 1999.
3) Effective as of October 15, 1998, PDMC announced that, on October
15, 1998, the Company was informed by The Nasdaq Stock Market,
Inc. ("Nasdaq") that the Company's securities would be delisted
from the Nasdaq SmallCap Market effective at the close of business
on October 15, 1998 due to the inability of the Company to meet
the Nasdaq listing requirement that the Company maintain at least
$2,000,000 in net tangible assets.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report of Form 10-QSB for the quarter
ended September 30, 1998, to be signed on its behalf, by the undersigned there
unto duly authorized.
DATED: Princeton Dental Management Corporation
By:
--------------------------------------
Gary A. Lockwood
President and Chief Operating Officer
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report of Form 10-QSB for the quarter
ended September 30, 1998, to be signed on its behalf, by the undersigned there
unto duly authorized.
DATED: Princeton Dental Management Corporation
By:
--------------------------------------
Barbara M. Kamenczak
Chief Accounting Officer
15
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