<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 June 30, 1999
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: 3,196,448 SHARES OF THE
COMPANY'S COMMON STOCK ($.0001 PAR VALUE) PER SHARE OUTSTANDING AS OF
JULY 1, 1999.
<PAGE> 2
PRINCETON DENTAL MANAGEMENT CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE (S)
<S> <C>
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 9-11
PART II - OTHER INFORMATION 11-16
</TABLE>
<PAGE> 3
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1999 DECEMBER 31, 1998
------ ------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash Equivalents $ 277,252 $ 188,724
Accounts Receivable, net of allowances
for doubtful accounts of $129,000 and
$129,000 respectively 837,605 821,190
Current portion of loan receivable - affiliate 138,199 163,336
Inventories 108,677 100,048
Other Current Assets 106,859 73,373
---------- ----------
Total Current Assets 1,468,592 1,346,671
Property and equipment, net 459,981 550,976
Goodwill, net of accumulated amortization of
$2,773,771 and $2,543,042, respectively 4,850,161 5,080,892
Other Assets, net 339,388 377,804
---------- ----------
Total Other Assets 5,649,529 6,009,672
Total Assets $7,118,121 $7,356,343
========== ==========
</TABLE>
<PAGE> 4
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY JUNE 30, 1999 DECEMBER 31, 1998
- ------------------------------------ ------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current Liabilities:
Notes Payable $ 130,591 $ 130,591
Current portion of capital lease obligations 8,109 17,345
Current portion of long-term debt 500,947 500,947
Convertible secured debt 2,133,428 2,133,428
Accounts Payable 981,077 976,901
Accrued salaries and wages 366,580 297,618
Other accrued expenses 2,212,730 1,822,712
------------ ------------
Total Current Liabilities 6,333,461 5,879,542
Long-term debt, excluding current portion 1,367,444 1,591,685
Capital lease obligations, excluding current portion 1,243 1,243
------------ ------------
Total Liabilities 7,702,149 7,472,470
------------ ------------
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, 1996 2,848 2,848
Series B Preferred Stock, par value $1.00
per share; authorized shares - 100; issued
and outstanding - 100 at June 30, 1999 100 100
Common stock, par value $0.0001 per share;
authorized shares - 25,000,000; issued and
outstanding - 3,196,448 at June 30, 1999
and at December 31, 1998 320 320
Less: 8,462 shares Common Stock held
in treasury, at cost (181,771) (181,771)
Additional Paid-In Capital 15,403,623 15,403,623
Accumulated Deficit (15,809,148) (15,341,247)
------------ ------------
Net Shareholders' Equity (584,028) (116,127)
------------ ------------
Total Liabilities and Shareholders' Equity $ 7,118,121 $ 7,356,343
============ ============
</TABLE>
<PAGE> 5
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
Revenue: 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Practice Revenue $ 2,059,440 $ 1,978,801 $ 4,082,068 $ 4,169,361
Laboratory Revenue 1,286,567 1,127,586 2,464,949 2,139,970
----------- ----------- ----------- -----------
Total Revenue $ 3,346,007 $ 3,106,387 $ 6,547,017 $ 6,309,331
----------- ----------- ----------- -----------
Expenses:
Practice compensation and Benefits 1,629,396 1,526,490 3,291,404 3,126,328
Other Practice Expense 460,658 494,144 873,635 897,145
Cost of Laboratory Revenue & Expenses 892,254 832,446 1,733,186 1,613,018
General Corporate Expenses 116,723 135,355 260,731 236,702
Depreciation and Amortization 187,945 208,877 375,891 417,754
----------- ----------- ----------- -----------
Total Operating Expenses 3,286,976 3,197,312 6,534,848 6,290,947
----------- ----------- ----------- -----------
Operating Gain/(Loss) 59,031 (90,925) 12,169 18,384
Gain from sale of practices & laboratory -- -- -- --
Interest Expense (244,220) (215,741) (486,033) (423,406)
Other Income 2,693 11,928 5,963 15,759
----------- ----------- ----------- -----------
Net Income (Loss) $ (182,496) $ (294,738) $ (467,901) $ (389,263)
=========== =========== =========== ===========
Net Loss Per Share $ (0.06) $ (0.14) $ (0.15) $ (0.19)
=========== =========== =========== ===========
Weighted Average
Number of Shares Outstanding 3,196,448 2,040,965 3,196,448 2,038,215
</TABLE>
<PAGE> 6
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Operating Activities:
Net Loss $(467,901) $(389,263)
Cash Provided By (Used In) Operating Activities:
Depreciation and Amortization 375,891 417,754
Issuance of stock under Incentive Stock Bonus Plan -- 32,405
Changes in Operating Assets and Liabilities:
Accounts Receivable (16,415) 85,736
Inventories (8,629) (9,839)
Other Current Assets (33,486) 31,885
Accounts Payable 4,176 (40,294)
Accrued Expenses 458,981 324,858
--------- ---------
Net Cash Provided By Operating Activities 312,617 453,242
--------- ---------
Cash Provided By (Used In) Investing Activities:
Other Assets 38,416 37,124
Proceeds from notes receivable 25,137 155,592
Purchase of property and equipment - Net (54,165) (75,301)
--------- ---------
Net Cash Provided By Investing Activities 9,388 117,415
--------- ---------
Cash Provided Used In Financing Activities:
Principal payments on capital lease obligations (9,236) (9,857)
Principal payments on long term debt and
notes payable to shareholders (224,241) (219,026)
--------- ---------
Net Cash Used In Financing Activities (233,477) (228,883)
--------- ---------
Increase in Cash and Cash Equivalents 88,528 341,774
--------- ---------
Cash and bank debit balances, beginning of period 188,724 (23,205)
--------- ---------
Cash and bank debit balances, end of period $ 277,252 $ 318,569
========= =========
</TABLE>
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PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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 consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and dental practices affiliated with the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
The Company had a one-for-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
7
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PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
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 again been accruing as of that
date.
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 also
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. Effective as
of August, 1996, Mr. Laport was elected as the Class B Director. The Class B
Director has taken no action to date.
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. 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). At present, conversion pursuant o the conversion
rates set forth in the Convertible Debt and Preferred Stock Agreement would
result in a conversion at rates significantly in excess of the current market
price for the Company's Common Stock.
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
8
<PAGE> 9
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
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. At present
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 the Investor Group of
approximately 65% of the Company's total issued and outstanding common stock
after such conversion and exercise.
Effective as of November 4, 1998, (i) Amsterdam Equities Limited
transferred any and all interest which they had in the default warrants to Frank
Leonard Laport, and (ii) Mr. Laport proceeded to exercise such default warrants.
Exercise of all of the default warrants for the stated exercise price resulted
in Mr. Laport receiving approximately 1,065,483 shares of Company Common Stock,
(ie. approximately 30%) of the Company Common Stock.
At present, taking into account all accrued interest and dividends, but
without taking into account any potential liability of the Company for
withholding taxes, the Investor Group is owed approximately in excess of
$3,500,000 pursuant to the Convertible Debt/Preferred Stock Agreement.
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, 1998.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a safe harbor for forward-looking statements made by or on behalf of
the Company. All statements contained in this report, other than statements of
historical facts, which address activities, events or developments that the
Company anticipates will or may occur in the future, including such things as a
possible Chapter 11 filing, future capital expenditures, and other such matters,
are forward-looking statements within the meaning of the Act. These
forward-looking statements are based largely on the company's expectations and
assumptions and are subject to a number of risks and uncertainties, many of
which are beyond the Company's control. Actual results could differ materially
from the forward-looking statements as a result of a number of factors,
including but not limited to, the need for additional financing, intense
competition, regulatory changes and other unforeseen circumstances. In light of
these risks and uncertainties, all of the forward-looking statements made herein
are qualified by these cautionary statements, and there can be no assurance that
the actual results or developments anticipated by the Company will be realized.
The Company undertakes no obligation to update or revise any of the
forward-looking statements contained herein.
Overview
Princeton Dental Management Corporation is involved in the management
of dental practices and laboratories. The market of general dental practitioners
and dental specialists is characterized as highly fragmented. The Company's goal
has been to manage dental practices and to increase their profitability by
centralizing certain administrative, purchasing, marketing and other functions
and implementing certain revenue enhancement programs.
Given the Company's recurring losses from operations, significant
outstanding debt in default, multiple pending litigation matters, significant
working capital deficits and the inability to obtain additional funding to
provide working capital in the short term, a substantial doubt has been raised
as to the Company's ability to
9
<PAGE> 10
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
continue as a going concern. Absent significant and immediate additional
funding, the Company will have to consider relief under Chapter 11 of the United
States Bankruptcy Code or some similar possibility. The Company presently has no
source for any additional funding.
Results of Operations
The revenue for the three month period ending June 30, 1999 was
$3,346,007, an increase of $239,620, compared to the revenue for the three month
period ending June 30, 1998 of $3,106,387. Revenue for the six month period
ended June 30, 1999 was $6,547,017 compared with $6,309,331 for the six month
period ended June 30, 1998, a increase of $237,686 (an increase of 4%). The
increase in revenue is due to an overall increase in practice and laboratory
revenue. The operating expenses for the three month period ending June 30, 1999
was $3,286,976, an increase of $89,664, compared to the operating expenses for
the three month period ending June 30, 1998 of $3,197,312. Operating expenses
increased $243,901 (an increase of 4%) to $6,534,848 for the six month period
ended June 30, 1999 from $6,290,947 for the six month period ended June 30,
1998. This increase in operating expenses is due in large part to an increase in
the practice compensation paid to professional staff and a general increase in
benefits and laboratory and corporate expenses.
The interest expense for the three month period ending June 30, 1999
was $244,220, an increase of $28,479, compared to the interest expense for the
three month period ending June 30, 1998 of $215,741. Interest expense increased
$62,627 to $486,033 for the six month period ended June 30, 1999 versus $423,406
incurred in the comparable six month period last year. The increase is primarily
the result of the interest and dividends continuing to accrue on the Convertible
Debt and Preferred Stock.
The net loss for the three month period ending June 30, 1999 was
$182,496, a decrease of $112,242, compared to the net loss for the three month
period ending June 30, 1998 of $294,738. However, the net loss for the six month
period ended June 30, 1999 was $467,901. The net loss for the six month period
ended June 30, 1999 increased by $78,638 when compared with the six month period
ended June 30, 1998. This increase in the net loss for the six month period is
primarily due to the increased operating expenses and the increase in interest
expense.
Financial Condition
Given the Company's recurring losses from operations, significant
outstanding debt in default, multiple pending litigation matters, significant
working capital deficits and the inability to obtain 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
and immediate additional funding, the Company will have to consider relief under
Chapter 11 of the United States Bankruptcy Code or some similar possibility. The
Company presently has no source for any additional funding.
The Company is working to improve the operating results of the various
operations by reducing costs. 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 attempting to
take certain steps with the State to abate penalties with respect to the late
payment. The Company estimates its total liability in this regard to be
$500,000.
Liquidity and Capital Resources
As of June 30, 1999, the Company had a working capital deficit of
$4,864,869 and a financial accumulated deficit of $15,809,148. Goodwill and
other intangibles comprise approximately 68% of total assets, leaving tangible
assets of approximately $2,267,960 and negative tangible net worth of
approximately $5,434,189.
10
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PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
During the three month period ended June 30, 1999 the Company's cash
and cash equivalents increased $23,453. During the six month period ended June
30, 1999, the Company's cash and cash equivalents increased $88,528. Cash
generated during the three month period ended June 30, 1999 from depreciation
and amortization was $187,945. Cash generated during the six month period ended
June 30, 1999 from depreciation and amortization was $375,891.
The Company has extensive deferred maintenance on all of it's
facilities. The Company estimates that it could cost in excess of $1.15 Million
to properly re-equip and refurbish all facilities. At present the Company has no
source of funding to address such matters.
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.
Management has developed a plan to modify its information technology to
be ready for year 2000 and has begun converting critical data processing
systems. At present, while the Company can make no assurances in this regard,
management anticipates the project will be substantially complete by November,
1999 and expects to incur total expenditures of approximately $190,000 related
to the project.
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 no payments have
been made to the Investor Group and the Company 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 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.
b) The Company is the defendant in a number of pending employee
discrimination and vendor/creditor law suits in which it is the
defendant. Such law suits include law suits brought against the
Company by (i) Henry Schein, Inc/Zahn Dental Company claiming
approximately $500,000 owed; (ii) the Dickerson Investment Group
claiming approximately $70,000 owed; (iii) Stark Properties
claiming approximately $40,000 owed; (iv) J.F. Jelenko & Co.
claiming $90,338 owed; (v) Office Max/Office Depot claiming
$25,000 owed; (vi) Chuhak & Tecson claiming approximately
$50,000 owed (the Company has counter-claimed alleging legal
malpractice); (vii) Primecast Dental claiming unspecified
damages; (viii) Bodman and Longley claiming approximately
$20,000 owed; (ix) a discrimination suit brought against the
Company in Michigan
11
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PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
by several plaintiffs seeking damages in excess of $300,000; (x)
a disability discrimination claim brought against the Company in
Michigan seeking unspecified damages; and (xi) a sexual
discrimination suit brought against the company in Florida
seeking unspecified damages. The Company is vigorously defending
these lawsuits.
c) While no litigation has been commenced, The Island Group is
claiming that the Company owes it approximately $1,200,000 due
to a failure to make required payments on an Installment Note.
d) In addition, while no litigation has been commenced, the Company
has been advised by Dr. Glenn Lehr, that the Company owes him
approximately $250,000, due to a failure to make required
payments on an Installment Note.
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. There is no other litigation pending to which
Princeton is a party or of which any of its property is the
subject, other than routine litigation incidental to its
business. Further, there are no proceedings known to be
contemplated by governmental authorities relating to either
Princeton or its properties (But, see Financial Condition).
Item 2. Changes in Securities
a) Effective August 18, 1997, the Company's shareholders approved a
one-for-five reverse Stock split of the company's common stock.
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 would 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.
b) In addition, the Company has ceased making payments on a number
of other debt obligation (See Legal Proceedings), and would be
considered to be in default with respect to such obligations.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The following documents are filed as an exhibit to this Report:
(2.3) Agreement and Plan of Reorganization between the
Registrant and Mason Dental, Inc. (incorporated by reference to
the Exhibit to the Registrant's Registration Statement on Form
S-4 (Registration No. 33-69406) filed with the Commission on
September 27, 1993).
12
<PAGE> 13
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(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).
(10.2/A) Amendment to Letter Agreement dated April 10, 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-A) filed with the Commission on April 14, 1995).
(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).
(10.5) Share Purchase Agreement between Princeton Management and
Glenn C. Lehr, D.D.S. (incorporated by reference to the Exhibit
to Registrant's Form 8-K filed with the Commission on October
13, 1992).
(10.6) Balloon Promissory Note Payable to Glenn C. Lehr, D.D.S.
(incorporated by reference to the Exhibit of the same number to
the Registrant's Registration Statement on Form SB-2
(Registration No. 33-57698) filed with the Commission on
February 1, 1993).
(10.7) Installment Promissory Note Payable to Glenn C. Lehr,
D.D.S (incorporated by reference to the Exhibit of the same
number to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-57698) filed with the Commission on
February 1, 1993).
(10.8) Stock Pledge and Escrow Agreement between Princeton
Management and Glenn C. Lehr incorporated by reference to the
Exhibit of the same number to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-57698) filed with
the Commission on February 1, 1993).
(10.17) Management Agreement and Stock Pledge and Escrow
Agreement between Princeton Management, Glenn C. Lehr, D.D.S.,
and Lebow and Tobin (incorporated by reference to the Exhibit of
the same number to the Registrant's Registration Statement on
Form SB-2 (Registration No. 33-57698) filed with the Commission
on February 1, 1993).
(10.23) Installment Promissory Note payable to Mason Dental,
Inc. shareholders (incorporated by reference to Exhibit 10.30 to
the Registrant's Form 10-KSB for the fiscal year ended December
31, 1993 (Registration Number 33-43298-A) filed with the
Commission on April 14, 1994).
(10.24) Allonge and Amendment to Acquisition Promissory Note
dated April 10, 1995 between Mason Dental, Inc. 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-A) 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
13
<PAGE> 14
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
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).
(10.53) Letter Agreement dated as of December 1996 between the
Registrant and Dickerson Investment Group, Inc., an entity
affiliated with a shareholder of the Registrant, regarding the
loan of $175,000 to the Registrant. (Incorporated by reference
to Exhibit 10.53 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).
(10.58) 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).
(10.61) 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. . (Incorporated
by reference to Exhibit 10.61 to the Registrant's Form 10QSB for
the period ended June 30, 1998).
(b) Reports on Form 8-K The Registrant filed the following Form 8-K's
during the period from January 1, 1999 through August 1, 1999:
None
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 June 30, 1999, to be signed on its behalf, by the undersigned there unto
duly authorized.
DATED: August 19, 1999 Princeton Dental Management Corporation
By: /s/ Gary A. Lockwood
-----------------------------------------
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 June 30, 1999, to be signed on its behalf, by the undersigned there unto
duly authorized.
DATED: August 19, 1999 Princeton Dental Management Corporation
By: /s/ Barbara M. Kamenczak
-----------------------------------------
Barbara M. Kamenczak
Chief Accounting Officer
15
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