<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, 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 OCTOBER 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 FLOWS 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
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(Unaudited)
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 482,859 $ 188,724
Accounts Receivable, net of allowances
for doubtful accounts of $129,000 and
$129,000 respectively 678,839 821,190
Current portion of loan receivable - affiliate 76,097 163,336
Inventories 90,411 100,048
Other Current Assets 60,941 73,373
----------- -----------
Total Current Assets 1,389,147 1,346,671
----------- -----------
Property and equipment, net 397,313 550,976
Goodwill, net of accumulated
amortization of and $2,543,041,
respectively 4,734,797 5,080,892
Other Assets, net 319,167 377,804
----------- -----------
Total Other Assets 5,451,277 6,009,672
----------- -----------
Total Assets 6,840,424 7,356,343
=========== ===========
</TABLE>
3
<PAGE> 4
PRINCETON DENTAL MANAGEMENT CORPORATION
Condensed Consolidated Balance Sheets
September 30, 1999 and
December 31, 1998
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(Unaudited)
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 0 $ 976,901
Accrued salaries and wages 535,635 297,618
Other accrued expenses 2,315,641 1,822,712
Notes Payable 60,591 130,591
Current portion of capital lease obligations 5,034 17,345
Current portion of long-term debt 570,947 500,947
Convertible secured debt 2,133,428 2,133,428
------------ ------------
Total Current Liabilities 5,621,276 5,879,542
------------ ------------
Long-term
Liabilities
Accounts Payable - long term 879,340 0
Long-term debt, excluding current portion 1,334,744 1,591,685
Capital lease obligations, excluding current portion 0 1,243
------------ ------------
Total Long-Term Liabilities 2,214,084 1,592,928
------------ ------------
Total Liabilities 7,835,360 7,472,470
------------ ------------
Shareholder's Equity:
Series A 11.75% Cumulative Convertible
Preferred Stock par value $1.00 per share;
1,000,000 shares authorized; 2,848 shares
issued and outstanding 2,848 2,848
Series B Preferred Stock, par value $1.00
per share; 100 shares authorized; 100 shares
issued and outstanding 100 100
Common stock, par value $0.0001 per share;
25,000,000 shares authorized; 3,196,448
issued and outstanding 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 (16,220,056) (15,341,247)
------------ ------------
Net Shareholders Equity' (994,936) (116,127)
------------ ------------
Total Liabilities and Shareholders $ $ 6,840,424 $ 7,356,343
============ ============
</TABLE>
4
<PAGE> 5
PRINCETON DENTAL MANAGEMENT CORPORATION
Condensed Consolidated Statements of Operation
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended Nine Months Ended
September 30 September 30
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Practice Revenue $ 1,615,243 1,709,124 $ 5,697,311 5,878,485
Laboratory Revenue 1,210,865 1,010,343 3,675,814 3,150,313
----------- ----------- ----------- -----------
Total Revenue 2,826,108 2,719,467 9,373,125 9,028,798
----------- ----------- ----------- -----------
Expenses:
Practice compensation and Benefits 1,546,382 1,483,686 4,837,785 4,610,014
Other Practice Expense 386,265 432,408 1,259,834 1,329,553
Cost of Laboratory Revenue & Expenses 702,094 751,010 2,435,156 2,364,028
General Corporate Expenses 174,480 160,434 435,241 397,136
Depreciation and Amortization 198,500 208,877 574,391 626,631
----------- ----------- ----------- -----------
Total Operating Expenses 3,007,721 3,036,415 9,542,407 9,327,362
----------- ----------- ----------- -----------
Operating Gain/(Loss) (181,613) (316,948) (169,282) (298,564)
----------- ----------- ----------- -----------
Other Income (Expense):
Gain from sale of practices & laboratory 0 0 0 0
Interest Expense (230,991) (227,886) (717,024) (651,292)
Other Income 1,534 87 7,497 15,846
----------- ----------- ----------- -----------
Total Other Income (Expense) (229,457) (227,799) (709,527) (635,446)
----------- ----------- ----------- -----------
Net Income (Loss) $ (411,070) (544,747) $ (878,809) (934,010)
=========== =========== =========== ===========
Basic and Diluted Net Loss Per Share $ (0.13) (0.26) $ (0.27) (0.45)
=========== =========== =========== ===========
Basic and Diluted Weighted Average Number
of Shares Outstanding 3,196,448 2,100,965 3,196,448 2,061,632
</TABLE>
5
<PAGE> 6
PRINCETON DENTAL MANAGEMENT CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Loss $(878,809) $(934,010)
--------- ---------
Cash Provided by (Used for) Operating Activities:
Depreciation and Amortization 574,391 626,631
Issuance of stock under Incentive
Stock Bonus Plan 0 130,226
Changes in Operating Assets and Liabilities:
Accounts Receivable 142,351 225,316
Inventories 9,637 (3,889)
Other Current Assets 12,432 6,740
Accounts Payable (97,561) (67,164)
Accrued Expenses 730,946 525,832
--------- ---------
Net Cash Provided by (Used for) Operating Activities 493,387 509,682
--------- ---------
Cash Provided by (Used for) Investing Activities:
Other Assets (491) 56,578
Proceeds from notes receivable 87,239 170,419
Purchase of property and equipment - Net (15,505) (105,294)
--------- ---------
Net Cash Provided by (Used for) Investing Activities 71,243 121,703
--------- ---------
Cash Provided by (Used for) Financing Activities:
Principal payments on capital lease obligations (13,554) (14,441)
Principal payments on long term debt and
notes payable to shareholders (256,941) (381,393)
--------- ---------
Net Cash Provided by (Used for) Financing Activities (270,495) (395,834)
--------- ---------
Increase in Cash and Cash Equivalents 294,135 235,551
Cash and cash equivalents, beginning of period 188,724 (23,205)
--------- ---------
Cash and cash equivalents, end of period $ 482,859 $ 212,346
========= =========
</TABLE>
6
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PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 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 - SUBSEQUENT EVENTS/REORGANIZATION
The Company, along with all of its operating subsidiaries, filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. These voluntary petitions were filed on October 1, 1999 in the
United States Bankruptcy Court of the Middle District of Florida, Tampa Division
(Case No. 99-16012-8C1).
The Company has been unable for an extended period to make the required
payments of interest or principal on a significant portion of its secured debt.
The Company has also been unable to make payments on significant amounts of
outstanding trade debt and was faced with multiple lawsuits with respect to this
failure to make required payments. After a period of negotiation, the Company
was unable to reach out-of-court settlements with its various lenders and trade
creditors. Accordingly, bankruptcy petitions were filed in order to obtain an
opportunity to reorganize and begin implementing the Company's strategies while
working to restructure its indebtedness. The Company expects to reorganize its
affairs under the protection of Chapter 11 and to propose a Chapter 11 plan of
reorganization for itself and the other filing subsidiaries, which will be
confirmed.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness are
stayed and the other contractual obligations may not be enforced against the
Company. In addition, the Company may reject executory contracts and lease
obligations. Parties affected by these rejections may file claims with the
Bankruptcy Court in accordance with the reorganization process. If the Company
is able to successfully reorganize, substantially all unsecured liabilities as
of the petition date would be subject to settlement under a plan of
reorganization to be voted upon by all impaired classes of creditors and equity
security holders and approved by the Bankruptcy Court.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to this event,
including the Company's leveraged financial structure and losses from
operations, such realization of assets and liquidation of liabilities is subject
to significant uncertainty. While under the protection of Chapter 11, the
Company may sell or otherwise dispose of assets, and liquidate or settle
liabilities, for amounts other than those reflected in the financial statements,
Further, a plan to reorganize could materially change the amounts reported in
the financial statements, which do not give effect to all
7
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PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
adjustments of the carrying value of assets or liabilities that might be
necessary as a consequence of a plan of reorganization. The appropriateness of
using the going concern basis is dependent upon, among other things,
confirmation of a plan of reorganization, future profitable operations and the
ability to generate sufficient cash from operations and financing operations to
meet obligations.
In connection with the reorganization, the Company will adopt Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. This statement provides guidance on financial reporting for
entities that have filed petitions with the Bankruptcy Court and expect to
reorganize as going concerns under Chapter 11 of Title 11 of the United States
Code.
Note 3 - 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 4 - 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). 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 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 again began 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
8
<PAGE> 9
PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
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 to 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). The
Company has been in ongoing default under the Financing Arrangement and,
accordingly, these default warrants are 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,
(i.e. 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.
9
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PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
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
Bankruptcy Court actions or proceedings related to the bankruptcy, 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.
As discussed in Note 2 to the Consolidated Financial Statements, due to
the inability of the Company to negotiate out of court settlements with its
various lenders and trade creditors, the Company and certain of its subsidiaries
have filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Court. As a result of the Chapter 11 filing the Company and those subsidiaries
have ceased making certain interest, trade payables and other liabilities
payments that arose prior to the Chapter 11 filing. Payments related to these
liabilities are deferred, in most cases, until a plan for reorganization is
confirmed by the Bankruptcy Court.
Results of Operations
The revenue for the three month period ending September 30, 1999 was
$2,826,108, an increase of $106,641, compared to the revenue for the three month
period ending September 30, 1998 of $2,719,467. Revenue for the nine month
period ended September 30, 1999 was $9,373,125 compared with $9,028,798 for the
nine month period ended September 30, 1998, a increase of $344,327 (an increase
of 3.8%). The increase in revenue is due to an overall increase in practice and
laboratory revenue. The operating expenses for the three month period ending
September 30, 1999 were $3,007,221, a decrease of $28,694, compared to the
operating expenses for the three month period ending September 30, 1998 of
$3,036,415. Operating expenses increased $215,045 (an increase of 2.3%) to
$9,542,407 for the nine month period ended September 30, 1999 from $9,327,362
for the nine month period ended September 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 September 30,
1999 was $230,991, an increase of $3,105 compared to the interest expense for
the three month period ending September 30, 1998 of $227,886. Interest expense
increased $65,732 to $717,024 for the nine month period ended September 30, 1999
versus $651,992 incurred in the comparable nine 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 September 30, 1999 was
$411,070, a decrease of $133,677, compared to the net loss for the three month
period ending September 30, 1998 of $544,747. However, the net loss
10
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PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
for the nine month period ended September 30, 1999 was $878,809. The net loss
for the nine month period ended September 30, 1999 decreased by $55,201 when
compared with the net loss of $934,010 for the nine month period ended September
30, 1998. This decrease in the net loss for the nine month period is primarily
due to stronger sales.
Financial Condition
As discussed in Note 2 to the Consolidated Financial Statements, due to
the inability of the Company to negotiate out of court settlements with its
various lenders and trade creditors, the Company and certain of its subsidiaries
have filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Court. As a result of the Chapter 11 filing the Company and those subsidiaries
have ceased making certain interest, trade payables and other liabilities
payments that arose prior to the Chapter 11 filing. Payments related to these
liabilities are deferred, in most cases, until a plan for reorganization is
confirmed by the Bankruptcy Court.
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.
The Company is also considering the sale of certain operating units as
a means of generating cash and improving the future financial condition of the
Company.
Liquidity and Capital Resources
As of September 30, 1999, the Company had a working capital deficit of
$5,111,469 and a financial accumulated deficit of $16,220,056. Goodwill and
other intangibles comprise approximately 69.2% of total assets, leaving tangible
assets of approximately $2,105,627 and negative tangible net worth of
approximately $5,729,733.
During the three month period ended September 30, 1999 the Company's
cash and cash equivalents increased $205,607. During the nine month period ended
September 30, 1999, the Company's cash and cash equivalents increased $294,135.
Cash generated during the three month period ended September 30, 1999 from
depreciation and amortization was $198,500. Cash generated during the nine month
period ended September 30, 1999 from depreciation and amortization was $574,391.
The Company has extensive deferred maintenance on all of its
facilities. The Company estimates that it could cost in excess of $1.5 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.
11
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PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
As discussed in Note 2 to the Consolidated Financial Statements, due to
the inability of the Company to negotiate out of court settlements with its
various lenders and trade creditors, the Company and certain of its subsidiaries
have filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Court. As a result of the Chapter 11 filing the Company and those subsidiaries
have ceased making certain interest, trade payables and other liabilities
payments that arose prior to the Chapter 11 filing. Payments related to these
liabilities are deferred, in most cases, until a plan for reorganization is
confirmed by the Bankruptcy Court.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Note 2 to the Consolidated Financial Statements, due to
the inability of the Company to negotiate out of court settlements with its
various lenders and trade creditors, the Company and certain of its subsidiaries
have filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Court. As a result of the Chapter 11 filing the Company and those subsidiaries
have ceased making certain interest, trade payables and other liabilities
payments that arose prior to the Chapter 11 filing. Payments related to these
liabilities are deferred, in most cases, until a plan for reorganization is
confirmed by the Bankruptcy Court.
The Company is engaged in various litigation matters, and has a number
of unresolved claims, some of which involve substantial claims which could have
a material impact on the Company. As discussed in Note 2, the claims and
litigation have been stayed as a result of the Chapter 11 filing.
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 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
12
<PAGE> 13
PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
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
As discussed in Note 2 to the Consolidated Financial Statements, due to
the inability of the Company to negotiate out of court settlements with its
various lenders and trade creditors, the Company and certain of its subsidiaries
have filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Court. As a result of the Chapter 11 filing the Company and those subsidiaries
have ceased making certain interest, trade payables and other liabilities
payments that arose prior to the Chapter 11 filing. Payments related to these
liabilities are deferred, in most cases, until a plan for reorganization is
confirmed by the Bankruptcy Court.
As a result of the Chapter 11 filing, the Company would be considered
to be in default with respect to significantly all of its short- and long-term
debt.
Item 4. 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).
(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).
13
<PAGE> 14
PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
(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 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).
14
<PAGE> 15
PRINCETON DENTAL MANAGEMENT CORPORATION
Notes to the Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
(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 October 1, 1999:
1. On October 5, 1999 the Registrant filed a Form 8-K stating that:
a) Effective as of October 1, 1999, Princeton Dental Management
Corporation ("PDMC"), along with all of its operating
subsidiaries, filed a voluntary petition I the United States
Bankruptcy Court for the Middle District of Florida pursuant to
Chapter 11 of the United States Bankruptcy Code (Case No.
99-16012-8C1).
b) Effective as of September 27, 1999, the Board of Directors of PDMC
approved an extension of 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. The expiration date of the warrants has been
extended for a period of twelve (12) months, expiring on October
10, 2000.
15
<PAGE> 16
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, 1999, 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, 1999, to be signed on its behalf, by the undersigned there
unto duly authorized.
DATED: Princeton Dental Management Corporation
By: /s/ FLORENCE WAGNER
----------------------------------------
Florence Wagner
Chief Accounting Officer
16
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