1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: March 31. 1997 Commission File Number: 0-28680
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DENTLCARE MANAGEMENT, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0301637
- --------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2360 Hassell Rd, Ste F, Hoffman Estates, Illinois 60195
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(Address of principal executive offices)
8118 E. 63rd St., Tulsa, Oklahoma 74133
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(Former address of principal executive offices)
(847) 839-0891
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(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the close of the period covered by this report.
Common Stock $0.001 par value 10,934,867
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Class Outstanding at March 31, 1997
Transitional Small Business Disclosure Format: Yes |_| No |X|
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DENTLCARE MANAGEMENT, INC.
INDEX
Page
PART I. Financial Information
Item 1. Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1997 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 6-8
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996 9-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-15
PART II. Other Information 16
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DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
(Unaudited) (Audited)
ASSETS
Cash $ 36,113 $ 42,113
Barter currency (net of $134,380 & $142,032 reserves) 89,587 94,688
Accounts receivable (net of $423,939 & $423,939 reserves) 591,822 582,525
Due from trustee of subsidiary's bankruptcy trust 25,000 449,375
Due from officers, stockholders and employees 21,535 19,042
Prepaid expenses and supplies inventory 123,971 90,454
----------- -----------
Total current assets 888,028 1,278,197
Net property and equipment 1,378,706 1,342,843
Barter currency, less current
(net of $1,209,423 & $1,278,288 reserves) 806,282 852,194
Goodwill, net of amortization 190,571 --
Deposits and other 19,865 28,314
----------- -----------
Total assets $ 3,283,452 $ 3,501,548
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - affiliate $ 483,574 $ 496,684
Notes payable - other 500,000 --
Current portion of long-term obligations 188,090 208,202
Accounts payable 952,449 1,053,068
Accrued expenses 441,165 497,041
Due to stockholders 159,816 205,016
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Total current liabilities 2,725,094 2,460,011
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Long-term obligations, less current portion 412,253 512,328
Deferred revenue -- 22,462
Preferred stock 2,500,000 2,500,000
Common stock 10,935 10,852
Additional paid-in capital 6,054,089 5,854,172
Deficit (7,295,163) (6,734,521)
Due from trustee of subsidiary's bankruptcy trust (1,123,756) (1,123,756)
----------- -----------
Total stockholders' equity 146,105 506,747
----------- -----------
Total liabilities and stockholders' equity $ 3,283,452 $ 3,501,548
=========== ===========
See accompanying notes to consolidated financial statements.
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DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
1997 1996
Management fee revenues $ 1,387,611 $ 679,550
Cost of dental services:
Clinical and operating compensation 757,149 334,499
Dental supplies and laboratory costs 249,797 138,408
Facility and equipment costs 197,975 58,758
Depreciation and amortization 41,935 46,050
Advertising 76,194 61,586
Other costs 88,655 57,198
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1,411,705 696,499
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Gross profit (loss) (24,094) (16,949)
General and administrative expenses 470,624 284,852
Depreciation and amortization 3,616 2,500
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Operating loss (498,334) (304,301)
Other income (expense):
Other income 464 3,725
Interest expense (62,772) (12,951)
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Loss before income taxes (560,642) (313,527)
Income taxes -- --
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Net loss $ (560,642) $ (313,527)
============ ============
Net loss per common share $ (0.05) $ (0.07)
============ ============
Weighted average common shares outstanding 10,875,227 4,668,367
============ ============
See accompanying notes to consolidated financial statements.
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DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1997
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital Deficit
Balance at December 31, 1996 25,000 $ 2,500,000 10,851,700 $ 10,852 $ 5,854,172 $ (6,734,521)
Issuance of common stock in the
acquisition of a denture
laboratory and dental practice 8,333 8 24,992
Issuance of common stock as an
employee benefit 16,500 17 (17)
Issuance of common stock in
exchange for note payable 58,334 58 174,942
Net loss for the period (560,642)
--------- ----------- ---------- -------- ----------- ------------
Balance at March 31, 1997 25,000 $ 2,500,000 10,934,867 $ 10,935 $ 6,054,089 $ (7,295,163)
========= =========== ========== ======== =========== ============
Due From Stock-
Bankruptcy holders'
Trustee Equity
Balance at December 31, 1996 $ (1,123,756) $ 506,747
Issuance of common stock in the
acquisition of a denture
laboratory and dental practice 25,000
Issuance of common stock as an
employee benefit -
Issuance of common stock in
exchange for note payable 175,000
Net loss for the period (560,642)
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Balance at March 31, 1997 $ (1,123,756) $ 146,105
============ =========
See accompanying notes to consolidated financial statements.
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DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Ended March 31,
1997 1996
Increase (decrease) in cash
Cash flows from operating activities:
Cash received from customers $ 1,378,314 $ 616,385
Cash paid to suppliers and employees (2,014,305) (708,868)
Interest paid (39,070) (12,951)
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Net cash used by operating activities (675,061) (105,434)
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Cash flows from investing activities:
Capital expenditures (20,237) (39,663)
Proceeds from sale of assets 450 --
Bank overdrafts -- (12,180)
Due from officers and employees (47,693) 4,391
Cash utilized to acquire denture laboratory and dental practice (117,647) --
----------- -----------
Net cash used by investing activities (185,127) (47,452)
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Cash flows from financing activities:
Proceeds from loans 550,000 --
Repayments of notes and capital lease obligations (120,187) (354,274)
Proceeds from bankruptcy trustee 424,375
Proceeds from common stock offering -- 547,250
----------- -----------
Net cash provided by financing activities 854,188 192,976
----------- -----------
Net increase (decrease) in cash (6,000) 40,090
Cash at beginning of period 42,113 5,127
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Cash at end of period $ 36,113 $ 45,217
=========== ===========
Continued
See accompanying notes to consolidated financial statements.
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DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Continued)
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Ended March 31,
1997 1996
Reconciliation of net loss to net cash used by
operating activities
Net loss $(560,642) $(313,527)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation 43,409 35,250
Amortization 2,142 13,300
Interest accrued on related party notes payable 11,890 --
Decrease (increase) in barter currency, net 51,013 54,967
Decrease (increase) in accounts receivable (9,297) (63,165)
Decrease (increase) in prepaid expense and supplies inventory (31,817) (23,538)
Decrease (increase) in deposits (1,551) (1,450)
Increase (decrease) in accounts payable and accrued expenses (180,208) 192,729
--------- ---------
Net cash used in operating activities $(675,061) $(105,434)
========= =========
Supplementary schedule of noncash investing and
financing activities
Acquisition of dental practices and dental laboratories:
Increase in accounts receivable and other assets 1,700 200,000
Increase in dental equipment 59,485 150,000
Increase in goodwill 192,713 150,000
Deposit applied (10,000) --
(Increase) in accounts payable (1,251) (50,000)
(Increase) in other notes payable and long term debt (100,000) (450,000)
(Increase) in common stock (8) (1,350)
(Increase) decrease in additional paid in capital (24,992) 1,350
--------- ---------
Cash received (used) $(117,647) $ --
========= =========
Continued
See accompanying notes to consolidated financial statements.
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DENTLCARE MANAGEMENT, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows, Continued
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Ended March 31,
1997 1996
Supplementary schedule of noncash investing and
financing activities, continued
Other transactions
Common stock issued in exchange for notes payable 175,000
Common stock and note issued as partial consideration for
the acquisition of a denture laboratory and dental practice 125,000
See accompanying notes to consolidated financial statements.
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DentlCare Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1997 and 1996
(Unaudited)
A. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
DentlCare Management, Inc. (the "Company" or "DCMI") and its wholly-owned
subsidiaries, Dental Management Systems, Inc. ("DMSI"), DentureCare
Services, Inc. ("DCSI"), HPS-Nevada, Hippocratic Preservation Society,
Inc. ("HPS-Illinois") and National DentlCare Management, Inc. ("NDCMI").
All material intercompany accounts and transactions have been eliminated.
The interim consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation. The consolidated
financial statements as of March 31, 1997 and for the three months ended
March 31, 1997 and 1996 have not been audited. The consolidated balance
sheet as of December 31, 1996 has been derived from the audited
consolidated balance sheet. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations for interim reporting. The Company
believes that the disclosures contained herein are adequate to make the
information presented not misleading. The consolidated results of
operations for the three months ended March 31, 1997 is not necessarily
indicative of the results of operations which will be realized for the
year ending December 31, 1997. These interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report for
the year ended December 31, 1996, which is included in the Company's Form
10-KSB. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current presentation.
B. Acquisitions
Effective March 1, 1996, the Company acquired HPS-Nevada, a Nevada
corporation engaged in dental practice management, in exchange for
1,350,000 shares of the Company's common stock. Goodwill of $64,294, which
was recognized in connection with the acquisition, was written off prior
to December 31, 1996 based on expected consolidated future cash flows. On
June 30, 1996, the Company acquired HPS-Illinois, an Illinois corporation
engaged in dental practice management, in exchange for 1,350,000 shares of
the Company's common stock.
On January 31, 1997, HPS-Illinois acquired the net assets of RES, Inc. a
dental care related service provider in Chicago, Illinois for $250,000,
consisting of $125,000 in cash, 8,333 shares of the Company's common stock
valued at $3.00 per share and a $100,000 promissory note. Subsequent to
the acquisition, HPS-Illinois defaulted in the payment of the promissory
note and RES, Inc. filed a legal action against HPS-Illinois. The lawsuit
was settled by the Company and the Company agreed to pay RES, Inc. the
remaining $90,000 balance under the promissory note as follows: $25,000 on
or before September 30, 1997 and the remaining $65,000, with interest at
10% per annum, in 12 equal monthly installments of $5,715 commencing
October 1, 1997.
The above acquisitions have been accounted for by the purchase method of
accounting with the assets acquired and the liabilities assumed being
recorded at their fair values.
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C. Notes Payable, Long-term Debt and Capital Lease Obligations
During the three months ended March 31, 1997, the Company borrowed
$500,000 from a bank, with interest at 15%, and utilized a portion of the
proceeds to repay a $50,000 loan which had been made earlier in the
period. In addition, the Company utilized $117,647 of this amount to fund
the cash required to acquire RES, Inc. The remainder of the $500,000 was
used for working capital and to reduce accounts payable. The Company also
incurred long-term debt in the amount of $100,000 as a part of its
acquisition of RES, Inc. Other reductions in notes payable, long-term debt
and capital lease obligations amounted to $70,187 during the period.
D. Bankruptcy Proceedings
On March 23, 1995, the Company's wholly owned subsidiary DCSI, filed a
voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. In June 1996, the plan of reorganization (the "Plan"),
was confirmed by the Bankruptcy Court of the Northern District of
Oklahoma. In connection therewith, the Company issued 2,400,000 shares of
its common stock in complete satisfaction of the third party liabilities
of DCSI. Substantially all assets of DCSI are encumbered by liens which,
in the event of failure of Plan performance, would entitle the lienholders
to proceed against DCSI and its assets.
Advances from DCMI and DMSI to DCSI which occurred prior to the voluntary
petition are to be treated as unsecured claims while pre-petition and
post-petition advances to DCSI from DCMI and DMSI, which represent
advances for administrative purposes, are to be treated as priority
claims. In the opinion of the bankruptcy counsel for DCSI it is reasonably
possible that the following may occur and have an unfavorable outcome in
that DCSI may face certain loss contingencies:
In the event of a failure of performance of the terms of the Plan.
Such loss contingencies encompass all the claims asserted in the
Bankruptcy Case, covered by the Plan terms and such
post-confirmation claims as have or may arise within that Bankruptcy
Case proceeding, including professional fees and costs.
In the event of failure of performance of ongoing obligations in the
Bankruptcy Case proceedings, including but not limited to the
payment of U.S. Trustee fees and other post-confirmation claims,
including those of post-confirmation trade creditors and
professionals employed by DCSI.
In the event of failure to fulfill its ongoing obligations to
appoint and participate as a member of the Plan Trust Committee
established in the Plan, including failure to require the conduct of
Plan Committee meetings and the presentation of reports by the Plan
Trustee.
In the event that DCSI has been involved in procuring or has
received distributions from the Plan Trust before payments to
creditors having payment priority, in contravention of the order of
distribution set forth under the Plan terms.
In the event that DCSI is charged with a breach of fiduciary
obligations imposed on DCSI in the Bankruptcy Case, including such
obligations arising from its status as debtor in possession, as
reorganized debtor under the Plan and as Plan Committee member.
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E. Subsequent Events and Contingencies
On June 16, 1997, a lawsuit was filed in Nevada against DCMI by a company
for $125,000. On September 19, 1997, the Court entered a default judgment
against DCMI, which was subsequently set aside. DCMI's management believes
that the lawsuit will be settled for less than $125,000.
On July 24, 1997, a lawsuit was filed in Texas against DCMI by an
individual for $175,000 alleging breach of contract and violation of
certain securities laws. The case was subsequently settled for $100,000
and the issuance of 50,000 shares of the Company's common stock.
The following are contingent liabilities of the Company due to provisions
included in the corporate bylaws and pursuant to indemnification
agreements between the Company and certain former officers:
On July 1, 1997, a District Court in Tulsa, Oklahoma granted a
judgment against certain former officers of the Company for
$347,762, plus interest, for failure to pay bank debt in accordance
with guarantees made by the former officers. The debt is scheduled
to be paid under DCSI's bankruptcy plan of reorganization however,
if the amount is not paid, the Company may be liable under an
indemnification agreement.
On July 17, 1997, the Internal Revenue Service (the "IRS") issued a
final notice of intent to levy civil penalties for $195,709 against
certain former officers of the Company relating to previous payroll
tax liabilities of DCSI. Although the underlying debt is scheduled
to be paid under DCSI's bankruptcy plan of reorganization, if the
amount is not paid, the Company may be liable under an
indemnification agreement. The IRS has verbally agreed to postpone
any attempt to levy as long as DCMI is current in its withholding
and payment of payroll taxes.
On August 12, 1997, a lawsuit was filed against certain former officers of
DCMI who had previously entered into an agreement to purchase 42,717
shares of DCMI's common stock from the plaintiff on July 31, 1997 for
$3.50 per share. The lawsuit, which claims that the terms of the agreement
had been breached, was filed for damages of $175,000. The lawsuit was
settled by DCMI for $120,000 with payment to be made over a 3-year period.
On August 27, 1997, certain former officers of DCMI who had previously
entered into an agreement to purchase 17,932 shares of DCMI's common stock
on July 31, 1997 from an individual for $3.50 per share, entered into a
Forbearance and Revised Agreement for Repurchase of Shares (the "Revised
Agreement"). Under the Revised Agreement, the individual, who is currently
an employee of DCMI, agreed to extend the date at which the shares must be
purchased to September 30, 1997 for 1/2 of the shares and December 31,
1997 for the balance of the shares. The Company is currently in default
under the Revised Agreement.
In August 1997, DCMI entered into a restructuring agreement (the
"Restructuring Agreement") with certain former officers (the "Shareholder
Group"), a creditor, Bridge Bank, and the following investment entities
and advisors: Capital International Holdings, Inc. ("CIH"), Capital
International Securities Group, Inc. ("CISG"), Motivo Investments Limited
("Motivo"), James Goldberg ("Goldberg"), JLG Trading, Inc. ("JLG"), Hudson
Riverview Consulting, Inc. ("Hudson") and James Neifeld ("Neifeld")
whereby DCMI agreed to satisfy its indebtedness to Bridge Bank with the
proceeds from the sale of its common stock in two private placement
offerings through CISG (the "Offerings"). The terms of the Restructuring
Agreement are as follows:
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The Shareholder Group agreed to deposit 3,698,218 shares of DCMI
common stock into escrow to be released 2/3 to Motivo, 1/6 to Hudson
and 1/6 to Neifeld pursuant to the following terms and conditions.
Upon receipt by DCMI of the minimum amount in the first Offering,
the common stock in escrow would be transferred into a voting trust
to be voted by the trustee in accordance with instructions of
Motivo, Hudson and Neifeld. Upon receipt by DCMI of the maximum
amount in the first Offering, 1,849,109 shares of common stock would
be transferred from the voting trust to Motivo, Hudson and Neifeld.
Upon receipt by DCMI of the minimum amount in the second Offering,
the remaining 1,849,109 shares of common stock would be transferred
from the voting trust to Motivo, Hudson and Neifeld.
The first Offering consisted of the sale of up to 10,000,000 shares
of the Company's common stock at $.25 per share. In the third and
fourth quarters of 1997, the Company sold 10,000,000 shares in the
first Offering and received $2,500,000, which was used to pay
certain liabilities, provide working capital and provide funds for
future acquisitions.
The second Offering is to consist of the sale of up to 1,800,000
shares of the Company's common stock at $2.50 per share. In May
1998, there was a reverse split of the Company's outstanding shares
of common stock whereby the common stockholders were issued one (1)
share of common stock for each five (5) shares held.
The Restructuring Agreement also provides that (i) upon receipt of
the minimum amount in the first Offering, Motivo shall have the
right to elect up to five additional directors of DCMI; (ii) upon
receipt of the maximum amount in the first Offering, DCMI shall
grant CIH warrants to purchase 2,500,000 shares of the Company's
common stock at an exercise price of $1.00 per share; and (iii) upon
receipt of the minimum amount in the second Offering, DCMI shall
grant CIH warrants to purchase 5,000,000 shares of the Company's
common stock at an exercise price of $1.20 per share.
In August 1997, the Company entered into three-year employment agreements
with three of its employees. The employment agreements provide that each
employee receive an annual salary of $72,000 with increases of 6% per
year. In addition, the employees received options to purchase a total of
550,000 shares of the Company's common stock at the market value of the
common stock at September 1, 1997.
On August 28, 1997, the Company entered into an employment agreement with
Dr. Charles Mitchell which provides that Dr. Mitchell will serve as DCMI's
President and Chief Operations Officer through December 31, 2002. As
compensation for his services, Dr. Mitchell is to receive an annual salary
of $96,000 with increases of 6% per year, 100,000 shares of the Company's
common stock, an annual cash bonus of 3% of the Company's annual pre-tax
earnings and options to purchase up to 3,100,000 shares of the Company's
common stock exercisable upon the achievement of certain earnings. In
addition, Dr. Mitchell agreed to cause the sale of the operating assets of
several dental practices (the "Practices") to DCMI in exchange for
$200,000 and $1,000,000 of preferred stock which is convertible into
2,000,000 shares of DCMI's common stock. Subsequent to the sale, DCMI will
assume the management of the Practices. The shares of common stock to be
issued under the employment agreement shall be decreased proportionally to
the extent the first six months pre-tax profits of the Practices do not
equal $125,000. On November 1, 1997, DCMI acquired the operating assets of
the Practices in a business combination accounted for as a purchase. The
acquisition was completed through the payment of $200,000 and the issuance
of 2,000,000 shares of the Company's common stock.
The Series A preferred stock dividends of $100,000 ($.04 per share) are in
arrears through December 1, 1997. Under the Company's agreement with the
holders of the Series A preferred stock they have the right to appoint
members to the Board of Directors with voting power equal to
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50% if the dividends are not paid when due. In January 1998, the Company
entered into an agreement with the holders of the preferred stock whereby
they agreed that the preferred stock dividends for the period from
November 1996 through November 1998 would be paid through the issuance of
the Company's common stock.
F. Continuation of the Company as a Going Concern
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplates the
continuation of the Company as a going concern. As of March 31, 1997, the
Company had a deficiency in working capital of $1,837,000 and has
sustained substantial operating losses since inception. Although, the
Company raised $2,500,000 from the sale of 10,000,000 shares of its common
stock in the third and fourth quarters of 1997, the Company will need
additional working capital to fund its future operations. In view of these
matters, realization of the assets included in the accompanying balance
sheet is dependent upon the continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing
requirements and the success of its future operations. Management believes
that actions currently being taken to revise the Company's operating and
financial requirements provide the opportunity for the Company to continue
as a going concern.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, the Company may publish forward-looking statements relating
to certain matters, including anticipated financial performance, business
prospects, product development, and other similar matters. All statements other
than statements of historical fact contained in this Form 10-QSB or in any other
report of the Company are forward-looking statements. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of that safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. In addition,
the Company disclaims any intent or obligation to update those forward-looking
statements.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements included herein.
Results of Operations
During the three months ended March 31, 1997, dental practice management
revenues amounted to $1,387,611, which included $644,769 (47%) from the Las
Vegas operations, $380,408 (27%) from the Tulsa operations and $362,434 (26%)
from the Chicago operations. For the same period in the preceding year, dental
practice management revenues amounted to $679,550, which included $183,859 (27%)
from the Las Vegas operations and $495,691 (73%) from the Tulsa operations. The
Company acquired the Las Vegas operations in March 1996 and the Chicago
operations in July 1996.
On a pro forma basis, the Las Vegas operations would have had approximately
$550,000 in dental practice management revenues during the three months ended
March 31, 1996. Accordingly, dental practice management revenues from the Las
Vegas operations have increased approximately 17% during the three months ended
March 31, 1997 as compared to the same period in 1996 on a proforma basis. The
increase is primarily attributed to the opening of an additional office at the
end of 1996. During the three months ended March 31, 1997, the Las Vegas
operations had a gross profit (before administrative costs and other income and
expenses) of $47,026 as compared to a loss of $2,869 during the one month period
ended March 31, 1996.
During the three months ended March 31, 1997, dental practice management
revenues from the Tulsa operations declined 23% from the same period in the
prior year. One office was closed as of the end of the third quarter of 1996,
which accounted for 10% of the decline. A 25% decrease in revenues of one of the
remaining offices accounted for the remaining 13% revenue decline. During the
three months ended March 31, 1997, the Tulsa operations had a loss (before
administrative costs and other income and expenses) of $44,901 as compared to a
loss of $16,634 during the same period in 1996. The increase in the loss was the
result of the revenue decrease of $115,358, which was partially offset by
reductions in (i) clinical and operating compensation of $14,409, (ii) dental
supplies and laboratory costs of $11,080, (iii) other operating costs of
$26,410, (iv) advertising costs of $10,432 and (v) depreciation and amortization
of $27,976.
During the three months ended March 31, 1997, revenues from the Chicago
operations remained relatively stable as compared to the year earlier period on
a proforma basis. For the three months ended March 31, 1997, the Chicago
operations had a loss (before administrative costs and other income and
expenses) of $26,219, approximately one-half of which was from start-up costs
associated with a dental insurance company started by the Company during the
first quarter of 1997. The dental insurance company's operations were
discontinued during the fourth quarter of 1997.
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During the three months ended March 31, 1997, general and administrative
expenses of the Company amounted to $470,624, compared to $284,852 for the same
period in 1996, an increase of 65%. The principal components of the increase
were higher compensation costs and higher travel costs associated with the
additional dental practices under management by the Company in 1997.
Interest expense increased $49,821 (385%) during the three months ended March
31, 1997 as compared to the same period in 1996. The increase is primarily due
to the increased debt at both the Las Vegas and Chicago locations, as well as
working capital loans which the Company initiated during January 1997.
Liquidity and Capital Resources
As of March 31, 1997, the Company had a deficiency in working capital of
$1,837,066, compared to a deficiency in working capital of $1,181,814 as of
December 31, 1996, an increase of $655,252. The increase is primarily due to the
loss for the three months ended March 31, 1997 of $560,642. Current assets
decreased $390,169 during the three months ended March 31, 1997, primarily as a
result of the collection of $424,375 from the trustee of the bankruptcy trust of
a subsidiary of the Company. Current liabilities increased during the same
period by $265,083, which was primarily due to the increase in notes payable of
$500,000, offset by decreases in other current liabilities.
As of March 31, 1997, the Company's stockholders' equity amounted to $146,105 as
compared to $506,747 at December 31, 1996. The decrease is attributable to the
loss for the three months ended March 31, 1997 of $560,642, less $200,000 in
common stock that was issued to retire a $175,000 note payable and $25,000 as
partial consideration for the acquisition of RES, Inc. in January 1997.
During the three months ended March 31,1997, the Company purchased $20,000 in
capital equipment and added equipment totaling $59,000 in connection with the
acquisition of RES, Inc.
During the three months ended March 31, 1997, the Company borrowed $500,000 from
Bridge Bank and utilized the proceeds to reduce its outstanding obligations. The
$500,000 loan was exchanged for the Company's common stock in connection with
the first Offering. (See Note E of Notes to Consolidated Financial Statements.)
As of March 31, 1997, the Company had a deficiency in working capital of
approximately $1,837,000 and has sustained substantial operating losses since
its inception. Although, the Company raised $2,500,000 from the sale of
10,000,000 shares of its common stock in the fourth quarter of 1997, the Company
will need additional working capital to fund its future operations. (See Note F
of Notes to Consolidated Financial Statements.)
Trends
There are no seasonal factors affecting the Company's business.
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16
PART II
ITEM 1. LEGAL PROCEEDINGS.
See Note E of Notes to Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - None during the three months ended March 31,
1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTLCARE MANAGEMENT, INC.
Date: August 3, 1998 By: /s/ Ron Stoeppelwerth
-----------------------
Ron Stoeppelwerth
Chief Financial Officer and
Principal Accounting Officer
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