-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHnMbgXBFwF+sGW4MOFM09inyKf3HBy6Nh6wrfln17DqGks77kBjUuk5C3IUjQiA k3XwxMesm+dKcp07zDPWtw== 0001038838-08-000155.txt : 20080410 0001038838-08-000155.hdr.sgml : 20080410 20080410165538 ACCESSION NUMBER: 0001038838-08-000155 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080410 DATE AS OF CHANGE: 20080410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENTAL PATIENT CARE AMERICA INC CENTRAL INDEX KEY: 0001103017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 870639343 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-37842 FILM NUMBER: 08750480 BUSINESS ADDRESS: STREET 1: 2150 SOUTH 1300 EAST STREET 2: SUITE 500 CITY: SALT LAKE CITY STATE: UT ZIP: 84106 BUSINESS PHONE: 801-990-3314 MAIL ADDRESS: STREET 1: 2150 SOUTH 1300 EAST STREET 2: SUITE 500 CITY: SALT LAKE CITY STATE: UT ZIP: 84106 FORMER COMPANY: FORMER CONFORMED NAME: MOUNTAIN OIL INC DATE OF NAME CHANGE: 20000502 10KSB 1 k123107.htm 10-KSB YEAR ENDED DECEMBER 31, 2007

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

 

FORM 10-KSB

 

Annual Report Pursuant

to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

For the fiscal year ended

December 31, 2007

 

Commission file number

333-37842

 

DENTAL PATIENT CARE AMERICA, INC.

(Exact name of small business issuer as specified in its charter)

 

Utah

87-0373840

(State or other jurisdiction of incorporation)

(IRS Employer Identification No.)

 

 

2150 S. 1300 E., Suite 500

Salt Lake City, Utah

 

84106

(Address of principal executive offices)

(Zip Code)

 

(801) 990-3311

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

 

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act: o.

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo

 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o.

 

State issuer’s revenues for its most recent fiscal year:

 

 

Revenues for the fiscal year ended December 31, 2007 were $1,446,848

 

 


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days (See definition of affiliate in Rule 12b-22 of the Exchange Act).

 

As of April 7, 2008, based on the average of the bid and asked quotations of $0.19 appearing on the OTC Bulletin Board interdealer quotation system on that date, the aggregate market value of the 15,960,890 shares held by non-affiliates was $3,032,569.

 

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PAST FIVE YEARS

 

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

 

Yes o

No o

APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

 

As of March 31, 2008, there were 23,812,397 shares of the issuer’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933 ("Securities Act"). The list of documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).            

 

None.

 

 

Transitional Small Business Disclosure Format (check one):

Yes o;

No x

 

2

 


DENTAL PATIENT CARE AMERICA, INC.

 

TABLE OF CONTENTS TO ANNUAL REPORT

ON FORM 10-KSB

 

YEAR ENDED DECEMBER 31, 2007

 

PART I

 

Item 1.

Description of Business

4

Item 2.

Description of Property

15

Item 3.

Legal Proceedings

16

Item 4.

Submission of Matters to a Vote of Security Holders

16

 

 

PART II

 

Item 5.

Market for Common Equity and Related Stockholder Matters

16

Item 6.

Management’s Discussion and Analysis or Plan of Operation

18

Item 7.

Financial Statements

36

Item 8.

Changes in and Disagreements with Accountants on Accounting and Financial

 

Disclosures

36

Item 8A.

Controls and Procedures

36

Item 8B.

Other Information

37

 

PART III

 

Item 9.

Directors, Executive Officers, Promoters and Control Persons; Compliance

 

With Section 16(a) of the Exchange Act

37

Item 10.

Executive Compensation

39

Item 11.

Security Ownership of Certain Beneficial Owners and Management and Related Stock-

 

holder Matters

41

Item 12.

Certain Relationships and Related Transactions

42

Item 13.

Exhibits

43

Item 14.

Principal Accountant Fees and Services

43

 

 

 

SIGNATURES

 

44

 

3

 


Forward-Looking Statements

 

When used in this Form 10-KSB, in our filings with the Securities and Exchange Commission (“SEC”), in our press releases or other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

 

We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, are based on certain assumptions and expectations which may or may not be valid or actually occur, and which involve various risks and uncertainties, including but not limited to risk of a lack of demand or low demand for our products and services; competitive products and pricing; changes in the regulation of our industry; a failure to timely obtain necessary regulatory approvals; changes to the tax laws; failure to obtain adequate funding; additional costs associated with compliance with the Securities and Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, including any changes in the SEC’s rules, and other corporate governance requirements; failure of member dentists to timely and accurately pay management and other fees, changing government regulations and laws applicable to the delivery of dental services, competitive factors such as pricing pressures and/or competition to hire and retain employees; the results of current and/or future legal proceedings and government agency proceedings which may arise out of our operations (including our dental benefits plan business and the attendant risks of fines, liabilities, penalties, suspension and/or debarment; undertaking acquisitions that could increase our costs or liabilities or be disruptive; taking on additional debt to fund acquisitions or to implement affiliate agreements; failure to adequately integrate acquired businesses; material changes in laws or regulations applicable to the Company’s businesses; as well as other factors and other risks set forth in Item 6 “Risk Factors” and elsewhere herein.

 

Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

 

PART I

 

Item 1. Description of Business

 

Overview

 

Dental Patient Care America, Inc. (“we”, “us”, “our”, “the Company” and “DPCA”) is incorporated under the laws of the state of Utah. We are in the business of providing services to dentists and the dental industry. Our business is conducted through three operating subsidiaries, Dental Cooperative, Inc., Dental Practice Transition, Inc. and U.S. DentistDirect, Inc.

 

Dental Cooperative, Inc., our oldest operating subsidiary, was incorporated in Utah in 1998 for the purpose of organizing dentists into a cooperative model of contractually networked dental practices, allowing member dentists to access a variety of benefits from the cooperative structure. Such benefits include programs to purchase supplies, laboratory and other operating services, insurance and employee benefits programs, opportunities for profit sharing through the cooperative model and, more recently, preferential business financing through the Company’s financing agreements with Stillwater National Bank and Trust Company as described herein. Various dental patient marketing programs are also provided, such as the organization of its member dentists into a network, which offers dental care plans to employers and other groups.

 

Dental Practice Transition, Inc., another subsidiary, was incorporated in December 2004. During 2007, we commenced implementing dental member practice transition funding models through Dental Practice Transition, Inc. using the referral lending agreements we had concluded with Stillwater National

 

4

 


Bank and Trust Company during 2006. The implementation of these models provides the ability to member dental practitioners who have chosen to retire or otherwise exit their practice to obtain financing toward the future transition of their practice to a member practitioner who wishes to assume the operations of the exiting member. Members who enter into such financing agreements are sometimes referred to in this report as “Affiliate Members.” During 2007, we completed our acquisition of two dental practices and completed our first five dental practice purchase and transition financing arrangements and one practice sale arrangement. Subsequent to year end, we completed an additional two dental practice purchase and transition financing arrangements. We believe that this new line of business will enable us to demonstrate the capability of the Dental Cooperative model to increase profitability at dental practices with the intent to profitably finance the enhanced dental practices to new dentists.

 

U.S. DentistDirect, Inc., another operating subsidiary, was incorporated in Utah in 2004 to conduct a dental benefits plan business for the purpose of generating patient flow for the Dental Cooperative member dentists who participate as the provider panel for the DentistDirect, LLC offerings. This subsidiary did not generate any revenues during 2007.

 

During the year ended December 31, 2007, we derived $315,147 of our revenue from our Dental Cooperative business. Our total revenue in 2007 (after netting member incentives fees of $89,373 in accordance with EITF 01-09) was $1,446,848, compared to $310,485 in 2006. The increase in revenue resulted primarily from the consolidation of one acquired dental practice and revenues from our new Affiliate Members. We also realized $435,238 of income from discontinued operations resulting from the sale of a practice through our Dental Practice Transition business.

 

We plan to continue conducting the dental cooperative business of Dental Cooperative, Inc., and the transitioning of dental practices through Dental Practice Transition, Inc. In the future, our dental practice transition agreements will be entered into by Dental Practice Transition, Inc. We also plan to continue the business relationship between U.S. DentistDirect, Inc. and DentistDirect, LLC for the purpose of creating and directing patient flow.

 

Business Development and Promotional Activities

 

We primarily promote our Dental Cooperative membership agreements by meeting face-to-face with dentists as a result of referrals from existing members and other introductions. We also make visual and other presentations at dental association meetings and in dental industry trade journals. We primarily promote our Dental Practice Transition arrangements by meeting face-to-face with dentists who are members of the Cooperative.

 

In 2006 we finalized the lending agreements with Stillwater National Bank and Trust Company (“SNB”) described herein and during 2007 we began implementation of our Dental Practice Transition Business by completing our first five dental practice purchase and transition financing arrangements and one practice sale arrangement. Subsequent to December 31, 2007, we completed an additional two dental practice purchase and transition financing arrangements. The lending agreements with SNB facilitated both our purchase and transition financing arrangements and our sale arrangement.

 

During the second quarter of 2007, we standardized the practice purchase and transition financing arrangements entered into in connection with our Dental Practice Transition Business and we determined that such agreements were no longer material to the Company on an individual basis. As a result, from and after September 30, 2007, we discontinued our previous practice of filing a current report on Form 8-K each time a practice purchase and transition financing arrangement was entered into and of filing copies of such agreements as exhibits.

 

On December 27, 2006, we entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland made loans to the Company in the aggregate principal amount of five hundred thousand dollars ($500,000) bearing interest at the rate of ten percent (10%) per annum. The principal amount is due and payable in full April 30, 2012. As collateral for the loan, we granted Heartland a security interest in substantially all of our assets. As

 

5

 


additional consideration for the loan, we issued a warrant to Heartland that is currently exercisable for 4.0% of our issued and outstanding common stock, on a fully diluted basis. We also agreed to file a registration statement registering the resale of the warrant and common stock that is issuable upon exercise of the warrants. We also executed a Benchmark Services Agreement with Heartland whereby Heartland agreed to provide benchmarking services to dental practices who received funding through Stillwater National Bank and Trust Company in connection with an effective Affiliate Member Practice Purchase Agreement to which the Company is a party (a “Covered Practice”). In consideration for such services, Heartland will be paid an amount equal to one percent (1%) of the aggregate collected revenues of the Covered Practices during each quarterly period that the agreement is in effect. The Company and its directors also entered into a Tag Along Rights Agreement with Heartland whereby the directors granted Heartland tag along rights should a director enter into an agreement to transfer shares held by such director. The foregoing summary is qualified in its entirety by reference to the actual Heartland agreements, copies of which were included as exhibits to our current report on Form 8-K dated December 27, 2006.

 

Substantially all of our business to date has been conducted in the state of Utah. With the necessary regulatory approvals and funding arrangements that are now in place, we plan to expand our business into the adjacent Western States and subsequently the United States. There can be no assurance, however, that we will be successful in meeting this objective.

 

Growth Strategy

 

 

Dental Cooperative

 

Our Dental Cooperative business has remained fairly stable in the number of member dental practices agreeing to pay management and other fees for membership benefits. We intend to continue pursuing quality dental practices to become members of Dental Cooperative and to continue offering our Affiliate Member products and related financing sources that were put in place in January 2007.

 

Dental Cooperative now offers both Affiliate Member Agreements and Associate Member Agreements. Both membership types offer a standard set of benefits with the primary difference between the two types of cooperative membership being the provision of financing to Affiliate Members as part of the transition arrangements of their dental practices with accordingly higher membership fees. The Associate Member Agreements provide loans only for business financing purposes, again through the Company’s financing arrangements with Stillwater National Bank and Trust Company. During 2007, the Associate Member fees were changed from a percentage of the Associate Member’s monthly collections, to a fixed monthly fee, which greatly simplified the billing and reporting process for both the Associate Members and the Company.

 

Management believes Dental Cooperative revenue will continue to grow through new Affiliate Members and the change of new and existing Associate Members into Affiliate Members with the increased fees associated with Affiliate Memberships.

 

 

Dental Practice Transition

 

In an effort to start our Dental Practice Transition business, on December 4, 2006, we entered into an agreement (the “SNB Agreement”) with Stillwater National Bank and Trust Company (the “SNB”). The Agreement provides that the Company will refer to SNB loans in connection with the Company’s Affiliate Member Practice Purchase Agreements (the “Purchase Agreement”). The loans will be made directly to the dental practice or dental practitioner (the “Provider”) who is a party to the Purchase Agreement. The Company and SNB have agreed on a standard form of loan package, which is subject to negotiation between the Provider and SNB. The loans will be secured and guaranteed by the Provider. SNB has the right, in its sole discretion, to accept or reject any loan package. As a result, there can be no assurance that there will be any additional loans generated in connection with the Agreement other than those closed and in process. The Agreement also provides that the Company and its subsidiaries are required to give SNB the exclusive right of first refusal to provide various types of third party financing during the five year period following the Execution of the Agreement. The foregoing summary is qualified in its entirety by reference to the actual agreements with Stillwater National Bank and Trust Company, copies of which were included as exhibits to our current report on Form 8-K dated December 4, 2006.

 

6

 


 

During 2007, the Company entered into five Affiliate Member dental practice purchase and transition financing arrangements and one sale arrangement. Subsequent to December 31, 2007, the Company entered into two additional Affiliate Member dental practice purchase and transition financing arrangements. The Company charges Affiliate Members membership fees based upon the margin from the dental practices that enter into such agreements, the amount of financing obtained by the practice in the funding transaction, or a percentage of the practice’s valuation expressed as a function of the annual cash collections of the practice. Membership fees associated with Affiliate Members are established under the contractual terms entered into when the financing agreement was concluded and currently range from approximately $1,700 to approximately $5,300 per month. Since Affiliate Member fees are reasonably determinable and estimable, such fees are accrued and recognized in the period earned.

 

 

Consolidated Practices

 

 

Acquisition of Practice from Dr. Clegg

 

On November 17, 2006, the Company, through Dental Cooperative, entered into a Purchase Agreement with Dr. Richard Clegg and Richard R. Clegg DDS PC providing for the Cooperative’s acquisition of substantially all of the assets of Dr. Clegg’s dental practice in consideration for a payments in the form of Company stock and cash. The Purchase Agreement also contains non-compete, confidentiality and indemnification provisions. The closing of the Purchase Agreement was subject to various contingencies. On January 20, 2007, the Company and Dr. Clegg waived all closing contingencies and the parties closed on the Purchase Agreement. The consideration given for the acquisition was $500,000 cash, which is payable on the fifth anniversary of the acquisition and 300,000 shares of the Company’s common stock, of which 60,000 shares were given upon acquisition and 60,000 will be given on the anniversary of the acquisition for the next four years. Goodwill of $67,833 resulting from the acquisition resulted from the payment of a premium (i.e. goodwill), over the fair value of the net tangible and identified intangible assets. The purchased goodwill is not deductible for tax purposes.

 

In connection with the Purchase Agreement, the Cooperative and Dr. Clegg executed a Management Services Agreement. Under the Management Agreement, the Company has retained Dr. Clegg to manage and operate the dental practice for a five year period in consideration for a percentage of the dental practice’s margin (i.e., the dental practice’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, (ii) confidentiality and indemnification provisions, and (iii) a purchase option whereby Dr. Clegg could purchase the dental practice for (a) the number of shares of the Company’s common stock that the Company has issued in connection with the purchase of the dental practice, plus (b) cash in an amount equal to one percent of the dental practice’s collection during the period during which Dr. Clegg managed the dental practice while the Management Agreement was effective. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

Our financial statements for the fiscal year ended December 31, 2007 include consolidated financial information from this acquired practice.

 

 

Acquisition and Subsequent Sale of Practice from DPAT  

 

DPAT owns and operates a dental practice. Michael Silva, Marlon Berrett, and Harry L. “Pete” Peterson (the “Members”), who are officers and/or directors of the Company, were the sole owners of DPAT. Effective January 22, 2007, the Members assigned their entire membership interest in DPAT to Dental Practice Transition, Inc. so that after the assignment was effective Dental Practice Transition, Inc. became the sole member of DPAT. The Members were not paid any consideration in connection with this transaction.

 

7

 


On September 11, 2007, Dental Practice Transition, Inc., in accordance with its business model and purpose, assigned its entire membership interest in DPAT to 39th Street Dental, LLC so that after the assignment was effective, 39th Street Dental, LLC became the sole member of DPAT. Dental Practice Transition, Inc. received $429,000, which included $396,598 in cash and a note receivable of $32,402, in consideration for the assignment. 39th Street Dental, LLC borrowed the funds to purchase DPAT from Stillwater National Bank and Trust Company. The members of 39th Street Dental, LLC personally guaranteed the loan.

 

Dental Practice Transition, Inc. is in the business of transitioning dental practices between dental practitioners who are exiting and entering their practice tenure, as well as providing financing for these transitions. The sale price of DPAT was evaluated and determined by the parties to the transaction utilizing 1) national and local comparable data relative to practice values for similarly situated dental operations of its size, type, historical operations, geographic location and sale terms; and 2) the relationship with respect to which the Company has financed and transitioned other practices it assists in similar transactions. The purpose of the sale was to provide the Company with working capital.

 

In connection with the sale, the company recognized a gain of $419,334. The sale was effective September 1, 2007. The results of operations for DPAT were reported within discontinued operations in the 2007 Consolidated of Statements of Operations. The 2007 Consolidated Statement of Cash Flows reports the cash flows of the discontinued operations.

 

Marlon R. Berrett, an officer and director of the Company, and Andrew Eberhardt, an officer of the Company, together own a fifty percent membership interest in 39th Street Dental, LLC. The remaining fifty percent membership interests are owned by the independent dentists who provide the 39th Street Dental, LLC’s dental services.

 

The financial statements for the fiscal year ended December 31, 2007 include, in Discontinued Operations, the consolidated financial information from DPAT which we acquired during the first quarter of 2007 and sold during the third quarter of 2007.

 

Affiliate Member Practices

 

 

Acquisition of Practice from Dental Associates, Inc.

 

Effective March 9, 2007, the Company, through Dental Cooperative, entered into a Purchase Agreement with Dental Associates, Inc. and Drs. Jack Rasmussen and Robert Boyer. Under the Purchase Agreement, the Cooperative may acquire substantially all of Drs. Rasmussen’s and Boyer’s dental practices in consideration for payments in the form of cash. The transfer of the practice assets is not anticipated to occur until the five year anniversary of closing date. In connection with the initial closing, Dental Associates, Inc. obtained a loan in the principal amount of one-half of the practice purchase price from Stillwater National Bank and Trust Company. The Purchase Agreement also contains non-compete, confidentiality and indemnification provisions.

 

In connection with the Purchase Agreement, the Cooperative, Dental Associates, Inc. and Drs. Rasmussen and Boyer executed a Management Agreement. Under the Management Agreement, the Company has retained Dental Associates, Inc. to manage and operate the dental practice for a five year period in consideration for a percentage of Dental Associates, Inc.’s margin (i.e., Dental Associates, Inc.’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement was effective immediately upon initial closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the Purchase Agreement and Management Agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

8

 


 

Acquisition of Practice from Dr. Packer

 

Effective April 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with P. Berrett Packer DDS, Inc. Dr. Berrett Packer. Under the purchase agreement, the Cooperative may acquire substantially all of Dr. Packer’s dental practice in consideration for future cash payments and 120,000 shares of common stock (24,000 were issued at closing and 24,000 will be issued on each of the first four annual anniversary dates and the closing). The transfer of the practice assets is not anticipated to occur until the five-year anniversary of closing date. In connection with the closing, the Provider obtained a loan in the principal amount of twenty-percent (20%) of the practice purchase price from Stillwater National Bank and Trust Company (the “Loan”). The Purchase Agreement also contains confidentiality, indemnification and other provisions.

 

In connection with the Purchase Agreement, the Cooperative, Provider and Dr. Packer executed a Management Services Agreement. Under the Management Agreement, the Company has retained the provider to independently manage and operate the dental practice for a five year period in consideration for a percentage of the provider’s margin (i.e., the provider’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the purchase agreement and related management agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

 

Acquisition of Practice from Dr. Anderson

 

Effective June 4, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., closed on an Affiliate Member Practice Purchase Agreement with Lowell K. Anderson DMD PC and Dr. Lowell K. Anderson. Under the purchase agreement, the Cooperative may acquire substantially all of Dr. Anderson’s dental practice in consideration for future cash payments and stock options exercisable for 1,000,000 shares of common stock. The transfer of the practice assets is not anticipated to occur until the five-year anniversary of closing date. In connection with the closing, the provider obtained a loan in the principal amount of fifty-percent (50%) of the practice purchase price from Stillwater National Bank and Trust Company. The purchase agreement also contains confidentiality, indemnification and other provisions.

 

In connection with the Purchase Agreement, the Cooperative, Provider and Dr. Anderson executed a Management Services Agreement. Under the Management Agreement, the Company has retained the Provider to independently manage and operate the dental practice for a five year period in consideration for a percentage of the provider’s margin (i.e., the provider’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the purchase agreement and management agreement to the amounts owing to the lender under the loan.

 

 

Acquisition of Practice from Dr. Woodbury

 

Effective November 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with William E. Woodbury, PC, (the “Provider”) and Dr. William E. Woodbury. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Woodbury’s dental practice in consideration for future cash payment. The amount of

 

9

 


such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Woodbury executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

Acquisition of Practice from Dr. Binns

 

Effective November 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Ralph Binns, DDS, (the “Provider”) and Dr. Ralph W. Binns. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Binns’ dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Binns executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

Acquisition of Practice from Dr. Rockwell

 

Subsequent to the end of the Company’s 2007 fiscal year, effective January 1, 2008, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Rosewood Dental, PC, (the “Provider”) and Dr. Michael S. Rockwell. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Rockwell’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Rockwell executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve

 

10

 


months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

Acquisition of Practice from Dr. Curtis

 

Subsequent to the end of the Company’s 2007 fiscal year, effective January 1, 2008, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Lindsay S. Curtis, DDS, (the “Provider”) and Dr. Lindsay S. Curtis. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Curtis’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Curtis executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

The Company plans to enter into additional Purchase and Management Agreements in the future.

 

 

DentistDirect

 

The Company, through its wholly owned subsidiary, U.S. DentistDirect, entered into a Memo of Understanding (the “Memo”) with Dentist Direct, LLC on November 9, 2006. The parties have not yet concluded the arrangements described in the Memo. U.S. DentistDirect intends to pursue an agreement to license the name and provider panel known as “Dentist Direct” but no agreement has been entered into and there can be no assurance that such arrangements will be agreed upon. All development costs and liabilities associated with the organization and formation of Dentist Direct, LLC have been provided by Harry “Pete” Peterson, a director of the Company. Mr. Peterson is also the President and an owner of Dentist Direct, LLC.

 

Market, Industry Background and Competition

 

The dental practice management and benefit plan markets are highly competitive. Many of our competitors have longer operating histories, are substantially larger and are better financed and better situated in the market than we are.

 

11

 


The Dental Cooperative Business

 

The dental practice management business of the dental services industry is highly competitive and is expected to become increasingly more competitive. Companies engaged in this business are referred to as “Dental Management Service Organizations” (DMSO’s). DMSO’s are usually characterized by the participating dentists being employees of the DMSO. We are aware of several DMSO’s that are currently operating in our Utah markets as well as in other contemplated United States markets. There many DMSO’s currently operating in other parts of the United States that may enter our markets in the future. We believe that our business model will substantively and critically differentiate DPCA from that of a typical DMSO by allowing dentists to remain completely independent, yet enjoy the business advantages of operating collectively. Other existing DMSO’s could attempt to adopt models similar to ours and may be better capitalized or otherwise enjoy competitive advantages, which may make it difficult for us to compete with them. The agreements with our member dentists contain non-compete provisions prohibiting our members from using our business model or any documents or knowledge they may have gained from us to compete with us for at least a two-year period.

 

The business of providing general and specialty dental services is highly competitive in the markets in which we operate. Competition for providing dental services always includes practitioners who have established practices and reputations. Although Dental Cooperative is in the business of assisting dental practices to compete more effectively, its member dentists compete against established dental practices in the retention and recruitment of dentists. If the availability of quality dentists begins to decline in Dental Cooperative’s markets, it may become more difficult to attract qualified dentists as members.

 

The members themselves may not be able to compete effectively against other existing practices or against new single or multi-specialty dental practices that enter their markets, or to compete against such practices in the recruitment of qualified dentists.

 

 

The DentistDirect Business

 

We anticipate that our dental benefit plan business will operate in a highly competitive environment. Principal competitors will include large insurance companies, which offer managed dental care and indemnity dental products, and independent companies including for-profit and not-for-profit HMOs, DHMOs, self-funded plans, PPOs and reduced fee-for-service dental plans offering dental benefits similar to some of those U.S. DentistDirect offers through its subcontractors.

 

We believe the principal competitive factors in the dental benefits industry are the cost of services (based on the level and type of benefits, premiums and co-payments), the reputation of the plan for providing quality dental care and the size of the plan’s provider network (including the number of available panel dentists and the convenience of their locations). Price competition may be especially relevant in seeking the accounts of governmental employers which award contracts on a periodic basis through competitive bidding. The dental benefits industry in general has been subjected to periods of intense price competition in the past, and similar intense competition in the managed dental care industry may occur in the future. There is increased competition from indemnity insurance companies through direct entry into the managed dental care market. It is likely that these efforts will intensify in the future. Frequently, such plans are offered in tandem with indemnity dental insurance coverage and/or PPO alternatives. In addition, an increasing number of medically oriented HMOs and PPOs include dental care benefits as part of their benefit programs.

 

Indemnity dental insurance coverage offered by insurance carriers may have a competitive advantage over other dental benefit plans because many such carriers are better known, are significantly larger and have substantially greater financial and other resources than we do.

 

Our dental benefits plan business does not require substantial amounts of capital and, other than government regulation, systems operating costs and the cost of obtaining and monitoring a dental panel, there are no significant barriers to new competitors entering the market. There can be no assurance that we will be

able to compete successfully with existing competitors or new market entrants. Any such additional competition could adversely affect results of operations from our dental benefits business.

 

12

 


 

 

Dental Practice Transition

 

We are aware of numerous banks and other lending institutions that can compete with us in the funding of the acquisition of dental practices. We are not aware of any potential competitors who are in the business of providing funding and significant operational assistance for dental practices of retiring dentists or dentists that are relocating. We believe that we are uniquely positioned due to the operational assistance we can provide to a dental practice. However, the dental market is highly competitive generally and competition offering the same services as we are seeking to provide may develop. Many of our potential competitors have longer operating histories, are substantially larger and are better financed and better situated in the market than we are. We cannot ensure we will be able to compete successfully against any competitors in this or any other market.

 

Government Regulation

 

The Dental Cooperative and Dental Practice Transition Businesses

 

The practice of dentistry is regulated at both the state and federal levels. There can be no assurance that the regulatory environment in which Dental Cooperative operates will not change significantly in the future. In general, regulation of health care-related companies is increasing. In connection with its operations in its existing market and expansion into new markets, Dental Cooperative may become subject to additional laws, regulations and interpretations or enforcement actions. The ability of Dental Cooperative to operate profitably will depend in part upon the ability of Dental Cooperative to operate in compliance with applicable health care regulations.

 

The laws of many states typically permit a dentist to conduct a dental practice only as an individual, a member of a partnership or an employee of a professional corporation, limited liability company or limited liability partnership. These laws typically prohibit, either by specific provision or as a matter of general policy, non-dental entities, such as Dental Cooperative, from practicing dentistry, from employing dentists and, in certain circumstances, hygienists or dental assistants, or from otherwise exercising control over the provision of dental services. As a result of these laws, Dental Cooperative provides practice management services to its members but does not employ dentists or control the practice of dentistry. Because under the Affiliate Member Agreements, Dental Cooperative may become the owner of a dental practice, at least for a period of time, Dental Cooperative will be under increased risk of regulatory action against it under these laws regulating the practice of dentistry.

 

All states have fraud and abuse laws that in many cases apply to referrals for items or services reimbursable by any insurer, not just by Medicare and Medicaid. A number of states also impose significant penalties for submitting false claims for dental services. Many states prohibit or require disclosure of self-referral arrangements and impose penalties for the violation of these laws. Many states also prohibit dentists from splitting fees with non-dentists. We believe that our Dental Cooperative profit sharing arrangements do not violate these laws on referral fees, although our conclusions have not been tested in any court or administrative venue.

 

Many states limit the ability of a person other than a licensed dentist to own or control equipment or offices used in a dental practice. Some of these states allow leasing of equipment and office space to a dental practice under a bona fide lease, if the equipment and office remain under the control of the dentist. Some states prohibit the advertising of dental services under a trade or corporate name. Some states require all advertisements to be in the name of the dentist. A number of states also regulate the content of advertisements of dental services and the use of promotional gift items. In addition, many states impose limits on the tasks that may be delegated by dentists to hygienists and dental assistants. Some states require entities designated as “clinics” to be licensed, and may define clinics to include dental practices that are owned or controlled in whole or in part by non-dentists. These laws and their interpretations vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. We intend to comply with these laws as we consider dental practices to fund through our proposed Dental Practice Transition business.

 

13

 


 

Although we believe our operations as currently conducted are in material compliance with existing applicable laws, there can be no assurance that our contractual arrangements will not be successfully challenged as violating applicable fraud and abuse, self-referral, false claims, fee-splitting, insurance, facility licensure or certificate-of-need laws or that the enforceability of such arrangements will not be limited as a result of such laws. In addition, there can be no assurance that the business structure under which Dental Cooperative operates, or the advertising strategy Dental Cooperative employs, will not be deemed to constitute the unlicensed practice of dentistry or the operation of an unlicensed clinic or health care facility.

 

 

The DentistDirect Business

 

We anticipate that when our dental benefit plan resumes operations it will be subject to substantial governmental regulation, principally under the insurance laws of the states in which our subcontractors conduct and will conduct business. Although specific requirements vary from state to state, these laws generally require that the plans insuring entity be licensed by the relevant state insurance department to offer dental care plans, and may also prescribe minimum levels of net worth and reserves; limit the ability of U.S. DentistDirect to pay dividends to the extent required regulatory capital would be impaired; establish the manner in which premiums are determined or structured, require filing for approval of products; certain product literature, premium levels and contract forms with subscribers, dentists and others (which may entail substantial delay in implementing changes or introducing new products), in some cases establish minimum benefit levels for our dental benefit plans; provide for periodic examinations, including quality assurance review; establish standards for plan management and other personnel; specify measures for resolving grievances and generally prohibit the acquisition of more than specified levels (as low as 5% in certain states) of the voting power over the plan without prior governmental approval. These regulatory provisions generally grant plenary power to the relevant agencies in interpreting and administering the applicable laws and regulations. U.S. DentistDirect, Inc. currently outsources or subcontracts all activities, which fall under regulatory and licensing obligations, to vendors who are required by agreement to maintain current and approved status on all licensing and regulatory requirements.

 

Various state regulatory agencies and legislatures have in the past considered, are presently considering, and may in the future propose regulatory and legislative changes, such as the establishment of prescribed minimum loss ratios or mandated schedules of benefits and the adoption of legislation requiring us to admit “any willing provider” to the plan’s dental panel, that could adversely affect both the Dental Cooperative business model and the U.S. DentistDirect business model. In addition, health care and insurance reform initiatives have been proposed and may be proposed in the future at the state and federal levels, which may adversely affect the offering of dental care plans and their profitability. We are unable to determine the likelihood or effect of any such regulatory or legislative changes.

 

State regulatory requirements may also limit our ability to operate in certain existing markets or adversely affect our ability to enter new markets on a de novo basis or through acquisitions. In some states we can only conduct business through a contractual arrangement with a licensed indemnity carrier or a full service HMO, which is generally a less advantageous and more cumbersome arrangement than offering dental care plans directly.

 

While the regulated nature of our dental benefit plan business may interfere with management’s plans for further geographic expansion, this regulatory environment also governs, to a greater or lesser extent, the conduct and expansion prospects of existing and new competitors.

 

Failure to maintain regulatory compliance and constructive relationships with relevant regulatory authorities could adversely affect our ability to conduct our dental benefit plan business, for example, by limiting our ability to obtain required approvals for new products or premium increases. In an extreme case, failure to comply with relevant laws and regulations may result in revocation of one or more of our licenses.

 

14

 


Dental Practice Transition

 

Various state regulatory agencies and legislatures have past legislation relating to the lending of money. Such legislation varies from state to state and may regulate the rates at which interest can be charged, required disclosures in connection with lending funds, collection practices, advertising methods, and other lending practices. Failure to maintain regulatory compliance could adversely affect our ability to conduct our dental practice transition business and could result in the imposition of fines and penalties. In the extreme case, it could result in our inability to conduct our dental practice transition business in one or more states.

 

We are also subject to the local and federal laws that are applicable to businesses generally. In the future, we may be subject to additional or different laws or regulations administered by the federal, state, local or foreign regulatory authorities. We can neither predict the nature of such future laws, regulations, interpretations or applications, nor what effect additional governmental regulations or administrative orders, when and if promulgated, would have on its business. They could, however, reduce our ability to import product or impose additional record-keeping or other requirements on us. Any or all such requirements could have a material adverse effect on our results of operations, liquidity and financial position.

 

Corporate History

 

Dental Patient Care America, Inc., formerly known as Mountain Oil, Inc., was organized on July 30, 1999, in Utah to acquire and develop oil and gas properties. On June 30, 2004, Mountain Oil, Inc. acquired Dental Cooperative, Inc., a Utah corporation organized in 1998 to operate a dental practice cooperative business, through the merger of a wholly owned subsidiary of Mountain Oil, Inc. with and into Dental Cooperative, Inc. In addition, Mountain Oil, Inc. changed its name to Dental Patient Care America, Inc. At the same time as the merger transaction closed, Mountain Oil, Inc. spun off another of its subsidiaries, in which it held all of its oil and gas assets and operations, to the shareholders of Mountain Oil, Inc. immediately prior to the merger transaction, thereby completely exiting the oil and gas business.

 

As of June 30, 2004, the shareholders of Dental Cooperative, Inc. were issued 18,823,288 shares of DPCA common stock, thus Dental Cooperative’s shareholders, as a group, owned 89% of the then issued and outstanding shares of DPCA. All of the members of the management of Mountain Oil, Inc. and its board of directors resigned as of June 30, 2004, except Mr. Harry L. “Pete” Peterson, a director. Prior to these resignations, the Mountain Oil, Inc. board of directors elected Michael Silva as a Director, and as Chairman and Chief Executive Officer; and elected Marlon Berrett as a Director, and as President and Chief Operating Officer.

 

In connection with the merger transaction, the former oil and gas operating subsidiary, the shares of which were spun off on June 30, 2004, executed and delivered to Dental Cooperative and DPCA an Indemnity Agreement holding them harmless from any cost, charge, claim or damages associated with the former oil and gas business.

 

Seasonality of Business

 

Our business is subject to minor effects of seasonality caused by the fact that many dental procedures are elective and some dental patients do not elect to have dental work done near holidays or during the summer.

 

Employees

 

As of March 31, 2008, we employed four people on a full time basis and utilized the services of a number of independent contractors. Our employees are not represented by any labor union, and we believe our relations with employees are good.

 

15

 


 

Item 2.

Description of Property

 

We have been in our current office space since September, 2005. Our executive offices are located in Salt Lake City, Utah, and consist of approximately 1000 square feet of leased office space on a month to month basis. Our lease also provides us with common area usage, and certain office support services, such a receptionist and conference room services. Our base rental expense is approximately $5,000 per month and is subject to adjustment. We also lease space for our dental practice from third party pursuant to a lease that expires in June 2013. This lease currently provides for an annual rent of approximately $27,500 and contains customary escalation charges from year-to-year. All leased space is considered to be adequate for the operation of our business, and no difficulties are foreseen in meeting any future space requirements.

 

Item 3.

Legal Proceedings

 

We are not involved in any legal proceedings and, to the best of our knowledge, no legal proceedings against the Company have been threatened.

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

No matters were submitted to the vote of security holders for the fourth quarter of the fiscal year ended December 31, 2007.

 

PART II

 

Item 5.   Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

 

Dividend Policy

 

To date, we have not paid dividends on our common stock. The payment of dividends on our common stock, if any, is at the discretion of the board and will depend upon our earnings, if any, our capital requirements and financial condition, and other relevant factors. See Item 6. “Management’s Discussion and Analysis or Plan of Operation.” We do not intend to declare any dividends in the foreseeable future, but instead intend to retain all earnings, if any, for use in our operations.

 

Share Price History

 

Our common stock is traded in the over-the-counter market in what is commonly referred to as the “Electronic” or “OTC Bulletin Board” or the “OTCBB” under the trading symbol “DPAT.OB.” The following table sets forth the high and low bid information of our common stock for the periods indicated. The price information contained in the table was obtained from the OTCBB. Note that the over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and that the quotations may not necessarily represent actual transactions in the common stock.

 

Quarter Ended

High

Low

2007

 

 

March 31

$0.29

$0.19

June 30

$0.20

$0.16

September 30

$0.19

$0.15

December 31

$0.18

$0.09

 

 

 

2006

 

 

March 31

$0.20

$0.20

June 30

$0.63

$0.26

September 30

$0.35

$0.23

December 31

$0.45

$0.20

 

 

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On April 7, 2008, the closing inside quotations for the Company’s common stock on the OTC Bulletin Board were $0.16 bid and $0.22 asked. The foregoing quotations represent inter-dealer prices without retail mark-up, mark-down, or commission, and may not represent actual transactions.       

 

Holders of Record

 

At March 31, 2008, there were approximately 413 holders of record of our common stock as reported by our transfer agent. In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single shareholder.

 

Equity Compensation Plans

 

On June 9, 2004, the Company granted stock options to five persons entitling them to purchase up to 264,000 shares of the Company’s common stock at an exercise price of $2.50 per share. These options expire on June 9, 2009. Such options are included in the table below as options granted under equity compensation plans not approved by security holders.

 

On June 6, 2006, the Company’s board of directors approved the Dental Patient Care America, Inc. 2006 Stock Option Plan (the “2006 Plan”) pursuant to which the Company authorized the issuance of up to 2,000,000 shares of common stock upon the exercise of stock options granted under the 2006 Plan. The purpose of this Plan is to advance the interests of the Company and its shareholders by helping the Company to obtain and retain the services of employees, officers, consultants, independent contractors, directors, and others upon whose judgment, initiative and efforts the Company is substantially dependent, and to provide those persons with further incentives to advance the interests of the Company. Options may only be granted under the 2006 Plan to persons who are at the time of grant members of the Dental Cooperative and such other persons or entities whom the Company’s board of directors may select from time to time. During June of 2006, the Company authorized and issued options to its member dentists to purchase 399,914 shares of common stock at an exercise price equal to eighty percent (80%) of the average closing price of the Company’s stock for the preceding 20 days prior to the date of exercise. During June of 2007, the Company authorized and issued options to its member dentists to purchase 150,000 shares of common stock under terms identical to those options issued in June of 2006. The variability in the exercise price requires these options to be treated as variable securities, and they will be revalued at the end of each reporting period. At the date of issuance, all of these options were fully vested and could be exercised at any time, therefore 100% of the option value was recognized during the year. During the years ended December 31, 2006 and 2007, 32,935 and 53,279 respectively of these options were exercised. As these options are variable securities, the Company revalued the 463,700 outstanding options using Black/Scholes models to estimate their fair market valuation at December 31, 2007. At December 31, 2007, the 463,700 remaining outstanding options had a Black/Scholes fair market value of $23,185.

 

On March 8, 2007, the Company’s board of directors approved the Dental Patient Care America, Inc. 2007 Stock Option Plan (the “2007 Plan”). A total of 14,000,000 shares of common stock were allocated to the Plan. In addition, on March 8, 2007, the board of directors granted options exercisable for 12,560,041 shares of common stock at an exercise price of $.30 per share. The effectiveness of the Plan and the grant of the options under the Plan were subject to shareholder approval. The option grants provided that the options were void and could not be exercised until and unless the shareholders of the Company approved the Plan and all grants thereunder through the date of Plan approval. The Company determined not to seek shareholder approval of the Plan or the options granted thereunder and to allow the Plan and the 12,56,041 options granted thereunder to terminate. As a result, as of March 8, 2008, the Plan is no longer in effect and all options granted under the Plan have terminated.

 

The following table sets forth information as of December 31, 2007 with respect to compensation plans under which equity securities of the Company are authorized for issuance. The table includes the 264,000 stock options granted in 2004 but not does not include the 2007 Stock Option Plan or the options granted thereunder since the 2007 Plan and all options granted thereunder have terminated.

 

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Number of securities to be

issued upon exercise of

outstanding options, warrants,

and rights

 

 

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))

Equity compensation plans approved by security holders

 

-

 

-

 

-

Equity compensation plans not approved by security holders

 

727,700

 

$1.00

 

1,450,086

Total

727,700

$1.00

1,450,086

 

Recent Sales of Unregistered Securities

 

During the fourth quarter of 2007, accredited option holders exercised options exercisable for 6,699 shares of common stock which resulted in aggregate proceeds of $938. These transactions were effected in reliance on the exemptions from registration provided by Rule 506 of Regulation D and Sections 4(2) and 4(6) of the Securities Act of 1933.

 

Transfer Agent

 

Interwest Transfer Co. Inc., 1981 East Murray-Holladay Road, Salt Lake City, Utah 84117, telephone (801) 272-9294, serves as transfer agent and registrar for the Company's common stock.

Issuer Purchases of Equity Securities

 

The Company has not adopted a stock repurchase plan and it did not purchase any shares of its equity securities during the last three months of the year ended December 31, 2007.

 

Item 6. Management’s Discussion and Analysis or Plan of Operation

 

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto.

 

Overview

 

 

Dental Cooperative Business

 

We earn revenue from our dental cooperative business through management fees assessed to our members as a percentage of their operating revenues and through marketing fees for patient referral services. In return, the Cooperative provides services to its members in the form of centralized purchasing of dental supplies and lab services, HR benefits, marketing services for patient flow, the opportunity to participate in profit sharing or bonus pools and, more recently, preferential business financing through the Company’s financing agreements with Stillwater National Bank and Trust Company as described herein. Our member dentists remain independent practitioners wholly responsible and liable for the conduct and performance of their dental practices. Such member dentists are referred to as Associate Member Dentists. It is also our intention as a part of our business model to offer practice transition funding. Such funding is designed to finance the transitional sale of successful dental practices from retiring dentists into the hands of younger practitioners. Such financing would involve a new membership fee sufficiently increased to pay the membership fee and repay the financed amount. Members who enter into such financing arrangements with the Cooperative are referred to as Affiliate Members. We were not able to offer loans to Affiliate Members and therefore those prior agreements were not binding. There can be no assurance that we will provide such services in the future.

 

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Dental Practice Transition Business

 

Under our Dental Practice Transition business, we earn revenue by charging Affiliate Members membership fees based upon the margin from the dental practices that enter into such agreements, the amount of financing obtained by the practice in the funding transaction, or a percentage of the practice’s valuation expressed as a function of the annual cash collections of the practice. Membership fees associated with Affiliate Members currently range from approximately $1,700 to approximately $5,300 per month. During 2007, we entered into five dental practice purchase and transition financing arrangements and one sale arrangement, as described below. Subsequent to the end of the 2007 fiscal year, we entered into two additional dental practice purchase and transition financing arrangements.

 

During the second quarter of 2007, we standardized the practice purchase and transition financing arrangements entered into in connection with our Dental Practice Transition Business and we determined that such agreements were no longer material to the Company on an individual basis. As a result, from and after September 30, 2007, we discontinued our previous practice of filing a current report on Form 8-K each time a practice purchase and transition financing arrangement was entered into and of filing copies of such agreements as exhibits.

 

Consolidated Practices

 

 

Acquisition of Practice from Dr. Clegg

 

On November 17, 2006, the Company, through Dental Cooperative, entered into a Purchase Agreement with Dr. Richard Clegg and Richard R. Clegg DDS PC providing for the Cooperative’s acquisition of substantially all of the assets of Dr. Clegg’s dental practice in consideration for a payments in the form of Company stock and cash. The Purchase Agreement also contains non-compete, confidentiality and indemnification provisions. The closing of the Purchase Agreement was subject to various contingencies. On January 20, 2007, the Company and Dr. Clegg waived all closing contingencies and the parties closed on the Purchase Agreement. The consideration given for the acquisition was $500,000 cash, which is payable on the fifth anniversary of the acquisition and 300,000 shares of the Company’s common stock, of which 60,000 shares were given upon acquisition and 60,000 will be given on the anniversary of the acquisition for the next four years. Goodwill of $67,833 resulting from the acquisition resulted from the payment of a premium (i.e. goodwill), over the fair value of the net tangible and identified intangible assets. The purchased goodwill is not deductible for tax purposes.

 

In connection with the Purchase Agreement, the Cooperative and Dr. Clegg executed a Management Services Agreement. Under the Management Agreement, the Company has retained Dr. Clegg to manage and operate the dental practice for a five year period in consideration a percentage of the dental practice’s margin (i.e., the dental practice’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, (ii) confidentiality and indemnification provisions, and (iii) a purchase option whereby Dr. Clegg could purchase the dental practice for (a) the number of shares of the Company’s common stock that the Company has issued in connection with the purchase of the dental practice, plus (b) cash in an amount equal to one percent of the dental practice’s collection during the period during which Dr. Clegg managed the dental practice while the Management Agreement was effective. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

The financial statements for the fiscal year ended December 31, 2007 include consolidated financial information from Richard R. Clegg DDS PC, which we acquired during the first quarter of 2007.

 

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Acquisition and Subsequent Sale of Practice from DPAT  

 

DPAT owns and operates a dental practice. Michael Silva, Marlon Berrett, and Harry L. “Pete” Peterson (the “Members”), who are officers and/or directors of the Company, were the sole owners of DPAT. Effective January 22, 2007, the Members assigned their entire membership interest in DPAT to Dental Practice Transition, Inc. so that after the assignment was effective Dental Practice Transition, Inc. became the sole member of DPAT. The Members were not paid any consideration in connection with this transaction.

 

On September 11, 2007, Dental Practice Transition, Inc., in accordance with its business model and purpose, assigned its entire membership interest in DPAT to 39th Street Dental, LLC so that after the assignment was effective, 39th Street Dental, LLC became the sole member of DPAT. Dental Practice Transition, Inc. received $429,000, which included $396,598 in cash and a note receivable of $32,402, in consideration for the assignment. 39th Street Dental, LLC borrowed the funds to purchase DPAT from Stillwater National Bank and Trust Company. The members of 39th Street Dental, LLC personally guaranteed the loan.

 

Dental Practice Transition, Inc. is in the business of transitioning dental practices between dental practitioners who are exiting and entering their practice tenure, as well as providing financing for these transitions. The sale price of DPAT was evaluated and determined by the parties to the transaction utilizing 1) national and local comparable data relative to practice values for similarly situated dental operations of its size, type, historical operations, geographic location and sale terms; and 2) the relationship with respect to which the Company has financed and transitioned other practices it assists in similar transactions. The purpose of the sale was to provide the Company with working capital.

 

In connection with the sale, the company recognized a gain of $419,334. The sale was effective September 1, 2007. The results of operations for DPAT were reported within discontinued operations in the 2007 Consolidated Statements of Operations. The 2007 Consolidated Statement of Cash Flows reports the cash flows of the discontinued operations.

 

Marlon R. Berrett, an officer and director of the Company, and Andrew Eberhardt, an officer of the Company, together own a fifty percent membership interest in 39th Street Dental, LLC. The remaining fifty percent membership interests are owned by the independent dentists who provide the 39th Street Dental, LLC’s dental services.

 

The financial statements for the fiscal year ended December 31, 2007 include consolidated financial information from DPAT which we acquired during the first quarter of 2007 and sold during the third quarter of 2007.

 

Affiliate Member Practices

 

 

Acquisition of Practice from Dental Associates, Inc.

 

Effective March 9, 2007, the Company, through Dental Cooperative, entered into a Purchase Agreement with Dental Associates, Inc. and Drs. Jack Rasmussen and Robert Boyer. Under the Purchase Agreement, the Cooperative may acquire substantially all of Drs. Rasmussen’s and Boyer’s dental practices in consideration for payments in the form of cash. The transfer of the practice assets is not anticipated to occur until the five year anniversary of closing date. In connection with the initial closing, Dental Associates, Inc. obtained a loan in the principal amount of one-half of the practice purchase price from Stillwater National Bank and Trust Company. The Purchase Agreement also contains non-compete, confidentiality and indemnification provisions.

 

In connection with the Purchase Agreement, the Cooperative, Dental Associates, Inc. and Drs. Rasmussen and Boyer executed a Management Agreement. Under the Management Agreement, the Company has retained Dental Associates, Inc. to manage and operate the dental practice for a five year period in consideration for a percentage of Dental Associates, Inc.’s margin (i.e., Dental Associates, Inc.’s

 

20

 


collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement was effective immediately upon initial closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the Purchase Agreement and Management Agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

 

Acquisition of Practice from Dr. Packer

 

Effective April 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with P. Berrett Packer DDS, Inc. Dr. Berrett Packer. Under the purchase agreement, the Cooperative may acquire substantially all of Dr. Packer’s dental practice in consideration for future cash payments and 120,000 shares of common stock (24,000 were issued at closing and 24,000 will be issued on each of the first four annual anniversary dates and the closing). The transfer of the practice assets is not anticipated to occur until the five-year anniversary of closing date. In connection with the closing, the Provider obtained a loan in the principal amount of twenty-percent (20%) of the practice purchase price from Stillwater National Bank and Trust Company (the “Loan”). The Purchase Agreement also contains confidentiality, indemnification and other provisions.

 

In connection with the Purchase Agreement, the Cooperative, Provider and Dr. Packer executed a Management Services Agreement. Under the Management Agreement, the Company has retained the provider to independently manage and operate the dental practice for a five year period in consideration for a percentage of the provider’s margin (i.e., the provider’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the purchase agreement and related management agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

 

Acquisition of Practice from Dr. Anderson

 

Effective June 4, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., closed on an Affiliate Member Practice Purchase Agreement with Lowell K. Anderson DMD PC and Dr. Lowell K. Anderson. Under the purchase agreement, the Cooperative may acquire substantially all of Dr. Anderson’s dental practice in consideration for future cash payments and stock options exercisable for 1,000,000 shares of common stock. The transfer of the practice assets is not anticipated to occur until the five-year anniversary of closing date. In connection with the closing, the provider obtained a loan in the principal amount of fifty-percent (50%) of the practice purchase price from Stillwater National Bank and Trust Company. The purchase agreement also contains confidentiality, indemnification and other provisions.

 

In connection with the Purchase Agreement, the Cooperative, Provider and Dr. Anderson executed a Management Services Agreement. Under the Management Agreement, the Company has retained the Provider to independently manage and operate the dental practice for a five year period in consideration for a percentage of the provider’s margin (i.e., the provider’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

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In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the purchase agreement and management agreement to the amounts owing to the lender under the loan.

 

 

Acquisition of Practice from Dr. Woodbury

 

Effective November 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with William E. Woodbury, PC, (the “Provider”) and Dr. William E. Woodbury. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Woodbury’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Woodbury executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

Acquisition of Practice from Dr. Binns

 

Effective November 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Ralph Binns, DDS, (the “Provider”) and Dr. Ralph W. Binns. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Binns’ dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Binns executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

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Acquisition of Practice from Dr. Rockwell

 

Subsequent to the end of the Company’s 2007 fiscal year, effective January 1, 2008, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Rosewood Dental, PC, (the “Provider”) and Dr. Michael S. Rockwell. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Rockwell’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Rockwell executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

Acquisition of Practice from Dr. Curtis

 

Subsequent to the end of the Company’s 2007 fiscal year, effective January 1, 2008, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Lindsay S. Curtis, DDS, (the “Provider”) and Dr. Lindsay S. Curtis. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Curtis’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Curtis executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

 

U.S. Dentist Direct Business

 

The Company, through its wholly owned subsidiary, U.S. DentistDirect, entered into a Memo of Understanding (the “Memo”) with Dentist Direct, LLC on November 9, 2006. The parties have not yet concluded the arrangements described in the Memo. U.S. DentistDirect intends to pursue an agreement to license the name and provider panel known as Dentist Direct but no agreement has been entered into and there can be no assurance that such arrangements will be agreed. All development costs and liabilities associated with the organization and formation of Dentist Direct, LLC have been provided by Harry “Pete” Peterson, a director of the Company. Mr. Peterson is also the President and an owner of Dentist Direct, LLC.

 

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Financial Position

 

We had $52,720 in cash as of December 31, 2007. Our working capital as of December 31, 2007 was $143,363, compared to a working capital deficit of $179,006 at December 31, 2006. Our net loss for 2007 was $259,918 compared to $498,372 for 2006. Without respect to the improved working capital of the Company, the ability of the Company to continue as a going concern is in substantial doubt. The attached financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Critical Accounting Policies

 

The policies discussed below are considered by us to be critical to an understanding of our financial statements. The application of these policies places significant demands on the judgment of our management and, when reporting financial results, cause us to rely on estimates about the effects of matters that are inherently uncertain. We describe specific risks related to these critical accounting policies below. A summary of significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements. Regarding all of these policies, we caution that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment. Our critical accounting policies include the following:

 

 

Revenue recognition

 

Stock based compensation

 

Cooperative Revenue Recognition - Associate Membership

 

The Company charges its Associate member dentists membership fees, marketing fees for referrals provided by the Company, and receives rebates from the suppliers for purchases of dental equipment for its members. These revenues are recognized when payments are received since that is the earliest date when these amounts are readily determinable, and collection is reasonably assured. Amounts received prior to issuance of financial statements but after period ending dates that are attributable to prior periods are recorded as accounts receivable.

 

Cooperative Revenue Recognition - Affiliate Membership

 

During 2007, the Company entered into five Affiliate Member dental practice purchase and transition financing arrangements and one sale arrangement. The Company charges Affiliate Members membership fees based upon the margin from the dental practices that enter into such agreements, or the amount of financing obtained by the practice in the funding transaction, or a percentage of practices’ valuation expressed as a function of the annual cash collections of the practice. Membership fees associated with Affiliate Members are established under the contractual terms entered into when the financing agreement was concluded. Since Affiliate Member fees are reasonably determinable and estimable, such fees are accrued and recognized in the period earned.

 

The Company pays incentives to its members to recognize significant contributions to Dental Cooperative, based largely on the growth in revenues and resulting fees to Dental Cooperative. These fees are accounted for as a reduction of Cooperative revenues.

 

Practice Revenue Recognition

 

The Company’s dental practices charge fees to its patients for dental services performed. Fees are established internally by the practices based upon billing rates that are considered usual and customary among similarly situated dental service providers. Revenue is recognized at the time and during the period in which services are performed. Because a significant percentage of the Companies’ patients are insured or participate in managed care dental plans and programs, the rates charged by the Company may not be fully realized or collectible under the contractual payment terms of the managed care programs and insurance plans of it’s patients. The company therefore makes adjustments to its periodic revenue based upon the estimated amounts due from the patients and third-party payers in order that revenues may be fairly stated in accordance with

 

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generally accepted accounting principles. Revenue adjustments are based on analysis of historical collection rates from amounts due from patients and third-party payers, including managed care dental plans, commercial insurance companies and employers.

 

Stock Based Compensation

 

On January 1, 2006, we adopted the provisions of Statement 123 (revised 2004) (Statement 123 (R), “Share-Based Payment,” which revises Statement 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25, “Accounting for Stock Issued to Employees.” Statement 123(R) requires us to recognize expense related to the fair value of our stock-based compensation awards, including employee stock options.

 

Prior to the adoption of Statement 123(R), we accounted for stock-based compensation under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and has adopted the disclosure only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”.

 

We have elected to use the modified prospective transition method as permitted by Statement 123(R) and therefore have not restated our financial results for prior periods. Under this transition method, we have applied the provisions of Statement 123(R) to new awards granted, modified, repurchased, or cancelled after January 1, 2006. Accordingly, since all of the Company’s stock-based awards issued and outstanding as of December 31, 2007 are fully vested, we have recognized the associated compensation costs associated with these transactions. Additionally, had any of the stock-based awards not been vested, we would have recognized compensation cost for the portion of the awards for which the requisite service had not been rendered that were outstanding as of January 1, 2007, as the remaining service was rendered.

 

Years Ended December 31, 2007 and 2006

 

Our dental practice management revenues, referred to as “cooperative revenues” in the financial statements, were $315,147 for 2007 as compared to $310,485 for 2006. Cooperative gross revenues consist of member fees and marketing fees paid to the Company by member dentists as well as group purchasing rebates received from vendors for purchases made by our members. The increase in cooperative revenues resulted primarily from a small decrease in the number of Associate Members and a reduction in Associate Member fees, which was more than offset by an increase in the number of Affiliate Members and an increase in Affiliate Member fees, which are higher than Associate Member fees.

 

Member incentives were $89,373 for 2007 as compared to $117,498 for 2006. These amounts are accounted for as reductions of Cooperative revenues (see Note 1 to the financial statements). As noted earlier, member incentives are profit sharing distributions through Dental Cooperative to recognize significant contributions to Dental Cooperative by certain members, based largely on the growth in revenues of the member practices and the resulting fees to Dental Cooperative. The decline in Member incentives resulted from a reduction in the volume of referrals from general practitioners to specialists which is a significant criteria for the payment of Member incentives, which in turn resulted from a reduction in the number of Members who are dental specialists. Member incentives are discretionary with the Board of Directors of Dental Cooperative, and these funds can be redirected to pay operating expenses as needed.

 

Our dental operation revenues (net of contractual and bad debt write-offs of $258,834 for the year ended December 31, 2007) were $1,131,701 as compared to $0 in our 2006 fiscal year. These 2007 revenues include consolidated financial information from the Richard R. Clegg DDS PC practice, which we acquired in the first quarter of 2007. The Company did not own any dental practices during 2006.

 

We did not generate any dental benefit plan offering revenues during 2007 or 2006. This is the result of our subcontracting the insurance component to our subcontractors as described elsewhere herein.

 

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Dental operations expenses were $1,087,099 for the year ended December 31, 2007 as compared to $0 for the prior year. These 2007 expenses related to expenses incurred in the operation of the Richard R. Clegg DDS PC practice, which practice was acquired by the Company during 2007. The Company did not own any dental practices during 2006.

 

General and administrative (“G&A”) expenses were $923,067 for 2007 as compared to $771,173 for 2006. The increase in G&A expenses is primarily due to expenses associated with the Company’s salary and benefits. Management permanently waived approximately $40,000 in salaries in 2007 and $141,000 in salaries in 2006. Management may not be willing to waive salaries in the future.

 

Net other expense was $143,644 for the year ended December 31, 2007 as compared to net other expense of $37,684 for the prior year. The change between the 2007 and 2006 periods is primarily due to the increased interest expense relating to borrowed funds and the recognition of non-cash interest expense relating to warrants issued for debt financing.

 

Liquidity and Capital Resources

 

To date, we have financed our operations principally through private placements of equity securities, debt financing, and revenues. We used net cash in operating activities of $532,066 for 2007 as compared to $467,517 during 2006. We used net cash in investing activities of $14,672 for the year ended December 31, 2007 as compared to $0 during the prior year. We also received $90,646 in cash from financing activities in 2007, as compared to $533,426 in 2006. As of December 31, 2007, our working capital was $143,363 and we had $52,720 of cash on hand.

 

As of December 31, 2007, we have current assets of $341,024 as compared to $190,850 as of December 31, 2006. Our current liabilities of $197,661 at December 31, 2007 are lower than the balance of $369,856 at December 31, 2006. The increase in our current assets and decrease in our current liabilities is primarily a result of the acquisition and sale of DPAT and the acquisition of Richard R. Clegg DDS PC.

 

We chose to continue to distribute Dental Cooperative member incentives in 2007, although we have not yet generated positive cash flows from operating activities, and there can be no assurance that we will be able to generate positive cash flows in future periods. If we are unable to generate positive cash flows from operating activities, we will be required to seek financing through additional related party debt, including but not limited to salary waivers, or through the sale of debt or equity securities to investors. There can be no assurance that such related party financing or investor financing will be available to us if needed. We also may need to reduce or eliminate member incentives in order to maintain the services of our service providers through payment of their overdue bills.

 

On December 27, 2006, the Company and its subsidiaries entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland made loans to the Company in the aggregate principal amount of five hundred thousand dollars ($500,000) and agreed to make additional loans to the Company in a total aggregate principal amount of up to one million two hundred fifty thousand dollars ($1,250,000), subject to the satisfaction of certain conditions. The Company’s right to obtain additional loans under the Heartland Loan Agreement expired on November 5, 2007 and no additional loans will be obtained by the Company thereunder. Interest on the principal amount outstanding is due on the first day of each calendar quarter and interest is payable at the rate of ten percent (10%) per annum. The principal amount is due and payable in full April 30, 2012. As collateral for the repayment of the loan, the Company granted Heartland a security interest in substantially all of its assets. Receipt of the additional loan proceeds is contingent upon the Company acquiring specified numbers of dental practices. There can be no assurance that any additional loan proceeds will be received or sought by the Company and there can be no assurance that the Company will have sufficient funds available to repay the amounts owing on the loan.

 

As additional consideration for the loan, the Company issued a warrant to Heartland that is exercisable for a number of shares of common stock equal to ten percent (10%) of the Company’s issued and outstanding common stock, on a fully diluted basis, on the date of exercise. Until and unless the principal amount of one

 

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million two hundred fifty thousand dollars ($1,250,000) was lent to the Company, the number of shares of common stock for which the warrant can be exercised is reduced in proportion to the amount actually lent. As a result, the warrant is currently exercisable for 4.0% ((500,000/1,250,000) x 10%) of the Company’s issued and outstanding common stock, on a fully diluted basis. The Company has also agreed to file a registration statement registering the resale of the warrant and common stock that is issuable upon exercise of the warrants.

 

In addition, the Company executed a Benchmark Services Agreement with Heartland whereby Heartland has agreed to provide benchmarking services to dental practices who have received funding through Stillwater National Bank and Trust Company in connection with an effective Affiliate Member Practice Purchase Agreement to which the Company is a party (a “Covered Practice”). In consideration for such services, Heartland will be paid an amount equal to one percent (1%) of the aggregate collected revenues of the Covered Practices during each quarterly period that the agreement is in effect. The agreement terminates on the earlier of the date there are no Covered Practices or the five year anniversary of the agreement.

 

Finally, the Company and its directors entered into a Tag Along Rights Agreement with Heartland whereby the directors granted Heartland tag along rights should a director enter into an agreement to transfer shares held by such director. The foregoing summary is qualified in its entirety by reference to the actual Heartland agreements, copies of which were included as exhibits to our current report on Form 8-K dated December 27, 2006.

 

Except as described above and except for our operating payables, we currently have no bank lines of credit or third party indebtedness. As our revenues grow, we plan on seeking one or more bank lines of credit to assist with meeting ongoing liquidity needs. There can be no assurance that we will be able to secure such financing in the future. On August 14, 2007 we borrowed $60,000 from a lender. On September 12, 2007 we repaid the principal amount owing and issued 60,000 shares of common stock as additional consideration for the loan.

 

Our working capital requirements for the foreseeable future will vary based upon a number of factors, including, our timing in the implementation of our business plan, our growth rate and the level of our revenues. We have no commitments to fund any future capital expenditures. Our current assets, along with cash generated from anticipated revenues, are not anticipated to provide us with sufficient funding for the next twelve months. We anticipate that we will need approximately $300,000 in additional funding to execute our business plan over the next twelve months and thereafter. We have not entered into any agreement or arrangement for the provision of such funding and no assurances can be given that such funding will be available to us on terms satisfactory to us or at all. Failure to raise the required capital could prevent us from achieving our long-term business objectives and may result in substantially reducing or even terminating operations.

 

As of December 31, 2007, we have outstanding stock options that are exercisable for (i) 264,000 shares of common stock at an exercise price of $2.50 per share and (ii) 463,700 shares of common stock at an exercise price equal to eighty percent (80%) of the average closing price during the of the Company’s common stock for the twenty (20) day period prior to exercise. We determined not to seek shareholder approval for the 2007 Stock Option Plan and the options exercisable for 12,559,791 shares of common stock granted thereunder and, as a result, the 2007 Plan and all options granted thereunder terminated on March 8, 2008.

 

On March 5, 2008, the Company’s Board of Directors authorized a private offering of up to 1,000,000 shares of our common stock for sale to qualified investors. The resolution authorizes the officers of the Company, under the direction of the President, to finalize and deliver a memorandum evidencing such offering, incorporating such amendments and modifications as the officers may approve. To date, the memorandum has not been completed. No assurances can be given that we will be successful in raising additional funds through the private offering.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Recent Accounting Pronouncements

 

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not anticipate adoption of this standard will have a material impact on its consolidated financial statements.

 

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting and disclosure for Uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. Upon review of the Company’s historical tax filings and consultation with its tax advisors, the Company believes that it has taken tax positions in preceding years that could potentially result in reductions to its cumulative net operating loss carryforwards of approximately $231,535. The Company is subject to audit by the IRS and the State of Utah for the prior three years. The Company, as a matter of policy, would record any interest and penalties associated with taxes as a component of income tax expenses. The Company recorded an immaterial amount of interest and penalties for the year ended December 31, 2007.

 

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”, which will be effective for fiscal years that begin after December 15, 2006. This statement amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement 125, or SFAS 140, regarding (1) the circumstances under which a servicing asset or servicing liability must be recognized, (2) the initial and subsequent measurement of recognized servicing assets and liabilities, and (3) information required to be disclosed relating to servicing assets and liabilities. The Company does not anticipate adoption of this standard will have a material impact on its consolidated financial statements.

 

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, or SFAS 155, which will be effective for fiscal years that begin after December 15, 2006. This statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principal cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative financial instrument. The Company does not anticipate adoption of this standard will have a material impact on its consolidated financial statements.

 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which was adopted effective January 1, 2006. This statement addresses the retrospective application of such changes and corrections and will be followed if and when necessary. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), which requires the recognition of share based payments cost in earnings. This Statement replaces Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), which permitted the recognition of compensation expense using the intrinsic value method. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R). See Note 11 and Note 12.

 

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In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements.  FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, was issued in February 2008.  This staff position delays the effective date for implementation of SFAS 157to fiscal years beginning after November 15, 2008.  The Company will adopt SFAS 157 on January 1, 2009. The Company anticipates that the adoption of SFAS 157 will not have a material impact on the Company’s consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This statement provides companies with an option to report selected financial assets and liabilities at fair value. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings.  The statement’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently.  SFAS 159 is effective for the Company beginning January 1, 2008.  The Company anticipates that the adoption of SFAS 159 will not have a material impact on the Company’s consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations” and SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51". SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for the Company beginning January 1, 2009. Early adoption is not permitted.  The Company is evaluating the impact these statements will have on its consolidated financial statements.

 

Our Outlook and Perspective on the Company’s Prospects

 

Our acquisition of Dental Patient Care America, Inc. in 2004, coupled with our complete divestiture or our oil and gas business and the resignation of prior management at the same time resulted in a new business for the Company, but also a management team without experience in the regulatory requirements of a public company. The Company has had very limited operational and administrative personnel. We anticipate that as the Company continues the substantial growth it experienced during 2007, the increased revenue together with increased capitalization will both require and enable the hiring and retention of additional qualified personnel. We also anticipate that increasing revenues will enable us to reduce our indebtedness.

 

We experienced initial growth and stability in Cooperative membership even given our skeleton staff and initial inability to offer the financing required to implement our Practice Transition or “Affiliate” memberships. We continue to believe that the reason for this was that the perceived value of Cooperative membership goes beyond the value of specific services and cost reductions and includes the value of the perception and reality that an independent dental practitioner, as a member of the Cooperative, is collectively participating in an organization that competitively empowers and sustains his/her position as an independent dentist. With our new ability to provide both practice transition and business financing to our members and thus implement the new “Affiliate” type of membership, we anticipate to continue and expand the growth seen during 2007. We cannot assure that others will not adopt similar operating models, but are not aware of any such model that is currently operating. We continue to believe that time is of the essence and that the Cooperative must grow and grow on a national scale to take advantage of the cost and preparation of the past several years.

 

Our U.S. DentistDirect dental plan business is not strategically unique by virtue of its initial products. We believe it is unique by virtue of its relationship to its panel of dental providers, most being members of the Dental Cooperative. This family of dental plans is directed by and for its panel of providers, who by virtue of

 

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their interest in the dental plans can make possible the offering of unique products. While this has been done on a limited scale by others, it has not been combined with the other services we provide. The Company acknowledges the significant risks associated with such growth and that there can be no assurance those risks can be successfully dealt with by the Company or that we will ultimately be successful in our business objectives.

 

Inflation

 

 

We do not expect the impact of inflation on our operations to be significant.

 

Risk Factors

 

In addition to the risks set forth above, we are subject to certain other risk factors due to the industry in which we compete and the nature of our operations. These risk factors include the following:

 

We are dependent on our loan arrangements with Stillwater National Bank and Trust Company in order to continue our Dental Practice Transition business, and the loss or curtailment of such arrangements could have a material adverse effect on our business.

 

In order to start our Dental Practice Transition business, on December 4, 2006, we entered into an agreement with Stillwater National Bank and Trust Company (the “SNB”). The Agreement provides that the Company will refer to SNB loans in connection with the Company’s Affiliate Member Practice Purchase Agreements (the “Purchase Agreement”). The loans will be made directly to the dental practice or dental practitioner (the “Provider”) who is a party to the Purchase Agreement. The Company and SNB have agreed on a standard form of loan package, which is subject to negotiation between the Provider and SNB. The loans will be secured and guaranteed by the Provider. SNB has the right, in its sole discretion, to accept or reject any loan package. As a result, there can be no assurance that there will be any additional loans generated in connection with the Agreement other than those closed and in process. If SNB should cease making loans available to the Company’s Providers, the Company would be required to locate an alternative source of financing and if it were not successful in such efforts, it may be forced to discontinue its Dental Practice Transition business, which would be anticipated to have a material adverse effect on the Company’s operations.

 

We have a history of losses and may never be profitable.

 

We have an accumulated deficit totaling $1,726,371 as of December 31, 2007 and we are not profitable. To date our operations have not generated sufficient operating cash flows to pay for the expenses we incur on a current basis. Even without financing agreements now in place, we may not be able to successfully keep or grow our businesses or achieve profitability from our operations in the near future or at all.

 

Among other things, our ability to achieve sustainable profitability is dependent on:

 

 

Successful marketing and sale of our dental services and plan;

 

 

Our ability to acquire and operate dental practices profitably;

 

 

Entering into a suitable agreement so that we can earn fees from our insurance related products; and

 

 

Our ability to develop additional services and plans to serve dentists and their patients.

 

There can be no assurance that we will achieve sustainable profitability.

 

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Our cash reserves are not sufficient to pay the amounts owing on outstanding obligations.

 

At December 31, 2007 we had $197,661 in current liabilities and working capital of only $143,363. These liabilities do not include the loan in the principal amount of $500,000 that is owed to Heartland which is included in long term liabilities. We do not have sufficient reserves to pay the amounts owing. As a result, no assurance can be given that the Company will have the resources to repay any or all of its current obligations. The failure of the Company to pay its obligations will have a material adverse effect on the Company, including the possibility of the Company ceasing to conduct operations.

 

Our contractual arrangements with member dentists have inherent uncertainties with respect to accuracy and timeliness of payment.

 

Our Dental Cooperative member contracts call for a member dentist to pay a percentage of practice operating revenues monthly. We do not centrally account for the operating revenues of member practices, and so we rely on the members to compute operating revenue timely and accurately and to calculate and timely submit the required percentage management fee. Generally, it may take one or more weeks past the end of each month for the member dental practice to complete it’s accounting and pay its management fee.

 

Consequently, estimates are required in order to account for management fees as of the end of each accounting period. We have the right to audit our members’ financial records, and make adjustments to the management fees if the results of the audits so dictate. The lack of timeliness in receiving information regarding management fees may result in our reporting of such fees being delayed.

 

There are risks associated with our intended growth through new members and new market areas.

 

The growth of our dental cooperative business will depend on our ability to attract economically successful dentists into our cooperative business model, and our DentistDirect dental benefit plan offerings. Because our cooperative business model relies on attracting the top tier of dentists in a given market, our growth strategy emphasizes entering selected new markets and entering into member contracts with dental practices that have a significant market presence or which we believe can achieve such a presence in the near term, and seeking these practices as a “magnet” or “core” from which to expand in the market area. Our new market penetration strategy is relatively untested. So far the members of Dental Cooperative come primarily from Salt Lake, Utah, Weber and Cache counties. Recent efforts have successfully brought in additional new members in Davis and Box Elder Counties. All of these counties are located within the state of Utah. However we have never attempted to enter a market outside of the State of Utah, and there can be no assurance that Dental Cooperative will be able to implement its national growth successfully.

 

Our dental benefits plan business depends on the member dentists that U.S. DentistDirect, Inc. attracts to serve as the panel of dentists providing services under the plans. Therefore the expansion of our dental benefit plan business will always be within markets in which Dental Cooperative has a substantial number of members, and likely will not be as a result of expansion into areas not then served by Dental Cooperative.

 

We devote substantial time and resources to new Dental Cooperative member acquisition activities. Identifying appropriate member candidates and negotiating membership agreements can be a lengthy and costly process. There can be no assurance that suitable new members will be identified or that new members will be attracted on terms favorable to Dental Cooperative; or that such new memberships can be added on a timely basis or at all. In the event that Dental Cooperative is not able to regularly increase its membership base, and accordingly its aggregate membership fees in tandem with new member attraction, our financial results may be materially lower than analysts’ expectations, which likely would cause a decline, perhaps substantial, in the market price of our common stock.

 

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In addition, increasing competition in the dental services industry from corporate model competitors or perhaps others attempting to use a cooperative model may result in an increase in benefits and other costs associated with bringing new members into Dental Cooperative.

 

The integration of new members and new markets may be a difficult, costly and time-consuming process. Dental Cooperative may encounter substantial unanticipated costs or other problems associated with such integration.

 

 

We may not be successful in expanding within existing markets.

 

Dental Cooperative will seek to increase revenue and profitability in existing markets by physically expanding the number of its existing members to add more dentists and hygienists by improving the efficiency of the member dental practices and helping them establish new practices. Dental Cooperative’s success will be dependent, in part, upon increasing the revenue from existing members through their growth and successfully establishing new member locations.

 

There can be no assurance that growth better than or equal to these historical results can be achieved with existing members or through the attraction of new members in new markets.

 

 

We may not be able to effectively manage growth, should growth occur.

 

To the extent we experience growth, of which there can be no assurance, it could be strains on our limited staff, management, operations and systems. Our ability to compete effectively will depend upon our ability to attract, train and assimilate additional management and other employees and our ability to expand, improve and effectively utilize our operating, management, marketing and financial systems to accommodate expanded operations. Any failure by our management to effectively anticipate, implement and manage the changes required to sustain our growth may have a material adverse effect on our business, financial condition and operating results.

 

Concomitantly in order to effectively and efficiently bear the added costs of being a public company in the United States today, including the costs of accounting, legal and other professionals helping us to comply with disclosure obligations and the new requirements of the Sarbanes-Oxley legislation, we must grow significantly, not only in our existing markets but also in new markets. This growth also must be managed and will require added management personnel in addition to the current staff.

 

 

Our success may be hampered by the availability of member dentists.

 

All members of Dental Cooperative can sever their member relationship at any time, especially under the Associate Member arrangement in which there is no loan from Dental Cooperative to the member. Although these member agreements contain non-compete clauses, there is no assurance that we can retain current members or that departing members will not have the ability to adversely affect our efforts to recruit a new member in the area of the departing member.

 

Even given the number of new “Transition” or “Affiliate” members that came in during 2007 due our new financing capacity and assuming all current members stay with Dental Cooperative, there is no assurance that satisfactory new members can be recruited and assimilated in existing, or new markets.

 

 

Our success may be negatively affected by cost containment initiatives.

 

The health care industry, including the dental services market, is experiencing a trend toward cost containment, as third-party and government payors seek to impose lower reimbursement rates upon providers. We believe that this trend will continue and will increasingly affect dental services. This may result in a reduction in per-patient and per-procedure revenue from historic levels. Significant reductions in payments to dentists or other changes in reimbursement by third-party payors for dental services may have a material adverse effect on both our Dental Cooperative business and on our dental benefit plan business.

 

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Our success may be negatively affected by health care reform.

 

There can be no assurance that the laws and regulations of the states in which we operate will not change or be interpreted in the future either to restrict or adversely affect our relationships with dentists. Federal and state governments are currently considering various types of health care initiatives and comprehensive revisions to the health care and health insurance systems. Some of the proposals under consideration, or others that may be introduced could, if adopted, have a material adverse effect on our business, financial condition and operating results. It is uncertain what legislative programs, if any, will be adopted in the future, or what actions Congress or state legislatures may take regarding health care reform proposals or legislation. In addition, changes in the health care industry, such as the growth of managed care organizations and provider networks, may result in lower payments for the services of our affiliated dental practices.

 

 

Our dental plans may not be accepted by the market.

 

The market may not accept our dental plans. We believe acceptance will be based on our ability to effectively market our plans and the perceived premium and benefit package offered by our plans as compared to competitive plans. There can be no assurance that we will be successful in marketing our plans or that the premium/benefit package of our plans will be perceived favorably by the market when compared to competing plans.

 

 

We may be subject to professional liability claims.

 

In recent years, dentists have become subject to an increasing number of lawsuits alleging malpractice and related legal theories. Some of these lawsuits involve large claims and significant defense costs. Dental Cooperative cannot and does not carry professional malpractice or general liability insurance for itself and maintains no professional liability insurance covering dentists, hygienists and dental assistants at its members’ offices, although such coverage is required of our members in our membership agreements. Malpractice insurance, moreover, can be expensive and varies from state to state. Successful malpractice claims asserted against the member dentists or Dental Cooperative may have a material adverse effect on our member’s ability to pay membership fees and therefore on our business, financial condition and operating results.

 

Any malpractice suits involving the dentists in our contemplated Dental Practice Transition business, if successful, could result in substantial damage awards that may reduce or eliminate our profit expectation from these practices. We anticipate requiring that malpractice insurance be maintained by all dentists at a Dental Practice Transition office.

 

 

Our success is dependent on management and key personnel.

 

Our success, including our ability to complete and integrate new members, depends on the continued services of our management staff. Each of our managers has a large portfolio of direct responsibilities and there is no redundancy. The loss of the services of any one of our current management could have a material adverse effect on our business, financial condition and operating results. On July 1, 2003, we entered into three employment agreements with the Company’s CEO and COO for five-year terms. We do not, however, maintain key man life insurance policies on any members of management. Implementation of our business strategy will require the addition of new qualified management personnel, and there is no assurance we can attract these new personnel.

 

 

Members of management own a substantial amount of our outstanding stock.

 

Members of our management team, together, own approximately 33.3% of the total issued and outstanding shares of our common stock. Thus management has the ability to exert significant influence over the outcome of fundamental corporate transactions requiring stockholder approval, including mergers and sales of assets and the election of the members of our Board of Directors.

 

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We may not have sufficient personnel to effectively market and service our dental benefit plans.

 

We market our dental benefits plans through our subcontractors who appoint independent agents. This distribution system is designed to reach large groups, smaller groups and individuals in an efficient and cost effective manner. As the plan grows, most of the related tasks can be outsourced to our subcontractors, and third-party plan administrators, but there will be a need to have our employees available to solve problems and generally conduct public relations for the plan, as well as to address emergency service issues and relations among the dentists providing services to the plan.

 

Because we are significantly smaller than the majority of our competitors, we may lack the resources needed to capture market share.

 

We are engaged in a highly competitive business and will compete directly with companies that have longer operating histories, more experience, substantially greater financial resources, greater size, more substantial marketing organizations, established customer bases and are better situated in the market than us. Our competitors may use their economic strength to influence the market to continue to buy their existing products. We are establishing a member base in Utah and have not begun to establish a member base outside of Utah. Moreover, we have limited experience in marketing our dental plans. We are likely to encounter a high degree of competition in expanding our member base and marketing our plans. One or more of these competitors could use their resources to improve their current services or plans or to develop services or plans that may compete more effectively with our services and plans. New competitors may emerge and may develop services or plans that compete with our business. No assurance can be given that we will be successful in competing in this industry.

 

 

An economic downturn could harm our business.

 

Our business, financial condition and results of operations may be affected by various economic factors. Unfavorable economic conditions may make it more difficult for us to maintain and continue our revenue growth. In an economic recession, or under other adverse economic conditions, customers and vendors may be more likely to be unable to meet contractual terms or their payment obligations. A decline in economic conditions may have a material adverse effect on our business.

 

Our employees may engage in misconduct or other improper activities which could harm our business.

 

We are exposed to the risk that employee fraud or other misconduct could occur. Misconduct by employees could include intentional failures to comply with legal requirements, engaging in unauthorized activities, seeking reimbursement for improper expenses or falsifying time records. Employee misconduct could also involve the improper use of our dentist members’ sensitive information, which could result in serious harm to our reputation. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could harm our business.

 

If we are unable to manage our growth, our business could be adversely affected.

 

Sustaining our Company’s growth has placed significant demands on management, as well as on our administrative, operational and financial resources. To continue to manage our growth, we must continue to improve our operational, financial and management information systems and expand, motivate and manage our workforce. If we are unable to successfully manage our growth without compromising our quality of service and our profit margins, or if new systems we implement to assist in managing our growth do not produce the expected benefits, our business, prospects, financial condition or operating results could be adversely affected.

 

Part of managing growth is the enforcement of proprietary protections against unfair competition. We have proprietary value in our names, in our business structures, in our legal documents, and in our markets. We have undertaken trade name protection of our names and have provided for noncompetition covenants in our member agreements. Our ability to enforce these protections will depend on the resources we have. Our inability to enforce our proprietary protections will result in adverse consequences and increased competitive disadvantage.

 

34

 


 

We may undertake acquisitions that could increase our costs or liabilities or be disruptive to our operations.

 

One of our key operating strategies is to selectively pursue acquisitions. We may not be able to locate suitable acquisition candidates at prices we consider appropriate or to finance acquisitions on terms that are satisfactory to us. If we do identify an appropriate acquisition candidate, we may not be able to successfully negotiate the terms of an acquisition, finance the acquisition or, if the acquisition occurs, integrate the acquired business into our existing business. Negotiations of potential acquisitions and the integration of acquired business operations could disrupt our business by diverting management away from day-to-day operations. Acquisitions of businesses or other material operations may require additional debt or equity financing, resulting in additional leverage or dilution of ownership. The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. We also may not realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates. In addition, we may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings. At times, acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition, but which we generally assume as part of an acquisition. Such liabilities could have a material adverse effect on our financial condition.

 

 

We may be subject to liabilities relating to our prior mining activities.

 

The Company was previously engaged in mining activities. Mining activities are subject to extensive federal and state laws and regulations designed to conserve and prevent the degradation of the environment. These laws and regulations require obtaining various permits before undertaking certain exploration activities. These requirements also necessitate significant capital outlays and may result in liability to the owner and operator of the property for damages that may result from specific operations or from contamination of the environment, all of which may prevent us from continuing to operate. Should we become subject to any such liabilities, it could materially and adversely affect our ability to continue our business.

 

 

We do not anticipate paying dividends in the foreseeable future.

 

We have never paid dividends on our common stock. The payment of dividends, if any, on the common stock in the future is at the discretion of the board of directors and will depend upon our earnings, if any, capital requirements, financial condition and other relevant factors. The board of directors does not intend to declare any dividends on our common stock in the foreseeable future.

 

 

No assurance of a liquid public market for our common stock.

 

There can be no assurance as to the depth or liquidity of any market for our common stock or the prices at which holders may be able to sell their shares. As a result, an investment in our common stock may not be totally liquid, and investors may not be able to liquidate their investment readily or at all when they need or desire to sell.

 

Applicability of low priced stock risk disclosure requirements may adversely affect the prices at which our common stock trades.

 

Our common stock may be considered a low priced security under rules promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Under these rules, broker-dealers participating in transactions in low priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties, the customer’s rights and remedies, and certain market and other information, and make a suitability determination approving the customer for low priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-

 

35

 


dealers must also disclose these restrictions in writing to the customer, obtain specific written consent of the customer, and provide monthly account statements to the customer. With these restrictions, the likely effect of designation as a low priced stock will be to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and to increase the transaction cost of sales and purchases of such stock compared to other securities.

 

Item 7. Financial Statements

 

 

See index to consolidated financial statements beginning on page F-1 hereof.

 

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

 

None.

 

Item 8A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures.  Under the supervision and with the participation of our management, including our Chief Executive Officer, President and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer, President and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Management’s Annual Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

Our management, with the participation of the Chief Executive Officer, President and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007.  In making this assessment, our management used the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management, including the Chief Executive Officer, President and Chief Financial Officer concluded that, as of December 31, 2007, our internal control over financial reporting was effective.

 

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

 

36

 


Changes in Internal Control Over Financial Reporting. During the most recent quarter ended December 31, 2007, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 8B. Other Information

 

 

None.

 

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act

 

Set forth below is certain information concerning each of our directors and executive officers as of March 24, 2008.

 

 

 

Name

 

 

Age

 

 

Position

 

Director
Term Expires

With the
Company
Since

Michael Silva

56

CEO and Chairman

2008

2004

Marlon Berrett

66

President and Director

2008

2004

Harry L. “Pete” Peterson

63

Director

2008

2001

Andrew Eberhardt

36

Vice President

 

2004

Brad Berrett

53

Chief Financial Officer

 

2004

          

            The following sets forth the business experience, principal occupations and employment of each of the directors.

 

Michael Silva has served as a Director of Dental Patient Care America since June 2004, and has been a director of our subsidiary, Dental Cooperative, since it was formed in 1998. His term as a director expires at the next annual meeting of shareholders. He has acted as Chief Executive of the Company since June 2004 and of Dental Cooperative since 1998. In addition to his roles at the Company and Dental Cooperative, Mr. Silva is also Director of Wirthlin Worldwide Consulting from 2002 to the present. Prior to joining Wirthlin Worldwide, Mr. Silva was an independent business crisis consultant. Mr. Silva spends a substantial amount of his available business time working for the Company.

 

Marlon Berrett has served as a Director of the Company since June 2004, and has been our President since that time. His term as a director expires at the next annual meeting of shareholders. He has been a director of our subsidiary, Dental Cooperative, since October 1998, and also acted as President and Secretary of Dental Cooperative for the same period of time. In addition, Mr. Berrett is the managing partner of Executive Alliance Group LLC, a consulting partnership, where he serves as a U.S. spokesperson and representative of the German State of Saarland’s Economic Promotion Corporation. He is a retired partner of Ernst & Young LLC. Mr. Berrett spends substantially all of his available business time working for the Company.

 

Harry L. “Pete” Peterson has been one of our Directors since 2001 and took over as President of our DentistDirect subsidiary in 2004. His term as a director expires at the next annual meeting of shareholders. Mr. Peterson is President of Business Insurance Group, Inc. a Utah corporation in business since 1989 doing business under the trade name “Big Benefits”. Big Benefits offers health insurance, claims administration, underwriting and plan design to employer groups primarily in the self-funded market. Mr. Peterson spends a substantial amount of his available business time working for the Company.

 

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Andrew Eberhardt was appointed Vice President of the Company in June 2004 and has been in the same capacity at Dental Cooperative since July 2002. Mr. Eberhardt has been employed by Dental Cooperative since April 1999. Mr. Eberhardt was formerly employed at Redman Van and Storage in a sales manager position. Mr. Eberhardt spends substantially all of his available business time working for the Company.

 

Brad Berrett became our Chief Financial Officer in June 2004. He joined Dental Cooperative as Comptroller on a part time basis as an independent contractor in June 2001. From 2001 to 2006, Mr. Berrett was also President of Pediatric Care, Inc., a pediatric clinic in Utah County, Utah. Mr. Berrett also works as an independent contractor for various other clients. Mr. Berrett spends substantially all of his available business time working for the Company.

 

Our executive officers are elected by the board of directors on an annual basis and serve at the discretion of the board.

 

Family Relationships

 

Mr. Marlon Berrett and Mr. Brad Berrett are brothers. There are no other family relationships among our directors, executive officers or persons nominated or chosen to become directors or executive officers.

 

Stockholder Meeting Attendance

 

Our policy is to encourage, but not require, members of the Board of Directors to attend annual stockholder meetings. We did not have an annual stockholder meeting during the prior year.

 

Board Committees

 

Our Board of Directors does not have a standing, audit, nominating or compensation committee. The Board of Directors, which includes each member of the Board who is then serving, participates in the consideration of director nominees. The Board of Directors has not yet established a policy with regard to the consideration of director candidates recommended by security holders and the minimum qualifications of such candidates. Two of the members of the board of directors are also officers of the Company and the third director is an officer of a subsidiary of the Company so that none of our directors are considered “independent” as defined by Rule 4200(a) of the NASD’s Marketplace Rules. While the Company does not have an audit committee, the Company believes that Mr. Marlon Berrett, who is not an independent director, qualifies as a “financial expert” as defined in Item 401 of Regulation S-B.

 

The Board of Directors met on numerous occasions during 2007 for formal meetings and informal discussions, including meetings held via telephone conference call.

 

Code of Ethics

 

The Company has adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and other senior financial officers. Our Code of Ethics is being filed as an exhibit to this report.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

We do not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. As a result, our executive officers, directors and persons who beneficially own more than 10% of our common stock are not required to file initial reports of ownership and reports of changes in ownership with the SEC pursuant to Section 16(a) of the Securities Exchange Act of 1934.

 

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Item 10. Executive Compensation

 

The table below sets forth certain information concerning compensation we paid to our president, chief executive officer and all other executive officers with annual compensation in excess of $100,000, determined for the year ended December 31, 2007 (the “Named Executive Officers”).

 

Summary Compensation Table. The following table provides certain information regarding compensation paid to the Named Executive Officers.

 

SUMMARY COMPENSATION TABLE

 

 

 

Name and
Principal
Position

 

 

 

Year

 

 

 

Salary ($)

 

 

 

Bonus ($)

 

Stock
Awards
($)

 

Option
Awards
($)

Non-Equity
Incentive Plan
Compensation
($)

Nonqualified
Deferred
Compensation
Earnings ($)

 

All Other
Compensation ($)

 

 

 

Total ($)

Michael Silva (1)

2006

141,250

32,442

---

---

---

---

---

173,692

Chairman and CEO

2007

200,000

0

---

---

---

---

---

200,000

 

 

 

 

 

 

 

 

 

 

Marlon Berrett (2)

2006

102,000

24,143

---

---

---

---

---

126,143

President and COO

2007

159,600

0

---

---

---

---

---

159,600

 

 

 

 

 

 

 

 

 

 

Andrew Eberhardt (3)

2006

83,750

18,198

---

---

---

---

---

101,948

Vice President

2007

120,000

0

---

---

---

---

---

120,000

_______________

 

(1)

Mr. Silva became on officer and director on June 30, 2004, in connection with the merger. Compensation prior to this date was paid to him by Dental Cooperative, Inc. Mr. Silva is entitled to an annual salary of $240,000. Mr. Silva agreed to permanently waive salary amounts to which he was entitled because of the Company’s lack of operating capital.

 

(2)

Mr. Marlon Berrett became on officer and director on June 30, 2004, in connection with the merger. Compensation prior to this date was paid to him by Dental Cooperative, Inc., Mr. Berrett is entitled to an annual salary of $180,000. Mr. Berrett agreed to permanently waive salary amounts to which he was entitled because of the Company’s lack of operating capital.

 

(3)

Mr. Eberhardt became on officer on June 30, 2004, in connection with the merger. Compensation prior to this date was paid to him by Dental Cooperative, Inc. Mr. Eberhardt is entitled to an annual salary of $120,000. Mr. Eberhardt agreed to permanently waive salary amounts to which he was entitled because of the Company’s lack of operating capital.

 

Mr. Brad Berrett acts as the Company’s Chief Financial Officer and he became an employee of the Company effective January 1, 2007. Under current arrangements, Mr. Brad Berrett is entitled to an annual salary of $90,000 per year.

 

Equity Incentive Plans

 

On June 9, 2004, the Company granted stock options to five persons entitling them to purchase up to 264,000 shares of the Company’s common stock at an exercise price of $2.50 per share. These options expire on June 9, 2009.

 

On June 6, 2006, the Company’s board of directors approved the Dental Patient Care America, Inc. 2006 Stock Option Plan (the “2006 Plan”) pursuant to which the Company authorized the issuance of up to 2,000,000 shares of common stock to its Members upon the exercise of stock options granted under the 2006 Plan. The purpose of this Plan is to advance the interests of the Company and its shareholders by helping the Company to obtain and retain the services of employees, officers, consultants, independent contractors, directors, and others upon whose judgment, initiative and efforts the Company is substantially dependent, and to provide those persons with further incentives to advance the interests of the Company. Options may only be granted under the 2006 Plan to persons who are at the time of grant members of the Dental Cooperative and such other persons or entities whom the Company’s board of directors may select from time to time. During June of 2006, the Company authorized and issued options to its member dentists to purchase 399,914 shares of common stock at

 

39

 


an exercise price equal to eighty percent (80%) of the average closing price of the Company’s stock for the preceding 20 days prior to the date of exercise. During June of 2007, the Company authorized and issued options to its member dentists to purchase 150,000 shares of common stock under terms identical to those options issued in June of 2006. The variability in the exercise price requires these options to be treated as variable securities, and they will be revalued at the end of each reporting period. At the date of issuance, all of these options were fully vested and could be exercised at any time, therefore 100% of the option value was recognized during the year. During the years ended December 31, 2006 and 2007, 32,935 and 53,279 respectively of these options were exercised. As these options are variable securities, the Company revalued the 463,700 outstanding options using Black/Scholes models to estimate their fair market valuation at December 31, 2007. At December 31, 2007, the 463,700 remaining outstanding options had a Black/Scholes fair market value of $23,185.

 

On March 8, 2007, the Company’s board of directors approved the Dental Patient Care America, Inc. 2007 Stock Option Plan (the “Plan”). A total of 14,000,000 shares of common stock are allocated to the Plan. In addition, on March 8, 2007, the board of directors granted options exercisable for 12,559,791 shares of common stock at an exercise price of $.30 per share. The effectiveness of the Plan and the grant of the options under the Plan were subject to shareholder approval and the option grants provided that the options are void and may not be exercised until and unless the shareholders of the Company approved the Plan and all grants that occurred through the date of Plan approval. The Company determined not to seek shareholder approval of the Plan or the options granted thereunder and to allow the Plan and the 12,56,041 options granted thereunder to terminate. As a result, the Plan is no longer in effect and all options granted under the Plan have terminated.

 

Of the option granted under the Plan, options exercisable for 3,503,682 shares were granted to Mr. Michael Silva, the Company’s CEO and Chairman; options exercisable for 2,407,000 shares were granted to Mr. Marlon Berrett, the Company’s president and a director; options exercisable for 1,480,668 shares were granted to Mr. Andrew Eberhardt, the Company’s vice president; options exercisable for 600,000 shares were granted to Mr. Bradley Berrett, the Company’s CFO; options exercisable for 833,441 shares were granted to Mr. Harry L. “Pete” Peterson, a Company director; and options exercisable for the remaining 3,735,000 shares were granted to consultants to the Company. All of such options have terminated and are of no further force or effect.

 

Compensation of Directors

 

We paid no cash fees or other consideration to our directors for service as directors during the last fiscal year. We have made no agreements regarding future compensation of directors. All directors are entitled to reimbursement for reasonable expenses incurred in the performance of their duties as members of the Board of Directors.

 

Employment Agreements

 

We have entered into employment agreements with Michael Silva and Marlon Berrett for terms expiring in July 2008. The employment agreements provide that these officers shall receive (i) an annual salary of $220,000 and $180,000, respectively, (ii) discretionary bonuses, and (iii) they may participate in other benefits offered to Company employees generally.

 

Indemnification for Securities Act Liabilities

 

Utah law authorizes, and our Bylaws and Articles of Incorporation provide for, indemnification of our directors and officers against claims, liabilities, amounts paid in settlement and expenses in a variety of circumstances. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted for directors, officers and controlling persons pursuant to the foregoing, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 

40

 


Compensation Committee Interlocks and Insider Participation

 

None of our executive officers serve on our compensation committee (or in a like capacity) or on the compensation committees of any other entity.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 31, 2008, for: (i) each person who is known by us to beneficially own more than five percent of our common stock, (ii) each of our directors, (iii) each of our Named Executive Officers, and (iv) all directors and executive officers as a group. On March 31, 2008 the Company had 23,812,397 shares of Common Stock outstanding.

 

 

Name and Address
of Beneficial Owner(1)

Shares
Beneficially
Owned(2)

 

Percentage of
Total(2)

 

 

Position

Michael Silva (3)

2,768,682

11.6%

CEO and Chairman

Marlon Berrett (4)

2,357,000

 9.9%

President and director

Harry L. Peterson (5)

1,445,157

6.1%

Director

Andrew Eberhardt

1,080,668

4.5%

Vice President

Brad Berrett

  200,000

*

CFO

Executive Officers and Directors as a Group
(5 persons)

7,851,507

33.0%

 

LK Anderson Family (6)

2848 N. Foothill Dr.

Provo, UT 84604

1,995,737

8.4%

 

Jack Rasmussen

1667 E. Hidden Valley
Club Road

Sandy, UT 84092

1,509,111

6.3%

 

 

 

 

 

* Less than 1%.

______________

 

(1)

Except where otherwise indicated, the address of the beneficial owner is deemed to be the same address as the Company.

(2)

Beneficial ownership is determined in accordance with SEC rules and generally includes holding voting and investment power with respect to the securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for computing the percentage of the total number of shares beneficially owned by the designated person, but are not deemed outstanding for computing the percentage for any other person.

(3)

These shares are owned by Northshore Family Trust, an entity controlled by Mr. Silva.

(4)

Include 1,000,000 shares held by an affiliate of Mr. Berrett.

(5)

Includes 1,270,990 shares of common stock owned by PK Investments Ltd. and an entity controlled by Mr. Peterson.

(6)

Includes 645,737 shares owned directly by Mr. Lowell K. Anderson, an affiliate of LK Anderson Family.

 

41

 


Item 12. Certain Relationships and Related Transactions Advances from Officers

 

Since the inception of Dental Cooperative, Messrs. Michael Silva, Marlon Berrett and Andrew Eberhardt each have advanced money to Dental Cooperative from time to time to cover expenses of the Company. As of December 31, 2007, any such advances had been repaid and the Company was not indebted to such persons.

 

 

Dentist Direct, LLC

 

The Company, through its wholly owned subsidiary, U.S. DentistDirect, entered into a Memo of Understanding (the “Memo”) with Dentist Direct, LLC on November 9, 2006. The parties have not yet concluded the arrangements described in the Memo. U.S. DentistDirect intends to pursue an agreement to license the name and provider panel known as Dentist Direct but no agreement has been entered into and there can be no assurance that such arrangements will be agreed. U.S. Dentist Direct and Dentist Direct, LLC are entities owned by separate parties. All development costs and liabilities associated with the organization and formation of Dentist Direct, LLC have been provided by Harry “Pete” Peterson, a director of the Company. Mr. Peterson is also the President and an owner of Dentist Direct, LLC.

 

 

Acquisition and Disposition of DPAT

 

Effective January 22, 2007, Michael Silva, Marlon Berrett, and Harry L. “Pete” Peterson (the “Members”), who are officers and/or directors of the Company, assigned 100% of the membership interests in a DPAT, a dental practice, to Dental Practice Transition, Inc. so that after the assignment was effective Dental Practice Transition, Inc. became the sole member of DPAT. The Members were not paid any consideration in connection with this transaction.

 

On September 11, 2007, Dental Practice Transition, Inc., in accordance with its business model and purpose, assigned its entire membership interest in DPAT to 39th Street Dental, LLC so that after the assignment was effective, 39th Street Dental, LLC became the sole member of DPAT. Dental Practice Transition, Inc. received $429,000, which included $396,598 in cash and a note receivable of $32,402, in consideration for the assignment. 39th Street Dental, LLC borrowed the funds to purchase DPAT from Stillwater National Bank and Trust Company. The members of 39th Street Dental, LLC personally guaranteed the loan. Marlon R. Berrett, an officer and director of the Company, and Andrew Eberhardt, an officer of the Company, together own a fifty percent membership interest in 39th Street Dental, LLC. The remaining fifty percent membership interests are owned by the independent dentists who provide the 39th Street Dental, LLC’s dental services.

 

Dental Practice Transition, Inc. is in the business of transitioning dental practices between dental practitioners who are exiting and entering their practice tenure, as well as providing financing for these transitions. The sale price of DPAT was evaluated and determined by the parties to the transaction utilizing 1) national and local comparable data relative to practice values for similarly situated dental operations of its size, type, historical operations, geographic location and sale terms; and 2) the relationship with respect to which the Company has financed and transitioned other practices it assists in similar transactions. The purpose of the sale was to provide the Company with working capital.

 

In connection with the sale, the company recognized a gain of $419,334. The sale was effective September 1, 2007. The results of operations for DPAT were reported within discontinued operations in the 2007 Consolidated of Statements of Operations. The 2007 Consolidated Statement of Cash Flows reports the cash flows of the discontinued operations.

 

Item 13. Exhibits and Reports on Form 8-K

 

Exhibits

 

The Index to Exhibits appears on pages 45 and 46 hereof.

 

42

 


 

Item 14. Principal Accountant Fees and Services

 

Audit Fees

 

The aggregate fees billed for professional services rendered by our principal accountant for the audit of our financial statements, review of financial statements included in our quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2007 and 2006 were $46,000 and $27,500, respectively.

 

Audit-Related Fees

 

The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2007 and 2006 were $0 and $0, respectively.

 

Tax Fees

 

There were no fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2007 and 2006.

 

All Other Fees

 

The aggregate fees billed for all other fees by the principal accountant, other than those previously reported in this Item 14, for the fiscal years ended December 31, 2007 and 2006 were $0 and $0, respectively.

 

Audit Committee

 

The Company’s Board of Directors functions as its audit committee. It is the policy of the Company for all work performed by our principal accountant to be approved in advance by the Board of Directors. All of the services described above in this Item 14 were approved in advance by our Board of Directors. No items were approved by the Board of Directors pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

43

 


SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 






Date: April 9, 2008

DENTAL PATIENT CARE AMERICA, INC.

(Registrant)

 

 

By    /s/ Michael Silva

Michael Silva

Chief Executive Officer and Director

 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

Title

Date

   /s/ Michael Silva

Michael Silva

Chief Executive Officer, Chairman and Director (Principal Executive Officer)

 

 

April 9, 2008

   /s/ Brad Berrett
Brad Berrett

Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

April 9, 2008

   /s Marlon Berrett
Marlon Berrett

President and Director

 

 

April 9, 2008

   /s/ Harry L “Pete” Peterson
Harry L. “Pete” Peterson

Director

 

 

April 9, 2008

 

44

 


 

EXHIBIT INDEX

 

EXHIBIT NO.

DESCRIPTION OF EXHIBIT

 

 

2.1

Agreement and Plan of Reorganization as of January 22, 2004, by and among Mountain Oil, Inc., Mt. Oil Enterprises, Inc., Oakridge Resources, Inc., and Dental Cooperative, Inc. (Incorporated by reference to Exhibit 2.1 of the Company’s Form 10-KSB, dated December 31, 2004).

 

3(i).1

Articles of Incorporation of Dental Patient Care America, Inc. ((Incorporated by reference to Exhibit 3 of the Company’s Registration Statement on Form SB-2 filed May 25, 2000 (File No. 333-37842)).

 

3(i).2

Amendment to the Articles of Incorporation of Dental Patient Care America, Inc. ((Incorporated by reference to Exhibit 3 of the Company’s Registration Statement on Form SB-2 filed May 25, 2000 (File No. 333-37842)).

 

3(i).3

Articles of Amendment to the Articles of Incorporation of Dental Patient Care America, Inc. (Incorporated by reference to Exhibit 3(i).3 of the Company’s Form 10-QSB, dated September 30, 2005).

 

3(ii).1

Bylaws of Dental Patient Care America, Inc. ((Incorporated by reference to Exhibit 3 of the Company’s Registration Statement on Form SB-2 filed May 25, 2000 (File No. 333-37842)).

 

10.1

Employment Agreement between Dental Patient Care America, Inc. and Michael Silva (Incorporated by reference to Exhibit 10.1of the Company’s Form 10-KSB/A, dated December 31, 2004).

 

10.2

Employment Agreement between Dental Patient Care America, Inc. and Marlon Berrett (Incorporated by reference to Exhibit 10.1 of the Company’s Form 10-KSB/A, dated December 31, 2004).

 

10.3

Affiliate Member Practice Purchase Agreement, effective November 16, 2006, by and between Dental Cooperative, Inc., Dr. Richard Clegg and Richard R. Clegg DDS PC (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated November 16, 2006).

 

10.4

Management Services Agreement by and between Dental Cooperative, Inc. and Dr. Richard Clegg (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, dated November 17, 2006).

 

10.5

Exclusive Referral Agreement, effective December 4, 2006, by and between the Company and certain of its affiliates and Stillwater National Bank and Trust Company (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated December 4, 2006).

 

10.6

Loan, Security and Warrant Agreement, by and between the Company and Heartland Dental Care, Inc., dated December 27, 2006 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated December 27, 2006).

 

10.7

Secured Subordinated Note, by and between the Company and Heartland Dental Care, Inc., dated December 27, 2006 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, dated December 27, 2006).

 

10.8

Benchmark Services Agreement, by and between the Company and Heartland Dental Care, Inc., dated December 27, 2006 (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, dated December 27, 2006).

 

10.9

Warrant, by and between the Company and Heartland Dental Care, Inc., dated December 27, 2006 (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, dated December 27, 2006).

 

45

 


 

10.10

Tag Along Rights Agreement, by and between the Company and Heartland Dental Care, Inc., dated December 27, 2006 (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K, dated December 27, 2006).

10.11

Assignment of Membership Interests in DPAT-1, LLC, effective January 22, 2007 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated January 20, 2007).

10.12

2006 Stock Option Plan

10.13

2007 Stock Option Plan (Incorporated by reference to Exhibit 10.13 of the Company’s 2006 Annual Report on Form 10-KSB filed April 2, 2007).

10.14

Affiliate Member Practice Purchase Agreement, by and between Dental Cooperative, Inc., Dental Associates, Inc., Dr. Jack Rasmussen and Dr. Robert Boyer, dated March 7, 2007 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated March 9, 2007).

10.15

Management Services Agreement, by and between Dental Cooperative, Inc., Dental Associates, Inc., Dr. Jack Rasmussen and Dr. Robert Boyer, dated March 7, 2007 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated March 9, 2007).

10.16

Affiliate Member Practice Purchase Agreement, by and between Dental Cooperative, Inc., P. Berrett Packer DDS, Inc., and Dr. Packer, dated March 30, 2007 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated March 30, 2007).

10.17

Management Services Agreement, by and between Dental Cooperative, Inc., P. Berrett Packer DDS, Inc., and Dr. Packer, dated March 30, 2007 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, dated March 30, 2007).

10.18

Affiliate Member Practice Purchase Agreement, by and between Dental Cooperative, Inc., Lowell K. Anderson DMD PC, and Dr. Anderson, dated May 17, 2007 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated June 4, 2007).

10.19

Management Services Agreement, by and between Dental Cooperative, Inc., Lowell K. Anderson DMD PC, and Dr. Anderson, dated May 17, 2007 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, dated June 4, 2007).

10.20

Assignment of Membership Interest, dated September 11, 2007 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated September 11, 2007).

14.1

Code of Ethics (Incorporated by reference to Exhibit 14.1 of the Company’s Form 10-KSB/A, dated December 31, 2003).

21.1

Schedule of subsidiaries (Incorporated by reference to Exhibit 21 of the Company’s Form 10-KSB, dated December 31, 2004).

31.1

Certification by Michael Silva under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification by Brad Berrett under Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Michael Silva pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Brad Berrett pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

46

 


DENTAL PATIENT CARE AMERICA, INC. AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Page

 

 

Report of Independent Registered Public Accounting Firm

F - 2

 

Consolidated Balance Sheet as of December 31, 2007

F - 3

 

Consolidated Statements of Operations for the Years

 

Ended December 31, 2007 and 2006

F - 4

 

Consolidated Statement of Stockholders’ Deficit

 

for the Years Ended December 31, 2007 and 2006

F - 5

 

Consolidated Statements of Cash Flows for the Years Ended

 

December 31, 2007 and 2006

F - 6

 

Notes to Consolidated Financial Statements

F - 7

 

F-1


 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Dental Patient Care America

Salt Lake City, Utah

 

We have audited the consolidated balance sheet of Dental Patient Care America, Inc. as of December 31, 2007, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2007 and 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dental Patient Care America, Inc. as of December 31, 2007 and the results of their operations and their cash flows for the years ended December 31, 2007 and 2006 in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s recurring operating losses and lack of working capital raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We were not engaged to examine management's assertion about the effectiveness of Dental Patient Care America’s internal control over financial reporting as of December 31, 2007 and, accordingly, we do not express an opinion thereon.

 

/s/ HJ & Associates, LLC

HJ & Associates, LLC

Salt Lake City, Utah

April 9, 2008

 

 

F-2




Dental Patient Care America, Inc.

Consolidated Balance Sheet

December 31, 2007

 

Assets

 

 

 

 

 

Current assets:

 

 

Cash

 

$              52,720

Accounts receivable, (net of allowance for contractual and other write-offs of $45,697)

 

197,818

Current portion of long term deferred debt issuing costs

 

41,420

Notes receivable from employees or affiliated enterprises

 

40,000

Prepaids and other assets

 

9,066

 

 

 

Total current assets

 

341,024

 

 

 

Property and equipment, net

 

29,185

Long term deferred debt issuing costs

 

138,105

Other assets

 

34,661

Goodwill

 

67,833

 

 

 

Total Assets

 

         610,808

 

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

Current liabilities:

 

 

Accounts payable

 

$             99,454

Accrued payroll liabilities

 

35,685

Accrued expenses

 

12,066

Other accrued interest

 

40,993

Member deposit payable

 

9,463

 

 

 

Total current liabilities

 

197,661

 

 

 

Long-term liabilities:

 

 

Long term notes payable

 

500,000

Long term practice acquisition liabilities

 

383,625

 

 

 

Total long term liabilities

 

883,625

 

 

 

 

 

 

Total liabilities

 

1,081,286

 

 

 

Stockholders' deficit:

 

 

Preferred stock, no par value, authorized 10,000,000

 

 

shares; no shares issued or outstanding

 

-

Common stock, no par value, 50,000,000 shares

 

 

authorized; 23,587,691 shares issued and outstanding

 

1,255,893

Accumulated deficit

 

(1,726,371)

 

 

 

Total stockholders' deficit

 

(470,478)

 

 

 

Total Liabilities and stockholders deficit

 

$             610,808

 

F-3


Dental Patient Care America, Inc.

         Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

Years Ended

 

 

 

 

December 31

 

 

 

 

2007

2006

 

 

 

 

 

 

 

 

Cooperative revenues (net of member incentives of

 

 

 

 

 

  $89,373, and $117,498 respectively)

 

$        315,147 

$        310,485 

 

 

Dental operations revenues (net of contractual and

 

 

 

 

 

  bad debt write-offs of $258,834)

 

1,131,701 

-

 

 

Total revenues

 

1,446,848 

310,485 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

Dental operations expenses

 

1,087,099 

-

 

 

General and administrative expense

 

923,067 

771,173 

 

 

 

 

 

 

 

 

Total costs and expenses

 

2,010,166 

771,173 

 

 

 

 

 

 

 

 

Loss from operations

 

(563,318)

(460,688)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Other income/(expense), net

 

4,379 

22,155 

 

 

Interest income/(expense), net

 

(132,489)

(36,268)

 

 

Related party interest expense

 

(15,534)

(23,571)

 

 

 

 

 

 

 

 

Net other income/(expense)

 

(143,644)

(37,684)

 

 

 

 

 

 

 

 

Income (Loss) from continued

 

 

 

 

 

operations

 

(706,962)

(498,372)

 

 

 

 

 

 

 

 

Income tax benefit (provisions)

 

-

 

 

 

 

 

 

 

 

Income/(Loss) before discontinued operations

 

 

 

 

 

and extraordinary gain

 

(713,805)

(498,372)

 

 

 

 

 

 

 

 

Gain on sale of discontinued operations

 

419,334 

-

 

 

Income from discontinued operations

 

15,904 

-

 

 

 

 

 

 

 

 

Total income from discontinued operations

 

435,238 

-

 

 

 

 

 

 

 

 

Loss before extraordinary items

 

(271,724)

(498,372)

 

 

 

 

 

 

 

 

Extraordinary gain - negative goodwill

 

11,806 

-

 

 

 

 

 

 

 

 

Net Loss

 

$      (259,918)

$      (498,372)

 

 

 

 

 

 

 

 

Basic income (loss) per common share

 

 

 

 

 

- continued operations

 

$            (0.03)

$            (0.02)

 

 

- discontinued operations

 

0.02 

-

 

 

- extraordinary gains

 

0.00 

-

 

 

Net income (loss) per share

 

$            (0.01)

$            (0.02)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per common share

 

 

 

 

 

- continued operations

 

$            (0.03)

$            (0.02)

 

 

- discontinued operations

 

0.02 

-

 

 

- extraordinary gains

 

0.00 

-

 

 

Net income (loss) per common share

 

$            (0.01)

$            (0.02)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

23,470,298 

23,081,443 

 

 

Weighted average shares outstanding - diluted

 

23,651,535 

23,081,443 

 

 

 

F-4


 

Dental Patient Care America, Inc.

Consolidated Statement of Stockholders' Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

Common Stock

Accumulated

 

 

 

Shares

Amount

Shares

Amount

Deficit

Total

 

 

 

 

 

 

 

 

 

Balance, December 31, 2005

-

$     -

22,169,762

$    668,517 

$   (968,081)

$   (299,564)

 

 

 

 

 

 

 

 

 

Common Stock Issued for Cash

-

-

1,120,000

240,000 

240,000 

 

 

 

 

 

 

 

 

 

Common Stock Options Issued for Member Dentist Services

-

-

-

103,978 

103,978 

 

 

 

 

 

 

 

 

 

Common Stock Options Excercised for Cash

-

-

32,935

8,018 

8,018 

 

 

 

 

 

 

 

 

 

Common Stock Issued for Services

-

-

7,715

2,315 

2,315 

 

 

 

 

 

 

 

 

 

Common Stock Warrants

-

-

-

178,634 

178,634 

 

 

 

 

 

 

 

 

 

Outstanding Stock Options Revalued at 12/31/06

-

-

-

(65,657)

(65,657)

 

 

 

 

 

 

 

 

 

Net Loss

-

-

-

(498,372)

(498,372)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006

-

-

23,330,412

1,135,805 

(1,466,453)

(330,648)

 

 

 

 

 

 

 

 

 

Common Stock Issued for Practice Acquisition

-

-

84,000

17,280 

17,280 

 

 

 

 

 

 

 

 

 

Common Stock Issued for Services

-

-

60,000

12,000 

12,000 

 

 

 

 

 

 

 

 

 

Common Stock Options Excercised for Cash

-

-

53,279

8,054 

8,054 

 

 

 

 

 

 

 

 

 

Common Stock Issued for Debt Financing

-

-

60,000

11,400 

11,400 

 

 

 

 

 

 

 

 

 

Common Stock Warrants

-

-

-

 76,645 

76,645 

 

 

 

 

 

 

 

 

 

Stock Offering Costs

-

-

-

 (1,484)

(1,484)

 

 

 

 

 

 

 

 

 

Outstanding Stock Options Revalued at 12/31/07

-

-

-

(3,807)

(3,807)

 

 

 

 

 

 

 

 

 

Net Loss

-

-

-

(259,918)

(259,918)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

-

$          -

23,587,691

$ 1,313,215 

$ (1,733,214)

$ (470,478)

 

 

F-5


 

Dental Patient Care America, Inc.

Consolidated Statement of Cash Flows

 

Years Ended

 

December 31,

 

2007

2006

 

 

 

Cash flows from operating activities:

 

 

Net Loss

$    (259,918)

$    (498,372)

Adjustments to reconcile net (loss) income to net

 

 

cash (used in) provided by operating activities:

 

 

Net income from discontinued operations

(15,904)

Extraordinary Gain

(11,806)

Gain on sale of discontinued operations

(419,334)

Depreciation

10,671 

933 

Common stock issued for services

12,000 

2,315 

Common stock issued for debt financing

11,400 

Stock options issued for services

38,321 

Amortization of deferred debt issuing costs

36,465 

Revaluation of stock options issued for services

(3,807)

Stock warrants issued for debt financing

7,714 

30,091 

Accretion of practice acquisition liabilities

31,730 

Decrease (increase) in:

 

 

Accounts receivable

(14,913)

10,237 

Prepaid and other assets

2,175 

(219)

Increase (decrease) in:

 

 

Accounts payable

46,861 

(81,850)

Accrued liabilities

(9,801)

30,367 

Related party accrued interest

(4,970)

(20,425)

Other accrued interest

39,908 

1,085 

Member deposits

9,463 

20,000 

 

 

 

Net cash used in

 

 

operating activities

(532,066)

(467,517)

 

 

 

Cash flows from investing activities:

 

 

Notes receivable from employees and affiliated enterprises

(40,000)

Purchase of property and equipment

(6,540)

Cash received in connection with acquisitions

31,868 

 

 

 

Net cash used in investing activities

(14,672)

 

 

 

Cash flows from financing activities:

 

 

Proceeds from issuance of stock

248,018 

Proceeds from exercise of stock options

8,054 

Payments of related party notes and advances

(117,408)

(14,592)

Proceeds from other notes and advances

50,000 

Payments of other notes and advances

(25,000)

(25,000)

Proceeds from long term notes payable

225,000 

275,000 

 

 

 

Net cash provided by

 

 

financing activities

90,646 

533,426 

 

 

 

Cash provided by operating activities of

 

 

discontinued operations

26,978 

Cash provided by investing activities of

 

 

discontinued operations

395,885 

 

 

 

Net increase (decrease) in cash and

 

 

cash equivalents

(33,229)

65,909 

Change in cash and cash equivalents from

 

 

discontinued operations

(25,161)

Cash and cash equivalents at beginning of period

111,110 

45,201 

 

 

 

Cash and cash equivalents at end of period

$       52,720 

$     111,110 

 

F-6


 

DENTAL PATIENT CARE AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Summary of Significant Accounting Policies

 

Organization and Nature of Business

 

Dental Patient Care America, Inc. (the Company) was organized in 1998 for the purpose of organizing dentists into a cooperative model of contractually networked practices, allowing member dentists to access a variety of benefits. These benefits include programs to purchase supplies, laboratory and other operating services, insurance and employee benefits programs, opportunities for profit sharing through this business model, and more recently to offer preferential business funding to our members. Various dental patient marketing programs are also provided, such as the organization of its member dentists into a network, which offers dental care plans to employers and other groups through the Company’s subsidiary U.S. DentistDirect, Inc. under the trade name “Dentist Direct”.

 

During 2007, the Company commenced implementing dental member practice transition funding models through its referral lending agreements that the Company concluded with Stillwater National Bank during 2006 (See note 15). The implementation of these models provides the ability to member dental practices to obtain financing toward the future transition of their practices from members who have chosen to retire or otherwise exit their practice, to a member practitioner who wishes to assume the operations of the exiting member. Members who enter into such financing agreements are referred to as Affiliate Members. (See note 7)

 

On June 30, 2004, Mountain Oil, Inc. (MOLI), a publicly traded company, changed its name to Dental Patient Care America, Inc. (DPCA), and executed a merger and plan of share exchange, whereby MOLI agreed to acquire 100 percent of the issued and outstanding shares of Dental Cooperative, Inc. (DCI) in exchange for 18,823,288 shares (or approximately 89%) of MOLI’s issued and outstanding common stock. Because the owners of DCI became the principal shareholders of the Company through the merger, DCI is considered the acquirer for accounting purposes and this merger is accounted for as a reverse acquisition or recapitalization of DCI.

 

In connection with the merger, DCPA issued stock options to replace the outstanding DCI stock options at the time of the merger

 

Principles of Consolidation

 

As of the date of the reverse acquisition, all assets and liabilities related to the former operations of MOLI were spun off to the former shareholders of MOLI. Therefore, the consolidated financial statements do not include any of the assets, liabilities, or operations related to the oil and gas business previously conducted by MOLI.

 

F-7




The consolidated financial statements include the operations of Dental Patient Care America, Inc. (the accounting acquirer) and its wholly owned subsidiaries Dental Cooperative, Inc., U.S. DentistDirect, Inc. and Dental Practice Transition, Inc. Intercompany transactions and balances have been eliminated in consolidation.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the years ended December 31, 2007 and 2006, the Company had negative cash flows from operating activities, recurring operating losses, and negative equity. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Management’s plans to overcome its working capital deficit, negative cash flows from operating activities and recurring operating losses include (1) further implementation of the new membership models made possible by the Company’s successful conclusion of the referral lending agreement with Stillwater National Bank during December 2006 (See Note 15),

(2) continued improvements and implementation of its product and service offerings, which now include the ability to offer expanded member financing opportunities through the Company’s association with Stillwater National Bank, and (3) aggressive expansion of its member population into additional state markets which management believes will increase membership and profitability.

 

Despite management’s confidence in the execution of items 1 through 3 above, management realizes, based on commonly recognized business risks, that there can be no guarantee that the Company will accomplish these objectives.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

Concentration of Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which, when realized, have been within the range of management’s expectations.

 

F-8


The Company maintains cash in bank deposit accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk with respect to its cash.

 

Cash Equivalents

 

The Company considers all highly liquid debt instruments with initial maturities of three months or less to be cash equivalents.

 

Accounts Receivable

 

1) Cooperative Accounts Receivable

 

Management prepares its estimates of receivables from member dentists by reviewing amounts collected subsequent to any accounting period and determining what amount should be recorded to the previous period. No allowance for doubtful amounts is provided since bad debts are netted in the estimates of accounts receivable.

 

2) Dental Operations Accounts Receivable

 

Dental operations accounts receivable are recorded at invoiced amounts. Receivables are reserved based upon historical contractual write-off’s, adjustments, and bad debt. A significant majority of the revenue received for services provided are paid by insurance companies with whom the Company has entered into provider contracts which prescribes the amount the Company will be reimbursed for services.

 

Impairment of Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on an estimate of future undiscounted cash flows. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest level for which there are identifiable cash flows. As of December 31, 2007 and 2006, the Company does not consider any of its long-lived assets to be impaired.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from two to seven years. Maintenance, repairs, and renewals, which neither materially add to the value of the assets nor appreciably prolong their lives, are charged to expense as incurred. Gains and losses from dispositions of property and equipment are reflected in the statement of operations.

 

F-9


 

Revenue Recognition

 

Cooperative Revenue Recognition - Associate Membership

 

The Company charges its Associate member dentists membership fees, marketing fees for referrals provided by the Company, and receives rebates from the suppliers for purchases of dental equipment for its members. These revenues are recognized when payments are received since that is the earliest date when these amounts are readily determinable, and collection is reasonably assured. Amounts received prior to issuance of financial statements but after period ending dates that are attributable to prior periods are recorded as accounts receivable.

 

Cooperative Revenue Recognition - Affiliate Membership

 

During 2007, the Company entered into five Affiliate member dental practice purchase and transition financing arrangements and one sale arrangement (See Notes 6 & 7). The Company charges Affiliate members membership fees based upon the margin from the dental practices that enter into such agreements, or the amount of financing obtained by the practice in the funding transaction, or a percentage of practices’ valuation expressed as a function of the annual cash collections of the practice. Membership fees associated with Affiliate members are established under the contractual terms entered into when the financing agreement was concluded. Since Affiliate member fees are reasonably determinable and estimable, such fees are accrued and recognized in the period earned.

 

The Company pays incentives to it’s members to recognize significant contributions to Dental Cooperative, based largely on the growth in revenues and resulting fees to Dental Cooperative. These fees are accounted for as a reduction of Cooperative revenues.

 

Practice Revenue Recognition

 

The Company’s dental practices charge fees to its patients for dental services performed. Fees are established internally by the practices based upon billing rates that are considered usual and customary among similarly situated dental service providers. Revenue is recognized at the time and during the period in which services are performed. Because a significant percentage of the Companies’ patients are insured or participate in managed care dental plans and programs, the rates charged by the Company may not be fully realized or collectible under the contractual payment terms of the managed care programs and insurance plans of it’s patients. The company therefore makes adjustments to its periodic revenue based upon the estimated amounts due from the patients and third-party payers in order that revenues may be fairly stated in accordance with generally accepted accounting principles. Revenue adjustments are based on analysis of historical collection rates from amounts due from patients and third-party payers, including managed care dental plans, commercial insurance companies and employers.

 

F-10


Stock Based Compensation

 

On January 1, 2006, we adopted the provisions of Statement 123 (revised 2004) (Statement 123 (R), “Share-Based Payment,” which revises Statement 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25, “Accounting for Stock Issued to Employees.” Statement 123(R) requires us to recognize expense related to the fair value of our stock-based compensation awards, including employee stock options.

 

Prior to the adoption of Statement 123(R), we accounted for stock-based compensation under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and has adopted the disclosure only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”.

 

We have elected to use the modified prospective transition method as permitted by Statement 123(R) and therefore have not restated our financial results for prior periods. Under this transition method, we have applied the provisions of Statement 123(R) to new awards granted, modified, repurchased, or cancelled after January 1, 2006. Accordingly, since all of the Company’s stock-based awards issued and outstanding as of December 31, 2007 are fully vested, we have recognized the associated compensation costs associated with these transactions. Additionally, had any of the stock-based awards not been vested, we would have recognized compensation cost for the portion of the awards for which the requisite service had not been rendered that were outstanding as of January 1, 2007, as the remaining service was rendered.

 

Earnings Per Share

 

Basic earnings (loss) per common share (“EPS”) is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net loss by the weighted average number of common shares outstanding, plus the assumed exercise of all dilutive securities using the treasury stock or “as converted” method, as appropriate. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive. The Company had stock options outstanding to purchase 727,700 shares of common stock as of December 31, 2007, and 630,979 as of December 31, 2006 (See Note 12).

 

2. Stock Transactions

 

During the first quarter of 2007, the Company issued 84,000 shares of common stock to two member dentists associated with the acquisition of their practices. During the second, third and fourth quarter of 2007, option holders exercised 53,279 options to purchase common stock which resulted in aggregate proceeds of $8,054. The Company additionally issued 60,000 shares of common stock in exchange for debt financing during the third quarter of 2007, at a valuation of $0.19 per share, and another 60,000 shares during the third quarter of 2007 in exchange for services rendered to the Company at a valuation of $0.20 per share.

 

F-11


3. Property and Equipment

 

                 Property and equipment consists of the following as of December 31, 2007:

 

Furniture and equipment

$

110,494 

Less accumulated depreciation

 

(81,309)

 

 

 

 

$

29,185 

 

Depreciation expense totaled $10,671 for the year ended December 31, 2007, and $933 for the year ended 2006.

 

4. Member Deposits Payable

 

The Company previously entered into contingent “affiliate agreements” with dentist members that would provide for increased management fees in return for the Company to make loans to the dentist members. These agreements were contingent upon the Company obtaining financing and establishing a formal policy to implement these provisions and issue the loans.

 

On November 17, 2006, the Company entered into an agreement to purchase the dentist member’s practice, subject to various contingencies, in consideration for payments in the form of Company stock and cash. Effective January 2007, the Company concluded the acquisition of this dental practice and has consolidated the operations of this practice within the accompanying financial statements. As of December 31, 2006, and December 31, 2007, the Company held such deposit amounts of $135,770 and $108,616 respectively, which amount is eliminated in consolidation. The deposit held is being amortized and recognized as a reduction in the dentist members’ management fees payable to the Company over the life of the Management Services Agreement which was entered into with the dentist member concurrent with the agreement to purchase the practice. Amortization of this deposit totaled $27,154 during the year ended 2007.

 

The remaining member deposits payable in the accompanying balance sheet consists of prepayments of the contractual final month member fees paid by member dentists who have entered into Affiliate Membership agreements. Such deposits will be recognized as income during the final month of these member agreements.

 

5. Notes Payable

 

On December 27, 2006, the Company and its subsidiaries entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland has advanced loans to the Company in the amount of five hundred thousand dollars ($500,000) and may make additional loans to the Company in the total aggregate principal amount of up to one million two hundred fifty thousand dollars ($1,250,000). Interest on the principal amount outstanding is due on the first day of each calendar quarter and interest is payable at the rate of ten percent (10%) per annum. The Company recognized $40,692 of interest expense associated with this note payable during the year ended 2007.

 

F-12


 No accrued interest has been paid. The principal amount is due and payable in full April 30, 2012. As collateral for the repayment of the loan, the Company granted Heartland a security interest in substantially all of its assets. Receipt of the additional loan proceeds is contingent upon the Company acquiring specified numbers of dental practices. Additionally, the Security Agreement contains provisions that additional funds may not be available to be advanced to the Company after November 15, 2007. There can be no assurance that any additional loan proceeds will be received or sought by the Company and there can be no assurance that the Company will have sufficient funds available to repay the amounts owing on the loan.

 

As additional consideration for the loan, the Company issued a warrant to Heartland that is exercisable for a number of shares of common stock equal to ten percent (10%) of the Company’s issued and outstanding common stock, on a fully diluted basis, on the date of exercise (See Note 13). Until and unless the principal amount of one million two hundred fifty thousand dollars ($1,250,000) is lent to the Company, the number of shares of common stock for which the warrant can be exercised is reduced in proportion to the amount actually lent. For example, the warrant is currently exercisable for 4.0% ((500,000/1,250,000) x 10%) of the Company’s issued and outstanding common stock, on a fully diluted basis. The Company has also agreed to file a registration statement registering the resale of the warrant and common stock that is issuable upon exercise of the warrants.

 

6. Consolidated Acquisitions

 

Acquisition of Practice from Dr. Clegg

 

In January 2007, the Company acquired 100% of Richard R. Clegg, DDS PC (the “Clegg Practice”) in a transaction accounted for under FAS 141. The results of operations of the Clegg Practice are included in the accompanying consolidated statement of operations.

 

The consideration given for the acquisition was $500,000 cash, which is payable on the fifth anniversary of the acquisition and 300,000 shares of the Company’s common stock, of which 60,000 shares were given upon acquisition and 60,000 will be given on the anniversary of the acquisition for the next four years.

 

The estimated fair values of assets acquired and liabilities assumed in the acquisition are as follows:

 

Current Assets

$

289,179

Fixed Assets

 

31,405

Goodwill

 

67,833

Total Assets Acquired

 

388,418

Total Liabilities Assumed

 

24,523

 

 

 

Net Assets Acquired

$

363,895

 

F-13


Goodwill of $67,833 resulting from the acquisition resulted from the payment of a premium (i.e. goodwill), over the fair value of the net tangible and identified intangible assets. The purchased goodwill is not deductible for tax purposes.

 

 

Acquisition and Sale of DPAT-1, LLC

 

In January 2007, 100% of membership interests in DPAT-1, LLC (DPAT), was acquired through the assignment of those interests to Dental Practice Transition, Inc., a wholly owed subsidiary of the Company, who became the sole member of DPAT. The results of operations of DPAT for the period January through August 2007, are included in the consolidated statement of operations.

 

As the membership interests of DPAT were assigned to Dental Practice Transition, Inc., there was no consideration given for the membership interests. The acquisition was accounted for under FAS 141. The purchase price was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values. The estimated fair value of DPAT net assets acquired exceeded the acquisition costs by $11,805.

 

The following table summarizes the fair value of assets acquired and liabilities assumed and extraordinary gain recognized at the date of acquisition:

 

Current Assets

$

76,739

Total Assets Acquired

 

76,739

Total Liabilities Assumed

 

64,934

 

 

 

Extraordinary Gain

$

11,805

 

Effective September 1, 2007, Dental Practice Transition, Inc., in accordance with its business model and purpose, assigned its entire membership interests in DPAT to 39th Street Dental, LLC, so that after the assignment was effective, 39th Street Dental, LLC became the sole member of DPAT. Dental Practice Transition, Inc., received four hundred twenty-nine thousand dollars ($429,000) in consideration for the assignment. 39th Street Dental, LLC borrowed the funds to purchase DPAT from Stillwater National Bank and Trust Company. The members of 39th Street Dental, LLC personally guaranteed the loan. The parties to the transaction determined the sale price. The purpose of the sale was to provide the Company with working capital. Marlon R. Berrett, an officer and director of the Company, and Andrew Eberhardt, an officer of the Company, together own a fifty percent membership interest in 39th Street Dental, LLC. The remaining fifty percent membership interest is owned by the independent dentists who provide dental services to 39th Street Dental, LLC. (See note 8)

 

7. Practice acquisitions, Affiliate Memberships, and loan fundings.

 

During 2007, under the Company’s dental practice transition business, we have entered into five Affiliate Membership and dental practice purchase arrangements as described below:

 

F-14


 

Acquisition of Practice from Dental Associates, Inc.

 

Effective March 9, 2007, the Company, through Dental Cooperative, entered into a Purchase Agreement with Dental Associates, Inc. and Drs. Jack Rasmussen and Robert Boyer. Under the Purchase Agreement, the Cooperative may acquire substantially all of Drs. Rasmussen’s and Boyer’s dental practices in consideration for payments in the form of cash. The transfer of the practice assets is not anticipated to occur until the five year anniversary of the closing date. In connection with the initial closing, Dental Associates, Inc. obtained a loan in the principal amount of one-half of the practice purchase price from Stillwater National Bank and Trust Company. The Purchase Agreement also contains non-compete, confidentiality and indemnification provisions.

 

In connection with the Purchase Agreement, the Cooperative, Dental Associates, Inc. and Drs. Rasmussen and Boyer executed a Management Agreement. Under the Management Agreement, the Company has retained Dental Associates, Inc. to manage and operate the dental practice for a five year period in consideration a percentage of Dental Associates, Inc.’s margin (i.e. Dental Associates, Inc.’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement was effective immediately upon initial closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the Purchase Agreement and Management Agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

 

Acquisition of Practice from Dr. Packer

 

Effective April 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with P. Berrett Packer DDS, Inc., (the “Provider”) and Dr. Berrett Packer. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Packer’s dental practice in consideration for future cash payments and 120,000 shares of common stock (24,000 were issued at closing and 24,000 will be issued on each of the first four annual anniversary date and the closing). The transfer of the practice assets is not anticipated to occur until the five-year anniversary of the closing date. In connection with the closing, the Provider obtained a loan in the principal amount of twenty percent (20%) of the practice purchase price from Stillwater National Bank and Trust Company (the “Loan”). The Purchase Agreement also contains confidentiality, indemnification and other provisions.

 

In connection with the Purchase Agreement, the Cooperative, Provider and Dr. Packer executed a Management Agreement. Under the Management Agreement, the Company has retained the Provider to independently manage and operate the dental practice for a five-year period in consideration for a percentage of the Provider’s margin (i.e., the Provider’s collections less operating expenses) plus an additional cash payment.

 

F-15


The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and minimum margin levels that must be maintained during the term of the agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the Purchase Agreement and related Management Agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

 

Acquisition of Practice from Dr. Anderson

 

Effective June 4, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Lowell K. Anderson DMD PC (the “Provider”) and Dr. Lowell K. Anderson. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Anderson’s dental practice in consideration for future cash payments and stock options exercisable for 1,000,000 shares of common stock. The options will be granted under the Company’s 2007 Stock Option Plan (the “Plan”). The Plan is subject to shareholder approval and if such approval is not obtained then any options granted under the Plan will be null, void and of no force or effect. The transfer of the practice assets is not anticipated to occur until the five-year anniversary of the closing date. In connection with the closing, the Provider obtained a loan in the principal amount of fifty-percent (50%) of the practice purchase price from Stillwater National Bank and Trust Company. The Purchase Agreement also contains confidentiality, indemnification and other provisions.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Anderson executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice for a five-year period in consideration for a percentage of the Provider’s margin (i.e. the Provider’s collections less operating expenses) plus an additional cash payment. The Management Agreement contains, among other provisions, (i) requirements with respect to minimum collection and margin levels that must be maintained during the term of the Agreement, and (ii) confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

In connection with the loan, the Company and the Cooperative agreed to subordinate certain rights that may accrue in connection with the Purchase Agreement and Management Agreement to the amounts owing to Stillwater National Bank and Trust Company under the loan.

 

Acquisition of Practice from Dr. Woodbury

 

Effective November 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with William E. Woodbury, PC, (the “Provider”) and Dr. William E. Woodbury. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Woodbury’s dental practice in consideration for future cash payment. The amount of

 

F-16


such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Woodbury executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

 

Acquisition of Practice from Dr. Binns

 

Effective November 1, 2007, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Ralph Binns, DDS, (the “Provider”) and Dr. Ralph W. Binns. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Binn’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Binns executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

F-17


8. Discontinued Operations and Related Party Transactions

 

On September 11, 2007, Dental Practice Transition, Inc., in accordance with its business model and purpose, assigned its entire membership interest in DPAT to 39th Street Dental, LLC so that after the assignment was effective, 39th Street Dental, LLC became the sole member of DPAT (See note 6). Dental Practice Transition, Inc. received four hundred twenty-nine thousand dollars ($429,000), which included $396,597 in cash and a note receivable of $32,403, in consideration for the assignment. 39th Street Dental, LLC borrowed the funds to purchase DPAT from Stillwater National Bank and Trust Company. The members of 39th Street Dental, LLC personally guaranteed the loan.

 

Dental Practice Transition, Inc. is in the business of transitioning dental practices between dental practitioners who are exiting and entering their practice tenure, as well as providing financing for these transitions. The sale price of DPAT was evaluated and determined by the parties to the transaction utilizing 1) national and local comparable data relative to practice values for similarly situated dental operations of its size, type, historical operations, geographic location and sale terms; and 2) the relationship with respect to which the Company has financed and transitioned other practices it assists in similar transactions. The purpose of the sale was to provide the Company with working capital.

 

In connection with the sale, the company recognized a gain of $419,334. The sale was effective September 1, 2007. The results of operations for DPAT were reported within discontinued operations in the accompanying Consolidated of Statements of Operations. The 2007 Consolidated Statement of Cash Flows reports the cash flows of the discontinued operations.

 

Marlon R. Berrett, an officer and director of the Company, and Andrew Eberhardt, an officer of the Company, together own a fifty percent membership interest in 39th Street Dental, LLC. The remaining fifty percent membership interest is owned by the independent dentists who provide the 39th Street Dental, LLC’s dental services.

 

As explained previously, the operations of DPAT were reported within discontinued operations in the accompanying Consolidated Statements of Operations. Operations of DPAT ceased effective August 31, 2007. A summarization of DPAT operations for the eight month period ended August 31, 2007 is as follows:

 

 

Eight Months Ended
August 31, 2007

Dental operations revenues

$

434,168 

Dental operations expense

 

(421,735)

 

 

 

Income from dental operations

 

12,433 

 

 

 

Other income/(expense), net

 

3,843 

Interest income/(expense), net

 

(372)

 

 

 

Income from discontinued operations

$

15,904 

 

F-18


 

9. Commitments and Contingencies

 

Employment Agreements

 

The Company has employment agreements with its Chief Executive Officer and Chief Operating Officer which obligate the Company to pay an aggregate sum of approximately $400,000 per year in salaries, plus discretionary bonuses, beginning June 1999 and continuing through June 2008. The Chief Executive Officer and Chief Operating Officer have permanently waived the Company’s obligation and any claims on these agreements through December 31, 2007.

 

Operating Leases

 

The Company’s corporate office leases office space and equipment under cancelable month-to-month operating leases. Total rent expense related to these operating leases for the years ended December 31, 2007 and 2006 was approximately $55,297 and $49,844, respectively.

 

The Company’s dental operations office has a lease with a third party through June 2013, for office space that contains customary escalation charges from year-to-year. At December 31, 2007, future minimum lease payments under this non-cancelable operating lease are as follows:

 

Year Ending December 31:

 

 

2008

$

27,444

2009

 

27,804

2010

 

28,056

2011

 

28,308

2012

 

28,308

2013

 

14,154

Total future minimum lease payments

$

154,074

 

Environmental Contingencies

 

The Company was previously engaged in mining activities. Mining activities are subject to extensive federal and state laws and regulations designed to conserve and prevent the degradation of the environment. These laws and regulations require obtaining various permits before undertaking certain exploration activities. These requirements also necessitate significant capital outlays and may result in liability to the owner and operator of the property for damages that may result from specific operations or from contamination of the environment, all of which may prevent the Company from continuing to operate. Should the Company become subject to any such liabilities, it could materially and adversely affect its ability to continue its operations. Management, after consultation with legal counsel, believes that any potential legal actions are not probable or estimable.

 

F-19


10. Income Taxes

 

                   The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to loss before income taxes as follows at December 31:

 

 

2007

2006

Book Loss

$

(101,368)

$

(194,365)

Federal income tax (provision)

 

 

 

 

benefit at statutory rate

 

 

-  

Accretion

 

12,375 

 

-  

M & E

 

1,794 

 

700  

Stock for services

 

4,680 

 

903  

Accrued expenses

 

 

7,965  

Options and warrants expense

 

(1,485)

 

14,945  

Change in valuation allowance

 

84,004 

 

169,852  

 

$

$

-  

 

Deferred income tax assets (liabilities) are comprised of the following as of December 31:

 

 

2007

2006

 

 

 

 

 

Net operating loss

$

464,812 

$

448,906 

Depreciation

 

(50)

 

Other

 

 

1,938 

Valuation allowance

 

(464,762)

 

(450,844)

 

$

$

 

At December 31, 2007, the Company has net operating loss carry forwards available to offset future taxable income if any of approximately $1,100,000, which will begin to expire in 2019. The utilization of the net operating loss carry forwards is dependent upon the tax laws in effect at the time the net operating loss carry forwards can be utilized. The Tax Reform Act of 1986 significantly limits the annual amount that can be utilized for certain of these carry forwards as a result of the changes in ownership.

 

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”, which clarifies the accounting and disclosure for Uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. Upon review of the Company’s historical tax filings and consultation with its tax advisors, the Company believes that it has taken tax positions in preceding years that could potentially result in reductions to it’s cumulative net operating loss carryforwards of approximately $231,535. The Company is subject to audit by the IRS and the State of Utah for the prior three years.

 

F-20


The Company, as a matter of policy, would record any interest and penalties associated with taxes as a component of income tax expenses. The Company recorded an immaterial amount of interest and penalties for the year ended December 31, 2007.

 

11. Stock-Based Compensation

 

On January 1, 2006, we adopted the provisions of Statement 123 (revised 2004) (Statement 123 (R), “Share-Based Payment,” which revises Statement 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25, “Accounting for Stock Issued to Employees.” Statement 123(R) requires us to recognize expense related to the fair value of our stock-based compensation awards, including employee stock options.

 

Prior to the adoption of Statement 123(R), we accounted for stock-based compensation under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and has adopted the disclosure only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”.

 

We have elected to use the modified prospective transition method as permitted by Statement 123(R) and therefore have not restated our financial results for prior periods. Under this transition method, we have applied the provisions of Statement 123(R) to new awards granted, modified, repurchased, or cancelled after January 1, 2006. Accordingly, since all of the Company’s stock-based awards issued and outstanding as of December 31, 2007 are fully vested, we have recognized the associated compensation costs associated with these transactions. Additionally, had any of the stock-based awards not been vested, we would have recognized compensation cost for the portion of the awards for which the requisite service had not been rendered that were outstanding as of January 1, 2006, as the remaining service was rendered.

 

12. Stock Options

 

In December 2004, the Financial Accounting Standard Board (“FASB”) issued SFAS 123R, “Share-Based Payments” (“SFAS No. 123R”), a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), which requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in their financial statements. The Company adopted this standard effective January 1, 2006 and elected the modified-prospective transition method. Under the modified-prospective transition method, awards that are granted, modified, repurchased or cancelled after the date of adoption should be measured and accounted for in accordance with SFAS No. 123R. Stock-based awards that are granted prior to the effective date should continue to be accounted for in accordance with SFAS No. 123, except that stock option expense for unvested options must be recognized in the statement of operations.

 

As of December 31, 2006, the Company had options outstanding to purchase 264,000 shares of common stock at an exercise price of $2.50 per share. Because these particular options were fully vested prior to January 1, 2006, there is no expense required to be recognized attributable to these options for the period ended December 31, 2007.

 

F-21


During June of 2006, the Company authorized and issued options to its member dentists to purchase 399,914 shares of common stock at an exercise price equal to eighty percent (80%) of the average closing price of the Company’s stock for the preceding 20 days prior to the date of exercise. During June 0f 2007, the Company authorized and issued options to its member dentists to purchase 150,000 shares of common stock under terms identical to those options issued in June of 2006. The variability in the exercise price requires these options to be treated as variable securities, and they will be revalued at the end of each reporting period. At the date of issuance, all of these options were fully vested and could be exercised at any time, therefore 100% of the option value was recognized during the year. During the years ended December 31, 2006 and 2007, 32,935 and 53,279 respectively of these options were exercised. As these options are variable securities, the Company revalued the 463,700 outstanding options using Black/Scholes models to estimate their fair market valuation at December 31, 2007. At December 31, 2007, the 463,700 remaining outstanding options had a Black/Scholes fair market value of $23,185.

 

On March 8, 2007, the Company’s board of directors approved the Dental Patient Care America, Inc. 2007 Stock Option Plan (the “Plan”). A total of 13,000,000 shares of common stock are allocated to the Plan. In addition, on March 8, 2007, the board of directors granted options exercisable for 12,559,791 shares of common stock at an exercise price of $.30 per share. The effectiveness of the Plan and the grant of the options under the Plan are subject to shareholder approval. The option grants provide that the options are void and may not be exercised until and unless the shareholders of the Company approve the Plan and all grants that have occurred through the date of Plan approval. As of December 31, 2007, shareholder approval for the Plan had not been sought or obtained.

 

Of the option grants to date, options exercisable for 3,503,682 shares were granted to Mr. Michael Silva, the Company’s CEO and Chairman; options exercisable for 2,407,000 shares were granted to Mr. Marlon Berrett, the Company’s president and a director; options exercisable for 1,480,668 shares were granted to Mr. Andrew Eberhardt, the Company’s vice president; options exercisable for 600,000 shares were granted to Mr. Bradley Berrett, the Company’s CFO; options exercisable for 833,441 shares were granted to Mr. Harry L. “Pete” Peterson, a Company director; and options exercisable for the remaining 3,735,000 shares were granted to consultants to the Company.

 

The purpose of this Plan is to advance the interests of the Company and its shareholders by helping the Company obtain and retain the services of employees, officers, consultants, independent contractors and directors, upon whose judgment, initiative and efforts the Company is substantially dependent, and to provide those persons with further incentives to advance the interests of the Company.

 

The Plan permits the Company to grant “non-qualified stock options” and/or “incentive stock options” to acquire the Company’s common stock. The total number of shares authorized for the Plan may be allocated by the board between non-qualified stock options and incentive stock options from time to time, subject to certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”).

 

F-22


Until and unless the Company files a registration statement relating to the Plan, securities issued under the Plan will be exempt from registration under Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. The Company did not use an underwriter in connection with these transactions.

 

The Company used the Black-Scholes valuation model to estimate the fair value of its stock-based awards. Use of the Black-Scholes valuation model to estimate the fair value of our stock-based awards requires various judgmental assumptions including estimated stock price volatility, forfeiture rates, and expected life. Our computation of expected volatility is based on a combination of historical and market-based implied volatility. Our calculation of the fair market value of each option award on the date of grant, using the Black-Scholes option-pricing model, used the following assumptions for this group of options outstanding at December 31, 2007:

 

 

Risk-free interest rate

3.45%

 

Expected life in years

3.78

 

Dividend yield

0

 

Expected volatility

166.90%

 

A summary of the status of the Company’s stock option plans as of December 31, 2007 and changes during the year is presented below:

 

 

 

Options

 

Weighted Average
Exercise Price

 

 

 

Outstanding options at December 31, 2006

 

630,979

$

                                          1.17

 

 

 

 

 

Granted

 

150,000

 

0.14

Cancelled / Expired

 

-

 

-

Exercised

 

(53,279)

 

0.15

 

 

 

 

 

Outstanding, December 31, 2007

 

727,700

$

1.00

 

 

 

 

 

Exercisable, December 31, 2007

 

727,700

$

1.00

 

Outstanding

 

Exercisable

 

 

 

 

Exercise

Prices

 

 

Number Outstanding

at 12/31/06

Weighted Average Remaining Contractual Life (in years)

 

 

Weighted Average Exercise Price

 

 

Number of Options Exercisable

 

 

Weighted Average Exercise Price

 

$

2.50

264,000

1.50

$

2.50

264,000

$

2.50

 

0.14

463,700

3.78

 

0.14

463,700

 

.14

$

2.50 – 0.14

727,700

3.00

$

1.00

727,700

$

1.00

 

F-23


 

13. Stock Warrants

 

On December 27, 2006, the Company and its subsidiaries entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland has made initial loans to the Company in the amount of five hundred thousand dollars ($500,000) and may make additional loans to the Company in the total aggregate principal amount of up to one million two hundred fifty thousand dollars ($1,250,000). Interest on the principal amount outstanding is due on the first day of each calendar quarter and interest is payable at the rate of ten percent (10%) per annum. The principal amount is due and payable in full April 30, 2012. As collateral for the repayment of the loan, the Company granted Heartland a security interest in substantially all of its assets. Receipt of the additional loan proceeds is contingent upon the Company acquiring specified numbers of dental practices and is subject to other provisions (See note 5).

 

As additional consideration for the loan, the Company issued a warrant to Heartland that is exercisable for a number of shares of common stock equal to ten percent (10%) of the Company’s issued and outstanding common stock, on a fully diluted basis, on the date of exercise. An exercise price for the warrants is a fixed price of twenty-five cents ($0.25), and the warrants expire on November 15, 2011. Until and unless the principal amount of one million two hundred fifty thousand dollars ($1,250,000) is lent to the Company, the number of shares of common stock for which the warrant can be exercised is reduced in proportion to the amount actually lent. For example, the warrant is currently exercisable for 4.0% ((500,000/1,250,000) x 10%) of the Company’s issued and outstanding common stock, on a fully diluted basis. The Company has also agreed to file a registration statement registering the resale of the warrant and common stock that is issuable upon exercise of the warrants.

 

For the years ended December 31, 2007 and December 31, 2006, the Company recognized, as non-cash interest expense, the amounts of $36,465 and $305, respectively. This amount represents the amortized portion of the deferred debt issuing costs associated with the number of warrants exercisable under the warrant agreement with Heartland, valued utilizing the Black/Scholes model.

 

In September 2006, we borrowed $50,000 from Messrs. Byron Barkley and Lyle Davis. One-half of the principal was due on November 15, 2006 and the remaining amounts owed were paid in full on June 1, 2007.

 

As additional consideration for the loan, the Company agreed to issue to the lenders on January 31, 2007, warrants exercisable for one hundred twenty five thousand shares of common stock at an exercise price of $.10 per share. The warrants will expire on December 31, 2010. During the year ended December 31, 2007, the Company recognized, as non-cash interest expense, an aggregate amount of $7,714 representing the pro-rata number of warrants obligated to be issued at January 31, 2007 from January 1, 2007.

 

F-24


The Company used the Black-Scholes valuation model to estimate the fair value of its warrants established at the date the warrant agreement was entered into. Use of the Black-Scholes valuation model to estimate the fair value of our warrants requires various judgmental assumptions including estimated stock price volatility, forfeiture rates, and expected life. Our computation of expected volatility is based on a combination of historical and market-based implied volatility. Our calculation of the fair market value of each warrant on the date of grant, using the Black-Scholes option-pricing model, used the following assumptions for warrants issued during the year ended December 31, 2007:

 

 

Heartland

Barkley / Davis

Risk-free interest rate

4.86% - 3.45%

4.89%

Remaining life in years

4.00

3.00

Dividend yield

0

0

Expected volatility

166.90% - 163.50%

165.53%

Weighted average value per warrant

$0.17

$0.30

 

A summary of the status of the Company’s common stock warrants as of December 31, 2007, and changes during the year is presented below:

 

 

 

 

Warrants

 

Weighted Average
Exercise Price

 

 

 

Outstanding Warrants at December 31, 2006

 

513,269

$

0.25

 

 

 

 

 

Issued

 

555,239

 

0.22

Cancelled / Expired

 

-

 

-

Exercised

 

-

 

-

 

 

 

 

 

Outstanding, December 31, 2007

 

1,068,508

 

0.23

 

 

 

 

 

Exercisable, December 31, 2007

 

1,068,508

$

0.23

 

 

Outstanding

 

Exercisable

 

 

 

Exercise

Prices

 

 

Number Outstanding

at 12/31/06

Weighted Average Remaining Contractual Life (in years)

 

 

Weighted Average Exercise Price

 

 

Number of Warrants Exercisable

 

 

Weighted Average Exercise Price

$

0.25

943,508

4.00

$

0.25

943,508

$

0.25

$

0.10

125,000

3.00

$

0.10

125,000

$

0.10

 

F-25


14. Supplemental Disclosure of Cash Flow Information

 

During the years ended December 31, 2007 and 2006 the Company paid the following amounts for interest and income taxes:

 

 

2007

2006

 

 

 

 

 

Cash paid for:

 

 

 

 

Interest

$

23,068

$

44,048

 

 

 

 

 

Income taxes

$

-

$

-

 

15. Loan Funding for Dental Practice Transition and Acquisition

 

On December 4, 2006, we finalized and entered into an agreement (the “SNB Agreement”) with Stillwater National Bank and Trust Company (the “SNB”). The Agreement provides that the Company will refer to SNB loans in connection with the Company’s Affiliate Member Practice Purchase Agreements (the “Purchase Agreement”). The loans will be made directly to the dental practice or dental practitioner (the “Provider”) who is a party to the Purchase Agreement. The Company and SNB have agreed on a standard form of loan package, which is subject to negotiation between the Provider and SNB. The loans will be secured and guaranteed by the Provider. SNB has the right, in its sole discretion, to accept or reject any loan package. The Agreement also provides that the Company and its subsidiaries are required to give SNB the exclusive right of first refusal to provide various types of third party financing during the five year period following the Execution of the Agreement.

 

16. Recent Accounting Pronouncements

 

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not anticipate adoption of this standard will have a material impact on its consolidated financial statements.

 

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes  — an interpretation of FASB Statement No.  109” (“FIN 48“), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined.  FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns.  Upon review of the Company’s historical tax filings and consultation with its tax advisors, the Company believes that it has taken tax positions in preceding years that could potentially result in reductions to it’s cumulative net operating loss carryforwards of approximately $231,535. The Company is subject to audit by the IRS and the State of Utah for the prior three years. The Company’s policy for recording interest and penalties associated with taxes is to recognize it as a component of income tax expense. 

 

F-26

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”, which will be effective for fiscal years that begin after December 15, 2006. This statement amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement 125, or SFAS 140, regarding (1) the circumstances under which a servicing asset or servicing liability must be recognized, (2) the initial and subsequent measurement of recognized servicing assets and liabilities, and (3) information required to be disclosed relating to servicing assets and liabilities. The Company does not anticipate adoption of this standard will have a material impact on its consolidated financial statements.

 

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, or SFAS 155, which will be effective for fiscal years that begin after December 15, 2006. This statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principal cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative financial instrument. The Company does not anticipate adoption of this standard will have a material impact on its consolidated financial statements.

 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which was adopted effective January 1, 2006. This statement addresses the retrospective application of such changes and corrections and will be followed if and when necessary. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), which requires the recognition of share based payments cost in earnings. This Statement replaces Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), which permitted the recognition of compensation expense using the intrinsic value method. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R). See Note 11 and Note 12.

 

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements.  FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, was issued in February 2008.  This staff position delays the effective date for implementation of SFAS 157to fiscal years beginning after November 15, 2008.  The Company will adopt SFAS 157 on January 1, 2009. The Company anticipates that the adoption of SFAS 157 will not have a material impact on the Company’s consolidated financial statements.

 

F-27


In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This statement provides companies with an option to report selected financial assets and liabilities at fair value. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings.  The statement’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently.  SFAS 159 is effective for the Company beginning January 1, 2008.  The Company anticipates that the adoption of SFAS 159 will not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations” and SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51". SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 141R and SFAS 160 are effective for the Company beginning January 1, 2009. Early adoption is not permitted.  The Company is evaluating the impact these statements will have on its consolidated financial statements.

 

17. Subsequent Events

 

Issuance of Stock

 

On January 2, 2008, the Company authorized and issued 83,333 shares of common stock to Dr. Michael S. Rockwell in connection with the Company’s profit sharing program. Profit sharing distributions are discretionary on the part of the Board of Directors, and granted to certain members who are deemed to have made significant contributions to Dental Cooperative through their membership and participation.

 

On March 19,2008, the Company issued 60,000 shares of common stock to Dr. Richard R. Clegg in connection with the first anniversary of the Practice Acquisition Agreement executed between the Company and Dr. Clegg (See Note 6).

 

On March 20, 2008, the Company issued 24,000 shares of common stock to Dr. P. Berrett Packer in connection with the first anniversary of the Affiliate Member Practice Purchase Agreement executed between the Company and Dr. Packer (See Note 7).

 

Issuance and Exercise of Stock Options

 

On January 2, 2008, the Company authorized and issued options to its member dentists to purchase an additional 45,000 shares of common stock under terms identical to those options issued in June of 2006 (See note 12). The variability in the exercise price requires these options to be treated as variable securities, and they will be revalued at the end of each reporting period. At the date of issuance, all of these options were fully vested and could be exercised at any time.

 

F-28


During January, February and March of 2008, accredited member dentist option holders exercised options exercisable for 57,373 shares of common stock which resulted in aggregate proceeds of $7,790.

 

Acquisition of Practice from Dr. Rockwell

 

Effective January 1, 2008, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Rosewood Dental, PC, (the “Provider”) and Dr. Michael S. Rockwell. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Rockwell’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Rockwell executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

Acquisition of Practice from Dr. Curtis

 

Effective January 1, 2008, the Company, through its wholly owned subsidiary, Dental Cooperative, Inc., entered into an Affiliate Member Practice Purchase Agreement with Lindsay S. Curtis, DDS, (the “Provider”) and Dr. Lindsay S. Curtis. Under the Purchase Agreement, the Cooperative may acquire substantially all of Dr. Curtis’s dental practice in consideration for future cash payment. The amount of such future cash payment is to be determined by the average of the dental practices’ gross collections during the practices’ two fiscal years immediately preceding the transfer date, multiplied by a percentage specified in the Purchase Agreement. The transfer of the practice assets is not anticipated to occur until a mutually agreed upon date by Dental Cooperative and Provider, at which time all right, title, and interest in and to the dental practice is transferred from Provider to Dental Cooperative. This date shall occur approximately 180 days after the date Provider has given notice of its intention to transfer the dental practice.

 

In connection with the Purchase Agreement, the Cooperative, Provider, and Dr. Curtis executed a Management Services Agreement. Under the Management Agreement, the Company has retained Provider to independently manage and operate the dental practice until such time as the practice may be transferred. In consideration thereof, Provider is entitled to the dental practices’ annual profit margin (Provider’s collections less operating expenses), less an amount equal to 5% of the Provider’s annual collections during the twelve months preceding closing. The Management Agreement contains, among other provisions, confidentiality and indemnification provisions. The Management Agreement is effective immediately upon closing of the Purchase Agreement.

 

F-29


 

Private Stock Offering

 

On March 5, 2008, the Company’s Board of Directors authorized a private offering of up to one million (1,000,000) shares of the Company’s common stock for sale to qualified investors.

The resolution of the board authorizes the officers of the Company, under the direction of the President, to finalize and deliver a memorandum evidencing such offering, incorporating such amendments and modifications as the officers may approve.

 

F-30

 

EX-10.12 2 ex1012k123107.htm 2006 STOCK OPTION PLAN

Exhibit 10.12

DENTAL PATIENT CARE AMERICA, INC.

 

2006 STOCK OPTION PLAN

 

1. Purpose; Effectiveness of the Plan.

 

(a) The purpose of this Plan is to advance the interests of the Company and its shareholders by helping the Company obtain and retain the services of employees, officers, consultants, independent contractors, directors, and others upon whose judgment, initiative and efforts the Company is substantially dependent, and to provide those persons with further incentives to advance the interests of the Company.

 

(b) This Plan will become effective on the date of its adoption by the Board. This Plan will remain in effect until it is terminated by the Board under Section 9 hereof or until the ten year anniversary of Board approval of the Plan, whichever is earlier, except that no option will be granted after the tenth anniversary of the date of this Plan’s adoption by the Board and no option granted hereunder shall expire by reason of the termination of the Plan. This Plan will be governed by, and construed in accordance with, the laws of the State of Utah.

 

2. Certain Definitions. Unless the context otherwise requires, the following defined terms (together with other capitalized terms defined elsewhere in this Plan) will govern the construction of this Plan, and of any stock option agreements entered into pursuant to this Plan:

 

(a) “1933 Act” means the Federal Securities Act of 1933, as amended;

 

(b) “Board” means the Board of Directors of the Company;

 

(c) “Code” means the Internal Revenue Code of 1986, as amended (references herein to Sections of the Code are intended to refer to Sections of the Code as enacted at the time of this Plan’s adoption by the Board and as subsequently amended, or to any substantially similar successor provisions of the Code resulting from recodification, renumbering or otherwise);

 

(d) “Company” means Dental Patient Care America, Inc., a Utah corporation;

 

(e) “Eligible Participants” means persons who, at the time of grant, are members of the Dental Cooperative and such other persons or entities whom the Board may select from time to time;

 

(f) “Option” means an option granted pursuant to this Plan entitling the option holder to acquire shares of Stock issued by the Company pursuant to the valid exercise of the option;

 

(g) “Option Agreement” means an agreement between the Company and an Optionee, in form and substance satisfactory to the Board in its sole discretion, consistent with this Plan;

 

(h) “Option Price” with respect to any particular Option means the exercise price at which the Optionee may acquire each share of the Option Stock called for under such Option;

 

(i) “Option Stock” means Stock issued or issuable by the Company pursuant to the valid exercise of an Option;

 

(j) “Optionee” means an Eligible Participant to whom Options are granted hereunder, and any transferee thereof pursuant to a Transfer authorized under this Plan;

 

(k) “Plan” means this 2006 Stock Option Plan of the Company;

 

(l) “QDRO” has the same meaning as “qualified domestic relations order” as defined in Section 414(p) of the Code;

 


 

(m) “Stock” means shares of the Company’s common stock, no par value;

 

(n) “subsidiary” has the same meaning as “Subsidiary Corporation” as defined in Section 424(f) of the Code; and

 

(o) “Transfer,” with respect to Option Stock, includes, without limitation, a voluntary or involuntary sale, assignment, transfer, conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of such Option Stock.

 

3. Eligibility. The Company may grant Options under this Plan only to persons who are Eligible Participants as of the time of such grant. Subject to the provisions of Sections 5 and 6 hereof, there is no limitation on the number of Options that may be granted to an Eligible Participant.

 

4. Administration.

 

 

(a) General. The Board will administer this Plan.

 

(b) Authority and Discretion of Board. The Board will have full and final authority in its discretion, at any time and from time to time, subject only to the express terms, conditions and other provisions of the Company’s Articles of Incorporation, Bylaws and this Plan, and the specific limitations on such discretion set forth herein:

 

 

(i)

to select and approve the persons who will be granted Options under this Plan from among the Eligible Participants, and to grant to any person so selected one or more Options to purchase such number of shares of Option Stock as the Board may determine;

 

 

(ii)

to determine the period or periods of time during which Options may be exercised, the Option Price and the duration of such Options, and other matters to be determined by the Board in connection with specific Option grants and Option Agreements as specified under this Plan; and

 

(iii)

to interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to make all other determinations necessary or advisable for the operation and administration of this Plan.

(c) Option Agreements. Options will be deemed granted hereunder only upon the execution and delivery of an Option Agreement by the Optionee and a duly authorized officer of the Company. Options will not be deemed granted hereunder merely upon the authorization of such grant by the Board.

 

5. Shares Reserved for Options.

 

(a) Option Pool. The aggregate number of shares of Option Stock that may be issued pursuant to the exercise of Options granted under this Plan will not exceed 2,000,000 shares of Stock (the “Option Pool”), provided that such number will be increased by the number of shares of Option Stock that the Company subsequently may reacquire through repurchase or otherwise. Shares of Option Stock that would have been issuable pursuant to Options, but that are no longer issuable because all or part of those Options have terminated or expired, will be deemed not to have been issued for purposes of computing the number of shares of Option Stock remaining in the Option Pool and available for issuance.

 

(b) Adjustments Upon Changes in Stock. In the event of any change in the outstanding Stock of the Company as a result of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, appropriate proportionate adjustments will be made in: (i) the aggregate number of shares of Option Stock in the Option Pool that may be issued pursuant to the exercise of Options granted hereunder; (ii) the Option Price and the number of shares of Option Stock called for in each outstanding Option granted hereunder; and (iii) other rights and matters determined on a per share basis under this Plan of any Option Agreement hereunder. Any such adjustments will be made only by the Board, and when so made will be effective, conclusive and binding for all purposes with respect to this Plan and all Options then outstanding. No such adjustments will be required by reason of the issuance or sale by the Company for cash or other consideration of additional shares of its Stock or securities convertible into or exchangeable for shares of its Stock.

 

2

 


6. Terms of Stock Option Agreements. Each Option granted pursuant to this Plan will be evidenced by an agreement (an “Option Agreement”) between the Company and the person to whom such Option is granted, in form and substance satisfactory to the Board in its sole discretion, consistent with this Plan. Without limiting the foregoing, each Option Agreement (unless otherwise stated therein) will be deemed to include the following terms and conditions:

 

(a) Covenants of Optionee. At the discretion of the Board, the person to whom an Option is granted hereunder, as a condition to the granting of the Option, must execute and deliver to the Company a confidential information agreement approved by the Board. Nothing contained in this Plan, any Option Agreement or in any other agreement executed in connection with the granting of an Option under this Plan will confer upon any Optionee any right with respect to the continuation of his or her status as an employee of, consultant or independent contractor to, or director of, the Company or its subsidiaries.

 

(b) Vesting Periods. Except as otherwise provided herein, each Option Agreement may specify the period or periods of time within which each Option or portion thereof will first become exercisable (the “Vesting Period”) with respect to the total number of shares of Option Stock called for thereunder (the “Total Award Option Stock”). Such Vesting Periods will be fixed by the Board in its discretion, and may be accelerated or shortened by the Board in its discretion.

 

(c) Exercise of the Option.

 

 

(i)

Mechanics and Notice. An Option may be exercised to the extent exercisable (1) by giving written notice of exercise to the Company, specifying the number of full shares of Option Stock to be purchased and accompanied by full payment of the Option Price thereof and the amount of withholding taxes pursuant to Subsection 6(c)(ii) below; and (2) by giving assurances satisfactory to the Company that the shares of Option Stock to be purchased upon such exercise are being purchased for investment and not with a view to resale in connection with any distribution of such shares in violation of the 1933 Act and that such exercise does not otherwise violate the provisions of the 1933 Act or any state securities laws; provided, however, that in the event the Option Stock called for under the Option is registered under the 1933 Act, or in the event resale of such Option Stock without such registration would otherwise be permissible, this second condition will be inoperative if, in the opinion of counsel for the Company, such condition is not required under the 1933 Act, or any other applicable law, regulation or rule of any governmental agency.

 

 

(ii)

Withholding Taxes. As a condition to the issuance of the shares of Option Stock upon full or partial exercise of an Option granted under this Plan, the Optionee will pay to the Company in cash, or in such other form as the Board may determine in its discretion, the amount of the Company’s tax withholding liability required in connection with such exercise. For purposes of this Subsection 6(c)(ii), “tax withholding liability” will mean all federal and state income taxes, social security tax, and any other taxes applicable to the compensation income arising from the transaction required by applicable law to be withheld by the Company.

 

(d) Payment of Option Price. Each Option Agreement will specify the Option Price with respect to the exercise of Option Stock thereunder, to be fixed by the Board in its discretion. The Option Price will be payable to the Company in United States dollars in cash or by check or, such other legal consideration as may be approved by the Board, in its discretion.

 

 

(i)

For example, the Board, in its discretion, may permit a particular Optionee to pay all or a portion of the Option Price, and/or the tax withholding liability set forth in Subsection 6(c)(ii) above, with respect to the exercise of an Option either by surrendering shares of Stock already owned by such Optionee or by withholding shares of Option Stock, provided that the Board determines that the fair market value of such surrendered Stock or withheld Option Stock is equal to the corresponding portion of such Option Price and/or tax withholding liability, as the case may be, to be paid for therewith.

(e) Termination of the Option. Except as otherwise provided herein, each Option Agreement will specify the period of time, to be fixed by the Board in its discretion, during which the Option granted therein will be

 

3

 


exercisable, not to exceed ten (10) years from the date of grant (the “Option Period”). In the event of a merger or consolidation or other reorganization (a “Corporate Transaction”) in which the Company is not the surviving corporation, or in which the Company becomes a subsidiary of another corporation, then notwithstanding anything else herein, the right to exercise all then outstanding Options will vest immediately prior to such Corporate Transaction and will terminate immediately after such Corporate Transaction; provided, however, that if the Board, in its sole discretion, determines that such immediate vesting of the right to exercise outstanding Options is not in the best interests of the Company, then the successor corporation must agree to assume the outstanding Options or substitute therefor comparable options of such successor corporation or a parent or subsidiary of such successor corporation.

 

(f) Options Nontransferable. No Option will be transferable by the Optionee otherwise than by will or the laws of descent and distribution or pursuant to a QDRO. During the lifetime of the Optionee, the Option will be exercisable only by him or her, or the transferee of an Option if it was transferred pursuant to a QDRO.

 

(g) Qualification of Stock. The right to exercise an Option will be further subject to the requirement that if at any time the Board determines, in its discretion, that the listing, registration or qualification of the shares of Option Stock called for thereunder upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority, is necessary or desirable as a condition of or in connection with the granting of such Option or the purchase of shares of Option Stock thereunder, the Option may not be exercised, in whole or in part, unless and until such listing, registration, qualification, consent or approval is effected or obtained free of any conditions not acceptable to the Board, in its discretion.

 

(h) Restrictions on Transfer of Option Stock. By accepting Options and/or Option Stock under this Plan, the Optionee will be deemed to represent, warrant and agree as follows:

 

(i) Securities Act of 1933. The Optionee understands that the shares of Option Stock have not been registered under the 1933 Act, and that such shares are not freely tradeable and must be held indefinitely unless such shares are either registered under the 1933 Act or an exemption from such registration is available. The Optionee understands that the Company is under no obligation to register the shares of Option Stock. The Optionee further understands that the certificates evidencing the Option Stock will bear a legend describing the restrictions on transfer and shall be in a form determined by the Board in its sole discretion.

 

(ii) Investment Intent. (1) Upon exercise of any Option, the Optionee will purchase the Option Stock for his or her own account and not with a view to distribution within the meaning of the 1933 Act, other than as may be effected in compliance with the 1933 Act and the rules and regulations promulgated thereunder; (2) no one else will have any beneficial interest in the Option Stock; and (3) he or she has no present intention of disposing of the Option Stock at any particular time.

 

(i) Additional Restrictions on Exercise and Transfer. The Optionee further understands that exercise of the Option and/or Transfer of the Option Stock requires full compliance with the provisions of all applicable laws.

(j) Compliance with Law. Notwithstanding any other provision of this Plan, Options may be granted pursuant to this Plan, the Option Stock may be issued pursuant to the exercise thereof by an Optionee, only after there has been compliance with all applicable federal and state securities laws, and all of the same will be subject to this overriding condition. The Company will not be required to register or qualify Option Stock with the Securities and Exchange Commission or any State agency, except that the Company will register with, or as required by local law, file for and secure an exemption from such registration requirements from, the applicable securities administrator and other officials of each jurisdiction in which an Eligible Participant would be granted an Option hereunder prior to such grant.

 

(k) Stock Certificates. Certificates representing the Option Stock issued pursuant to the exercise of Options will bear all legends required by law and necessary to effectuate this Plan’s provisions. The Company may place a “stop transfer” order against shares of the Option Stock until all restrictions and conditions set forth in this Plan and in the legends referred to in this Section 6(k) have been complied with.

 

4

 


(l) Market Standoff. To the extent requested by the Company and any underwriter of securities of the Company in connection with a firm commitment underwriting, no holder of any shares of Option Stock will sell or otherwise Transfer any such shares not included in such underwriting, or not previously registered pursuant to a registration statement filed under the 1933 Act, during the one hundred eighty (180) day period following the effective date of the registration statement filed with the Securities and Exchange Commission in connection with such offering, which period may be reduced in the sole discretion of the Company.

 

(m) Notices. Any notice to be given to the Company under the terms of an Option Agreement will be addressed to the Company at its principal executive office, Attention: Corporate Secretary, or at such other address as the Company may designate in writing. Any notice to be given to an Optionee will be addressed to the Optionee at the address provided to the Company by the Optionee. Any such notice will be deemed to have been duly given if and when enclosed in a properly sealed envelope, addressed as aforesaid, registered and deposited, postage and registry fee prepaid, in a post office or branch post office regularly maintained by the United States Government.

 

(n) Other Provisions. The Option Agreement may contain such other terms, provisions and conditions, including restrictions on the Transfer of Option Stock issued upon exercise of any Options granted hereunder, not inconsistent with this Plan, as may be determined by the Board in its sole discretion.

 

7. Proceeds from Sale of Stock. Cash proceeds from the sale of shares of Option Stock issued from time to time upon the exercise of Options granted pursuant to this Plan will be added to the general funds of the Company and as such will be used from time to time for general corporate purposes.

 

8. Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, the Board may modify this Plan, or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor. Notwithstanding the foregoing, however, no modification of any Option will, without the consent of the holder of the Option, alter or impair any rights or obligations under any Option theretofore granted under this Plan.

 

9. Amendment and Discontinuance. The Board may amend, suspend or discontinue this Plan at any time or from time to time; provided that no such action may alter or impair any Option previously granted under this Plan without the consent of the holder of such Option.

 

10. Copies of Plan. A copy of this Plan will be delivered to each Optionee at or before the time he or she executes an Option Agreement.

 

 

Date Plan Adopted by Board of Directors: June 6, 2006

 

 

 

 

 

 

 

 

5

 

 

EX-31.1 3 ex311k123107.htm RULE 13A-14(A)/15D-14(A) CERTIFICATIONS

Exhibit 31.1

 

I, Michael Silva, as Chief Executive Officer of the Company, certify that:

 

1.

I have reviewed this report on Form 10-KSB of Dental Patient Care America, Inc. for the fiscal year ended December 31, 2007;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

5.

The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Date: April 9, 2008

/s/ Michael Silva

 

Michael Silva

 

Chief Executive Officer

 

 

 

 

EX-31.2 4 ex312k123107.htm RULE 13A-14(A)/15D-14(A) CERTIFICATIONS

Exhibit 31.2

 

I, Brad Berrett, as acting Chief Financial Officer of the Company, certify that:

 

1.

I have reviewed this report on Form 10-KSB of Dental Patient Care America, Inc. for the fiscal year ended December 31, 2007;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

a.

Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

 

 

b.

Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 

5.

The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Date: April 9, 2008

/s/ Brad Berrett

 

Brad Berrett

 

Chief Financial Officer

 

 

 

EX-32.1 5 ex321k123107.htm SECTION 1350 CERTIFICATIONS

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Dental Patient Care America, Inc. (the “Company”) on Form 10-KSB for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Silva, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

April 9, 2008

/s/ Michael Silva

 

Michael Silva

 

Chief Executive Officer

 

 

 

EX-32.2 6 ex322k123107.htm SECTION 1350 CERTIFICATIONS

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Dental Patient Care America, Inc. (the “Company”) on Form 10-KSB for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brad Berrett, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

April 9, 2008

/s/ Brad Berrett

 

Brad Berrett

 

Chief Financial Officer

 

 

 

 

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