**FORM 10-QSB**

 

**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

**______________________**

 

**Quarterly Report Pursuant to Section 13 or 15(d) of            the**

**Securities Exchange Act of 1934**

 

**For the Quarterly Period Ended June 30, 2007**

 

**Commission File Number 333-37842**

 

**DENTALPATIENTCAREAMERICA,INC.**

(Exact name of registrant as specified in its charter)

 

 

| **Utah**                                                        | **87-0373840**                    |
|-----------------------------------------------------------------|-----------------------------------|
| (State or other jurisdiction of

incorporation or organization) | (IRS Employer Identification No.) |

 

 

**2150 South 1300 East, Suite 500, Salt Lake City, Utah            84106**

(Address of principal executive offices)

 

**(801) 990-3311**

(Registrant’s telephone number)

 

Check whether the issuer (1) filed all reports required to be filed by            Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12            months (or 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 No ̈

 

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

 

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

 

| **Class**    | **Outstanding as of August 10,                            2007** |
|--------------|------------------------------------------------------------------|
| Common Stock | 23,460,992 shares                                                |

 

 

 

----

**TABLE OF CONTENTS**

 

**PART I – FINANCIAL INFORMATION**

 

Item 1:            Financial Statements (Unaudited)

 

|   | Consolidated Balance Sheet – June 30,                            2007 | 3 |
|--------|-----------------------------------------------------------------------------|---|

 

|   | Consolidated Statements of Operations | 4 |
|--------|---------------------------------------|---|

Three and six months ended June 30, 2007 and 2006

 

|   | Consolidated Statements of Cash Flows | 5 |
|--------|---------------------------------------|---|

|   | Six months ended June 30, 2007 and 2006 |
|--------|-----------------------------------------|

 

|   | Notes to Consolidated Financial Statements | 6 |
|--------|--------------------------------------------|---|

 

| Item 2: Management’s Discussion and Analysis or                            Plan of Operation | 14 |
|----------------------------------------------------------------------------------------------------|----|

 

| Item 3: Controls and Procedures | 20 |
|---------------------------------|----|

 

 

**PART II – OTHER INFORMATION**

 

| Item 1: Legal Proceedings | 21 |
|---------------------------|----|

 

| Item 2: Unregistered Sales of Equity Securities and Use                            of Proceeds | 21 |
|------------------------------------------------------------------------------------------------|----|

 

| Item 3: Defaults upon Senior Securities | 21 |
|-----------------------------------------|----|

 

| Item 4: Submission of Matters to a Vote of Security                            Holders | 21 |
|----------------------------------------------------------------------------------------|----|

 

| Item 5: Other Information | 21 |
|---------------------------|----|

 

| Item 6: Exhibits | 22 |
|------------------|----|

 

| Signatures | 24 |
|------------|----|

 

2

 

----

**PART I — FINANCIAL INFORMATION**

**Item 1. Financial Statements.**

 

**DENTAL PATIENT CARE AMERICA, INC.**

**CONSOLIDATED BALANCE SHEET**

**June 30, 2007**

**(Unaudited)**

 

|                                                                                                    |          | **June 30, 2007**                                                                      |
|---------------------------------------------------------------------------------------------------------|---------------|----------------------------------------------------------------------------------------|
| **Assets**                                                                                              |          | **(Unaudited)**                                                                        |
|                                                                                                    |          |                                                                                   |
| Current assets:                                                                                         |          |                                                                                   |
| Cash                                                                                                    |          | $            130,588  |
| Accounts receivable, (net of allowance for contractual                            and other write-offs) | 246,132  |
| Current portion of long term deferred debt issuing                            costs                     |          | 52,938                                                                            |
| Prepaids and other assets                                                                               |          | 3,341                                                                             |
| Total current assets                                                                                    |          | 432,999                                                                           |
|                                                                                                    |          |                                                                                   |
| Property and equipment, net                                                                             |          | 31,101                                                                            |
| Long term deferred debt issuing costs                                                                   |          | 202,346                                                                           |
| Other assets                                                                                            |          | 6,030                                                                             |
| Goodwill                                                                                                |          | 67,833                                                                            |
| Total Assets                                                                                            |          | $            740,309  |
|                                                                                                    |          |                                                                                   |
| **Liabilities and Stockholders’                            Deficit**                              |          |                                                                                   |
|                                                                                                    |          |                                                                                   |
| Current liabilities:                                                                                    |          |                                                                                   |
| Accounts payable                                                                                        |          | $            108,768  |
| Accrued payroll liabilities                                                                             |          | 112,826                                                                           |
| Accrued expenses                                                                                        |          | 16,433                                                                            |
| Related-party accrued interest                                                                          |          | 3,382                                                                             |
| Other accrued interest                                                                                  |          | 15,788                                                                            |
| Related-party notes payable                                                                             |          | 114,460                                                                           |
| Member deposit payable                                                                                  |          | 9,463                                                                             |
| Total current liabilities                                                                               |          | 381,120                                                                           |
|                                                                                                    |          |                                                                                   |
| Long-term liabilities:                                                                                  |          |                                                                                   |
| Long term notes payable                                                                                 |          | 500,000                                                                           |
| Long term practice acquisition liabilities                                                              |          | 367,193                                                                           |
| Total long term liabilities                                                                             |          | 867,193                                                                           |
| Total liabilities                                                                                       |          | 1,248,313                                                                         |
|                                                                                                    |          |                                                                                   |
| Stockholders’ deficit:                                                                            |          |                                                                                   |
| Preferred stock, no par value, audthorized                            10,000,000                        |          |                                                                                   |
| shares; no shares issued or outstanding                                                                 |          | -                                                                                 |
| Common stock, no par value, 50,000,000 shares                                                           |          |                                                                                   |
| authorized; 23,419,250 shares issued and                            outstanding                         |          | 1,280,782                                                                         |
| Accumulated deficit                                                                                     |          | (1,788,786)                                                                            |
| Total stockholders’ deficit                                                                       |          | (508,004)                                                                              |
| Total Liabilities and stockholders deficit                                                              |          | $            740,309  |

 

See accompanying notes to consolidated financial statements.

 

3

 

 

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**DENTAL PATIENT CARE AMERICA, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 

 

|                                                                                                                                                                                        | **Three Months Ended**                                                          |                                                                            | **Six Months Ended** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------|----------------------|
|                                                                                                                                                                                        | **June 30**                                                                     |                                                                            | **June 30**          |
|                                                                                                                                                                                        | **2007**                                                                        | **2006**                                                                        |                 | **2007** | **2006** |
|                                                                                                                                                                                        | **(Unaudited)**                                                                 | **(Unaudited)**                                                                 |                 | **(Unaudited)** | **(Unaudited)** |
| Cooperative revenues (net of member incentives of                            $24,241,    $32,781, and $46,478, $66,820                            respectively)         | $           64,044  | $           85,705  |                 | $           142,495  | $          173,500  |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Dental operations revenues (net of contractual and bad                            debt    write-offs of $121,297, and                            $248,697 respectively) | 454,159                                                                    | -                                                                          |                 | 925,378  | -  |
| Total revenues                                                                                                                                                                              | 518,203                                                                    | 85,705                                                                     |                 | 1,067,873  | 173,500  |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Costs and Expenses:                                                                                                                                                                         |                                                                            |                                                                            |                 |   |   |
| Dental operations expenses                                                                                                                                                                  | 447,587                                                                    | -                                                                          |                 | 889,211  | -  |
| General and administrative expense                                                                                                                                                          | 217,615                                                                    | 293,325                                                                    |                 | 448,808  | 457,796  |
| Total costs and expenses                                                                                                                                                                    | 665,202                                                                    | 293,325                                                                    |                 | 1,338,019  | 457,796  |
| Loss from operations                                                                                                                                                                        | (146,999)                                                                       | (207,620)                                                                       |                 | (270,146) | (284,296) |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Other income (expense):                                                                                                                                                                     |                                                                            |                                                                            |                 |   |   |
| Other income/(expense), net                                                                                                                                                                 | 2,256                                                                      | 17,281                                                                     |                 | 5,165  | 22,155  |
| Interest income/(expense), net                                                                                                                                                              | (46,193)                                                                        | (895)                                                                           |                 | (58,712) | (2,506) |
| Related party interest expense                                                                                                                                                              | (5,163)                                                                         | (5,940)                                                                         |                 | (10,446) | (11,880) |
| Net other expense                                                                                                                                                                           | (49,100)                                                                        | 10,446                                                                     |                 | (63,993) | 7,769  |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Loss before benefit for income taxes                                                                                                                                                        | (196,099)                                                                       | (197,174)                                                                       |                 | (334,139) | (276,527) |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Income tax benefit (provisions)                                                                                                                                                             | -                                                                          | -                                                                          |                 | -  | -  |
| Loss before extraordinary item                                                                                                                                                              | (196,099)                                                                       | (197,174)                                                                       |                 | (334,139) | (276,527) |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Extraordinary gain - negative goodwill                                                                                                                                                      | -                                                                          | -                                                                          |                 | 11,806  | -  |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Net Loss                                                                                                                                                                                    | $       (196,099)                            | $     (197,174)                                        |                 | $      (322,333) | $      (276,527) |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Net income (loss) per common share                                                                                                                                                          |                                                                            |                                                                            |                 |   |   |
| - basic and diluted before extraordinary item                                                                                                                                               | $            (0.01) | $            (0.01) |                 | $            (0.01) | $            (0.01) |
| - extraordinary gain                                                                                                                                                                        | -                                                                          | -                                                                          |                 | 0.00  | $            (0.01) |
| - basic and diluted                                                                                                                                                                         | $            (0.01) | $            (0.01) |                 | $            (0.01) | $            (0.01) |
|                                                                                                                                                                                        |                                                                            |                                                                            |                 |   |   |
| Weighted average shares outstanding                                                                                                                                                         |                                                                            |                                                                            |                 |   |   |
| - basic and diluted                                                                                                                                                                         | 23,416,025                                                                 | 22,372,651                                                                 |                 | 23,393,285  | 22,223,539  |

 

 

 

See accompanying notes to consolidated financial statements.

 

4

 

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**DENTAL PATIENT CARE AMERICAN, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 

 

 

|                                                                            | **Six Months Ended June 30,**                |
|---------------------------------------------------------------------------------|----------------------------------------------|
|                                                                            | **2007**                                     | **2006** |
|                                                                            | **Unaudited**                                | **Unaudited** |
|                                                                            |                                         |   |
| **Cash flows from operating activities:**                                       |                                         |   |
| Net Loss                                                                        | $    (322,333)           | $    (276,527) |
| Adjustments to reconcile net (loss) income to                            net    |                                         |   |
| cash (used in) provided by operating                            activities:     |                                         |   |
| Extraordinary Gain                                                              | (11,806)                                     | -  |
| Depreciation                                                                    | 5,196                                   | 537  |
| Stock options issued for services                                               | -                                       | 103,978  |
| Amortization of deferred debt issuing costs                                     | 16,074                                  | -  |
| Revaluation of stock options issued for                            services     | (3,606)                                      | -  |
| Stock warrants issued for debt financing                                        | 7,714                                   | -  |
| Accretion of practice acquisition liabilities                                   | 15,298                                  | -  |
| Decrease (increase) in:                                                         |                                         |   |
| Accounts receivable                                                             | (3,866)                                      | 17,907  |
| Prepaid and other assets                                                        | 4,568                                   | -  |
| Increase (decrease) in:                                                         |                                         |   |
| Accounts payable                                                                | 42,081                                  | (77,650) |
| Accrued liabilities                                                             | 21,580                                  | 5,860  |
| Related party accrued interest                                                  | (1,588)                                      | -  |
| Other accrued interest                                                          | 14,703                                  | -  |
| Member deposits                                                                 | 9,463                                   | -  |
|                                                                            |                                         |   |
| Net cash used in operating activities                                           | (206,522)                                    | (225,895) |
|                                                                            |                                         |   |
| **Cash flows from investing activities:**                                       |                                         |   |
| Purchase of property and equipment                                              | (2,981)                                      | -  |
| Cash received in connection with acquisitions                                   | 31,868                                  | -  |
|                                                                            |                                         |   |
| Net cash provided by investing                            activities       | 28,887                                  | -  |
|                                                                            |                                         |   |
| **Cash flows from financing activities:**                                       |                                         |   |
| Proceeds from issuance of stock                                                 | -                                       | 240,000  |
| Proceeds from exercise of stock options                                         | 774                                     | -  |
| Proceeds from long term notes payable                                           | 225,000                                 | -  |
| Payments on notes payable                                                       | (28,661)                                     | -  |
|                                                                            |                                         |   |
| Net cash provided by financing activities                                       | 197,113                                 | 240,000  |
|                                                                            |                                         |   |
| Net increase (decrease) in cash and cash                            equivalents | 19,478                                  | 14,105  |
|                                                                            |                                         |   |
| Cash and cash equivalents at beginning of                            period     | 111,110                                 | 45,201  |
|                                                                            |                                         |   |
| Cash and cash equivalents at end of period                                      | $     130,588  | $       59,306  |
|                                                                            |                                         |   |
|                                                                            |                                         |   |

 

 

See accompanying notes to consolidated financial statements.

 

5

 

 

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**DENTAL PATIENT CARE AMERICA, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

| 1. | Company Background |
|----|--------------------|

 

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., U.S. DentistDirect, Inc., and Dental Practice            Transition, 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, and opportunities for profit sharing through the cooperative model.            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.

 

U.S. DentistDirect, Inc., another operating subsidiary, was incorporated            in Utah in 2004 to conduct a dental benefits plan business for the purposes of creating            another revenue generator for the Company and to generate patient flow for the Dental            Cooperative member dentists who participate as the provider panel for the U.S.            DentistDirect offerings. No revenues were generated by this company during            2006.

 

Dental Practice Transition, Inc., our third operating subsidiary, was            incorporated in December 2004. Through Dental Practice Transition, Inc. we have            developed and implemented during 2007 a new line of business that involves the funding            of the acquisition and operation of dental practices of retiring dentists or dentists            that are relocating and the subsequent financings of the new incoming dentist into the            ownership of the practice. We closed our initial dental practice acquisitions at the            beginning of 2007. 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. To date, we have closed all of our dental practice acquisitions through            Dental Cooperative, Inc.

 

| 2. | Interim Financial Statements |
|----|------------------------------|

 

The accompanying condensed consolidated financial statements of the            Company have been prepared without audit, pursuant to the rules and regulations of the            Securities and Exchange Commission. Certain information and disclosures with required            by accounting principles generally accepted in the United States have been condensed or            omitted pursuant to such rules and regulations. These condensed consolidated financial            statements reflect all adjustments that, in the opinion of management, are necessary to            present fairly the results of operations of the Company for the periods presented. The            results of operations for the three and six months ended June 30, 2007, are not            necessarily indicative of the results that may be expected for any future period or the            fiscal year ending December 31, 2007.

 

| 3. | Loss Per Share |
|----|----------------|

 

The computation of loss per common share is based on the weighted            average number of shares outstanding during the periods. The Company had stock options            outstanding to purchase 776,141 shares as of June 30, 2007 and warrants outstanding            exercisable for 1,061,770 shares of common stock which were not included because they            were antidilutive.

 

| 4. | 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.

 

6

 

----

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 June 30, 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.

 

| 5. | Going Concern |
|----|---------------|

 

The accompanying financial statements have been prepared assuming that            the Company will continue as a going concern. For the periods ended June 30, 2007 and            2006, the Company had negative cash flows from operating activities, recurring            operating losses, negative working capital, 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 regarding its working capital deficit, cash            flows form operations and profitability include continued changes and improvements to            our products and services and expansion of our member population to attain profitable            operations.

 

Management is actively exploring both equity and debt financing            opportunities which would allow the Company to implement membership models management            believes will increase membership significantly.

             

There can be no assurance that the Company will be successful in its            efforts to operate profitability or to secure debt or equity financing.

 

| 6. | Supplemental Disclosure of Cash Flow                            Information |
|----|-----------------------------------------------------------------------------|

 

During the six months ended June 30, 2007 and 2006 the Company incurred            the following amounts for interest and income taxes:

 

|         | **2007**                                                 | **2006**                                                 |
|--------------|----------------------------------------------------------|----------------------------------------------------------|
|         |                                                     |                                                     |
| Interest     | $69,158                                                  | $14,386                                                  |
|         |                                                     |                                                     |
| Income taxes | $         - | $         - |

 

| 7. | Stock Options and Warrants |
|----|----------------------------|

 

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 June 30, 2007, 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, 2007, there is no expense            required to be recognized attributable to these options for the period ended June 30,            2007.

 

7

 

 

----

             

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 2007, the Company            authorized options exercisable for an additional 150,000 shares of common stock on the            same terms. 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.            As of June 30, 2007 all of these options are fully vested and can be exercised at any            time, therefore 100% of the option value was recognized as of June 30, 2007.

             

On March 8, 2007, the 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 approved 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 future grant of the options under the Plan are subject to shareholder approval. The            option, if granted, will 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.

             

We have used the Black-Scholes valuation model to estimate the fair            value of our stock-based awards, which 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 the options granted during June of 2006:

 

|   | Risk-free interest rate | 4.92% |
|--------|-------------------------|-------|

|   | Expected life in years | 3.97-4.96 |
|--------|------------------------|-----------|

|   | Dividend yield | 0 |
|--------|----------------|---|

|   | Expected volatility | 157.3% |
|--------|---------------------|--------|

 

A summary of the status of the Company’s stock option plans as of            June 30, 2007 and changes during the year is presented below:

 

|                                     |  

**Options** | **Weighted Average**

**Exercise Price** |
|------------------------------------------|---------------------|------------------------------------------|
|                                     |                |                                     |
| Outstanding options at December 31, 2006 |                | 630,979                             | $ | 1.16 |
|                                     |                |                                     |   |   |
| Granted                                  |                | 150,000                             |   | .15 |
| Cancelled / Expired                      |                | 0                                   |   |   |
| Exercised                                |                | (4,838)                                  |   | .16 |
|                                     |                |                                     |   |   |
| Outstanding, June 30, 2007               |                | 776,141                             | $ | .95 |
|                                     |                |                                     |   |   |
| Exercisable, June 30, 2007               |                | 776,141                             | $ | .95 |

 

 

8

 

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| **Outstanding**                                                                                          | **Exercisable**                                                                    |
|----------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|
|  

                             

                             

**Exercise**

**Prices** |  

                             

**Number Outstanding**

**at 6/30/07** | **Weighted Average Remaining Contractual Life (in                            years)** |  

                             

**Weighted Average Exercise Price** |  

                             

**Number of Options Exercisable** |  

                             

**Weighted Average Exercise Price** |
| $                                                                                                        | 2.50                                                                               | 264,000 | 2.00 | $ | 2.50 | 264,000 | $ | 2.50 |
|                                                                                                     | .15                                                                                | 512,141 | 4.26 |   | .15 | 512,141 |   | .15 |
| $                                                                                                        | 2.50-.15                                                                           | 776,141 | 3.13 | $ | .95 | 776,141 | $ | .95 |

 

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 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 seven hundred fifty thousand dollars ($750,000). 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.

             

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 year ended December 31, 2006, the Company recognized, as            non-cash interest expense, the amount of $305. 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, we 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, 2006, the Company            recognized, as non-cash interest expense, an aggregate amount of $29,786 representing            the pro-rata number of warrants obligated to be issued at January 31, 2007 from the            date of the note through December 31, 2006. During the six months ended June 30, 2007,            the Company recognized $7,714 as non-cash interest expense in connection with such            warrants.

 

9

 

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|                                      |  

**Warrants** | **Weighted Average**

**Exercise Price** |
|-------------------------------------------|----------------------|------------------------------------------|
|                                      |                 |                                     |
| Outstanding Warrants at December 31, 2006 |                 | 513,269                                  | $ | 0.25 |
|                                      |                 |                                     |   |   |
| Issued                                    |                 | 548,501                                  |   | 0.22 |
| Cancelled / Expired                       |                 | -                                        |   | - |
| Exercised                                 |                 | -                                        |   | - |
|                                      |                 |                                     |   |   |
| Outstanding, June 30, 2007                |                 | 1,061,770                                | $ | 0.23 |
|                                      |                 |                                     |   |   |
| Exercisable, June 30, 2007                |                 | 1,061,770                                | $ | 0.23 |

 

 

| **Outstanding**                                                                                          |                                                                                | **Exercisable**                                                                       |
|----------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|
|  

                             

                             

**Exercise**

**Prices** |  

                             

**Number Outstanding**

**at 06/30/06** | **Weighted Average Remaining Contractual Life (in                            years)** |  

                             

**Weighted Average Exercise Price** |  

                             

**Number of Warrants Exercisable** |  

                             

**Weighted Average Exercise Price** |
| $                                                                                                        | 0.25                                                                                | 936,770                                                                               | 4.38 | $ | 0.25 | 936,770 | $ | 0.25 |
| $                                                                                                        | 0.10                                                                                | 125,000                                                                               | 3.51 | $ | 0.10 | 125,000 | $ | 0.10 |
|                                                                                                          |                                                                                     |                                                                                       |  |  |  |  |  |  |  |  |  |  |  |  |

 

8.Loan Fundings and Practice            Acquisitions

 

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. At            the closing of the Purchase Agreement, the Cooperative acquired 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.

             

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 was effective immediately upon closing of the Purchase            Agreement.

             

Acquisition of Practice from DPAT-1, LLC

 

DPAT-1, LLC (“DPAT”) owns and operates a dental practice.            Michael Silva, Marlon Berrett, and Harry L. “Pete” Peterson (the            “Members”), who are 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.

 

10

 

 

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|   | 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 a 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 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. 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 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 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

 

11

 

 

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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.

 

9.Consolidated Acquisitions

 

Acquisition of Practice from Dr. Clegg

             

In January 2007, we 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 Q1 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 our 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 |

 

Goodwill of $67,833 resulting from the acquisition resulted from us            paying 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 of DPAT-1,                            LLC |
|--------|-------------------------------------------------------|

 

In January 2007, 100% of membership interests in DPAT-1, LLC,            (“DPAT-1”), was acquired through the assignment of those interests to            Dental Practice Transition, Inc., a wholly owned subsidiary of the Company, who is now            the sole member of DPAT-1. The results of operations of DPAT-1 for Q1, 2007, are            included in the Q1 consolidated statement of operations.

As the membership interests 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-1 net assets acquired exceeded the acquisition cost by            $11,805.

 

12

 

 

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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 |

 

 

 

13

 

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**Item            2. Management’s Discussion and Analysis and Plan of Operation**

 

The following discussion and analysis provides information which            management believes is relevant to an assessment and understanding of our condensed            consolidated results of operations and financial condition. The discussion should be            read in conjunction with the consolidated financial statements included in our Form            10-KSB for the year ended December 31, 2006, and notes thereto.

 

**Overview**

 

We earn revenue from our dental cooperative business through member fees            assessed to our members 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 and the opportunity to participate in profit sharing or bonus pools. 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. Another original and important part of our business model            is to offer dental 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, and involves a membership fee sufficiently increased to pay            the membership fee and repay the financed amount. Through our exclusive referral            agreement with Stillwater National Bank and Trust Company, we were able to commence            such dental practice transition financing in early 2007. Members who enter into such            financing arrangements with the Cooperative are referred to as Affiliate Members. Such            affiliate member dentists enter into agreements with the Company to acquire their            dental practice over an agreed period of time and they agree to continue to manage the            practice over the same period. At the end of the agreed period the Company finances a            new dentist into the ownership and management of the dental practice.

 

Under our Dental Practice Transition business, we earn revenue by            retaining a percentage of the margin from dental practices that enter into affiliate            memberships. To date, in 2007 we have entered into five dental practice purchase            arrangements, as described below.

 

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. At            the closing of the Purchase Agreement, the Cooperative will acquire 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.

             

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 period ended June 30, 2007 includes consolidated financial            information from of DPAT-1, LLC and Richard R. Clegg DDS PC, which we acquired during            the first quarter of 2007.

             

Acquisition of Practice from DPAT-1

 

DPAT-1, LLC (“DPAT”) owns and operates a dental practice.            Michael Silva, Marlon Berrett, and Harry L. “Pete” Peterson (the            “Members”), who are directors of the Company, were the sole owners of DPAT.            Effective

 

14

 

 

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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.

 

|   | 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 a 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 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. 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

 

15

 

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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 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.

 

**Financial Position**

 

We had $130,588 in cash as of June 30, 2007. Our working capital as of            June 30, 2007 was $51,879, compared to a working capital deficit of $179,006 at            December 31, 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.

 

**Three and Six Months Ended June 30, 2007 and 2006**

 

Our dental practice member revenues (net of member incentives), referred            to as “cooperative revenues” were $64,044 and $142,495 for the three and            six months ended June 30, 2007 as compared to $85,705 and $173,500 for the comparable            periods from the prior year. Cooperative 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 decrease in cooperative            revenues resulted primarily from a reduction in the fee structure to our cooperative            members and a net decrease of approximately ten percent in cooperative membership. The            restructuring of our fee schedule was done in anticipation of new membership models            that the Company introduced in 2007.

 

Member incentives were $24,241 and $46,468 for the three and six months            ended June 30, 2007 as compared to $32,781 and $66,820 for the comparable periods from            the prior year. These amounts are accounted for as reductions of Cooperative revenues.            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. Member incentives are expected to increase and decrease with the            general growth or reduction in the number of member dentists, the growth or decline in            member revenues and the resulting growth or decline in management fee revenue to Dental            Cooperative. 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 $121,297 and $248,697 for the three and six months ended June 30, 2007)            were $454,159 and $925,378 for the three and six months ended June 30, 2007 as compared            to $0 for the comparable periods from the prior year. These 2007 revenues includes            consolidated financial information from of DPAT-1, LLC and Richard R. Clegg DDS PC,            which the Company acquired during the first quarter of 2007. The Company did not own            any dental practices during 2006.

 

Dental operations expenses were $447,587 and $889,211 for the three and            six months ended June 30, 2007 as compared to $0 for the comparable periods from the            prior year. These 2007 expenses related to expenses incurred in the operation of the            DPAT-1, LLC and Richard R. Clegg DDS PC practices, which practices were acquired by the            Company during 2007.

 

16

 

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General and administrative (“G&A”) expenses were            $217,615 and $448,808 for the three and six months ended June 30, 2007 as compared to            $293,325 and 457,796 for the comparable periods from the prior year. The decrease in            G&A expenses is primarily due to a decrease in fees charged by professional service            providers and the expense associated with the Company’s options and            warrants.

             

Net other expense was $49,100 and $63,993 for the three and six months            ended June 30, 2007 as compared to net other income of $10,446 and $7,769 for the            comparable periods from the prior year. The change between the 2007 and 2006 periods is            primarily due to increased interest expense relating to borrowed funds.

 

**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 $206,522 for the six months ended June 30, 2007 as compared to            net cash used of $225,895 during the comparable period from the prior year. We used net            cash from investing activities of $28,887 for the six months ended June 30, 2007 as            compared to $0 during the comparable period from the prior year. We also received net            cash from financing activities of $197,113 during the six months ended June 30, 2007,            as compared to receiving $240,000 during the comparable period from the prior year. As            of June 30, 2007, our working capital was $51,879 and we had $130,588 of cash on            hand.

 

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

 

As of June 30, 2007, we have current assets of $432,999 as compared to            $190,850 as of December 31, 2006. Our current liabilities of $381,120 at June 30, 2007            are higher than the balance of $369,856 at December 31, 2006. The increase in our            current assets and current liabilities is primarily a result of the acquisition of            DPAT-1, LLC and Richard R. Clegg DDS PC.

 

We choose to continue to distribute Dental Cooperative member incentives            in the first and second quarters of 2007, although we have not yet generated            significant or sustained positive cash flows from operating activities, and there can            be no assurance that we will be able to generate significant or sustained positive cash            flows in future periods. If we are unable to significant and sustained 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 amount of five hundred thousand dollars            ($500,000) and may make additional loans to the Company in the total aggregate            principal amount of up seven hundred fifty thousand dollars ($750,000). 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. 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            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.

             

17

 

 

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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.

  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.

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, will not provide us with sufficient funding for the next            twelve months. We anticipate that we will need at least $200,000 in funding to execute            our business plan over the next twelve months and thereafter. We have contractual            arrangements in place with Heartland that we believe will provide us with the necessary            financing. 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 August 10, 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) 512,141 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. Subject to shareholder            approval, we also intend to grant stock options exercisable for 12,559,791 shares of            common stock at an exercise price of $.30 per share.

 

***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.

 

***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 |
|--------|------------|--------------------------|

 

18

 

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|   | *Cooperative Revenue Recognition* |
|--------|-----------------------------------|

             

We charge our member dentists membership fees, marketing fees for            referrals provided by us, and receive 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.

 

|   | *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.

 

|   | *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, 2006 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.

 

***Recent Accounting Pronouncements***

 

  We have not adopted any new accounting policies that would have a            material impact on our financial condition, changes in financial conditions or results            of operations.

 

**Inflation**

 

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

 

19

 

 

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**Forward-Looking Statements**

 

When used in this Form 10-QSB, 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; 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” of our last            annual report on form 10-KSB and elsewhere herein and therein.

 

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.

**Item 3. Controls and Procedures**

 

We have evaluated, under the direction of our Chief Executive Officer            and Chief Financial Officer, the effectiveness of the design and operation of our            disclosure controls and procedures as of June 30, 2007, pursuant to Exchange Act Rule            15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial            Officer concluded that, as of June 30, 2007, our disclosure controls and procedures are            effective.

 

There have been no significant changes in our internal control over            financial reporting that occurred during our most recently completed fiscal quarter            that have materially affected, or are reasonably likely to materially affect, our            internal control over financial reporting, or other factors that could significantly            affect internal controls subsequent to the date of our most recent            evaluation.

 

20

 

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**PART II — OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

None

 

**Item 2. Unregistered Sales of Equity Securities and Use of            Proceeds**

 

In June, 2006, the Company granted stock options exercisable for 150,000            shares of common stock at a purchase price of eighty percent (80%) of the closing price            of the common for the 20 consecutive trading day prior to the exercise. These options            were issued to 63 members of the cooperative whom we determined are accredited and            sophisticated investors. These options were granted in consideration for and as part of            the recipients participation as association members of the cooperative. The Company did            not use an underwriter in connection with this offering. The issuance of the stock            options and underlying common stock should the options be exercised was and is exempt            from registration under Section 4(2) and 4(6) of the Securities Act of 1933 and            pursuant to Regulation D as promulgated under the Securities Act of 1933.

 

In March 2007, the Company issued 24,000 shares of common stock to one            accredited investor in partial consideration for the acquisition of a dental practice.            The Company did not use an underwriter in connection with this offering. The issuance            of the stock options and underlying common stock should the options be exercised was            and is exempt from registration under Section 4(2) and 4(6) of the Securities Act of            1933 and pursuant to Regulation D as promulgated under the Securities Act of            1933.

 

**Item 3. Defaults Upon Senior Securities.**

 

Since the inception of Dental Cooperative, Messrs. Marlon Berrett            and Andrew Eberhardt each have advanced money to Dental Cooperative to cover expenses            of the Company. As of June 30, 2007, the principal amount of $42,960 was owed to            Mr. Marlon Berrett (in the form of notes payable) and the principal amount of            $71,500 was owed to Mr. Eberhardt (in the form of notes payable). Moreover,            interest has been accruing on the principal amounts the notes payable at the rate of            18% per annum and an aggregate of $3,382 in accrued interest was owing on the notes            payable as of June 30, 2007.

 

**Item 4. Submission of Matters to a Vote of            Securityholders.**

 

|   | None |
|--------|------|

 

**Item 5. Other Information.**

 

|   | None |
|--------|------|

 

 

21

 

 

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**Item 6. Exhibits.**

 

**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). |
|             |                                                            |  |  |

 

 

22

 

 

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| 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                            (Incorporated by reference to Exhibit 10.12 of the Company’s                            Annual Report on Form 10-KSB, dated December 31, 2006).                                                                                                                                                                                                                |
| 10.13 | 2007 Stock Option Plan                            (Incorporated by reference to Exhibit 10.13 of the Company’s                            Annual Report on Form 10-KSB, dated December 31, 2006).                                                                                                                                                                                                                |
| 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., 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).                 |
| 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.                                                                                                                                                                                                                          |

 

             

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SIGNATURES

             

Pursuant to the requirements of the Securities Exchange Act of 1934, the            Registrant has duly caused this report to be signed on its behalf by the undersigned            hereunto duly authorized.

             

| Date: August 14,2007  | DENTAL PATIENT CARE AMERICA, INC.

                             

                             

                             

By/s/ Michael Silva_

Michael SilvaChief Executive Officer, Director

                              |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Date: August 14, 2007 |  

                             

                             

By/s/ Brad                            Berrett

Brad BerrettChief Financial Officer

                                                                               |

 

 

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