**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

|   | WASHINGTON, D.C. 20549 |
|--------|------------------------|

 

|   | **Form 10-Q** |
|--------|---------------|

 

(Mark One)

 

| [ X ] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----------------|-----------------------------------------------------------------------------------|

 

For the quarterly period ended**MARCH 31, 2008**

 

| [   | ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 5(d) OF THE EXCHANGE ACT |
|---------------|---|----------------------------------------------------------------------|

 

For the transition period from ______________________________ to ______________________________

 

Commission File Number**333-37842**

 

**               DENTAL PATIENT CARE AMERICA, INC.**

|   | (Exact name of registrant as specified in charter) |
|--------|----------------------------------------------------|

 

|   | **UTAH** | **87-0373840** |
|--------|----------|----------------|

| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|----------------------------------------------------------------|--------------------------------------|

 

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

|   | (Address of principal executive offices) | (Zip Code) |
|--------|------------------------------------------|------------|

 

|   | **(801) 990-3311** |
|--------|--------------------|

|   | (Issuer's Telephone Number) |
|--------|-----------------------------|

 

**Not Applicable**

|   | (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) |
|--------|-------------------------------------------------------------------------------------|

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   

|   | Yes  x | Noo   |
|--------|------------------|------------|

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

|   | Large accelerated filer | o | Accelerated filer | o |
|--------|-------------------------|---|-------------------|---|

|   | Non-accelerated filer | o | Smaller reporting company | x |
|--------|-----------------------|---|---------------------------|---|

 

Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act).

|   | Yes  o | Nox |
|--------|------------------|-----|

 

 

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**APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**

**PROCEEDINGS DURING THE PRECEDING FIVE YEARS**

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

|   | Yeso | Noo |
|--------|------|-----|

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 12, 2008, the issuer had outstanding 23,982,397 shares of common stock, par value $0.001.

 

2

 

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|   | **FORWARD LOOKING STATEMENTS** |
|--------|--------------------------------|

 

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

 

We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, are based on certain assumptions and expectations which may or may not be valid or actually occur, and which involve various risks and uncertainties, including but not limited to risk of a lack of demand or low demand for our products and services; competitive products and pricing;            changes in the regulation of our industry; a failure to timely obtain necessary regulatory approvals; changes to the tax laws; failure to obtain adequate funding; additional costs associated with compliance with the Securities and Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, including any changes in the SEC’s rules, and other corporate governance requirements; failure of member dentists to timely and accurately pay management and other fees, changing government            regulations and laws applicable to the delivery of dental services, competitive factors such as pricing pressures and/or competition to hire and retain employees; the results of current and/or future legal proceedings and government agency proceedings which may arise out of our operations (including our dental benefits plan business and the attendant risks of fines, liabilities, penalties, suspension and/or debarment; undertaking acquisitions that could increase our costs or            liabilities or be disruptive; taking on additional debt to fund acquisitions or to implement affiliate agreements; failure to adequately integrate acquired businesses; material changes in laws or regulations applicable to the Company’s businesses; as well as other factors and other risks set forth in Item 6. Management’s Discussion and Analysis or Plan of Operation: Risk Factors” of our annual report on Form 10-KSB for the fiscal year ended December 31, 2007 and            elsewhere herein.

 

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

 

**PART I – FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

Dental Patient Care America, Inc. (the “Company” or the “Issuer”), files herewith its consolidated condensed balance sheets as of March 31, 2008 and December 31, 2007, the related consolidated condensed statements of operations for the three months ended March 31, 2008 and 2007, and the related consolidated condensed statements of cash flows for the three months ended March 31,            2008 and 2007. The accompanying financial statements do not include all information and notes to the financial statements necessary for a complete presentation of the financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, all of which are normal recurring adjustments, necessary to fairly present the financial            condition of the Company for the interim periods presented. The financial statements included in this report on Form 10-Q should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s annual report on Form 10-KSB for the year ended December 31, 2007. Operating results for the quarter ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31,            2008.

 

3

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| **DENTAL PATIENT CARE AMERICA, INC. AND SUBSIDIARIES**                 |   |
|------------------------------------------------------------------------|--------|
|                                                                   |   |
|                                                                   |   |
| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                             |   |
|                                                                   |   |
|                                                                   | Page   |
|                                                                   |   |
| Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007 | F - 2  |
|                                                                   |   |
| Consolidated Statements of Operations for the Three Months Ended       |   |
| March 31, 2008 and 2007                                                | F - 3  |
|                                                                   |   |
| Consolidated Statements of Cash Flows for the Three Months Ended       |   |
| March 31, 2008 and 2007                                                | F - 4  |
|                                                                   |   |
| Notes to Consolidated Financial Statements                             | F - 5  |

 

 

F-1

 

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| **Dental Patient Care America, Inc.**                                       |   |                                                                                              |
|-----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|
| **Consolidated Balance Sheets**                                             |   |                                                                                              |
|                                                                        |   |                                                                                              |   |   |
|                                                                        |   |                                                                                              |
|                                                                        |   |                                                                                              |   |   |
|                                                                        |   |                                                                                                   |   |  |
| **Assets**                                                                  |   | ****March 31,****2008****

(Unaudited)                                                            |   | ****December 31,                            2007****

**(Audited)** |
|                                                                        |   |                                                                                              |   |   |
| Current assets:                                                             |   |                                                                                              |   |   |
| Cash                                                                        |   | $              78,491  |   | $             52,720  |
| Accounts receivable, (net of allowance for contractual and other write-offs |   |                                                                                              |   |
| of $45,697, and $45,697, respectively)                                      |   | 197,879                                                                                      |   | 197,818  |
| Current portion of long term debt deferred debt issuing costs               |   | 42,249                                                                                       |   | 41,420  |
| Notes receivable from employees or affiliated enterprises                   |   | 30,000                                                                                       |   | 40,000  |
| Prepaids and other assets                                                   |   | 3,985                                                                                        |   | 9,066  |
|                                                                        |   |                                                                                              |   |   |
| Total current assets                                                        |   | 352,604                                                                                      |   | 341,024  |
|                                                                        |   |                                                                                              |   |   |
| Property and equipment, net                                                 |   | 29,410                                                                                       |   | 29,185  |
| Long term deferred debt issuing costs                                       |   | 126,747                                                                                      |   | 138,105  |
| Other assets                                                                |   | 36,105                                                                                       |   | 34,661  |
| Goodwill                                                                    |   | 67,833                                                                                       |   | 67,833  |
|                                                                        |   |                                                                                              |   |   |
| Total Assets                                                                |   | $            612,699             |   | $           610,808  |
|                                                                        |   |                                                                                              |   |   |
| **Liabilities and Stockholders' Deficit**                                   |   |                                                                                              |   |   |
|                                                                        |   |                                                                                              |   |   |
| Current liabilities:                                                        |   |                                                                                              |   |   |
| Accounts payable                                                            |   | $            142,088             |   | $             99,454  |
| Accrued payroll liabilities                                                 |   | 100,114                                                                                      |   | 35,685  |
| Accrued expenses                                                            |   | 14,680                                                                                       |   | 12,066  |
| Accrued interest                                                            |   | 53,459                                                                                       |   | 40,993  |
| Related-party notes payable                                                 |   | 8,665                                                                                        |   | -  |
| Member deposit payable                                                      |   | 9,463                                                                                        |   | 9,463  |
|                                                                        |   |                                                                                              |   |   |
| Total current liabilities                                                   |   | 328,469                                                                                      |   | 197,661  |
|                                                                        |   |                                                                                              |   |   |
| Long-term liabilities:                                                      |   |                                                                                              |   |   |
| Long term notes payable                                                     |   | 500,000                                                                                      |   | 500,000  |
| Long term practice acquisition liabilities                                  |   | 380,062                                                                                      |   | 383,625  |
|                                                                        |   |                                                                                              |   |   |
| Total long term liabilities                                                 |   | 880,062                                                                                      |   | 883,625  |
|                                                                        |   |                                                                                              |   |   |
| Total liabilities                                                           |   | 1,208,531                                                                                    |   | 1,081,286  |
|                                                                        |   |                                                                                              |   |   |
| 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; 23,812,397 and 23,587,691 shares issued                         |   |                                                                                              |   |   |
| and outstanding, respectively                                               |   | 1,299,047                                                                                    |   | 1,255,893  |
| Accumulated deficit                                                         |   | (1,894,879)                                                                                       |   | (1,726,371) |
|                                                                        |   |                                                                                              |   |   |
| Total stockholders' deficit                                                 |   | (595,832)                                                                                         |   | (470,478) |
|                                                                        |   |                                                                                              |   |   |
| Total Liabilities and stockholders' deficit                                 |   | $            612,699             |   | $          610,808  |
|                                                                        |   |                                                                                              |   |   |
|                                                                        |   |                                                                                              |   |   |
| See accompanying notes to consolidated financial statements.                |   |                                                                                              |   |   |

 

 

F-2

 

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|                                                         |   |
|--------------------------------------------------------------|--------|
| **Dental Patient Care America, Inc.**                        |
| **Consolidated Statements of Operations**                    |   |   |
|                                                         |   |   |   |   |   |
|                                                         |   | **Three Months Ended** |   |   |
|                                                         |   | **March 31,** |   |   |
|                                                         |   | **2008** | **2007** |   |   |
|                                                         |   | **(Unaudited)** | **(Unaudited)** |   |   |
|                                                         |   |   |   |   |   |
| Cooperative revenues (net of member incentives of            |   |   |   |   |   |
| $32,544 and $22,237, respectively)                           |   | $          98,682  | $          78,451  |   |   |
| Dental operations revenues (net of contractual and           |   |   |   |   |   |
| bad debt write-offs of $78,411,and $64,002, respectively)    |   | 293,310  | 290,352  |   |   |
| Total revenues                                               |   | 391,992  | 368,803  |   |   |
|                                                         |   |   |   |   |   |
| Costs and Expenses:                                          |   |   |   |   |   |
| Dental operations expenses                                   |   | 281,260  | 266,593  |   |   |
| General and administrative expense                           |   | 249,700  | 231,194  |   |   |
| Total costs and expenses                                     |   | 530,960  | 497,787  |   |   |
|                                                         |   |   |   |   |   |
| Loss from operations                                         |   | (138,968) | (128,984) |   |   |
|                                                         |   |   |   |   |   |
| Other income (expense):                                      |   |   |   |   |   |
| Other income, net                                            |   | 1,487  | 2,886  |   |   |
| Interest expense, net                                        |   | (31,027) | (14,092) |   |   |
| Related party interest expense                               |   | -  | (5,283) |   |   |
|                                                         |   |   |   |   |   |
| Net other expense                                            |   | (29,540) | (16,489) |   |   |
|                                                         |   |   |   |   |   |
| Loss from continued operations                               |   | (168,508) | (145,473) |   |   |
|                                                         |   |   |   |   |   |
| Income tax benefit (provisions)                              |   | -  | -  |   |   |
|                                                         |   |   |   |   |   |
| Loss before discontinued operations and extraordinary gain   |   | (168,508) | (145,473) |   |   |
|                                                         |   |   |   |   |   |
| Income from discontinued operations                          |   | -  | 7,433  |   |   |
|                                                         |   |   |   |   |   |
| Extraordinary gain - negative goodwill                       |   | -  | 11,806  |   |   |
|                                                         |   |   |   |   |   |
| Net income (loss) per common share                           |   | $      (168,508) | $      (126,234) |   |   |
|                                                         |   |   |   |   |   |
| Basic and diluted income/(loss) per common share             |   |   |   |   |   |
| - continued operations                                       |   | $            (0.01) | $            (0.01) |   |   |
| - discontinued operations                                    |   | -  | 0.00  |   |   |
| - extraordinary gain                                         |   | -  | 0.00  |   |   |
| Net Loss per common share                                    |   | $            (0.01) | $            (0.01) |   |   |
|                                                         |   |   |   |   |   |
| Weighted average shares outstanding                          |   |   |   |   |   |
| - basic and diluted                                          |   | 23,706,695  | 23,369,612  |   |   |
|                                                         |   |   |   |   |   |
|                                                         |   |   |   |   |   |
| See accompanying notes to consolidated financial statements. |        |  |  |  |  |  |

 

F-3

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| **Dental Patient Care America, Inc.**                         |
|---------------------------------------------------------------|
| **Consolidated Statements of Cash Flows**                     |
|                                                          |   |   |
|                                                          | **Three Months Ended March 31,** |
|                                                          | **2008** | **2007** |
|                                                          | **(Unaudited)** | **(Unaudited)** |
| **Cash flows from operating activities:**                     |   |   |
| Net Loss                                                      | $    (168,508) | $    (126,234) |
| Adjustments to reconcile net loss to net                      |   |   |
| cash provided by operating activities:                        |   |   |
| Extraordinary Gain                                            | -  | (11,806) |
| Depreciation                                                  | 3,009  | 2,647  |
| Amortization of deferred debt issuing costs                   | 10,529  | 6,915  |
| Revaluation of stock options                                  | 2,250  | (18,348) |
| Stock warrants issued for debt financing                      | -  | 7,714  |
| Accretion of practice acquisition liabilities                 | 8,437  | 7,470  |
| Common stock issued for services                              | 15,834  | -  |
| Decrease (increase) in:                                       |   |   |
| Accounts receivable                                           | (61) | 1,433  |
| Prepaid and other assets                                      | 8,917  | (4,113) |
| Increase (decrease) in:                                       |   |   |
| Accounts payable                                              | 42,634  | 40,625  |
| Accrued liabilities                                           | 67,043  | 96,522  |
| Related party accrued interest                                | -  | (2,263) |
| Other accrued interest                                        | 12,466  | 7,810  |
| Member deposits                                               | -  | 1,257  |
|                                                          |   |   |
| Net cash provided by operating activities                     | 2,550  | 9,629  |
|                                                          |   |   |
| **Cash flows used in investing activities:**                  |   |   |
| Notes receivable due from employees or affiliated enterprises | 10,000  | -  |
| Purchase of property and equipment                            | (3,234) | (896) |
| Cash received in connection with acquisitions                 | -  | 31,868  |
|                                                          |   |   |
| Net cash provided by investing activities                     | 6,766  | 30,972  |
|                                                          |   |   |
| **Cash flows from financing activities:**                     |   |   |
| Proceeds from exercise of stock options                       | 7,790  | -  |
| Proceeds from related party notes and advances                | 8,665  | -  |
| Payments on notes payable                                     | -  | (713) |
|                                                          |   |   |
| Net cash provided by (used in) financing activities           | 16,455  | (713) |
|                                                          |   |   |
| Net increase in cash                                     | 25,771  | 39,888  |
|                                                          |   |   |
| Cash at beginning of period                              | 52,720  | 111,110  |
|                                                          |   |   |
| Cash at end of period                                    | $       78,491  | $     150,998  |
|                                                          |   |   |
| See accompanying notes to consolidated financial statements.  |   |   |

 

 

F-4

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**DENTAL PATIENT CARE AMERICA, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

 

During 2007, the Company commenced implementing dental member practice transition funding models through its referral lending agreements that the Company concluded with Stillwater National Bank during 2006. The implementation of these models provides the ability to member dental practices to obtain financing toward the future transition of their practices from members who have chosen            to retire or otherwise exit their practice, to a member practitioner who wishes to assume the operations of the exiting member. Members who enter into such financing agreements are referred to as Affiliate Members. (See note 14)

 

| 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 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 month period ended March 31, 2008, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2008.

 

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

 

Basic earnings (loss) per common share (“EPS”) is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net loss by the weighted average number of common shares outstanding,

 

F-5

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plus the assumed exercise of all dilutive securities using the treasury stock or “as converted” method, as appropriate. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive. The Company had stock options outstanding to purchase 715,327 and 727,700 shares of common stock as of March 31, 2008 and December 31, 2007            respectively (See Note 8). The Company also had warrants outstanding and exercisable to purchase 1,077,496 and 1,068,508 shares of common stock at March 31, 2008 and December 31, 2007 respectively (See Note 9).

 

| 4. | Going Concern |
|----|---------------|

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the years ended December 31, 2007 and 2006, and continuing through the quarter ended March 31, 2008, the Company had negative cash flows from operating activities, recurring operating losses, and negative equity. These conditions raise substantial doubt about            the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Management’s plans to overcome its working capital deficit, negative cash flows from operating activities and recurring operating losses include (1) further implementation of the new membership models made possible by the Company’s successful conclusion of the referral lending agreement with Stillwater National Bank during December 2006, (2) continued improvements and            implementation of its product and service offerings, which now include the ability to offer expanded member financing opportunities through the Company’s association with Stillwater National Bank, and (3) aggressive expansion of its member population into additional state markets which management believes will increase membership and profitability.

 

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

 

| 5. | Revenue Recognition |
|----|---------------------|

 

*Cooperative Revenue Recognition - Associate Membership*

 

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

 

*Cooperative Revenue Recognition - Affiliate Membership*

 

During 2007, the Company entered into five Affiliate member dental practice purchase and transition financing arrangements and an additional two such agreements during the quarter ended March 31, 2008 (See Note 14). The Company charges Affiliate members membership fees based upon the margin from the dental practices that enters into such agreements, or the amount of financing obtained            by the practice in the funding transaction, or a percentage of the practices’ valuation expressed as a function of the annual cash collections of the practice. Membership fees associated with Affiliate members are established under the contractual terms entered into when the financing agreement was concluded. Since Affiliate member fees are reasonably determinable and estimable, such fees are accrued and recognized in the period earned.

 

F-6

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The Company pays incentives to its members to recognize significant contributions to Dental Cooperative, based largely on the growth in revenues and resulting fees to Dental Cooperative. Such incentives are discretionary on the part of the Board of Directors, and granted to certain members who are deemed to have made significant contributions to Dental Cooperative through their            membership and participation. These incentives are accounted for as a reduction of Cooperative revenues.

 

Practice Revenue Recognition

 

The Company’s dental practices charges fees to its patients for dental services performed. Fees are established internally by the practice 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 Company’s 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 its 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.

 

| 6. | 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 March 31, 2008, and December 31, 2007 are fully vested, we have recognized the associated compensation costs associated with these transactions.

 

| 7. | Notes Payable |
|----|---------------|

 

On December 27, 2006, the Company and its subsidiaries entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland has advanced loans to the Company in the amount of five hundred thousand dollars ($500,000) and it originally agreed to make additional            loans to the Company in the total aggregate principal amount of up to one million two hundred fifty thousand dollars ($1,250,000). Interest on the principal amount outstanding is due on the first day of each calendar quarter and interest is payable at the rate of ten percent (10%) per annum. The Company recognized $12,466 and $7,082 of interest expense associated with thisnote payable during the quarters ended March 31, 2008, and March 31, 2007, respectively.            No accrued interest has

 

F-7

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been paid. The principal amount is due and payable in full April 30, 2012. As collateral for the repayment of the loan, the Company granted Heartland a security interest in substantially all of its assets. The Company’s right to obtain additional loans under the Loan Agreement expired on November 15, 2007, and no additional loans will be obtained by the Company thereunder. There can be no assurance            that the Company will have sufficient funds available to repay the amounts owing under the Loan Agreement.

 

As additional consideration for the loan, the Company issued a warrant to Heartland that is exercisable for a number of shares of common stock equal to ten percent (10%) of the Company’s issued and outstanding common stock, on a fully diluted basis, on the date of exercise (See Note 9). 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.

 

| 8. | Stock Options |
|----|---------------|

 

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

 

As of March 31, 2008, and December 31, 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, 2006, there is no expense required to be recognized attributable to these options for the period ended March 31, 2008.

 

During June of 2006, the Company authorized and issued options to its member dentists to purchase 399,914 shares of common stock at an exercise price equal to eighty percent (80%) of the average closing price of the Company’s stock for the preceding 20 days prior to the date of exercise. During June of 2007, the Company authorized and issued options to its member dentists to            purchase 150,000 shares of common stock under terms identical to those options issued in June of 2006. The variability in the exercise price requires these options to be treated as variable securities, and they will be revalued at the end of each reporting period. At the date of issuance, all of these options were fully vested and could be exercised at any time, therefore 100% of the option value was recognized during the year. On January 2, 2008, the Company authorized and issued            options to its member dentists to purchase an additional 45,000 shares of common stock under terms identical to those options issued in June of 2006. The variability in the exercise price requires these options to be treated as variable securities, and they will be revalued at the end of each reporting period. At the date of issuance, all of these options were fully vested and could be exercised at any time.

 

During the years ended December 31, 2006 and 2007, 32,935 and 53,279 respectively of these options were exercised. During the quarter ended March 31, 2008, accredited member dentist option holders exercised options exercisable for 57,373 shares of common stock which resulted in aggregate proceeds of $7,790. As these options are variable securities, the Company revalued the 451,327 and            the 463,700 outstanding options using Black-Scholes models to estimate their fair market valuation at March 31, 2008, and December 31, 2007 respectively. At March 31, 2008, the 451,327 remaining outstanding options had a Black-Scholes fair market value of $22,566. Comparatively, the 463,700 outstanding options at December 31, 2007 had a Black-Scholes value of $23,185.

 

F-8

----

 

The Company used the Black-Scholes valuation model to estimate the fair value of its stock-based awards. Use of the Black-Scholes valuation model to estimate the fair value of our stock-based awards requires various judgmental assumptions including estimated stock price volatility, forfeiture rates, and expected life. Our computation of expected volatility is based on a combination of            historical and market-based implied volatility. Our calculation of the fair market value of each option award on the date of grant, using the Black-Scholes option-pricing model, used the following assumptions for this group of options outstanding at March 31, 2008:

 

 

| Risk-free interest rate | 2.46%   |
|-------------------------|---------|
| Expected life in years  | 3.51    |
| Dividend yield          | 0       |
| Expected volatility     | 150.50% |

 

A summary of the status of the Company’s stock option plans as of March 31, 2008 and changes during the year is presented below:

 

 

|                                     |  

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

**Exercise Price** |
|------------------------------------------|---------------------|------------------------------------------|
|                                     |                |                                     |
| Outstanding options at December 31, 2007 |                | 727,700                             | $ |                                          1.00 |
|                                     |                |                                     |   |   |
| Granted                                  |                | 45,000                              |   | 0.14 |
| Cancelled / Expired                      |                | -                                   |   | - |
| Exercised                                |                | (57,373)                                 |   | 0.14 |
|                                     |                |                                     |   |   |
| Outstanding, March 31, 2008              |                | 715,327                             | $ | 1.01 |
|                                     |                |                                     |   |   |
| Exercisable, March 31, 2008              |                | 715,327                             | $ | 1.01 |

 

 

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

 

 

 

**Exercise**

**Prices** |  

 

 

**Number Outstanding**

**at 03/31/08** |  

 

 

**Weighted Average Remaining Contractual Life (in years)** |  

 

 

**Weighted Average Exercise Price** |  

 

 

**Number of Options Exercisable** |  

 

**Weighted Average Exercise Price** |   |
| $                                                        | 2.50                                                            | 264,000                                                                            | 1.25                                                        | $ | 2.50 | 264,000 | $ | 2.50 |
|                                                     | 0.14                                                            | 451,327                                                                            | 3.51                                                        |   | 0.14 | 451,327 |   | .14 |
| $                                                        | 2.50 – 0.14                                               | 715,327                                                                            | 2.39                                                        | $ | 1.01 | 715,327 | $ | 1.01 |
|                                                          |                                                                 |                                                                                    |                                                             |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

| 9. | Stock Warrants |
|----|----------------|

 

On December 27, 2006, the Company and its subsidiaries entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland has made loans to the Company in the amount of five hundred thousand dollars ($500,000) and originally agreed to make additional loans            to the Company in the total aggregate principal amount of up to one million two hundred fifty thousand dollars ($1,250,000). Interest on the principal amount

 

F-9

----

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. The Company’s right to obtain additional loans under the Heartland Loan            Agreement expired on November 15, 2007, and no additional loans will be obtained by the Company thereunder.

 

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 quarters ended March 31, 2008, and March 31, 2007, the Company recognized, as non-cash interest expense, the amount of $10,529, and $6,915 respectively. This amount represents the amortized portion of the deferred debt issuing costs associated with the number of warrants exercisable under the warrant agreement with Heartland, valued utilizing the Black-Scholes            model.

 

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

 

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

 

The Company utilizes the Black-Scholes valuation model to estimate the fair value of its warrants established at the date the warrant agreement was entered into. Use of the Black-Scholes valuation model to estimate the fair value of our warrants requires various judgmental assumptions including estimated stock price volatility, forfeiture rates, and expected life. Our computation of            expected volatility is based on a combination of historical and market-based implied volatility. Our calculation of the fair market value of each warrant on the date of grant, using the Black-Scholes option-pricing model, used the following assumptions for warrants issued during the quarter ended March 31, 2008:

 

 

|                               | Heartland         |
|------------------------------------|-------------------|
| Risk-free interest rate            | 2.46% - 2.82%     |
| Remaining life in years            | 3.75              |
| Dividend yield                     | 0                 |
| Expected volatility                | 167.74% - 163.59% |
| Weighted average value per warrant | $0.16             |

 

 

F-10

----

**A summary of the status of the Company’s common stock warrants as of March 31, 2008, and changes during the year is presented below:**

 

 

|                                      |  

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

**Exercise Price** |
|-------------------------------------------|----------------------|------------------------------------------|
|                                      |                 |                                     |
| Outstanding Warrants at December 31, 2007 |                 | 1,068,508                                | $ |                                           0.23 |
|                                      |                 |                                     |   |   |
| Issued                                    |                 | 8,988                                    |   | 0.25 |
| Cancelled / Expired                       |                 | -                                        |   | - |
| Exercised                                 |                 | -                                        |   | - |
|                                      |                 |                                     |   |   |
| Outstanding, March 31, 2008               |                 | 1,077,496                                |   | 0.23 |
|                                      |                 |                                     |   |   |
| Exercisable, March 31, 2008               |                 | 1,077,496                                | $ | 0.23 |

 

 

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

 

 

 

**Exercise**

**Prices** |  

 

 

**Number Outstanding**

**at 12/31/06** |  

 

**Weighted Average Remaining Contractual Life (in years)** |  

 

 

**Weighted Average Exercise Price** |  

 

 

**Number of Warrants Exercisable** |  

 

**Weighted Average Exercise Price** |
| $                                                        | 0.25                                                            | 952,496                                                                    | 3.75 | $ | 0.25 | 952,496 | $ | 0.25 |
| $                                                        | 0.10                                                            | 125,000                                                                    | 2.75 | $ | 0.10 | 125,000 | $ | 0.10 |
|                                                          |                                                                 |                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

| 10. | Stock Transactions |
|-----|--------------------|

 

During March 2008, the Company issued 84,000 shares of common stock to two member dentists associated with the acquisition of their practices. During January, February, and March 2008, option holders exercised 57,373 options to purchase common stock which resulted in aggregate proceeds of $7,790. On January 2, 2008, the Company authorized and issued 83,333 shares of common stock to a            member dentist, at a valuation of $0.19 per share, in connection with the Company’s profit sharing program. Profit sharing distributions are discretionary on the part of the Board of Directors, and granted to certain members who are deemed to have made significant contributions to Dental Cooperative through their membership and participation.

 

| 11. | Private Stock Offering |
|-----|------------------------|

 

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

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

 

F-11

----

| 12. | Consolidated Acquisitions |
|-----|---------------------------|

***Acquisition of Practice from Dr. Clegg***

 

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

 

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

 

| 13. | Discontinued Operations |
|-----|-------------------------|

 

Effective September 1, 2007, Dental Practice Transition, Inc., in accordance with its business model and purpose, assigned its entire membership interest in DPAT to 39th Street Dental, LLC. The operations of DPAT for the quarter ended March 31, 2007, were reported within discontinued operations in the accompanying Consolidated Statements of Operations. A summarization of            DPAT operations for the three months ended March 31, 2007, is as follows:

 

 

|                                      | Three Months Ended

March 31, 2007                                   |
|-------------------------------------------|----------------------------------------------------------------------|
|                                      |                                                                 |
| Dental operations revenues                | $         180,868  |
| Dental operations expense                 |                                                                 | (175,031) |
|                                      |                                                                 |
| Income from dental operations             | 5,837                                                           |
|                                      |                                                                 |
| Other income/(expense), net               | 23                                                              |
| Interest income/(expense), net            |                                                                 | 1,573  |
|                                      |                                                                 |
| Income from discontinued operations  |                                                                 | $            7,433  |

 

 

F-12

----

 

| 14. | Practice acquisitions, Affiliate Memberships, and loan fundings. |
|-----|------------------------------------------------------------------|

 

During the quarter ended March 31, 2008, under the Company’s dental practice transition business, the Company entered into two Affiliate Membership and Dental Practice Purchase arrangements. Such arrangements typically involve the execution of a purchase agreement (the “Purchase Agreement”) between the Company and the dental practice pursuant to which the Company may            acquire substantially all of the assets of the practice in consideration for future cash payments. The transfer of the practice assets is not anticipated to occur until the five-year anniversary of the initial closing date, and can be cancelled at any time by the dental practice. The Purchase Agreement contains non-compete, confidentiality, indemnification, and other provisions. The parties also execute a management agreement (the “Management Agreement”) pursuant to            which the Company retains the owner and dental practitioner (the “Provider”), to manage and operate the dental practice for a five year period in consideration of a percentage of the dental practice’s margin (i.e. the practice’s collections less operating expenses), or the payment of a predetermined fixed management fee. The Management Agreement also contains requirements with respect to minimum collection and/or margin levels that must be maintained during            the term of the agreement.

 

In connection with the initial closing, the dental practice may obtain a loan arranged by the Company through the Company’s referral lending relationship with Stillwater National Bank and Trust Company (the “SNB”). Obtaining or accepting such loan by the practice at the initial closing is not a condition of Affiliate Membership, or the ultimate execution of the            future Purchase Agreement between the practice and the Company, but is offered to those practices who desire the availability of this funding facility. The amount of such loans, to the extent they may be made, vary according to the value of each individual practice and are subject to negotiation between SNB and the Provider, who is a party to the Purchase Agreement. Such loans are secured and guaranteed by the Provider, and SNB retains the right, in its sole discretion, to accept or            reject any loan request. In connection with the loan to the practice, the Company agrees to subordinate certain rights under the Purchase Agreement and Management Agreement to the amounts owing to SNB under the loan.

 

| 15. | Related Party Transactions |
|-----|----------------------------|

 

On March 18, 2008, Marlon R. Berrett, an officer and director of the Company, advanced $8,665 to the Company for operational use. The advance bears no term or interest.

 

| 16. | Supplemental Disclosure of Cash Flow Information |
|-----|--------------------------------------------------|

 

During the quarters ended March 31, 2008 and 2007 the Company paid the following amounts for interest and income taxes:

 

F-13

----

 

 

|           | **2008** | **2007** |
|----------------|----------|----------|
|           |     |     |   |   |
| Cash paid for: |     |     |   |   |
| Interest       | $        | -        | $ | 7,547 |
|           |     |     |   |   |
| Income taxes   | $        | -        | $ | - |

 

 

| 17. | Income Taxes |
|-----|--------------|

 

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

 

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

 

The Company, as a matter of policy, would record any interest and penalties associated with taxes as a component of income tax expenses. The Company recorded an immaterial amount of interest and penalties for the quarter ended March 31, 2008, and year ended December 31, 2007.

 

| 18. | Subsequent Events. |
|-----|--------------------|

 

Sale of Stock

 

On April 22, 2008, the Company sold 170,000 shares of common stock to an accredited investor under the private stock offering authorized by the Board of Directors on March 5, 2008 (See Note 11). The sale resulted in aggregate proceeds of $17,000.

 

F-14

----

**Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.**

 

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-KSB for the year ended December 31,            2007.

 

**Overview**

 

We earn revenue from our dental cooperative business through membership fees assessed to our members as a percentage of their operating revenues and through marketing fees for patient referral services. In return, we provide service to our members in the form of centralized purchasing of dental supplies and lab services, HR benefits, marketing services for patient flow, the opportunity to participate in            profit sharing or bonus pools and, more recently, preferential business financing through our financing agreements with a third party lender. 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.” During 2007, we commenced implementing dental member practice transition funding models using the referral lending            agreements we had concluded with a third party lender during 2006. The implementation of these models provides the ability to member dental practitioners who have chosen to retire or otherwise exit their practice to obtain financing toward the future transition of their practice to a member practitioner who wishes to assume the operations of the exiting member. Members who enter into such financing agreements are sometimes referred to in this report as “Affiliate            Members.” We earn revenue by charging Affiliate Members membership fees based upon the margin from the dental practices that enter into such agreements, the amount of financing obtained by the practice in the funding transaction, or a percentage of the practice’s valuation expressed as a function of the annual cash collections of the practice. Membership fees associated with Affiliate Members currently range from approximately $1,700 to approximately $5,300 per month.            During 2007, we completed our acquisition of two dental practices and completed our first five dental practice purchase and transition financing arrangements and one practice sale arrangement. During the first quarter of 2008, we completed an additional two dental practice purchase and transition financing arrangements. We believe that this new line of business will enable us to demonstrate the capability of the Dental Cooperative model to increase profitability at dental practices            with the intent to profitably finance the enhanced dental practices to new dentists.

 

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

 

**Financial Position**

 

We had $78,491 in cash as of March 31, 2008. Our working capital as of March 31, 2008 was $24,135, compared to working capital of $143,363 at December 31, 2007. Our net loss for the first quarter of 2008 was $168,508 compared to a net loss of $126,234 for the corresponding period of 2007. 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.

 

**Fiscal Quarters Ended March 31, 2008 and 2007**

 

Our dental practice management revenues (net of member incentives), referred to as “cooperative revenues” in the financial statements, were $98,682 for the first fiscal quarter of 2008 as compared to $78,451 for the first fiscal quarter of 2007. Cooperative gross revenues consist of member fees and marketing fees paid to the Company by member dentists as well as group purchasing rebates            received from vendors for purchases made by our members. The increase in cooperative revenues resulted primarily from a small decrease in the number of Associate Members and a reduction in Associate Member fees, which was more than offset by an increase in the number of Affiliate Members and an increase in Affiliate Member fees, which are higher than Associate Member fees.

 

4

----

Member incentives were $32,544 for the first fiscal quarter of 2008 as compared to $22,237 for the first fiscal quarter of 2007. 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. The Member incentives during the first quarter of 2008 included shares of common stock valued at $15,833 which were issued to a member dentist in recognition of his extraordinary contributions to the Dental Cooperative. Member incentives are discretionary with the Board of Directors, and these funds can be redirected to pay operating expenses as needed.

Our dental operation revenues were $293,310 for the first fiscal quarter of 2008 as compared to $290,352 for the first fiscal quarter of 2007 (net of contractual and bad debt write-offs of $78,411 and $64,002 for the first quarters of 2008 and 2007, respectively). These revenues include consolidated financial information from DPAT-2, LLC (previously referred to by the Company as the Richard R. Clegg            DDS PC practice), which we acquired in the first quarter of 2007 and continue to own, but do not include revenues from DPAT-1, LLC (previously referred to by the Company as DPAT or the DPAT practice) which we acquired during the first quarter of 2007 and sold during the third quarter of 2007. The results of operations of DPAT-1 for the quarter ended March 31, 2007 are reported within "income form discontinued operations" in the amount of $7,433 in the consolidated            statements of operations.

 

Dental operations expenses were $281,260 for the three months ended March 31, 2008 as compared to $266,593  for the three months ended March 31, 2007. These expenses include expenses incurred in the operation of DPAT-2 but do not include expenses incurred in the operation of DPAT-1. As discussed above, the results of operations of DPAT-1 during the first quarter of 2007 are reported            within "income from discontinued operations" in the consolidated statements of operations.

 

General and administrative (“G&A”)expenses were $249,700 for the first quarter of 2008 as compared to $231,194 for the first quarter of 2007. The increase in G&A expenses is primarily due to increased professional fees, including consulting fees paid in connection with the Company’s evaluation and report on internal control over financial reporting and            increased benchmarking fees under our Benchmarking Services Agreement with Heartland Dental Care, Inc. as described below.

 

Net other expense was $29,540 for the first three months of 2008 as compared to $16,489 for the first three months of 2007. The increase is primarily due to the increased interest expense in 2008 relating to borrowed funds and the recognition of non-cash interest expense relating to warrants issued for debt financing.

 

**Liquidity and Capital Resources**

 

To date, we have financed our operations principally through private placements of equity securities, debt financing, and revenues. Net cash provided by operating activities was $2,550 for the first three months of 2008 compared to $9,629 for the first three months of 2007. Net cash provided by investing activities was $6,766 for the first quarter of 2008 as compared to $30,972 during the corresponding            period of 2007. The decrease is primarily due to cash in the amount of $31,868 received in connection with acquisitions during the first quarter of 2007 that was not repeated in 2008, offset by notes receivable from employees or affiliated enterprises of $10,000 in 2008 and $0 in 2007. We also received net cash from financing activities of $16,455 during the first quarter of 2008 as compared to net cash used in financing activities of $713 during the first quarter of 2007. The            increase is primarily attributable to the exercise of stock options during the first quarter of 2008 and short term advances from an officer and director in the amount of $8,665. As of March 31, 2008 and December 31, 2007, our working capital was $24,135 and $143,363, respectively, and we had cash on hand of $78,491 and $52,720, respectively.

 

As of March 31, 2008, we have current assets of $352,604 as compared to $341,024 as of December 31, 2007. Our current liabilities of $328,469 at March 31, 2008 are lower than the balance of $197,661 at December 31, 2007. The increase in our current assets and decrease in our current liabilities is primarily the result of increased trade payables and accrued payroll liabilities.

 

5

----

We chose to continue to distribute Dental Cooperative member incentives during the first quarter of 2008, although we have only generated nominal positive cash flows from operating activities, and there can be no assurance that we will be able to generate positive cash flows in future periods. If we are unable to generate positive cash flows from operating activities, we will be required to seek            financing through additional related party debt, including but not limited to salary waivers, or through the sale of debt or equity securities to investors. There can be no assurance that such related party financing or investor financing will be available to us if needed. We also may need to reduce or eliminate member incentives in order to maintain the services of our service providers through payment of their overdue bills.

 

On December 27, 2006, the Company and its subsidiaries entered into a Loan, Security and Warrant Agreement (the “Loan Agreement”) with Heartland Dental Care, Inc. (“Heartland”). Under the terms of the Loan Agreement, Heartland made loans to the Company in the aggregate principal amount of five hundred thousand dollars ($500,000) and agreed to make additional loans to the Company            in a total aggregate principal amount of up to one million two hundred fifty thousand dollars ($1,250,000), subject to the satisfaction of certain conditions. The Company’s right to obtain additional loans under the Heartland Loan Agreement expired on November 5, 2007 and no additional loans will be obtained by the Company thereunder. Interest on the principal amount outstanding is due on the first day of each calendar quarter and interest is payable at the rate of ten percent            (10%) per annum. The principal amount is due and payable in full April 30, 2012. As collateral for the repayment of the loan, the Company granted Heartland a security interest in substantially all of its assets. 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 loaned 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 loaned. As a result, the warrant is currently exercisable for 4.0% ((500,000/1,250,000) x 10%) of the Company’s issued and outstanding common stock, on a fully diluted basis. The Company has also agreed to file a registration statement registering the resale of the warrant and common stock that is issuable upon exercise of the warrants.

 

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

 

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

Except as described above and except for our operating payables, we currently have no bank lines of credit or third party indebtedness. As our revenues grow, we plan on seeking one or more bank lines of credit to assist with meeting ongoing liquidity needs. There can be no assurance that we will be able to secure such financing in the future.

Our working capital requirements for the foreseeable future will vary based upon a number of factors, including, our timing in the implementation of our business plan, our growth rate and the level of our revenues. We have no commitments to fund any future capital expenditures. Our current assets, along with cash generated from anticipated revenues, are not anticipated to provide us with sufficient            funding for the next twelve months. We anticipate that we will need approximately $300,000 in additional funding to execute our business plan over the

 

6

----

next twelve months and thereafter. We have not entered into any agreement or arrangement for the provision of such funding and no assurances can be given that such funding will be available to us on terms satisfactory to us or at all. Failure to raise the required capital could prevent us from achieving our long-term business objectives and may result in substantially reducing or even terminating            operations.

 

During the first quarter of 2008, we authorized and issued options to our member dentists to purchase an additional 45,000 shares of our common stock at an exercise price equal to eighty percent (80%) of the average closing price of our stock for the 20 days prior to the date of exercise. At the date of issuance, all of these options were fully vested and could be exercised at any time. The variability            in the exercise price requires these options to be treated as variable securities and to be valued at the end of each reporting period using Black-Scholes models to estimate their fair market valuation. The 45,000 options issued during the first quarter of 2008 were valued at $2,250.

 

On March 5, 2008, our Board of Directors authorized a private offering of up to 1,000,000 shares of our common stock for sale to qualified investors. We did not sell any shares in such private offering during the quarter ended March 31, 2008 and subsequent to the end of such quarter we sold 170,000 shares of common stock in such offering. No assurances can be given that we will be successful in raising            any additional funds through the private offering.

 

**Inflation**

 

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

 

**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, causes us to rely on estimates about the effects of matters that are inherently uncertain. We describe specific risks related to these critical accounting            policies below. A summary of significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements. Regarding all of these policies, we caution that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment. Our critical accounting policies include the following:

 

|   | **•** | Revenue recognition |
|--------|------------|---------------------|

|   | **•** | Stock based compensation |
|--------|------------|--------------------------|

 

*Cooperative Revenue Recognition - Associate Membership*

 

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

 

*Cooperative Revenue Recognition - Affiliate Membership*

 

During 2007, the Company entered into five Affiliate Member dental practice purchase and transition financing arrangements and one sale arrangement. The Company charges Affiliate Members membership fees based upon the margin from the dental practices that enter into such agreements, or the amount of financing obtained by the practice in the funding transaction, or a percentage of practices’            valuation expressed as a function of the annual

 

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cash collections of the practice. Membership fees associated with Affiliate Members are established under the contractual terms entered into when the financing agreement was concluded. Since Affiliate Member fees are reasonably determinable and estimable, such fees are accrued and recognized in the period earned.

 

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

 

*Practice Revenue Recognition*

 

The Company’s dental practices charge fees to its patients for dental services performed. Fees are established internally by the practices based upon billing rates that are considered usual and customary among similarly situated dental service providers. Revenue is recognized at the time and during the period in which services are performed. Because a significant percentage of the Companies’            patients are insured or participate in managed care dental plans and programs, the rates charged by the Company may not be fully realized or collectible under the contractual payment terms of the managed care programs and insurance plans of it’s patients. The company therefore makes adjustments to its periodic revenue based upon the estimated amounts due from the patients and third-party payers in order that revenues may be fairly stated in accordance with 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 have adopted the disclosure only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”.

 

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

 

**Recent Accounting Pronouncements**

 

We are not aware of any new accounting pronouncements that would have a material impact on our consolidated financial statements.

 

**Item 3. Quantitative and Qualitative Disclosures About Market Risk.**

 

Not applicable. The Company is a “smaller reporting company.”

 

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**Item 4T. Controls and Procedures.**

 

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

 

*Changes in Internal Control Over Financial Reporting.*During the most recent quarter ended March 31, 2008, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial            reporting.

 

**Part II—OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, its properties are not the subject of any such proceedings.

 

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

 

During the first quarter of 2008, the Company: (i) issued 83,333 shares of common stock to a member dentist as a discretionary member incentive; (ii) issued 60,000 shares of common stock to a dentist pursuant to the Practice Acquisition Agreement executed between the Company and such member dentist; (iii) issued 24,000 shares of common stock to a member dentist pursuant to the Affiliate Member Practice            Purchase Agreement executed between the Company and such member dentist; and (iv) issued 57,373 shares of common stock to accredited member dentist option holders upon the exercise of options, which resulted in aggregate proceeds to the Company of $7,790. The foregoing transactions were effected in reliance on the exemptions from registration provided by Sections 4(2) and 4(6) of the Securities Act of 1933.

 

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

 

| Not applicable. |
|-----------------|

 

**Item 4. Submission of Matters to a Vote of Security Holders.**

 

Not applicable.

 

**Item 5. Other Information.**

 

Not applicable.

 

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**Item 6.**           **Exhibits**

 

The following documents are included as exhibits to this report:

 

|   | Exhibit | SEC Ref. |
|--------|---------|----------|

|   | No. | No. | Title of Document | Location |
|--------|-----|-----|-------------------|----------|

|   | 31.1 | 31 | Section 302 Certification of Principal Executive | This Filing |
|--------|------|----|--------------------------------------------------|-------------|

|   | and Principal Financial Officer |
|--------|---------------------------------|

|   | 32.1 | 32 | Section 1350 Certification of Principal Executive | This Filing |
|--------|------|----|---------------------------------------------------|-------------|

|   | and Principal Financial Officer |
|--------|---------------------------------|

 

 

**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, thereunto duly authorized.

 

 

|               | Dental Patient Care America, Inc. |
|--------------------|-----------------------------------|
|               |                              |
|               |                              |
| Date: May 15, 2008 | By/s/ Michael Silva               |
|               | Michael Silva                     |
|               | Chief Executive Officer           |
|               | (Principal Executive Officer)     |
|               |                              |

 

 

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