Filing Details

 

1	NAME OF REPORTING PERSON
	MARK A. BIRNER, DDS
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP			(a)	☐
				(b)	☐
3	SEC USE ONLY
4	SOURCE OF FUNDS
	PF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(D) OR 2(E)				☐
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER
			388,956
		8	SHARED VOTING POWER
			190,067
		9	SOLE DISPOSITIVE POWER
			388,956
		10	SHARED DISPOSITIVE POWER
			190,067
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	579,023
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES				☐
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	31.1%
14	TYPE OF REPORTING PERSON
	IN

 

 

 

 

1	NAME OF REPORTING PERSON
	LEE SCHLESSMAN
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP			(a)	☐
				(b)	☐
3	SEC USE ONLY
4	SOURCE OF FUNDS
	PF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(D) OR 2(E)				☐
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER
			104,026
		8	SHARED VOTING POWER
			474,997
		9	SOLE DISPOSITIVE POWER
			104,026
		10	SHARED DISPOSITIVE POWER
			474,997
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	579,023
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES				☐
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	31.1%
14	TYPE OF REPORTING PERSON
	IN

 

 

 

 

 

 

1	NAME OF REPORTING PERSON
	ELIZABETH GENTY
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP			(a)	☐
				(b)	☐
3	SEC USE ONLY
4	SOURCE OF FUNDS
	PF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(D) OR 2(E)				☐
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER
			86,041
		8	SHARED VOTING POWER
			492,982
		9	SOLE DISPOSITIVE POWER
			86,041
		10	SHARED DISPOSITIVE POWER
			492,982
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	579,023
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES				☐
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	31.1%
14	TYPE OF REPORTING PERSON
	IN

 

 

 

 

 

 

 

No modification to this Item.

 

All of the Shares were acquired by the Reporting Persons for investment purposes. The Reporting Persons are filing this Schedule 13D with the Securities and Exchange Commission. Other than as set forth in Items 5 and 6 below, the Reporting Persons have no present plans which would result in:

(a) The acquisition by any person of additional securities of the Company, or the disposition of securities of the Company;

(b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries;

(c)  A sale or transfer of a material amount of assets of the Company or any of its subsidiaries;

(d)  Any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board;

(e)  Any material change in the present capitalization or dividend policy of the Company;

(f)  Any other material change in the Company’s business or corporate structure;

(g)  Changes in the Company’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person;

(h)  Causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association;

(i)  A class of equity securities of the Company becoming eligible for termination of registration pursuant to section 12(g)(4) of the Act; or

(j)  Any action similar to any of those enumerated above.

 

 

 

 

The Reporting Persons, individually or acting together, may in the future exercise any and all of rights they may have as shareholders of the Issuer in a manner consistent with their equity interests in the Issuer. Depending on various factors including, without limitation, the Issuer’s financial position, results of operations and cash flows, Common Stock prices, conditions in the securities markets, whether any offer has been made by a third party to acquire the Issuer or the outstanding shares of Common Stock, the terms and conditions of any offer that is made by a third party to acquire the Issuer or the outstanding shares of Common Stock, general economic and industry conditions and any other factors identified and deemed pertinent by the Reporting Persons, the Reporting Persons, individually or acting together, in the future take such actions with respect to the Issuer and the shares of Common Stock they or any of them hold as any or all of them deems appropriate, including, without limitation, one or more of the following: (i) engaging in, and continuing to engage in, communications and discussions with, and making recommendations, suggestions and proposals to, management of the Issuer and one or more members of the Board, shareholders of the Issuer and other interested parties, including potential acquirers of the Issuer, including seeking to change control and management of the Issuer, in each case, directly or through representatives, whether by press release, letter or other oral, written or electronic communication, in person or otherwise, regarding (1) the value of the Issuer’s securities and ways to increase shareholder value for the shareholders of the Issuer, (2) the Issuer’s business, management, operational performance, operations, assets, indebtedness and other liabilities (including the terms thereof and the security therefor, if any), cash flows, capitalization, executive compensation, change-in-control agreements, other corporate governance provisions and practices of the Issuer and its management that are to the detriment of shareholders of the Issuer who are not insiders of the Issuer, financial condition, results of operations, financial performance, ownership structure, corporate governance, Board structure and composition, strategy and future plans and suggestions for changes and improvements thereto, (3) liquidation of the Issuer’s assets or one or more properties included in those assets with a distribution of the proceeds of the sale of those assets to the Issuer’s shareholders and (4) such other matters as any or all of the Reporting Persons may determine; (ii) purchasing additional shares of Common Stock, selling shares of Common Stock, engaging in short selling of or any hedging or similar transaction with respect to shares of Common Stock; (iii) soliciting proxies from shareholders of the Issuer for voting at the 2016 Annual Meeting or any other meeting of the shareholders of the Issuer as the Reporting Persons or a Reporting Person may deem appropriate on other items of business to come before the shareholders of the Issuer for a vote at the 2016 Annual Meeting or any other meeting of the shareholders of the Issuer; (iv) discussing with one or more interested persons the possibility of making an offer to acquire the Issuer in an extraordinary transaction, including by means of a merger, and the terms of any offer that might be made; (v) seeking to obtain from one or more interested person an offer or offers to acquire the Issuer in an extraordinary transaction, including by means of a merger; (vi) seeking to effect or cause to occur or to have the Issuer engage in or cause to occur with respect to the Issuer one or more of the actions, events and occurrences set forth in paragraphs (a) through (j) of Item 4 of this 13D.

 

 

The Reporting Persons sent the following letter to the Company’s Board of Directors:

 

May 9, 2016

Birner Dental Management Services, Inc.

Board of Directors

1777 South Harrison Street, Suite 1400

Denver, Colorado 80210

Gentlemen:

We the undersigned shareholders of Birner Dental Management Services, Inc. (“BDMS” or the “Company”) collectively own 644,626 shares of BDMS’ common stock, representing 34.7% of its outstanding shares. We have beneficially owned this substantial stake in the Company for at least 18 years.

Over the last few years, we have seen BDMS’ business performance deteriorate precipitously. We are also aware of opportunities to recover the considerable losses from our investment, through for example, a transaction to sell BDMS. We strongly encourage BDMS to consider these opportunities seriously, and demand BDMS take proper steps to assure us it will do so. In the event BDMS fails to take meaningful steps in this regard, we shareholders intend to take more significant steps to preserve our investment.

The business situation is dire. The financial results of the Company have declined as EBITDA has fallen significantly and debt has ballooned. As a result, the Company recently had to terminate cash dividends. The BDMS share price responded accordingly, and has fallen to all-time lows. See the attached table from the Company’s recent 10-K. We are aware of the NASDAQ delisting notice issued to BDMS because shareholders’ equity was below the minimum for a listing.

The Company’s 2015 EBITDA margin was 5.8% versus the DSO industry average of 15%, as the DSO industry continues to thrive.

We shareholders are not only disappointed by these operating results, but also frustrated by how the Board of Directors has failed to respond to the situation.

The Board continues to reward management for poor financial performance. This compensation package represents 23% of BDMS 2015 EBITDA, and was nearly three times the amount of companies of comparable size (in the range of $40 to $100 million in annual revenue). During the period from 2007 through 2015, the Company’s annual EBITDA decreased by over 52% yet the salaries to the CEO and CFO increased by over 34%.  In addition, bonuses paid by the Company to executives should be tied to EBITDA and should be consistent with comparable companies. In summary, the Board has paid in the range of three times the comparable compensation average of EBITDA while achieving around one-third of the average EBITDA performance in the industry.

 

Finally, the Board appears to have largely ignored opportunities to recover the considerable investor losses through a transaction to purchase BDMS. We are aware of at least one serious opportunity in which Blackford Dental Management, LLC approached the Company’s Board with a purchase proposal in the per share price range of $20.50-$23.00 with no financing contingencies, subject to a due diligence review.  This represents a 127%-155% premium above the closing price of BDMS shares of $9.04 on April 20, 2016. We understand that BDMS rejected Blackford Dental’s proposal in a one-line email response from CEO Fred Birner as “inadequate.”

We shareholders find such a credible offer at least worthy of serious consideration, and possibly very attractive. We are dismayed to hear that BDMS dismissed it without engaging in any discussions with Blackford.

In light of both the long-term Company performance and recent events, we shareholders demand that BDMS take the following steps:

1) Explain in detail the process for considering the Blackford proposal, including:

 

 

2) Implement immediately a formal process for considering strategic alternatives and thereby improving value, including the Blackford offer and any similar offers:

3) Present to us management’s case for BDMS remaining independent. Based on the response to Blackford, it appears that the Board and management think they can deliver financial results that merit a near term price of at least $23.00 per share. We request an analysis that shows the strategic, operational, and financial plans that will deliver these results.

We shareholders urge the Board to take seriously our demands. We request a response to this letter from the Board in one week from the date of this letter. We expect that response to include the requested explanation of the process for considering the Blackford proposal, details on the Special Committee, and a presentation of the case for BDMS’ independence.

In the absence of a response from the Board, we shareholders will have no choice but to take appropriate steps preserve our interests.

We look forward to your response.

Mark A. Birner, DDS

Lee Schlessman

Elizabeth Genty

On May 12, 2016, the persons filing this Schedule 13D received a response to the above letter

 

The Reporting Persons sent the below letter to the Company’s Board of Directors on May 27, 2016:

May 27, 2016

Birner Dental Management Services, Inc.

Board of Directors

1777 South Harrison Street, Suite 1400

Denver, Colorado 80210

Gentlemen:

We the undersigned shareholders of Birner Dental Management Services, Inc. (“BDMS” or the “Company”) provide this follow up on our letter to you of May 9, 2016.

 

 

 

We reiterate that over the last few years, the business performance of BDMS has deteriorated precipitously. The poor results from the first quarter of 2016, announced last week, affirm our view. Earlier, we noted that we are aware of opportunities to recover the considerable losses from our investment, through for example, a transaction to sell BDMS. We are now aware of at least two specific opportunities to consider such a transaction.

Earlier we indicated that the Board appears to have ignored opportunities to recover the considerable investor losses through a transaction to purchase BDMS. We highlighted one serious opportunity in which Blackford Dental Management, LLC approached the BDMS Board with a written purchase proposal. We understand that BDMS summarily rejected Blackford’s proposal. We further understand that Blackford has since reconfirmed its interest in writing, proposed an anticipated share price, and set forth other reasonable terms for a transaction.

In addition, we are aware of at least one other recent written proposal from another industry participant that was rejected by BDMS without any substantive discussions. We understand the proposal carried a significant premium to the then-current share price and to its historical EBITDA multiple.

We find these credible offers worthy of at least serious consideration, and possibly very attractive to all of the BDMS shareholders. These offers affirm that despite significant value deterioration and apparent Board indifference to these offers, BDMS would still have substantial value in a transaction.

We revise and update our May 9, 2016 letter, as follows:

1) Identify all inquiries, proposals, or other opportunities BDMS has received from potential acquirers or counterparties, including the party, date of proposal, and financial terms proposed.

2) Explain in detail the process for considering all proposals, including:

·	analysis undertaken;

·	which outside advisors BDMS retained to consider each proposal;

·	the basis for rejecting each proposal; and

·	how the Board was involved in the analysis, and the Board vote on each proposal.

3) Implement immediately a formal process for considering strategic alternatives for BDMS and thereby improving value, including the two known written proposals and any similar offers:

·	appoint and charter a Special Committee of the Board, consisting only of independent directors, with shareholder input to its specific members, with complete authority to consider the two known offers and any similar offers;

·	retain independent legal counsel and financial advisors to the Special Committee; and

·	appoint a shareholder representative as an observer to the Special Committee, including authority to attend all committee meetings, obtain all written analysis, without voting privileges.

 

4) Present to investors management’s case for BDMS remaining independent. Based on the response to the two known proposals, it appears that the Board and management think they can deliver financial results that merit a near-term price of at least $23.00 per share. We request an analysis that shows the strategic, operational, and financial plans that will deliver these results.

Next Steps

We urge the Board to take seriously our demands. We request a response to this letter from the Board in one week from the date of this letter. We expect that response to include the requested list of proposals, explanation of the process for considering the proposals, details on the Special Committee, and a presentation of the case for BDMS’ independence.

In the absence of a response from the Board, we shareholders will have no choice but to take appropriate steps preserve our interests.

We look forward to your response.

Mark A. Birner, DDS

Lee Schlessman

Elizabeth Genty

 

 

Item 5 is hereby amended by adding the following to the end of the Item:

The Reporting Persons sent the below letter to the Company’s Board of Directors on June 20, 2016:

June 20, 2016

Birner Dental Management Services, Inc.

Board of Directors

1777 South Harrison Street, Suite 1400

Denver, Colorado 80210

Gentlemen:

We the undersigned shareholders of Birner Dental Management Services, Inc. (“BDMS” or the “Company”) collectively own approximately 579,000 shares of BDMS’ common stock, representing approximately 31.1% of its outstanding shares. We have beneficially owned this substantial stake in the Company for at least 18 years.

We wish to follow up on our letters to you of May 9 and May 27, 2016, and the Company news release of June 6, 2016.

Earlier we noted the deteriorating business performance of the Company. In addition to the dismal results from the first quarter of 2016, which led to your decision to discontinue the cash dividend, we note that the Company lost its NASDAQ listing, and now trades off-market.

We remain aware of multiple, concrete opportunities to recover the considerable losses from our investment, through for example, a transaction to sell BDMS.

Earlier, we noted the Board has at least two such opportunities, one from Blackford Dental Management, LLC and one other counterparty with industry credentials, both carrying a significant premium to the current share price and to BDMS’ historical EBITDA multiple. We demanded that the Company establish a formal process for considering such offers.

Furthermore, you have announced the retention of a financial advisor, presumably for purposes of analyzing and negotiating offers to the Company. We ask that the Company disclose publicly the identity of the advisor and relationship of the advisor with the board of directors. In this way, potential counterparties would not only know whom to call with interest in the Company, they would also have assurance that the Company intends to handle inquiries properly.

 

Yet, while the Company could have announced a process for considering offers, including formation of a special committee of the board of directors and retention of an independent financial advisor, instead it sent out a poorly worded, anxious press release.

We disagree with many of the purported facts and conclusions in the press release. For example, the Company asserts, “These matters…have been highly distracting…we have been required to incur significant business time and legal and other expenses to address the communications and demands…” Nothing we did requires the Company to spend any money on legal and other expenses; instead, the Company chose to spend that money to resist legitimate shareholder efforts to preserve the value of our investment. And, if the Company did incur such time and expense, we don’t know where it went, since we have had minimal contact with the Company in the past several months. But it is not worth it to highlight disagreement. Rather, we continue to ask the Company to explore its strategic alternatives as outlined below.

We further revise and update our demands from our May 9 and May 27, 2016 letters, as follows:

1)	Identify all inquiries, proposals, or other opportunities BDMS has received from potential acquirers or counterparties, including the party, date of proposal, and financial terms proposed.

2)	Explain in detail the process for considering all proposals, including:

a)	analysis undertaken;

b)	which outside advisors BDMS retained to consider each proposal;

c)	the basis for rejecting each proposal; and

d)	how the Board was involved in the analysis, and the Board vote on each proposal.

3)	Identify publicly the financial advisor that the Company has retained, and explain the terms of any retainer to it.

 

 

 

 

 

4)	Implement immediately a formal process for considering strategic alternatives and thereby improving value, including the two known proposals and any similar offers:

a)	appoint and charter a Special Committee of the Board, consisting only of independent directors, with shareholder input to its specific members, with complete authority to consider the two known offers and any similar offers

b)	retain independent legal counsel and financial advisors to the Special Committee

c)	appoint a shareholder representative as an observer to the Special Committee, including authority to attend all committee meetings, obtain all written analysis, without voting privileges.

5)

Present to investors management’s case for BDMS remaining independent. Based on the response to the two known proposals, it appears that the Board and management think they can deliver financial results that merit a near-term price of at least $23.00 per share. We request an analysis that shows the strategic, operational, and financial plans that will deliver these results.

Next Steps

We request a response to this letter from the Board in one week from the date of this letter.

We look forward to your response.

Mark A. Birner, DDS

Lee Schlessman

Elizabeth Genty

 

No modification to this Item.

 

On May 11, 2016, the Reporting Persons entered into the Joint Filing Agreement which governs, among other matters, the joint filing of Schedule 13D for such parties in connection with seeking the solicitation of proxies from shareholders of the Issuer and the coordination and oversight of communications by one or more of the Reporting Persons with the Issuer and other persons relating to that goal. A copy of the Joint Filing Agreement is furnished herewith as Exhibit 99.1 and incorporated by reference in this Item 6.