<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number:
MONARCH DENTAL CORPORATION.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0363560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
MONARCH DENTAL CORPORATION
4201 Spring Valley Road, Suite 320
Dallas, TX 75244
(Address of principal executive offices)
(972) 702-7446
(Registrant's telephone number, including area code)
N/A
(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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issue's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 14, 1997
----- ---------------------------------
Common Stock, $.01 par value 10,011,167
<PAGE> 2
MONARCH DENTAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Report of Independent Public Accountants 3
Item 2. Financial Statements 4
Item 3. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 4. Submission of Matters to Vote of Security-Holders 15
Item 6. Exhibits and Reports Filed on Form 8-K 17
Signatures 18
Exhibit Index 19
</TABLE>
2
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have reviewed the accompanying balance sheets of Monarch Dental Corporation
(a Delaware corporation) as of June 30, 1997 and the related statements of
income and cash flows for the three-month periods ended June 30, 1997 and 1996.
These financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
Arthur Andersen
Dallas, Texas
August 13, 1997
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
MONARCH DENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,059,337 $ 1,400,455
Accounts receivable, net of allowances of approximately $1,676,000 and
$2,696,000 respectively 3,431,114 3,902,814
Other current assets 191,922 110,468
------------ ------------
Total current assets 4,682,373 5,413,737
Property and equipment, net of accumulated depreciation of $2,741,097
and $3,336,000, respectively 4,681,943 5,642,653
Intangible assets, net of accumulated amortization of $573,156 and $1,027,153, respectively 22,971,867 29,042,274
Other assets 569,640 641,768
------------ ------------
Total assets $ 32,905,823 $ 40,740,432
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,070,035 $ 1,272,613
Accrued payroll 1,301,723 1,431,269
Accrued liabilities 909,759 1,559,729
Deferred income taxes 203,267 262,182
Payable to affiliated dental group practices 1,083,339 1,263,039
Deferred purchase price 545,000 --
Current maturities of notes payable and capital lease obligations 3,563,891 3,634,807
------------ ------------
Total current liabilities 8,677,014 9,423,639
Deferred income taxes 115,352 570,119
Notes payable 18,358,829 21,895,589
Capital lease obligations 410,252 679,950
Other liabilities 1,041,619 1,025,991
------------ ------------
Total liabilities 28,603,066 33,595,288
Commitments and Contingencies
Convertible Participating Preferred Stock, $.01 par value, 4,800,000 shares authorized;
4,800,000 shares issued and outstanding 9,313,315 9,313,315
Redeemable Preferred Stock, $.01 par value, 3,840,000 shares authorized; no shares
issued and outstanding -- --
Redeemable Common Stock, $.01 par value, 175,000 shares issued and outstanding 397,767 481,913
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 2,000,000 shares authorized; no shares issued or
outstanding -- --
Series A Convertible Junior Preferred Stock, $.01 par value, 1,704,550 shares
authorized; 734,645 and 1,704,550 shares issued and outstanding in 1996 and
1997, respectively 7,346 17,045
Common Stock, $.01 par value, 19,800,000 shares authorized: 3,133,750 and
3,281,459 shares issued and outstanding in 1996 and 1997, respectively 31,338 32,815
Common Stock to be issued, 30,000 shares in 1996 75,000 --
Additional paid-in capital 1,936,322 4,284,702
Retained deficit (7,458,331) (6,984,646)
------------ ------------
Total stockholders' deficit (5,408,325) (2,650,084)
------------ ------------
Total liabilities and stockholders' deficit $ 32,905,823 $ 40,740,432
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE> 5
MONARCH DENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Dental group practices revenue, net $ 7,526,125 $16,245,297 $13,841,579 $30,720,858
Less - Amounts retained by dental group practices 2,358,109 5,457,794 4,417,692 10,486,259
----------- ----------- ----------- -----------
Net revenue 5,168,016 10,787,503 9,423,887 20,234,599
Operating expenses:
Clinical salaries and benefits 1,265,718 2,851,725 2,330,678 5,300,034
Other salaries and benefits 683,645 1,626,407 1,149,318 3,013,434
Dental supplies 434,952 1,005,725 760,602 1,917,593
Laboratory fees 416,126 661,129 738,909 1,251,859
Occupancy 393,124 861,836 711,505 1,662,011
Advertising 349,564 421,289 574,336 746,298
Depreciation and amortization 313,076 669,077 561,306 1,233,329
General and administrative 726,117 1,514,543 1,299,537 2,972,079
----------- ----------- ----------- -----------
4,582,322 9,611,731 8,126,191 18,096,637
----------- ----------- ----------- -----------
Operating income 585,694 1,175,772 1,297,696 2,137,962
Interest expense, net 408,681 645,465 667,263 1,224,849
----------- ----------- ----------- -----------
Income before income taxes 177,013 530,307 630,433 913,113
Income taxes 70,799 205,000 245,208 355,283
----------- ----------- ----------- -----------
Net income $ 106,214 $ 325,307 $ 385,225 $ 557,830
=========== =========== =========== ===========
Net income per common and common
equivalent share $ 0.02 $ 0.05 $ 0.08 $ 0.08
=========== =========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding 5,271,168 6,733,434 4,577,637 6,583,461
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE> 6
MONARCH DENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 385,225 $ 557,830
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 561,306 1,233,329
Changes in assets and liabilities, net of effects from
acquisitions -
Accounts receivable, net 62,378 5,859
Other current assets (39,147) 86,670
Other noncurrent assets 110,412 (53,331)
Accounts payable and accrued expenses 510,698 285,388
Other liabilities (67,158) (131,831)
Deferred income taxes -- --
------------ ------------
Net cash provided by operating activities 1,523,714 1,983,914
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (560,277) (752,021)
Cash paid for dental group practices, including
related costs, net of cash acquired (16,538,016) (5,495,959)
------------ ------------
Net cash used in investing activities (17,098,293) (6,247,980)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, net of issuance costs 17,386,750 4,985,000
Payments on notes payable and capital
lease obligations (1,811,018) (2,083,997)
Distribution to stockholders (2,007,997) --
Redemption of Common Stock (6,684,856) (1,811)
Issuance of stock 9,349,355 1,705,992
------------ ------------
Net cash provided by financing 16,232,234 4,605,184
------------ ------------
NET INCREASE (DECREASE) IN CASH 657,655 341,118
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 759,919 1,059,337
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,417,574 $ 1,400,455
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 258,582 $ 884,927
============ ============
Cash paid for taxes $ -- $ 300,000
============ ============
Equipment acquired under capital leases $ -- $ 488,505
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
6
<PAGE> 7
MONARCH DENTAL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Monarch Dental Corporation ("Monarch"), a Delaware corporation, and
subsidiaries (collectively, the "Company"), manage dental group
practices in selected markets presently including Dallas-Fort Worth,
Houston, Wisconsin and Arkansas at June 30, 1997. As of June 30, 1997,
the Company managed 67 dental group practices in Texas, Arkansas and
Wisconsin.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION/BASIS OF CONSOLIDATION
The financial statements for the three and six months ended June 30,
1996 and 1997, have been prepared by the Company, without audit,
pursuant to Accounting Principles Board (ABP) Opinion No. 28, "Interim
Financial Reporting." Certain information and footnote disclosures
normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of
the Company believes that the disclosures herein are adequate to
prevent the information presented from being misleading. In the
opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the results of its
operations for the three and six months ended June 30, 1996 and 1997,
have been included herein. The results of operations for the three-
and six-month periods are not necessarily indicative of the results for
the full year.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share. SFAS 128 establishes new standards for computing
and presenting earnings per share ("EPS"). Implementation of SFAS 128
is required for all financial statements issued subsequent to December
15, 1997 but requires pro forma disclosure in financial statements
issued prior to that date.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------
1996 1997 1996 1997
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 106 $ 325 $ 385 $ 558
Weighted Average Shares Outstanding 2,871 3,281 2,639 3,249
------- ------- ------- -------
Basic Earnings per Share $ 0.04 $ 0.10 $ 0.15 $ 0.17
======= ======= ======= =======
DILUTED EARNINGS PER SHARE
Weighted Average Shares Outstanding 2,871 3,281 2,639 3,249
Common Stock Equivalents 2,400 3,452 1,939 3,334
------- ------- ------- -------
Total Common Stock and Common Stock Equivalents 5,271 6,733 4,578 6,583
------- ------- ------- -------
Diluted Earnings per share $ 0.02 $ 0.05 $ 0.08 $ 0.08
======= ======= ======= =======
</TABLE>
4. BUSINESS COMBINATIONS
Effective January 1, 1997, the Company acquired all of the outstanding
stock of Arkansas Dental Health Associates, Inc. in Arkansas, for $1.6
million in cash and 57,500 shares of Common Stock in a stock purchase
transaction accounted for as a purchase. Additionally, the seller has
a right to receive additional purchase consideration of up to $500,000
contingent upon meeting specified financial performance goals in 1997.
Effective April 1, 1997, the Company acquired certain assets and
assumed certain liabilities of United Dental Care Tom Harris D.D.S. &
Associates in Arkansas, for $2.8 million in cash and 68,750 shares of
Common Stock in an asset purchase transaction accounted for as a
purchase.
5. SUBSEQUENT EVENTS
On July 23, 1997, the Company completed the public offering of
3,162,500 shares of Common Stock at $13 per share resulting in
proceeds, net of underwriter commissions and offering costs, of
approximately $37.0 million. Of these net proceeds, $25.0 million was
used to retire outstanding debt and $8.0 million was paid to holders
of Redeemable Preferred Stock.
On August 1, 1997, the Company purchased all of the outstanding stock
of Dental Centers of Indiana, Inc., ("Dental Centers of Indiana") for
$1.8 million in cash and 139,944 shares of Common Stock in a stock
purchase transaction accounted for as a purchase. Additionally, the
seller has a right to receive additional purchase consideration
contingent upon meeting specified financial performance goals in 1997.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21B
of the Securities and Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include, among others, the
constantly changing health care environment, the pace of development and
acquisition activity, the reimbursement rates for dental services, and other
risks detailed in the Company's Securities and Exchange Commission filings.
Other risk factors are listed in the Company's Prospectus dated July 17, 1997
as filed with the U.S. Securities and Exchange Commission.
OVERVIEW
The Company manages dental group practices in selected markets,
including Dallas-Fort Worth, Houston, Wisconsin, Arkansas and Indiana at
August 1, 1997. The managed dental facilities (each, a "Dental Office" and
collectively, the "Dental Offices") provide general dentistry services such as
examinations, cleanings, fillings, bonding, placing crowns and fitting and
placing fixed or removable prostheses. Many of the Dental Offices also provide
specialty dental services such as orthodontics, oral surgery, endodontics,
periodontics and pediatric dentistry. The Company focuses on fee-for-service
dentistry, supplementing this business with revenue from contracts with
capitated managed dental care plans.
The Company seeks to build geographically dense networks of dental
providers by expanding within its existing markets. The Company has generated
growth within its existing markets by increasing patient volume and fees in
existing Dental Offices, either on a per-patient or per-procedure basis, by
increasing the physical space of existing Dental Offices and by opening Dental
Offices on a de novo basis. The Company has entered selected new markets by
acquiring dental group practices which have a significant market presence or
which the Company believes can achieve such a presence in the near term. The
Company then seeks to use the acquired dental group practice as a "pedestal"
from which to expand within the newly entered market.
The following table sets forth the increase in the number of Dental
Offices owned and managed by the Company during each of the years indicated,
including the number of de novo Dental Offices and acquired Dental Offices in
each such year.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Offices at beginning of period 8 9 10 12 53
De novo offices 1 1 2 2 2
Acquired offices -- -- -- 39 23
---- ---- ---- ---- ----
Offices at end of period 9 10 12 53 78
==== ==== ==== ==== ====
</TABLE>
(1) Through August 1, 1997
COMPONENTS OF REVENUE AND EXPENSES
Dental group practices revenue, net ("Revenue") represents the revenue
of the P.C.s or the Company (in states in which ownership of dental practices
by the Company is permitted), reported at estimated realizable amounts,
received from third-party payors and patients for dental services rendered at
the Dental Offices. Net revenue represents Revenue less amounts retained by the
dental group practices. The amounts retained by dental group practices
represent amounts paid by, (i) the P.C.s as salary, benefits and other payments
to employed dentists and hygienists and contracted specialists and (ii) the
Company as salary, benefits and other payments to employed dentists and
hygienists and contracted specialists in states in which it operates and in
which ownership of dental practices by the Company is permitted (currently
Wisconsin). The Company's net revenue is dependent on the Revenue of the dental
group practices. Operating expenses consist of the expenses incurred by the
Company in connection with managing the Dental Offices, including salaries and
benefits for personnel other than dentists and hygienists, dental supplies,
dental laboratory fees, occupancy costs, equipment leases, management
information systems and other expenses related to dental practice operations.
The Company also incurs personnel and administrative expenses in connection
with maintaining a corporate function that provides management, administrative,
marketing and development services to the Dental Offices.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Dental group practices revenue, net. Revenue increased from $7.5
million for the three months ended June 30, 1996 to $16.2 million for the
three months ended June 30, 1997, an increase of $8.7 million, or 115.9%. This
increase resulted from the acquisitions of Midwest Dental Care ("Midwest"),
Convenient Dental Care, Inc. ("Convenient"), Arkansas Dental Health Associates,
Inc. ("Arkansas Dental Health") and United Dental Care Tom Harris D.D.S. and
Associates ("United") in September 1996, November 1996, January 1997 and April
1997, respectively, which contributed combined Revenue of $6.8 million for the
three months ended June 30, 1997. Dental offices in the Dallas-Fort Worth and
Houston markets ("existing markets") contributed an additional $1.9 million of
the increase in Revenue in 1997 resulting from the opening of three de novo
Dental Offices, the physical expansion of six existing Dental Offices and the
acquisition of a solo practice.
8
<PAGE> 9
Fee-for-service Revenue (i.e., Revenue derived from indemnity dental
plans, preferred provider plans and direct payments by patients not covered by
any third-party payor) increased from $4.5 million for the three months ended
June 30, 1996 to $9.8 million for the three months ended June 30,1997, an
increase of $5.3 million, or 117.6%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
contributed combined fee-for-service Revenue of $4.7 million for the three
months ended June 30, 1997. In existing markets, fee-for-service Revenue
increased from $4.5 million for the three months ended June 30, 1996 to $5.1
million for the three months ended June 30, 1997, representing an increase of
$586,000, or 13.0%. Managed dental care Revenue (i.e., Revenue from capitated
managed dental care plans, including capitation payments and patient
co-payments) increased from $3.0 million for the three months ended June 30,
1996 to $6.4 million for the three months ended June 30, 1997, an increase of
$3.4 million, or 113.2%. This increase resulted in part from the acquisitions of
Midwest, Convenient, Arkansas Dental Health and United, which contributed
combined managed dental care Revenue of $2.0 million for the three months ended
June 30, 1997. In existing markets, managed dental care Revenue increased from
$3.0 million for the three months ended June 30, 1996 to $4.4 million for the
three months ended June 30, 1997, an increase of $1.4 million or 45.7%. As a
percentage of Revenue, fee-for-service Revenue increased from 60.0% to 60.5%
for the three months ended June 30, 1996 and 1997, respectively.
Amounts retained by dental group practices. Amounts retained by dental
group practices increased from $2.4 million for the three months ended June 30,
1996 to $5.5 million for the three months ended June 30, 1997, an increase of
$3.1 million, or 131.4%. The increase was primarily due to the acquisitions of
Midwest, Convenient, Arkansas Dental Health and United, which together added
amounts retained by dental group practices of $2.5 million for the three months
ended June 30,1997. In existing markets, amounts retained by dental group
practices increased $619,000 as dentist and hygienist compensation increased as
a result of a higher level of production at the Dental Offices. As a percent of
Revenue, amounts retained by dental group practices increased from 31.3% to
33.6% for the three months ended June 30, 1996 and 1997, respectively, due to
the acquisition of dental group practices with higher dentist and hygienist
compensation levels relative to Revenue.
Clinical salaries and benefits. Clinical salaries and benefits
increased from $1.3 million for the three months ended June 30, 1996 to $2.9
million for the three months ended June 30, 1997, an increase of $1.6 million,
or 125.3%. The increased clinical salaries and benefits were due primarily to
the increased number of Dental Offices resulting from the acquisitions of
Midwest, Convenient, Arkansas Dental Health and United, which added combined
clinical salaries of $1.2 million for 1997. In existing markets, clinical
salaries and benefits increased $357,000 due to the opening of three de novo
Dental Offices, the physical expansion of six existing Dental Offices and the
acquisition of a solo practice. As a percent of Revenue, clinical salaries and
benefits increased from 16.8% to 17.6% for the three months ended June 30, 1996
and 1997, respectively, as a result of the acquisition of dental groups with
higher clinical staff compensation levels relative to Revenue.
Other salaries and benefits. Other salaries and benefits increased
from $684,000 for the three months ended June 30, 1996 to $1.6 million for the
three months ended June 30, 1997, an increase of $943,000 or 137.9%. This
increase resulted primarily from additional managerial infrastructure
associated with Midwest as well as the building of additional corporate
infrastructure to manage corporate growth. As a percent of Revenue, other
salaries and benefits increased from 9.1% to 10.0% for 1996 and 1997,
respectively, as the three months ended June 30, 1997 reflected a more fully
staffed corporate infrastructure.
Dental supplies. Dental supplies expense increased from $435,000 for
the three months ended June 30, 1996 to $1.0 million for the three months ended
June 30,1997, an increase of $571,000, or 131.2%. This increase resulted from
the acquisitions of Midwest, Convenient, Arkansas Dental Health and United,
which added $470,000 of combined dental supplies expense for the three months
ended June 30, 1997. In existing markets, dental supplies expense increased
$101,000 as a result of increased production. As a percent of Revenue, dental
supplies expense increased from 5.8 % to 6.2% for 1996 and 1997, respectively.
This increase was due to higher dental supplies expense at the acquired
businesses.
Laboratory fees. Laboratory fees increased from $416,000 for the three
months ended June 30, 1996 to $661,000 for the three months ended June 30,
1997, an increase of $245,000, or 58.9%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added combined laboratory fees of $177,000 for the three months ended June 30,
1997. In existing markets, laboratory fees increased $68,000 as a result of
increased production. As a percent of Revenue, laboratory fees decreased from
5.5% to 4.1% for 1996 and 1997, respectively, as the result of
9
<PAGE> 10
purchasing internal labs in connection with the Midwest and United
acquisitions.
Occupancy. Occupancy expense increased from $393,000 for the three
months ended June 30, 1996 to $862,000 for the three months ended June 30,
1997, an increase of $469,000, or 119.2%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added a combined $360,000 to occupancy expense for the three months ended June
30, 1997. In existing markets, occupancy expense increased $109,000 as three de
novo Dental Offices were opened and six Dental Offices were expanded. As a
percent of Revenue, occupancy expense increased slightly from 5.2% to 5.3% for
1996 and 1997, respectively.
Advertising. Advertising expense increased from $350,000 for the three
months ended June 30, 1996 to $421,000 for the three months ended June 30,
1997, an increase of $71,000, or 20.5%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added a combined $64,000 to advertising expense for the three months ended June
30, 1997. There was an increase of $8,000 in television and print advertising
in the Dallas-Fort Worth market in 1997. As a percent of Revenue, advertising
expense decreased from 4.6% to 2.6% for 1996 and 1997, respectively. This
decrease resulted from leveraging advertising expense with greater market
penetration in existing markets, and the acquisition of Midwest, which does no
television or radio advertising.
Depreciation and amortization. Depreciation and amortization expense
increased from $313,000 for the three months ended June 30,1996 to $669,000 for
the three months ended June 30,1997, an increase of $356,000, or 113.7%. This
increase was the result of the acquisitions of Midwest, Convenient, Arkansas
Dental Health and United, which added combined depreciation and amortization
expense of $230,000 for the three months ended June 30, 1997. Depreciation and
amortization expense for existing markets increased $126,000 as three de novo
Dental Offices were opened and six Dental Offices were expanded. As a percent
of Revenue, depreciation and amortization expense decreased slightly from 4.2%
to 4.1% for 1996 and 1997.
General and administrative. General and administrative expense
increased from $726,000 for the three months ended June 30,1996 to $1.5 million
for the three months ended June 30, 1997, an increase of $788,000, or 108.6%.
This increase resulted from the acquisitions of Midwest, Convenient, Arkansas
Dental Health and United, which added combined general and administrative
expense of $615,000 for the six months ended June 30, 1997, and the expansion of
the Company's corporate infrastructure to manage growth. As a percent of
Revenue, general and administrative expense decreased from 9.6% to 9.3% for 1996
and 1997, respectively. This decrease was due principally to the acquisitions
having lower general and administrative costs as a percent of Revenue than the
Company's existing operations.
Operating income. Operating income increased from $586,000 for the
three months ended June 30, 1996 to $1.2 million for the three months ended June
30, 1997, an increase of $590,000, or 100.8%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added combined operating income of $606,000 for the three months ended June 30,
1997. Income from the Company's existing markets increased $262,000 in 1997,
which was offset by increased corporate expenses due to the development of
corporate infrastructure. As a percent of Revenue, operating income decreased
from 7.8% to 7.2% for 1996 and 1997, respectively. This decrease was primarily
the result of the acquisitions of Midwest, Arkansas Dental Health, Convenient
and United, which collectively experienced lower operating margins than the
Company's existing operations and additions to corporate infrastructure.
Interest expense, net. Interest expense, net increased from $409,000
for the three months ended June 30, 1996 to $645,000 for the three months ended
June 30, 1997, an increase of $236,000, or 57.9%. This increase is attributable
to average debt outstanding of $24.8 million under a senior secured credit
facility from a bank (the "Credit Facility") for the three months ended June 30,
1997 compared to $17.4 million for the three months ended June 30, 1996.
Income taxes. Income taxes increased from $71,000 for the three months
ended June 30, 1996 to $205,000 for the three months ended June 30, 1997, an
increase of $134,000, or 189.6%. This increase is the result of higher net
income before taxes, which increased from $177,000 for the three months ended
June 30, 1996 to $530,000 for the three months ended June 30,1997, an increase
of $353,000, or 199.6%.
10
<PAGE> 11
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Dental group practices revenue, net. Revenue increased from $13.8
million for the six months ended June 30, 1996 to $30.7 million for the six
months ended June 30, 1997, an increase of $16.9 million, or 121.9%. This
increase resulted from the acquisitions of Midwest, Convenient, Arkansas Dental
Health and United Dental Care in September 1996, November 1996, January 1997
and April 1997, respectively, which contributed combined Revenue of $12.3
million for the six months ended June 30, 1997. Revenue for the Dental offices
in the Dallas-Fort Worth and Houston markets ("existing markets") increased
$4.6 million, or 33.0% for the six months ended June 30, 1997, resulting from
the opening of three de novo Dental Offices, the physical expansion of six
existing Dental Offices, the acquisition of a solo practice and the acquisition
of MacGregor Dental Centers ("MacGregor") in February 1996, which provided one
additional month of Revenue for the six months ended June 30, 1997.
Fee-for-service Revenue (i.e., Revenue derived from indemnity dental plans,
preferred provider plans and direct payments by patients not covered by any
third-party payor) increased from $8.5 million for the six months ended June
30, 1996 to $18.9 million for the six months ended June 30, 1997, an increase
of $10.4 million, or 122.6%. This increase resulted from the acquisitions of
Midwest, Convenient, Arkansas Dental Health and United, which contributed
combined fee-for-service Revenue of $8.5 million for the six months ended June
30, 1997. In existing markets, fee-for-service Revenue increased from $8.5
million for 1996 to $10.4 million for 1997, representing an increase of $1.9
million or 22.7%. Managed dental care Revenue (i.e., Revenue from capitated
managed dental care plans, including capitation payments and patient
co-payments) increased from $5.3 million for the six months ended June 30, 1996
to $11.8 million for the six months ended June 30, 1997, an increase of $6.5
million, or 121.0%. This increase resulted in part from the acquisition of
Midwest, Convenient, Arkansas Dental Health and United, which contributed
combined managed dental care Revenue of $3.8 million for the six months ended
June 30, 1997. In existing markets, managed dental care Revenue increased from
$5.3 million for the six months ended June 30, 1996 to $8.0 million, an
increase of $2.7 million or 49.3%. As a percentage of Revenue, fee-for-service
Revenue increased slightly from 61.3% to 61.4% for the six months ended June
30, 1996 and 1997, respectively.
Amounts retained by dental group practices. Amounts retained by dental
group practices increased from $4.4 million for the six months ended June 30,
1996 to $10.5 million for the six months ended June 30, 1997, an increase of
$6.1 million, or 137.4%. The increase was primarily due to the acquisitions of
Midwest, Convenient, Arkansas Dental Health and United, which together added
amounts retained by dental group practices of $4.6 million for the six months
ended June 30, 1997. In existing markets, amounts retained by dental group
practices increased $1.5 million, or 34.3%, as dentist and hygienist
compensation increased as a result of a higher level of production at the Dental
Offices and the acquisition of MacGregor in February 1996, which contributed one
additional month of amounts retained by dental group practices for the six
months ended June 30, 1997. As a percent of Revenue, amounts retained by dental
group practices increased from 31.9% to 34.1% for the six months ended June 30,
1996 and 1997, respectively, due to the acquisition of dental group practices
with higher dentist and hygienist compensation levels relative to Revenue.
Clinical salaries and benefits. Clinical salaries and benefits
increased from $2.3 million for the six months ended June 30, 1996 to $5.3
million for the six months ended June 30, 1997, an increase of $3.0 million, or
127.4%. The increased clinical salaries and benefits were due primarily to the
increased number of Dental Offices resulting from the acquisitions of Midwest,
Convenient, Arkansas Dental Health and United, which added combined clinical
salaries of $2.2 million for the six months ended June 30, 1997. Clinical
salaries and benefits in existing markets also increased due to the opening of
three de novo Dental Offices, the physical expansion of six existing Dental
Offices and the MacGregor acquisition in February 1996 which resulted in the
contribution of one additional month of clinical salaries and benefits expense
in the six months ended June 30, 1997 relative to the six months ended June 30,
1996. As a percent of Revenue, clinical salaries and benefits increased from
16.8% to 17.3% for the six months ended June 30, 1996 and 1997, respectively,
as a result of acquisitions of dental groups with higher clinical staff
compensation levels relative to Revenue.
Other salaries and benefits. Other salaries and benefits increased
from $1.1 million for the six months ended June 30, 1996 to $3.0 million for
the six months ended June 30, 1997, an increase of $1.9 million or 162.2%. This
increase resulted primarily from additional managerial infrastructure
associated with Midwest as well as the building of additional corporate
infrastructure to manage corporate growth. As a percent of Revenue, other
salaries and benefits increased from 8.3% to 9.8% for 1996 and 1997,
respectively, as the six months ended June 30, 1997 reflected a more fully
staffed corporate infrastructure.
Dental supplies. Dental supplies expense increased from $761,000 for
the six months ended June 30, 1996 to $1.9 million for the six months ended June
30, 1997, an increase of $1.1 million or 152.1%. This increase resulted from the
11
<PAGE> 12
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added $867,000 of combined dental supplies expense for the six months ended June
30, 1997. In existing markets, dental supplies increased $290,000 as a result
of increased production and the MacGregor acquisition in February 1996 which
contributed one additional month of dental supplies expense in the six months
ended June 30, 1997 relative to the six months ended June 30, 1996. As a percent
of Revenue, dental supplies expense increased from 5.5 % to 6.2% for 1996 and
1997, respectively. This increase is due to higher dental supply expense at the
acquired businesses.
Laboratory fees. Laboratory fees increased from $739,000 for the six
months ended June 30, 1996 to $1.3 million for the six months ended June 30,
1997, an increase of $513,000, or 69.4%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added combined laboratory fees of $309,000 for the six months ended June 30,
1997. In existing markets, laboratory fees increased $204,000 as a result of
increased production and the MacGregor acquisition in February 1996 which
resulted in the contribution of one additional month of laboratory fee expense
in the six months ended June 30, 1997 relative to the six months ended June 30,
1996. As a percent of Revenue, laboratory fees decreased from 5.3% to 4.1% for
1996 and 1997, respectively, as the result of purchasing internal labs in
connection with the Midwest and United acquisitions.
Occupancy. Occupancy expense increased from $712,000 for the six
months ended June 30, 1996 to $1.7 million for the six months ended June 30,
1997, an increase of $1.0 million, or 133.6%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added a combined $655,000 to occupancy expense for the six months ended June
30, 1997. In existing markets, occupancy expense increased $295,000 as three de
novo Dental Offices were opened, six Dental Offices were expanded and the
MacGregor acquisition in February 1996 which resulted in the contribution of
one additional month of occupancy expense in the six months ended June 30, 1997
relative to the six months ended June 30, 1996. As a percent of Revenue,
occupancy expense increased from 5.1% to 5.4% for 1996 and 1997, respectively,
resulting from the assumption of higher cost leases in Houston.
Advertising. Advertising expense increased from $574,000 for the six
months ended June 30, 1996 to $746,000 for the six months ended June 30, 1997,
an increase of $172,000, or 30.0%. This increase resulted from the acquisitions
of Midwest, Convenient, Arkansas Dental Health and United, which added a
combined $93,000 to advertising expense for the six months ended June 30, 1997.
There was an increase of $79,000 in television and print advertising in the
existing markets in the six months ended June 30, 1997. As a percent of
Revenue, advertising expense decreased from 4.1% to 2.4% for 1996 and 1997,
respectively. This decrease resulted from leveraging advertising expense with
greater market penetration in existing markets and the acquisition of Midwest,
which does no television or radio advertising.
Depreciation and amortization. Depreciation and amortization expense
increased from $561,000 for the six months ended June 30,1996 to $1.2 million
for the six months ended June 30, 1997, an increase of $672,000, or 119.7%.
This increase was the result of the acquisitions of Midwest, Convenient,
Arkansas Dental Health and United, which added combined depreciation and
amortization expense of $406,000 for the six months ended June 30, 1997.
Depreciation and amortization expense for existing markets increased $266,000
as three de novo Dental Offices were opened, six Dental Offices were expanded
and the MacGregor acquisition in February 1996 which resulted in the
contribution of one additional month of depreciation and amortization expense
in the six months ended June 30, 1997 relative to the six months ended June 30,
1996. As a percent of Revenue, depreciation and amortization expense decreased
slightly from 4.1% to 4.0% for 1996 and 1997, respectively.
General and administrative. General and administrative expense
increased from $1.3 million for the six months ended June 30, 1996 to $3.0
million for the six months ended June 30, 1997, an increase of $1.7 million, or
128.7%. This increase resulted from the acquisitions of Midwest, Convenient,
Arkansas Dental Health and United, the expansion of the Company's corporate
infrastructure to manage growth and the MacGregor acquisition in February 1996
which resulted in the contribution of one additional month of general and
administrative expense in the six months ended June 30, 1997 relative to the
six months ended June 30, 1996. As a percent of Revenue, general and
administrative expense increased from 9.4% to 9.7% for 1996 and 1997,
respectively. This increase was due principally to the increase in corporate
infrastructure
Operating income. Operating income increased from $1.3 million for the
six months ended June 30, 1996 to $2.1 million for the six months ended June
30, 1997, an increase of $840,000, or 64.8%. This increase resulted from the
acquisitions of Midwest, Convenient, Arkansas Dental Health and United, which
added combined operating income
12
<PAGE> 13
of $1.1 million for the six months ended June 30, 1997. Income from the
Company's existing markets increased $481,000 in the six months ended June 30,
1997, which was offset by increased corporate expenses due to the development
of corporate infrastructure. As a percent of Revenue, operating income
decreased from 9.4% to 7.0% for the six months ended June 30, 1996 and 1997,
respectively. This decrease was primarily the result of adding the Midwest,
Arkansas Dental Health, Convenient and United acquisitions, which collectively
experienced lower operating margins than the Company's existing operations and
additions to corporate infrastructure.
Interest expense, net. Interest expense, net increased from $667,000
for the six months ended June 30, 1996 to $1.2 million for the six months ended
June 30, 1997, an increase of $558,000, or 83.6%. This increase is attributable
to average debt outstanding under the Credit Facility of $24.0 million for the
six months ended June 30, 1997 compared to $13.8 million for the six months
ended June 30, 1996.
Income taxes. Income taxes increased from $245,000 for the six months
ended June 30, 1996 to $355,000 for the six months ended June 30, 1997, an
increase of $110,000, or 44.9%. This increase is the result of higher net
income before taxes, which increased from $630,000 for 1996 to $913,000 for
1997, an increase of $283,000, or 44.8%.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had a $4.0 million working capital
deficit, representing no change from the working capital deficit of $4.0 million
at December 31, 1996. This working capital deficit included $9.4 million in
current liabilities, including $1.3 million in accounts payable, $3.0 million in
accrued liabilities, $1.3 million in amounts payable to dental group practices
as consideration for accounts receivable acquired from such group practices and
$3.6 million in current maturities of notes payable and capital lease
obligations. These current liabilities were partially offset by current assets,
including $1.4 million in cash and cash equivalents and $3.9 million in accounts
receivable, net of allowances. The Company's principal sources of liquidity as
of June 30, 1997 consisted of cash and cash equivalents, net accounts receivable
and borrowing capacity under the Credit Facility. The repayment of $24.8 million
of indebtedness under the Credit Facility with a portion of the net proceeds
from the recently completed initial public offering and the retention of a
portion of the net proceeds for general corporate purposes has eliminated the
Company's working capital deficit. However, there can be no assurance the
Company will not have working capital deficits in the future, particularly if
additional indebtedness requires current amortization of principal.
For the six months ended June 30, 1996 and 1997, cash provided by
operations was $1.5 million and $2.0 million, respectively.
Cash used in investing activities was $17.1 million for the six months
ended June 30, 1996 and $6.2 million for the six months ended June 30, 1997. In
the six months ended June 30, 1996, $16.5 million was utilized for acquisitions
and $560,000 was invested in the purchase of additional property and equipment.
In the six months ended June 30, 1997, $5.5 million was utilized for
acquisitions and $752,000 was invested in the purchase of additional property
and equipment.
For the six months ended June 30, 1996 and 1997, cash provided by
financing activities was $16.2 million and $4.6 million, respectively. In the
six months ended June 30, 1996, the cash provided was comprised of $15.6 in net
borrowings and $9.3 million in proceeds from the issuance of stock, partially
offset by $6.7 million used to repurchase stock and $2.0 million in
distributions to the Company's then sole stockholder. In the six months ended
June 30, 1997, the cash provided was comprised of $2.9 million in net
borrowings and $1.7 million in proceeds from the issuance of stock.
The Company has a Credit Facility, which expires August 29, 1999, with
a bank. Under the Credit Facility, the Company may borrow up to $30.0 million,
including up to $2.0 million for working capital needs. As of June 30, 1997,
the Company had outstanding borrowings of $24.8 million under the Credit
Facility, all of which was repaid upon the closing of the Company's initial
public offering on July 23, 1997. Working capital borrowings outstanding may at
no time exceed a specified borrowing base calculated as a percentage of
eligible accounts receivable. The amounts outstanding under the Credit Facility
bear interest at variable rates which are based upon either the lender's base
rate or LIBOR, plus, in either case, a margin which varies according to the
ratio of the Company's funded debt to Adjusted
13
<PAGE> 14
EBITDA, each as defined in the Credit Facility. The Credit Facility prohibits
the Company from incurring indebtedness, incurring liens, disposing of assets,
making investments or making acquisitions without bank approval, and requires
the Company to maintain certain financial ratios on an ongoing basis. The
Credit Facility is secured by pledges of all of the outstanding capital stock
of, or other equity interests in, the Company's subsidiaries, and a lien on
substantially all of the assets of the Company.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
(a) On June 19, 1997, the Company effected a one-for-two reverse
stock split with respect to its Common Stock and Class A
Common Stock. On July 23, 1997, (i) all of the shares of the
Company's non-voting Class A Common Stock and Series A
Convertible Junior Preferred Stock were converted into Common
Stock and (ii) the Company's Convertible Participating
Preferred Stock was converted into Redeemable Preferred Stock
and Common Stock, in each case in accordance with the terms
of these securities and in conjunction with the closing of
the Company's initial public offering. See Item 4(c) below.
Further, an amendment to the Company's certificate of
incorporation was approved by the Company's Board of
Directors on May 1, 1997 and by its stockholders on May 22,
1997 establishing a classified Board of Directors and
effecting certain other changes as described in Item 4(c)
below, affecting the rights of the holders of the Company's
Common Stock.
(b) Not applicable
(c) (1) In April 1997, pursuant to an Asset Purchase
Agreement, the Company issued 68,750 shares of
Common Stock to Dr. William T. Harris III in partial
consideration for the sale of substantially all the
assets of United Dental in reliance upon the
exemption from registration under Regulation D
promulgated under the Securities Act.
(2) In May 1997, pursuant to Stock Option Agreements,
the Company granted options to purchase an aggregate
of 378,250 shares of Class A Common Stock to certain
members of management and key employees of the
Company in reliance upon the exemption from
registration under Rule 701 promulgated under the
Securities Act.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security-Holders
(a) The stockholders of the Company held a special meeting on
May 22, 1997.
(b) As described in paragraph (c) below, on May 22, 1997 the
Company's stockholders approved a Second Amended and Restated
Certificate of Incorporation including designation of the
Company's current directors, Dr. Charles G. Shears, Dr.
Warren F. Melamed, Roger B. Kafker, Glenn E. Hemmerle and
Gary W. Cage, under a classified board arrangement.
15
<PAGE> 16
\
(c) At the special meeting of stockholders of the Company held on
May 22, 1997, the Company's stockholders approved a
one-for-two reverse stock split with respect to the Company's
Common Stock and Class A Common Stock, approved a Second
Amended and Restated Certificate of Incorporation, approved
amendments to the Company's 1996 Stock Option and Grant Plan
(the "1996 Plan") and approved the Company's 1997 Employee
Stock Purchase Plan (the "ESPP"). The votes for these
proposals were as follows:
<TABLE>
<CAPTION>
Abstentions/
Class Outstanding For Against Withheld Broker Non Votes
----- ----------- --- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1. Approval of one-for-two Common: 6,222,500 4,883,000 0 0 0
Stock split with respect to
Company's Common Convertible
Stock and Class A Preferred: 4,800,000 4,800,000 0 0 0
Common Stock
2. Approval of Amended Common: 6,222,500 4,883,000 0 0 0
And Restated Certificate
Of Incorporation Convertible
Preferred: 4,800,000 4,800,000 0 0 0
3. Amendment to 1996 Common: 6,222,500 4,883,000 0 0 0
Stock Option and Grant
Plan Convertible
Preferred: 4,800,000 4,800,000 0 0 0
4. Approval of 1997 Common: 6,222,500 4,883,000 0 0 0
Employee Stock Purchase
Plan Convertible
Preferred: 4,800,000 4,800,000 0 0 0
</TABLE>
By adopting the Second Amended and Restated Certificate of
Incorporation, the stockholders approved the classification of
the current Board of Directors as follows:
Class I - Term Expires at Annual Meeting of Stockholders held
in 1998:
Dr. Charles G. Shears
Class II - Term Expires at Annual Meeting of Stockholders held
in 1999:
Dr. Warren F. Melamed
Roger B. Kafker
Class III - Term Expires at Annual Meeting of Stockholders held
in 2000:
Glenn E. Hemmerle
Gary W. Cage
Each Director received the same number of votes in connection
with the foregoing.
The above described Second Amended and Restated
Certificate of Incorporation became effective immediately
prior to the Company's initial public offering and,
16
<PAGE> 17
among other things; (a) increases the total number of shares of
capital stock which the Company shall have authority to issue
from 30,144,550 shares to 63,390,575 shares, of which such
total number of shares (i) 50,000,000 shares shall be Common
Stock, (ii) 1,046,025 shares shall be Class A Common Stock,
(iii) 2,000,000 shares shall be undesignated preferred stock,
(iv) 4,800,000 shall be Convertible Participating Preferred
Stock, (v) 3,840,000 shares shall be Redeemable Preferred Stock
and (vi) 1,704,550 shares shall be Series A Convertible Junior
Preferred Stock; (b) requires advance notice for stockholder
proposals and director nominations; (c) provides for the
adjournment of stockholder meetings in certain circumstances;
(d) requires that stockholder actions by written consent must
be unanimous; (e) requires a two-thirds super majority voting
requirement for the removal of directors and certain amendments
to the Certificate of Incorporation and By-Laws of the Company;
and (g) certain other matters relating to the foregoing.
(d) Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
11 Statement re: Computation of per share earnings data
27 Financial Data Schedules
(b) Reports on Form 8-K.
There have been no reports on Form 8-K for the quarter for
which this form on Form 10-Q is being filed.
17
<PAGE> 18
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.
MONARCH DENTAL CORPORATION
Date: August 14, 1997 By: /s/ Gary W. Cage
-----------------------------------
Gary W. Cage
Chief Executive Officer
Date: August 14, 1997 By: /s/ Steven G. Peterson
-----------------------------------
Steven G. Peterson
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
11 Statement re: Computation of per share earnings data
27 Financial Data Schedules
</TABLE>
19
<PAGE> 1
EXHIBIT 11
MONARCH DENTAL CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary
Net income $ 106 $ 325 $ 385 $ 558
------------- ------------- ------------- -------------
Weighted average common
equivalent shares outstanding:
Average common shares
outstanding 2,871 3,281 2,639 3,249
Common stock equivalents -
stock options 2,400 3,452 1,939 3,334
------------- ------------- ------------- -------------
Weighted average common and
common stock equivalent shares 5,271 6,733 4,578 6,583
============= ============= ============= =============
Net income per share $ 0.02 $ 0.05 $ 0.08 $ 0.08
============= ============= ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 0 1,400,455
<SECURITIES> 0 0
<RECEIVABLES> 0 6,598,814
<ALLOWANCES> 0 (2,696,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 5,413,737
<PP&E> 0 8,978,653
<DEPRECIATION> 0 (3,336,000)
<TOTAL-ASSETS> 0 40,740,431
<CURRENT-LIABILITIES> 0 9,423,638
<BONDS> 0 0
0 9,313,315
0 0
<COMMON> 0 32,815
<OTHER-SE> 0 (2,682,899)
<TOTAL-LIABILITY-AND-EQUITY> 0 40,740,431
<SALES> 0 0
<TOTAL-REVENUES> 16,245,297 30,720,858
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 9,611,731 18,096,637
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 645,465 1,224,849
<INCOME-PRETAX> 530,307 913,113
<INCOME-TAX> 205,000 355,283
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 325,307 557,830
<EPS-PRIMARY> .05 .08
<EPS-DILUTED> 0 0
</TABLE>
