<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- -------------------------------------------------------------------------------
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 1, 1997
MONARCH DENTAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 333-24409 51-0363560
- -------------------------------------------------------------------------------
(State or Other (Commission (IRS Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
4201 Spring Valley Road, Suite 320, Dallas, Texas 75244
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (972) 702-7446
N/A
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On August 1, 1997, Monarch Dental Corporation (the "Company") closed
the acquisition of Dental Centers of Indiana, Inc. ("DCI"), an Indiana-based
dental practice, which operates 11 dental offices with 14 dentists, and had
$3.6 million in revenue for the year ended December 31, 1996. The acquisition
was effective as of August 1, 1997.
In the acquisition, the Company paid approximately $1.8 million in
cash and issued 139,944 shares of the Company's common stock, par value $.01
per share. The Company used a portion of the net proceeds from its recent
securities offering to pay the $1.8 million cash portion of the purchase price.
Additional purchase consideration consists of (i) options to purchase up to
40,000 shares of Common Stock which will be granted over five years following
the effective date of the acquisition if specified financial performance goals
are achieved and (ii) an additional, formula-based amount of cash and Common
Stock which will be paid if targeted annual operating results are achieved in
the current fiscal year.
In connection with the acquisition, the former stockholders have signed
employment agreements for five years and have agreed not to compete against the
Company for three years after employment termination.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
Audited Combined Financial Statements of Dental Centers of
Indiana.
(1) Report of Arthur Andersen LLP, Independent Public
Accountants.
(2) Combined Balance Sheets as of December 31, 1996 and June
30, 1997 (Unaudited).
(3) Combined Statements of Operations for the Year Ended
December 31, 1996 and the Six Month Period Ended June 30,
1997 (Unaudited).
(4) Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1996 and the Six Month Period Ended June
30, 1997 (Unaudited).
(5) Combined Statements of Cash Flows for the Year Ended
December 31, 1996 and the Six Month Period Ended June 30,
1997 (Unaudited).
(6) Notes to Combined Financial Statements.
(b) Pro Forma Financial Information.
(1) Monarch Dental Corporation Pro Forma Consolidated Statement
of Income (Unaudited) for the Year Ended December 31, 1996.
(2) Monarch Dental Corporation Pro Forma Consolidated Statement
of Income (Unaudited) for the Six Month Period Ended June
30, 1997.
(3) Monarch Dental Corporation Pro Forma Consolidated Balance
Sheet (Unaudited) as of June 30, 1997.
(4) Notes to Unaudited Pro Forma Consolidated Financial
Statements.
2
<PAGE> 3
(c) Exhibits
2.1 Agreement and Plan of Merger, dated June 19,1997, among
Monarch Dental Corporation, Dental Centers of Indiana
(Monarch), Inc., Dental Centers of Indiana, Inc. and James
W. Willis, Mark R. Johnson, and Thurman H. Brown, II
(incorporated herein by reference to Exhibit 2.6 of
Amendment No. 3 to the registrant's Registration Statement
on Form S-1 (File No. 333-24409), as filed with the
Commission on July 17, 1997).*
2.2 First Amendment to Agreement and Plan of Merger, dated July
25,1997, among Monarch Dental Corporation, Dental Centers
of Indiana (Monarch), Inc., Dental Centers of Indiana, Inc.
and James W. Willis, Mark R. Johnson, and Thurman H. Brown,
II.*
2.3 Consent of Independent Public Accountants
* previously filed
3
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Dental Centers of Indiana:
We have audited the accompanying combined balance sheet of Dental
Centers of Indiana, Inc., Drs. Johnson, Terry & Associates, and DCI-Lee (an
Indiana corporation -- collectively referred to as "Dental Centers of Indiana")
as of December 31, 1996, and the related combined statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Dental Centers of
Indiana as of December 31, 1996, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 9, 1997, except as to
Note 8, for which the
date is June 19, 1997
4
<PAGE> 5
DENTAL CENTERS OF INDIANA
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1996 1997
---------- ----------
Current assets: (unaudited)
<S> <C> <C>
Cash $ 198,378 $ 441,438
Accounts receivable - net of allowances of $345,924 and $468,866 respectively 184,690 196,223
---------- ----------
Total current assets 383,068 637,661
Property and equipment, net 273,602 233,379
Other assets 1,000 1,000
---------- ----------
Total assets $ 657,670 $ 872,040
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued payroll $ 73,603 $ 79,228
Accrued liabilities 29,597 29,596
Current maturities of notes payable 16,450 14,148
---------- ----------
Total current liabilities 119,650 122,972
Notes payable 41,360 35,573
---------- ----------
Total liabilities 161,010 158,545
Commitments and contingencies
Minority interests in combined subsidiaries 53,725 149,635
Stockholders' equity 442,935 563,860
---------- ----------
Total liabilities and stockholders' equity $ 657,670 $ 872,040
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE> 6
DENTAL CENTERS OF INDIANA
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1996 1997
---------- ----------
(unaudited)
<S> <C> <C>
Net revenues $3,572,107 $2,560,224
Operating expenses:
Salaries and benefits 2,129,514 1,198,824
Dental supplies 251,911 141,402
Laboratory fees 181,753 128,244
Payroll taxes 119,460 89,820
Depreciation and amortization 79,717 48,604
General and administrative 555,488 622,391
---------- ----------
3,317,843 2,229,285
---------- ----------
Operating income 254,264 330,939
Interest expense, net 5,193 2,604
---------- ----------
Net income before minority interest 249,071 328,335
Minority interests income of combined subsidiaries 53,043 95,910
---------- ----------
Net income $ 196,028 $ 232,425
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE> 7
DENTAL CENTERS OF INDIANA
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Total
----------
<S> <C>
BALANCE, December 31, 1995 $ 389,650
Net income 196,028
Distributions to stockholders (142,743)
----------
BALANCE, December 31, 1996 442,935
Net income 232,425
Distributions to stockholders (111,500)
----------
BALANCE, June 30, 1997 (unaudited) $ 563,860
==========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
7
<PAGE> 8
DENTAL CENTERS OF INDIANA
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1996 1997
---------- ----------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 196,028 $ 232,425
Adjustments to reconcile net income to net cash provided by
operating activities -
Minority interest 53,043 95,910
Depreciation and amortization 79,717 48,604
Changes in assets and liabilities
Accounts receivable, net (1,145) (11,533)
Other current assets 2,300 --
Other noncurrent assets 31,488 --
Accrued expenses and other current liabilities 32,792 5,624
---------- ----------
Net cash provided by operating activities 394,223 371,030
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (92,266) (8,381)
---------- ----------
Net cash used in investing activities (92,266) (8,381)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable 10,000 --
Payments on long-term debt (20,283) (8,089)
Distributions to stockholders and minority interest holders (220,743) (111,500)
---------- ----------
Net cash used in financing activities (231,026) (119,589)
---------- ----------
NET INCREASE IN CASH 70,931 243,060
70,931
CASH, beginning of period 127,447 198,378
---------- ----------
CASH, end of period $ 198,378 $ 441,438
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 5,700 $ 2,285
========== ==========
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
8
<PAGE> 9
DENTAL CENTERS OF INDIANA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS:
Dental Centers of Indiana, Inc. is an Indiana-based corporation. The
combined financial statements include the accounts of Dental Centers of
Indiana, Inc. and its 50% owned subsidiaries, Drs. Johnson, Terry & Associates,
and DCI-LEE (collectively referred to as "Dental Centers of Indiana" or the
"Company"). All significant intercompany transactions have been eliminated in
the accompanying financial statements.
The combined operations of the Company include management and dental
services. The Company's operations are located throughout Indiana, representing
a total of 11 dental offices.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements have been prepared on the
accrual basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk
The Company grants credit without collateral to its patients, most of
whom are local residents and are insured under third-party payor
agreements. Management does not believe these receivables represent any
concentrated credit risk. Furthermore, management continually monitors and
adjusts its reserves and allowances associated with these receivables.
Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Property and equipment are depreciated
using the straight-line method over the following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures ................................. 5-7
Equipment .............................................. 5
Leasehold improvements ................................. 39
</TABLE>
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from
third-party payors and patients for services rendered, net of contractual
and other adjustments. Premiums received from third-party payors under
dental plans are due monthly and are recognized as revenue during the
period in which the services are provided to the members.
S Corporation - Income Tax Status
The Company, with the consent of its stockholders, has elected to be
taxed as an S corporation under the Internal Revenue Code. In lieu of
corporation income taxes, the stockholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore,
no provision or liability for federal income taxes has been included in
the accompanying combined financial statements.
9
<PAGE> 10
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Equipment .............................................. $ 393,280
Leasehold improvements ................................. 66,579
Furniture and fixtures ................................. 14,226
----------
474,085
Less - Accumulated depreciation and amortization ....... (200,483)
----------
Property and equipment, net ............................ $ 273,602
==========
</TABLE>
4. NOTES PAYABLE:
Notes payable consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Note payable to bank, with interest due monthly at a rate of
9.625%, due March 2002, secured by various assets of the
Company.......................................................... $ 38,383
Notes payable to various parties, with interest rates ranging
From 8.0-9.25%, due through July 1999, secured by various
assets of the Company ........................................... 19,427
----------
57,810
Less - current maturities ....................................... (16,450)
----------
Notes payable.................................................... $ 41,360
==========
</TABLE>
The maturities of notes payable at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.......................................... $ 16,450
1998.......................................... 14,160
1999.......................................... 10,741
2000 ......................................... 7,308
2001 ......................................... 7,308
2002 ......................................... 1,843
--------
Total......................... $ 57,810
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company has operating leases for all of its facilities including
the dental offices and the business office, extending through 2001. Rent
expense totaled approximately $144,000 for the year ended December 31, 1996.
10
<PAGE> 11
Future minimum lease commitments under noncancelable operating leases
with remaining terms of one or more years are as follows as of December 31,
1996:
1997...................................................... $ 90,908
1998...................................................... 80,908
1999...................................................... 79,783
2000...................................................... 63,707
2001...................................................... 27,966
Thereafter................................................ 20,160
--------
Total minimum lease obligations........................ $363,432
=========
Litigation, Claims, and Assessments
The Company is engaged in various legal proceedings incidental to
their normal business activities. Management of the Company does not believe
the resolution of such matters will have a material adverse effect on the
Company's financial position, future results of operations, and liquidity.
6. RELATED-PARTY TRANSACTIONS:
The Company leases five clinic facilities and the administrative
office from a related entity owned by its stockholders. The Company pays
monthly rental amounts and has no commitment which requires future payments to
the owners. Rent expense paid to stockholders totaled approximately $60,000 in
1996.
7. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standard No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure about the fair value
of financial instruments. Carrying amounts for all financial instruments
approximate fair value as of December 31, 1996.
8. SUBSEQUENT EVENT:
On June 19, 1997, the Company signed a definitive agreement with
Monarch Dental Corporation ("Monarch") under which Monarch has agreed to
acquire the Company pursuant to a merger transaction. The acquisition is
expected to be effective upon completion of an initial public offering by
Monarch.
11
<PAGE> 12
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma as adjusted consolidated statement of income for the year
ended December 31, 1996, gives effect to the 1997 acquisition of Indiana Dental
and the receipt and application of the estimated net proceeds from the offering
at the initial public offering price of $13.00 per share as if such
transactions had been completed on January 1, 1996. The pro forma as adjusted
consolidated statement of income for the six months ended June 30, 1997 gives
effect to the 1997 acquisition of Indiana Dental and the receipt and
application of the estimated net proceeds from this offering as if such
transactions had been completed on January 1, 1997. The pro forma as adjusted
consolidated balance sheet reflects (i) the acquisition of Indiana Dental, (ii)
the receipt and application of the estimated net proceeds from the offering and
(iii) the conversion of all outstanding Convertible Participating Preferred
Stock of the Company into Common Stock and Redeemable Preferred Stock, the
redemption of all outstanding Redeemable Preferred Stock for cash and the
conversion of all other outstanding equity securities into Common Stock, in
each case concurrently with the closing of the offering, as if such
transactions had occurred on June 30, 1997. The pro forma consolidated
financial information is based on the consolidated financial statements of the
Company, giving effect to the assumptions and adjustments in the accompanying
notes to the pro forma consolidated financial information. Although such
information is based on preliminary allocation of the purchase price of the
acquisition of Indiana Dental, the Company does not expect that the final
allocation of the purchase price will be materially different from such
preliminary allocation.
The pro forma consolidated financial information has been prepared by
management based on the historical financial statements of the Company and
Indiana Dental at and for the year ended December 31, 1996 and at and for the
six months ended June 30, 1997, adjusted where necessary to reflect this
acquisition and related operations as if the Management Agreement had been in
effect during the entire periods presented. This pro forma consolidated
financial information is presented for illustrative purposes and it does not
purport to represent what the consolidated results of operations or financial
condition of the Company for the periods or at the date presented would have
been had such transactions been consummated as of such dates and is not
indicative of the results that may be obtained in the future.
12
<PAGE> 13
MONARCH DENTAL CORPORATION
Pro Forma Consolidated Statement of Income
Year Ended December 31, 1996
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Indiana Acquisition Pro forma
Historical Dental (a) Adjustments Offering as adjusted
---------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Dental group practices revenue, net $35,980 $ 3,572 $ -- $ -- $39,552
Less: amounts retained by dental group
practices 11,802 -- 1,094 (b) -- 12,896
------- -------- ------- -------- --------
Net revenue 24,178 3,572 (1,094) -- 26,656
Operating expenses:
Clinical salaries and benefits 6,259 2,054 (1,271)(b) -- 7,042
Other salaries and benefits 3,127 195 (60)(b) -- 3,262
Dental supplies 2,216 252 -- -- 2,468
Laboratory fees 1,648 182 -- -- 1,830
Occupancy 1,937 233 (25)(b) -- 2,145
Advertising 1,210 6 -- -- 1,216
Depreciation and amortization 1,430(c) 80 111 (c) -- 1,621
General and administrative 3,564 316 (36)(b) -- 3,844
------- -------- ------- -------- --------
21,391 3,318 (1,281) -- 23,428
------- -------- ------- -------- --------
Operating income 2,787 254 187 -- 3,228
Interest expense, net 1,687 5 (5)(d) (1,535)(f) 152
------- -------- ------- -------- --------
Income (loss) before minority
interest in combined
subsidiaries and income taxes 1,100 249 192 1,535 3,076
Minority interest in combined subsidiaries -- 53 -- -- 53
------- -------- ------- -------- --------
Income (loss) before income taxes 1,100 196 192 1,535 3,023
Income taxes (benefit) 425 76 74 (e) 594 1,169
------- -------- ------- -------- --------
Net income (loss) $ 675 $ 120 $ 118 $ 941 $ 1,854
======= ======== ======= ======== ========
Net income per common share $ 0.10 $ 0.18
======= ========
Weighted average number of common and
common equivalent shares outstanding 6,732 10,035
</TABLE>
13
<PAGE> 14
MONARCH DENTAL CORPORATION
Pro Forma Consolidated Statement of Income
Six Months Ended June 30, 1997
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Indiana Acquisition Pro forma
Historical Dental (a) Adjustments Offering as adjusted
----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Dental group practices revenue, net $30,721 $ 2,560 $ -- $ -- $33,281
Less: amounts retained by dental group practices 10,486 -- 783(b) -- 11,269
------- ------- ----- -------- -------
Net revenue 20,235 2,560 (783) -- 22,012
Operating expenses:
Clinical salaries and benefits 5,300 1,163 (750)(b) -- 5,713
Other salaries and benefits 3,014 126 (30)(b) -- 3,110
Dental supplies 1,918 141 -- -- 2,059
Laboratory fees 1,252 128 -- -- 1,380
Occupancy 1,662 93 (13)(b) -- 1,742
Advertising 746 3 -- -- 749
Depreciation and amortization 1,233 49 62 (c) -- 1,344
General and administrative 2,972 527 (123)(b) -- 3,376
------- ------- ----- -------- -------
18,097 2,230 (854) -- 19,473
------- ------- ----- -------- -------
Operating income 2,138 330 71 -- 2,539
Interest expense, net 1,225 3 (3)(d) (1,075)(f) 150
------- ------- ----- -------- -------
Income (loss) before minority interest in combined
subsidiaries and income taxes 913 327 74 1,075 2,389
Minority interest in combined subsidiaries -- 96 -- -- 96
------- ------- ----- -------- -------
Income (loss) before income taxes 913 231 74 1,075 2,293
Income taxes (benefit) 355 89 29(e) 416 889
------- ------- ----- -------- -------
Net income (loss) $ 558 142 $ 45 $ 659 $ 1,404
======= ======= ===== ======== =======
Net income per common share $ 0.08 $ 0.14
======= =======
Weighted average number of common and
common equivalent shares outstanding 6,583 9,886
</TABLE>
14
<PAGE> 15
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
Dental Group Practices Revenue, Net. Dental group practices revenue,
net represents the revenue of the dental facilities (each, a "Dental Office"
and collectively, the "Dental Offices") reported at the estimated realizable
amounts from third-party payors and patients for services rendered.
Net Revenue. Net revenue in the accompanying pro forma consolidated
statements of income represents revenue from Dental Offices less amounts
retained by the dental group practices. The amounts retained by dental group
practices represent amounts paid by (i) the dental professional corporations
(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 ownership of dental practices by the Company is
permitted. Under the Management Agreements, the Company assumes responsibility
for the management of all aspects of the dental group practices' business other
than the provision of dental services. The Company's net revenue is dependent
on the revenue of the dental group practices.
Pro Forma Consolidated Statements of Income. The adjustments reflected
in the pro forma consolidated statement of income for the year ended December
31, 1996 and the six months ended June 30, 1997 are as follows:
(a) In the pro forma consolidated statement of income for the year
ended December 31, 1996, the Indiana Dental column presents the historical
revenue and expenses of Indiana Dental as if it had been acquired on
January 1, 1996. In the pro forma consolidated statement of income for the
six months ended June 30, 1997, the Indiana Dental column presents the
historical revenue and expenses of Indiana Dental for the six months ended
June 30, 1997.
(b) To reflect the impact of applying (i) the provisions of the
Management Agreement and (ii) adjustments in compensation expense
principally affecting the owners of the acquired dental group practice
pursuant to the provisions of employment agreements entered into at the
time of acquisition to the historical dental group revenue of the dental
practice, as if the Management Agreement and employment agreements were in
place at January 1, 1996 for the pro forma consolidated statement of
income for the year ended December 31, 1996, or January 1, 1997 for the
pro forma consolidated statement of income for the six months ended June
30, 1997.
(c) To increase amortization expense for the intangible assets based
upon the Company's allocation of purchase price as if the acquisition was
completed on January 1, 1996. The intangible assets related to Indiana
Dental total approximately $2.7 million at June 30, 1997 and are being
amortized over a period of 25 years.
(d) To eliminate interest expense related to liabilities not assumed
in connection with the acquisition.
(e) To reflect the estimated income tax effects at an estimated
effective rate of approximately 38.7%.
(f) To eliminate interest expense assuming repayment of $24.8 million
of indebtedness under the Company's Credit Facility with the proceeds of
the offering received by the Company as of January 1, 1996, net of
estimated federal and state income taxes at a combined rate of
approximately 38.7%.
15
<PAGE> 16
MONARCH DENTAL CORPORATION
Pro Forma Consolidated Balance Sheet
June 30, 1997
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Indiana Acquisition Equity Pro forma
Historical Dental(a) Adjustments Conversion(e) Offering(f) as adjusted
---------- ---------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,400 $ 442 $ (1,820)(b) $ -- $ 4,398 $ 4,420
Accounts receivable 3,903 196 -- -- -- 4,099
Other current assets 110 -- -- -- -- 110
---------- ---------- ---------- ---------- ---------- ----------
Total current assets 5,413 638 (1,820) -- 4,398 8,629
Property and equipment, net 5,643 233 -- -- -- 5,876
Intangible assets, net 29,042 -- 2,711 (c) -- -- 31,753
Other assets 642 1 -- -- -- 643
---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 40,740 $ 872 $ 891 $ -- $ 4,398 $ 46,901
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 1,273 $ -- $ -- $ -- $ -- $ 1,273
Accrued payroll 1,431 79 -- -- -- 1,510
Accrued liabilities 1,511 30 -- -- -- 1,541
Deferred income taxes 262 -- -- -- -- 262
Payable to affiliated dental group
practices 1,263 -- -- -- -- 1,263
Deferred purchase price -- -- -- -- -- --
Unearned revenue 49 -- -- -- -- 49
Current maturities of notes payable
and capital lease obligations 3,635 14 -- -- (3,192) 457
---------- ---------- ---------- ---------- ---------- ----------
Total current liabilities 9,424 123 -- -- (3,192) 6,355
Deferred income taxes 570 -- -- -- -- 570
Notes payable 21,896 35 -- -- (21,645) 286
Capital lease obligations 680 -- -- -- -- 680
Other liabilities 1,025 -- -- -- -- 1,025
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 33,595 158 -- -- (24,837) 8,916
Minority interest in combined subsidiaries -- 150 -- -- -- 150
Convertible Participating Preferred Stock 9,313 -- -- (9,313) -- --
Redeemable Preferred Stock -- -- -- 8,000 (8,000) --
Redeemable Common Stock 482 -- -- (482) -- --
Stockholders' equity (deficit):
--
Series A Convertible Junior
Preferred Stock 17 -- -- (17) -- --
Common Stock 33 -- 1(b) 24 32 90
2 2
8 8
Additional paid-in capital 4,285 -- 1,454(b) 1,289 37,203 44,231
9 9
480 480
Retained earnings (deficit) (6,985) 564 (564)(d) -- -- (6,985)
---------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficit) (2,650) 564 891 1,795 37,235 37,835
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity (deficit) $ 40,740 $ 872 $ 891 $ -- $ 4,398 $ 46,901
========== ========== ========== ========== ========== ==========
</TABLE>
16
<PAGE> 17
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The adjustments reflected in the pro forma consolidated balance sheet
are as follows:
(a) To record the historical basis of the assets acquired and
liabilities assumed by the Company in connection with the Indiana Dental
acquisition. This acquisition has been accounted for using the purchase
method of accounting and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on the
estimated fair values as of June 30, 1997. In addition to the issuance of
Common Stock, the Company paid approximately $1.8 million in cash in
connection with the Indiana Dental acquisition. The pro forma purchase
accounting adjustments are recorded under the Acquisition Adjustments
column.
The following methods and assumptions were used to estimate fair
value:
Cash and cash equivalents - The historical carrying amount
approximated fair value.
Other current assets - Other current assets consisted primarily of
prepaid expenses.
Property and equipment, net - The Company performed an asset-by-asset
review and determined that the historical carrying amount approximated
fair value.
Intangible assets - In connection with the allocation of the purchase
price to intangible assets, the Company analyzed the nature of the dental
group practice with which a Management Agreement was entered into,
including the number of dentists in the dental group practice, number of
dental offices and ability to recruit additional dentists, the dental
group practice's relative market position, the length of time the dental
group practice had been in existence, and the term and enforceability of
the Management Agreement. The Management Agreement is for a term of 40
years and cannot be terminated by the relevant P.C. without cause,
consisting primarily of bankruptcy or material default.
The company believes that there is no material value allocable to the
employment and noncompete agreements entered into between the P.C. and the
individual dentists, since the primary economic beneficiaries of these
agreements is the P.C., which is an entity that the Company does not
legally control. The Company believes that the dental group practices
operated by the P.C.s with which it has Management Agreements are
long-lived entities with an indeterminable life and that the dentists,
customer demographics and various contracts will be continuously replaced.
The amounts allocated to the Management Agreements, together with recorded
goodwill amounts, are being amortized over a composite life of 25 years.
The Emerging Issues Task Force of the Financial Accounting Standards
Board is currently evaluating certain matters relating to the physician
practice management industry, which the Company expects to include a
review of the consolidation of professional corporation revenues and the
accounting for business combinations. The Company is unable to predict the
impact, if any, that this review may have on the Company's acquisition
strategy, allocation of purchase price related to acquisitions and
amortization life assigned to intangible assets.
Liabilities assumed - Given the short-term nature of the liabilities
assumed, the historical carrying amount approximated their fair value.
(b) To record the Common Stock issued and cash paid in exchange
for the assets acquired and liabilities assumed.
(c) To adjust to fair market value the assets acquired and
liabilities assumed and to eliminate assets not acquired and liabilities
not assumed by the Company as defined in the purchase agreement.
(d) To eliminate the owner's equity in connection with the
purchase accounting for the acquisitions.
(e) To reflect the conversion of the Convertible Participating
Preferred Stock into 2,400,000 shares of Common Stock and 3,840,000 shares
of Redeemable Preferred Stock. The Redeemable Preferred Stock will be
redeemed for $8.0 million in cash at the closing of the offering. To also
reflect the conversion of all other outstanding equity securities into
Common Stock upon the closing of the offering.
(f) To reflect the net proceeds from the sale of 3,162,500
shares of Common Stock in the offering, estimated to be approximately $37.2
million (after deducting underwriting discounts and commissions and
estimated offering expenses), and the repayment of $24.8 million of
indebtedness under the Credit Facility.
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 hereunto duly authorized.
Monarch Dental Corporation
(Registrant)
Date: October 15, 1997 By: /s/ Steven G. Peterson
------------------------------------
Name: Steven G. Peterson
Title: Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated June 19, 1997 among Monarch Dental
Corporation, Dental Centers of Indiana (Monarch), Inc., Dental
Centers of Indiana, Inc. and James W. Willis, Mark R. Johnson,
Thurman H. Brown, II (incorporated herein by reference to Exhibit 2.6
of Amendment No. 3 to the registrant's Registration Statement on Form
S-1 (File No. 333-24409), as filed with the Commission on July 17,
1997).*
2.2 First Amendment to Agreement and Plan of 5 Merger dated July 25, 1997
among Monarch Dental Corporation, Dental Centers of Indiana (Monarch)
Inc., Dental Centers of Indiana, Inc. and James W. Willis, Mark R.
Johnson, and Thurman H. Brown, II.*
2.3 Consent of Independent Public Accountants 20
</TABLE>
* previously filed
19
<PAGE> 1
Exhibit 2.3
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this Form
8-K/A.
ARTHUR ANDERSEN LLP
Dallas, Texas
October 14,1997
20
