<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 MARCH 31, 2000
[ ] 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: 0-22835
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 [X] No [ ]
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 May 12, 2000
----- ------------------------------
Common Stock, $.01 par value 12,839,881
<PAGE> 2
MONARCH DENTAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Report of Independent Public Accountants 3
Item 2. Consolidated Financial Statements 4
Item 3. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports Filed on Form 8-K 19
Signatures 20
Exhibit Index 21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Monarch Dental Corporation:
We have reviewed the accompanying consolidated balance sheet of Monarch Dental
Corporation (a Delaware corporation) and subsidiaries as of March 31, 2000 and
the related consolidated statements of income and cash flows for the three-month
periods ended March 31, 2000 and 1999. 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 accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas
May 12, 2000
3
<PAGE> 4
MONARCH DENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,122,867 $ 3,921,193
Accounts receivable, net of allowances of approximately $13,146,000
and $12,678,000, respectively 18,373,948 17,408,886
Prepaid expenses 1,797,106 1,647,897
Income tax receivable -- 426,970
------------- -------------
Total current assets 24,293,921 23,404,946
Property and equipment, net of accumulated depreciation of approximately $15,700,000
and $14,363,000, respectively 19,050,006 19,071,714
Goodwill, net of accumulated amortization of approximately $11,267,000 and
$9,938,000, respectively 131,294,335 132,459,266
Deferred income taxes 340,999 340,999
Other assets 3,643,531 3,666,642
------------- -------------
Total assets $ 178,622,792 $ 178,943,567
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,803,217 $ 2,028,804
Accrued payroll 3,469,727 4,231,751
Accrued liabilities 7,234,003 10,862,474
Accrued restructuring charges 615,699 808,975
Income taxes payable 688,612 --
Payable to affiliated dental group practices 5,907,181 4,755,666
Current maturities of notes payable and capital lease obligations 11,105,777 9,539,775
------------- -------------
Total current liabilities 30,824,216 32,227,445
Notes payable 76,231,721 76,728,008
Capital lease obligations 408,950 455,240
Other liabilities 2,667,994 2,849,602
------------- -------------
Total liabilities 110,132,881 112,260,295
Minority interest in consolidated subsidiaries 157,940 88,818
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized; no shares issued or
outstanding -- --
Common Stock, $.01 par value, 50,000,000 shares authorized; 12,839,881 and
12,724,886 shares issued and outstanding, respectively 128,399 127,249
Common Stock to be issued 189,137 100,000
Additional paid-in capital 66,068,660 65,882,409
Retained earnings 1,945,775 484,796
------------- -------------
Total stockholders' equity 68,331,971 66,594,454
------------- -------------
Total liabilities and stockholders' equity $ 178,622,792 $ 178,943,567
============= =============
</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 MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Patient revenue, net $ 55,022,805 $ 49,455,019
Operating expenses:
Provider salaries and benefits 17,928,237 16,167,228
Clinical and other salaries and benefits 13,584,964 13,054,732
Dental supplies 2,967,615 2,649,224
Laboratory fees 2,864,261 2,319,315
Occupancy 2,583,008 2,575,970
Advertising 667,109 730,041
Other operating expenses 6,389,483 6,578,301
Depreciation and amortization 2,714,789 2,562,234
------------ ------------
49,699,466 46,637,045
------------ ------------
Operating income 5,323,339 2,817,974
Interest expense, net 2,581,696 1,778,330
Minority interest in consolidated subsidiaries 87,472 33,379
------------ ------------
Income before income taxes 2,654,171 1,006,265
Income taxes 1,193,192 392,445
------------ ------------
Net income $ 1,460,979 $ 613,820
============ ============
Net income per common share $ 0.11 $ 0.05
============ ============
Net income per common share - assuming dilution $ 0.11 $ 0.05
============ ============
Weighted average number of common shares
outstanding 12,838,566 12,085,851
============ ============
Weighted average number of common and common
equivalent shares outstanding 13,312,371 12,085,851
============ ============
</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>
Three months ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,460,979 $ 613,820
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 2,714,789 2,562,234
Minority interest in consolidated subsidiaries 87,472 33,379
Changes in assets and liabilities, net of effects from
acquisitions -
Accounts receivable, net (951,934) 22,889
Prepaid expenses (149,209) (150,615)
Income tax receivable 426,970 392,445
Other noncurrent assets 280,449 52,413
Accounts payable and accrued expenses 789,915 (2,653,637)
Accrued restructuring charges (193,276) (192,463)
Other liabilities 111,673 (270,710)
------------ ------------
Net cash provided by operating activities 4,577,828 409,755
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,309,591) (2,267,862)
Cash paid for dental group practices, including
related costs, net of cash acquired (4,090,838) (7,008,342)
------------ ------------
Net cash used in investing activities (5,400,429) (9,276,204)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, net of issuance costs 2,400,000 10,450,000
Payments for debt issue costs (68,201) (303,698)
Payments on notes payable and capital lease obligations (1,376,575) (1,035,335)
Distribution to stockholders/partners (18,350) (188,927)
Issuance of common stock 87,401 134,786
------------ ------------
Net cash provided by financing activities 1,024,275 9,056,826
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 201,674 190,377
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,921,193 3,992,845
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,122,867 $ 4,183,222
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 2,332,698 $ 2,324,665
============ ============
Cash paid for taxes $ 114,697 $ --
============ ============
Debt assumed through acquisitions $ -- $ 150,000
============ ============
Non-cash issuance of common stock $ 100,000 $ 923,133
============ ============
</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"), manages
dental group practices in selected markets. At March 31, 2000, the
Company managed 190 dental group practices in Texas, Wisconsin,
Pennsylvania, Virginia, Ohio, Arkansas, Utah, Colorado, Georgia, New
Jersey, Florida, Indiana, Arizona and New Mexico.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION / BASIS OF CONSOLIDATION
The financial statements for the three months ended March 31,
2000 and 1999, have been prepared by the Company, without audit,
pursuant to Accounting Principles Board (APB) 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 months ended March 31, 2000 and 1999, have been included
herein. The results of operations for the three month periods are not
necessarily indicative of the results for the full year.
In thirteen states, the Company accounts for its management
activities with the dental group practices under long-term management
agreements (the "Management Agreements"). The Management Agreements
represent the Company's right to manage the Dental Offices during the
40-year term of the agreement. The Management Agreements cannot be
terminated by the related professional corporation without cause,
consisting primarily of bankruptcy or material default. Under the
Management Agreements, the Company assumes responsibility for the
management of all aspects of the dental group practices' business
(including all operating expenses consisting 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,
advertising, equipment leases, management information systems and other
expenses related to the dental practice operations) other than the
provision of dental services and retains a 100% residual interest in
the net income of the dental group practices. The Company receives a
management fee equal to the Company's costs plus the lower of (i) 30%
of the P.C.'s net revenues or (ii) the P.C.'s net pre-tax income. If
net pre-tax income exceeds 30% of the P.C.'s net revenues, the P.C.
would retain the amount of pre-tax income over 30% of the P.C.'s net
revenues. The Company's net revenue is significantly dependent upon the
revenue of the dental group practices. The Company has no material
commitments or guarantees to the dental group practices under the
Management Agreements. In Wisconsin, the Company directly employs the
dentists and hygienists.
Under the Management Agreements, the Company establishes a
"controlling financial interest" as defined by EITF 97-2, "Application
of FASB No. 94 and APB No. 16 to Physician Practice Management Entities
and Certain Other Entities under Contractual Management Arrangement"
("EITF 97-2"). In addition, the Company has nominee shareholder
arrangements with certain of the dental group practices as defined by
EITF 97-2. For these reasons, the Company consolidates the financial
statements of the dental group practices.
7
<PAGE> 8
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
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
NET INCOME PER COMMON SHARE
The net income per common share is based on the weighted
average number of common shares outstanding during the period. Diluted
net income per share has been calculated using the treasury stock
method for stock options and other dilutive securities. Such shares
totaled 473,805 for the three month period ended March 31, 2000. For
the three month period ended March 31, 1999, the Company's average
market price had fallen below the average exercise price, therefore, no
common stock equivalents are included in the calculation. There were
1,104,977 stock options outstanding at March 31, 1999.
OTHER
Certain reclassifications have been made to the 1999 financial
statements to conform to the 2000 presentations.
3. NOTES PAYABLE
The Company has a Credit Facility with a bank syndicate, which
was amended in June 1999. Under the Credit Facility, the Company may
borrow up to $85.0 million. At March 31, 2000 the Company had $83.1
million outstanding under the Credit Facility and remaining
availability of $1.9 million. 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 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.
During 1999, the Company amended its loan agreement associated
with the Credit Facility. Changes made in the amendment included, but
were not limited to, modifications of certain defined terms and
financial ratios, additions of newly defined terms, limitations on
capital expenditures, modifications to the definition of Events of
Default and the requirement of prior bank approval for consolidations,
mergers, acquisitions, and sales of assets. The methodology by which
the Company's borrowing rates are determined was also adjusted as part
of the amendment. In conjunction with this amendment, the bank
syndicate received contingency compensation in the form of warrants of
the Company representing 3% of the fully diluted outstanding common
shares of the Company at the time of agreement, subject to
anti-dilution provisions, for an exercise price of $0.01 per share. The
warrants are contingent based upon specific performance of the Company
in conjunction with dates set forth in a vesting schedule. The vesting
dates for the warrants are March 31, April 30, May 31, and June 30,
2000 upon such dates, an aggregate 3% of the fully diluted outstanding
common stock will vest at a rate of 1/2%, 1/2%, 1/2%, and 1 1/2%,
respectively. At March 31, 2000, 1/2% of the warrants vested totaling
approximately $189,000. The Company believes that it will not meet the
specific performance requirements under this amendment and that all of
the remaining warrants will vest by June 30, 2000.
As of March 31, 2000, the Company is in compliance with the
terms of the Credit Facility. There can be no assurance that the
Company will maintain the ratios as required by the loan agreement. The
failure to maintain these ratios could adversely affect the Company's
operations in future periods.
8
<PAGE> 9
The Company believes that cash generated from operations and
borrowings under the Credit Facility will be sufficient to fund its
cash requirements in the second quarter of 2000. However, the Company
does not expect to generate sufficient cash from operations to repay
its obligations under its short-term note, due June 30, 2000 under the
Credit Facility, which the Company expects will approximate $10.0
million at that time. Failure to make the required principal payment
would constitute a default under the Credit Facility. The Company is
currently discussing with its lenders an extension of this short-term
note, however, the Company can provide no assurance that its lenders
will extend the maturity of this short-term note. The Company believes
that cash from operations will be sufficient in the third and fourth
quarters of 2000 to meet its obligations.
In order to meet its short-term and long-term liquidity needs,
the Company may issue additional equity and debt securities, subject to
market and other conditions. In addition, the Company is also in the
process of providing potential acquirors due diligence materials in
order to determine if a sale of the Company would be more beneficial to
the Company's stockholders than raising additional capital to meet its
liquidity needs. There can be no assurance that any such sale will be
available on terms acceptable to the Company. In the event a sale
transaction is not consummated, the Company would pursue the issuance
of debt securities and has signed an engagement letter with an
investment bank to pursue the issuance of these securities. Although
there can be no assurance that this financing will be available on
terms acceptable to the Company, the Company believes that additional
sources of liquidity are available at rates that would increase the
Company's interest obligations. The failure to raise the funds
necessary to finance its future cash requirements could adversely
affect the Company's operations in future periods.
The Company enters into interest rate swap agreements to
manage its interest rate exposure. Interest rate swaps are agreements
to exchange interest rate payment streams based on a notional principle
amount. Company policy requires settlement accounting principles for
interest rate swaps in which net interest rate differentials to be paid
or received are recorded currently as adjustments to interest expense.
Transactions involving such agreements did not have a material effect
to the financial statements for the three months ended March 31, 2000
and 1999, respectively.
4. COMMITMENTS AND CONTINGENCIES
LITIGATION, CLAIMS, AND ASSESSMENTS
On or about April 26, 1999, the Company was served with a
putative class action complaint against the Company and certain of its
officers and directors, captioned Robert O. Neibert, et al. v. Monarch
Dental Corp., Warren F. Melamed, Gary W. Cage and Roger B. Kafker,
Civil No. 3- 99-CV-0762-X. The class action complaint, which was filed
in the United States District Court for the Northern District of Texas
(the "District Court"), alleges that the Company and certain of its
officers and directors violated the federal securities laws by making
material misrepresentations and omissions in certain public disclosures
during the period between February 24, 1998 and December 22, 1998.
Following the announcement of the filing of this class action lawsuit,
the Company was served with two similar putative class actions in the
District Court, which encompass the same class period and cover almost
identical allegations. On May 24, 1999, the District Court consolidated
these three class action complaints into a single action. The Company
was subsequently served on September 10, 1999 with a consolidated
amended class action complaint which contained substantially the same
allegations as were encompassed in the prior separate class action
complaints. The Company and all of the defendants named in the amended
class action complaint filed motions to dismiss all of the claims set
forth in this complaint in October 1999.
9
<PAGE> 10
After the motions to dismiss were filed but before the
District Court decided on them, the parties reached agreement on the
terms of a potential settlement of the action. Accordingly, the parties
entered into a Memorandum of Understanding dated January 31, 2000,
which sets forth the principal bases of a settlement of the action,
subject to approval by the District Court. The Memorandum of
Understanding and the proposed settlement will be contingent upon (i)
the parties' execution of an appropriate Stipulation of Settlement
("Stipulation"); (ii) conditional certification of the Class for
purposes of the settlement; (iii) District Court approval of the
settlement; and (iv) dismissal of the action with prejudice.
The Stipulation was submitted to the District Court and
preliminarily approved on April 7, 2000. In the Stipulation, the
parties requested that the District Court certify, for purposes of
settlement, a class of all persons (exclusive of Defendants and their
affiliates) who purchased or otherwise acquired shares of the Company
during the period between February 24, 1998 and December 22, 1998, and
their successors in interest and transferees, immediate and remote
(the "Class"); that the District Court finally approve the settlement,
including the release of all claims by Class members against the
Defendants; and that the Court enter final judgment dismissing with
prejudice all claims of the plaintiffs and the Class against the
Defendants.
As part of the settlement, the Company has paid $3.5 million
into a settlement fund which will, among other things, be used to pay
authorized members of the Class. The entire settlement amount has been
funded by the Company's directors and officers liability insurance
carrier. No cash contribution was required of the Company or any of
the other defendants.
Between preliminary approval and final approval, plaintiffs'
counsel will send notice of the settlement to the Class. The District
Court is scheduled to consider and rule on a request for final approval
of the settlement at a hearing on June 19, 2000. In the event the
District Court approves the settlement at that time, the releases
running to the Company and the individual defendants will become
effective.
On or about September 8, 1999, the Company filed a cause of
action entitled Midwest Dental Management, Inc. and Monarch Dental
Corporation v. David L. Hehli, DDS; Cause No. 99CV477, in the Circuit
Court of Eau Claire County, Wisconsin. The Company sued Dr. Hehli for
breach of contract among other claims and sought injunctive relief and
damages; Dr. Hehli counterclaimed for breach of contract and sought an
unspecified amount of damages. On or about January 17, 2000, the
Company was served with a complaint against Midwest Dental Management,
Inc. captioned Midwest Dental Plan, Ltd. v. Midwest Dental Management,
Inc., et al.; Cause No. 00-CV-6, which was filed in the Circuit Court
of Buffalo County, Wisconsin. The Plaintiff was seeking damages in an
unspecified amount and termination of an administrative services
agreement between Plaintiff and Midwest Dental Management, Inc. The
Company has reached a tentative settlement in both cases, which is
expected to be finalized before June 1, 2000 and is not expected to
have a material impact on operating results.
In addition to the matters discussed above, the Company is
engaged in various legal proceedings incidental to its business
activities. Management does not believe the resolution of such matters
will have a material adverse effect on the Company's financial
position, results of operations or liquidity.
5. SEGMENT REPORTING
The Company organizes its business into five reportable
segments. The Company's reportable segments are strategic business
units, and are comprised of the following:
Region One - Includes Dallas/Fort Worth, Houston, San
Antonio, West Texas, New Mexico and Austin
Dental Offices. The Company exited the Austin
market in the first quarter of 1999.
Region Two - Includes Pittsburgh, Northern Virginia, Southern
Virginia, Atlanta and Florida Dental Offices.
10
<PAGE> 11
Region Three - Includes Indiana, Arkansas, Dayton and
Cleveland Dental Offices.
Region Four - Includes Wisconsin, Utah, Arizona and Colorado
Dental Offices.
Region Five - Includes Philadelphia and Northern New Jersey
Dental Offices.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies except that
the Company does not allocate income taxes to any of the regions. They
are managed separately because each region operates under different
contractual arrangements, providing service to a diverse mix of
patients and payors.
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Region 1 Region 2 Region 3 Region 4 Region 5 Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Patient revenue, net $ 21,418 $ 9,703 $ 7,552 $ 12,250 $ 4,100 $ 55,023
Total operating expenses 16,479 7,828 6,315 10,267 3,525 44,414
---------- ---------- ---------- ---------- ---------- ----------
Segment contribution 4,939 1,875 1,237 1,983 575 10,609
Contribution margin 23% 19% 16% 16% 14% 19%
Depreciation and
amortization expense 902 522 388 473 424 2,709
Interest expense, net 2 40 1 7 15 65
Segment profit 4,035 1,313 848 1,503 136 7,835
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Region 1 Region 2 Region 3 Region 4 Region 5 Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Patient revenue, net $ 18,372 $ 8,600 $ 7,200 $ 10,965 $ 4,318 $ 49,455
Total operating expenses 15,144 7,332 6,176 9,503 3,751 41,906
---------- ---------- ---------- ---------- ---------- ----------
Segment contribution 3,228 1,268 1,024 1,462 567 7,549
Contribution margin 18% 15% 14% 13% 13% 15%
Depreciation and
amortization expense 943 511 341 395 333 2,523
Interest expense, net 12 25 -- 10 34 81
Segment profit 2,273 732 683 1,057 200 4,945
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Profit (in thousands) Three Months Ended March 31,
-------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Segment profit $ 7,835 $ 4,945
Unallocated amounts:
Corporate operating expenses 2,571 2,170
Corporate depreciation and amortization expense 6 39
Corporate interest expense, net 2,517 1,697
Minority interest in consolidated subsidiaries 87 33
-------------- --------------
Income before income taxes $ 2,654 $ 1,006
============== ==============
</TABLE>
11
<PAGE> 12
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 21E
of the Securities and Exchange Act of 1934, including statements under
"Liquidity and Capital Resources" regarding the availability of cash from
operations to fund core operations, interest expense, nonrecurring and
contingency payments and obligations under the Company's short-term note,
statements regarding extensions of the short-term note and availability of
additional credit, statements regarding the sufficiency of cash in the third and
fourth quarters of 2000, statements regarding the possible issuance of debt or
equity securities, statements concerning a possible sale of the Company and
related activities, statements regarding alternative financing strategies, and
statements regarding availability of additional sources of liquidity and of any
failure to raise necessary funding. 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, risks
associated with availability and consummation of financing or strategic
transactions, risks associated with liquidity and cash flow shortfalls, risks
associated with implementation of strategic initiatives, risks associated with
integration of acquired companies, risks associated with the change of status or
departure of key management personnel, risks associated with 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. These and other
risk factors are listed in the Company's Form 10-K for the year ended December
31, 1999 as filed with the U.S. Securities and Exchange Commission.
OVERVIEW
The Company manages dental group practices in selected markets located
in Texas, Wisconsin, Pennsylvania, Virginia, Ohio, Arkansas, Utah, Colorado,
Georgia, New Jersey, Florida, Indiana, Arizona and New Mexico. 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, by opening Dental
Offices on a de novo basis and through acquisitions of existing dental
practices. 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>
2000(1) 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Offices at beginning of period 190 192 99 53 12
De novo offices 1 -- 7 7 2
Acquired offices -- 7 88 39 39
Closed offices (1) (9) (2) -- --
------- ------- ------- ------- -------
Offices at end of period 190 190 192 99 53
======= ======= ======= ======= =======
</TABLE>
(1) Through March 31, 2000
12
<PAGE> 13
COMPONENTS OF REVENUE AND EXPENSES
Under the Management Agreements, the Company establishes a "controlling
financial interest" as defined by EITF 97-2, "Application of FASB No. 94 and APB
No. 16 to Physician Practice Management Entities and Certain Other Entities
under Contractual Management Arrangement" ("EITF 97-2"). In addition, the
Company has nominee shareholder arrangements with certain of the dental group
practices as defined by EITF 97-2. For these reasons, the Company consolidates
the financial statements of the dental group practices.
Patient revenue, net ("Revenue") represents the revenue of the
professional dental corporations managed by the Company ("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. Operating expenses
consist of the expenses incurred by the Company or the P.C.s in connection with
the operation and management of the Dental Offices. These include salaries and
benefits paid to dentists and hygienists by the P.C.s or by the Company in
states in which it operates and in which ownership of dental practices by the
Company is permitted (currently Wisconsin), salaries and benefits for personnel
other than dentists and hygienists, dental supplies, dental laboratory fees,
occupancy costs, advertising, equipment leases, management information systems
and other expenses related to dental practice operations, as well as
depreciation and amortization expense.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Patient revenue, net. Revenue increased to $55.0 million for the three
months ended March 31, 2000 from $49.5 million for the three months ended March
31, 1999, an increase of $5.5 million, or 11.3%. This increase resulted
primarily from same store revenue growth generated by the successful
implementation of revenue enhancement initiatives in 2000 including patient
focused marketing programs and the expansion or relocation of twenty-five
existing Dental Offices and to a lesser extent the opening of one de novo Dental
Office.
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 to $32.1 million for the three months ended
March 31, 2000 from $30.5 million for the three months ended March 31, 1999, an
increase of $1.6 million, or 5.1%. This increase resulted primarily from same
store revenue growth generated by the successful implementation of revenue
enhancement initiatives in 2000 including patient focused marketing programs and
the expansion or relocation of twenty-five existing Dental Offices and to a
lesser extent the opening of one de novo Dental Office. Managed dental care
revenue (i.e., revenue from capitated managed dental care plans, including
capitation payments and patient co-payments) increased to $22.9 million for the
three months ended March 31, 2000 from $19.0 million for the three months ended
March 31, 1999, an increase of $3.9 million, or 21.3%. This increase resulted
primarily from same store revenue growth generated by the successful
implementation of revenue enhancement initiatives in 2000 including patient
focused marketing programs and the expansion or relocation of twenty-five
existing Dental Offices and to a lesser extent the opening of one de novo Dental
Office. As a percentage of Revenue, fee-for-service revenue decreased to 58.3%
from 61.8% for the three months ended March 31, 2000 and 1999, respectively.
Provider salaries and benefits. Provider salaries and benefits expense
increased to $17.9 million for the three months ended March 31, 2000 from $16.2
million for the three months ended March 31, 1999, an increase of $1.7 million,
or 10.9%. This increase resulted primarily from increased dentist and hygienist
compensation due to a higher level of production at the Dental Offices and to a
lesser extent the opening of one de novo Dental Office and the expansion or
relocation of twenty-five existing Dental Offices. As a percent of Revenue,
provider salaries and benefits expense decreased slightly to 32.6% from 32.7%
for the three months ended March 31, 2000 and 1999, respectively.
Clinical and other salaries and benefits. Clinical and other salaries
and benefits expense increased to $13.6 million for the three months ended March
31, 2000 from $13.1 million for the three months ended March 31, 1999, an
increase of $530,000, or 4.1%. This increase resulted primarily from the opening
of one de novo Dental Office and the expansion or relocation of twenty-five
existing Dental Offices. As a percent of Revenue, clinical and other salaries
and benefits expense decreased to 24.7% from 26.4% for the three months ended
March 31, 2000 and 1999, respectively. This decrease was due principally to the
leveraging of constant salaries and benefits expense against increased revenue.
13
<PAGE> 14
Dental supplies. Dental supplies expense increased to $3.0 million for
the three months ended March 31, 2000 from $2.6 million for the three months
ended March 31, 1999, an increase of $318,000, or 12.0%. This increase resulted
primarily from a higher level of production at the Dental Offices and to a
lesser extent the opening of one de novo Dental Office and the expansion or
relocation of twenty-five existing Dental Offices. These increases were
partially offset by the leveraging of national supply contracts. As a percent of
Revenue, dental supplies expense remained constant at 5.4% for the three months
ended March 31, 2000 and 1999, respectively.
Laboratory fees. Laboratory fee expense increased to $2.9 million for
the three months ended March 31, 2000 from $2.3 million for the three months
ended March 31, 1999, an increase of $545,000, or 23.5%. This increase resulted
primarily from increased production at the Dental Offices and an increase in
material costs used in the production of crowns and to a lesser extent the
opening of one de novo Dental Office and the expansion or relocation of
twenty-five existing Dental Offices. As a percent of Revenue, laboratory fee
expense increased to 5.2% from 4.7% for the three months ended March 31, 2000
and 1999, respectively. This increase was due principally to the increase in
material costs used in the production of crowns.
Occupancy. Occupancy expense remained constant at $2.6 million for the
three months ended March 31, 2000 and 1999, respectively. The expense associated
with the opening of one de novo Dental Office and the expansion or relocation of
twenty-five existing Dental Offices was offset by five Dental Office closures
since the end of the first quarter of 1999. As a percent of Revenue, occupancy
expense decreased to 4.7% from 5.2% for the three months ended March 31, 2000
and 1999, respectively. This decrease was due principally to the leveraging of
constant occupancy expense against increased revenue.
Advertising. Advertising expense decreased to $667,000 for the three
months ended March 31, 2000 from $730,000 for the three months ended March 31,
1999, a decrease of $63,000, or 8.6%. This decrease resulted primarily from cost
control initiatives implemented in 1999 that included the use of lower cost
advertising. A greater emphasis was placed on direct mailings and other types of
print advertising as opposed to the more expensive television and radio
advertising. As a percent of Revenue, advertising expense decreased to 1.2% from
1.5% for the three months ended March 31, 2000 and 1999, respectively. This
decrease resulted from the use of lower cost advertising and the leveraging of
advertising expense against increased revenue.
Other operating expenses. Other operating expenses decreased to $6.4
million for the three months ended March 31, 2000 from $6.6 million for the
three months ended March 31, 1999, a decrease of $189,000, or 2.9%. This
decrease resulted primarily from cost control initiatives implemented in 1999
offset by the opening of one de novo Dental Office and the expansion or
relocation of twenty-five existing Dental Offices. As a percent of Revenue,
other operating expenses decreased to 11.6% from 13.3% for the three months
ended March 31, 2000 and 1999, respectively. This decrease resulted from the
cost control initiatives implemented in 1999 and the leveraging of other
operating expenses against increased revenue.
Depreciation and amortization. Depreciation and amortization expense
increased to $2.7 million for the three months ended March 31, 2000 from $2.6
million for the three months ended March 31, 1999, an increase of $153,000, or
6.0%. This slight increase resulted primarily from additional depreciation
expense on fixed assets purchased to facilitate the opening of one de novo
Dental Office and the expansion or relocation of twenty-five existing Dental
Offices.
Operating income. Operating income increased to $5.3 million for the
three months ended March 31, 2000 from $2.8 million for the three months ended
March 31, 1999, an increase of $2.5 million, or 88.9%. This increase resulted
primarily from increased revenue at the Dental Offices due to the implementation
of Revenue initiatives in 2000 and certain cost control initiatives implemented
in 1999. As a percent of Revenue, operating income increased to 9.7% from 5.7%
for the three months ended March 31, 2000 and 1999, respectively. This increase
was due principally to increased revenue and margin improvement in provider
salaries and benefits expense, clinical and other salaries and benefits expense,
occupancy expense, advertising expense, other operating expenses and
depreciation and amortization expense offset by higher laboratory fee expense as
a percent of Revenue.
Interest expense, net. Interest expense, net increased to $2.6 million
for the three months ended March 31, 2000 from $1.8 million for the three months
ended March 31, 1999, an increase of $803,000, or 45.2%. This increase is
attributable to the higher average outstanding debt balances and higher interest
rates for the three months ended March 31, 2000 and 1999, respectively. The
Company has a Credit Facility (the "Credit Facility") with a bank syndicate.
Average debt outstanding under the Credit Facility totaled $82.7 million for the
three months ended March 31, 2000 compared to average debt outstanding of $72.8
million for the three months ended March 31, 1999.
14
<PAGE> 15
Minority interest. Minority interest expense increased to $87,000 for
the three months ended March 31, 2000 from $33,000 for the three months ended
March 31, 1999, an increase of $54,000, or 163.6%. This increase resulted from
higher net income in markets that are not wholly owned by the Company for the
three months ended March 31, 2000 and 1999, respectively. The minority ownership
percentages in these markets range from a six-and-one-quarter percent to a fifty
percent interest and are located in Indiana, Texas, New Mexico, Georgia,
Pennsylvania and New Jersey.
Income taxes. Income tax expense increased to $1.2 million for the
three months ended March 31, 2000 from $392,000 for the three months ended March
31, 1999, an increase of $801,000, or 204.3%. This increase resulted from higher
income before income taxes, which increased to $2.7 million for the three months
ended March 31, 2000 from $1.0 million for the three months ended March 31,
1999, an increase of $1.7 million, or 163.8% and a higher effective tax rate in
2000 due primarily to the impact of goodwill amortization that is not tax
deductible.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had a $6.5 million working capital
deficit, representing an improvement of $2.3 million from the working capital
deficit of $8.8 million at December 31, 1999. This working capital deficit
included current liabilities of $30.8 million, consisting of $1.8 million in
accounts payable, $12.0 million in accrued liabilities, $5.9 million in amounts
payable to dental group practices as consideration for accounts receivable
acquired from such group practices and $11.1 million in current maturities of
notes payable and capital lease obligations. Current liabilities were offset by
current assets of $24.3 million, consisting of $4.1 million in cash and cash
equivalents, $18.4 million in accounts receivable, net of allowances and prepaid
expenses of $1.8 million. The Company's principal sources of liquidity as of
March 31, 2000 consisted of cash and cash equivalents, net accounts receivable
and borrowing capacity under the Credit Facility. There can be no assurance the
Company's working capital deficit will not continue in the future, particularly
if additional indebtedness requires current amortization of principal.
For the three months ended March 31, 2000 and 1999, cash provided by
operations was $4.6 million and $410,000, respectively.
Cash used in investing activities was $5.4 million for the three months
ended March 31, 2000 and $9.3 million for the three months ended March 31, 1999.
In the three months ended March 31, 2000, $4.1 million was utilized to meet
contingent payments for acquisitions completed in prior periods and $1.3 million
was invested in the purchase of additional property and equipment. In the three
months ended March 31, 1999, $7.0 million was utilized for acquisitions and to
meet contingent payments for acquisitions completed in prior periods and $2.3
million was invested in the purchase of additional property and equipment.
For the three months ended March 31, 2000 and 1999, cash provided by
financing activities was $1.0 million and $9.1 million, respectively. In the
three months ended March 31, 2000, the cash provided was primarily comprised of
$2.4 million in net borrowings offset by the repayment of $1.4 million in
outstanding debt. In the three months ended March 31, 1999, the cash provided
was primarily comprised of $10.5 million in net borrowings offset by the
repayment of $1.0 million in outstanding debt and debt issue costs of $304,000.
The Company has a Credit Facility with a bank syndicate, which was
amended in June 1999. Under the Credit Facility, the Company may borrow up to
$85.0 million. At March 31, 2000 the Company had $83.1 million outstanding under
the Credit Facility and remaining availability of $1.9 million. 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
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.
During 1999, the Company amended its loan agreement associated with the
Credit Facility. Changes made in the amendment included, but were not limited
to, modifications of certain defined terms and financial ratios, additions of
newly defined terms, limitations on capital expenditures, modifications to the
definition of Events of Default and the requirement of prior bank approval for
consolidations, mergers, acquisitions, and sales of assets. The methodology by
which the Company's borrowing rates are determined was also adjusted as part of
the amendment. In conjunction with this amendment, the bank syndicate received
contingency compensation in the form of warrants of the Company representing 3%
of the fully diluted outstanding common shares of the Company at the time of
agreement, subject to anti-dilution provisions, for an exercise price of $0.01
per share. The warrants are contingent based upon specific performance of the
Company in conjunction with dates set forth in a vesting schedule. The vesting
dates for the warrants are March 31, April 30, May 31, and June 30, 2000 upon
such dates, an aggregate 3% of the fully diluted outstanding common stock will
vest at a rate of 1/2%, 1/2%, 1/2%, and 1 1/2%, respectively. At March 31, 2000,
1/2% of the warrants vested totaling approximately $189,000. The Company
believes that it will not meet the specific performance requirements under this
amendment and that all of the remaining warrants will vest by June 30, 2000.
16
<PAGE> 17
As of March 31, 2000, the Company is in compliance with the terms of
the Credit Facility. There can be no assurance that the Company will maintain
the ratios as required by the loan agreement. The failure to maintain these
ratios could adversely affect the Company's operations in future periods.
The Company believes that cash generated from operations and borrowings
under the Credit Facility will be sufficient to fund its cash requirements in
the second quarter of 2000. However, the Company does not expect to generate
sufficient cash from operations to repay its obligations under its short-term
note, due June 30, 2000 under the Credit Facility, which the Company expects
will approximate $10.0 million at that time. Failure to make the required
principal payment would constitute a default under the Credit Facility. The
Company is currently discussing with its lenders an extension of this short-term
note, however, the Company can provide no assurance that its lenders will extend
the maturity of this short-term note. The Company believes that cash from
operations will be sufficient in the third and fourth quarters of 2000 to meet
its obligations.
In order to meet its short-term and long-term liquidity needs, the
Company may issue additional equity and debt securities, subject to market and
other conditions. In addition, the Company is also in the process of providing
potential acquirors due diligence materials in order to determine if a sale of
the Company would be more beneficial to the Company's stockholders than raising
additional capital to meet its liquidity needs. There can be no assurance that
any such sale will be available on terms acceptable to the Company. In the event
a sale transaction is not consummated, the Company would pursue the issuance of
debt securities and has signed an engagement letter with an investment bank to
pursue the issuance of these securities. Although there can be no assurance that
this financing will be available on terms acceptable to the Company, the Company
believes that additional sources of liquidity are available at rates that would
increase the Company's interest obligations. The failure to raise the funds
necessary to finance its future cash requirements could adversely affect the
Company's operations in future periods.
The Company enters into interest rate swap agreements to manage its
interest rate exposure. Interest rate swaps are agreements to exchange interest
rate payment streams based on a notional principle amount. Company policy
requires settlement accounting principles for interest rate swaps in which net
interest rate differentials to be paid or received are recorded currently as
adjustments to interest expense. Transactions involving such agreements did not
have a material effect to the financial statements for the three months ended
March 31, 2000 and 1999, respectively.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about April 26, 1999, the Company was served with a
putative class action complaint against the Company and certain of its
officers and directors, captioned Robert O. Neibert, et al. v. Monarch
Dental Corp., Warren F. Melamed, Gary W. Cage and Roger B. Kafker,
Civil No. 3-99-CV-0762-X. The class action complaint, which was filed
in the United States District Court for the Northern District of Texas
(the "District Court"), alleges that the Company and certain of its
officers and directors violated the federal securities laws by making
material misrepresentations and omissions in certain public disclosures
during the period between February 24, 1998 and December 22, 1998.
Following the announcement of the filing of this class action lawsuit,
the Company was served with two similar putative class actions in the
District Court, which encompass the same class period and cover almost
identical allegations. On May 24, 1999, the District Court consolidated
these three class action complaints into a single action. The Company
was subsequently served on September 10, 1999 with a consolidated
amended class action complaint which contained substantially the same
allegations as were encompassed in the prior separate class action
complaints. The Company and all of the defendants named in the amended
class action complaint filed motions to dismiss all of the claims set
forth in this complaint in October 1999.
After the motions to dismiss were filed but before the
District Court decided on them, the parties reached agreement on the
terms of a potential settlement of the action. Accordingly, the parties
entered into a Memorandum of Understanding dated January 31, 2000,
which sets forth the principal bases of a settlement of the action,
subject to approval by the District Court. The Memorandum of
Understanding and the proposed settlement will be contingent upon (i)
the parties' execution of an appropriate Stipulation of Settlement
("Stipulation"); (ii) conditional certification of the Class for
purposes of the settlement; (iii) District Court approval of the
settlement; and (iv) dismissal of the action with prejudice.
The Stipulation was submitted to the District Court and
preliminarily approved on April 7, 2000. In the Stipulation, the
parties requested that the District Court certify, for purposes of
settlement, a class of all persons (exclusive of Defendants and their
affiliates) who purchased or otherwise acquired shares of the Company
during the period between February 24, 1998 and December 22, 1998, and
their successors in interest and transferees, immediate and remote (the
"Class"); that the District Court finally approve the settlement,
including the release of all claims by Class members against the
Defendants; and that the Court enter final judgment dismissing with
prejudice all claims of the plaintiffs and the Class against the
Defendants.
As part of the settlement, the Company has paid $3.5 million
into a settlement fund which will, among other things, be used to pay
authorized members of the Class. The entire settlement amount has been
funded by the Company's directors and officers liability insurance
carrier. No cash contribution was required of the Company or any of the
other defendants.
Between preliminary approval and final approval, plaintiffs'
counsel will send notice of the settlement to the Class. The District
Court is scheduled to consider and rule on a request for final approval
of the settlement at a hearing on June 19, 2000. In the event the
District Court approves the settlement at that time, the releases
running to the Company and the individual defendants will become
effective.
On or about September 8, 1999, the Company filed a cause of
action entitled Midwest Dental Management, Inc. and Monarch Dental
Corporation v. David L. Hehli, DDS; Cause No. 99CV477, in the Circuit
Court of Eau Claire County, Wisconsin. The Company sued Dr. Hehli for
breach of contract among other claims and sought injunctive relief and
damages; Dr. Hehli counterclaimed for breach of contract and sought an
unspecified amount of damages. On or about January 17, 2000, the
Company was served with a complaint against Midwest Dental Management,
Inc. captioned Midwest Dental Plan, Ltd. v. Midwest Dental Management,
Inc., et al.; Cause No. 00-CV-6, which was filed in the Circuit Court
of Buffalo County, Wisconsin. The Plaintiff was seeking damages in an
unspecified amount and termination of an administrative
18
<PAGE> 19
services agreement between Plaintiff and Midwest Dental Management,
Inc. The Company has reached a tentative settlement in both cases,
which is expected to be finalized before June 1, 2000 and is not
expected to have a material impact on operating results.
In addition to the matters discussed above, the Company is
engaged in various legal proceedings incidental to its business
activities. Management does not believe the resolution of such matters
will have a material adverse effect on the Company's financial
position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) In January 2000, pursuant to a Settlement Agreement, the
Company issued 55,172 shares of Common Stock to a seller of an
affiliated dental practice in partial consideration of a legal
settlement in reliance upon the exemption from registration
under Regulation D promulgated under the Securities Act.
In January 2000, pursuant to Stock Option Agreements, the
Company granted options to purchase an aggregate of 16,500
shares of Common Stock at an exercise price of $1.8125 per
share to certain of its directors and an employee in reliance
upon the exemption from registration under Regulation D
promulgated under the Securities Act.
In February 2000, pursuant to Stock Option Agreements, the
Company granted options to purchase an aggregate of 200,000
shares of Common Stock at an exercise price of $2.719 per
share to its Chairman of the Board and Chief Executive Officer
in reliance upon the exemption from registration under
Regulation D promulgated under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS
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
27 Financial Data Schedules
(b) Reports on Form 8-K.
Not applicable.
19
<PAGE> 20
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: May 15, 2000 By: /s/ Gary W. Cage
--------------------------------------
Gary W. Cage
Chief Executive Officer
Date: May 15, 2000 By: /s/ Lisa K. Peterson
--------------------------------------
Lisa K. Peterson
Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
11 Statement re: Computation of per share earnings
27 Financial Data Schedules
</TABLE>
21
<PAGE> 1
EXHIBIT 11
MONARCH DENTAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 1,461 $ 614
============ ============
Weighted average common shares outstanding 12,838 12,086
Weighted average common equivalent shares outstanding 474 --
------------ ------------
Weighted average common and common equivalent
shares outstanding 13,312 12,086
============ ============
NET INCOME PER COMMON SHARE:
Net income $ 0.11 $ 0.05
============ ============
NET INCOME PER COMMON SHARE - ASSUMING DILUTION:
Net income $ 0.11 $ 0.05
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,122,867
<SECURITIES> 0
<RECEIVABLES> 31,519,948
<ALLOWANCES> (13,146,000)
<INVENTORY> 0
<CURRENT-ASSETS> 24,293,921
<PP&E> 34,750,006
<DEPRECIATION> (15,700,000)
<TOTAL-ASSETS> 178,622,792
<CURRENT-LIABILITIES> 30,824,216
<BONDS> 0
0
0
<COMMON> 128,399
<OTHER-SE> 68,203,572
<TOTAL-LIABILITY-AND-EQUITY> 178,622,792
<SALES> 0
<TOTAL-REVENUES> 55,022,805
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49,699,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,581,696
<INCOME-PRETAX> 2,654,171
<INCOME-TAX> 1,193,192
<INCOME-CONTINUING> 1,460,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,460,979
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
