<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to _________
Commission File No. 000-21501
COAST DENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3136161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6200 COURTNEY CAMPBELL CAUSEWAY, SUITE 690
TAMPA, FLORIDA 33607
(Address of principal executive offices) (Zip Code)
(813)288-1999
(Registrant's telephone number, including area code)
Indicated 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 .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of outstanding Common Stock as of August 4,
1997: 5,699,932.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1996 1997
- ------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 540,790 $ 8,108,172
Management fee receivable from P.A. . . . . . . . . . . . . . . 818,370 2,002,216
Notes receivable Manrique and P.A. . . . . . . . . . . . . . . 354,568 --
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,500 178,021
Prepaid expenses and other assets . . . . . . . . . . . . . . . 26,560 374,440
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . 1,846,788 10,662,849
Property and equipment, net . . . . . . . . . . . . . . . . . . . 1,802,285 3,085,646
Notes receivable from stockholders . . . . . . . . . . . . . . . 177,898 --
Non-compete agreement, net of amortization of $82,778
and $147,027, respectively . . . . . . . . . . . . . . . . . . 1,028,622 1,014,870
Dental services agreement, net of amortization of $18,363
and $78,717, respectively . . . . . . . . . . . . . . . . . . . 2,117,742 4,600,971
Capitalized offering costs . . . . . . . . . . . . . . . . . . . 938,481 --
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 57,410 131,561
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 7,969,226 $19,495,897
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 664,050 $ 350,428
Accrued offering costs . . . . . . . . . . . . . . . . . . . . 787,981 338,172
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 403,747 694,158
Current maturities of long-term debt . . . . . . . . . . . . . 731,127 259,352
Current portion of capital lease obligations . . . . . . . . . 75,874 30,473
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 2,662,779 1,672,583
Long-term debt, excluding current maturities . . . . . . . . . . 3,714,446 440,813
Capital lease obligations, excluding current portion . . . . . . 127,850 82,089
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . -- 75,362
----------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 6,505,075 2,270,847
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized,
none issued . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.001 par value; 50,000,000 shares authorized,
3,500,000 and 5,700,000, shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . . . . . . . . 3,500 5,700
Additional paid-in capital . . . . . . . . . . . . . . . . . . 25,174 16,232,941
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 1,435,477 986,409
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 1,464,151 17,225,050
----------- -----------
Total liabilities and stockholders' equity . . . . . . . . . $ 7,969,226 $19,495,897
=========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
2
<PAGE> 3
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1997 1996 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue . . . . . . . . . . . . . . . $1,968,832 $4,414,346 $3,350,512 $7,936,437
Dental Center expenses:
Staff salaries . . . . . . . . . . . . 602,360 1,382,696 946,815 2,413,732
Dental supplies and lab fees . . . . . 255,037 589,726 444,107 1,159,947
Other . . . . . . . . . . . . . . . . . 471,965 932,955 780,840 1,636,190
---------- ---------- ---------- ----------
Total Dental Center expenses . . . . 1,329,362 2,905,377 2,171,762 5,209,869
---------- ---------- ---------- ----------
Gross profit . . . . . . . . . . . . 639,470 1,508,969 1,178,750 2,726,568
General and administrative expenses . . . 293,270 505,945 485,950 894,527
---------- ---------- ---------- ----------
Operating profit . . . . . . . . . . 346,200 1,003,024 692,800 1,832,041
Interest income (expense) . . . . . . . . (39,916) 108,633 (60,280) 114,381
---------- ---------- ---------- ----------
Income before income taxes . . . . . . . 306,284 1,111,657 632,520 1,946,422
Income tax expense . . . . . . . . . . . -- 433,546 -- 617,084
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . $ 306,284 $ 678,111 $ 632,520 $1,329,338
========== ========== ========== ==========
Pro forma income tax expense . . . . . . 119,450 -- 246,683 142,021
---------- ---------- ---------- ----------
Pro forma net income . . . . . . . . . . $ 186,834 $ 678,111 $ 385,837 $1,187,317
========== ========== ========== ==========
Earnings per share . . . . . . . . . . . $ .09 $ .12 $ .18 $ .26
========== ========== ========== ==========
Pro forma earnings per share . . . . . . $ .05 $ .12 $ .11 $ .23
========== ========== ========== ==========
Weighted average number of shares
outstanding 3,500,000 5,731,420 3,500,000 5,210,797
========== ========== ========== ==========
</TABLE>
See Condensed Notes to Financial Statements.
3
<PAGE> 4
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON STOCK PAID-IN CAPITAL TOTAL
--------------------- COMMON RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE ON JANUARY 1, 1997 3,500,000 $3,500 $ 25,174 $ 1,435,477 $ 1,464,151
Net proceeds from issuance of
common stock . . . . . . 2,200,000 2,200 15,071,997 -- 15,074,197
Undistributed retained earnings
from S corporation . . . -- -- 1,435,477 (1,435,477) --
Net income for the six months
ended June 30, 1997 . . . -- -- -- 1,329,338 1,329,338
Net income from S corporation
prior to February 11, 1997 -- -- 342,929 (342,929) --
Distributions to stockholders -- -- (642,636) -- (642,636)
--------- ------ ----------- ----------- -----------
BALANCE ON JUNE 30, 1997 . 5,700,000 $5,700 $16,232,941 $ 986,409 $17,225,050
========= ====== =========== =========== ============
</TABLE>
See Condensed Notes to Financial Statements.
4
<PAGE> 5
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
----------------------------------------
1996 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 632,520 $ 1,329,338
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 102,466 214,228
Amortization . . . . . . . . . . . . . . . . . . . . . . . . 26,389 124,603
Compensation in the form of common stock . . . . . . . . . . 27,674 --
Forgiveness of notes receivable from stockholders . . . . . . -- 177,898
Deferred income tax expense . . . . . . . . . . . . . . . . . -- 75,362
Changes in operating assets and liabilities:
Increase in management fee receivable from P.A. . . . . . . (166,140) (586,007)
Increase in notes receivable from P.A. . . . . . . . . . . (180,508) (373,798)
Increase in supplies and inventory . . . . . . . . . . . . (26,250) (71,521)
Increase in prepaid expenses and other assets . . . . . . . (4,104) (347,880)
Increase (decrease) in accounts payable and accrued expenses 232,770 (23,211)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . 644,817 519,012
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (65,708) (387,176)
Acquired assets, including intangible assets . . . . . . . . . (1,651,398) (3,573,966)
(Increase) decrease in other assets . . . . . . . . . . . . . . 19,155 (74,151)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . (1,697,951) (4,035,293)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from offering . . . . . . . . . . . . . . . . . . . . -- 16,368,000
Payment of capitalized costs . . . . . . . . . . . . . . . . . -- (805,131)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . 1,639,292 --
Payments on long-term debt . . . . . . . . . . . . . . . . . . (161,421) --
Proceeds from notes payable . . . . . . . . . . . . . . . . . . 17,208 351,000
Payments on notes payable . . . . . . . . . . . . . . . . . . . -- (4,096,408)
Payments on capital leases . . . . . . . . . . . . . . . . . . (34,374) (91,162)
Increase in notes receivable stockholders . . . . . . . . . . . (40,262) --
Distribution to stockholders . . . . . . . . . . . . . . . . . (101,546) (642,636)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . 1,318,897 11,083,663
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 265,763 7,567,382
Cash and cash equivalents at beginning of period . . . . . . . . 241,403 540,790
----------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 507,166 $ 8,108,172
=========== ===========
Supplemental schedule of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . $ 49,254 $ 113,702
=========== ===========
Cash paid for income taxes . . . . . . . . . . . . . . . . . . $ -- $ 666,000
=========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
5
<PAGE> 6
COAST DENTAL SERVICES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying Condensed Financial Statements are unaudited and
should be read in conjunction with the audited Financial Statements and notes
thereto for the year ended December 31, 1996.
In the opinion of management, all adjustments necessary for a fair
presentation of such Condensed Financial Statements have been included. Such
adjustments consist only of normal recurring items. Certain amounts in the
Condensed Statements of Operations for the six months ended June 30, 1997 have
been reclassified to conform to the June 30, 1997 presentation. Interim results
are not necessarily indicative of results for a full year. The Condensed
Financial Statements and notes thereto are presented as permitted by the
Securities and Exchange Commission and do not contain certain information
included in the Company's annual Financial Statements and notes thereto.
B. EARNINGS PER SHARE
Earnings per share for the quarter and six months ended June 30, 1996
and 1997 were based on actual net income of the Company. The Company was an S
Corporation until February 11, 1997 and therefore income taxes were paid by the
individual shareholders. The Company automatically became a C Corporation upon
the consummation of the public offering.
The earnings per share of common stock for the quarter and six months
ended June 30, 1996 and 1997, respectively, is computed on the basis of the
weighted average shares of common stock outstanding plus common stock
equivalent shares arising from dilutive stock options, using the treasury stock
method. During the period, dual presentation of earnings per share was not
required because they were either immaterial or antidilutive.
C. SIGNIFICANT EVENTS
On April 1, 1997, the Company and Coast Florida P.A. ("P.A.") entered
into a purchase agreement with West Coast Dental, P.A., ("West Coast") whereby
the Company acquired all of the tangible assets of West Coast's dental practice
and the P.A. acquired the professional assets, principally patient lists, of
West Coast for a combined purchase price of $1,140,000. The Company's portion
of the purchase price is $880,000 of which $200,000 has been allocated to the
tangible assets acquired and $680,000 has been allocated to the Services and
Support Agreement.
On April 7, 1997, the Company and the P.A. entered into a purchase
agreement with F.M.O. Inc., Guardian Dental Service - Palm Harbor, P.A.,
Guardian Dental Center - McMullen Booth, P.A. and Guardian Dental Center -
Seven Springs, P.A. ("Guardian") whereby the Company acquired all the tangible
assets of Guardian's dental practice and the P.A. acquired the professional
assets, principally patient lists, of Guardian for a combined purchase price of
$450,000. The Company's portion of the purchase price is approximately $359,000
of which $140,000 has been allocated to the tangible assets acquired and
$219,000 has been allocated to the Services and Support Agreement.
On April 23, 1997, the Company and the P.A. entered into a purchase
agreement with Milton C. Van Meter, DDS, ("Van Meter") whereby the Company
acquired all of the tangible assets of Van Meter's dental practice and the P.A.
acquired the professional assets, principally patient lists, of Van Meter, for
a combined purchase price of $155,000. The Company's portion of the purchase
price is approximately $122,000 of which $40,000 has been allocated to the
tangible assets acquired and $82,000 has been allocated to the Services and
Support Agreement.
On June 1, 1997, the Company and the P.A. entered into a purchase
agreement with Dr. J.W. Smith, DDS, P.A., ("Smith") whereby the Company
acquired all of the tangible assets of Smith's dental practice and the P.A.
acquired the professional assets, principally patient lists, of Smith for a
combined purchase price of $300,000. The Company's portion of the purchase
price is $240,000 of which $70,000 has been allocated to the tangible assets
acquired and $170,000 has been allocated to the Services and Support Agreement.
On June 27, 1997, the Company and the P.A. entered into a purchase
agreement with Eric Zendell, DDS ("Zendell") whereby the Company acquired all
of the tangible assets of Zendell's dental practice and the P.A. acquired the
professional assets, principally patient lists, of Zendell for a combined
purchase price of $900,000. The Company's portion of the purchase price is
approximately $806,000 of which $300,000 has been allocated to the tangible
assets acquired and $353,000 has been allocated to assumed liabilities and
$153,000 has been allocated to the Services and Support Agreement.
6
<PAGE> 7
During June 1997, the Company opened two internally developed Dental
Centers at an aggregate cost of approximately $222,000, which includes the cost
of equipment, leasehold improvements, working capital and an agreed upon
$50,000 payment (per Dental Center) to the P.A. as inducement for the P.A. to
open the additional Dental Centers thus expanding the Services and Support
Agreement to include the new internally developed Dental Centers.
D. SUBSEQUENT EVENTS
On July 11, 1997, the Company and the P.A. entered into a purchase
agreement with James R. Davis, DDS. P.A., ("Davis") whereby the Company
acquired all of the tangible assets of Davis' dental practice and the P.A.
acquired the professional assets, principally patient lists, of Davis for a
combined purchase price of $585,000. The Company's portion of the purchase
price is $440,000 of which $75,000 has been allocated to the tangible assets
acquired and $365,000 has been allocated to the Services and Support Agreement.
During July 1997, the Company opened two internally developed Dental
Centers at an aggregate cost of approximately $200,000, which includes the cost
of equipment, leasehold improvements, working capital and an agreed upon
$50,000 payment (per Dental Center) to the P.A. as inducement for the P.A. to
open the additional Dental Centers thus expanding the Services and Support
Agreement to include the new internally developed Dental Centers.
On August 7, 1997, the Company and the P.A. entered into a purchase
agreement with a dental practice in Punta Gorda, Florida whereby the Company
acquired all of the tangible assets of the dental practice and the P.A.
acquired the professional assets, principally patient lists, of the dental
practice for a combined purchase price of $300,000. The Company's portion of
the purchase price is $236,000 of which $80,000 has been allocated to the
tangible assets acquired and $156,000 has been allocated to the Services and
Support Agreement.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A. OVERVIEW
The Company opened its first Dental Center in May 1992 and since then
has opened 16 internally developed Dental Centers and added 30 acquired Dental
Centers located in central and northern Florida. The Company derives its
revenue through fees earned from the Coast Florida P.A. ("P.A.") for providing
management services and support at the Dental Centers. As of July 31, 1997, 64
Coast Dentists were employed by P.A. servicing over 305,000 patients. The
Company expects to expand the Coast Dental Network in new and existing markets
through the addition of internally developed and acquired Dental Centers.
Pursuant to the Services and Support Agreement with the P.A., the
Company provides management services and support to facilitate the development
and growth of Dental Centers. The operating expenses at the Dental Centers,
with the exception of compensation paid to the Coast Dentists and dental
hygienists, are expenses of the Company and are recognized as incurred. Since
October 1, 1996, the services and support fee paid to the Company by the P.A.
is 76% of the Dental Centers' gross revenue. Prior to October 1996, the
services and support fee paid to the Company averaged 78.5% of gross revenue
from which the Company paid the operating expenses incurred by the P.A.
excluding certain costs incurred by the P.A. The costs incurred by the P.A.
include primarily dentists and hygienist salaries.
The Company expects to enter the Atlanta, Georgia market in the near
future. In connection with the proposed expansion, the Company is in the
process of negotiating leases for internally developed Dental Centers. In
connection with future Georgia Dental Centers, the Company expects to finalize
with Coast Southeast, P.A., an affiliate of the P.A., a services and support
agreement similar in terms to that of its Services and Support Agreement for
Florida, and expects to generally receive 74% of the gross revenue of these
Dental Centers in connection with these services.
The Company added one internally developed Dental Center in December
1996. During June and July 1997, the Company opened four internally developed
Dental Centers at an aggregate cost of approximately $422,000, which includes
the cost of equipment, leasehold improvements, working capital and an agreed
upon $50,000 payment (per Dental Center) to the P.A. as inducement for the P.A.
to open the additional Dental Centers thus expanding the Services and Support
Agreement to include the new internally developed Dental Centers.
During 1996, the Company and the P.A. added 17 acquired Dental Centers
located in Florida. The combined purchase price for these acquired Dental
Centers was $5.3 million, consisting of $1.2 million in cash and $4.1 million in
promissory notes. On a pro forma basis, had these acquisitions occurred at the
beginning of 1996, the net revenue of the Company would have increased by $3.8
million for the period.
During the six months ended June 30, 1997, the Company and the P.A.
acquired a total of 12 Dental Centers located in central Florida. The combined
purchase price for these acquired Dental Centers was $3.9 million, consisting of
$2.7 million in cash, $967,000 in promissory notes and the assumption of
$171,000 in liabilities. On a pro forma basis, had these acquisitions occurred
at the beginning of 1996, the net revenue of the Company would have increased by
$9.8 million and $4.3 million for 1996 and the six months ended June 30, 1997,
respectively.
In July, the Company and the P.A. acquired one Dental Center located
in New Smyrna Beach, Florida. The combined purchase price of this Dental Center
was $585,000, consisting of $285,000 in cash, $100,000 of the Company's Common
Stock (5,797 shares) and $200,000 in promissory notes. On a pro forma basis,
had the acquisition of this Dental Center occurred at the beginning of 1996, the
Company would have recorded $654,000 and $328,000 in net revenue for 1996 and
the six months ended June 30, 1997, respectively.
In August 1997, the Company and the P.A. acquired one Dental Center
located in Punta Gorda, Florida. The combined purchase price of this Dental
Center was $300,000, consisting of $150,000 in cash and $150,000 in promissory
notes. On a pro forma basis, had the acquisition of this Dental Center occurred
at the beginning of 1996, the net revenue of the Company would have increased
by $380,000 and $190,000 for 1996 and the six months ended June 30, 1997,
respectively.
8
<PAGE> 9
B. RESULTS OF OPERATIONS
The following table summarizes percent of net revenue of the quarter
and six months ended June 30, 1997 compared to the quarter and six months ended
June 30, 1996 for selected operating items. The performance of the Company
during the period is not indicative of future financial results or conditions.
<TABLE>
<CAPTION>
Percentage of Net Revenue
Quarter Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1996 1997 1996 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenue . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Dental Center expenses:
Staff salaries . . . . . . . . . . . . . 30.6 31.3 28.3 30.4
Dental supplies and lab fees . . . . . . 12.9 13.4 13.2 14.6
Other . . . . . . . . . . . . . . . . . . 24.0 21.1 23.3 20.6
----- ----- ----- -----
Total Dental Center expenses . . . . . 67.5 65.8 64.8 65.6
----- ----- ----- -----
Gross profit . . . . . . . . . . . . . 32.5 34.2 35.2 34.4
General and administrative . . . . . . . . 14.9 11.5 14.5 11.3
----- ----- ----- -----
Operating profit . . . . . . . . . . . 17.6 22.7 20.7 23.1
Interest income (expense) . . . . . . . . . (2.0) 2.5 (1.8) 1.4
----- ----- ----- -----
Income before income taxes . . . . . . . . 15.6 25.2 18.9 24.5
Income tax expense . . . . . . . . . . . . -- 9.9 -- 7.8
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . 15.6 15.3 18.9 16.7
===== ===== ===== =====
Pro forma income tax expense . . . . . . . 6.1 -- 7.4 1.7
----- ----- ----- -----
Pro forma net income . . . . . . . . . . . 9.5% 15.3% 11.5% 15.0%
===== ===== ===== =====
Selected Operating Data:
Number of Dental Centers (2) . . . . . . 19 43 19 43
Gross revenue per Dental Center (1) . . . $150,796 $191,552 $302,162 384,759
Number of dental chairs (2) . . . . . . . 82 221 82 221
Number of Coast Florida P.A. Dentists (2) 21 64 21 64
Patient visits . . . . . . . . . . . . . 23,449 53,310 39,350 94,734
Number of patient visits per dental chair (3) 286 295 574 593
</TABLE>
(1) Includes only Dental Centers open for at least one year as of the
beginning of the period. For the quarter ended June 30, 1996 and 1997, ten and
nineteen Dental Centers were included, respectively. For the six months ended
June 30, 1996 and 1997, eight and twelve Dental Centers were included.
(2) As of the end of the period.
(3) Includes only Dental Centers that were open for the entire period.
NET REVENUE
For the quarter and six months ended June 30, 1996 and 1997, net
revenue increased $2,445,514 from $1,968,832 to $4,414,346 and $4,585,925 from
$3,350,512 to $7,936,437, respectively. This increase was primarily due to the
increase in net revenue attributable to the twelve comparable Dental Centers
(Dental Centers that were open throughout the periods being compared), the
sixteen acquired Dental Centers in 1996, the twelve acquired Dental Centers in
1997 and the three internally developed Dental Centers. Additionally, increases
in net revenue are primarily driven by increases in patient visits. Patient
visits for Comparable Dental Centers increased 28% from 17,323 to 22,241 and 30%
from 33,224 to 43,341 for the quarter and six months ended June 30, 1996 and
1997, respectively.
DENTAL CENTER EXPENSES
For the quarter and six months ended June 30, 1996 and 1997,
Dental Center expenses increased $1,576,015 from $1,329,362 to
$2,905,377 and $3,038,107 from $2,171,762 to $5,209,869, respectively.
Staff salaries increased $780,336 from $602,360 to $1,382,696 and
$1,466,917 from $946,815 to $2,413,732, respectively. This increase was
primarily caused by an increase in staff salaries attributable to the twelve
comparable Dental
9
<PAGE> 10
Centers, the sixteen acquired Dental Centers in 1996, the twelve acquired Dental
Centers in 1997 and the three internally developed Dental Centers. Staff
salaries include the compensation paid to administrative staff at each Dental
Center, including the dental assistants, office managers, sterilization
technicians and front desk managers. As a percentage of net revenue, staff
salaries increased .7% from 30.6% to 31.3% and 2.1% from 28.3% to 30.4%,
respectively. The increase was caused primarily by the increase in staffing due
to the addition of internally developed and acquired Dental Centers which was
somewhat offset by staff levels at the twelve comparable Dental Centers
remaining constant, while net revenue increased. While an internally developed
Dental Center can operate with a relatively limited dental staff in the early
stages of its development, the services of a dentist, dental hygienist, dental
assistant and front desk manager are still necessary. As a result, staff
salaries as a percentage of net revenue will typically be higher in the first
six months of operation until patient visits are increased. In addition, for
acquired Dental Centers, staff salaries as a percentage of net revenue will
typically be higher in the first three to six months following acquisition as
the Company implements the Coast Operating Model to increase productivity and
efficiency.
Dental supplies and lab fees increased $334,689 from $255,037 to
$589,726 and $715,840 from $444,107 to $1,159,947, respectively. This increase
was caused primarily by the increase in patient visits and dental services
provided at the twelve comparable Dental Centers, the sixteen acquired Dental
Centers in 1996, the twelve acquired Dental Centers in 1997 and the three
internally developed Dental Centers. As a percentage of net revenue, dental
supplies and lab fees increased .5% from 12.9% to 13.4% and 1.4% from 13.2% to
14.6%. Lab supplies as a percent of net revenue will typically be higher in
the first three to six months following acquisition as the Company implements
the Coast Operating Model to increase productivity and efficiency.
Other Dental Center expenses increased $460,990 from $471,965 to
$932,955 and $855,350 from $780,840 to $1,636,190, respectively. This
increase was caused primarily by the increase in advertising, rent and
depreciation expense associated with the twelve comparable Dental Centers,
sixteen acquired Dental Centers in 1996, twelve acquired Dental Centers in 1997
and the three internally developed Dental Centers. The advertising increase is
caused by a more aggressive advertising program for the acquired Dental Centers.
As a percentage of net revenue, other Dental Center expenses decreased 2.9% from
24.0% to 21.1% and 2.7% from 23.3% to 20.6%. This decrease is caused by
increased economies of scale associated with the increasing number of patient
visits and market penetration.
GENERAL AND ADMINISTRATIVE EXPENSES
For the quarter and six months ended June 30, 1996 and 1997, general
and administrative expenses increased $212,675 from $293,270 to $505,945 and
$408,577 from $485,950 to $894,527, respectively. This increase was caused
primarily by professional fees increasing due to the change from a private to a
publicly-held company and corporate administrative salaries, rent and insurance
costs due to the growth of the Company. As a percentage of net revenue,
general and administrative expenses decreased 3.4% from 14.9% to 11.5% and 3.2%
from 14.5% to 11.3%, respectively, reflecting the continued economies of scale
realized through the centralization of Dental Center management.
INCOME TAXES
For the quarter and six months ended June 30, 1997 income taxes
expense increased $433,546 and $617,084, respectively. The increase was
attributable to the change in corporate status. The Company was an S
Corporation until February 11, 1997 and therefore income taxes were paid by the
individual shareholders. The Company automatically became a C Corporation upon
the consummation of the public offering.
10
<PAGE> 11
C. LIQUIDITY AND CAPITAL RESOURCES
On February 11, 1997, the Company completed its initial public
offering of Common Stock. The net proceeds to the Company from the sale of the
2,200,000 shares of Common Stock offered by the Company were approximately
$15.1 million (after deducting underwriting discounts and commissions and
offering expenses). As of August 6, 1997, the Company used a portion of the
net proceeds for the repayment of: (i) $1.2 million for notes payable to banks
utilized as consideration for acquisitions by the Company; (ii) $1.3 million
for notes payable issued as part of the consideration for the Seminole
Acquisitions; (iii) $136,000 for notes payable as part of consideration for the
addition of six acquired Dental Centers occurring after June 30, 1996; (iv)
$228,000 for equipment lease and note obligations; (v) $645,000 for
acquisitions of three Dental Centers on March 31, 1997; (vi) an aggregate of
approximately $2.5 million for the acquisitions noted below; (vii) $1.3
million for notes payable issued as part of the consideration for the Volusia
acquisition; (viii) approximately $221,000 towards working capital; and (ix)
$422,000 for internally developed Dental Centers noted below. The Company has
approximately $7.1 million remaining from the net proceeds.
The Company has a revolving credit facility with Barnett Bank of
Florida which provides an aggregate of $5.0 million for general working capital
needs and expansion of Dental Centers. As of June 30, 1997, the Company had
available the entire $5.0 million for borrowing.
On April 1, 1997, the Company and the P.A. entered into a purchase
agreement with West Coast Dental, P.A., ("West Coast") whereby the Company
acquired all of the tangible assets of West Coast's dental practice and the
P.A. acquired the professional assets, principally patient lists, of West
Coast for a combined purchase price of $1,140,000. The Company's portion of
the purchase price is $880,000 of which $200,000 has been allocated to the
tangible assets acquired and $680,000 has been allocated to the Services and
Support Agreement.
On April 7, 1997, the Company and the P.A. entered into a purchase
agreement with F.M.O. Inc., Guardian Dental Service - Palm Harbor, P.A.,
Guardian Dental Center - McMullen Booth, P.A. and Guardian Dental Center -
Seven Springs, P.A. ("Guardian") whereby the Company acquired all the tangible
assets of Guardian's dental practice and the P.A. acquired the professional
assets, principally patient lists, of Guardian for a combined purchase price of
$450,000. The Company's portion of the purchase price is approximately
$359,000 of which $140,000 has been allocated to the tangible assets acquired
and $219,000 has been allocated to the Services and Support Agreement.
On April 23, 1997, the Company and the P.A. entered into a purchase
agreement with Milton C. Van Meter, DDS, ("Van Meter") whereby the Company
acquired all of the tangible assets of Van Meter's dental practice and the P.A.
acquired the professional assets, principally patient lists, of Van Meter, for
a combined purchase price of $155,000. The Company's portion of the purchase
price is approximately $122,000 of which $40,000 has been allocated to the
tangible assets acquired and $82,000 has been allocated to the Services and
Support Agreement.
On June 1, 1997, the Company and the P.A. entered into a purchase
agreement with Dr. J.W. Smith, DDS, P.A., ("Smith") whereby the Company
acquired all of the tangible assets of Smith's dental practice and the P.A.
acquired the professional assets, principally patient lists, of Smith for a
combined purchase price of $300,000. The Company's portion of the purchase
price is $240,000 of which $70,000 has been allocated to the tangible assets
acquired and $170,000 has been allocated to the Services and Support Agreement.
On June 27, 1997, the Company and the P.A. entered into a purchase
agreement with Eric Zendell, DDS ("Zendell") whereby the Company acquired all
of the tangible assets of Zendell's dental practice and the P.A. acquired the
professional assets, principally patient lists, of Zendell for a combined
purchase price of $900,000. The Company's portion of the purchase price is
approximately $806,000 of which $300,000 has been allocated to the tangible
assets acquired and $353,000 has been allocated to assumed liabilities and
$153,000 has been allocated to the Services and Support Agreement.
During June 1997, the Company opened two internally developed Dental
Centers at an aggregate cost of approximately $222,000, which includes the cost
of equipment, leasehold improvements, working capital and an agreed upon $50,000
payment (per Dental Center) to the P.A. as inducement for the P.A. to open the
additional Dental Centers thus expanding the Services and Support Agreement to
include the new internally developed Dental Centers.
On July 11, 1997, the Company and the P.A. entered into a purchase
agreement with James R. Davis, DDS. P.A., ("Davis") whereby the Company
acquired all of the tangible assets of Davis' dental practice and the P.A.
acquired the professional assets, principally patient lists, of Davis for a
combined purchase price of $585,000. The Company's portion of the purchase
price is $440,000 of which $75,000 has been allocated to the tangible assets
acquired and $365,000 has been allocated to the Services and Support Agreement.
11
<PAGE> 12
During July 1997, the Company opened two internally developed Dental
Centers at an aggregate cost of approximately $200,000, which includes the cost
of equipment, leasehold improvements, working capital and an agreed upon
$50,000 payment (per Dental Center) to the P.A. as inducement for the P.A. to
open the additional Dental Centers thus expanding the Services and Support
Agreement to include the new internally developed Dental Centers.
On August 7, 1997, the Company and the P.A. entered into a purchase
agreement with a dental practice in Punta Gorda, Florida whereby the Company
acquired all of the tangible assets of the dental practice and the P.A.
acquired the professional assets, principally patient lists, of the dental
practice for a combined purchase price of $300,000. The Company's portion of
the purchase price is $236,000 of which $80,000 has been allocated to the
tangible assets acquired and $156,000 has been allocated to the Services and
Support Agreement.
Based upon the Company's anticipated capital needs for operations of
its business, general corporate purposes, the addition of Dental Centers and
repayment of certain debts, management believes that the combination of the
funds expected to be available under the Company's current cash reserves,
revolving line of credit and cash flow from operations should be sufficient to
meet the Company's funding requirements to conduct its operations and for
further implementation of its growth strategy and current plans through mid
year 1998. Thereafter, it is anticipated by the Company that future
acquisitions and expansion will be funded primarily with cash flow from
operations, borrowings under the Barnett Bank Credit Agreement, other credit
sources, and where desirable, funding from the sale of debt or equity
securities.
SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q contains statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act, as amended
and Section 21E of the Securities Exchange Act of 1934. The words "expect",
"believe", "goal", "plan", "intend", "estimate" and similar expressions and
variations thereof used in this Form 10-Q are intended to specifically identify
forward-looking statements. Those statements appear in a number of places in
this Form 10-Q, particularly, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and include statements
regarding the intent, belief or current expectations of the Company, its
director or its officers with respect to, among other things: (i) potential
acquisitions or internal development of Dental Centers in Georgia; (ii) the
Company's finalizing a Services and Support Agreement with a professional
corporation in Georgia; and (iii) the Company's financing plans. Investors and
prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. The factors that
might cause such differences include, among others, the following: (i) the
unwillingness by the Georgia professional corporation to finalize the above
described services and support agreement; (ii) the inability of the Company to
finalize acquisitions and leases in Georgia as planned; (iii) any adverse
effect or limitations caused by Governmental regulations and (iv) any adverse
effect on the Company's continued positive cash flow and abilities to obtain
acceptable financing in connection with its growth plans. The Company
undertakes no obligation to publicly update or revise the forward looking
statements made in this Form 10-Q to reflect events or circumstances after the
date of this Form 10-Q or to reflect the occurrence of unanticipated events.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Securities During the Second Quarter
During the period April 1, 1997 through June 30, 1997, the Company
issued non-negotiable promissory notes to sellers as part of the purchase price
in connection with the Company's purchase of the allowable assets of certain
dental practices as follows: On April 1, 1997, the Company issued a
non-negotiable promissory note in the amount of $130,000 to West Coast Dental,
P.A.; On April 23, 1997, the Company issued a non-negotiable promissory note
in the amount of $22,000 to Milton C. Van Meter, D.D.S. and on June 27, 1997,
the Company issued a non-negotiable promissory note in the amount of $89,000 to
Eric Zendell, D.D.S. The Company does not believe that the promissory notes
issued in these transactions are a "security" as defined by Section 2(1) of the
Securities Act. However, in the event the promissory notes are deemed to be a
security these transactions were exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) because they did not involve any
public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of Coast Dental Services, Inc. was
held on June 20, 1997. Each share of Common Stock entitled its holder to one
vote on the matters considered by stockholders at the annual meeting.
Stockholders present in person or by proxy, representing 5,190,214 shares of
common stock voted on the matters described below.
(1) The stockholders elected, pursuant to the following vote, the
following directors to the Company to hold office until their term
expires and until their successors have been duly elected and
qualified:
<TABLE>
<CAPTION>
Number of Votes
-----------------------------------------
For Against Abstained
----------- -------- ---------
<S> <C> <C> <C>
Terek Diasti 5,184,189 -- 6,025
John H. Kang 5,185,964 -- 4,250
Donald R. Millard 5,185,964 -- 4,250
</TABLE>
(2) The stockholders vote as follows in approving the proposal to
adopt the Amendment to the Stock Option Plan:
<TABLE>
<CAPTION>
Number of Votes Percentage
--------------- ----------
<S> <C> <C>
Cast in Favor: 5,101,514 89.51%
Cast Against: 59,525 1.04%
Abstained: 29,175 .51%
Not Voted: 508,854 8.92%
</TABLE>
(3) The stockholders voted as follows in approving the proposal to
ratify the appointment of Deloitte and Touche LLP as the Company's
independent auditors for the fiscal year 1998:
<TABLE>
<CAPTION>
Number of Votes Percentage
--------------- ----------
<S> <C> <C>
Cast in Favor: 5,164,689 90.62%
Cast Against: 2,000 .03%
Abstained: 23,525 .41%
Not Voted: 534,379 9.37%
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule for the quarter ended June 30, 1997
(for SEC use only).
13
<PAGE> 14
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on April 16, 1997 disclosing
the terms of the purchase of substantially all the assets of West Coast Dental,
Inc., three dental practices in the Orlando, Florida area and three dental
practices located in Palm Harbor, Florida, Clearwater, Florida and New Port
Richey, Florida.
The Company amended the April 16, 1997 Form 8-K with Form 8-K/A, filed
on June 16, 1997, adding audited financial statements and pro forma financial
information for the purchase of West Coast Dental.
14
<PAGE> 15
COAST DENTAL SERVICES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida on August 8, 1997.
COAST DENTAL SERVICES, INC.
By: /s/ DR. TEREK DIASTI, DVM
------------------------------------
DR. TEREK DIASTI, DVM
Chief Executive Officer,
Chairman of the Board
By: /s/ JOSEPH R. SMITH
------------------------------------
JOSEPH R. SMITH
Chief Financial Officer
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,108,172
<SECURITIES> 0
<RECEIVABLES> 2,002,216
<ALLOWANCES> 0
<INVENTORY> 178,021
<CURRENT-ASSETS> 10,662,849
<PP&E> 3,880,484
<DEPRECIATION> 794,838
<TOTAL-ASSETS> 19,495,897
<CURRENT-LIABILITIES> 1,672,583
<BONDS> 522,902
0
0
<COMMON> 5,700
<OTHER-SE> 17,219,350
<TOTAL-LIABILITY-AND-EQUITY> 19,495,897
<SALES> 7,936,437
<TOTAL-REVENUES> 7,936,437
<CGS> 0
<TOTAL-COSTS> 5,209,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,849
<INCOME-PRETAX> 1,946,422
<INCOME-TAX> 617,084
<INCOME-CONTINUING> 1,329,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,329,338
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
