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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
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.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-3136131
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2502 ROCKY POINT DRIVE NORTH, SUITE 1000, TAMPA, FLORIDA 33607
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(Address of principal executive offices) (Zip Code)
(813)288-1999
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(Registrant's telephone number, including area code)
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 [ ].
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 May 5, 2000: 6,403,683
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
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UNAUDITED
DECEMBER 31, MARCH 31,
1999 2000
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 1,019,618 $ 1,726,036
Available-for-sale investments ...................................... 8,126,505 6,557,601
Management fee receivable from Coast P.A ............................ 9,864,060 9,717,345
Supplies, inventory and small tools ................................. 3,596,614 3,623,985
Prepaid expenses and other assets ................................... 539,008 677,181
------------ ------------
Total current assets ............................................. 23,145,805 22,302,148
Note receivable from Coast P.A., non-interest bearing .................... 529,218 529,218
Property and equipment, net .............................................. 20,657,147 21,326,582
Non-compete agreements, net of amortization $455,558
and $486,426, respectively .......................................... 687,487 654,748
Dental services agreements, net of amortization of $1,438,161
and $1,631,262, respectively ........................................ 17,791,326 17,605,495
Other assets ............................................................. 1,846,113 2,212,240
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Total assets ........................................................ $ 64,657,096 $ 64,630,431
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 2,105,807 $ 3,067,746
Other accrued expenses .............................................. 1,524,474 1,041,841
Current maturities of debt and capital lease obligations ............ 642,029 607,620
------------ ------------
Total current liabilities ........................................ 4,272,310 4,717,207
Long-term debt and capital lease obligations, excluding current maturities 1,211,086 1,065,598
Deferred tax liability ................................................... 180,092 180,092
------------ ------------
Total liabilities ................................................ 5,663,488 5,962,897
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Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized,
none issued ...................................................... -- --
Common stock, $.001 par value; 50,000,000 shares authorized,
6,403,683 and 6,403,683 shares issued and 6,399,384 and
6,287,109 shares outstanding, respectively ....................... 6,404 6,404
Additional paid-in capital .......................................... 54,427,749 54,555,821
Retained earnings ................................................... 6,195,430 6,165,669
Unrealized gain/(loss) on securities held for sale .................. (106,393) (106,393)
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60,523,190 60,621,501
Less: Stock option receivable from Coast P.A ........................ 1,440,833 1,568,905
Treasury stock, 3,574 and 116,574 shares, respectively ........ 88,749 385,062
------------ ------------
Total stockholders' equity ....................................... 58,993,608 58,667,534
------------ ------------
Total liabilities and stockholders' equity ....................... $ 64,657,096 $ 64,630,431
============ ============
</TABLE>
See Notes to Condensed Financial Statements.
2
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COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
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QUARTER ENDED MARCH 31,
1999 2000
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<S> <C> <C>
Net Revenue ............................................ $10,912,548 $ 11,568,944
Dental Center expenses:
Staff salaries .................................... 3,501,144 4,803,159
Dental supplies and lab fees ...................... 1,680,544 2,093,137
Advertising ....................................... 767,552 448,512
Rent .............................................. 1,439,637 1,747,247
Depreciation ...................................... 479,696 757,333
Other ............................................. 324,262 330,046
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Total Dental Center expenses .................... 8,192,835 10,179,434
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Gross profit ...................................... 2,719,713 1,389,510
General and administrative expenses .................... 1,005,579 1,202,771
Depreciation and amortization .......................... 287,278 306,151
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Operating profit .................................. 1,426,856 (119,412)
Interest income, net ................................... 265,925 72,155
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Income before income taxes ............................. 1,692,781 (47,257)
Income tax expense (benefit) ........................... 574,851 (17,496)
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Net income and comprehensive income .................... $ 1,117,930 $ (29,761)
=========== ============
Basic earnings per share:
Net income ............................................. $ .15 $ .00
=========== ============
Diluted earnings per share:
Net income ............................................. $ .15 $ .00
=========== ============
Weighted average number of shares outstanding:
Basic ............................................. 7,538,686 6,312,318
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Diluted ........................................... 7,538,717 6,312,318
=========== ============
</TABLE>
See Notes to Condensed Financial Statements.
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COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
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QUARTER ENDED MARCH 31,
1999 2000
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 1,117,930 $ (29,761)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ...................................................... 565,014 839,515
Amortization ...................................................... 201,960 223,969
Changes in operating assets and liabilities:
Increase in management receivable from Coast P.A .................. (897,580) 146,715
Increase (decrease) in supplies inventory and small tools ......... (178,557) (27,371)
(Increase) decrease in prepaid expenses and other assets .......... (100,562) (138,173)
Increase in accounts payable and other accrued expenses ........... 630,977 479,306
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............. 1,339,182 1,494,200
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (2,488,712) (1,508,950)
Acquired assets, including intangible assets ........................ (761,625) (5,399)
(Purchase) sale of available-for-sale investments ................... (3,958,166) 1,568,904
Increase in other assets ............................................ (13,814) (366,126)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES ........................... (7,222,317) (311,571)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ............................. 6,129 --
Purchase of treasury stock .......................................... (1,683,440) (296,313)
Proceeds from long term debt ........................................ 240,000 --
Payments on long term debt .......................................... (164,357) (164,888)
Payments of capital leases .......................................... (19,700) (15,010)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............. (1,621,368) (476,211)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... (7,504,503) 706,418
Cash and cash equivalents at beginning of period .................... 13,581,798 1,019,618
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Cash and cash equivalents at end of period .......................... $ 6,077,295 $ 1,726,036
============ ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ 44,193 $ 31,831
Cash paid for income tax ............................................ $ 127,000 $ 44,010
Non-cash stock option receivable to Coast P.A ....................... $ 149,094 $ 128,072
</TABLE>
See Notes to Condensed Financial Statements.
4
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COAST DENTAL SERVICES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying Condensed Financial Statements of Coast Dental
Services, Inc. (the "Company") are unaudited and should be read in conjunction
with the audited Financial Statements and notes thereto for the year ended
December 31, 1999.
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 Income for the three months ended March 31, 1999 have
been reclassified to conform to the March 31, 2000 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.
NOTE 2 - EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, ("Statement 128")
Earnings per Share requires that the primary and fully diluted earnings per
share be replaced by basic and diluted earnings per share, respectively. The
basic calculation computes earnings per share based only on the weighted average
number of shares outstanding as compared to primary earnings per share which
included common stock equivalents. The diluted earnings per share calculation is
computed similarly to fully diluted earnings per share.
The basic earnings per common share is based on the weighted average
number of common shares outstanding during each period adjusted for actual
shares issued during the period.
The diluted earnings per common share is equal to the basic shares plus
the incremental shares outstanding as if all issued options were exercised as of
the end of the period. The number of incremental shares is determined using the
treasury stock methodology described in Statement 128.
NOTE 3 - INCOME TAXES
The Company is required to use Statement of Financial Accounting
Standards No. 109 ("Statement 109"), Accounting for Income Taxes. Under
Statement 109, the asset and liability method is used in accounting for income
taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and are
measured using the current enacted tax rates and laws.
NOTE 4 - SIGNIFICANT EVENTS
Effective January 1, 2000, the Company and Coast P.A. amended the
Services and Support Agreements to change the management fee to approximately
67.0% of the Coast P.A.'s gross revenue, net of refunds and discounts.
During the quarter ended March 31, 2000, the Company consolidated two
(2) of its Florida Dental Centers into one (1) Dental Center. These Dental
Centers had been acquired and current market conditions prompted the decision to
consolidate these operations.
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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. As of March 31,
2000, the Company had 129 Dental Centers consisting of 61 internally developed
and 68 acquired Dental Centers. The Company derives its revenue through fees
earned from the Company's managed professional associations (collectively the
"Coast P.A.") for providing management services and support at the Dental
Centers, located in Florida, Georgia, Tennessee and Virginia. As of March 31,
2000, 127 Coast Dentists were employed by the Coast P.A., serving over 725,000
patients. In the near future, the Company plans to grow by utilizing existing
excess capacity. Once the excess capacity is optimized, the Company expects to
expand the Coast Dental Network in new and existing markets through the addition
of internally developed and strategically opportunistic acquired Dental Centers.
Pursuant to the Services and Support Agreements with the Coast P.A.,
the Company provides management services and support to facilitate the
development and growth of Dental Centers. 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.
The services and support fees paid to the Company by the Coast P.A. have
historically ranged from 65.0% to 76.0% of the Dental Centers' gross revenue,
net of refunds and discounts since October 1, 1996. The Company is dependent
upon the future success of the Coast P.A. and the ability of the Coast P.A. to
grow with the Company. The services and support fees between the parties may be
revised from time to time based upon negotiations between the Audit Committee
and the Coast P.A. The Audit Committee approved an adjustment to the services
and support fees beginning in January 2000 to 67.0% in connection with the Coast
P.A.'s roll-out of a new compensation plan for Coast Dentists, which will be
staged throughout the year. As a result of the adjustment, the service and
support fees are expected to average between 66.0% and 72.0% over the next
several years. The Company pays, out of the services and support fee, all of the
operating and non-operating expenses incurred by the Coast P.A. at the Dental
Centers, except for the salaries and benefits of the Coast Dentists and dental
hygienists.
The Company opened 9 internally developed Dental Centers in 1997, 25 in
1998 and 17 in 1999. The Company did not open any internally developed Dental
Centers during the quarter ended March 31, 2000. The average cost to the Company
of an internally developed Dental Center is approximately $225,000, which
includes the cost of equipment, leasehold improvements and working capital. The
Company's growth strategy in the short term will focus on internal growth
through the improvement of operations and the utilization of excess capacity in
existing Dental Centers. External growth, when deemed prudent, will consist
primarily of internally developed Dental Centers. While strategically
opportunistic acquisitions will not be overlooked, the Company has no immediate
plans to grow through acquisitions. Management believes that the strategy of
focusing on internal growth and internally developed Dental Centers is an
effective use of its working capital and provides for low cost expansion.
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B. RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenue
(consisting of management fees derived pursuant to the Services and Support
Agreements), certain items in the Company's statements of operations for the
years indicated. The performance of the Company during these years are not
indicative of future financial results or conditions.
QUARTER ENDED MARCH 31,
1999 2000
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Net revenue ............................... 100.0% 100.0%
Dental Center expenses:
Staff salaries ....................... 32.1 41.5
Dental supplies and lab fees ......... 15.4 18.1
Advertising .......................... 7.0 3.9
Rent ................................. 13.2 15.1
Depreciation ......................... 4.4 6.5
Other ................................ 3.0 2.9
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Total Dental Center expenses ....... 75.1 88.0
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Gross profit ....................... 24.9 12.0
General and Administrative ................ 9.2 10.4
Depreciation and amortization ............. 2.6 2.6
----- -----
Operating profit ..................... 13.1 -1.0
Interest income (expense) ................. 2.4 0.6
----- -----
Income before income tax expense .......... 15.5 -0.4
Income tax expense ........................ 5.3 -0.2
----- -----
Net income ................................ 10.2 -0.2
===== =====
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
Net Revenue. Net revenue increased 6.0% from $10.9 million for the
quarter ended March 31, 1999 to $11.6 million for the quarter ended March 31,
2000. This increase was primarily due to the increase in net revenue
attributable to the 101 comparable Dental Centers (Dental Centers that were open
throughout the periods being compared), the 11 acquired Dental Centers in 1999
and the 17 internally developed Dental Centers opened in 1999. Increases in net
revenue are primarily driven by increases in patient visits. Patient visits
increased 35.5% from 125,490 for the quarter ended March 31, 1999 to 170,094 for
the quarter ended March 31, 2000. As of January 1, 2000, the Company amended its
services and support fees to 67.0%. Therefore, the Dental Center expenses listed
below represent a higher percentage of net revenue.
Staff Salaries. Staff salaries increased 37.2% from $3.5 million for
the quarter ended March 31, 1999 to $4.8 million for the quarter ended March 31,
2000. This increase in staff salaries was primarily caused by an increase in
Dental Center regional management and Dental Center staffing due to the addition
of the 11 acquired and 17 internally developed Dental Centers during 1999, as
well as the operational ramp-up of the 17 internally developed Dental Centers.
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 early stages 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 an acquisition as the Company implements the Coast Operating
Model to increase productivity and efficiency. Staff salaries include the
compensation paid to administrative staff at each Dental Center, including
dental assistants, office managers, sterilization technicians and front desk
managers.
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Dental Supplies and Lab Fees. Dental supplies and lab fees increased
24.6% from $1.7 million for the quarter ended March 31, 1999 to $2.1 million for
the quarter ended March 31, 2000. This increase was caused by the increase in
patient visits and dental services provided at the 129 Dental Centers. Dental
supplies and lab fees as a percent of net revenue will typically be higher in
the first three to six months following an acquisition as the Company implements
the Coast Operating Model to increase productivity and efficiency.
Advertising. Advertising expense decreased 41.6% from $0.8 million for
the quarter ended March 31, 1999 to $0.4 million for the quarter ended March 31,
2000. This decrease was due to a shift in focus towards internal marketing as
opposed to television advertising. Television advertising, which was utilized
throughout 1999, was discontinued as of January, 2000.
Rent. Rent expense increased 21.4% from $1.4 million for the quarter
ended March 31, 1999 to $1.7 million for the quarter ended March 31, 2000. This
increase was caused primarily by the addition of the 11 acquired and 17
internally developed Dental Centers during 1999.
Depreciation. Depreciation expense at the Dental Centers increased
57.9% from $0.5 million for the quarter ended March 31, 1999 to $0.8 million for
the quarter ended March 31, 2000. The increase was primarily associated with the
increase in fixed assets from the 11 acquired and 17 internally developed Dental
Centers during 1999.
Other Expenses. Other expenses increased 1.8% from approximately
$324,000 for the quarter ended March 31, 1999 to $330,000 for the quarter ended
March 31, 2000.
General and Administrative Expenses. General and administrative
expenses increased 19.6% from $1.0 million for the quarter ended March 31, 1999
to $1.2 million for the quarter ended March 31, 2000. This increase was caused
primarily by the increasing corporate administrative staff, professional fees,
rent and insurance costs due to the growth of the Company. General and
administrative expenses primarily consist of expenses incurred at the corporate
office.
Depreciation and amortization. Depreciation and amortization expenses
increased 6.6% from approximately $287,000 for the quarter ended March 31, 1999
to $306,000 for the quarter ended March 31, 2000. This increase was caused
primarily by the expansion of technology at the corporate headquarters as the
Company continues to develop its technological infrastructure.
Interest income, net. Interest income, net decreased 72.9% from $0.3
million for the quarter ended March 31, 1999 to $0.1 million for the quarter
ended March 31, 2000. This decrease was caused by a decrease of the Company's
invested cash balances.
Income Taxes. Income taxes decreased dramatically from $0.6 million for
the quarter ended March 31, 1999 to a minor tax benefit for the quarter ended
March 31, 2000. The significant decline in income tax expense is a direct result
of the Company's performance. In addition, the effective tax rate has increased
since the quarter ending March 31, 1999 due to the impact of certain permanent
differences arising primarily from acquired Dental Centers.
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).
On September 22, 1997, the Company completed its secondary public offering of
Common Stock. The net proceeds to the Company from the sale of 1,900,000 shares
of Common Stock offered by the Company were approximately $41.9 million (after
deducting underwriting discounts and commissions and offering expenses).
The Company has a revolving credit facility with Bank of America, N.A.
d/b/a NationsBank, N.A. f/k/a Barnett Bank of Florida, which provides an
aggregate of $20.0 million for general working capital needs and expansion of
Dental Centers. As of May 5, 2000, the Company had available the entire $20.0
million for borrowing.
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The Company has approximately $6.6 million in available-for-sale
investments which are invested in tax-free municipal bonds with interest rates
ranging between 2.2% to 5.4%. Since the investments have ratings ranging from A1
to AAA, the Company believes that these investments have a low market risk and
can easily be converted to cash, if needed.
During the quarter ended March 31, 1999, the Company entered into a
purchase agreement with two dental practices whereby the Company acquired all of
the tangible assets of the dental practice. The purchase price for these
acquired Dental Centers was approximately $0.7 million, consisting of $0.4
million in cash and $0.3 million in promissory notes. The Company did not engage
in any acquisitions during the quarter ended March 31, 2000.
The cost of an acquired Dental Center is typically based upon, in part,
a negotiated percentage of the Dental Center's historical gross revenue.
Acquired Dental Centers typically generate sufficient cash flow to fund their
operations. While the Company has significantly curtailed external growth plans,
any such additions would be financed principally through existing cash and
expected cash flow from operations.
The Company added seven (7) internally developed Dental Centers during
the quarter ended March 31, 1999 in Florida, Georgia and Tennessee at an average
cost of $175,000, which includes the cost of equipment, leasehold improvements
and working capital. The Company did not add any internally developed Dental
Centers during the quarter ended March 31, 2000.
To date, the Company has experienced no material failures or problems
with its computer systems, computer applications or non-information systems
related to its computer equipment being unable to recognize the two digits 00 as
the year 2000, as opposed to 1900 or any other date related events. The costs
associated with the year 2000 issue have been immaterial. While the Company does
not anticipate any future material problems to arise as a result of the year
2000 issue, it will continue to monitor the situation.
On February 10, 1999, the Company announced that its Board of Directors
authorized the repurchase of up to 500,000 shares of its outstanding common
stock. On March 25, 1999, the Company announced that its Board of Directors
authorized the increase of the previously announced share repurchase program
from 500,000 to 1,500,000 shares. The Company has been and will continue to
repurchase these shares for cash in the open market or in privately negotiated
transactions, from time to time, subject to market conditions. The repurchase
program will continue until such time as the Company has acquired all of the
shares authorized for repurchase, unless sooner terminated by the Board of
Directors. No shares will be repurchased from the Company's officers or
directors. All shares repurchased prior to January 1, 2000 have been canceled.
Shares purchased during 2000 are currently being held in treasury. As of May 5,
2000, the Company has repurchased 1,331,800 shares for approximately $6.9
million.
Based upon the Company's anticipated capital needs for operations of
its business, general corporate purposes, the addition of Dental Centers,
repayment of certain debts and share repurchases, 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
at least 2001. Thereafter, it is anticipated by the Company that future
acquisitions and expansion will be funded primarily with cash on hand, cash flow
from operations and borrowings under the revolving line of credit. In the event
the Company expands at a more rapid rate, the Company could finance growth
through other credit sources, and where desirable, funding from the sale of debt
or equity securities.
9
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation, Section C. Liquidity for further information.
SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q, quarterly report, press releases and certain
information provided periodically in writing or orally by the Company's officers
or its agents may contain 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 terms "Coast Dental
Services," "company," "we," "our" and "us" refer to Coast Dental Services, Inc.
The words "expect," "believe," "goal," "plan," "intend," "estimate" and similar
expressions and variations thereof if used are intended to specifically identify
forward-looking statements. Those statements appear in a number of places in
this Form 10-Q and in other places, 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 directors or its officers with respect to, among other things:
(i) the successful expansion of the Coast Dental Network through
the focus on existing Dental Centers in accordance with the
Company's growth strategy and the impact on short term revenue
and operating margins;
(ii) our liquidity and capital resources;
(iii) our financing opportunities and plans;
(iv) our future performance and operating results;
(v) the change in the Coast P.A. Dentist compensation plan; and
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) any material inability to successfully and fully optimize the
opportunities at existing Dental Centers;
(ii) any material inability to successfully identify, consummate
and integrate acquisitions at reasonable and anticipated
costs;
(iii) any adverse effect or limitations caused by any governmental
regulations or actions;
(iv) any adverse effect on continued positive cash flow or our
ability to obtain acceptable financing in connection with our
growth plans;
(v) any increased competition in business and in acquisitions;
(vi) any inability to successfully conduct our business in new
markets and concentrate in existing geographic markets;
(vii) any adverse impacts on our revenue or operating margins due to
the costs associated with increased growth at existing Dental
Centers or increased managed care business having lower
margins;
(viii) the continued relationship with and success of our
professional association customers and their continued ability
to grow in conjunction with our growth and the impact of such
professional association compensation plan;
(ix) any inability to meet or exceed analysts expectations in any
future period;
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(x) any inability to achieve additional revenue or earnings from
the 61 internally developed Dental Centers open less than 36
months or new internally developed Dental Centers;
(xi) any material decrease in the services and support fees
negotiated between the audit committee and the Coast P.A.;
(xii) unanticipated costs and expenses resulting from our expansion
which impact margins;
(xiii) any slow down in the number of patients or the services
performed by Dentists which impacts revenue;
(xiv) any material decrease in the number of Dentists available to
service patients, would affect productivity and impact
overall revenue; and
(xv) the impact of increased seasonality resulting in a lower
number of patient visits in the Florida market in the summer
months.
We undertake 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
See Exhibit Index.
11
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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 May 15, 2000.
COAST DENTAL SERVICES, INC.
By: /s/ TEREK DIASTI
-------------------------------------
TEREK DIASTI
Chief Executive Officer,
Chairman of the Board
(Principal Executive Officer)
By: /s/ WILLIAM H. GEARY, III
-------------------------------------
WILLIAM H. GEARY, III
Chief Financial Officer,
Secretary and Treasurer
(Principal Accounting Officer)
12
<PAGE> 13
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
10.6* Services and Support Agreement dated October 1, 1996 between
Coast Dental Services, Inc. and Coast Florida, P.A. [1]
10.14* Services and Support Agreement dated April 1, 1998 between
Coast Dental Services, Inc. and Coast Dental Southeast,
P.A. [2]
10.17* First Amendment effective June 1997 to Services and Support
Agreement between the Company and Coast Florida P.A. [3]
10.18* Second and Third Amendments effective October 1, 1998 and
February 1, 1999 to the Services and Support Agreement
between the Company and the Coast Florida P.A. [4] (The
Company has also entered into Services and Support Agreements
with Coast Dental Services of Tennessee, P.C., Coast Dental
Services of Florida P.A. and Adam Diasti, D.D.S. &
Associates, P.C. in Virginia, which agreements with
amendments are not being filed because the terms thereof are
not materially different from the amended Services and
Support Agreements previously filed by the Company.)
10.19* First Amendment effective February 1, 1999 to the Services and
Support Agreement between the Company and Coast Dental
Southeast, P.A. [4]
10.24 Fourth Amendment effective January 1, 2000 to the Services and
Support Agreement between the Company and Coast Florida, P.A.
(The Company has also entered into Services and Support
Agreement with Coast Dental Services of Tennessee, P.C., Coast
Dental Services, P.A. in Florida and Adam Diasti, D.D.S. &
Associates, P.C. in Virginia, which agreements with amendments
are not being filed because the terms thereof are not
materially different from the amended Services and Supports
Agreements previously filed by the Company.)
10.25 Second Amendment effective January 1, 2000 to the Services and
Support Agreement between the Company and Coast Dental of
Georgia, P.C. f/k/a Coast Dental Southeast, P.A.
11.1 Computation of Per Share Earnings.
27 Financial Data Schedule for the quarter ended March 31, 2000
(for SEC use only.)
* Previously filed as an exhibit in the Company filing identified in the endnote
following the exhibit description and incorporated herein by reference.
[1] Registration Statement on Form S-1 filed on October 7, 1996 (File
No. 333-13613).
[2] Form 10-Q filed on November 14, 1997.
[3] Amendment No. 2 to S-1 Registration Statement filed on September
19, 1997.
[4] Form 10-K filed on March 31, 1999.
13
<PAGE> 1
EXHIBIT 10.24
FOURTH AMENDMENT TO
SERVICES AND SUPPORT AGREEMENT
This Fourth Amendment to Service and Support Agreement (the "Fourth
Amendment") effective as of January 1, 2000 is by and between Coast Dental
Services, Inc., a Delaware corporation ("CDS") and Coast Florida, P.A., a
Florida professional service corporation (the "Dental Practice Entity").
R E C I T A L S
WHEREAS, CDS and Dental Practice Entity are parties to that certain
Services and Support Agreement dated as of October 1, 1996, amended on June 1,
1997, further amended on October 1, 1998 and further amended on February 1, 1999
(the "Services and Support Agreement");
WHEREAS, the Dental Practice Entity has developed a new professional
compensation plan (the "Plan");
WHEREAS, the Plan is designed to provide incentive based compensation
to the dental professionals by aligning compensation with individual
performance;
WHEREAS, CDS believes the Plan developed by the Dental Practice Entity
should be beneficial to CDS and CDS wants to provide the Dental Practice Entity
the ability to properly implement the Plan;
WHEREAS, CDS and the Dental Practice Entity are now desirous of
modifying the Services and Support Agreement in accordance with the terms of the
Fourth Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
to modify, supplement and amend the Services and Support Agreement as follows:
1. Recitals. The statements contained in the Recitals of facts set
forth above are true and correct and are by this reference made a part of the
Fourth Amendment.
2. Service and Support Fee. Exhibit "A" to the Services and Support
Agreement is hereby amended to change the S & S Fee percentage to Sixty-Seven
percent (67%).
3. Other Provisions. All of the term and provisions contained in the
Services and Support Agreement shall remain in full force and effect unless
specifically modified, supplemented or amended by the Fourth Amendment.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the day and year first above written.
"DENTAL PRACTICE ENTITY"
COAST FLORIDA, P.A.
/s/ Adam Diasti, D.D.S.
-------------------------------------
Adam Diasti, D.D.S., President
"CDS"
COAST DENTAL SERVICES, INC.
/s/ Terek Diasti
-------------------------------------
Terek Diasti, Chief Executive Officer
<PAGE> 1
EXHIBIT 10.25
SECOND AMENDMENT TO
SERVICES AND SUPPORT AGREEMENT
This Second Amendment to Service and Support Agreement (the "Second
Amendment") effective as of January 1, 2000 is by and between Coast Dental
Services, Inc., a Delaware corporation ("CDS") and Coast Dental of Georgia, P.C.
f/k/a Coast Dental Southeast, P.A., a Georgia professional service corporation
(the "Dental Practice Entity").
R E C I T A L S
WHEREAS, CDS and Dental Practice Entity are parties to that certain
Services and Support Agreement dated as of April 1, 1998, amended on February 1,
1999 (the "Services and Support Agreement");
WHEREAS, the Dental Practice Entity has developed a new professional
compensation plan (the "Plan");
WHEREAS, the Plan is designed to provide incentive based compensation
to the dental professionals by aligning compensation with individual
performance;
WHEREAS, CDS believes the Plan developed by the Dental Practice Entity
should be beneficial to CDS and CDS wants to provide the Dental Practice Entity
the ability to properly implement the Plan;
WHEREAS, CDS and the Dental Practice Entity are now desirous of
modifying the Services and Support Agreement in accordance with the terms of the
Fourth Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
to modify, supplement and amend the Services and Support Agreement as follows:
1. Recitals. The statements contained in the Recitals of facts set
forth above are true and correct and are by this reference made a part of the
Fourth Amendment.
2. Service and Support Fee. Exhibit "A" to the Services and Support
Agreement is hereby amended to change the S & S Fee percentage to Sixty-Seven
percent (67%).
3. Other Provisions. All of the term and provisions contained in the
Services and Support Agreement shall remain in full force and effect unless
specifically modified, supplemented or amended by the Fourth Amendment.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the day and year first above written.
"DENTAL PRACTICE ENTITY"
COAST DENTAL OF GEORGIA, P.C. f/k/a
COAST DENTAL SOUTHEAST, P.A.
/s/ Adam Diasti, D.D.S.
-------------------------------------
Adam Diasti, D.D.S., President
"CDS"
COAST DENTAL SERVICES, INC.
/s/ Terek Diasti
-------------------------------------
Terek Diasti, Chief Executive Officer
<PAGE> 1
EXHIBIT 11.1
COAST DENTAL SERVICES, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------
1999 2000
---------- ----------
<S> <C> <C>
Net income ............................................ $1,117,930 $ (29,761)
========== ===========
Shares:
Basic weighted average number of shares outstanding ... 7,538,686 6,312,318
Additional shares issuable under stock options for
diluted earnings per share ...................... 31 --
---------- -----------
Diluted weighted average number of shares outstanding 7,538,717 6,312,318
========== ===========
Basic earnings per share:
Net income ............................................ $ .15 $ .00
========== ===========
Diluted earnings per share:
Net income ............................................ $ .15 $ .00
========== ===========
</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> 1,726,036
<SECURITIES> 6,557,601
<RECEIVABLES> 9,717,345
<ALLOWANCES> 0
<INVENTORY> 3,623,985
<CURRENT-ASSETS> 22,302,148
<PP&E> 27,392,118
<DEPRECIATION> (6,065,536)
<TOTAL-ASSETS> 21,326,582
<CURRENT-LIABILITIES> 4,717,207
<BONDS> 1,065,598
0
0
<COMMON> 6,404
<OTHER-SE> 58,667,534
<TOTAL-LIABILITY-AND-EQUITY> 64,630,431
<SALES> 11,568,944
<TOTAL-REVENUES> 11,568,944
<CGS> 0
<TOTAL-COSTS> 10,179,434
<OTHER-EXPENSES> 1,508,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (72,155)
<INCOME-PRETAX> (47,257)
<INCOME-TAX> (17,496)
<INCOME-CONTINUING> (29,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,761)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
