--------------------------------------------------------------------------------
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 quarter ended June 30, 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.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-3136131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2502 ROCKY POINT DRIVE NORTH,
SUITE 1000,
TAMPA, FLORIDA 33607
(Address of principal executive offices) (Zip Code)
(813)-288-1999
(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 August 4, 2000:
6,287,109
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1999 2000
UNAUDITED
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 1,019,618 $ 2,909,003
Available-for-sale investments .................................................. 8,126,505 5,542,637
Management fee receivable from Coast P.A ........................................ 9,864,060 9,400,091
Supplies, inventory and small tools ............................................. 3,596,614 3,664,266
Prepaid expenses and other assets ............................................... 539,008 782,400
------------ ------------
Total current assets ......................................................... 23,145,805 22,298,397
Note receivable from Coast P.A., non-interest bearing ................................ 529,218 229,218
Property and equipment, net .......................................................... 20,657,147 21,556,033
Non-compete agreements, net of amortization $455,558
and $517,295, respectively ...................................................... 687,487 593,955
Dental services agreements, net of amortization of $1,503,012
and $1,824,331, respectively .................................................... 17,791,326 17,507,333
Other assets ......................................................................... 1,846,113 2,220,744
------------ ------------
Total assets .................................................................... $ 64,657,096 $ 64,405,680
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 2,105,807 $ 3,171,111
Other accrued expenses .......................................................... 1,524,474 954,867
Current maturities of debt and capital lease obligations ........................ 642,029 585,299
------------ ------------
Total current liabilities .................................................... 4,272,310 4,711,277
Long-term debt and capital lease obligations, excluding current maturities ........... 1,211,086 928,221
Deferred tax liability ............................................................... 180,092 180,092
------------ ------------
Total liabilities ............................................................ 5,663,488 5,819,590
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized,
none issued .................................................................. -- --
Common stock, $.001 par value; 50,000,000 shares authorized,
6,402,958 and 6,403,683 shares issued and 6,399,384 and
6,287,109 outstanding, respectively .......................................... 6,404 6,404
Additional paid-in capital ...................................................... 54,427,749 55,250,184
Retained earnings ............................................................... 6,195,430 6,084,224
Unrealized gain/(loss) on securities held for sale .............................. (106,393) (106,393)
------------ ------------
60,523,190 61,234,419
Less: Stock option receivable from Coast P.A .................................... 1,440,833 2,263,267
Treasury stock, 3,574 and 116,574 shares, respectively .................... 88,749 385,062
------------ ------------
Total stockholders' equity ................................................... 58,993,608 58,586,090
------------ ------------
Total liabilities and stockholders' equity ................................... $ 64,657,096 $ 64,405,680
============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
2
<PAGE>
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 2000 1999 2000
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenue ....................................... $ 11,166,127 $ 11,445,570 $ 22,078,675 $ 23,014,514
Dental Center expenses:
Staff salaries ............................... 3,979,766 4,547,656 7,480,910 9,350,814
Dental supplies and lab fees ................. 1,755,451 2,148,168 3,435,995 4,241,306
Advertising .................................. 814,936 424,656 1,582,488 873,167
Rent ......................................... 1,678,788 1,819,112 3,118,425 3,566,453
Depreciation ................................. 594,295 787,962 1,073,991 1,545,295
Other ........................................ 328,413 395,027 652,675 725,074
------------ ------------ ------------ ------------
Total Dental Center expenses ............... 9,151,649 10,122,581 17,344,484 20,302,109
------------ ------------ ------------ ------------
Gross profit ................................. 2,014,478 1,322,989 4,734,191 2,712,405
General and administrative expenses ............... 1,133,102 1,212,379 2,138,681 2,415,057
Depreciation and amortization ..................... 279,897 309,055 567,175 615,206
------------ ------------ ------------ ------------
Operating profit (loss)....................... 601,479 (198,445) 2,028,335 (317,858)
Interest income, net .............................. 140,184 66,914 406,109 139,070
------------ ------------ ------------ ------------
Income (loss) before income tax expense (benefit).. 741,663 (131,531) 2,434,444 (178,788)
Income tax expense (benefit) ...................... 231,321 (50,086) 806,172 (67,582)
------------ ------------ ------------ ------------
Net income (loss) and comprehensive income (loss).. $ 510,342 $ (81,445) $ 1,628,272 $ (111,206)
============ ============ ============ ============
Basic earnings (loss) per share:
Net income (loss).................................. $ .07 $ (.01) $ .22 $ (.02)
============ ============ ============ ============
Diluted earnings (loss) per share:
Net income (loss).................................. $ .07 $ (.01) $ .22 $ (.02)
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic ........................................ 7,103,794 6,286,384 7,319,653 6,299,351
============ ============ ============ ============
Diluted ...................................... 7,103,847 6,286,384 7,319,829 6,299,351
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
1999 2000
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... $ 1,628,272 $ (111,206)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation ........................................................ 1,220,310 1,712,594
Amortization ........................................................ 420,856 447,907
Impairment of assets ................................................ -- 69,430
Changes in operating assets and liabilities:
(Increase) decrease in management receivable from Coast P.A .... (2,279,454) 463,969
Increase in supplies inventory and small tools ................. (483,956) (67,652)
Increase in prepaid expenses and other assets .................. 464,263 (243,392)
Decrease (increase) in receivable from Coast P.A ............... -- 300,000
Increase in accounts payable and other accrued expenses ............. 1,740,955 495,697
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ 2,711,246 3,067,347
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (4,682,623) (2,680,910)
Acquired assets, including intangible assets ........................ (2,876,209) (70,381)
Sale of available-for-sale investments .............................. 4,056,776 2,583,868
Increase in other assets ............................................ (671,885) (374,630)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ............................ (4,173,941) (542,053)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ............................. 6,128 --
Purchase of treasury stock .......................................... (4,644,645) (296,313)
Proceeds from long term debt ........................................ 374,332 --
Payments on long term debt .......................................... (822,100) (315,340)
Payments of capital leases .......................................... (39,838) (24,256)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES ............................ (5,126,123) (635,909)
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................... (6,588,818) 1,889,385
Cash and cash equivalents at beginning of period .................... 13,581,798 1,019,618
------------ ------------
Cash and cash equivalents at end of period .......................... $ 6,992,980 $ 2,909,003
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ 101,972 $ 71,557
============ ============
Cash paid for income tax ............................................ $ 324,000 $ 47,032
============ ============
Non-cash stock option receivable from Coast P.A ..................... $ 149,094 $ 822,434
============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
COAST DENTAL SERVICES, INC.
CONDENSED NOTES TO FINANICAL 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 quarter and six months ended June 30,
1999 have been reclassified to conform to the quarter and six months ended June
30, 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 - RECENTLY ISSUED AUTHORITATIVE GUIDANCE
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB" 101). SAB 101 provides guidance related to revenue recognition issues
based on interpretations and practices followed by the SEC. Management has
determined that the adoption of SAB 101 did not have a material impact on its
June 30, 2000 condensed financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (later amended by
SFAS 137 and SFAS 138), which will be in effect on January 1, 2001 for the
Company. SFAS 133 requires, among other things, that all derivatives be
recognized in the balance sheets as either assets or liabilities and measured at
fair value. The corresponding derivative gains and losses should be reported
based upon the hedge relationship, if such a relationship exists. Changes in the
fair value of derivatives that are not designated as hedges or that do not meet
the hedge accounting criteria in SFAS 133 are required to be reported in income.
The Company is in the process of quantifying the impact of SFAS 133 on its
financial statements.
NOTE 3 - EARNINGS (LOSS) 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 (loss) 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 (loss) 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 4 - 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 5 - 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.
During the quarter ended June 30, 2000, the Company consolidated six
(6) of its Florida Dental Centers into three (3). These Dental Centers had been
previously acquired and due to current market trends, the decision was made to
consolidate these operations. The Company anticipates consolidating only a minor
number of Dental Centers in the future. An analysis is currently underway to
determine the need for such consolidation given the fluctuations in market
conditions.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company opened its first Dental Center in May 1992. As of June 30,
2000, the Company had 126 Dental Centers consisting of 62 internally developed
and 64 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 June 30,
2000, 121 Coast Dentists were employed by the Coast P.A. 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
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 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 through out
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, from the services and support fees, 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 25 internally developed Dental Centers in 1998
and 17 in 1999. The Company did not open any internally developed Dental Centers
during the first six months of 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.
6
<PAGE>
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
quarters and six months indicated. The performance of the Company during these
quarters and six months are not indicative of future financial results or
conditions.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------- ------------------------
1999 2000 1999 2000
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue ............................ 100.0% 100.0% 100.0% 100.0%
Dental Center expenses:
Staff salaries .................... 35.6 39.7 33.9 40.6
Dental supplies and lab fees ...... 15.7 18.8 15.6 18.4
Advertising ....................... 7.3 3.7 7.2 3.8
Rent .............................. 15.0 15.9 14.1 15.5
Depreciation ...................... 5.4 6.9 4.8 6.7
Other ............................. 3.0 3.4 3.0 3.2
----- ----- ----- -----
Total Dental Center expenses .... 82.0 88.4 78.6 88.2
----- ----- ----- -----
Gross profit .................... 18.0 11.6 21.4 11.8
General and administrative expenses..... 10.1 10.6 9.7 10.5
Depreciation and amortization .......... 2.5 2.7 2.5 2.7
----- ----- ----- -----
Operating profit (loss)............ 5.4 (1.7) 9.2 (1.4)
Interest income, net.................... 1.3 0.6 1.8 0.6
----- ----- ----- -----
Income (loss) before income tax
expense (benefit)..................... 6.7 (1.1) 11.0 (0.8)
Income tax expense (benefit)............ 2.1 (0.4) 3.6 (0.3)
----- ----- ----- -----
Net income (loss)....................... 4.6 (0.7) 7.4 (0.5)
===== ===== ===== =====
</TABLE>
QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO QUARTER AND SIX MONTHS
ENDED JUNE 30, 1999
NET REVENUE. Net revenue increased 2.5% and 4.2% for the quarter and
six months ended June 30, 2000, from $11.2 million to $11.4 million and from
$22.1 million to $23.0 million, respectively. This increase was primarily due to
the increased focus placed on productivity at the Dental Center level. The
increases in net revenue are also driven by increases in patient visits. Patient
visits increased 15.7% from 148,054 for the quarter ended June 30, 1999 to
171,296 for the quarter ended June 30, 2000 and 24.4% from 273,544 for the six
months ended June 30, 1999 to 340,188 for the six months ended June 30, 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 14.3% and 25.0% for the
quarter and six months ended June 30, 2000, from $4.0 million to $4.5 million
and from $7.5 million to $9.4 million, respectively. This increase in staff
salaries was caused by the continued increase in Dental Center regional
management, including the addition of a regional vice president in each major
market, and an increase in Dental Center staffing due to the addition of new
Dental Centers and the ramp up of several existing Dental Centers.
DENTAL SUPPLIES AND LAB FEES. Dental supplies and lab fees increased
22.4% and 23.4% for the quarter and six months ended June 30, 2000, from $1.8
million to $2.1 million and from $3.4 million to $4.2 million, respectively.
This increase is due, in part, to the introduction of new affiliated dentists to
the Coast Operating Model, as well as the addition of several new products to
the formulary. The Company continuously strives to research and analyze new
products as a means of providing the highest quality products and services to
patients. Often times, these products carry a higher cost initially, however
they generally tend to be more efficient and effective for the affiliated
dentists and patients, respectively.
7
<PAGE>
ADVERTISING. Advertising expenses decreased 47.9% and 44.8% for the
quarter and six months ended June 30, 2000, from $0.8 million to $0.4 million
and from $1.6 million to $0.9 million, respectively. This decrease was caused by
the discontinuation of television advertising, which was used throughout 1999.
RENT. Rent expense increased 8.4% and 14.4% for the quarter and six
months ended June 30, 2000, from $1.7 million to $1.8 million and from $3.1
million to $3.6 million, respectively. This increase was caused by the addition
of a moderate number of Dental Centers since the end of the second quarter of
1999. Since June 30, 1999, the Company added eight (8) Dental Centers in the
Florida, Georgia and Tennessee markets.
DEPRECIATION. Depreciation expense at the Dental Centers increased
32.6% and 43.9% for the quarter and six months ended June 30, 2000, from $0.6
million to $0.8 million and from $1.1 million to $1.5 million, respectively. The
increase was directly attributable to the addition of eight (8) Dental Centers,
the relocation of three (3) Dental Centers and the renovation or expansion of 14
Dental Centers. In addition, the Company has continued to augment existing
computer hardware in the Dental Centers to support the technology upgrades that
were previously implemented during the last twelve months.
OTHER EXPENSES. Other expenses increased 20.3% and 11.1% for the
quarter and six months ended June 30, 2000, from $328,000 to $395,000 and from
$653,000 to $725,000, respectively. This increase in the second quarter was
caused by write-offs related to leasehold improvements in consolidated Dental
Centers.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 7.0% and 12.9% for the quarter and six months ended June 30,
2000, from $1.1 million to $1.2 million and from $2.1 million to $2.4 million,
respectively. General and administrative expenses primarily consist of expenses
incurred at the corporate office. The increase in General and Administrative
expenses represents the Company's continued investment in personnel and
technology to support Dental Center operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 10.4% and 8.5 % for the quarter and six months ended June 30, 2000,
from $280,000 to $309,000 and from $567,000 to $615,000, respectively. The
addition of assets at the corporate headquarters caused this increase.
INTEREST INCOME, NET. Interest income, net decreased 52.3% and 65.8%
for the quarter and six months ended June 30, 2000, from $140,000 to $67,000 and
from $406,000 to $139,000, respectively. This decrease was caused by a decrease
of the Company's invested cash balances, which were utilized for the Company's
expansion of its Dental Centers and the repurchase of Company stock.
INCOME TAXES. The income tax benefit for the quarter and six months
ended June 30, 2000 is the result of minor losses incurred during these periods.
The effective tax rate increase during the quarter and six months ended June 30,
2000 is due to lower amounts of cash invested in tax-free investments and the
impact of non-deductible items related to certain acquisitions. The impact of
these items during the current year is more pronounced due to the difference in
earnings levels versus comparable periods in the previous year.
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.,
which provides an aggregate of $20.0 million for general working capital needs
and expansion of Dental Centers. As of August 4, 2000, the Company had the
entire $20.0 million available for borrowing.
The Company has approximately $5.5 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.
8
<PAGE>
During the quarter ended June 30, 2000, the Company consolidated six
(6) previously acquired Dental Centers into three (3). An analysis of existing
market conditions supported the decision to serve these patients in the
remaining Dental Centers.
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. On May 12, 2000,
the Board of Directors unanimously agreed to extend the time period for the
repurchase program through May, 2001. 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 August 4, 2000, the Company has repurchased 1,331,800 shares for
approximately $6.9 million.
The Company anticipates, that for the balance of 2000, it will need to
spend approximately $2.0 million on capital expenditures, including new
internally developed Dental Centers, renovation and relocation of existing
Dental Centers and other capital equipment needs in both the Corporate office
and the Dental Centers.
Based upon the Company's anticipated capital needs for operations of
its business, general corporate purposes, the expansion of certain existing
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 expansion will be funded primarily with cash on hand,
expected future cash flow from operations and borrowings under the revolving
line of credit. In the event the Company expands at a more rapid rate, or in the
event losses are incurred or future positive cash flow is not realized, the
Company could finance growth through other credit sources, and where desirable,
and if available, funding from the sale of debt or equity securities.
9
<PAGE>
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 any
future losses, or any ability to obtain acceptable financing
in connection with our operating plans;
(v) any increased competition in business and in acquisitions;
(vi) any inability to successfully conduct our business in newer
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;
10
<PAGE>
(x) any inability to achieve additional revenue or earnings from
the internally developed Dental Centers or new or combined
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 focus on
internal efficiencies 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 adversely affect productivity and
impact overall revenue;
(xv) the impact of increased seasonality resulting in a lower
number of patient visits in the Florida market in the summer
months;
(xvi) any inability of the Coast P.A. to incentivize, motivate,
retain and attract new dentists;
(xvii) the impact of the Coast P.A.'s revised compensation plan on
the performance of the Coast P.A.; and
(xviii) combined decline of public market interest in the Company's
business sector.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of Coast Dental Services, Inc. was
held on May 12, 2000. Each share of Common Stock entitled its holder to one (1)
vote on the matters considered by stockholders at the annual meeting.
Stockholders present in person, or by proxy, representing 6,216,848 shares of
common stock voted on the matters described below:
(1) The stockholders elected Terek Diasti, John Kang and Donald
Millard to the Board of Directors to hold office until such
time as their terms expire and their successors are elected
and qualified or until their earlier resignation, removal from
office or death. Dr. Diasti received 6,133,125 votes in favor
of his re-election and 83,723 votes against. Messrs. Kang and
Millard each received 6,134,747 votes in favor of their
re-election and 82,101 abstained.
(2) The stockholders approved the proposal to ratify the
appointment of Deloitte & Touche, LLP as the Company's
independent auditors for the fiscal year 2000. Deloitte &
Touche, LLP received 6,170,618 votes in favor of their
appointment, 45,650 votes against and 580 votes abstained.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
See Exhibit Index.
11
<PAGE>
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 14, 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>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
11.1 Computation of Per Share Earnings (loss).
27 Financial Data Schedule for the quarter ended June 30, 2000 (for
SEC use only.)
13
