<PAGE> 1
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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 September 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 October 26, 2000:
6,287,109
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1999 2000
UNAUDITED
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 1,019,618 $ 1,791,275
Available-for-sale investments.................................................. 8,126,505 5,039,075
Management fee receivable from Coast P.A........................................ 9,864,060 9,986,631
Supplies, inventory and small tools............................................. 3,596,614 3,780,276
Prepaid expenses and other assets............................................... 539,008 888,983
------------ ------------
Total current assets......................................................... 23,145,805 21,486,240
Note receivable from Coast P.A., non-interest bearing................................ 529,218 229,218
Property and equipment, net.......................................................... 20,657,147 21,458,264
Non-compete agreements, net of amortization $476,130
and $574,345 respectively....................................................... 687,487 589,272
Dental services agreements, net of amortization of $1,417,588
and $1,991,945, respectively.................................................... 17,791,326 17,310,303
Other assets......................................................................... 1,846,113 2,580,517
------------ ------------
Total assets.................................................................... $ 64,657,096 $ 63,653,814
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 2,105,807 $ 3,495,022
Other accrued expenses.......................................................... 1,524,474 395,509
Current maturities of debt and capital lease obligations........................ 642,029 534,910
------------ ------------
Total current liabilities.................................................... 4,272,310 4,425,441
Long-term debt and capital lease obligations, excluding current maturities........... 1,211,086 825,917
Deferred tax liability............................................................... 180,092 180,092
------------ ------------
Total liabilities............................................................ $ 5,663,488 $ 5,431,450
------------ ------------
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 55,297,463
Retained earnings............................................................... 6,195,430 5,720,499
Unrealized loss on securities held for sale..................................... (106,393) (106,393)
------------ ------------
..................................................................................... 60,523,190 60,917,973
Less: Stock option receivable from Coast P.A.................................... 1,440,833 2,310,547
Treasury stock, 3,574 and 116,574 shares, respectively.................... 88,749 385,062
------------ ------------
Total stockholders' equity................................................... 58,993,608 58,222,364
------------ ------------
Total liabilities and stockholders' equity................................... $ 64,657,096 $ 63,653,814
============ ============
</TABLE>
See Notes to Condensed Financial Statements.
2
<PAGE> 3
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDING SEPTEMBER 30,
1999 2000 1999 2000
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenue....................................... $11,290,007 $ 11,495,638 $33,368,682 $ 34,510,152
Dental Center expenses:
Staff salaries............................... 4,303,917 4,860,591 11,784,827 14,211,405
Dental supplies and lab fees................. 1,833,720 2,104,739 5,269,715 6,346,044
Advertising.................................. 619,166 458,937 2,201,653 1,332,105
Rent......................................... 1,740,727 1,792,548 4,859,152 5,359,001
Depreciation................................. 636,079 782,425 1,710,072 2,327,720
Other........................................ 314,785 387,064 967,460 1,112,143
----------- ------------ ----------- ------------
Total Dental Center expenses............... 9,448,394 10,386,304 26,792,879 30,688,418
----------- ------------ ----------- ------------
Gross profit................................. 1,841,613 1,109,334 6,575,803 3,821,734
General and administrative expenses............... 1,045,763 1,463,337 3,184,444 3,878,390
Depreciation and amortization..................... 303,455 342,335 870,629 957,540
----------- ------------ ----------- ------------
Operating profit (loss)...................... 492,395 (696,338) 2,520,730 (1,014,196)
Interest income, net.............................. 134,803 66,918 540,911 205,988
----------- ------------ ----------- ------------
Income (loss) before income tax
expense (benefit)............................ 627,198 (629,420) 3,061,641 (808,208)
Income tax expense (benefit)...................... 188,149 (265,695) 994,321 (333,277)
----------- ------------ ----------- ------------
Net income (loss) and comprehensive
income (loss)................................ $ 439,049 $ (363,725) $ 2,067,320 $ (474,931)
=========== ============ =========== ============
Basic earnings (loss) per share:
Net income (loss)................................. $ .07 $ (.06) $ .29 $ (.08)
=========== ============ =========== ============
Diluted earnings (loss) per share:
Net income (loss)................................. $ .07 $ (.06) $ .29 $ (.08)
=========== ============ =========== ============
Weighted average number of shares outstanding:
Basic........................................ 6,595,640 6,286,384 7,076,687 6,294,997
=========== ============ =========== ============
Diluted...................................... 6,595,693 6,286,384 7,076,863 6,294,997
=========== ============ =========== ============
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE> 4
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1999 2000
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 2,067,320 $ (474,931)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation............................................................... 1,929,708 2,612,689
Amortization............................................................... 650,991 672,572
Impairment of assets....................................................... -- 114,323
Changes in operating assets and liabilities:
Increase in management receivable from Coast P.A...................... (3,500,229) (122,571)
Increase in supplies inventory and small tools........................ (685,012) (183,662)
Decrease (increase) in prepaid expenses and other assets.............. 259,056 (349,975)
Decrease in receivable from Coast P.A................................. -- 300,000
Increase in accounts payable and other accrued expenses............... 1,564,009 260,249
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 2,285,843 2,828,694
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................... (5,703,978) (3,528,128)
Acquired assets, including intangible assets............................... (3,030,140) (93,334)
Sale of available-for-sale investments..................................... 3,231,492 3,087,430
Increase in other assets................................................... (678,204) (734,403)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES................................... (6,180,830) (1,268,435)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options.................................... 6,128 --
Purchase of treasury stock................................................. (6,651,828) (296,313)
Proceeds from long term debt............................................... 374,332 --
Payments on long term debt................................................. (994,829) (458,786)
Payments of capital leases................................................. (60,430) (33,503)
------------ -----------
NET CASH USED IN FINANCING ACTIVITIES................................... (7,326,627) (788,602)
------------ -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................... (11,221,614) 771,657
Cash and cash equivalents at beginning of period........................... 13,581,798 1,019,618
------------ -----------
Cash and cash equivalents at end of period................................. $ 2,360,184 $ 1,791,275
============ ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest..................................................... $ 140,856 $ 88,792
============ ===========
Cash paid for income tax................................................... $ 561,848 $ 50,591
============ ===========
Non-cash stock option receivable from Coast P.A............................ $ 149,094 $ 869,714
============ ===========
</TABLE>
See Notes to Condensed Financial Statements.
4
<PAGE> 5
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 quarter and nine months ended September
30, 1999 have been reclassified to conform to the quarter and nine months ended
September 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 (the "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 September 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 effective 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
fair market 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.
5
<PAGE> 6
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. Current market
conditions prompted the decision to consolidate these operations.
During the quarter June 30, 2000, the Company consolidated six (6) of
its Florida Dental Centers into three (3).
During the quarter ended September 30, 2000, the Company consolidated
two (2) of its Florida Dental Centers into one (1), and two (2) of its Tennessee
Dental Centers into one (1) Dental Center. This new Dental Center was developed
to take advantage of the combined location, while at the same time converting
the smaller Dental Center to the larger Coast Dental operating facilities.
The Company continues to monitor and evaluate each Dental Center with respect to
the need for future consolidations. Such consolidations will occur when market
and lease conditions dictate the need. The Company anticipates only a minor
number of Dental Centers will be consolidated in the future.
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
September 30, 2000, the Company had 124 Dental Centers consisting of 61
internally developed and 63 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 September 30, 2000, 133 Coast Dentists were employed by the
Coast P.A. The Company plans to continue to grow by seeking increased
productivity at existing Dental Centers, many of which are relatively immature.
As the Company begins to achieve satisfactory performance in its existing
Dental Centers, 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 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 ranges of anticipated future expenses and productivity
and subject to future negotiation, 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 nine 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 productivity 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.
6
<PAGE> 7
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 nine months indicated. The performance of the Company during these
quarters and nine months are not indicative of future financial results or
conditions.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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...................................... 38.1 42.3 35.3 41.2
Dental supplies and lab fees........................ 16.2 18.3 15.8 18.4
Advertising......................................... 5.5 4.0 6.6 3.9
Rent................................................ 15.4 15.6 14.6 15.5
Depreciation........................................ 5.6 6.8 5.1 6.8
Other............................................... 2.8 3.4 2.9 3.2
----- ----- ----- -----
Total Dental Center expenses...................... 83.6 90.4 80.3 89.0
----- ----- ----- -----
Gross profit...................................... 16.4 9.6 19.7 11.0
General and administrative expenses...................... 9.3 12.7 9.5 11.2
Depreciation and amortization............................ 2.7 3.0 2.6 2.8
----- ----- ----- -----
Operating profit (loss)............................. 4.4 (6.1) 7.6 (3.0)
Interest income, net..................................... 1.2 0.6 1.6 0.6
----- ----- ----- -----
Income (loss) before income tax expense (benefit)........ 5.6 (5.5) 9.2 (2.4)
Income tax expense (benefit)............................. 1.7 (2.3) 3.0 (1.0)
----- ----- ----- -----
Net income (loss)........................................ 3.9 (3.2) 6.2 (1.4)
===== ===== ===== =====
</TABLE>
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1999
Net Revenue. Net revenue increased 1.8% and 3.4% for the quarter and
nine months ended September 30, 2000, from $11.2 million to $11.5 million and
from $33.4 million to $34.5 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 10.0% from 156,661 for the quarter ended September 30,
1999 to 172,368 for the quarter ended September 30, 2000 and 27.3% from 394,841
for the nine months ended September 30, 1999 to 502,623 for the nine months
ended September 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 12.9% and 20.6% for the
quarter and nine months ended September 30, 2000, from $4.3 million to $4.9
million and from $11.8 million to $14.2 million, respectively. This increase in
staff salaries was primarily caused by salaries associated with increases in
Dental Center regional management, including the addition of a regional vice
president in each major market, and the required increase for Dental Center
staff to service the increased volume of patient flow as newer Dental Centers
ramped up revenue.
Dental Supplies and Lab Fees. Dental supplies and lab fees increased
14.8% and 20.4%for the quarter and nine months ended September 30, 2000, from
$1.8 million to $2.1 million and from $5.3 million to $6.3 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.
Advertising. Advertising expenses decreased 25.9% and 39.5% for the
quarter and nine months ended September 30, 2000, from $620,000 to $459,000 and
from $2.2 million to $1.3 million, respectively. This decrease
7
<PAGE> 8
was primarily caused by the discontinuation of television advertising, which was
used throughout 1999. The gross decrease was partially offset by increased
direct advertising costs focused at increasing patient flow to newer Dental
Centers.
Rent. Rent expense increased 3.0% and 10.3% for the quarter and nine
months ended September 30, 2000, from $1.7 million to $1.8 million and from $4.9
million to $5.4 million, respectively. This increase was caused by the addition
of one new Dental Center since the end of the third quarter of 1999 and the
relocations and consolidations noted during the year. The Company consolidated
four (4) Dental Centers into two (2) during the quarter ended September 30,
2000, and twelve (12) Dental Centers into six (6) during the nine months ended
September 30, 2000. In addition, one Dental Center was relocated during the
quarter ended September 30, 2000. In some of these situations, there was a minor
rent impact during the transition to the consolidated Dental Centers.
Depreciation. Depreciation expense at the Dental Centers increased
23.0% and 36.1% for the quarter and nine months ended September 30, 2000, from
$636,000 to $782,000 and from $1.7 million to $2.3 million, respectively. The
increase was attributable to the consolidations and relocations discussed under
Rent, as well as the addition of dental equipment to Dental Centers which were
built with excess capacity. As noted previously, the Company has the ability to
grow Dental Center revenue through the utilization of this excess capacity as
the patient volume increases in certain Dental Centers. Additional equipment is
necessary to meet the needs of this increased patient flow. In addition, the
Company has continued to augment existing computer hardware in the Dental
Centers to support the technology upgrades that were previously implemented.
Other Expenses. Other expenses increased 23.0% and 15.0% for the
quarter and nine months ended September 30, 2000, from $315,000 to $387,000 and
from $967,000 to $1.1 million respectively. This increase in the third quarter
is attributable to the write-off of leasehold improvements related to
consolidated Dental Centers.
General and Administrative Expenses. General and administrative
expenses increased 39.9% and 21.8% for the quarter and nine months ended
September 30, 2000, from $1.0 million to $1.5 million and from $3.2 million to
$3.9 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, including such
functions as recruiting, training and managing relationships with insurance
companies.
Depreciation and amortization. Depreciation and amortization expenses
increased 12.8% and 10.0% for the quarter and nine months ended September 30,
2000, from $303,000 to $342,000 and from $870,000 to $960,000, respectively.
This increase is primarily attributable to computer hardware and software
purchased over the last eighteen months to support the Dental Center operations.
Interest income, net. Interest income, net decreased 50.4% and 61.9%
for the quarter and nine months ended September 30, 2000, from $135,000 to
$67,000 and from $541,000 to $206,000, respectively. This decrease was
attributable to the decline in the Company's invested cash balances, which were
utilized for the Company's internal expansion of its Dental Centers, the
purchase of computer hardware and software, and the repurchase of Company stock.
Income Taxes. The income tax benefit for the quarter and nine months
ended September 30, 2000 is the result of the losses incurred during these
periods. The effective tax rate increase during the quarter and nine months
ended September 30, 2000, is higher due to 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
At September 30, 2000, the Company had cash and cash equivalents of
$1,791,275. The company also had approximately $5.0 million in
available-for-sale investments which are invested in tax-free municipal bonds
with interest rates ranging between 4.0% to 5.0%. 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. Cash provided
by operating activities for the nine months ended September 30, 2000, totaled
$2,828,694.
The Company has a revolving credit facility with Bank of America, N.A.,
which provides an aggregate of
8
<PAGE> 9
$20.0 million for general working capital needs and expansion of Dental Centers.
As of October 26, 2000, the Company had the entire $20.0 million available for
borrowing. The credit facility has certain financial covenants and restrictions
which could limit the amount the Company could borrow at any given time in the
event of changes in financial ratios and continued losses.
During the quarter ended September 30, 2000, the Company consolidated
four (4) Dental Centers into two (2). An analysis of existing market conditions
supported the decision to consolidate these 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 November 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 $500,000 on capital expenditures, including one new
internally developed Dental Center, the renovation 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 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 operations and expansion will be funded primarily with any remaining 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 continue or future positive cash flow is not realized,
the Company would seek to finance continued operations and growth through other
credit sources, and where desirable and if available, funding from the sale of
debt or equity securities.
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.
The Company has no long-term debt, and expects to finance future
capital needs through available capital, future earnings, if obtained, and bank
lines of credit. The Company's exposure to market risk for changes in interest
rates is primarily in its investment portfolio. The Company, pursuant to
investing guidelines, mitigates exposure by limiting maturity, placing
investments with high credit quality issuers and limiting the amount of credit
exposure to any one issuer. During the nine months ended September 30, 2000,
the Company earned investment income of approximately $295,000. If interest
rates had been 1% lower than they were during the year, investment income would
have been approximately $60,000 lower. The market risks associated with the
investment portfolio exposure have not changed materially during this year.
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
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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 anticipated future cash flows;
(iii) our liquidity and capital resources;
(iv) our financing opportunities and plans;
(v) our future performance and operating results;
(vi) the Company's future management fee; and
(vii) the change in the Coast P.A. dentist compensation plan.
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 any future acquisitions at reasonable and
anticipated costs;
(iii) any adverse effect or limitations caused by any governmental
regulations or actions;
(iv) any continued losses or any future ability to obtain
acceptable financing, where desirable in the future, in
connection with our operating plans;
(v) any increased competition in business and in acquisitions;
(vi) any continued difficulty 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;
(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;
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(xv) any inability of the Coast P.A. to incentivize, motivate,
retain and attract new dentists;
(xvi) the impact of the Coast P.A.'s revised compensation plan on
the performance of the Coast P.A.;
(xvii) the combined decline of public market interest in the
Company's business sector; and
(xviii) our inability to meet the continued listing requirements of
the Nasdaq National Market.
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.
(b) Reports on Form 8-K
None.
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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 November 13, 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)
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
11.1 Computation of Per Share Earnings (Loss).
27 Financial Data Schedule for the quarter ended September 30,
2000 (for SEC use only.)
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