SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15d
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ____________ to ____________
Commission file number: 0 - 23219
DENTAL CARE ALLIANCE, INC.
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(exact name of registrant as specified in its charter)
DELAWARE 65-0555126
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
DENTAL CARE ALLIANCE, INC.
1343 MAIN STREET, SUITE 700
SARASOTA, FL. 34236
(941) 955-3150
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15d of the Securities and Exchange Act of 1934
during the preceding 12 months (or 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.
[X] Yes [ ] 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 practical date.
Total number of shares of Common Stock, as of August 6, 1998: 6,978,065
<PAGE>
DENTAL CARE ALLIANCE, INC.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibits 16
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial statements
DENTAL CARE ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................. $20,367,722 $ 9,032,998
Consulting and license fees receivable ................ 64,116 29,569
Management fee receivable from PAs .................... 914,026 3,104,027
Advances to PAs, net .................................. 483,421 1,361,517
Acquisition accounts receivable ....................... -- 600,000
Other current assets .................................. 254,412 449,474
Current portion of long-term notes receivable from PA's 83,522 110,585
----------- -----------
TOTAL CURRENT ASSETS ................................ 22,167,219 14,688,170
Property and equipment, net .............................. 1,113,050 2,736,150
Intangible assets, net ................................... 4,747,303 13,287,742
Long-term notes receivable from PAs, less current portion 313,940 682,859
Other assets ............................................. 212,975 138,611
----------- -----------
TOTAL ASSETS ........................................ $28,554,487 $31,533,532
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 638,030 $ 830,857
Accrued payroll and payroll related costs ............. 64,933 168,089
Other accrued liabilities ............................. 412,952 619,010
Acquisition and affiliation obligations payable ....... 920,000 600,000
Income taxes payable .................................. 179,367 267,104
Current portion of long-term debt and capital leases .. 195,193 508,348
----------- -----------
TOTAL CURRENT LIABILITIES ........................... 2,410,475 2,993,408
Deferred income taxes .................................... 773,269 808,269
Long-term debt, less current portion ..................... 816,918 1,638,903
----------- -----------
TOTAL LIABILITIES ................................... 4,000,662 5,440,580
Commitments and contingencies ............................ -- --
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 6,977,700 and 6,978,065 issued
and outstanding, respectively ....................... 69,777 69,781
Additional paid-in capital ............................... 24,126,009 24,130,389
Retained earnings ........................................ 358,039 1,892,782
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .......................... 24,553,825 26,092,952
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $28,554,487 $31,533,532
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DENTAL CARE ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fees ......................... $ 1,351,768 $ 6,990,212 $ 2,471,759 $11,802,583
Consulting and licensing fees ........... 77,195 173,533 161,885 294,133
----------- ----------- ----------- -----------
TOTAL REVENUES .................... 1,428,963 7,163,745 2,633,644 12,096,716
Managed dental center expenses:
Staff salaries and benefits .......... 331,101 2,102,204 601,383 3,321,912
Dental supplies ...................... 131,756 471,103 213,334 831,074
Laboratory fees ...................... 200,754 707,000 373,010 1,311,487
Marketing ............................ 79,567 223,403 176,627 423,613
Occupancy ............................ 176,193 753,874 333,085 1,278,186
Other ................................ 183,420 470,527 326,494 828,240
----------- ----------- ----------- -----------
TOTAL MANAGED DENTAL CENTER
EXPENSES .................... 1,102,791 4,728,111 2,023,933 7,994,512
----------- ----------- ----------- -----------
326,172 2,435,634 609,711 4,102,204
Salaries and benefits ................... 192,296 476,227 373,016 786,414
General and administrative .............. 68,269 496,893 135,970 820,226
Depreciation and amortization ........... 35,167 266,599 41,578 389,751
----------- ----------- ----------- -----------
295,732 1,239,719 550,564 1,996,391
OPERATING INCOME .................. 30,440 1,195,915 59,147 2,105,813
Interest income, net .................... 21,528 161,648 36,464 392,955
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .............. 51,968 1,357,563 95,611 2,498,768
Provision for income taxes .............. 18,979 523,748 36,000 964,025
----------- ----------- ----------- -----------
NET INCOME .............................. 32,989 833,815 59,611 1,534,743
Adjustment to redemption value of
common and preferred securities (10,500) -- (10,500) --
Cumulative preferred stock dividend .. (30,000) -- (60,000) --
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCK .............................. $ (7,511) $ 833,815 (10,889) $ 1,534,743
=========== =========== =========== ===========
Basic net income per common share ....... $ -- $ 0.12 $ -- $ 0.22
Diluted net income per common share ..... $ -- $ 0.12 $ -- $ 0.22
Basic weighted average common shares
outstanding ........................ 4,228,302 6,977,985 4,131,510 6,977,843
Diluted weighted average common shares
outstanding ........................ 4,315,771 7,104,329 4,218,979 7,076,495
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
DENTAL CARE ALLIANCE, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1997 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ............................................. $ 59,611 $ 1,534,743
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ..................... 41,578 389,751
Stock issued for services ......................... -- 4,377
Deferred income taxes ............................. -- 35,000
(Increase) decrease in:
Consulting and license fees receivable .............. (47,427) 34,547
Management fee receivable from PAs .................. (179,015) (2,190,001)
Other assets ........................................ 17,367 (195,062)
Increase in:
Accounts payable .................................... 82,774 192,827
Other accrued liabilities ........................... 20,237 293,795
Accrued payroll & payroll related costs ............. 88,336 103,156
---------- ------------
Net cash provided by operating activities ........... 83,461 203,133
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .................... (211,040) (1,811,857)
Advances made on notes receivable from PAs ............. -- (450,000)
Payments received on notes receivable from PAs ......... 24,639 54,019
Acquisition and affiliations obligations payable ....... -- (920,000)
Investment in servicing agreements and other assets .... -- (8,667,063)
----------- ------------
Net cash used in investing activities ............... (186,401) (11,794,901)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................. 20,020 --
Payments of long-term debt ............................. (23,449) (80,922)
Proceeds from issuance of long-term debt ............... -- 1,216,062
Advances to PAs ........................................ (270,673) (878,096)
----------- ------------
Net cash (used in) provided by financing activities . (274,102) 257,044
Net decrease in cash and cash equivalents ........... (377,042) (11,334,724)
Cash and cash equivalents at beginning of period .......... 1,253,259 20,367,722
Cash and cash equivalents at end of period ................ $ 876,217 $ 9,032,998
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes ........... $ -- $ 838,074
Cash paid during the period for interest ............... $ 6,809 $ 62,072
Increase to redemption value of preferred stock ........ $ 10,500 $ --
Increase in cumulative preferred stock dividend ........ $ 60,000 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DENTAL CARE ALLIANCE, INC.
Notes to Interim Financial Statements
June, 1998 (Unaudited)
1. OPERATIONS AND ORGANIZATION
Dental Care Alliance, Inc. (the "Company") provides management services to
dental practices ("Managed Dental Centers") by entering into
administrative services agreements ("Management Agreements") with
individual dental professional corporations or professional associations
(the "PAs"). In addition, the Company provides licensing services to
Managed Dental Centers and certain non-managed practices ("Licensed Dental
Centers"). As of June 30, 1998, the Company provided management and
licensing services to 49 Managed Dental Centers. Additionally, the Company
provides only licensing services to three Licensed Dental Centers.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION / BASIS OF CONSOLIDATION. The accompanying
consolidated interim financial statements have been prepared on the
accrual basis of accounting and include only those operations which are
under the ownership and financial control of the Company. All intercompany
accounts and transactions have been eliminated in consolidation. The
Company does not have ownership in or exercise control over the dentistry
activities of the PAs and accordingly, the accompanying interim financial
statements do not consolidate the results of the PAs.
The accompanying consolidated interim financial statements are unaudited
and should be read in conjunction with the audited financial statements of
the Company for the year ended December 31, 1997.
In the opinion of management, the accompanying interim financial
statements include all adjustments, consisting only of normal recurring
adjustments, and disclosures necessary to prevent the information
presented from being misleading. Certain prior period financial statement
balances have been reclassified to conform with the current period
presentation. The results of operations for the periods presented are not
necessarily indicative of results for the full year.
3. AFFILIATIONS
In January, 1998, the Company executed 25-year Management Agreements with
two practices located in Bradenton, Florida. Unaudited net practice
revenue of the dental practices was $1.5 million for the year ended
December 31, 1997. The total cost to the Company was approximately
$480,000 of which $225,000 is allocated to tangible assets and $255,000,
is allocated to Management Agreements. The Management Agreements executed
are net revenue contracts.
In February, 1998, the Company executed 25-year Management Agreements with
two practices located in Orlando, Florida. Unaudited net practice revenue
of the dental practices was approximately $1.3 million for the year ended
December 31, 1997. The total cost to the Company is approximately $500,000
of which $195,000 is allocated to tangible assets and $305,000 is
allocated to Management Agreements. The Management Agreements executed are
net revenue contracts.
In March, 1998, the Company executed a 25-year Management Agreement with a
practice in Mt. Dora, Florida. Unaudited net practice revenue of the
dental practice was approximately $1.0 million. The total cost to the
Company is approximately $349,000 of which $191,000 is allocated to
tangible assets and $158,000 is allocated to the Management Agreement. The
Management Agreement executed is a net revenue contract.
6
<PAGE>
In March, 1998, the Company executed a 25-year Management Agreement with a
practice in Dalton, Georgia. Unaudited net practice revenue of the dental
practice was approximately $1.7 million. The total cost to the Company is
approximately $572,000 of which $100,000 has been allocated to tangible
assets and $472,000 to the Management Agreement. The Management Agreement
executed is a net revenue contract.
In March, 1998, the Company executed 25-year Management Agreements with
four dental practices in Detroit, Michigan. Unaudited net practice revenue
of the dental practices was approximately $4.4 million. The total cost to
the Company is approximately $2.6 million of which $185,000 has been
allocated to tangible assets and $2.4 million to the Management
Agreements. The Management Agreements executed are net revenue contracts.
In May, 1998, the Company executed a 25-year Management Agreement with a
practice in Savannah, Georgia. Unaudited net practice was approximately
$700,000. The total cost to the Company is approximately $170,000 of which
$2,000 has been allocated to tangible assets and $168,000 to the
Management Agreement. The Management Agreement executed is a net revenue
contract.
In June, 1998, the Company executed a 25-year Management Agreement with a
dental practice in Orange City, Florida. Unaudited net practice revenue of
the dental practice was approximately $1.1 million. The total cost to the
Company is approximately $365,000 of which $77,000 has allocated to
tangible assets and $288,000 to the Management Agreement. The Management
Agreement executed is a net revenue contract.
In June, 1998, the Company executed a 25-year Management Agreement with a
practice in Tallahassee, Florida. Unaudited net practice revenue of the
dental practice was approximately $550,000. The total cost to the Company
is approximately $140,000 of which $80,000 is allocated to tangible assets
and $60,000 to the Management Agreement. The Management Agreement executed
is a net revenue contract.
In June, 1998, the Company executed 25-year Management Agreements with two
dental practices in the Atlanta, Georgia area. Unaudited net practice
revenue of the dental practices was approximately $1.5 million. The total
cost to the Company is approximately $510,000 of which $105,000 is
allocated to tangible assets and $405,000 to the Management Agreement. The
Management Agreement executed is a net revenue contract.
4. ACQUISITIONS
On April 1, 1998, the Company acquired all the outstanding capital stock
of Dental One Associates, Inc., a Georgia corporation ("Dental One"),
pursuant to a Stock Purchase Agreement effective March 20, 1998.
Pursuant to the Stock Purchase Agreement, the Company acquired all the
assets of Dental One. Such assets consisted primarily of non-dental assets
(including dental equipment) and management agreements. Five hundred
thousand shares (500,000) of the common stock of Dental One, representing
one hundred percent (100%) of the issued and outstanding shares were
purchased by the Company in consideration of (a) $2.4 million in cash; (b)
a promissory note in the amount of $1,047,510, bearing interest at 8.5%
per annum, payable in equal quarterly payments of principal and interest
amortized over five years with a three year balloon; and (c) a promissory
note in the amount of $1.2 million payable in monthly installments over
120 days. The Company was assigned management fee receivables owed Dental
One by its Managed Dental Centers of approximately $1.2 million. These
receivables which equal $600,000 as of June 30, 1998 have been recorded as
acquisition accounts receivable.
7
<PAGE>
Item 2. Management's discussion and analysis of financial condition and results
of operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21B
OF THE SECURITIES EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, AMONG OTHERS, THE
PACE OF DEVELOPMENT AND ACQUISITION ACTIVITY, THE DEPENDENCE ON MANAGEMENT
AGREEMENTS, THE PAS AND AFFILIATED DENTISTS, THE REIMBURSEMENT RATES FOR DENTAL
SERVICES, AND OTHER RISKS DETAILED IN THE COMPANY'S SECURITIES AND EXCHANGE
COMMISSION FILINGS. OTHER RISK FACTORS ARE LISTED IN THE COMPANY'S REGISTRATION
STATEMENT NO. 333-34429 AS FILED WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
The Company is a dental practice management company providing management
and licensing services to dental practices in Florida, Georgia and Michigan. As
of June 30, 1998 the Company provided management and licensing services to 49
Managed Dental Centers, 32 of which are located in Florida, nine of which are
located in Michigan and eight of which are located in Georgia. As of June 30,
1997, the Company provided management and licensing services to 13 Managed
Dental Centers, all located in Florida. Additionally, the Company provided only
licensing services to three Licensed Dental Centers in Florida as of both dates.
Management services include financial, accounting, billing, training, efficiency
and productivity enhancement, recruiting, team building, marketing, advertising,
purchasing, collection and other services, as well as the provision of
management and administrative personnel. Licensing services include marketing,
advertising and purchasing. With respect to management services it provides to
dental practices, the Company enters into Management Agreements with the
professional association or corporation ("PAs") that own the practices.
Prior to October 1996, the management fee paid to the Company pursuant to
the Management Agreements had been equal to a percentage ranging from 50-90% of
the net profits of the individual Managed Dental Centers, as defined in the
Management Agreements, plus reimbursement to the Company of its non-professional
expenses. Effective October 1996, the Company revised all of its 12 then
existing Management Agreements. Ten of these agreements were revised such that
the Company earns management fees based on 74% of total net patient revenues and
is based on cash collected minus any patient refunds ("Net Collected Revenue")
and the Company assumes responsibility for the payment of the non-professional
expenses of the Managed Dental Centers (the "Standard Management Agreements").
The remaining two Management Agreements continue to have management fee
structures based upon 50-55% of the net profit, as defined, of the two related
Managed Dental Centers. Subsequent to October 1996, the Company has executed
Management Agreements on terms substantially similar to those of the Standard
Management Agreements with management fees ranging from 67% - 74% of total net
patient revenues.
The Company also enters into license agreements with each Dental Center
pursuant to which the Company provides licensing and advertising services to the
Dental Centers. In return for such services, the Company has collected fees
generally ranging from $800 to $1,000 per month from each Managed Dental Center
and from $600 to $1,200 from each Licensed Dental Center.
Historically, in connection with the execution of a Management Agreement,
a PA has typically acquired both the dental and the non-dental assets of a
Managed Dental Center. The Company has either made loans to the acquiring PA or
has assisted the PA in obtaining third-party financing to purchase such assets.
Recently, the Company has acquired the non-dental assets of Managed Dental
Centers while the PAs acquired the dental assets of such Managed Dental Centers.
In addition, due to changing market conditions, the Company has begun
compensating PAs for the execution of Management Agreements.
8
<PAGE>
The Company from time to time has made loans to newly formed PAs with
which it has entered into Management Agreements to purchase the dental assets of
the related dental practices. In return the PAs execute promissory notes to the
Company in the amount of such loans. At June 30, 1998, the total outstanding
balance of such loans was $793,444. The notes underlying such loans generally
have terms ranging from two to ten years, bear interest at rates ranging
between 8.5% and 18.5% and are secured by the assets of the related dental
practice. The PAs to which such loans are made are newly formed and have no
assets other than the assets of the dental practices being acquired and no
liabilities other than the liabilities relating to the loans. In addition, the
Company from time to time makes working capital advances to individual PAs,
although it is not obligated contractually or otherwise to make such advances.
The extension of loans and working capital advances to the PAs by the Company is
not conditioned upon entering into Management Agreements with the Company.
Extension of any advances is entirely within the Company's discretion. These
advances are due within 12 months of issuance, bear interest at 8.5%, subject to
adjustment based on changes in the rates at which the Company may borrow from
its lenders. All advances made to PAs are guaranteed by the relevant PA owner,
although there is no independent collateral for these working capital advances.
A repayment default under such advances is also a default under the relevant
Management Agreement which permits the Company, among other things, to liquidate
the assets of the dental practice. At June 30, 1998, the total outstanding
balance of such advances was $1,361,517. There have been no revisions to the
terms of any such loans or advances.
None of the PA owners are officers, directors or employees of the Company.
Dr. Dennis A. Corona, the owner of PAs operating a majority of the Managed
Dental Centers, owns approximately 1% of the Company's Common Stock.
The Company does not consolidate the balance sheets or the operating
results (including revenue and expenses) of the dental practices under the
Management Agreements since these revenues and expenses are earned and incurred
by the PAs, not the Company. The Company has recorded goodwill and other
intangible assets in cases where the Company has paid a PA in consideration for
a modification to an existing Management Agreement or entering into new
Management Agreements. Where the Company acquires the assets of another
management company, such a transaction constitutes a business combination and
the Company recognizes the related goodwill, if any, in accordance with the
purchase method of accounting.
In October 1997, the Company expanded its Management Information System
hardware and software in the corporate office. In 1998, the Company has begun
testing of new dental practice management software in several of its Managed
Dental Centers. The Company anticipates that all of the dental practices
currently under management will have installed the new software and, where
necessary, upgraded their hardware requirements. The Company believes that the
cost for the hardware and software will not be in excess of $500,000, but this
amount may increase as the number of Managed Dental Centers increases. The new
software installed at several of the Managed Dental Centers and the corporate
offices has addressed the Year 2000 issues for those systems under the Company's
control. The Company has not determined the level of preparedness of third
parties with which it deals nor the implications that a failure on their part
could have on the Company. The Company is in the process of making that
determination. In analyzing potential new affiliations, the Company will
consider the cost and timing of a practice's ability to meet the Year 2000 issue
before executing an agreement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
MANAGEMENT FEES. Management fees consist of a percentage of the net
realizable patient-related revenue at the majority of the PAs and a percentage
of the net realizable profits earned by the remaining PAs. Management fees
increased 417% from $1.4 million for the three months ended June 30, 1997, to
$7.0 million for the three months ended June 30, 1998. Revenues at existing
practices grew 10 percent to approximately $1.5 million while the balance of the
increase relates to the addition of 36 Managed Dental Centers since April 1,
1997.
9
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CONSULTING AND LICENSING FEES. Consulting and licensing fees consist of
fees earned by the Company for licensing services to all of the Dental Centers.
For the three months ended June 30, 1997 the Company also provided consulting
services to four Managed Dental Centers in Michigan. Consulting and licensing
fees increased 124.8% from $77,195 for the three months ended June 30, 1997, to
$173,533 for the three months ended June 30, 1998. The increase is primarily
attributable to the 36 additional Managed Dental Centers offset by a $37,000
decrease attributable to the cessation of consulting fees on the four Michigan
practices which were converted effective July 1, 1997 into Managed Dental
Centers. Income from these consulting fees are now included in management fees.
MANAGED DENTAL CENTER EXPENSES. Managed dental center expenses consist of
non-professional expenses at the Managed Dental Centers. Managed dental center
expenses increased from $1.1 million for the three months ended June 30, 1997,
to $4.7 million for the three months ended June 30, 1998. As a percentage of net
patient revenue at the Managed Dental Centers, Managed Dental Center Expenses
decreased from 59% to 48%. This decrease is attributable to economies in
purchasing of dental supplies and laboratories (5%), reduced marketing
expenditures (2%) in new affiliations with established reputations, and lower
occupancy (2%) and other (5%) costs associated with new affiliations, offset by
higher staff salaries (3%).
SALARIES AND BENEFITS. Salaries and benefits consist of costs for salaries
and benefits for employees at the Company's corporate and regional offices.
Salaries and benefits increased 147.7% from $192,296 for the three months ended
June 30, 1997, to $476,227 for the three months ended June 30, 1998. This
increase is attributable to additional staff required to manage the additional
36 Managed Dental Centers. As a percentage of net patient revenue at Managed
Dental Centers, salaries decreased from 10% to 5%.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consists
of expenses related to the operation of the Company's corporate and regional
offices, such as rent, legal, accounting and travel expenses. General and
administrative expenses increased 627.8% from $68,269 for the three months ended
June 30, 1997, to $496,893 for the three months ended June 30, 1998. This
increase is attributable to the opening of regional offices in Michigan, Georgia
and Palm Beach, Florida, additional professional costs associated with the
change from a privately-held to publicly-held company and increased occupancy
and travel costs associated with the additional 36 Managed Dental Centers. As a
percentage of net patient revenue at Managed Dental Centers, general and
administrative increased from 4% to 5%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
consists of the depreciation expense on capital assets owned by the Company and
located at either the corporate offices or at Managed Dental Centers. It also
includes amortization on intangible assets, primarily Management Services
Agreements. Depreciation and amortization expense increased 658.1% from $35,167
for the three months ended June 30, 1997, to $266,599 for the three months ended
June 30, 1998. This increase was attributable to the depreciation on the
acquired non-dental assets and amortization on the acquired and purchased
Management Agreements related to the 36 additional Managed Dental Centers. As a
percentage of net patient revenue at Managed Dental Centers, depreciation and
amortization increased from 2% to 3%.
INTEREST INCOME, NET. Interest income, net increased from $21,528 for the
three months ended June 30, 1997, to $161,648 for the three months ended June
30, 1998. This increase is attributable primarily to earnings on increased cash
balances associated with the Company's public offering in November 1997.
10
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SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
MANAGEMENT FEES. Management fees increased 377.5% from $2.5 million for
the six months ended June 30, 1997 to $11.8 million for the six months ended
June 30, 1998. Revenues at existing practices grew nine percent to approximately
$2.7 million, while the balance of the increase relates to the addition of 37
Managed Dental Centers since January 1, 1997.
CONSULTING AND LICENSING FEES. Consulting and licensing fees increased
81.7% from $161,885 for the six months ended June 30, 1997 to $294,133 for the
six months ended June 30, 1998. The increase is attributable to the addition of
37 Managed Dental Centers, offset by the cessation of approximately $85,000 on
four Michigan practices which were converted effective July 1, 1997 into Managed
Dental Centers. Income from consulting fees is now included in management fees.
MANAGED DENTAL CENTER EXPENSES. Managed dental center expenses increased
from $2.0 million for the six months ended June 30, 1997 to $8.0 million for the
six months ended June 30, 1998. As a percentage of net patient revenue at
Managed Dental Centers, Managed Dental Center expenses decreased from 57% to
48%. The decrease is due to economics in purchasing of dental supplies and
laboratories (3%), reduced marketing expenditures (3%) in new affiliations with
established reputations and other general and administrative expenses (3%).
SALARIES AND BENEFITS. Salaries and benefits increased 110.8% from
$373,016 for the six months ended June 30, 1997 to $786,414 for the six months
ended June 30, 1998. This increase is attributable primarily to the hiring of
additional personnel in the Company's accounting and business development
departments and regional offices in Michigan, Georgia and Palm Beach, Florida to
administer the additional 37 Managed Dental Centers. As a percentage of net
patient revenue, salaries and benefits decreased from 11% to 5%.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
503.2% from $135,970 for the six months ended June 30, 1997 to $820,226 for the
six months ended June 30, 1998. This increase is attributable primarily to
opening of regional offices, additional professional costs associated with the
change from a privately-held to publicly-held company and increased occupancy
and travel costs associated with the additional 37 Managed Dental Centers. As a
percentage of the net patient revenue, general and administrative increased from
4% to 5%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 837.4% from $41,578 for the six months ended June 30, 1997 to $389,751
for the six months ended June 30, 1998. This increase is attributable to the
depreciation on the acquired non-dental assets and amortization on the
Management Agreements obtained in connection with the 37 additional Managed
Dental Centers. As a percentage of net patient revenue, depreciation and
amortization increased from 1% to 2%.
INTEREST INCOME, NET. Interest income, net increased from $36,464 for the
six months ended June 30, 1997 to $392,955 for the six months ended June 30,
1998. This increase is attributable primarily to earnings on the higher cash
balance associated with the Company's public offering in November, 1997.
SEASONALITY
The Company historically has experienced seasonal fluctuations in its
quarterly revenue. Specifically, the first and fourth quarters reflect the
highest patient volume, while the third quarter has traditionally had the lowest
patient volume. The Managed Dental Centers in Florida have traditionally
experienced increased patient visits in November through March due to an
increase in the population base during these months, while patient visits
decrease during the summer. The Company began managing additional Managed Dental
Centers in Michigan and Georgia in July 1997 and March 1998, respectively. The
Company expects that the seasonality in Florida will be offset to some extent by
fewer seasonal fluctuations in Michigan and Georgia.
11
<PAGE>
QUARTERLY FINANCIAL INFORMATION
The following table sets forth unaudited quarterly operating results for
each of the Company's last four quarters. This information has been prepared on
a basis consistent with the Company's audited financial statements and includes
all adjustments (consisting only of normal recurring adjustments) that
management considers necessary for a fair presentation of the data. These
quarterly results are not necessarily indicative of future results of
operations.
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, DECEMBER 30, MARCH 31, JUNE 30,
1997 1997 1998 1998
---------------------------------------------------
<S> <C> <C> <C> <C>
Number of Managed Dental Centers (1) 20 29 44 49
Net patient revenue at Managed Dental
Dental Centers (2) .............. $3,190,620 $3,868,333 $6,799,853 $9,942,993
Total revenues ...................... 2,256,950 2,970,035 4,932,971 7,163,745
Managed dental center expenses ...... 1,753,070 2,130,256 3,266,401 4,728,111
Operating income .................... 115,246 246,296 909,898 1,195,915
Net income .......................... 75,648 285,046 700,928 833,815
<FN>
(1) Presented as of the end of the period.
(2) Net patient revenue is the total amount of revenue recorded by the PAs
during the period. Revenue is included from and after the date on which
the relevant PA executed a Management Agreement with Company.
</FN>
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through internal cash flow, the sale of equity securities and commercial bank
borrowings. Net cash provided by operations for the six months ended June 30,
1997 and 1998 was $83,461 and $203,133, respectively. Net cash provided by
operations for these periods consisted primarily of net income and increases in
current liabilities offset by increases in consulting, license fees and
management fee receivables.
Cash used in investing activities for the six months ended June 30, 1997
and 1998 was $186,401 and $11,794,901, respectively. For the six months ended
June 30, 1997, the investing activities were primarily related to payments on
notes receivable from PAs. For the six months ended June 30, 1998, the investing
activities included $8,667,063 related primarily to the purchase of Management
Agreements, $1,811,857 related to the purchase of non-dental assets, $920,000
related to satisfaction of outstanding obligations on acquisitions and
affiliations and $450,000 related to an increase in notes receivable to PAs.
Cash (used in) provided by financing activities for the six months ended
June 30, 1997 and 1998 was ($274,102) and $257,044, respectively. For the six
months ended June 30, 1997 the financing activities were primarily related to
advances to PAs. For the six months ended June 30, 1998, the Company had
$1,216,062 in net proceeds on long-term debt offset by $878,096 in working
capital advances to PAs.
In August 1997, the Company entered into a revolving line of credit (the
"Credit Agreement") which provides for an aggregate of $1.2 million. Under the
terms of the Credit Agreement, the Company may use up to $600,000 of the credit
line for the purchase of non-dental assets of dental centers provided that each
borrowing is repaid within 45 days of its drawdown. The remaining $600,000 may
be used for general working capital needs. The revolving line of credit bears
interest at 0.75% per annum above the lender's prime rate and is payable on
demand. Interest only is payable monthly. Amounts borrowed pursuant to the
Credit Agreement are secured by a first security interest in most of the
Company's assets, including receivables and equipment. Additionally, any
outstanding balances under the working capital line are guaranteed by the
Company's Chairman of the Board, President and Chief Executive Officer.
12
<PAGE>
On May 14, 1998, the Company executed a $15 million Revolving Note with
Nationsbank, N.A. which replaced the Credit Agreement. The Revolving Note is
intended to provide funds for the acquisition and affiliation with dental
practices and working capital uses in a revolving line of credit facility. The
note matures in one year, with annual renewals thereafter. The Company, and its
subsidiaries, have pledged substantially all of its assets as collateral. The
note bears interest at 1.75% over LIBOR, payable monthly. The Company is
required to maintain certain financial covenants during the term of the note. As
of June 30, 1998, the Company had no outstanding balances against the Revolving
Note.
The Company previously has made loans to various PAs in connection with
the PAs' acquisition of assets of dental practices and has made working capital
advances to various PAs for their operations. The loans, which are evidenced by
interest-bearing notes that are payable upon demand, are being paid in
accordance with their terms. Both the loans and advances are personally
guaranteed by the PA owners.
The Company intends to enter into additional Management Agreements with
respect to, as well as purchase the non-dental assets of, additional practices.
In addition, the Company intends to acquire Management Agreements or lend money
to PAs to fund the purchase of the assets of additional dental practices. The
Company plans to finance these activities through a combination of the available
cash, cash flow from operations, bank financing and issuances of Common Stock.
On November 4, 1997, the Company completed the public offering of
2,000,000 shares of Common Stock at $12 per share resulting in proceeds, net of
underwriter commissions and offering costs, of approximately $21.0 million.
Based upon the Company's anticipated needs for acquisition of non-dental assets
of dental practices, working capital and general corporate purposes, management
believes that the combination of existing cash, cash flow from operations,
available credit lines and net proceeds from the Offering will be sufficient to
meet its capital requirements through the next year.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
There have been no changes in securities. From November 4, 1997
through December 31, 1997 the Company expended an estimated
$2,812,700 for costs incurred in connection with the offering,
including Underwriter discounts and commissions ($1,680,000), legal
($395,000), accounting ($342,000), printing ($155,000) and
miscellaneous expenses. None of these expenses were payable either
directly or indirectly to any directors, officers or affiliates.
After deducting these costs, net proceeds of the offering to the
Company were $21,187,300.
Since its initial public offering, the Company has expended an
estimated $12,208,000 for the purchase of tangible assets ($1.8
million),advances to PAs ($880,000), Notes Receivable from PAs
($450,000) and the entering into Management Agreements with dental
practices ($9 million). No portion of the $12,208,000 was paid to
any directors, officers or affiliates. The balance of the proceeds
remain invested in short-term cash and cash equivalents.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The
1998 Annual Meeting of Stockholders of the Company was held on May
27, 1998. Shareholders were asked to approve the election of two
members to the Board of Directors and approve and ratify the
Company's 1997 Executive Incentive Compensation Plan. Directors
Steven R. Matzkin and Robert Raucci continue to serve on the Board.
Voting was as follows:
Directors: FOR AGAINST WITHHELD
Michell B. Olan 4,756,687 6,435
Curtis Lee Smith 4,756,687 6,435
Compensation Plan 4,479,917 277,380 5,825
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
10.28 Loan Agreement Dated May 14, 1998 Between the Company and
NationsBank.
27 Financial Data Schedule for the Quarter Ended June 30, 1998
(for Sec use only).
REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on June 15, 1998, as an
amendment to Form 8-K filed on April 16, 1998 to include the audited
financial statements of Dental One Associates, Inc.
The Company filed a report on Form 8-K on July 10, 1998, as a second
amendment to Form 8-K on April 16, 1998 to include certain changes
to the Pro Forma Financial Statements of the Company.
14
<PAGE>
DENTAL CARE ALLIANCE, INC.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DATE: AUGUST 14, 1998 DENTAL CARE ALLIANCE, INC.
/s/ STEVEN R. MATZKIN, DDS
--------------------------
STEVEN R. MATZKIN, DDS
President and Chief Executive Officer
Chairman of the Board
/s/ DAVID P. NICHOLS
--------------------
DAVID P. NICHOLS
Chief Financial Officer
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.28 Loan Agreement dated May 14, 1998
between the Company and NationsBank.
27 Financial Data Schedule
EXHIBIT 10.28
NATIONSBANK, N.A.
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of May 14, 1998, by and
between NATIONSBANK, N.A., a National Banking Association ("Lender" or "Bank")
and the Borrower and Guarantor described below:
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank, Borrower and Guarantor agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with respect
thereto:
A. BORROWER. DENTAL CARE ALLIANCE, INC., a Delaware
corporation.
B. BORROWER'S ADDRESS. 1343 Main Street, Suite 700, Sarasota, Florida
34236.
C. GUARANTOR. DENTAL CARE ALLIANCE OF FLORIDA, INC., a Florida
corporation, DENTAL CARE ALLIANCE OF GEORGIA, INC., a Florida corporation,
DENTAL CARE ALLIANCE OF MICHIGAN, INC., A Michigan corporation, and DENTAL ONE
ASSOCIATES, INC., a Georgia corporation and all other Subsidiaries, as
hereinafter defined, that may exist from time to time during the term of the
Loan.
D. GURANTOR'S ADDRESS. 1343 Main Street, Suite 700, Sarasota, Florida
34236.
E. COLLATERAL. The property pledged as security for the Loan.
F. CURRENT ASSETS. Current Assets means the aggregate amount of all of
its assets which would, in accordance with GAAP, properly be defined as current
assets.
G. CURRENT LIABILITIES. Current Liabilities means the aggregate amount
of all current liabilities as determined in accordance with GAAP, but in any
event shall include all liabilities except those having a maturity date which is
more than one year from the date as of which such computation is being made.
H. HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous wastes or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products, oil
and asbestos.
I. LOAN(S). Loan(s) means collectively any and all loans heretofore or
hereafter made by Bank to the Borrower.
J. LOAN DOCUMENTS. Loan Documents means this Loan Agreement and any
and all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed and/or
delivered by Borrower, any Guarantor or third party in connection with any Loan.
K. SUBSIDIARIES OR SUBSIDIARY. Any corporation organized under the
laws of the State of the United States of America, or the District of Columbia
or Puerto Rico and more than 50% of the stock of any class of which shall, at
the time as of which any determination is being made, be owned either directly
by Borrower or through any other Subsidiary.
L. TANGIBLE NET WORTH. Tangible Net Worth means the amount by which
total assets exceed total liabilities in accordance with GAAP.
<PAGE>
M. ACCOUNTING TERMS. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied, with respect to the financial statements
referenced in Section 4 hereof.
2. LOAN.
A. LOAN. Bank hereby agrees to make (or has made) a loan or loans to
Borrower in the aggregate principal amount of $15,000,000.00. The obligation to
repay the loan in evidenced by a promissory note or notes dated May 14, 1998
(the promissory note or notes together with any other promissory notes
heretofore or hereafter executed by Borrower in favor of Bank and any and all
renewals, extensions or rearrangements thereof being hereafter collectively
referred to as the "Note"), having a maturity date, repayment terms and
interest rate as set forth in the Note.
B. REVOLVING CREDIT FEATURE. The Loan provides for a revolving line of
credit (the "Line") under which Borrower may from time to time, borrow, repay
and re-borrow funds.
C. NON USAGE FEE. Borrower will pay hereafter on July 1, 1998 and on
the 1st day of each calendar quarter thereafter for the period from and
including the date the Line was established to and including the maturity date
of the Line, a non usage fee at a rate per annum of .25% of the average daily
unused portion of the Line during such period. The Borrower may at any time
upon written notice to the Bank permanently reduce the amount of the Line at
which time the obligation of the Borrower to pay a non-usage fee shall thereupon
correspondingly be reduced.
E. USE OF LOAN PROCEEDS; CONDITIONS.
1. Borrower and its Subsidiaries are dental practice management
companies providing management, administrative and licensing services to dental
practices by entering into management agreements and/or administrative services
agreements with individual dental professional corporations or professional
associations (collectively the "P.A.s"), and also provides licensing services
to P.A.s by entering into licensing agreements. The Loan proceeds shall be mood
for working capital purposes and for the purpose of acquiring assets and/or
entering into management agreements and/or administrative services agreements or
licensing agreements with P.A.s in connection with Borrower's business.
2. At all times during the term of the Loan, Borrower must receive
prior written approval from the Bank for advances of funds under the Line for
the acquisition of assets or entering into management agreements, administrative
services agreements or licensing agreements with a particular P.A. the cost of
which is in excess of $2,500,000,00 and/or in the event the aggregate of all
such advances within any one calendar quarter exceeds $5,000,000.
3. Prior to and as a condition of Borrower's entitlement to an advance
under the Line, Borrower shall provide to Bank a fully executed compliance
certificate in form satisfactory to Bank, evidencing Borrower's compliance with
all of the loan covenants, terms and provisions of this Agreement. Bank
covenants and agrees with Borrower that for purposes of this Agreement and
Borrower's compliance with the terms and provisions hereof, from and after the
date hereof the financial performance for any management agreements,
administrative services agreements and/or license agreement or dental practice
acquired after the date hereof may be annualized using the respective purchase
date am a commencement point once such management agreement, administrative
services agreements license agreement or practice has been owned and/or operated
by Borrower for one full calendar quarter. Until
-2-
<PAGE>
such time, such financial performance shall not be used in determining
compliance with the terms and provisions of this Agreement.
4. Borrower covenants and agrees with Bank that as a condition to Bank
granting Borrower permission to form, acquire or merge with a new Subsidiary,
and as a condition to any further advances of the Loan proceeds thereafter,
Borrower shall pledge all of the stock of such new subsidiary to Bank as
security for the loan and shall cause such new Subsidiary to execute and deliver
to Bank a guaranty of all of Borrower's obligations hereunder together with a
security agreement, financing statements and such other documents as Bank shall
require in order to perfect a security interest in the assets of such new
Subsidiary. Further, in connection therewith, Borrower and each Guarantor
covenants and agrees to execute such confirmations of this Agreement and the
Loan Documents as Lender shall require. Failure by Borrower, any Guarantor or
the new Subsidiary to execute and deliver such documents shall be a default
under the Note and this Agreement.
3. REPRESENTATIONS AND WARRANTIES. Borrower and each Guarantor hereby
represents and warrants to Bank as follows;
A. GOOD STANDING. Borrower and each Guarantor is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
its incorporation, and has the power and authority to own its property and to
carry on its business in each jurisdiction in which Borrower or Guarantor does
business.
B. AUTHORITY AND COMPLIANCE. Borrower and each Guarantor has full
power and authority to execute and deliver the Loan Documents and to incur and
perform the obligations provided for therein, all of which have been duly
authorized by all proper and necessary action of the appropriate governing body
of Borrower and each Guarantor. No consent or approval of any public authority
or other third party is required as a condition to the validity of any Loan
Document, and Borrower and each Guarantor is in compliance with all laws and
regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower and each Guarantor constitute valid and legally binding
obligations of Borrower and each Guarantor, enforceable in accordance with their
terms.
D. LITIGATION. There is no proceeding involving Borrower or any
Guarantor pending or, to the knowledge of Borrower or any Guarantor, threatened
before any court or governmental authority, agency or arbitration authority,
which materially or adversely affect the business operations, prospectus,
properties, assets or condition, financial or otherwise, or Borrower or any
Guarantor, except as disclosed to Bank in writing and acknowledged by Bank prior
to the date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, agreement or other document pertaining to the organization, power or
authority of Borrower or any Guarantor and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower and any Guarantor
or affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the other
Loan Documents,
F. OWNERSHIP OF ASSETS. Borrower and each Guarantor has good title to
its assets and its assets are free and clear of liens, except those granted to
Bank and as disclosed to Bank in writing prior to the date of this Agreement.
G. TAXES. All taxes and assessments due and payable by Borrower and
each Guarantor have been paid or are being contested
-3-
<PAGE>
in good faith by appropriate proceedings and the Borrower and each Guarantor has
filed all tax returns which it is required to file.
H. FINANCIAL STATEMENTS. The financial statements of Borrower and each
Guarantor heretofore delivered to Bank have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved and fairly
present Borrower's and each Guarantor's financial condition as of the date or
dates thereof, and there has been no material adverse change in Borrower's or
any Guarantor's financial condition or operations since December 31, 1997. To
the best of Borrower's and each Guarantor's knowledge, all factual information
furnished by Borrower and each Guarantor to Bank in connection with this
Agreement and the other Loan Documents is and will be accurate and Complete on
the date as of which such information is delivered to Bank and is not and will
not be incomplete by the omission of any material fact necessary to make such
information not misleading.
I. PLACE OF BUSINESS. Borrower's and each Guarantor's chief executive
office is located at 1343 Main Street, Sarasota, Florida 34236.
J. ENVIRONMENTAL MATTERS. The conduct of Borrower's and each
Guarantor's business operations do not and will not violate any federal laws,
rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials and Borrower and
each Guarantor will not use or permit any other party to use any Hazardous
Materials at any of Borrower's or Guarantor's places of business or at any other
property owned by Borrower or any Guarantor except such materials as are
incidental to Borrower's or Guarantor's normal course of business, maintenance
and repairs and which are handled in compliance with all applicable
environmental laws. Borrower and each Guarantor agrees to permit Bank, its
agents, contractors and employees to enter and inspect any of Borrower's and
Guarantor's places of business or any other property of Borrower or any
Guarantor at any reasonable times upon three (3) days prior notice for the
purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower and each Guarantor is complying
with this covenant and Borrower and each Guarantor shall reimburse Bank on
demand for the costs of any such environmental investigation and audit. Borrower
and each Guarantor shall provide Bank, its agents, contractors, employees and
representatives with access to and copies of any and all data and documents
relating to or dealing with any hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's and Guarantor's business
operations within five (5) days of the request therefore.
K. CONTINUATION OF REPRESENTATION AND WARRANTIES. All representations
and warranties made under this Agreement shall be deemed to be made at and as of
the date hereof and at and as of the date of any advance under any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
concepts otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a consistent basis
throughout the period involved and measured on a rolling four quarter basis at
the end of each quarter except to the extent modified by the following
definitions:
i. At all times during the term of the loan, maintain a Fixed Charge
Coverage Ratio of 1.5:1.0, which shall be defined as
-4-
<PAGE>
earnings before interest, depreciation and amortization ("EBITDA") plus
operating lease expenses ("OLE") minus actual capital expenditures ("CE") all
divided by interest expense ("IE") plus OLE plus current Maturities of long
term debt ("CMLTD") based on actual CMLTD plus CMLTD based on an imputed seven
year amortization of this loan (i.e. EBITDA + OLE - CE
-----------------
IE + OLE + CMLTD). For purposes of this
calculation, capital expenditures are defined as those capital expenditures
incurred during the normal course of operating the business, and do not include
amounts incurred in the purchase of contracts or assets related to the
management and license agreements with the P.A.s managed by Borrower or its
Subsidiaries. For purposes of this paragraph CMLTD shall be defined as actual
principal paid as shown on the financial statements delivered to Bank.
ii. Throughout the term of the Loan, Borrower's total liabilities to
EBITDA shall not exceed 2.0:1.0, which ratio shall be measured on a historical
rolling four-quarter basis and using verifiable proforma acquisition information
for EBITDA for the trailing four quarters, which shall be adjusted to show
current contracts, less those amounts counted twice.
iii. At all times during the Loan, Borrower shall maintain its
liquidity in an amount equal to or greater than $2,500,000.00 in cash or cash
equivalents.
iv. Borrower shall maintain at all times during the Loan a ratio of
total liabilities to Tangible Net Worth of not more than 1.0:1.0.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at much reasonable times and as often an Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location in given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank and by
independent certified public accountants acceptable to Bank.
In addition, Borrower and each Guarantor will:
i. Provide Lender (i) within 120 days after the close of each fiscal
year, unqualified audited consolidated and consolidating financial statements,
prepared in conformity with GAAP and certified to Lender, relating to the
financial activities of Borrower and each Guarantor along with Borrower's 10K
report filed with the United States Securities and Exchange Commission (the
"SEC"); and (ii) within 45 days after each quarter end, an executed copy of
Borrower's 10-Q report filed with SEC; and (iii) such other information
reflecting the financial condition of each Borrower and each Guarantor an Lender
may request from time to time. In submitting financial statements to Lender,
Borrower and each Guarantor will certify continuing compliance with all
representations, warranties, and covenants contained in this Agreement and all
documents, and will also certify that it is not in violation or default of any
other agreement or contract, which would have a substantial adverse effect
upon the Borrower, any Guarantor or their property.
vii. Furnish to Bank promptly such additional information, reports and
statements respecting the business
-5-
<PAGE>
operations and financial condition of Borrower and each Guarantor, respectively,
from time to time, as Bank may reasonably request.
C. INSURANCE. Maintain insurance with responsible insurance companies
on such of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and with respect to insurance on the Collateral, to contain
a clause naming Bank as a loss payee or an additional insured (as applicable) as
its interest may appear and providing for at least 30 days prior notice to Bank
of any cancellation thereof. Satisfactory evidence of such insurance will be
supplied to Bank prior to funding under the Loan(s) and 30 days prior to each
policy renewal.
D. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of
(i) any condition, event or act which comes to its attention that would or might
materially adversely affect Borrower's or any Guarantor's financial condition or
operations, the Collateral, or Bank's rights under the Loan Documents, (ii) any
litigation filed by or against Borrower or any Guarantor that would or might
materially adversely affect Borrower's or any Guarantor's financial condition,
operations, or the collateral or Bank's rights under the Loan Documents, (iii)
any event that has occurred that would constitute an event of default under any
Loan Documents and (iv) any uninsured or partially uninsured lose through fire,
theft, liability or property damage in excess of ,an aggregate of $100,000.00.
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction, as the same become due and payable, except to
the extent the same are being contested in good faith by appropriate proceedings
in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. NOTIFICATION OF ENVIRONMENTAL CLAIMS. Borrower shall immediately
advise Bank in writing of (i) any and all enforcement, cleanup, remedial,
removal, or other governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting Borrower's or any
Guarantor's business operations; and (ii) all claims made or threatened by any
third party against Borrower or any Guarantor relating to damages, contribution,
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials. Borrower shall immediately notify Bank of any remedial action taken
by Borrower or any Guarantor with respect to Borrower's or any Guarantor's
business operations.
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, neither Borrower nor any
Guarantor will without the prior written consent of Bank (and without limiting
any requirement of any other Loan Documents);
-6-
<PAGE>
A. TRANSFER OF ASSETS OR CONTROL. _____all, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its business,
or enter into any merger or consolidation, or transfer control or ownership of
the Borrower, any Guarantor or Subsidiary or form or acquire any Subsidiary.
B. LIENS. Grant, suffer or permit any contractual or noncontractual
lien on or security interest in its assets, except in favor of Bank, or fail to
promptly pay when due all lawful claims, whether for labor, materials or
otherwise.
C. EXTENSIONS OF CREDIT. Except in the ordinary course of its
business, make any loan or advance to any individual, partnership, corporation
or other entity.
D. BORROWINGS. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase of
assets, lease payments, as surety or guarantor for the debt for another, or
otherwise) other than to Bank, except for normal trade debts incurred in the
ordinary course of Borrower's or any Guarantor's business which normal trade
debts in aggregate shall not exceed $500,000.00, and except for purchase money
indebtedness to a particular P.A. incurred in connection with the acquisition of
its assets and entering into new management, administrative services and
licensing agreements with new P.A.s.
E. CHARACTER OF BUSINESS. Change the general character of business as
conducted at the date hereof, or engage in any type of business not reasonably
related to its business as presently conducted.
F. PLEDGE OF STOCK. Directly or indirectly by any means
whatsoever, pledge or grant a security interest in any of the stock of any
subsidiary (or subsidiary of a subsidiary); provided however, this prohibition
shall not apply to the pre-existing pledge by Borrower of 500,000 shares of
Dental One Associates, Inc. to Paul Yurfest, Jeffrey P. Catton, Larry A.
Sweeting, Lee A, Johanson, Sammy Carden and Robert Burns pursuant to that
certain Security Agreement dated March 20, 1998 between Borrower and such
parties.
6. EVENTS OF DEFAULT. The Bank shall have the option to declare the entire
unpaid amount, of the Loan and accrued interest immediately due and payable
without presentment, demand, or further notice of any kind, if within 15 days
after notice from Bank, which notice may be verbal or written, any of the
following events are not cured:
A. Any payment of principal or interest on the Loan is not made when
due.
B. Any provision of this Agreement is breached or proves to be untrue
or misleading in any material respect.
C. Any warranty, representation, or statement made or furnished the
Lender by Borrower or any Guarantor in connection with the Loan and this
Agreement (including any warranty, representation, or statement in the
Borrower;s or any Guarantor's financial statement(s)) or to induce the Bank to
make the Loan, is untrue or misleading in any material respect.
D. Any default occurs under any agreement with another creditor which
default is not corrected within the cure period provided in such agreement, if
any.
E. Any voluntary or involuntary bankruptcy, reorganization,
insolvency, arrangement, receivership, or similar proceeding is commenced by or
against Borrower or any Guarantor under any federal or state law, or Borrower
makes any assignment for the benefit of creditors.
-7-
<PAGE>
F. Any substantial part of the party which secures the Loan, real or
personal, tangible or intangible, in damaged or destroyed and the damage or
destruction is not covered by collectible insurance.
G. Borrower or any Guarantor defaults in the payment of any principal
or interest on any other loan or obligation to Bank.
H. Borrower or any Guarantor suffers or permits any lien, encumbrance,
or security interest to arise or attach to any of the Borrower's or any
Guarantor's property, or any judgment is entered against Borrower or
any Guarantor that is not satisfied or appealed within 30 days.
I. Any default hereunder shall constitute a default under any other
mortgage, note, obligation or agreement of Borrower held by Bank. The agreements
contained in this paragraph to create cross-defaults under all mortgages, notes,
obligations and agreements between Borrower and Bank, whether currently existing
or hereafter created, in the event of default under one or more of such
mortgages, notes, obligations or agreements is a material and specific
inducement and consideration for the making by Bank of the Loan evidenced by the
Note.
J. Any of Bank's liens, or assignments from Borrower or any Guarantor
are invalidated.
K. That a default by any Guarantor under the terms and conditions of
any of their loans with Lender shall, at the election of Lender, constitute a
default by Borrower under the terms of the Loan contemplated herein.
7. REMEDIES UPON DEFAULT. Upon the occurrence, or the discovery by Lender
of the occurrence, of any of the foregoing events, circumstances, or conditions
of default, Lender shall have, in addition to its option to accelerate to
maturity the full unpaid balance of the Loan, all of the rights and remedies
under applicable law, and in addition shall have the following specific rights
and remedies:
A. To exercise Lender's right of set-off against any account, fund, or
property of any kind, tangible, or intangible, belonging to Borrower which shall
be in Lender's possession or under its control.
B. To cure such defaults, with the result that all costs and expenses
incurred or paid by Lender in effecting such cure shall be additional charges
on the Loan, shall bear interest at the highest rate permitted by law, and shall
be payable upon demand.
C. To exercise any and all other rights and remedies Lender may have
or possess arising under any other loan documents executed by Borrower, in favor
of Lender, evidencing or securing the Loan.
8. NOTICE. Except notice to cure a default which may be verbal, all other
notices, requests or demands which any party is required or may desire to give
to any other party under any provision of this Agreement must be in writing
delivered to the other party at the following address:
Borrower or Guarantors;
1343 Main Street, Suite 700
Sarasota, Florida 34236
Bank:
-8-
<PAGE>
NATIONSBANK, N.A.
1605 Main Street, Suite 101
Sarasota, Florida 34236
Attention: J. Douglas DiVirgilio, Senior Vice President
or to such other address as any party may designate by written notice to the
other party. each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by hand delivery, upon delivery;
B. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid.
9. COST, EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law), incurred by
Bank in connection with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) Bank's continued administration thereof.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as follows,
without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted in accordance with
the laws of Florida and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower or
any Guarantor therefrom, shall be effective unless the same shall be in writing
and signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Loan Agreement is
binding upon Borrower, each Guarantor, its successors and assigns, and inures to
the benefit of Bank, its successors and assigns; however, no assignment or other
transfer of Borrower's or any Guarantor's rights or obligations hereunder shall
be made or be effective without Bank's prior written consent, nor shall it
relieve Borrower or any Guarantor of any obligations hereunder. There is no
third party beneficiary of this loan agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the
-9-
<PAGE>
enforceability of validity or such provision as it may apply to other persons or
circumstances.
F. INDEMNIFICATION. Borrower and each Guarantor shall indemnify,
defend and hold Bank and its successors and assigns harmless from and against,
any and all claims, demands, suits, losses, damages, assessments, fines,
penalties, costs or other expenses (including reasonable attorneys' fees and
court costs) arising from or in any way related to any of the transactions
contemplated hereby, including but not limited to actual or threatened damage to
the environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous Materials,
arising from Borrower's or any Guarantor's business operations, any other
property owned by Borrower or any Guarantor or in the surface or ground water
arising from Borrower's or any Guarantor's business operations, or gaseous
emissions arising from Borrower's or any Guarantor's business operations or any
other condition existing or arising from Borrower's or any Guarantor's business
operations resulting from the use or existence of Hazardous Materials, whether
such claim proves to be true or false. Borrower and each Guarantor further
agrees that its indemnity obligations shall include, but are not limited to,
liability for damages resulting from the personal injury or death of an employee
of the Borrower or any Guarantor, regardless of whether the Borrower or any
Guarantor has paid the employee under the workmen's compensation laws of any
state or other similar federal or state legislation for the protection of
employees. The term "property damage" as used in this paragraph includes, but
is not limited to, damage to any real or personal property of the Borrower or
any Guarantor, the Bank, and of any third parties. The Borrower's and each
Guarantor's obligations under this paragraph shall survive the repayment of the
Loan and any foreclosure or foreclosure of any Loan Document securing the Loan.
G. SURVIVABILITY. All covenants, agreements, representations
and warranties made herein or in the other Loan Documents shall survive the
making of the Loan and shall continue in full force and effect so long as the
Loan is outstanding or the obligation of the Bank to make any advances under the
Line shall not have expired.
11. TAX INDEMNITY. In the event that the Department of Revenue, its agents
or employees, notifies either Borrower or the Lender that the transaction which
is the subject of this Loan Agreement is subject to payment of documentary stamp
tax, intangible tax, or any other such tax, then, in such event, Borrower agrees
to immediately remit to the Department of Revenue or to the Lender the full
amount of such tax deemed to be due and payable as requested by the Department
of Revenue. Borrower may contest any liability for such tax payment; however,
any such contest shall be taken solely at the election, cost, and expense of
Borrower. The liability of Borrower under this provision shall survive the
satisfaction of the obligations referenced hereunder. Any failures of Borrower
to comply with the terms and provisions of this section shall constitute a
default under the Loan Agreement, and all other loan documents executed in
connection therewith.
12. COMPLIANCE. Borrower and each Guarantor shall execute such additional
documents as are reasonably requested by Lender to reflect the terms and
conditions of this Agreement and will cause to be delivered such certificates,
legal opinions and other documents as are reasonably required by Lender in
connection with the Loan. In addition, the Borrower and each Guarantor will pay
all reasonable costs and expenses in connection with the preparation, execution
and delivery of the documents executed in connection with this transaction,
including, without limitation, the reasonable fees and out-of-pocket expenses of
legal counsel to Lender and costs and expenses of Lender in connection with its
enforcement of such documents after the occurrence of an event of default, the
-10-
<PAGE>
management and control of the collateral as well as any and all filing and
recording fees and stamp and other taxes with respect thereto and to save Lender
harmless from any and all such costs, expenses and liabilities.
13. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN SARASOTA,
FLORIDA, AND ADMINISTERED BY ENDISPUTE, INC., D/B/AJ.A.M.S./ENDISPUTE WHO WILL
APPOINT AN ARBITRATOR. IF J.A.M.S./ENDISPUTE IS UNABLE OR LEGALLY PRECLUDED
FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASS0CIATION
WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION, FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN
ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF
ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT, NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
14. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.
-11-
<PAGE>
IN WITNESS HEREOF, the parties here have caused this Agreement to be duly
executed under seal by their duly authorized representatives as of the date
first above written.
Signed, sealed and delivered BORROWER:
in the presence of:
DENTAL CARE ALLIANCE, INC.,
A Delaware Corporation
/s/ MARSHA E. GOODMAN By: /s/ DAVID NICHOLS
- ------------------------ ----------------------
* Marsha E. Goodman David Nichols, Treasurer and
*(Print Name of Witness) Chief Financial Officer
Address: 1343 Main Street
Suite 700
/s/ GREGORY BANACH Sarasota, Florida 34236
- -----------------------
* Gregory Banach
*(Print Name of Witness) [CORPORATE SEAL]
DENTAL CARE ALLIANCE, OF FLORIDA,
INC. a Florida corporation
/s/ MARSHA E. GOODMAN By: /s/ DAVID NICHOLS
- ------------------------ ----------------------
* Marsha E. Goodman David Nichols, Treasurer and
*(Print Name of Witness) Chief Financial Officer
Address: 1343 Main Street
Suite 700
/s/ GREGORY BANACH Sarasota, Florida 34236
- -----------------------
* Gregory Banach
*(Print Name of Witness) [CORPORATE SEAL]
DENTAL CARE ALLIANCE OF GEORGIA,
INC. a Florida corporation
/s/ MARSHA E. GOODMAN By: /s/ DAVID NICHOLS
- ------------------------ ----------------------
* Marsha E. Goodman David Nichols, Treasurer and
*(Print Name of Witness) Chief Financial Officer
Address: 1343 Main Street
Suite 700
/s/ GREGORY BANACH Sarasota, Florida 34236
- -----------------------
* Gregory Banach
*(Print Name of Witness) [CORPORATE SEAL]
DENTAL CARE ALLIANCE OF MICHIGAN,
INC. a Michigan corporation
/s/ MARSHA E. GOODMAN By: /s/ DAVID NICHOLS
- ------------------------ ----------------------
* Marsha E. Goodman David Nichols, Treasurer and
*(Print Name of Witness) Chief Financial Officer
Address: 1343 Main Street
Suite 700
/s/ GREGORY BANACH Sarasota, Florida 34236
- -----------------------
* Gregory Banach
*(Print Name of Witness) [CORPORATE SEAL]
-12-
<PAGE>
DENTAL ONE ASSOCIATES, INC.,
a Georgia corporation
/s/ MARSHA E. GOODMAN By: /s/ DAVID NICHOLS
- ------------------------ ----------------------
* Marsha E. Goodman David Nichols, Treasurer and
*(Print Name of Witness) Chief Financial Officer
Address: 1343 Main Street
Suite 700
/s/ GREGORY BANACH Sarasota, Florida 34236
- -----------------------
* Gregory Banach
*(Print Name of Witness) [CORPORATE SEAL]
BANK:
NATIONSBANK, N.A.,
a National Banking Association
/s/ MARSHA E. GOODMAN By: /s/ GREGORY BANACH
- ------------------------ ----------------------
* Marsha E. Goodman Gregory Banach
*(Print Name of Witness) Its: Commercial Banking Officer
Address: 1605 Main Street
Sarasota, FL 34236
/s/ DAVID NICHOLS
- ----------------------- [CORPORATE SEAL]
* David Nichols
*(Print Name of Witness)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,032,998
<SECURITIES> 0
<RECEIVABLES> 5,095,113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,688,170
<PP&E> 3,020,848
<DEPRECIATION> (284,698)
<TOTAL-ASSETS> 31,533,532
<CURRENT-LIABILITIES> 2,993,408
<BONDS> 0
0
0
<COMMON> 69,781
<OTHER-SE> 24,130,389
<TOTAL-LIABILITY-AND-EQUITY> 31,533,532
<SALES> 7,163,745
<TOTAL-REVENUES> 7,163,745
<CGS> 4,728,111
<TOTAL-COSTS> 4,728,111
<OTHER-EXPENSES> 1,239,719
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,214
<INCOME-PRETAX> 1,357,563
<INCOME-TAX> 523,748
<INCOME-CONTINUING> 833,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 833,815
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
