SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
(AN AMENDMENT TO FORM 8-K FILED ON JANUARY 13, 1998)
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) DECEMBER 29, 1997
DENTAL CARE ALLIANCE, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
--------------------------------------------
(State or other jurisdiction of incorporation)
0-23219 65-0555-126
---------------------- ------------------
(Commission File Number) (IRS Employer
Identification No.)
1343 MAIN STREET, 7TH FLOOR SARASOTA, FLORIDA 34236
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code (941) 955-3150
----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OF DISPOSITION OF ASSETS
On December 29, 1997, Dental Care Alliance, Inc., a Delaware corporation
(the "Registrant"), acquired all of the outstanding capital stock of Marketplace
Dental, Inc., a Florida corporation ("Marketplace"), pursuant to the merger (the
"Merger"), of Marketplace with and into Dental Care Alliance of Florida, Inc.
("DCA Florida"), a wholly-owned subsidiary of the Registrant. The Merger was
consummated pursuant to that certain Agreement and Plan of Merger dated December
29, 1997 (the "Merger Agreement") among the Registrant, Marketplace, DCA Florida
and James R. Quick, Deborah Browning-Hecht and Frank A. Rodriguez, all of the
shareholders of Marketplace (the "Marketplace Shareholders"). A copy of the
Merger Agreement is being filed as Exhibit 2.1 hereto. DCA Florida was the
surviving corporation in the Merger. Pursuant to the Merger the Company acquired
all of the assets of Marketplace. Such assets consisted primarily of non-dental
assets (including dental equipment) and management agreements. The Registrant
intends to continue use of the equipment purchased in the same manner such
equipment was used by Marketplace prior to the Merger. Pursuant to the Merger,
all shares of Marketplace common stock were converted into the right to receive,
in the aggregate (i) eighty thousand (80,000) shares of the common stock of the
Registrant; (ii) an amount in cash equal to the excess of (y) the aggregate of
the amount of $500,000, the amount of any cash, security, demand, savings or
other deposits in any bank, savings and loan or other financial institution,
and/or the face amount of any negotiable or non-negotiable instruments owned by
Marketplace and the unamortized amount of any prepaid expenses of Marketplace
over (z) the amount of the liabilities of Marketplace to First United Bank and
amounts classified as owed to related parties on Marketplace's financial
statements, as of the close of business on November 30, 1997 (the "Effective
Time"); and (iii) that number of shares of the Registrant's common stock (but
not in excess of 79,999 shares), having a value, determined by reference to the
average mean between the opening bid and ask quote for such shares over the
three trading days immediately preceding the Determination Date (as defined
below), equal to the excess, if any, of the EBITDA of the Business (as defined
below) of DCA Florida for the twelve month period following the Effective time
over the EBITDA of the Business of Marketplace for the twelve month period
ending at the Effective Time, multiplied by two.
For purposes of this Report, EBITDA is an amount equal to the earnings of
the Business during each measuring period determined under Generally Accepted
Accounting Principles consistently applied, increased by the aggregate of the
amounts included as interest expenses, taxes measured by income, depreciation
and amortization. The Determination Date is the last day of the twelve month
period following the Effective Time. For purposes hereof, "Business" shall
include the business of managing dental practices acquired as a result of the
Merger and managing any other dental practices acquired and conducted by the
Marketplace Shareholders, or any one of them, or an entity owned by such
persons.
The cash portion of the purchase price was paid with a portion of the
proceeds of the Registrant's initial public offering.
As a result of the Merger, Marketplace became a wholly-owned subsidiary of
the Registrant. The consideration paid by the Registrant to the Marketplace
Shareholders in the Merger was determined by negotiation among the Registrant,
Marketplace and the Marketplace Shareholders.
Marketplace was created through a reorganization of Children's Dental
Arcade, Inc. and Wellington Marketplace Dental Group, P.A. ("Wellington")
(collectively, the "Combined Practices") effective October 1, 1997. Marketplace
was formed as a dental practice management company to separate the
administration functions of the practice of dentistry from the professional
component. Marketplace provides the dental professional component. For purposes
of the pro forma presentation, the historical financial statements of the
Combined Practices have been adjusted to remove the professional component which
remains the responsibility of Wellington following the acquisition.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements
The following financial statements of Children's Dental Arcade, Inc. and
Wellington Marketplace Dental Group, P.A. (collectively "Combined
Practices") are filed with this amendment to Dental Care Alliance, Inc.'s
(the "Company") Form 8-K which was previously filed on January 13, 1998:
Page
Report of Independent Certified Public Accountants......................... 3
Combined Balance Sheets - December 31, 1996 and September 30, 1997 ........ 4
Combined Statements of Operations - Year ended December 31, 1996 and Nine
Months Ended September 30, 1997 ........................................... 5
Combined Statements of Stockholders' Equity - December 31, 1996 and
September 30, 1997 ........................................................ 6
Combined Statements of Cash Flows - Year ended December 31, 1996 and Nine
Months Ended September 30, 1997 ........................................... 7
Notes to Combined Financial Statements .................................... 8
2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Dental Care Alliance, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Children's
Dental Arcade, Inc. and Wellington Marketplace Dental Group, P.A. (collectively
"Combined Practices") as of September 30, 1997 and December 31, 1996, and the
results of their operations and their cash flows for the nine months and the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Tampa, Florida
March 18, 1998
3
<PAGE>
<TABLE>
<CAPTION>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
COMBINED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1997
------------ -------------
<S> <C> <C>
Current assets:
Cash $ 45,153 $ 63,296
Accounts receivable, less allowance for uncollectible
accounts of $11,062 and 18,159, respectively 74,787 85,366
Inventory 56,505 56,505
Other current assets 15,801 --
--------- ---------
TOTAL CURRENT ASSETS 192,246 205,167
Property and equipment, net 635,164 597,062
Intangible assets, net -- 70,000
Other assets 30,892 38,058
--------- ---------
TOTAL ASSETS $ 858,302 $ 910,287
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,258 $ 56,668
Other accrued liabilities 80,588 89,192
Current portion of long-term debt and capital lease
obligations 147,915 225,762
--------- ---------
TOTAL CURRENT LIABILITIES 287,761 371,622
Long-term debt and capital lease obligations, less
current portion 502,395 491,773
--------- ---------
TOTAL LIABILITIES 790,156 863,395
Commitments and contingencies (Notes 5 and 10) -- --
Stockholders' equity:
Common stock, $.001 par value, 5,000,000 shares authorized,
4,525,000 and 5,000,000 issued and outstanding as of
December 31, 1996 and September 30, 1997, respectively 4,525 5,000
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding 1,000 1,000
Additional paid-in capital 95,475 142,250
Accumulated deficit (32,854) (101,358)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 68,146 46,892
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 858,302 $ 910,287
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
1996 1997
------------------ -------------------
Patient revenue $ 1,674,329 $ 1,290,695
----------- -----------
TOTAL REVENUES 1,674,329 1,290,695
Professional salaries and benefits 391,031 334,170
Staff salaries and benefits 465,631 446,791
Dental supplies 90,532 85,219
Laboratory fees 58,001 43,232
Marketing 17,232 5,138
Occupancy 214,618 177,556
Other 202,949 141,854
Depreciation and amortization 107,375 96,760
----------- -----------
1,547,369 1,330,720
----------- -----------
Operating income (loss) 126,960 (40,025)
Rental income 144,000 108,000
Interest expense, net (93,576) (69,979)
----------- -----------
Net income (loss) $ 177,384 $ (2,004)
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
WELLINGTON MARKETPLACE
CHILDREN'S DENTAL ARCADE, INC. DENTAL GROUP, P.A.
------------------------------ -----------------------
COMMON COMMON ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN ACCUMULATED
STOCK ($.001 PAR) STOCK ($1.00 PAR) CAPITAL DEFICIT TOTAL
--------- ----------- --------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 4,525,000 $ 4,525 1,000 $ 1,000 $ 95,475 $ (84,076) $ 16,924
Net Income -- -- -- -- -- 177,384 177,384
Distributions -- -- -- -- -- (126,162) (126,162)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 4,525,000 4,525 1,000 1,000 95,475 (32,854) 68,146
Issuance of Common Stock 475,000 475 -- -- 46,775 -- 47,250
Net Loss -- -- -- -- -- (2,004) (2,004)
Distributions -- -- -- -- -- (66,500) (66,500)
--------- --------- --------- --------- --------- --------- ---------
Balance, September 30, 1997 5,000,000 $ 5,000 1,000 $ 1,000 $ 142,250 $(101,358) $ 46,892
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
1996 1997
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 177,384 $ (2,004)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 107,375 96,760
Issuance of common stock for services -- 47,250
(Increase) decrease in:
Accounts receivable 13,942 (10,579)
Inventory (7,612) --
Other current assets (14,322) 15,799
Increase (decrease) in:
Accounts payable 24,080 (2,588)
Other accrued liabilities (13,430) 8,604
--------- ---------
Net cash provided by operating activities 287,417 153,242
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (23,043) (23,150)
Payment for acquisition of physician practice -- (105,000)
Decrease (increase) other assets 5,570 (7,674)
--------- ---------
Net cash used in investing activities (17,473) (135,824)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (133,467) (102,708)
Proceeds from issuance of long-term debt -- 169,933
Distributions (126,162) (66,500)
--------- ---------
Net cash (used in) provided by financing activities (259,629) 725
--------- ---------
Net increase in cash 10,315 18,143
Cash at beginning of period $ 34,838 $ 45,153
Cash at end of period $ 45,153 $ 63,296
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 96,276 $ 61,785
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. OPERATIONS AND ORGANIZATION
Children's Dental Arcade, Inc. ("CDA"), was incorporated on January 26,
1994 and operates dental practices in Palm Beach County, Florida. The
dental practices are owned by Wellington Marketplace Dental Group, P.A.
("Wellington"), a professional association, which was formed on October 18,
1990. Wellington is owned 100% by a shareholder who also owns 95% of CDA.
The dental practices operated by and the opening dates of the CDA and
Wellington (collectively the "Combined Practices" or the "Company")
locations are as follows:
Wellington A-5 October, 1990 Wellington A-2 September, 1994
Mangonia Park May, 1994 Delray Beach September, 1995
Belle Glade June, 1994 Okeechobee Blvd July, 1997
Lake Worth August, 1994
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying combined financial statements
include the operations of CDA and Wellington, which have been prepared on the
accrual basis of accounting. The operations of CDA and Wellington are combined
for purposes of financial reporting as they are under common control (see Note
11). All intercompany accounts and transactions have been eliminated in
combination.
USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE. Accounts receivable are stated at the net
realizable value which is net of allowances for contractual adjustment,
discounts and allowance for doubtful accounts.
CONCENTRATIONS OF CREDIT RISK. Assets subject to credit risk consist
primarily of accounts receivable. Management believes that risk associated
with accounts receivable is mitigated due to the large number of individual
accounts.
INVENTORY. Inventory consists primarily of dental supplies and small
tools and are stated at cost using the first-in first-out method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight line
method over estimated useful lives ranging from 5 to 10 years.
INTANGIBLE ASSETS. Intangible assets consists of goodwill and patient
lists which are being amortized over a period of 10 years.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value of
amounts reported in the financial statements have been determined by using
available fair market information and appropriate valuation methodologies.
The carrying value of all current assets and current liabilities approximates
fair value because of their short-term nature. The carrying value of all
non-current financial instruments are considered to approximate fair value
based on current market rates and instruments with similar risks and
maturities.
INCOME TAXES. The Company, with the consent of its stockholders has
elected under the Internal Revenue Code to be an S Corporation. In lieu of
corporate income taxes, the stockholders of an S Corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for income taxes has been included in these financial
statements.
8
<PAGE>
<TABLE>
<CAPTION>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------- ------------
Furniture and equipment $ 125,318 $ 142,475
Dental equipment 462,900 502,988
Leasehold improvements 369,302 369,942
----------- -----------
957,520 1,015,405
Accumulated depreciation (322,356) (418,343)
----------- -----------
$ 635,164 $ 597,062
=========== ===========
Depreciation expense for the periods ending December 31, 1996 and September 30,
1997 was approximately $107,000 and $96,000, respectively.
4. DEBT
Long-term debt and capital lease obligations consists of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------- ------------
<S> <C> <C>
Capital lease obligations, secured by majority of equipment and leasehold
improvements and guaranteed by principal shareholder of Combined Practices.
Various terms ranging from five to six years with imputed interest rates
of 13.6% - 17.2% $379,300 $321,000
Note payable to financial institution, guaranteed by Small Business
Administration and guaranteed by principal shareholder of Combined Practices,
secured by third mortgage on personal residence, assignment of notes and
mortgages and life insurance policy on shareholder. Interest rate at 2.75% over
lender's prime (11.75% at September 30, 1997), maturing in the year 2001. 183,860 165,735
Note payable to equipment finance company, secured by equipment at
dental practice, interest at 11.9%, maturing in 2002 -- 123,465
Notes payable to shareholder, unsecured, bearing interest at 10% per annum
and due on demand.(Note 8) 87,150 77,335
Note payable to seller, secured by equipment and leasehold improvements
and dental practice, interest at 10% maturing in 2000.(Note 9) -- 20,000
Line of credit with financial institution, unsecured, due in 1997 with interest
of 2% over prime.(10.5% at September 30, 1997) -- 10,000
-------- --------
650,310 717,535
Less current portion 147,915 225,762
-------- --------
$502,395 $491,773
======== ========
</TABLE>
Future debt principal payments as of September 30, 1997 are:
YEAR
-----
1998 $139,010
1999 78,016
2000 65,136
2001 73,129
2002 41,244
--------
$396,535
========
Future payments on capital lease obligations as of September 30, 1997 are:
YEAR
----
1998 $ 86,752
1999 100,216
2000 133,730
2001 302
--------
$321,000
========
9
<PAGE>
CHILDREN'S DENTAL ARCADE, INC. AND WELLINGTON MARKETPLACE DENTAL GROUP, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
5. OPERATING LEASES
The Company leases its administrative offices, all of its dental offices and
two automobiles under operating leases. All of the dental offices are for
initial terms of five years and provide for one or two renewal terms of
similar periods. The lease covering the administrative office is for a term
of three years. All of the real estate leases also provide for increasing
rent payments over the lease terms or for increases in rent based upon
changes in the consumer price index. The two automobile leases are for three
year terms and provide for fixed price purchase options at the expiration of
the lease terms.
Future minimum rental commitments on operating leases as of September 30,
1997 are as follows:
1998 $124,000
1999 89,000
========
$213,000
========
Operating lease expense for the periods ended December 31, 1996 and
September 30, 1997 are approximately $156,000 and $128,000, respectively.
6. COMMON STOCK ISSUED FOR SERVICES
The Company issued 475,000 shares of common stock (in exchange for no
consideration) to an employee and legal counsel during February 1997 in
recognition of past services rendered. The issuance of the common stock has
been recorded based upon the estimated fair value of the stock at the date
of issuance. The Company has recognized $47,250 of expense in the
accompanying statement of operations in conjunction with this issuance.
7. RENTAL INCOME
The Company leases dental equipment and subleases office space to a
physician for $12,000 per month. The lease has no stated expiration date and
may be terminated by either party.
8. RELATED PARTY
The Company has two notes payable with the majority shareholder of the
Combined Practices. The notes are unsecured and bear interest at 10% per
annum. The notes are included in long-term debt and are classified as
current consistent with their demand nature. The Company recorded $9,000 in
interest expense related to these notes for the nine months ended September
30, 1997.
9. ACQUIRED BUSINESS
On July 31, 1997, the Company acquired the assets of a physician practice
for $105,000 located in West Palm Beach, Florida. The acquisition was
accounted for under the purchase method and was financed through a note
payable with an equipment finance company. Goodwill related to the
acquisition is being amortized over ten years. The results of the operations
of the acquired physicians practice for the period August 1, 1997 through
September 30, 1997 are included in these financial statements.
The purchase price was allocated as follows based upon the fair values of
the assets:
Dental equipment $35,000
Patient list 20,000
Goodwill 50,000
--------
$105,000
========
10. COMMITMENTS AND CONTINGENCIES
During 1996, a sample of the dental practices' claims to the Medicaid
program were audited. The preliminary results, as asserted by the auditor,
are that the Company will be required to repay amounts received from certain
claims to the program. The Company has appealed the results of the audit.
Legal counsel estimates that a settlement of approximately $39,000 will be
required to resolve this matter. As a result, the Company has accrued
$39,000, which is included in accounts payable.
11. SUBSEQUENT EVENTS
On October 1, 1997, CDA became known as Marketplace Dental, Inc. ("MDI").
Concurrent with this change, Wellington transferred to MDI at book value,
which approximated fair value, all of the Wellington dental assets. MDI
became the management company responsible for the non-dental aspects of
operations. MDI and Wellington entered into a Management Agreement whereby
MDI will receive a fee equal to 70% of net patient revenue and assume
liability for payment of all expenses of Wellington, with the exception of
(1) salary and benefits to employ the dentists, hygienists and contracted
specialists; (2) debt and asset carrying costs on the acquisition of
practices; and (3) any other direct costs to the P.A. not covered under the
Management Agreement (see Note 2).
On December 29, 1997, pursuant to an Agreement and Plan of Merger (the
"Agreement"), Dental Care Alliance, Inc. ("DCA") acquired all of the
outstanding stock of MDI in exchange for 80,000 shares of DCA common stock
and an amount in cash equal to the excess of $500,000 over the net of
certain assets and liabilities which were acquired, as defined in the
agreement, of MDI as of its November 30, 1997 closing balance sheet. The
Agreement also provides for the issuance of additional shares of DCA common
stock, calculated at fair market value, equal to two times the increase in
earnings before income taxes and depreciation and amortization of the MDI
business for the twelve month period subsequent to November 30, 1997.
10
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro Forma Financial Information
The following unaudited Pro Forma financial information required
pursuant to Article 11 of Regulation S-X are filed with this amendment
to the Company's Form 8-K which was previously filed on January 13,
1998.
PAGE
----
Basis of Presentation .................................................... 12
Unaudited Pro Forma Combined Balance Sheet - September 30, 1997............ 13
Unaudited Pro Forma Combined Statement of Operations - Year Ended
December 31, 1996.......................................................... 14
Unaudited Pro Forma Combined Statement of Operations - Nine months Ended
September 30, 1997......................................................... 15
Notes to Unaudited Pro Forma Combined Financial Information................ 16
(c) Exhibits
2.1 Agreement and Plan of Merger, dated December 29, 1997, by and among the
Registrant, Marketplace, DCA Florida and the Marketplace Shareholders*
2.2 Plan and Articles of Merger of Marketplace with and into DCA Florida
dated December 29, 1997, as filed with the Secretary of State of
Florida*
*Previously filed as an identically numbered exhibit to the Registrant's
Current Report on Form 8-K dated December 29, 1997 as filed with the Commission
on January 13, 1998.
11
<PAGE>
DENTAL CARE ALLIANCE, INC.
BASIS OF PRESENTATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined statements of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 give effect to
the acquisition of Marketplace Dental, Inc. ("MDI"), as if it had occurred at
the beginning of each period. The unaudited pro forma combined balance sheet as
of September 30, 1997 gives effect to the acquisition of MDI on December 29,
1997 as if it had occurred on September 30, 1997. The MDI acquisition has been
accounted for using the purchase method of accounting.
The unaudited pro forma combined financial information has been prepared by the
Company based on the Company's audited statement of operations for the year
ended December 31, 1996, the unaudited statement of operations and balance sheet
as of and for the nine months ended September 30, 1997, and the audited
financial statements of the Combined Practices as of and for the year ended
December 31, 1996 and as of and for the nine months ended September 30, 1997.
The audited historical financial statements of the Combined Practices, are
included elsewhere in this Form 8-K/A. The unaudited pro forma combined
financial information should be read in conjunction with the complete historical
financial statements of Dental Care Alliance, Inc. and the notes thereto as
filed by the Company in its prospectus, and the historical financial statements
of the Combined Practices included as a part of this Form 8-K/A. The pro forma
combined financial information does not purport to be indicative of the combined
results of operations that actually would have occurred if the transactions
described above had been effected at the dates indicated or to project future
results of operations for any period.
12
<PAGE>
DENTAL CARE ALLIANCE, INC.
UNUADITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMBINED PRO FORMA PRO FORMA HISTORICAL ACQUISITION PRO FORMA
ASSETS PRACTICES ADJUSTMENTS MDI COMPANY ADJUSTMENTS COMPANY
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 63,296 $ (27,629)b $ 35,667 $ 442,747 $ 478,414
Accounts receivable 85,366 (14,872)b -- -- --
(70,494)a
Consulting and license fees receivable -- -- 70,917 70,917
Management fee receivable from P.A.s -- 17,456 a 17,456 653,177 670,633
Advances to P.A.s -- -- 817,554 817,554
Inventory 56,505 (9,655)b 46,850 -- 46,850
Other current assets -- 131,662 131,662
Current portion of long-term
notes receivable from P.A.s -- -- 72,533 72,533
--------- --------- --------- ----------- ----------- -----------
Total current assets 205,167 (105,194) 99,973 2,188,590 2,288,563
Property and equipment, net 597,062 (69,909)b 527,153 559,104 (21,810)4 1,064,447
Intangible assets, net 70,000 (70,000)b -- 1,682,420 1,300,000 1 2,830,340
(311,519)2
137,629 3
Long-term notes receivable from P.A.s, 21,810 4
less current portion -- -- 146,304 146,304
Other assets 38,058 (4,914)b 33,144 204,264 237,408
--------- --------- --------- ----------- ----------- -----------
Total assets $ 910,287 $(250,017) $ 660,270 $ 4,780,682 $ 1,126,110 $ 6,567,062
========= ========= ========= =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 56,668 $ (4,359)b $ 52,309 $ 640,651 $ (39,000)2 $ 653,960
Accrued payroll and payroll related costs -- -- 328,504 328,504
Other accrued liabilities 89,192 (10,381)b 78,811 327,585 (50,205)2 356,191
Due to seller -- -- -- -- 500,000 1 500,000
Bank credit facility -- -- 212,687 212,687
Current portion of long-term debt 225,762 225,762 208,281 (119,362)2 314,681
--------- --------- --------- ----------- ----------- -----------
Total current liabilities 371,622 (14,740) 356,882 1,717,708 291,433 2,366,023
Long-term debt, less current portion 491,773 (50,756)b 441,017 681,511 (102,952)2 1,019,576
--------- --------- --------- ----------- ----------- -----------
Total liabilities 863,395 (65,496) 797,899 2,399,219 188,481 3,385,599
Commitments and contingencies
Mandatorily redeemable preferred stock,
$.01 par value, 15,000 shares
authorized, issued and outstanding -- 1,503,062 1,503,062
Put rights associated with common stock -- 191,237 191,237
--------- --------- --------- ----------- ----------- -----------
-- 1,694,299 -- 1,694,299
--------- --------- --------- ----------- ----------- -----------
Stockholders' equity:
Common stock, $.01 par value, 50,000,000
shares authorized, 3,995,460 issued
and outstanding 42,433 800 1 43,233
Common stock, $.001 par value, 5,000,000
shares authorized, issued and outstanding 5,000 5,000 (5,000)3 --
Common stock, $1.00 par value, 1,000
shares authorized, issued and outstanding 1,000 (1,000)b --
Additional paid-in capital, net of $272,768
Stock Subscription receivable 142,250 142,250 572,238 799,200 1 1,371,438
(142,250)3
Retained earnings (101,358) (34,257)a (284,879) 72,493 284,879 3 72,493
-- (149,264)b
--------- --------- --------- ----------- ----------- -----------
Total stockholders' equity 46,892 (184,521) (137,629) 687,164 937,629 1,487,164
--------- --------- --------- ----------- ----------- -----------
Total liabilities and stockholders'
equity $ 910,287 $(250,017) $ 660,270 $ 4,780,682 $ 1,126,110 $ 6,567,062
========= ========= ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
13
<PAGE>
DENTAL CARE ALLIANCE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED PRO FORMA PRO FORMA HISTORICAL ACQUISITION PRO FORMA
PRACTICES ADJUSTMENTS MDI COMPANY ADJUSTMENTS COMPANY
<S> <C> <C> <C> <C> <C> <C>
Patient revenue $ 1,674,329 $(1,674,329)a $ -- $ -- $ -- $ --
Management fees -- 1,172,030 a 1,172,030 1,289,828 2,461,858
Consulting and licensing fees -- 347,600 347,600
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,674,329 (502,299) 1,172,030 1,637,428 -- 2,809,458
Managed dental center expenses:
Professional salaries and benefits 391,031 (391,031)a -- -- --
Staff salaries and benefits 465,631 465,631 223,657 689,288
Dental supplies 90,532 90,532 79,448 169,980
Laboratory fees 58,001 58,001 98,222 156,223
Marketing 17,232 17,232 38,128 55,360
Occupancy 214,618 214,618 106,501 321,119
Other 202,949 202,949 57,182 260,131
----------- ----------- ----------- ----------- ----------- -----------
Total managed dental center
expenses 1,439,994 (391,031) 1,048,963 603,138 -- 1,652,101
----------- ----------- ----------- ----------- ----------- -----------
234,335 (111,268) 123,067 1,034,290 -- 1,157,357
Salaries and benefits -- -- 521,683 521,683
General and administrative -- -- 260,558 260,558
Depreciation and amortization 107,375 (25,701)b 81,674 27,654 42,801 5 152,129
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 126,960 (85,567) 41,393 224,395 (42,801) 222,987
Rental income 144,000 144,000 144,000
Interest income (expense), net (93,576) 5,126b (88,450) 20,781 24,518 7 (88,151)
(45,000)6
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest 177,384 (80,441) 96,943 245,176 (63,283) 278,836
Provision for income taxes 35,500 4,800 8 40,300
Minority interest 7,674 7,674
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) 177,384 (80,441) 96,943 202,002 (68,083) 230,862
Adjustment to redemption value of
common and preferred securities (191,237) (191,237)
Cumulative preferred stock dividend (6,485) (6,485)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
shares $ 177,384 $ (80,441) $ 96,943 $ 4,280 $ (68,083) $ 33,140
=========== =========== =========== =========== =========== ===========
Net income (loss) per common share:
Basic $ 0.00 $ 0.01
Diluted $ 0.00 $ 0.01
Weighted average common shares outstanding:
Basic 3,829,029 3,909,029
Diluted 3,873,747 3,953,747
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
14
<PAGE>
DENTAL CARE ALLIANCE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMBINED PRO FORMA PRO FORMA HISTORICAL ACQUISITION PRO FORMA
PRACTICES ADJUSTMENTS MDI COMPANY ADJUSTMENTS COMPANY
<S> <C> <C> <C> <C> <C> <C>
Patient Revenue $ 1,290,695 $(1,290,695)a $ $ $ -- $ --
Management fees -- 903,487 a 903,487 4,692,756 5,596,243
Consulting and licensing fees -- -- 216,284 216,284
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,290,695 (387,208) 903,487 4,909,040 -- 5,812,527
Managed dental center expenses:
Professional salaries and benefits 334,170 (334,170)a -- -- --
Staff salaries and benefits 446,791 446,791 1,294,446 1,741,237
Dental supplies 85,219 85,219 391,315 476,534
Laboratory fees 43,232 43,232 627,610 670,842
Marketing 5,138 5,138 263,031 268,169
Occupancy 177,556 177,556 614,980 792,536
Other 141,854 141,854 585,621 727,475
----------- ----------- ----------- ----------- ----------- -----------
Total managed dental center
expenses 1,233,960 (334,170) 899,790 3,777,003 -- 4,676,793
----------- ----------- ----------- ----------- ----------- -----------
56,735 (53,038) 3,697 1,132,037 -- 1,135,734
Salaries and benefits -- -- 557,528 557,528
General and administrative -- -- 313,054 313,054
Depreciation and amortization 96,760 (18,781)b 77,979 87,062 32,100 5 197,141
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) (40,025) (34,257) (74,282) 174,393 (32,100) 68,011
Rental Income 108,000 108,000 108,000
Interest income (expense), net (69,979) 3,844 b (66,135) 45,809 18,388 7 (13,188)
(11,250)6
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest (2,004) (30,413) (32,417) 220,202 (24,962) 162,823
Provision for income taxes 84,943 22,000 8 62,943
Minority interest -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) (2,004) (30,413) (32,417) 135,259 (2,962) 99,880
Adjustment to redemption value of
common and preferred securities (10,500) (10,500)
Cumulative preferred stock dividend (90,000) (90,000)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
shares $ (2,004) $ (30,413) $ (32,417) $ 34,759 $ (2,962) $ (620)
=========== =========== =========== =========== =========== ===========
Net income (loss) per common share:
Basic $ 0.01 $ .00
Diluted $ 0.01 $ .00
Weighted average common shares outstanding:
Basic 4,169,197 4,249,197
Diluted 4,256,675 4,336,675
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
15
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined financial information presents the
pro forma financial position of Dental Care Alliance, Inc. (the "Company") as of
September 30, 1997 and the pro forma results of its operations for the year
ended December 31, 1996 and the nine months ended September 30, 1997.
On December 29, 1997, the Company acquired the assets of Marketplace Dental,
Inc. ("MDI"). The accompanying unaudited pro forma combined balance sheet
includes the acquired assets, assumed liabilities and effects of financing the
MDI acquisition as if the acquisition had taken place on September 30, 1997. The
accompanying unaudited pro forma combined statements of income reflect the pro
forma results of operations of the Company as if MDI had been acquired on
January 1, 1996.
MDI was created through a reorganization of Children's Dental Arcade, Inc. and
Wellington Marketplace Dental Group, P.A. ("Wellington") (collectively, the
"Combined Practices") effective October 1, 1997. MDI was formed as a dental
practice management company to separate the administrative functions of the
practice of dentistry from the professional component. MDI provides the dental
practice management services while Wellington is responsible for the
professional component. For purposes of the pro forma presentation, the
historical financial statements of the Combined Practices have been adjusted to
remove the professional component which remains the responsibility of Wellington
following the acquisition.
The pro forma adjustments reflected in the pro forma combined balance sheet and
combined statement of operations are as follows:
(a) To reflect the elimination of historical net patient revenue, patient
receivables and dental professional costs and establish management fee
revenue and receivable.
(b) To eliminate the assets and liabilities of Wellington from those of the
Combined Practices, as such were retained by the original shareholder.
The statements of operations have likewise been adjusted to reflect
reduction of expenses relating to the carrying cost of those of assets.
The acquisition adjustments reflected in the pro forma combined balance sheet
and statement of operations are as follows:
(1) Reflects the acquisition of MDI for a total cost of approximately
$1,300,000. The acquisition cost consisted of cash of $500,000 to be paid
by the Registrant and $800,000 in common stock of the Registrant
representing 80,000 common shares valued at the fair market value at
December 29, 1997 of $10/share.
(2) Reflects the liabilities retained by the seller.
(3) Reflects the adjustment to eliminate the equity of MDI.
(4) Reflects the adjustment to reduce acquired property and equipment to fair
market value.
(5) Reflects the expense associated with amortization of the intangible asset
recorded in conjunction with the acquisition.
(6) Reflects the expense associated with the carrying cost of the amount due
to seller.
(7) Reflects the reduction of expense associated with the carrying cost of
the liabilities retained by the seller.
(8) Reflects the tax effect of the acquisition adjustments.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTAL CARE ALLIANCE, INC.
Dated: March 16, 1998 By: /s/ STEVEN R. MATZKIN
----------------------
Steven R. Matzkin, Chairman of the
Board of Directors, Chief Executive
Officer and President
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 478,414
<SECURITIES> 0
<RECEIVABLES> 1,559,104
<ALLOWANCES> 0
<INVENTORY> 46,850
<CURRENT-ASSETS> 2,288,563
<PP&E> 1,144,329
<DEPRECIATION> 79,882
<TOTAL-ASSETS> 6,567,062
<CURRENT-LIABILITIES> 2,366,023
<BONDS> 0
1,503,062
0
<COMMON> 43,233
<OTHER-SE> 1,443,931
<TOTAL-LIABILITY-AND-EQUITY> 6,567,062
<SALES> 5,812,527
<TOTAL-REVENUES> 5,812,527
<CGS> 0
<TOTAL-COSTS> 4,676,793
<OTHER-EXPENSES> 1,067,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,188
<INCOME-PRETAX> 162,823
<INCOME-TAX> 62,943
<INCOME-CONTINUING> 99,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,880
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
