U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number: 000-23673
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GENTLE DENTAL SERVICE CORPORATION
(Exact name of small business issuer as specified in its charter)
Washington 91-1577891
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
222 No. Sepulveda Blvd., Suite 740, El Segundo, CA 90245
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(Address of principal executive offices)
Issuer's telephone number (310) 765-2400
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No Change
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 13, 1998, 9,027,960 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
This Form 10-QSB/A is filed solely to update the "Management's Discussion and
Analysis" section so as to be consistent with the "Management's Discussion and
Analysis" section regarding Gentle Dental Service Corporation (the "Company")
contained in the Registration Statement on Form S-4 of Wisdom Holdings, Inc.,
Registration No. 333-66475.
Item 2. Management's Discussion and Analysis or Plan of Operations
Overview
Gentle Dental Service Corporation is one of the largest providers of dental
practice management services to multi-specialty dental practices in the United
States. Including the affiliations completed through November 13, 1998, the
Company provides management services to dental practices at 92 dental offices
with 352 dentists, including 103 specialists, and 915 operatories in selected
markets in California, Washington, Oregon, Idaho and Hawaii.
As part of a multi-specialty dental care delivery network, the Company provides
management services to affiliated dental practices under long-term management
service agreements. Under the terms of the management service agreements, the
Company, among other things, bills and collects patient receivables and provides
all administrative support services to the dental practices. The dentists
employed through the Company's network of affiliated dental practices provide
comprehensive general dentistry services and offer specialty dental services,
which include orthodontics, periodontics, endodontics, pedodontics,
prosthodontics, oral surgery and oral pathology. The Company's practice
management services facilitate the delivery of convenient, high quality,
comprehensive and affordable dental care to patients in a comfortable
environment. The Company seeks to build geographically dense dental practice
networks in selected markets through a combination of affiliating with existing
dental practices and selectively developing new dental offices.
The following discussion of the results of operations and financial condition of
the Company should be read in conjunction with the unaudited consolidated
financial statements and the notes thereto included elsewhere in this Report on
Form 10-QSB. The following discussion contains forward-looking statements. The
Company's results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future results to differ
materially from the Company's recent results or those projected in the
forward-looking statements include, without limitation, the Company's ability to
complete affiliations necessary for its expansion plans, to integrate dental
practices, attract and retain a sufficient number of qualified dental care
professionals, the availability of financing to fund the Company's growth and
operations, the enforceability of the provisions of the Company's Management
Agreements and the legality of its business and relationships with Affiliated
Dental Practices.
Results of Operations
The Company reports dental practice net patient revenue and associated clinical
salaries and benefits costs in those instances where the Company meets certain
specific consolidation requirements established by the Emerging Issues Task
Force of the Financial Accounting Standards Board. In those instances where such
consolidation requirements are not met, the Company reports net management fees
revenue and does not record any associated clinical salaries and benefits costs.
Through December 31, 1997, certain affiliations in Oregon and Washington
(representing a significant portion of overall net patient revenues) were not
included within the Company's consolidated financial statements, as the
consolidation requirements described above were not met. As of January 1, 1998,
The Company entered into new management services agreements with such
affiliations. Consequently, all of the dental practices affiliated with the
Company, except one, are now accounted for under the consolidation requirements
described above. The remaining dental practice, acquired effective April 1,
1997, has not met the Emerging Issues Task Force consolidation requirements.
Three Months Ended September 30, 1997 Statement of Operations Compared to Three
Months Ended September 30, 1998 Statement of Operations
Dental Practice Net Patient Revenue and Net Management Fees. Dental practice net
patient revenue increased from $8.7 million for the three months ended September
30, 1997 to $29.0 million for the three months ended September 30, 1998, an
increase of 232%. Of this growth, approximately $13.5 million is primarily due
to five affiliations completed during the second half of 1997 and ten
affiliations completed during the nine months ended September 30, 1998,
representing forty-nine current clinical locations. These affiliations have
management services agreements that meet the Emerging Issues Task Force
consolidation requirements. The remaining growth of $6.8 million is due to
consolidating the results of certain Oregon and Washington affiliations during
1998 as a result of their new management services agreements dated January 1,
1998 meeting the Emerging Issues Task Force criteria for consolidation.
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Net management fees decreased from $3.8 million for the three months ended
September 30, 1997 to $473,000 for the three months ended September 30, 1998.
This decrease is directly related to the Company consolidating the operating
results of the Oregon and Washington affiliations discussed above, thereby
eliminating management fees revenue in the consolidated financial statements.
Currently, there is one remaining affiliation that does not meet the Emerging
Issues Task Force criteria for consolidation.
Clinical Salaries and Benefits. Clinical salaries and benefits costs include all
patient service provider staff compensation and related payroll costs at the
consolidated dental practices, including dentists, hygienists and dental
assistants. Clinical salaries and benefits increased 220% from $4.1 million for
the three months ended September 30, 1997 to $13.1 for the three months ended
September 30, 1998. Of this growth, approximately $6.1 million is primarily due
to five affiliations completed during the second half of 1997 and ten
affiliations completed during the nine months ended September 30, 1998,
representing forty-nine current clinical locations. These affiliations have
management services agreements that meet the Emerging Issues Task Force
consolidation requirements. The remaining growth of $2.9 million is due to
consolidating the operating results of certain Oregon and Washington
affiliations during 1998.
Practice clinical salaries and benefits as a percentage of dental practice net
patient revenue for the three months ended September 30, 1997 and 1998 were
46.9% and 45.1%, respectively. Consolidating the operating results of the Oregon
and Washington affiliations and the addition of affiliated dental practices with
Gentle Dental in the second half of 1997 and the nine months ended September 30,
1998 contributed to this percentage decrease.
Practice Nonclinical Salaries and Benefits. Practice nonclinical salaries and
benefits costs include all staff compensation and related payroll costs at the
dental facilities other than dentists, hygienists and dental assistants.
Practice nonclinical salaries and benefits costs increased 78.5% from $2.3
million for the three months ended September 30, 1997 to $4.1 million for the
three months ended September 30, 1998. This increase was primarily due to the
addition of costs from affiliations completed during the second half of 1997 and
during the nine months ended September 30, 1998.
Dental Supplies and Lab Expenses. Dental supplies and lab costs increased 85.9%
from $1.9 million for three months ended September 30, 1997 to $3.5 million for
the three months ended September 30, 1998. This increase was primarily due to
the addition of costs from affiliations completed during the second half of 1997
and the nine months ended September 30, 1998.
Practice Occupancy Expenses. Practice occupancy expenses increased 70.0% from
$913,000 for the three months ended September 30, 1997 to $1.6 million for the
three months ended September 30, 1998. This increase was primarily due to the
addition of costs from affiliations completed during the second half of 1997 and
the nine months ended September 30, 1998.
Practice Selling, General and Administrative Expenses. These costs include
general office, advertising, professional services (excluding dentistry), travel
and entertainment, local taxes, insurance, and other miscellaneous costs at the
dental facilities. Practice selling, general and administrative expenses
increased 132% from $1.1 million for the three months ended September 30, 1997
to $2.6 million for the three months ended September 30, 1998. This increase was
primarily due to the addition of costs from affiliations completed during the
second half of 1997 and the nine months ended September 30, 1998.
Corporate Selling, General and Administrative Expenses. Corporate selling,
general and administrative expenses increased 6.8% from $1.6 million for the
three months ended September 30, 1997 to $1.7 million for the three months ended
September 30, 1998. The increase in these expenses is the result of the Company
implementing infrastructure required to accommodate expected future growth.
Depreciation and Amortization. Depreciation and amortization expense for the
three months ended September 30, 1997 and 1998 was $466,000 and $1.3 million,
respectively. This increase was primarily due to the addition of costs from
affiliations completed during the second half of 1997 and the nine months ended
September 30, 1998.
Interest Expense. Interest expense increased from $169,000 for the three months
ended September 30, 1997 to $777,000 for the three months ended September 30,
1998. This increase in interest expense was due to additional debt incurred
under the Company's credit facility and private placement to complete certain
dental practice affiliations.
Provision for income taxes. For the three months ended September 30, 1997 the
Gentle Dental recognized no tax benefit resulting from its taxable loss as the
probable utilization of any loss carryforwards was uncertain. For the three
months ended September 30, 1998, the Company recognized a tax expense resulting
from its taxable income to offset the tax benefit recorded during the three
months ended March 31, 1998, as the Company recognized a tax benefit resulting
from its taxable loss for that period. Additional expense at statutory rates was
not recorded during the three months ended September 30, 1998, as management
believes that the Company will be able to utilize available federal and state
loss carryfowards.
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Nine Months Ended September 30, 1997 Statement of Operations Compared to Nine
Months Ended September 30, 1998 Statement of Operations
Dental Practice Net Patient Service Revenue and Net Management fees. Dental
practice net patient revenue increased from $19.8 million for the nine months
ended September 30, 1997 to $67.5 million for the nine months ended September
30, 1998, an increase of 241%. Of this growth, approximately $27.5 million is
primarily due to five affiliations completed during the second half of 1997 and
ten affiliations completed during the nine months ended September 30, 1998,
representing forty-nine current clinical locations. These affiliations have
management services agreements that meet the Emerging Issues Task Force
consolidation requirements. The remaining growth of $20.2 million is due to
consolidating the operating results of certain Oregon and Washington
affiliations during 1998 as a result of their new management services agreements
dated January 1, 1998 meeting the Emerging Issues Task Force criteria for
consolidation.
Net management fees decreased from $10.1 million for the nine months ended
September 30, 1997 to $1.4 million for the nine months ended September 30, 1998.
This decrease is directly related to Gentle Dental consolidating the operating
results of the Oregon and Washington affiliations discussed above, thereby
eliminating management fees revenue in the consolidated financial statements.
Currently, there is one remaining affiliation that does not meet the Emerging
Issues Task Force criteria for consolidation.
Clinical Salaries and Benefits. Clinical salaries and benefits increased 233%
from $9.2 million for nine months ended September 30, 1997 to $30.8 for the nine
months ended September 30, 1998. Of this growth, approximately $12.7 million is
primarily due to five affiliations completed during the second half of 1997 and
ten affiliations completed during the nine months ended September 30, 1998,
representing forty-nine current clinical locations. These affiliations have
management services agreements that meet the Emerging Issues Task Force
consolidation requirements. The remaining growth of $8.9 million is due to
consolidating the operating results of certain Oregon and Washington
affiliations during 1998.
Practice clinical salaries and benefits as a percentage of dental practice net
patient revenue for the nine months ended September 30, 1997 and 1998 were 46.7%
and 45.6%, respectively. Consolidating the operating results of the Oregon and
Washington affiliations and the addition of affiliated dental practices with
Gentle Dental in the second half of 1997 and the nine months ended September 30,
1998 contributed to this percentage decrease.
Practice Nonclinical Salaries and Benefits. Practice nonclinical salaries and
benefits costs increased 73.9% from $5.8 million for the nine months ended
September 30, 1997 to $10.0 million for the nine months ended September 30,
1998. This increase was primarily due to the addition of costs from affiliations
completed during the second half of 1997 and during the nine months ended
September 30, 1998.
Dental Supplies and Lab Expenses. Dental supplies and lab costs increased 76.0%
from $4.5 million for nine months ended September 30, 1997 to $8.0 million for
the nine months ended September 30, 1998. This increase was primarily due to the
addition of costs from affiliations completed during the second half of 1997 and
the nine months ended September 30, 1998.
Practice Occupancy Expenses. Practice occupancy expenses increased 59.2% from
$2.4 million for the nine months ended September 30, 1997 to $3.8 million for
the nine months ended September 30, 1998. This increase was primarily due to the
addition of costs from affiliations completed during the second half of 1997 and
the nine months ended September 30, 1998.
Practice Selling, General and Administrative Expenses. Practice selling, general
and administrative expenses increased 103% from $3.2 million for the nine months
ended September 30, 1997 to $6.4 million for the nine months ended September 30,
1998. This increase was primarily due to the addition of costs from affiliations
completed during the second half of 1997 and the nine months ended September 30,
1998.
Corporate Selling, General and Administrative Expenses. Corporate selling,
general and administrative expenses increased 17.1% from $3.9 million for the
nine months ended September 30, 1997 to $4.5 million for the nine months ended
September 30, 1998. The increase in these expenses is the result of the Company
implementing infrastructure required to accommodate expected future growth.
Depreciation and Amortization. Depreciation and amortization expense for the
nine months ended September 30, 1997 and 1998 was $1.3 million and $2.9 million,
respectively. This increase was primarily due to the addition of costs from
affiliations completed during the second half of 1997 and the nine months ended
September 30, 1998.
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Interest Expense. Interest expense increased from $362,000 for the nine months
ended September 30, 1997 to $1.8 million for the nine months ended September 30,
1998. This increase in interest expense was due to additional debt incurred
under the Company's credit facility and private placement to complete certain
dental practice affiliations.
Provision for income taxes. For the nine months ended September 30, 1997 the
Company recognized no tax benefit resulting from its taxable loss as the
probable utilization of any loss carryforwards was uncertain. For the nine
months ended September 30, 1998, the Company did not accrue a provision for
income taxes as management believes that the Gentle Dental will be able to
utilize available federal and state tax loss carryforwards. The income tax
expense recorded during the nine months ended September 30, 1998 represents
incidental filing fees for various federal and state income tax returns.
Liquidity and Capital Resources
At September 30, 1998, the Company's cash and cash equivalents were $1.8
million, representing a $1.5 million increase in cash and cash equivalents
available at December 31, 1997 of $302,000. Working capital at September 30,
1998 of $2.2 million represents a decrease of $616,000 from working capital of
$2.8 million at December 31, 1997. The decrease is the result of the use of
working capital for acquisitions.
Net cash provided by operations was $902,000 and $174,000 for the nine months
ended September 30, 1997 and 1998, respectively. The reduction of net cash
provided by operations during the nine months ended September 30, 1998 was
directly attributed to the reduction of accounts payable and accrued liabilities
outstanding at December 31, 1997. The significant level of such liabilities at
December 31, 1997 was attributed to merger and restructure plan related costs
between the Company and GMS Dental Group, Inc. as a result of the merger
effective in November 1997. The remaining liabilities related to the restructure
amounted to $195,000 at September 30, 1998. Net cash used in investing
activities, principally dental practice affiliations, was $9.0 million and $42.6
million for the nine months ended September 30, 1997 and 1998, respectively. Net
cash provided from financing activities was $6.0 million and $44.0 million for
the nine months ended September 30, 1997 and 1998, respectively. The increase in
net cash provided by financing activities during the nine months ended September
30, 1998 was primarily attributed to the $45 million private placement completed
during 1998 as further discussed below.
On January 1, 1998, the Company and certain Washington and Oregon affiliated
dental practices entered into asset purchase and management service agreements.
Under the terms of such agreements, the Company acquired all of the fixed assets
and assumed certain liabilities of such affiliated dental practices. In
exchange, the Company gave consideration of $1.7 million in addition to the
assumption of certain liabilities, which was offset by the Company's $1.7
million receivable from such affiliated dental practices. In addition, the
Company is required to pay $575,000 in cash over 18 monthly installments.
During the nine months ended September 30, 1998, the company acquired
substantially all of the assets of 27 dental office locations, including cash,
accounts receivable, supplies and fixed assets. Additionally, the Company
acquired all of the outstanding capital stock of Managed Dental Care of Oregon,
Inc., a dental care entity that contracts with the Oregon Health Plan. The
Company also acquired all of the outstanding capital stock of Dedicated Dental
Systems, Inc., a Bakersfield, California company which owns and operates eleven
staff model dental offices under a license granted within the California
Knox-Keene Health Care Service Plan Act of 1975. All such affiliations have been
accounted for using the purchase method of accounting.
The aggregate dental practice acquisition purchase price recorded during the
nine months ended September 30, 1998, representing the fair value of the assets
acquired, including intangible assets was $58.0 million. Approximately $51.3
million of the purchase price has been allocated to intangible assets. The total
purchase consideration included $40.2 million in cash, $10.2 million in common
stock issued (1,223,741 shares), $6.2 million in liabilities incurred and
assumed, and $1.4 million in accrued earn-out from transactions completed in
current and prior periods.
In connection with certain completed affiliation transactions, the Company
agreed to pay the sellers possible future consideration in the form of cash or
Company stock. The amount of future consideration payable by the Company under
earn-outs is generally computed based upon the performance of the affiliated
dental practices during certain specified periods. The Company accrues for
earn-out payments with respect to prior practice acquisitions when such amounts
are probable and reasonably estimable. As of September 30, 1998, the Company has
accrued $1.8 million for future earn-out payments, of which $578,000 is included
in additional paid-in capital for anticipated stock issuances while the
remaining accrual for anticipated cash payments is included in other current
liabilities. For those acquisitions with earn-out provisions, The Company
estimates the total maximum earn-out to be paid, including amounts already
accrued, is between $15 and $20 million over the next four years, of which up to
$15 million is expected to be paid in cash. In futures years, such additional
earn-out consideration would result in additional amortization of $600,000 to
$800,000 annually.
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A total of 254,901 outstanding shares of common stock issued at a price of $.45
per share and 339,246 outstanding shares of common stock issued at a price of
$.225 per share are subject to, under certain events, repurchase by the Company
at cost. One half of these shares are currently subject to repurchase as a
result of the Company's failure to achieve certain specified performance targets
during 1997 and are expected to be repurchased in the future.
The Company's credit facility provides for a maximum borrowing of $45 million.
The Company intends to use the credit facility for working capital requirements,
to purchase non-professional dental practice assets of additional dental
practices that the Company may seek to affiliate with, and to purchase operating
assets for existing affiliated dental practices. The ability of the Company to
incur indebtedness under the credit facility is subject to delivery of customary
opinions, certificates, and closing documents by the Company. The revolving
feature of the credit facility expires on September 30, 2001, at which time it
will convert into a four year term loan to be repaid in 16 equal quarterly
installments. Principal amounts owed under the credit facility bear interest, at
varying amounts over either LIBOR (1%-1.75%) or the prime rate (0.5%-1%), at the
Company's option, based on the level of the Company's leverage ratio. The credit
facility requires the Company to pay an unused commitment fee in an amount
ranging from 0.375% to 0.750% per annum (depending on amounts of unused
available credit) on the average daily amount by which the bank commitment under
the credit facility exceeds the aggregate amount of all loans then outstanding.
The credit facility contains covenants including (i) restrictions on the ability
of the Company to incur indebtedness and repurchase, or make dividends with
respect to, its capital stock; and (ii) requirements relating to maintenance of
a specific net worth and compliance with specified financial ratios. In
addition, the credit facility requires the Company to notify the lenders prior
to making any acquisitions and to obtain the consent of the lenders prior to
making acquisitions with purchase prices exceeding $12 million or when cash
consideration exceeds $7.5 million. The credit facility also requires the
Company to convert to a holding company that owns no assets other than the stock
of its subsidiaries on or before July 31, 1999. The Company's obligations under
the credit facility are guaranteed be each of its non-dental insurance business
subsidiaries. The obligations under the credit facility and subsidiaries under
the guarantees are secured by a security interest in the equipment, fixtures,
inventory, receivables, subsidiary stock, certain debt instruments, accounts and
general intangibles of each such entities.
On June 3, 1998, the Company completed a $45 million private placement,
consisting of $30 million of subordinated notes and $15 million of preferred
stock of the Company. The subordinated notes have an eight-year term and are
convertible into shares of the Company's common stock at $9.21 for each share of
common stock issuable upon conversion of outstanding principal and accrued but
unpaid interest on such subordinated notes. If certain events of default occur,
the subordinated notes then outstanding will automatically convert into shares
the Company's Series B preferred stock at a rate of one share of the Company's
Series B preferred stock for each thousand dollars in outstanding principal and
accrued but unpaid interest on the subordinated notes, subject to adjustment for
stock splits, reverse splits, stock dividends, reorganizations and the like. The
subordinated notes and all outstanding shares of the Company's preferred stock
shall be automatically converted into the Company's common stock (or, in the
case of the Company's preferred stock Series A and preferred stock Series C,
redeemed at nominal cost) if the rolling 21-day average closing market price of
the common stock on 20 out of any 30 consecutive trading days is more than
$15.73 on or prior to May 18, 1999, more than $16.85 on or prior to May 18,
2000, or more than $17.98 at any time thereafter.
The presently authorized series of the Company's preferred stock include the
following series: 100 shares of preferred stock Series A, all of which is issued
and outstanding; 70,000 shares of preferred stock Series B, none of which is
presently outstanding but which will be issued automatically upon conversion of
the then outstanding subordinated notes; 100 shares of preferred stock Series C,
all of which is issued and outstanding; and 2,000,000 shares of preferred stock
Series D of which 1,628,663 shares are issued and outstanding. The shares of
preferred stock Series B are convertible into shares of the Company's common
stock at the rate of 108.58 shares of common stock for each share of preferred
stock Series B, and the shares of preferred stock Series D are convertible into
shares of the Company's common stock on a share for share basis, in each case
subject to adjustment for stock splits, reverse splits, stock dividends,
reorganizations and the like. The preferred stock of Series A and C are not
convertible.
The Company believes that proceeds from the credit facility and cash flow from
operations, if any, will be sufficient to fund its operations for the near
future. The Company also believes that such funds will be sufficient to complete
a number of other future practice affiliations and any possible future
consideration from existing affiliations. However, to execute its long term
business strategy, the Company will require substantial additional funding
through additional long-term or short-term borrowing arrangements or through the
public or private issuance of additional debt or equity securities to acquire
new practices and to expand and maintain existing affiliated practices. There
can be no assurance that any such financing will be available to the Company or
will be available on terms acceptable to the Company.
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Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in a data
field. These programs were designed and developed without considering the impact
of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000 or
earlier. The Year 2000 issue affects us in that the dental practice management
business is dependent on computer applications, such as management information
systems and financial and accounting systems.
In order to address the Year 2000 issues facing the Company, management
initiated a program to prepare the Company's computer systems and applications
for the Year 2000. As to the primary focus of its Year 2000 plans, the Company
has converted its affiliated dental practices to target systems identified and
believed to be Year 2000 compliant. The Company has divided its Year 2000 plan
into five phases, and charts its progress in each of the phases, expressed as an
approximate percentage of completion of that phase: Awareness - 100% complete,
Assessment - 100% complete, Renovation - 60% complete, Validation - 80%
complete, Implementation - 50% complete.
Pursuant to its year 2000 plan, the Company has substantially completed its
validation of its mission critical systems and the computer-related interactive
vender systems and expects to complete all validation by June 1999. In addition,
the Company expects to complete all phases of its Year 2000 plan by June 30,
1999.
The Company expects to incur internal staff costs as well as consulting and
other expenses related to infrastructure enhancements necessary to prepare for
the Year 2000. Validation and conversion of primary system applications and
hardware is expected to cost approximately $500,000, all of which will be
incurred in fiscal year 1999.
As part of its Year 2000 plan, the Company is not only undertaking the
infrastructure and facilities enhancement and testing necessary to ensure that
it adequately prepared for the year 2000, but is also communicating with its
vendors upon whose services it relies and third-party payors to ensure that such
vendors and third-party payors are taking appropriate steps to address their
Year 2000 issues. The Company is also preparing contingency plans to try to
minimize the harm to it in the event that it or any or all of the third parties
with which it interacts is unable to attain Year 2000 compliance in certain
applications according to the Company's Year 2000 plan. The contingency plans
being prepared are system and application specific and are intended to ensure
that in the event that one or more such systems and/or applications fails by or
at the Year 2000, the Company will be able to engage in its core business
functions in spite of such failure. The Company's most likely worse case Year
2000 scenario would be that it experiences significant delays in billing and
collecting professional fees due to its affiliated dental practices. This delay
would directly impact the ability of the affiliated dental practices to pay
management fees due to the Company. A material delay in receipt of fees due to
the Company would affect its cash flow and could have a material adverse affect
in its business, financial condition or results of operations.
Although the Company believes that its Year 2000 plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 plan and the
Company's other Year 2000 remedial and contingency plans will fully protect it
from risks associated with the Year 2000 problem. The analysis of, and
preparation for, the Year 2000 and related problems necessarily rely on a
variety of assumptions about future events, and there can be no assurance that
management has accurately predicted such future events or that the remedial
contingency plans for the Company will adequately address such future events. In
the event that the business of the Company or the Company's venders or patients
are disrupted as a result of the Year 2000 problem such disruption could have a
material adverse effect on the Company.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENTLE DENTAL SERVICE CORPORATION
---------------------------------
(Registrant)
Date: January 26, 1999 By: NORMAN R. HUFFAKER
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Norman R. Huffaker
Chief Financial Officer
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