<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -------------------
Commission file number 0-23367
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BIRNER DENTAL MANAGEMENT SERVICES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-1307044
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 EAST FLORIDA AVENUE, SUITE 508
DENVER, COLORADO 80210
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(Address of principal executive offices) (Zip Code)
(303) 691-0680
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(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 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding as of May 8, 1998
- -------------------------------------------------------------------------------
Common Stock, without par value 6,668,451
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 3
Condensed Consolidated Statements of Operations for the Quarters
ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Quarters
ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
</TABLE>
2
<PAGE> 3
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------ ------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,160,467 $ 977,454
Accounts receivable, net of allowances of approximately
$97,700, for uncollectible accounts 1,547,412 1,374,304
Notes receivable-- related parties 33,118 35,507
Prepaid expenses 333,502 284,865
Deferred offering costs -- 846,528
------------ ------------
Total current assets 8,074,499 3,518,658
------------ ------------
PROPERTY AND EQUIPMENT, net 3,067,074 2,630,945
OTHER NONCURRENT ASSETS:
Intangible assets, net 9,395,541 8,947,952
Deferred charges and other assets 306,278 458,191
Notes receivable-- related parties, net of current portion 6,608 8,052
------------ ------------
Total assets $ 20,850,000 $ 15,563,798
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses 2,057,432 $ 3,252,761
Short-term borrowings 113,539 682,907
Current maturities of capital lease obligations 35,024 41,391
Income taxes payable 47,984 --
------------ ------------
Total current liabilities 2,253,979 3,977,059
------------ ------------
LONG TERM LIABILITIES:
Long-term borrowings 244,426 3,392,114
Convertible subordinated debentures -- 6,780,000
Capital lease obligations, net of current maturities 19,382 26,249
------------ ------------
Total liabilities 2,517,787 14,175,422
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value, 10,000,000 shares
authorized; none outstanding -- --
Common Stock, no par value, 20,000,000 shares
authorized; 6,668,451 and 3,196,243, shares issued and
outstanding at March 31, 1998 and December 31,
1997, respectively 18,691,963 1,850,094
Accumulated deficit (359,750) (461,718)
------------ ------------
Total shareholders' equity 18,332,213 1,388,376
------------ ------------
Total liabilities and shareholders' equity $ 20,850,000 $ 15,563,798
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
----------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
NET REVENUE $ 4,651,337 $ 2,327,825
DIRECT EXPENSES:
Clinical salaries and benefits 1,763,771 776,729
Dental supplies 264,034 222,901
Laboratory fees 393,901 218,370
Occupancy 387,701 194,053
Advertising and marketing 77,712 86,549
Depreciation and amortization 216,743 124,473
General and administrative 410,087 165,913
----------- -----------
3,513,949 1,788,988
----------- -----------
Contribution from dental offices 1,137,388 538,837
Corporate expenses-
General and administrative 549,763 288,019
Depreciation and amortization 30,188 21,474
----------- -----------
Operating income 557,437 229,344
Interest expense, net (102,385) (169,997)
Conversion inducement expense (305,100)
----------- -----------
Income before income taxes 149,952 59,347
Income taxes (47,984) --
----------- -----------
Net income $ 101,968 $ 59,347
=========== ===========
Net income per share, basic
and diluted $ .02 $ .02
=========== ===========
Weighted average number of
shares and dilutive securities
Basic 4,938,219 3,299,205
Diluted 5,207,954 3,584,402
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
Page 1 of 2
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1997
------------------------------
(Unaudited)
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101,968 $ 59,347
Adjustments to reconcile net income to net
cash (used in) provided by operating activities-
Depreciation and amortization 246,931 145,574
Provision for bad debts -- 2,050
Amortization of debenture issuance costs 13,671 20,451
Changes in assets and liabilities, net of effects
from acquisitions-
Accounts receivable (133,108) (11,875)
Prepaid expenses (54,235) (55,832)
Accounts payable and accrued expenses (408,635) 300,760
Income taxes payable 47,984 --
------------ ------------
Net cash (used in) provided by operating
activities (185,424) 460,475
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable -- related parties 3,833 2,026
Capital expenditures (527,933) (54,718)
Development of new dental offices (110,427) --
Acquisition of dental offices (598,500) (200,000)
------------ ------------
Net cash used in investing activities (1,233,027) (252,692)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering 11,476,042 --
Proceeds from convertible subordinated debentures -- 225,000
Net activity from line of credit (350,000) (156,280)
Repayment of long term debt (3,380,290) (47,967)
Payment of debenture issuance and other financing cost (27,927) (16,875)
Payment of public offering costs (1,116,361) --
------------ ------------
Net cash provided by financing activities 6,601,464 3,878
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,183,013 211,661
CASH AND CASH EQUIVALENTS, beginning of period 977,454 1,797,552
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 6,160,467 $ 2,009,213
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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Page 2 of 2
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------------
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 442,629 $ 160,095
========== ==========
Cash paid for taxes $ -- $ --
========== ==========
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common Stock issued for-
Acquisition of dental offices $ 31,500 --
Liabilities assumed, incurred for acquisitions-
Accounts payable and accrued liabilities 8,915 --
Accounts receivable acquired through
Acquisitions 40,000 --
Conversion of debentures to Common Stock 6,780,000 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
(1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures included herein are adequate to make
the information presented not misleading. A description of the Company's
accounting policies and other financial information is included in the audited
consolidated financial statements as filed with the Securities and Exchanges
Commission in the Company's Form 10-K for the year ended December 31, 1997.
In the opinion of the management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position of the Company as of March 31, 1998 and the
results of operations and cash flows for the periods presented. All such
adjustments are of a normal recurring nature. The results of operations for the
quarter ended March 31, 1998 are not necessarily indicative of the results that
may be achieved for a full fiscal year and cannot be used to indicate financial
performance for the entire year.
(2) EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" specifies the computation, presentation and disclosure requirements for
earnings per share. SFAS 128 is effective for periods ended after December 15,
1997 and requires retroactive restatement of prior period earnings per share.
The statement replaces the "primary earnings per share" calculation with a
"basic earnings per share" and replaces the "fully diluted earnings per share"
calculation with "diluted earnings per share." The following table presents a
reconciliation of basic and diluted income per share calculations.
7
<PAGE> 8
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------------------------------------------------
1998 1997
----------------------------------- -----------------------------------
Per Share Per Share
Income Shares Amount Loss Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income
applicable to
common shares $ 101,968 4,938,219 $.02 $ 59,347 3,299,205 $.02
Effect of Dilutive common
shares from stock
options and warrants -- 269,735 -- -- 285,197 --
Diluted Earnings Per Share -- -- -- -- -- --
Net income
applicable to
common shares $ 101,968 5,207,954 $.02 $ 59,347 3,584,402 $.02
========= ========= ==== ========= ========= ====
</TABLE>
(3) INITIAL PUBLIC OFFERING
On February 11, 1998, the Company completed its initial offering of its common
stock to the public. The Company sold 1,833,816 shares with an additional
266,184 being sold by existing shareholders for a total of 2,100,000 shares
registered on the Nasdaq National Market under the trading symbol "BDMS". The
Company received net proceeds, after paying all offering costs, of approximately
$10.4 million. Approximately $2 million and $0.6 million of the net proceeds
were used to repay the term loan and revolving line of credit with a bank,
respectively. An additional $1.3 million was used to repay a note issued in
connection with the Gentle Dental Acquisition. The Company expects the remaining
net proceeds of approximately $6.5 million will be used for potential
acquisitions and development of new offices, for working capital and general
corporate purposes.
Conversion of Debentures
In connection with the offering, 1,633,142 shares of common stock were issued to
all debenture holders for the early conversion of the convertible subordinated
debentures maturing in December 2001 and May 2001. The Company paid six months
of additional interest of $305,100 to induce the conversion, along with accrued
interest of $171,238. Upon conversion of the debentures, the carrying amount of
$6,780,000 was credited to shareholders' equity, net of remaining deferred
debenture issuance costs of $288,286.
Line of Credit
On February 11, 1998, concurrent with the completion of the public offering, the
Company amended its revolving credit agreement with a bank, which increased the
borrowing limit from $800,000 to $10,000,000 with interest being payable at
LIBOR plus 2.25% maturing on February 11, 2001.
8
<PAGE> 9
(4) ACQUISITION
On February 27, 1998, the Company acquired all the assets of a New Mexico
partnership and obtained certain rights to manage the practice for a total
purchase price of $630,000. The consideration consisted of $598,500 payable in
cash with the remaining $31,500 being payable in common stock of the Company.
(5) SUBSEQUENT EVENT
On April 27, 1998, the Company acquired from one owner all the assets of three
Colorado dental practices, two in the Denver metro area and one in Boulder. The
Company also opened a de-novo practice in Colorado Springs, Colorado in April
1998.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
The Statements contained in this Form 10-Q ("Quarterly Report") of Birner
Dental Management Services, Inc. (the "Company") which are not historical in
nature are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include statements in this Item 2., "Management's Discussion and Analysis of
Financial Condition and Results of Operations," regarding intent, belief or
current expectations of the Company or its officers with respect to the
development or acquisition of additional dental practices ("Offices") and the
successful integration of such Offices into the Company's network, recruitment
of additional dentists, funding of the Company's expansion, capital
expenditures, payment or nonpayment of dividends and cash outlays for income
taxes.
Such forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ materially from anticipated results.
These risks and uncertainties include regulatory constraints, changes in laws or
regulations concerning the practice of dentistry or dental practice management
companies, the availability of suitable new markets and suitable locations
within such markets, changes in the Company's operating or expansion strategy,
failure to consummate or successfully integrate proposed developments or
acquisitions of dental Offices, the ability of the Company to manage effectively
an increasing number of dental Offices, the general economy of the United States
and the specific markets in which the Company's dental Offices are located or
are proposed to be located, trends in the health care, dental care and managed
care industries, as well as the risk factors set forth in the "Management's
Discussion and Analysis of financial Condition and Results of Operations - Risk
Factors" section of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (as filed with the Securities Exchange Commission on
March 31, 1998), and other factors as may be identified from time to time in the
Company's filings with the Securities and Exchange Commission or in the
Company's press releases.
GENERAL
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Condensed
Consolidated Financial Statements and the Notes thereto of the Company included
elsewhere in this Quarterly Report.
OVERVIEW
The Company was formed in May 1995, and as of March 31, 1998, managed 35
Offices in Colorado and New Mexico staffed by 48 general dentists and seven
specialists. The Company has acquired 32 Offices (three of which were
consolidated into existing Offices) and opened six de novo Offices. Of the 32
acquired Offices, only three (the first three practices, which were acquired
from the Company's President, Mark Birner, D.D.S.) were acquired from affiliates
of the Company. The Company derives all of its revenue from its Management
Agreements with professional corporations ("P.C.s") which employ or contract
with the dentists and dental hygienists who practice at that Office. In
addition, the Company assumes a number of responsibilities when it acquires a
new practice or develops a de novo Office, which are set forth in the Management
Agreement, as described below. The Company expects to expand in existing and new
markets by acquiring solo and group dental practices, by developing de novo
Offices and by enhancing the operating performance of its existing Offices.
Generally, the Company seeks to acquire dental practices for which the Company
believes application of its dental practice management model will improve
operating performance.
10
<PAGE> 11
The Company was formed with the intention of becoming the leading dental
practice management company in Colorado. The Company's success in the Colorado
market has led to its expansion into New Mexico and its evaluation of additional
markets. The following table sets forth the increase in the number of Offices
owned and managed by the Company during each of the four periods indicated,
including the number of de novo Offices and acquired Offices in each such year.
<TABLE>
<CAPTION>
1995(1) 1996(2) 1997 1998(3)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Offices at beginning of period 0 4 18 34
De novo Offices 0 5 1 0
Acquired Offices 4 9 15 1
======= ======= ======= =======
Offices at end of period 4 18 34 35
======= ======= ======= =======
</TABLE>
- ----------
(1) From October 1, 1995 through December 31, 1995. The Company was formed on
May 17, 1995, and had no substantial operations until October 1, 1995.
(2) For 1996, does not include three practices that were acquired and
consolidated with existing Offices.
(3) From January 1, 1998 through March 31, 1998.
The combined purchase amounts for the four Offices acquired in 1995, the
12 practices acquired in 1996, the 15 practices acquired in 1997, and one
practice acquired in the first quarter of 1998, were $412,134, $4,372,338,
$5,315,263, and $630,000 respectively. The average investment by the Company in
each of its six de novo Offices has been approximately $170,000, which includes
the cost of equipment, leasehold improvements and working capital associated
with the Offices. The six de novo Offices opened between January 1996 and August
1997 began generating positive contribution from dental offices, on average,
within three months of opening.
At December 31, 1997, the Company's total assets of $15.6 million included
$8.9 million of identifiable intangible assets related to Management Agreements.
At that date, the Company's total shareholders' equity was $1.4 million. The
Company reviews the recorded amount of intangible assets and other fixed assets
for impairment for each Office whenever events or changes in circumstances
indicate the carrying amount of the assets may not be recoverable. If this
review indicates that the carrying amount of the assets may not be recoverable
as determined based on the undiscounted cash flows of each Office, whether
acquired or developed, the carrying value of the asset is reduced to fair value.
Among the factors that the Company will continually evaluate are unfavorable
changes in each Office, relative market share and local market competitive
environment, current period and forecasted operating results, cash flow levels
of Offices and the impact on the net revenue earned by the Company, and the
legal and regulatory factors governing the practice of dentistry.
COMPONENTS OF REVENUE AND EXPENSES
Total dental group practice revenue, net ("Revenue") represents the
revenue of the Offices reported at estimated realizable amounts, received from
third-party payors and patients for dental services rendered at the Offices. Net
revenue represents Revenue less amounts retained by the Offices. The amounts
retained by the Offices represent amounts paid as salary, benefits and other
payments to employed dentists and hygienists. The Company's net revenue is
dependent on the Revenue of the Offices. Direct expenses consist of the expenses
incurred by the Company in connection with managing the Offices, including
salaries and benefits (for personnel other than dentists and hygienists), dental
supplies, dental laboratory fees, occupancy costs, advertising and marketing,
depreciation and amortization and general and administrative (including office
supplies, equipment leases, management information systems and other expenses
related to dental practice operations). The Company also incurs personnel and
administrative expenses in connection with maintaining a corporate function that
provides management, administrative, marketing, development and professional
services to the Offices.
11
<PAGE> 12
Under the Management Agreements, the Company manages the business and
marketing aspects of the Offices, including (i) providing capital, (ii)
designing and implementing marketing programs, (iii) negotiating on behalf of
the P.C.s for the purchase of supplies, (iv) providing a patient scheduling
system, (v) staffing, (vi) recruiting, (vii) training of non-dental personnel,
(viii) billing and collecting patient fees, (ix) arranging for certain legal and
accounting services, and (x) negotiating on behalf of the P.C.s with managed
care organizations. The P.C. is responsible for, among other things (i)
employing and supervising all dentists and dental hygienists, (ii) complying
with all laws, rules and regulations relating to dentists and dental hygienists,
(iii) maintaining proper patient records, and (iv) cooperating in the obtaining
of professional liability insurance. The Company has made, and may make in the
future, loans to P.C.s in both Colorado and New Mexico to fund their acquisition
of dental assets from third parties in order to comply with the laws of such
states. Bonuses payable to dentists based on the operating performance of the
P.C.s take into account principal and interest payments made on the loans,
resulting in the dentists sharing with the Company the economic benefits or
detriments associated with assets acquired by the P.C.s using such loans.
Because the Company consolidates the financial statements of the P.C.s with its
financial statements, these loans are eliminated in consolidation.
Under the typical Management Agreement used by the Company, the P.C. pays
the Company a management fee equal to the Adjusted Gross Center Revenue of the
P.C. less (i) all compensation paid to the dentists and dental hygienists
employed by the P.C. Adjusted Gross Center Revenue is comprised of all fees and
charges booked each month by or on behalf of the P.C. as a result of dental
services provided to patients at the Office, less any adjustments for
uncollectible accounts, professional courtesies and other activities that do not
generate a collectible fee. The Company's costs include all direct and indirect
costs, overhead and expenses relating to the Company's provision of management
services at each Office under a Management Agreement, including (i) salaries,
benefits and other direct costs of employees of the Company that work at the
Office, including dental assistants, (ii) direct costs of all employees or
consultants of the Company who provide services to or in connection with the
Office, (iii) utilities, janitorial, laboratory, supplies, advertising and other
expenses incurred by the Company in carrying out its obligations under the
Management Agreement, (iv) depreciation expense associated with the P.C.'s
assets and the assets of the Company used at the Office, and the amortization of
intangible asset value as a result of any acquisition or merger of another
dental practice relating to the Office, (v) interest expense on indebtedness
incurred by the Company to finance any of its obligations under the Management
Agreement, (vi) malpractice insurance expenses, lease expenses and dentist
recruitment expenses, (vii) personal property and other taxes assessed against
the Company's or the P.C.'s assets used in connection with the operation of the
Office, (viii) out-of-pocket expenses of the Company's personnel related to
mergers or acquisitions involving the P.C., (ix) corporate overhead charges or
any other expenses of Company including the P.C.'s pro rata share of the
expenses of the accounting and computer services provided by the Company, and
(x) a collection reserve in the amount of 5.0% of Adjusted Gross Center Revenue.
As a result, substantially all costs associated with the provision of dental
services at the Offices are borne by the Company, other than the compensation
and benefits of the dentists and hygienists who are employed by the P.C.s. This
enables the Company to manage the profitability of the Offices. Each Management
Agreement is for a term of 40 years. Further, each Management Agreement
generally may be terminated by the P.C. only for cause, which includes a
material default by or bankruptcy of the Company.
The Company's Revenue is derived principally from fee-for-service Revenue
and Revenue from capitated managed dental care plans. Fee-for-service Revenue
consists of Revenue of the P.C.s received from indemnity dental plans, preferred
provider plans and direct payments by patients not covered by any third-party
payment arrangement. Managed dental care Revenue consists of Revenue of the
P.C.s received from capitated managed dental care plans, including capitation
payments and patient co-payments. Capitated managed dental care contracts are
between dental benefits organizations and the P.C.s. Under the Management
Agreements, the Company negotiates and administers these contracts on behalf of
the P.C.s. Under a capitated managed dental care contract, the
12
<PAGE> 13
dental group practice provides dental services to the members of the dental
benefits organization and receives a fixed monthly capitation payment for each
plan member covered for a specific schedule of services regardless of the
quantity or cost of services to the participating dental group practice
obligated to provide them. This arrangement shifts the risk of utilization of
these services to the dental group practice providing the dental services.
Because the Company assumes responsibility under the Management Agreements for
all aspects of the operation of the dental practices (other than the practice of
dentistry) and thus bears all costs of the P.C.s associated with the provision
of dental services at the Office (other than compensation and benefits of
dentists and hygienists), the risk of over-utilization of dental services at the
Office under capitated managed dental care plans is effectively shifted to the
Company. In addition, dental group practices participating in a capitated
managed dental care plan often receive co-payments for more complicated or
elective procedures. In contrast, under traditional indemnity insurance
arrangements, the insurance company pays whatever reasonable charges are billed
by the dental group practice for the dental services provided.
The Company seeks to increase its fee-for-service business by increasing
the patient volume of existing Offices through effective marketing and
advertising programs, opening new Offices and acquiring solo and group
practices. The Company seeks to supplement this fee-for-service business with
Revenue from contracts with capitated managed dental care plans. Although the
Company's fee-for-service business generally is more profitable than its
capitated managed dental care business, capitated managed dental care business
serves to increase facility utilization and dentist productivity.
The relative percentage of the Company's Revenue derived from
fee-for-service business and capitated managed dental care contracts varies from
market to market depending on the availability of capitated managed dental care
contracts in any particular market and the Company's ability to negotiate
favorable terms in such contracts. In addition, the profitability of managed
dental care Revenue varies from market to market depending on the level of
capitation payments and co-payments in proportion to the level of benefits
required to be provided. Variations in the relative penetration and popularity
of capitated managed dental care from market to market across the country,
however, make it difficult to determine whether the Company's experience in new
markets will be consistent with its experience in the Colorado market. The
Company expects that the level of profitability of its operations in new markets
entered through acquisition will vary depending in part on these factors and may
not replicate or be comparable to the Company's results in the Colorado market.
RESULTS OF OPERATIONS
As a result of the recent rapid expansion of its business through
acquisitions and the development of de novo Offices, and the Company's limited
period of affiliation with these Offices, the Company believes that the
period-to-period comparisons set forth below may not be representative of future
operating results.
The Company has experienced significant growth in total dental group
practice revenue, which increased from $3.1 million for the three months ended
March 31, 1997 to $6.2 million for the three months ended March 31, 1998, an
increase of 101.1%. The Company acquired 16 practices and opened one de novo
office during the period from January 1, 1997 to March 31, 1998 which, in the
aggregate, contributed $2.8 million of the $3.1 million increase. The remainder
of the increase in total dental group practice revenue of $0.3 million was
attributable to the 18 offices that existed at the beginning of the 1997 period
and were therefore in existence during both full periods.
The following table sets forth the percentages of net revenue represented
by certain items reflected in the Company's consolidated statements of
operations. The information contained in the table represents the historical
results of the Company. The information that follows should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of the
Company.
13
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<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
Net revenue 100.0% 100.0%
Direct expenses:
Clinical salaries and benefits 37.9 33.4
Dental supplies 5.7 9.6
Laboratory fees 8.5 9.4
Occupancy 8.3 8.3
Advertising and marketing 1.7 3.7
Depreciation and amortization 4.7 5.4
General and administrative 8.8 7.1
----- -----
75.6 76.9
----- -----
Contribution from dental offices 24.4 23.1
Corporate expenses --
General and administrative 11.8 12.4
Depreciation and amortization 0.6 0.9
----- -----
Operating income 12.0 9.8
Interest expense, net (2.2) (7.3)
Conversion inducement expense (6.6) 0.0
----- -----
Income before income taxes 3.2 2.5
Income taxes (1.0) 0.0
----- -----
Net income 2.2% 2.5%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net revenue. Net revenue increased from $2.3 million for the three months
ended March 31, 1997 to $4.7 million for the three months ended March 31, 1998,
an increase of $2.3 million, or 99.8%. The Company acquired 16 practices and
opened one de novo Office during the period from January 1, 1997 to March 31,
1998, which contributed $2.0 million of the increase. The remainder of the
increase in net revenue of $298,000 was attributable to the 18 practices the
Company had at January 1, 1997.
Clinical salaries and benefits. Clinical salaries and benefits increased
from $777,000 to $1.8 million for the three months ended March 31, 1997 and
1998, respectively, an increase of $987,000 or 127.1%. This increase was due
primarily to the increased number of Offices and the corresponding addition of
non-dental personnel. As a percentage of net revenue, clinical salaries and
benefits increased from 33.4% in the three months ended March 31, 1997 to 37.9%
in the three months ended March 31, 1998.
Dental supplies. Dental supplies increased from $223,000 for the three
months ended March 31, 1997 to $264,000 for the three months ended March 31,
1998, an increase of $41,000 or 18.5%. This increase was due to the increased
total dental group practice revenue generated at the Offices. As a percentage of
net revenue, dental supplies decreased from 9.6% during the three months ended
March 31, 1997 to 5.7% during the three months ended March 31, 1998.
Laboratory fees. Laboratory fees increased from $218,000 during the three
months ended March 31, 1997 to $394,000 during the three months ended March 31,
1998, an increase of $176,000 or 80.4%. This increase was due to the increased
total dental group practice revenue generated at the Offices. As a percentage of
net revenue, laboratory fees decreased from 9.4% during the three months ended
March 31, 1997 to 8.5% during the three months ended March 31, 1998.
14
<PAGE> 15
Occupancy. Occupancy increased from $194,000 during the three months ended
March 31, 1997 to $388,000 during the three months ended March 31, 1998, an
increase of $194,000 or 99.8%. This increase was due to the increased number of
Offices. As a percentage of net revenue, occupancy expense remained constant at
8.3% during the three months ended March 31, 1997 and the three months ended
March 31, 1998.
Advertising and marketing. Advertising and marketing decreased from
$87,000 for the three months ended March 31, 1997 to $78,000 for the three
months ended March 31, 1998, a decrease of $9,000 or 10.2%. This decrease was
primarily due to decreased television advertising during the three months ended
March 31, 1998 relative to the three months ended March 31, 1997. As a
percentage of net revenue, advertising and marketing decreased from 3.7% during
the three months ended March 31, 1997 to 1.7% during the three months ended
March 31, 1998.
Depreciation and amortization. Depreciation and amortization, which
consists of depreciation and amortization expense incurred at the Offices,
increased from $124,000 for the three months ended March 31, 1997 to $217,000
for the three months ended March 31, 1998, an increase of $92,000 or 74.1%. This
increase was due to the increased number of Offices. As a percentage of net
revenue, depreciation and amortization decreased from 5.4% for the three months
ended March 31, 1997 to 4.7% for the three months ended March 31, 1998.
General and administrative. General and administrative, which is
attributable to the Offices, increased from $166,000 during the three months
ended March 31, 1997 to $410,000 during the three months ended March 31, 1998,
an increase of $244,000 or 147.2%. This increase was due to the increased number
of Offices. Additionally, the Company expanded its corporate infrastructure to
manage the growth and some of these costs were passed on to the Offices. As a
percentage of net revenue, general and administrative expenses increased from
7.1% during the three months ended March 31, 1997 to 8.8% during the three
months ended March 31, 1998.
Contribution from dental offices. As a result of the above, contribution
from dental offices increased from $539,000 for the three months ended March 31,
1997 to $1.1 million for the three months ended March 31, 1998, an increase of
$599,000 or 111.1%. As a percentage of net revenue, contribution from dental
offices increased from 23.1% during the three months ended March 31, 1997 to
24.4% during the three months ended March 31, 1998.
Corporate expenses -- general and administrative. Corporate expenses --
general and administrative increased from $288,000 during the three months ended
March 31, 1997 to $550,000 during the three months ended March 31, 1998, an
increase of $262,000 or 90.9%. This increase was due to expansion of the
Company's infrastructure to manage growth, primarily through the addition of
personnel. As a percentage of net revenue, corporate expense -- general and
administrative decreased from 12.4% during the three months ended March 31, 1997
to 11.8% during the three months ended March 31, 1998.
Corporate expenses -- depreciation and amortization. Corporate expenses --
depreciation and amortization increased from $21,000 in the three months ended
March 31, 1997 to $30,000 in the three months ended March 31, 1998, an increase
of $9,000 or 40.6%. This increase was a result of the Company's expansion of its
corporate infrastructure, primarily investments in computer equipment to manage
future growth. As a percentage of net revenue, corporate expenses --
depreciation and amortization decreased from 0.9% during the three months ended
March 31, 1997 to 0.6% during the three months ended March 31, 1998.
Operating income. As a result of the above, operating income increased
from $229,000 during the three months ended March 31, 1997 to $557,000 during
the three months ended March 31, 1998, an increase of $328,000 or 143.1%. As a
percentage of net revenue, operating income increased from 9.8% during the three
months ended March 31, 1997 to 12.0% during the three months ended March 31,
1998.
15
<PAGE> 16
Interest expense, net. Interest expense, net decreased from $170,000 for
the three months ended March 31, 1997 to $102,000 for the three months ended
March 31, 1998, a decrease of $68,000 or 39.8%. This decrease was primarily the
result of the February 1998 conversion into Common Stock of the Company's $6.8
million principal amount 9.0% convertible debentures (issued in May 1996 and
December 1996) in conjunction with the initial public offering of the Company's
Common Stock and the repayment of approximately $3.9 million of bank debt and
seller notes with proceeds from the Company's initial public offering. As a
percentage of net revenue, interest expense, net decreased from 7.3% for the
three months ended March 31, 1997 to 2.2% for the three months ended March 31,
1998.
Conversion inducement expense. During the three months ended March 31,
1998, the Company incurred a one-time charge of $305,000 related to inducing the
convertible debenture holders to convert to Common Stock at the closing of the
Company's initial public offering in February 1998.
Net income. As a result of the above, net income increased from $59,000
for the three months ended March 31, 1997 to $102,000 for the three months ended
March 31, 1998, an increase of $43,000 or 71.8%. Net income in 1998 was net of
income taxes of $48,000, and the Company paid no income taxes in the comparable
period in 1997. As a percentage of net revenue, net income decreased from 2.5%
for the three months ended March 31, 1997 to 2.2% for the three months ended
March 31, 1998. Without the one-time conversion inducement expense of $305,000,
net income would have been $307,000 or 6.6% of net revenue.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its growth through a
combination of private sales of convertible subordinated debentures and Common
Stock, cash provided by operating activities, a bank line of credit (the "Credit
Facility"), seller notes, and the initial public offering of Common Stock.
Net cash provided by (used in) operating activities was $460,000 and
$(185,000) for the three months ended March 31, 1997 and 1998, respectively. Net
cash (used in) operations during the 1998 period, after adding back depreciation
and amortization, consisted primarily of a decrease in accounts payable and
accrued expenses of $409,000 and an increase in accounts receivable of $133,000.
In the three months ended March 31, 1998, net income contributed $102,000 to net
cash provided by operating activities for the period.
Net cash used in investing activities was $253,000 and $1.2 million for
the three months ended March 31, 1997 and 1998, respectively. In the three
months ended March 31, 1998, $599,000 was utilized for acquisitions and $638,000
was invested in the purchase of additional property and equipment, including
$110,000 for the de novo Offices. For the three months ended March 31, 1997,
$200,000 was utilized for acquisitions and $55,000 was invested in the purchase
of additional property and equipment.
For the three months ended March 31, 1997 and 1998, net cash provided by
financing activities was $4,000 and $6.6 million, respectively. In the three
months ended March 31, 1998, the cash provided was comprised of $10.4 million of
net proceeds from the initial public offering of the Company's Common Stock.
This was partially offset by $3.7 million used for the repayment of a bank line
of credit and a note issued in connection with the September 1997 acquisition of
nine dental practices operated under the name Gentle Dental (the "Gentle Dental
Acquisition"), $1.1 million for costs associated with the public offering and
$28,000 used for the payment of debenture issuance and other financing costs.
Net cash provided by financing activities for the three months ended March 31,
1997 was $4,000. This was comprised of $225,000 from the private sale of
convertible subordinated debentures, partially offset by $156,000 used for the
repayment of the bank line of credit, $48,000 for the repayment of long-term
debt and $17,000 used for the payment of debenture issuance and other financing
costs.
16
<PAGE> 17
Under the Company's Credit Facility, during its three year term, the
Company may borrow up to $10.0 million for working capital needs. Advances will
bear interest at the lender's base rate or at the applicable LIBOR rate plus
2.25%, at the Company's option, and the Company will be obligated to pay an
annual facility fee of .25% of the average unused amount of the line of credit
during the previous full calendar quarter. Borrowings are limited to an
availability formula based on the Company's adjusted EBITDA. At March 31, 1998,
the Company had no outstanding borrowings under the Credit Facility. The Credit
Facility is secured by a lien on the Company's accounts receivable and its
Management Agreements. The Credit Facility prohibits the payment of dividends
and other distributions to shareholders, restricts or prohibits the Company from
incurring indebtedness, incurring liens, disposing of assets, making investments
or making acquisitions, and requires the Company to maintain certain financial
ratios on an ongoing basis.
The Company had outstanding indebtedness at March 31, 1998 of
approximately $412,000 represented by notes issued in connection with various
practice acquisitions, each of which bears interest at rates varying from 7.0%
to 14.0% and capital lease obligations. The Company's material commitments for
capital expenditures total approximately $669,000, consisting of approximately
$159,000 for the expansion of two Offices and approximately $170,000 for each of
three planned de novo Office developments. The Company anticipates that these
capital expenditures will be funded by cash on hand, cash generated by
operations, or borrowings under the Company's Credit Facility. The Company's
accumulated deficit as of March 31, 1998 was approximately $360,000, and the
Company had working capital on that date of approximately $5.8 million.
The Company completed on February 17, 1998 a public offering of 2,100,000
shares of Common Stock at an initial public offering price of $7.00 per share,
resulting in net proceeds to the Company of approximately $10.4 million.
Approximately $2.6 million of the net proceeds was used to repay outstanding
indebtedness under the Credit Facility and to repay the $1.3 million note issued
in connection with the Gentle Dental Acquisition. On February 27, 1998, the
Company used approximately $600,000 to acquire a single dental practice in
Albuquerque, New Mexico. In addition, the Company used approximately $500,000
for leasehold improvements, dental equipment, furniture and fixtures and
computer equipment and approximately $300,000 for working capital during the
quarter ended March 31, 1998. The Company believes that the remaining net
proceeds from the offering, together with cash generated from operations and
borrowings under its Credit Facility, will be sufficient to fund its anticipated
working capital needs, capital expenditures and future acquisitions for at least
the next 12 months. In the event the Company is not able to successfully
negotiate a new Credit Facility at the end of its term or identifies and
completes future acquisitions more quickly than it currently anticipates, the
Company's current sources of liquidity may not be adequate. In addition, in
order to meet its long-term liquidity needs the Company may issue additional
equity and debt securities, subject to market and other conditions. There can be
no assurance that such additional financing will be available on terms
acceptable to the Company. The failure to raise the funds necessary to finance
its future cash requirements could adversely affect the Company's ability to
pursue its strategy and could negatively affect its operations in future
periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is subject to litigation incidental to its
business. The Company is not presently a party to any material litigation. Such
claims, if successful, could result in damage awards exceeding, perhaps
substantially, applicable insurance coverage.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On February 17, 1998, the Company's $6.8 million principal amount 9.0%
convertible debentures (issued in May 1996 and December 1996) were
converted into Common Stock, in accordance with the terms of these
securities and in conjunction with the Company's initial public offering.
(b) Not applicable.
(c) During the three months ended March 31, 1998, the Company issued and/or
sold the following unregistered securities. On February 27, 1998, the
Company issued 5250 shares of Common Stock (valued at $31,500) in
conjunction with the acquisition of a single dental practice in
Albuquerque, New Mexico.
(d) The Company's registration statement on Form S-1 (SEC File No. 333-36391)
covering the Company's initial public offering of 2,100,000 shares
(including 266,184 shares sold by selling shareholders) of Common Stock at
$7.00 per share, was declared effective on February 11, 1998. Joseph
Charles and Associates, Inc. was the managing underwriter. The gross
proceeds to the Company in the offering were $12.8 million and the expenses
incurred were as follows: (i) $1.4 million for the underwriters discount
and non-accountable expense allowance; and (ii) approximately $1.1 million
for other expenses, including legal, accounting and printing fees. The
Company used the net proceeds in the offering of approximately $10.4
million as follows: (i) approximately $2.6 was used to repay the Company's
outstanding indebtedness under a bank line of credit (the "Credit
Facility"), including accrued and unpaid interest; (ii) approximately $1.3
million was used to repay a note issued in connection with the Gentle
Dental Acquisition; (iii) approximately $0.6 million was used to acquire a
single dental practice in Albuquerque, New Mexico; (iv) approximately $0.5
million was used for leasehold improvements, dental equipment, furniture
and fixtures and computer equipment; (v) approximately $0.3 million was
used for working capital; and (vi) approximately $5.1 million is expected
to be used for potential acquisitions and development of additional de novo
Offices and for working capital and general corporate purposes. As of the
date of this Quarterly Report, the balance of the net proceeds was invested
in short-term, investment grade, interest-bearing securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation, incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
3.2 Amended and Restated Bylaws, incorporated herein by reference to
Exhibit 3.3 to the Company's Registration Statement on Form S-1 (SEC
File No. 333-36391), as filed with the Securities and Exchange
Commission on September 25, 1997.
4.1 Reference is made to Exhibits 3.1 through 3.2.
4.2 Specimen Stock Certificate, incorporated herein by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1 (SEC
File No. 333-36391), as filed with the Securities and Exchange
Commission on September 25, 1997.
10.1 Form of Indemnification Agreement entered into between the Registrant
and its Directors and Executive Officers, incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
10.2 Warrant Agreement dated December 27, 1996, between the Registrant and
Cohig & Associates, Inc., incorporated herein by reference to Exhibit
10.2 to the Company's Registration Statement on Form S-1 (SEC File No.
333-36391), as filed with the Securities and Exchange Commission on
September 25, 1997.
10.3 Warrant Agreement dated May 29, 1996, between the Registrant and Cohig
& Associates, Inc., incorporated herein by reference to Exhibit 10.3
to the Company's Registration Statement on Form S-1 (SEC File No.
333-36391), as filed with the Securities and Exchange Commission on
September 25, 1997.
10.4 Warrant Agreement dated October 3, 1995, between the Registrant and
Cohig & Associates, Inc., incorporated herein by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-1 (SEC File No.
333-36391), as filed with the Securities and Exchange Commission on
September 25, 1997.
10.5 Warrant Certificate dated June 30, 1997, issued to Fred Birner,
incorporated herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.6 Warrant Certificate dated November 1, 1996, issued to Fred Birner,
incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.7 Warrant Certificate dated June 30, 1997, issued to Mark Birner,
incorporated herein by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.8 Warrant Certificate dated November 1, 1996, issued to Mark Birner,
incorporated herein by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.9 Warrant Certificate dated June 30, 1997, issued to Dennis Genty,
incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.10 Warrant Certificate dated November 1, 1996, issued to Dennis Genty,
incorporated herein by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.11 Warrant Certificate dated August 1, 1996, issued to James Ciccarelli,
incorporated herein by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.12 Warrant Certificate dated July 15, 1997 issued to James Ciccarelli,
incorporated herein by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.13 Credit Agreement, dated October 31, 1996, between the Registrant and
Key Bank of Colorado, as amended by First Amendment to Loan Documents,
dated as of September 3, 1997, incorporated herein by reference to
Exhibit 10.13 to the Company's Registration Statement on Form S-1 (SEC
File No. 333-36391), as filed with the Securities and Exchange
Commission on September 25, 1997.
10.14 Form of Managed Care Contract with Prudential, incorporated herein by
reference to Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
10.15 Form of Managed Care Contract with PacifiCare, incorporated herein by
reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
10.16 Letter Agreement dated October 17, 1996, between the Registrant and
James Ciccarelli, as amended by letter agreement dated September 24,
1997 between the Registrant and James Ciccarelli, incorporated herein
by reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
10.17 Agreement, dated August 21, 1997, between the Registrant and James
Abramowitz, D.D.S., and Equity Resources Limited Partnership, a
Colorado limited partnership, incorporated herein by reference to
Exhibit 10.17 to the Company's Registration Statement on Form S-1 (SEC
File No. 333-36391), as filed with the Securities and Exchange
Commission on September 25, 1997.
10.18 Form of Management Agreement, incorporated herein by reference to
Exhibit 10.18 to the Company's Registration Statement on Form S-1 (SEC
File No. 333-36391), as filed with the Securities and Exchange
Commission on September 25, 1997.
10.19 Employment Agreement dated September 8, 1997 between the Registrant
and James Abramowitz, D.D.S., incorporated herein by reference to
Exhibit 10.19 to the Company's Registration Statement on Form S-1 (SEC
File No. 333-36391), as filed with the Securities and Exchange
Commission on September 25, 1997.
10.20 Form of Stock Transfer and Pledge Agreement, incorporated herein by
reference to Exhibit 10.20 to the Company's Registration Statement on
Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
10.21 Indenture, dated as of December 27, 1996, between the Registrant and
Colorado National Bank, a national banking association, as Trustee,
incorporated herein by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.22 Indenture, dated as of May 15, 1996, between the Registrant and
Colorado National Bank, a national banking association, as Trustee,
incorporated herein by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
10.23 Birner Dental Management Services, Inc. 1995 Employee Stock Option
Plan, including forms of Incentive Stock Option Agreement and
Non-statutory Stock Option Agreement under the Employee Plan,
incorporated herein by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on September 25, 1997.
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.24 Birner Dental Management Services, Inc. 1995 Stock Option Plan for
Managed Dental Centers, including form of Non-statutory Stock Option
Agreement under the Dental Center Plan, incorporated herein by
reference to Exhibit 10.24 to the Company's Registration Statement on
Form S-1 (SEC File No. 333-36391), as filed with the Securities and
Exchange Commission on September 25, 1997.
10.25 Profit Sharing 401(k)/Stock Bonus Plan of the Registrant, incorporated
herein by reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (SEC File No. 333-36391), as filed with the
Securities and Exchange Commission on September 25, 1997.
10.26 Form of Stock Transfer and Pledge Agreement with Mark Birner, D.D.S.,
incorporated herein by reference to Exhibit 10.26 of Pre-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-1
(SEC File No. 333-36391), as filed with the Securities and Exchange
Commission on November 7, 1997.
10.27 Stock Purchase, Pledge and Security Agreement, dated October 27, 1997,
between the Company and William Bolton, D.D.S., incorporated herein by
reference to Exhibit 10.27 of Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1 (SEC File No. 333-36391),
as filed with the Securities and Exchange Commission on November 7,
1997.
10.28 Stock Purchase, Pledge and Security Agreement, dated October 27, 1997,
between the Company and Scott Kissinger, D.D.S., incorporated herein
by reference to Exhibit 10.28 of Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1 (SEC File No. 333-36391),
as filed with the Securities and Exchange Commission on November 7,
1997.
10.29 Second Amendment to Loan Documents dated November 19, 1997 between the
Registrant and Key Bank of Colorado, incorporated herein by reference
to Exhibit 10.29 of Pre-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on November 25, 1997.
10.30 Form of Financial Consulting Agreement between the Company and Joseph
Charles & Associates, Inc., incorporated herein by reference to
Exhibit 10.30 of Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (SEC File No. 333-36391), as filed
with the Securities and Exchange Commission on January 14, 1998.
10.31 Form of Purchase Option for the Purchase of Shares of Common Stock
granted to Joseph Charles & Associates, Inc., incorporated herein by
reference to Exhibit 10.31 of Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form S-1 (SEC File No. 333-36391),
as filed with the Securities and Exchange Commission on January 14,
1998.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
Not applicable.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 1998.
BIRNER DENTAL MANAGEMENT SERVICES, INC.
a Colorado corporation
By: /s/ Frederic W.J. Birner
------------------------------------------
Name: Frederic W.J. Birner
Title: Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
By: /s/ Dennis N. Genty
------------------------------------------
Name: Dennis N. Genty
Title: Chief Financial Officer, Secretary,
Treasurer and Director
(Principal Financial and Accounting
Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BIRNER
DENTAL MANAGEMENT SERVICES, INC. FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR QUARTER ENDED
MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,160,467
<SECURITIES> 0
<RECEIVABLES> 1,678,230
<ALLOWANCES> 97,700
<INVENTORY> 0
<CURRENT-ASSETS> 8,074,499
<PP&E> 3,829,526
<DEPRECIATION> 762,452
<TOTAL-ASSETS> 20,850,000
<CURRENT-LIABILITIES> 2,253,979
<BONDS> 263,808
0
0
<COMMON> 18,691,963
<OTHER-SE> (359,750)
<TOTAL-LIABILITY-AND-EQUITY> 20,850,000
<SALES> 6,208,944
<TOTAL-REVENUES> 6,208,944
<CGS> 5,071,556
<TOTAL-COSTS> 5,071,556
<OTHER-EXPENSES> 579,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407,485
<INCOME-PRETAX> 149,952
<INCOME-TAX> 47,984
<INCOME-CONTINUING> 101,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,968
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
