<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 June 30, 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
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 August 10, 1998
- -------------------------------------------------------------------------------
Common Stock, without par value 6,685,529
<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 June 30, 1998 and
December 31, 1997 3
Condensed Consolidated Statements of Operations for the Quarters
Ended June 30, 1998 and 1997 and the Six Months Ended
June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
</TABLE>
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<PAGE> 3
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,994,623 $ 977,454
Accounts receivable, net of allowances of approximately
$97,700, for uncollectible accounts 2,249,031 1,374,304
Notes receivable-- related parties 30,939 35,507
Prepaid expenses 414,621 284,865
Deferred offering costs -- 846,528
------------ ------------
Total current assets 6,689,214 3,518,658
------------ ------------
PROPERTY AND EQUIPMENT, net 3,990,026 2,630,945
OTHER NONCURRENT ASSETS:
Intangible assets, net 10,919,753 8,947,952
Deferred charges and other assets 199,843 458,191
Notes receivable-- related parties, net of current portion -- 8,052
------------ ------------
Total assets $ 21,798,836 $ 15,563,798
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 2,262,045 $ 3,252,761
Short-term borrowings 101,073 682,907
Current maturities of capital lease obligations 32,536 41,391
Income taxes payable 287,878 --
------------ ------------
Total current liabilities 2,683,532 3,977,059
------------ ------------
LONG TERM LIABILITIES:
Long-term borrowings 220,813 3,392,114
Convertible subordinated debentures -- 6,780,000
Capital lease obligations, net of current maturities 12,473 26,249
------------ ------------
Total liabilities 2,916,818 14,175,422
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value, 10,000,000 shares
authorized; none outstanding -- --
Common Stock, no par value, 20,000,000 shares
authorized; 6,685,529 and 3,196,243, shares issued and
outstanding at June 30, 1998 and December 31,
1997, respectively 18,731,992 1,850,094
Retained earnings (deficit) 150,026 (461,718)
------------ ------------
Total shareholders' equity 18,882,018 1,388,376
------------ ------------
Total liabilities and shareholders' equity $ 21,798,836 $ 15,563,798
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUE $ 5,609,017 $ 2,899,444 $ 10,260,354 $ 5,227,269
DIRECT EXPENSES:
Clinical salaries and benefits 2,028,685 919,353 3,792,456 1,696,082
Dental supplies 297,994 289,465 562,028 512,366
Laboratory fees 536,351 269,833 930,252 488,203
Occupancy 452,984 237,556 840,685 431,609
Advertising and marketing 126,815 130,581 204,527 217,130
Depreciation and amortization 258,718 160,936 475,461 285,409
General and administrative 465,085 186,762 875,172 352,675
------------ ------------ ------------ ------------
4,166,632 2,194,486 7,680,581 3,983,474
------------ ------------ ------------ ------------
Contribution from dental offices 1,442,385 704,958 2,579,773 1,243,795
Corporate expenses-
General and administrative 685,375 300,052 1,235,139 588,071
Depreciation and amortization 38,303 24,942 68,490 46,416
------------ ------------ ------------ ------------
Operating income 718,707 379,964 1,276,144 609,308
Interest (income) expense, net (30,963) 167,760 71,422 337,757
Conversion inducement expense -- -- (305,100) --
------------ ------------ ------------ ------------
Income before income taxes 749,670 212,204 899,622 271,551
Income taxes (239,894) (5,200) (287,878) (5,200)
------------ ------------ ------------ ------------
Net income $ 509,776 $ 207,004 $ 611,744 $ 266,351
============ ============ ============ ============
Net income per share--
Basic $ .08 $ .06 $ .11 $ .08
============ ============ ============ ============
Diluted $ .07 $ .06 $ .10 $ .08
============ ============ ============ ============
Weighted average number of
shares and dilutive securities--
Basic 6,675,879 3,207,505 5,807,049 3,253,355
Diluted 6,934,112 3,471,063 6,057,707 3,516,913
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 611,744 $ 266,351
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 543,952 331,825
Provision for bad debts -- 4,100
Amortization of debenture issuance costs 18,098 40,896
Deferred income taxes -- 5,200
Conversion inducement 305,100 --
Changes in assets and liabilities, net of effects
from acquisitions-
Accounts receivable (734,727) (115,456)
Prepaid expenses (143,781) (26,697)
Accounts payable and accrued expenses (204,023) 448,827
Income taxes payable 287,878
------------ ------------
Net cash provided by operating
activities 684,241 955,046
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable-- related parties 12,620 96,551
Capital expenditures (987,117) (235,021)
Development of new dental offices (550,965) (59,632)
Acquisition of dental offices (2,432,528) (903,210)
------------ ------------
Net cash used in investing activities (3,957,990) (1,101,312)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering 11,476,042 --
Proceeds from convertible subordinated debentures -- 225,000
Proceeds from issuance of Common Stock from options exercised 47,425 --
Net activity from line of credit (350,000) 250,000
Repayment of long term debt (3,425,766) (100,116)
Payment of debenture issuance and other financing cost (27,927) (16,875)
Payment to induce conversion of debentures (305,100) --
Payment of public offering costs (1,123,756) --
Purchase and retirement of Common Stock -- (219,178)
------------ ------------
Net cash provided by financing activities 6,290,918 138,831
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,017,169 (7,435)
CASH AND CASH EQUIVALENTS, beginning of period 977,454 1,797,552
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,994,623 $ 1,790,117
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 455,316 $ 331,101
========== ==========
Cash paid for taxes $ -- $ --
========== ==========
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common Stock issued for-
Conversion of Debentures $6,780,000 $ --
Acquisition of dental offices 31,500 --
Liabilities assumed, incurred for acquisitions-
Accounts payable and accrued liabilities 8,915 --
Accounts receivable acquired through
Acquisitions 140,000 20,000
Notes payable for--
Acquisitions of dental offices -- 130,000
Purchase and retirement of Common Stock -- 110,822
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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
June 30, 1998 or the six months ended June 30, 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. 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 tables present a
reconciliation of basic and diluted income per share calculations.
The Company's share base and related earnings per share for the six months ended
June 30, 1997 as presented in the following table, differs from that previously
reported in the Company's Prospectus dated February 11, 1998 for this same
period due to the adoption of SFAS 128. SFAS 128 required retroactive
restatement of prior period's earnings per share.
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<PAGE> 8
<TABLE>
<CAPTION>
Quarter Ended June 30,
--------------------------------------------------------------------------
1998 1997
------------------------------------ -----------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income
applicable to
common shares $ 509,776 6,675,879 $.08 $ 207,004 3,207,505 $.06
Effect of dilutive common
shares from stock
options and warrants -- 258,233 -- -- 263,558 --
--------- --------- ---- --------- --------- ----
Diluted Earnings Per Share
Net income
applicable to
common shares $ 509,776 6,934,112 $.07 $ 207,004 3,471,063 $.06
========= ========= ==== ========= ========= ====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------------
1998 1997
------------------------------------ -----------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income
applicable to
common shares $ 611,744 5,807,049 $.11 $ 266,351 3,253,355 $.08
Effect of dilutive common
shares from stock
options and warrants -- 250,658 -- -- 263,558 --
--------- --------- ---- --------- --------- ----
Diluted Earnings Per Share
Net income
applicable to
common shares $ 611,744 6,057,707 $.10 $ 266,351 3,516,913 $.08
========= ========= ==== ========= ========= ====
</TABLE>
(3) COMPREHENSIVE INCOME
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" in the first
quarter of 1998. Under SFAS No. 130, the Company reports comprehensive income,
which in addition to net income, includes all changes in equity during a period
except those resulting from investments by and distributions to owners. In the
first and second quarters of 1998 and 1997, there were no differences between
net income and comprehensive income.
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<PAGE> 9
(4) 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.
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.
(5) ACQUISITIONS AND DE-NOVOS
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.
On April 27, 1998, the Company acquired all the assets of three Colorado dental
practices, two in the Denver metro area and one in Boulder for a total purchase
price of $1,800,000. The Company also opened a de-novo practice in Colorado
Springs, Colorado in April 1998 and a de-novo practice in Santa Fe, New Mexico
in May 1998.
(6) SUBSEQUENT EVENT
In July 1998, the Company acquired all the assets of a dental practice in
Phoenix, Arizona and also opened a de-novo practice in Colorado Springs,
Colorado.
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<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), the Year 2000 Risk Factor set forth below, 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.
YEAR 2000
The Company has conducted a review of its respective computer systems to
identify the systems that could be affected by the "Year 2000" issue. The Year
2000 problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Company's programs
that have time-sensitive software or equipment that has time-sensitive embedded
components may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. While some
upgrades will be necessary, the Company presently believes that the Year 2000
problem will not pose significant operational problems for the Company's
computer systems. Additionally, the Year 2000 problem is not expected to have a
material effect on the cost of operation of the Company.
The Company also may be vulnerable to other companies' Year 2000 issues.
The Company's current estimates of the impact of the Year 2000 problem on its
operations and financial results do not include costs and time that may be
incurred as a result of any vendors' or customers' failure to become Year 2000
compliant on a timely basis. The Company intends to initiate formal
communications with all of its significant insurance payors and vendors with
respect to such persons' Year 2000 compliance programs and status. However,
there can be no assurance that such other companies will achieve Year 2000
compliance or that any conversions by such companies to become Year 2000
compliant will be compatible with the Company's computer system. The inability
of the Company or any of its principal vendors or insurance payors to become
Year 2000 compliant in a timely manner could have a material adverse effect on
the Company's financial condition or results of operations.
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<PAGE> 11
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 June 30, 1998, managed 40
Offices in Colorado and New Mexico staffed by 46 full-time equivalent general
dentists and 2.5 full-time equivalent specialists. The Company has acquired 35
Offices (three of which were consolidated into existing Offices) and opened
eight de novo Offices. Of the 35 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.
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 2
Acquired Offices 4 9 15 4
-- -- -- --
Offices at end of period 4 18 34 40
== == == ==
</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 June 30, 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 the four
practices acquired in the first six months of 1998, were $412,000, $4.4 million,
$5.3 million, and $2.4 million, respectively. The average investment by the
Company in each of its eight de novo Offices has been approximately $180,000,
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 June 30, 1998, the Company's total assets of $21.8 million included
$10.9 million of identifiable intangible assets related to Management
Agreements. At that date, the Company's total shareholders' equity was $18.9
million. The Company reviews the recorded amount of intangible assets
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<PAGE> 12
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 ("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.
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
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<PAGE> 13
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 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
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<PAGE> 14
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 $3.8 million for the three months ended
June 30, 1997 to $7.4 million for the three months ended June 30, 1998, an
increase of 97.1%. The Company acquired three practices and opened two de novo
Offices during the period from April 1, 1998 to June 30, 1998 which, in the
aggregate, contributed $433,000 of the $3.6 million increase. Total dental group
practice revenue for the 19 Offices which were in existence during both full
quarters increased 18.5% from $3.3 million in the 1997 quarter to $3.9 million
in the 1998 quarter and, therefore, contributed $612,000 of the $3.6 million
increase. The remainder of the increase in total dental group practice revenue
of $2.6 million was attributable to the 15 practice acquisitions (including the
Gentle Dental Acquisition) and the opening of one de novo Office which took
place between April 1, 1997 and March 31, 1998.
Total dental group practice revenue increased $6.8 million or 98.9% to
$13.6 million for the six-month period ended June 30, 1998 compared to $6.8
million for the six-month period ended June 30, 1997. The Company acquired four
practices and opened two de novo Offices during the period from January 1, 1998
to June 30, 1998 which, in the aggregate, contributed $876,000 of the $6.8
million increase. Total dental group practice revenue for the 18 Offices which
were in existence during both full six-month periods increased 16.2% from $6.2
million in the 1997 period to $7.2 million in the 1998 period and, therefore,
contributed $1.0 million of the $6.8 million increase. The remainder of the
increase of $4.9 million in total dental group practice revenues was generated
from the 15 practice acquisitions (including the Gentle Dental Acquisition) and
the opening of one de novo Office which took place between January 1, 1997 and
December 31, 1997.
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.
-14-
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Direct expenses:
Clinical salaries and benefits 36.2% 31.7% 37.0% 32.4%
Dental supplies 5.3% 10.0% 5.5% 9.8%
Laboratory fees 9.6% 9.3% 9.1% 9.3%
Occupancy 8.1% 8.2% 8.2% 8.3%
Advertising and marketing 2.3% 4.5% 2.0% 4.2%
Depreciation and amortization 4.6% 5.6% 4.6% 5.5%
General and administrative 8.3% 6.4% 8.5% 6.7%
Contribution from dental offices 25.7% 24.3% 25.1% 23.8%
Corporate expenses --
General and administrative 12.2% 10.3% 12.0% 11.3%
Depreciation and amortization 0.7% 0.9% 0.7% 0.9%
Operating income 12.8% 13.1% 12.4% 11.7%
Interest (income) expense, net (0.6%) 5.8% 0.7% 6.5%
Conversion inducement expense -- -- 3.0% --
Income before income taxes 13.4% 7.3% 8.8% 5.2%
Income taxes 4.3% 0.2% 2.8% 0.1%
Net income 9.1% 7.1% 6.0% 5.1%
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net revenue. Net revenue increased from $2.9 million for the three months
ended June 30, 1997 to $5.6 million for the three months ended June 30, 1998, an
increase of $2.7 million, or 93.5%. The Company acquired three practices and
opened two de novo Offices during the period from April 1, 1998 to June 30,
1998, which contributed $305,000 of the increase. Net revenue at the 19 Offices
which the Company managed and which were in existence for both full second
quarters of 1997 and 1998 increased 21.9% or $555,000 from $2.5 million in the
second quarter of 1997 to $3.1 million in the second quarter of 1998. The
remainder of the increase in net revenue of $1.8 million was attributable to 15
practice acquisitions and one de novo Office opening which occurred between
April 1, 1997 and March 31, 1998.
Clinical salaries and benefits. Clinical salaries and benefits increased
from $919,000 to $2.0 million for the three months ended June 30, 1997 and 1998,
respectively, an increase of $1.1 million or 120.7%. 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 31.7% in the three months ended June 30, 1997 to 36.2%
in the three months ended June 30, 1998.
Dental supplies. Dental supplies increased from $289,000 for the three
months ended June 30, 1997 to $298,000 for the three months ended June 30, 1998,
an increase of $9,000 or 2.9%. 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 10.0% during the three months ended June
30, 1997 to 5.3% during the three months ended June 30, 1998.
Laboratory fees. Laboratory fees increased from $270,000 during the three
months ended June 30, 1997 to $536,000 during the three months ended June 30,
1998, an increase of $267,000 or 98.8%. This increase was due to the increased
total dental group practice revenue generated at the Offices. As a percentage of
net revenue, laboratory fees increased slightly from 9.3% during the three
months ended June 30, 1997 to 9.6% during the three months ended June 30, 1998.
-15-
<PAGE> 16
Occupancy. Occupancy increased from $238,000 during the three months ended
June 30, 1997 to $453,000 during the three months ended June 30, 1998, an
increase of $215,000 or 90.7%. This increase was due to the increased number of
Offices. As a percentage of net revenue, occupancy expense declined slightly
from 8.2% during the three months ended June 30, 1997 to 8.1% during the three
months ended June 30, 1998.
Advertising and marketing. Advertising and marketing decreased slightly
from $131,000 for the three months ended June 30, 1997 to $127,000 for the three
months ended June 30, 1998, a decrease of $4,000 or 2.9%. As a percentage of net
revenue, advertising and marketing decreased from 4.5% during the three months
ended June 30, 1997 to 2.3% during the three months ended June 30, 1998.
Depreciation and amortization. Depreciation and amortization, which
consists of depreciation and amortization expense incurred at the Offices,
increased from $161,000 for the three months ended June 30, 1997 to $259,000 for
the three months ended June 30, 1998, an increase of $98,000 or 60.8%. This
increase was due to the increased number of Offices. As a percentage of net
revenue, depreciation and amortization decreased from 5.6% for the three months
ended June 30, 1997 to 4.6% for the three months ended June 30, 1998.
General and administrative. General and administrative, which is
attributable to the Offices, increased from $187,000 during the three months
ended June 30, 1997 to $465,000 during the three months ended June 30, 1998, an
increase of $278,000 or 149.0%. This increase was due to the increased number of
Offices. As a percentage of net revenue, general and administrative expenses
increased from 6.4% during the three months ended June 30, 1997 to 8.3% during
the three months ended June 30, 1998.
Contribution from dental offices. As a result of the above, contribution
from dental offices increased from $705,000 for the three months ended June 30,
1997 to $1.4 million for the three months ended June 30, 1998, an increase of
$737,000 or 104.6%. As a percentage of net revenue, contribution from dental
offices increased from 24.3% during the three months ended June 30, 1997 to
25.7% during the three months ended June 30, 1998.
Corporate expenses -- general and administrative. Corporate expenses --
general and administrative increased from $300,000 during the three months ended
June 30, 1997 to $685,000 during the three months ended June 30, 1998, an
increase of $385,000 or 128.4%. 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 increased from 10.3% during the three months ended June 30, 1997
to 12.2% during the three months ended June 30, 1998.
Corporate expenses -- depreciation and amortization. Corporate expenses --
depreciation and amortization increased from $25,000 in the three months ended
June 30, 1997 to $38,000 in the three months ended June 30, 1998, an increase of
$13,000 or 53.6%. 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 slightly from 0.9% during the three
months ended June 30, 1997 to 0.7% during the three months ended June 30, 1998.
Operating income. As a result of the above, operating income increased
from $380,000 during the three months ended June 30, 1997 to $719,000 during the
three months ended June 30, 1998, an increase of $339,000 or 89.2%. As a
percentage of net revenue, operating income decreased slightly from 13.1% during
the three months ended June 30, 1997 to 12.8% during the three months ended June
30, 1998.
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<PAGE> 17
Interest (income) expense, net. The Company had net interest expense of
$168,000 for the three months ended June 30, 1997 and generated net interest
income of $31,000 for the three months ended June 30, 1998. This decrease in
interest expense 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 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 the proceeds from the Company's initial public offering.
Net income. As a result of the above, net income increased from $207,000
for the three months ended June 30, 1997 to $510,000 for the three months ended
June 30, 1998, an increase of $303,000 or 146.3%. Net income in the three months
ended June 30, 1998 was net of income taxes of $240,000, and net income in the
comparable period in 1997 was net of income taxes of $5,000. As a percentage of
net revenue, net income increased from 7.1% for the three months ended June 30,
1997 to 9.1% for the three months ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net revenue. Net revenue increased from $5.2 million for the six months
ended June 30, 1997 to $10.3 million for the six months ended June 30, 1998, an
increase of $5.0 million, or 96.3%. The Company acquired four practices and
opened two de novo Offices during the period from January 1, 1998 to June 30,
1998, which contributed $579,000 of the increase. Net revenue at the 18 Offices
which the Company managed and which were in existence during both full six-month
periods of 1997 and 1998 increased 19.1% or $905,000 from $4.7 million for the
six months ended June 30, 1997 to $5.6 million for the six months ended June 30,
1998. The remainder of the increase in net revenue of $3.5 million was
attributable to 15 practice acquisitions and one de novo Office opening which
occurred between January 1, 1997 and December 31, 1997.
Clinical salaries and benefits. Clinical salaries and benefits increased
from $1.7 million to $3.8 million for the six months ended June 30, 1997 and
1998, respectively, an increase of $2.1 million or 123.6%. 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 32.4% in the six months ended June 30, 1997 to 37.0% in
the six months ended June 30, 1998.
Dental supplies. Dental supplies increased from $512,000 for the six
months ended June 30, 1997 to $562,000 for the six months ended June 30, 1998,
an increase of $50,000 or 9.7%. 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 9.8% during the six months ended June
30, 1997 to 5.5% during the six months ended June 30, 1998.
Laboratory fees. Laboratory fees increased from $488,000 during the six
months ended June 30, 1997 to $930,000 during the six months ended June 30,
1998, an increase of $442,000 or 90.5%. 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 slightly from 9.3% during the six months
ended June 30, 1997 to 9.1% during the six months ended June 30, 1998.
Occupancy. Occupancy increased from $432,000 during the six months ended
June 30, 1997 to $841,000 during the six months ended June 30, 1998, an increase
of $409,000 or 94.8%. This increase was due to the increased number of Offices.
As a percentage of net revenue, occupancy expense declined slightly from 8.3%
during the six months ended June 30, 1997 to 8.2% during the six months ended
June 30, 1998.
Advertising and marketing. Advertising and marketing decreased from
$217,000 for the six months ended June 30, 1997 to $205,000 for the six months
ended June 30, 1998, a decrease of
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<PAGE> 18
$13,000 or 5.8%. As a percentage of net revenue, advertising and marketing
decreased from 4.2% during the six months ended June 30, 1997 to 2.0% during the
six months ended June 30, 1998.
Depreciation and amortization. Depreciation and amortization, which
consists of depreciation and amortization expense incurred at the Offices,
increased from $285,000 for the six months ended June 30, 1997 to $475,000 for
the six months ended June 30, 1998, an increase of $190,000 or 66.6%. This
increase was due to the increased number of Offices. As a percentage of net
revenue, depreciation and amortization decreased from 5.5% for the six months
ended June 30, 1997 to 4.6% for the six months ended June 30, 1998.
General and administrative. General and administrative, which is
attributable to the Offices, increased from $353,000 during the six months ended
June 30, 1997 to $875,000 during the six months ended June 30, 1998, an increase
of $522,000 or 148.2%. This increase was due to the increased number of Offices.
As a percentage of net revenue, general and administrative expenses increased
from 6.7% during the six months ended June 30, 1997 to 8.5% during the six
months ended June 30, 1998.
Contribution from dental offices. As a result of the above, contribution
from dental offices increased from $1.2 million for the six months ended June
30, 1997 to $2.6 million for the six months ended June 30, 1998, an increase of
$1.3 million or 107.4%. As a percentage of net revenue, contribution from dental
offices increased from 23.8% during the six months ended June 30, 1997 to 25.1%
during the six months ended June 30, 1998.
Corporate expenses -- general and administrative. Corporate expenses --
general and administrative increased from $588,000 during the six months ended
June 30, 1997 to $1.2 million during the six months ended June 30, 1998, an
increase of $647,000 or 110.0%. 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 increased from 11.3% during the six months ended June 30, 1997 to
12.0% during the six months ended June 30, 1998.
Corporate expenses -- depreciation and amortization. Corporate expenses --
depreciation and amortization increased from $46,000 in the six months ended
June 30, 1997 to $68,000 in the six months ended June 30, 1998, an increase of
$22,000 or 47.6%. 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 slightly from 0.9% during the six months
ended June 30, 1997 to 0.7% during the six months ended June 30, 1998.
Operating income. As a result of the above, operating income increased
from $609,000 during the six months ended June 30, 1997 to $1.3 million during
the six months ended June 30, 1998, an increase of $667,000 or 109.4%. As a
percentage of net revenue, operating income increased from 11.7% during the six
months ended June 30, 1997 to 12.4% during the six months ended June 30, 1998.
Interest expense, net. Interest expense, net decreased from $338,000 for
the six months ended June 30, 1997 to $71,000 for the six months ended June 30,
1998, a decrease of $266,000 or 78.9%. 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 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 6.5% for the six months ended June 30, 1997 to 0.7% for the six
months ended June 30, 1998.
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<PAGE> 19
Conversion inducement expense. During the six months ended June 30, 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 $266,000
for the six months ended June 30, 1997 to $612,000 for the six months ended June
30, 1998, an increase of $345,000 or 129.7%. Net income in 1998 was net of
income taxes of $288,000, and net income in the comparable period in 1997 was
net of income taxes of $5,000. As a percentage of net revenue, net income
increased from 5.1% for the six months ended June 30, 1997 to 6.0% for the six
months ended June 30, 1998. Without the one-time conversion inducement expense
of $305,000, net income would have been $819,000 or 8.0% 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 operating activities was $955,000 and $684,000 for
the six months ended June 30, 1997 and 1998, respectively. Net cash provided by
operations during the 1998 period, after adding back depreciation and
amortization, consisted primarily of a decrease in accounts payable and accrued
expenses of $204,000 and an increase in accounts receivable of $735,000. In the
six months ended June 30, 1998, net income contributed $612,000 to net cash
provided by operating activities for the period.
Net cash used in investing activities was $1.1 million and $4.0 million
for the six months ended June 30, 1997 and 1998, respectively. In the six months
ended June 30, 1998, $2.4 million was utilized for acquisitions and $1.5 million
was invested in the purchase of additional property and equipment, including
$551,000 for the de novo Offices. For the six months ended June 30, 1997,
$903,000 was utilized for acquisitions and $295,000 was invested in the purchase
of additional property and equipment.
For the six months ended June 30, 1997 and 1998, net cash provided by
financing activities was $139,000 and $6.3 million, respectively. In the six
months ended June 30, 1998, the cash provided was comprised of $11.5 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 six months ended June 30, 1997
was $139,000. This was comprised of $225,000 from the private sale of
convertible subordinated debentures and $250,000 of proceeds from a bank line of
credit, partially offset by $100,000 for the repayment of long-term debt,
$219,000 for the purchase and retirement of Common Stock and $17,000 used for
the payment of debenture issuance and other financing costs.
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 June 30, 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
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<PAGE> 20
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 June 30, 1998 of approximately
$367,000 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 $885,000, consisting of approximately $375,000
for the expansion of four Offices, approximately $180,000 for each of two
planned de novo Office developments, and approximately $150,000 for a technology
upgrade for the Company's information system. 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 earnings as of June 30, 1998 were approximately $150,000, and the
Company had working capital on that date of approximately $4.0 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. On April 27, 1998, the Company used approximately $1.8
million to acquire 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 and one in Santa Fe, New Mexico in May 1998. The
Company used approximately $900,000 for leasehold improvements, dental
equipment, furniture and fixtures and computer equipment during the six-months
ended June 30, 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.
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<PAGE> 21
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) Not applicable.
(b) Not applicable.
(c) During the three month period ended June 30, 1998, participants in the
Birner Dental Management Services, Inc. 1995 Employee Stock Option Plan
exercised options to purchase an aggregate of 10,179 shares of Common Stock
at a weighted average exercise price of $3.41 per share. During this same
period, participants in the Birner Dental Management Services, Inc. 1995
Stock Option Plan for Managed Dental Centers exercised options to purchase
an aggregate of 4,677 shares of Common Stock at a weighted average
exercise price of $2.72 per share. Each of these issuances of Common Stock
were exempt from registration because they did not involve any public
offering.
(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.
During the three months ended June 30, 1998, approximately $1.8 million of
the net proceeds from the offering were used to acquire three dental
practices located in Colorado. The remaining net proceeds from the offering
of approximately $3.2 million are 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
(a) The annual meeting of shareholders was held on May 27, 1998.
(b) The following directors were elected at the meeting to serve a
three-year term as Class I directors:
<TABLE>
<CAPTION>
For Withheld Authority Abstain
--- ------------------ -------
<S> <C> <C> <C>
James M. Ciccarelli 5,171,314 0 1,400
</TABLE>
The following directors are continuing to serve their three-year terms as
Class II directors which will expire at the Company's annual meeting in 1999:
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<PAGE> 22
Dennis N. Genty
Steven M. Bathgate
The following directors are continuing to serve their three-year terms as
Class III directors which will expire at the Company's annual meeting in 2000:
Frederic W.J. Birner
Mark A. Birner, D.D.S.
(c) The only other matter voted upon at the meeting and results of that
vote are as follows:
Ratification of appointment of Arthur Andersen LLP as the
Company's independent auditors for fiscal year 1998.
<TABLE>
<CAPTION>
For Against Abstained
--- ------- ---------
<S> <C> <C>
5,172,314 300 100
</TABLE>
The matter described above is described in detail in the Company's
definitive proxy statement dated May 6, 1998 for the Annual Meeting of
Shareholders held on May 27, 1998.
ITEM 5. OTHER INFORMATION
On July 13, 1998, the Company hired a Chief Operating Officer, whose
biography is as follows:
Florence M. Welch, CPA joined the Company as Chief Operating Officer in
July 1998. From April 1996 to July 1998, she was the Chief Financial
Officer/Senior Director of Finance and Administration for the Certified
Financial Planner Board of Standards, Inc., a professional regulatory
organization. From December 1989 to September 1995, she held various positions
with Intelligent Electronics, Inc., a high technology distribution and services
company, most recently as Vice President/Controller in the Reseller Network
Division. Ms. Welch received her M.S. from the University of Colorado and her
B.S. degree from American University.
On May 11, 1998, the Company hired a Vice President, whose biography is as
follows:
Michael A. Iacoboni DDS, MPH, joined the Company as a consultant after
the sale of his dental practice to the Company in September 1996. He became a
Vice President of the Company in May 1998 and heads the quality control efforts
of the Company. His professional experience includes twenty-five years of
dental practice; twelve years of continuous service to dental societies; ten
years of active participation in the legislative arena as a legislative
advocate; five years of service to the State Board of Dentistry in Colorado as
a consultant; and four years as a faculty member of the University of Northern
Colorado in their Masters of Public Health Program. Dr. Iacoboni received his
DDS degree from the University of California at Los Angeles, and his MPH from
the University of Northern Colorado.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Exhibits.
-22-
<PAGE> 23
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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.
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.
-23-
<PAGE> 24
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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.
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.
-24-
<PAGE> 25
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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.
(b) Reports on Form 8-K.
Not applicable.
-25-
<PAGE> 26
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: August 12, 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)
-26-
<PAGE> 27
EXHIBIT INDEX
<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.
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.
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
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.
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.
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
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>
<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 JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR QUARTER ENDED JUNE
30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,994,623
<SECURITIES> 0
<RECEIVABLES> 2,377,670
<ALLOWANCES> 97,700
<INVENTORY> 0
<CURRENT-ASSETS> 6,689,214
<PP&E> 4,860,094
<DEPRECIATION> 870,068
<TOTAL-ASSETS> 21,798,836
<CURRENT-LIABILITIES> 2,683,532
<BONDS> 233,286
0
0
<COMMON> 18,731,992
<OTHER-SE> 150,026
<TOTAL-LIABILITY-AND-EQUITY> 21,798,836
<SALES> 13,611,196
<TOTAL-REVENUES> 13,611,196
<CGS> 11,031,423
<TOTAL-COSTS> 11,031,423
<OTHER-EXPENSES> 1,303,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473,333
<INCOME-PRETAX> 899,622
<INCOME-TAX> 287,878
<INCOME-CONTINUING> 611,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 611,744
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
