UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarter ended June 30, 2002 | ||
| 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 No. 000-21501
COAST DENTAL SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 59-3136131 | |
| (State or
other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 2502 Rocky Point Drive North, Suite 1000, Tampa, Florida | 33607 | |
| (Address of principal executive offices) | (Zip Code) |
(813) 288-1999
(Registrant’s telephone number, including area code)
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.
APPLICABLE ONLY TO CORPORATE ISSUERS. Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Total number of shares of outstanding Common Stock as of August 14, 2002: 2,091,223.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
| December 31, | June 30, | |||||||||||
| 2001 | 2002 | |||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 2,545,770 | $ | 3,996,224 | ||||||||
Management fee receivable from Coast P.A., non-interest bearing |
12,996,820 | 15,202,477 | ||||||||||
Notes receivable from Equity Doctors – current portion |
20,504 | 125,390 | ||||||||||
Supplies, inventory and small tools |
3,357,659 | 3,200,143 | ||||||||||
Prepaid expenses and other current assets |
507,542 | 195,046 | ||||||||||
Total current assets |
19,428,295 | 22,719,280 | ||||||||||
Property and equipment, net |
17,609,994 | 15,786,130 | ||||||||||
Notes receivable from Coast P.A., non-interest bearing |
229,218 | 229,218 | ||||||||||
Notes receivable from Equity Doctors |
798,900 | 1,175,036 | ||||||||||
Non-compete agreements, net of amortization $702,502 and $777,957,
respectively |
392,081 | 345,660 | ||||||||||
Dental services agreements, net of amortization of $2,986,533
and $3,841,858, respectively |
13,414,809 | 13,070,486 | ||||||||||
Other assets |
2,262,309 | 1,703,390 | ||||||||||
Total assets |
$ | 54,135,606 | $ | 55,029,200 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 2,436,672 | 1,414,165 | |||||||||
Accrued salaries and employee costs |
1,329,485 | 1,392,915 | ||||||||||
Accrued expenses |
1,846,091 | 2,675,781 | ||||||||||
Current maturities of long-term debt |
257,520 | 187,214 | ||||||||||
Total current liabilities |
5,869,768 | 5,670,075 | ||||||||||
Long-term debt, excluding current maturities |
92,750 | 11,584 | ||||||||||
Total liabilities |
5,962,518 | 5,681,659 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock, $.001 par value; 2,000,000 shares authorized,
None issued |
— | — | ||||||||||
Common stock, $.001 par value; 50,000,000 shares authorized,
2,091,223 shares issued and outstanding |
2,091 | 2,091 | ||||||||||
Additional paid-in capital |
55,064,603 | 55,117,461 | ||||||||||
Retained earnings (deficit) |
(4,440,400 | ) | (3,265,946 | ) | ||||||||
| 50,626,294 | 51,853,606 | |||||||||||
Less: Stock option receivable from Coast P.A., non-interest bearing |
(2,453,206 | ) | (2,506,065 | ) | ||||||||
Total stockholders’ equity |
48,173,088 | 49,347,541 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 54,135,606 | $ | 55,029,200 | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
2
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
UNAUDITED
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | ||||||||||||||||
Net Revenue |
$ | 10,654,160 | $ | 14,240,330 | $ | 21,806,627 | $ | 27,810,836 | |||||||||||
Dental Center expenses: |
|||||||||||||||||||
Staff salaries and employee costs |
4,284,592 | 4,792,333 | 8,787,522 | 9,704,226 | |||||||||||||||
Dental supplies and lab fees |
2,000,595 | 2,551,672 | 4,011,345 | 4,954,320 | |||||||||||||||
Advertising |
536,503 | 1,136,194 | 1,027,291 | 1,956,882 | |||||||||||||||
Rent and occupancy |
1,771,053 | 1,920,822 | 3,549,528 | 3,794,229 | |||||||||||||||
Depreciation |
832,161 | 779,721 | 1,662,141 | 1,558,234 | |||||||||||||||
Administrative |
390,085 | 738,856 | 763,472 | 1,227,077 | |||||||||||||||
Total Dental Center expenses |
9,814,989 | 11,919,598 | 19,801,299 | 23,194,968 | |||||||||||||||
Dental Center gross profit |
839,171 | 2,320,732 | 2,005,328 | 4,615,868 | |||||||||||||||
General and administrative expenses |
1,600,567 | 1,787,328 | 3,754,917 | 3,495,461 | |||||||||||||||
Depreciation and amortization |
327,208 | 327,103 | 649,238 | 643,321 | |||||||||||||||
Dental Center closings and relocation |
— | 193,652 | — | 193,652 | |||||||||||||||
Operating (loss) income |
(1,088,604 | ) | 12,649 | (2,398,827 | ) | 283,434 | |||||||||||||
Interest income, net |
26,674 | 31,638 | 65,189 | 60,053 | |||||||||||||||
(Loss) income before income tax |
(1,061,930 | ) | 44,287 | (2,333,638 | ) | 343,487 | |||||||||||||
Income tax (expense) benefit |
— | (20,330 | ) | (102,060 | ) | 830,967 | |||||||||||||
Net (loss) income |
(1,061,930 | ) | 23,957 | (2,435,698 | ) | 1,174,454 | |||||||||||||
Unrealized (loss) gain on investments |
(16,307 | ) | — | 15,410 | — | ||||||||||||||
Comprehensive (loss) income |
$ | (1,078,237 | ) | $ | 23,957 | $ | (2,420,288 | ) | $ | 1,174,454 | |||||||||
Basic (loss) income per share: |
|||||||||||||||||||
Net (loss) income |
$ | (0.51 | ) | $ | 0.01 | $ | (1.16 | ) | $ | 0.56 | |||||||||
Diluted (loss) income per share: |
|||||||||||||||||||
Net (loss) income |
$ | (0.51 | ) | $ | 0.01 | $ | (1.16 | ) | $ | 0.56 | |||||||||
Weighted average number of shares outstanding: |
|||||||||||||||||||
Basic |
2,097,611 | 2,091,223 | 2,097,611 | 2,091,223 | |||||||||||||||
Diluted |
2,097,611 | 2,144,289 | 2,097,611 | 2,113,465 | |||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
3
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
| Six Months Ended June 30, | ||||||||||
| 2001 | 2002 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||
Net (loss) income |
$ | (2,435,698 | ) | $ | 1,174,454 | |||||
Adjustments to reconcile net (loss) income: |
||||||||||
Depreciation |
1,861,573 | 1,811,193 | ||||||||
Amortization |
449,806 | 390,381 | ||||||||
Deferred income tax expense (benefit) |
184,655 | (888,083 | ) | |||||||
Dental Center closings and relocation charge |
— | 193,652 | ||||||||
Valuation allowance |
— | 244,011 | ||||||||
Other |
41,787 | 45,722 | ||||||||
Changes in operating assets and liabilities: |
||||||||||
(Increase)
in management fee receivable from Coast P.A. |
(900,815 | ) | (2,405,954 | ) | ||||||
Decrease in supplies, inventory and small tools |
1,013 | 30,703 | ||||||||
Decrease in prepaid expenses and other current assets |
176,189 | 312,861 | ||||||||
(Decrease) increase in accounts payable and accrued expenses |
(252,273 | ) | 818,890 | |||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
(873,763 | ) | 1,727,830 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||
Capital expenditures |
(388,126 | ) | (477,345 | ) | ||||||
Acquired assets, including intangible assets |
(22,371 | ) | — | |||||||
Collections on notes receivable from Equity Doctors |
— | 36,533 | ||||||||
Purchase of available-for-sale investments |
158,483 | — | ||||||||
Increase (decrease) in other assets |
(107,234 | ) | 314,908 | |||||||
NET CASH USED IN INVESTING ACTIVITIES |
(676,214 | ) | (125,904 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||
Payments on long term debt |
(372,992 | ) | (151,472 | ) | ||||||
Proceeds from long term debt |
1,675,523 | — | ||||||||
Payments on capital leases |
(12,566 | ) | — | |||||||
NET CASH USED IN FINANCING ACTIVITIES |
(1,289,965 | ) | (151,472 | ) | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(260,012 | ) | 1,450,454 | |||||||
Cash and cash equivalents at beginning of period |
2,453,614 | 2,545,770 | ||||||||
Cash and cash equivalents at end of period |
$ | 2,193,602 | $ | 3,996,224 | ||||||
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: |
||||||||||
Interest (paid) collected, net |
$ | 65,189 | $ | 60,053 | ||||||
Income taxes (paid) refunded, net |
$ | — | $ | 1,311,388 | ||||||
Non-cash stock option receivable from Coast P.A. |
$ | 62,637 | $ | 52,859 | ||||||
ASSET
DISPOSITIONS: |
||||||||||
Management fee receivable |
$ | — | $ | (200,244 | ) | |||||
Supplies, inventory and small tools |
$ | — | $ | (126,816 | ) | |||||
Book value of property and equipment disposed |
$ | — | $ | (190,442 | ) | |||||
Notes receivable |
$ | — | $ | 517,500 | ||||||
The accompanying notes are an integral part of these condensed financial statements.
4
COAST DENTAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
Note 1 — Basis of Presentation
The accompanying Condensed Financial Statements of Coast Dental Services, Inc. (the “Company”) are unaudited and should be read in conjunction with the audited Financial Statements and notes thereto for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
In the opinion of management, all adjustments necessary for a fair presentation of such Condensed Financial Statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The Condensed Financial Statements and notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company’s annual Financial Statements and notes thereto.
Note 2 – Recently Issued Authoritative Guidance
On July 29, 2001, Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets” was issued. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill and certain intangible assets with indefinite lives, including assets of this nature recorded in past business combinations, will cease upon adoption of this statement. The Company implemented SFAS No. 142 on January 1, 2002. The Company does not have any unidentifiable intangible assets or goodwill; accordingly, the adoption of this standard did not have any impact on the Company’s financial position, results of operations or cash flows. On an annual basis, and when there is reason to suspect that the carrying values of identifiable intangible assets have been diminished or impaired, identifiable intangible assets must be tested for impairment, and write-downs may be necessary.
In October 2001, Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” was issued and replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company adopted SFAS No. 144 effective January 1, 2002 and the adoption did not have any impact on the Company’s financial position, results of operations or cash flows.
Note 3 – Income Taxes
On March 9, 2002, the Job Creation and Worker Assistance Act of 2002 (“Act”) was signed into law. This Act contains a provision that enabled the Company to carry back a substantial portion of its net operating losses to tax years 1997 and 1998 and file for additional refunds of federal income tax