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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

Commission File No. 000-21501

COAST DENTAL SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)

(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. Yes   x    No   o.

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 November 11, 2002: 2,091,223.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
UNAUDITED

The accompanying notes are an integral part of these condensed financial statements.

2

COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
UNAUDITED

The accompanying notes are an integral part of these condensed financial statements.

3

COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED

The accompanying notes are an integral part of these condensed financial statements.

4

COAST DENTAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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.

     On August 30, 2002, the Company changed its state of incorporation from Delaware to Florida pursuant to a reincorporation proposal approved by the Company’s shareholders at the annual meeting held on August 2, 2002.

Note 2 – Recently Issued Authoritative Guidance

     In July 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 June 2001, Statement of Financial Accounting Standards No. 143 (“SFAS No. 143”), “Accounting for Asset Retirement Obligations”, was issued. SFAS 143, which is effective for the Company beginning in 2003, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company does not expect the adoption of SFAS 143 in 2003 to have a material impact on its consolidated financial statements.

     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.

     In April 2002, Statement of Financial Accounting Standards No. 145 (“SFAS No. 145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, was issued. This newly issued standard rescinds SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt – an amendment of APB Opinion No. 30”, which required all gains and losses from the extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria set forth by APB Opinion 30 will now be used to classify those gains and losses. SFAS 145 also amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. In addition, SFAS 145 amends other existing authoritative pronouncements to make various technical corrections. The Company does not expect the adoption of SFAS 145 in 2003 to have a material impact on its financial statements.

COAST DENTAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)

     In June 2002, Statement of Financial Accounting Standards No. 146 (SFAS No. 146), “Accounting for Costs Associated with Exit or Disposal Activities”, was issued. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This standard requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under the previous guidance of Emerging Issues Task Force Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”, certain exit costs were recorded upon management’s commitment to an exit plan. Adoption of this standard is effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt SFAS 146 effective January 1, 2003 and does not expect the adoption to have a material impact on its financial statements.

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 taxes previously paid of $888,000. The total income tax refund filed for tax years 1997, 1998 and 1999 in April 2002 was $1,241,000 and was reflected as Income tax refund receivable on the first quarter March 31, 2002 condensed balance sheet. The Company collected the income tax refund in second quarter of 2002.

     The effect of the change in tax law has been recorded as a reduction in the valuation allowance and recognition of a tax benefit of $888,000 in the first quarter 2002, when the law was enacted. The Company incurred a significant federal tax net operating loss in both 2000 and 2001 and expects to have net deductible temporary differences reversing in the current year; accordingly, the Company has provided a full valuation allowance on its remaining net deferred tax asset. The Company will re-evaluate the amount of the valuation allowance on an ongoing basis.

Note 4 – Management Fee Receivable from Coast P.A.

     The management fee receivable represents non-interest bearing indebtedness of Coast P.A. for services and support fees payable to the Company in accordance with the Services and Support Agreements.

     Effective June 1, 2002, the Company and Coast P.A. amended the Services and Support Agreements to change the methodology for determining the monthly services and support fee earned by the Company and to provide for the transfer of Coast P.A.’s trade accounts receivable to the Company for payment of services and support fees. The trade accounts receivable transferred collateralize a portion of the management fee receivable from Coast P.A. The remainder of the management fee receivable, after transfer of the trade accounts receivable, is unsecured and represents a concentration of credit risk. Presently, the Company expects Coast P.A. to pay the remainder of the management fee receivable due to the Company from three sources: 1) membership fees generated from the sale of Coast Smile Plus memberships outside of the Dental Centers; 2) assignment of, and subsequent collection of, notes receivable from the conversion of Dental Centers to the Equity Model; and 3) cash flows from operations.

     Through September 30, 2002, Coast P.A. has sold 10,500 Coast Smile Plus memberships at the Dental Centers using passive point-of-sale literature and displays. For the nine months ended September 30, 2002, gross revenues of Coast P.A. from Coast Smile Plus members totaled 8.0% of total Coast P.A. gross revenues. In the first six months of 2002, the Company and Coast P.A. re-designed the program, developed new advertising and marketing programs and recruited an in-house sales team. The re-designed Coast Smile Plus discount and membership program was launched in third quarter 2002 and is being marketed in the Dental Centers directly to consumers, and to large employers and is being marketed through the traditional distribution channels for supplemental insurance and discount medical programs. The Coast P.A. expects to generate a new source of membership fees from actively marketing this program.

     During the past four quarters the Company and Coast P.A. have converted sixteen (16) Dental Centers to the Equity Model, or 14% of the Dental Centers as of September 30, 2002. In connection with these conversions, total consideration raised by the Company and Coast P.A. totals $1.48 million. No Dental Centers were converted to the Equity Model in the third quarter 2002. However, the Company and Coast P.A. expect to continue implementation of the Equity Model which is expected to continue to generate cash and notes receivable consideration for Coast P.A.

2

COAST DENTAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)

     The Company evaluates the recoverability of the management fee receivable from Coast P.A. and has determined at this time that the management fee receivable is fully collectible and no valuation allowance is necessary. If Coast P.A. is not successful with the strategies outlined above, or if the financial condition of the Coast P.A. changes, resulting in an inability to pay the unsecured portion of the management fee receivable, a valuation allowance may be necessary to reduce the carrying value of this asset to a net realizable value that is less than its carrying value. The inability of Coast P.A. to pay the unsecured portion of the management fee receivable could have a material adverse effect on the Company’s financial condition.

     The Company carries the management fee receivable from Coast P.A. as a current asset because the account turns throughout the year as service and support fees are earned and are collected.

Note 5 – Income (Loss) Per Share

     The basic earnings (loss) per common share is based on the weighted average number of common shares outstanding during each period adjusted for actual shares issued during the period.

     The diluted earnings (loss) per common share is equal to the basic shares plus the incremental shares outstanding as if all in-the-money stock options were exercised as of the end of the period. The number of incremental shares is determined using the treasury stock methodology. As of September 30, 2001, the weighted average number of common shares is the same for both the basic and diluted per share computation because inclusion of common stock equivalents would have been anti-dilutive. For the quarter ended September 30, 2002, the weighted average number of common shares is the same for both the basic and diluted per share computation because inclusion of common stock equivalents would have been anti-dilutive. As of September 30, 2002, the weighted average number of shares outstanding increased by 35,324 for purposes of determining the diluted earnings per share due to the inclusion of stock options which had a dilutive effect on the earnings per share calculation.

     In fiscal 2001, stockholders’ equity was restated to give retroactive recognition to the one-for-three reverse stock split, effective July 17, 2001, for all periods presented by reclassifying from common stock to additional paid-in capital the par value of the number of shares that were eliminated as a result of the reverse stock split. In addition, all references in the condensed financial statements to the number of common shares and per share amounts have been restated to reflect the stock split.

Note 6 – Impairment Reviews and Dental Center Closings

     Whenever significant events or changes occur which might cause an impairment of value, the Company evaluates the recoverability of its property and equipment and intangible assets by comparing their carrying values to the estimated future undiscounted cash flows. Impairment losses are measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying value or fair value less costs to sell.

     The Company continuously evaluates the performance of its Dental Centers. During the second quarter 2002, the Company and Coast P.A. closed three (3) Dental Centers and Coast P.A. combined the patient base into nearby Dental Centers. In addition, one Dental Center was relocated to a newer and larger leased facility to support the continued growth of that Dental Center. A non-cash charge of $194,000 was recorded to provide for the write-off of leasehold improvements, surplus Dental Center equipment and the remaining lease obligations for these office closings and relocation.

     In the third quarter the Company closed three (3) Dental Centers and in one of these markets Coast P.A. combined the patient base into a nearby Dental Center. A non-cash charge of $1,778,000 was recorded to provide for the write off of intangible assets ($1.2 million), leasehold improvements ($0.2 million) and provide for the remaining lease obligations ($0.3 million).

Note 7 – Significant Events

     Equity Model. During the quarter ended March 31, 2002, the Company and Coast P.A. converted three (3) additional Dental Centers to the Equity Model, bringing the total number of Dental Centers converted to thirteen (13). During the quarter ended June 30, 2002, Coast P.A. converted three (3) additional Dental Centers to the Equity Model, bringing the total number of Dental Centers converted to sixteen (16). No Dental Centers were converted to the Equity Model in third quarter 2002.

3

COAST DENTAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)

     In connection with the three (3) conversions to the Equity Model in first quarter 2002, the Company sold tangible assets at their net book value, which approximated market value, totaling $317,000 and recognized no gain or loss on the transactions. The Company received proceeds totaling $317,000 in the form of notes receivable from dentists (of $79,000) and a management fee receivable from Coast P.A. (of $238,000). Subsequently, Coast P.A. assigned its notes receivable of $146,000 (arising from the dentists for the purchase of Coast P.A.’s intangible assets) to the Company in exchange for a $146,000 reduction to the management fee receivable from Coast P.A.

     Effective Apr