COAST DENTAL SERVICES INC - 10-Q Quarterly 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 o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

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 1, 2003: 2,132,780.


					June 30,			December 31,
					2003			2002

				ASSETS
Current assets:
		Cash and cash equivalents			$	5,203,114		$	2,824,966
		Management fee receivable from Coast P.A., non-interest bearing				17,780,946			17,395,559
		Notes receivable from Equity Doctors – current portion				135,313			114,564
		Supplies, inventory and small tools				2,784,985			2,782,037
		Prepaid expenses and other current assets				356,865			353,368
		Income tax refund receivable				175,332			175,332

			Total current assets			26,436,555			23,645,826
Property and equipment, net						12,900,515			13,765,708
Notes receivable from Coast P.A., non-interest bearing						229,218			229,218
Notes receivable from Equity Doctors						781,875			851,217
Non-compete agreements, net of accumulated amortization of $904,397 and $841,183, respectively						219,221			282,435
Dental services agreements, net of accumulated amortization of $3,755,013 and $3,484,290, respectively						9,677,167			9,947,889
Other assets						1,594,834			1,803,501

			Total assets		$	51,839,385		$	50,525,794

				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	2,476,785		$	2,549,386
	Accrued salaries and employee costs					1,630,179			1,357,497
	Accrued expenses					2,133,216			2,180,220
	Line of credit					1,760,055			—
	Current maturities of long-term debt and capital leases					94,667			117,925

			Total current liabilities			8,094,902			6,205,028
Long-term debt and capital leases, excluding current maturities						63,677			78,354

			Total liabilities			8,158,579			6,283,382

Commitment and contingencies
Stockholders’ equity:
		Preferred stock, $.001 par value; 2,000,000 shares authorized, None issued				—			—
		Common stock, $.001 par value; 50,000,000 shares authorized, 2,132,447 and 2,091,223 shares issued and outstanding, respectively				2,132			2,091
		Additional paid-in capital				55,375,896			55,165,701
		Retained earnings (deficit)				(9,104,123	)		(8,384,197	)

						46,273,905			46,783,595
Less: Stock option receivable from Coast P.A., non-interest bearing						(2,541,183	)		(2,541,183	)
			Treasury stock, 11,537 shares, at cost			(51,916	)		—

			Total stockholders’ equity			43,680,806			44,242,412

			Total liabilities and stockholders’ equity		$	51,839,385		$	50,525,794

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


			Quarter Ended June 30,						Six Months Ended June 30,

			2003			2002			2003			2002

Net revenue			$	14,566,885		$	14,240,330		$	28,786,027		$	27,810,836

Dental Center expenses:
	Salaries and employee costs			5,218,573			4,792,333			10,032,944			9,704,226
	Dental supplies and lab fees			2,478,804			2,551,672			4,866,789			4,954,320
	Occupancy			2,028,872			1,920,822			3,913,596			3,794,229
	Advertising			754,612			1,136,194			1,892,599			1,956,882
	Training and development			315,612			102,353			684,595			102,353
	Finance charges			426,081			313,799			733,706			487,252
	Administrative			210,026			322,704			542,483			637,472
	Depreciation			778,365			779,721			1,557,022			1,558,234

		Total Dental Center expenses		12,210,945			11,919,598			24,223,734			23,194,968

	Dental Center gross profit			2,355,940			2,320,732			4,562,293			4,615,868
General and administrative expenses				2,337,576			1,787,328			4,550,277			3,495,461
Depreciation and amortization				286,933			327,103			580,838			643,321
Dental Center closings				—			193,652			—			193,652

	Operating (loss) income			(268,569	)		12,649			(568,822	)		283,434
Interest income				29,425			38,031			60,575			72,517
Interest expense				(105,149	)		(6,393	)		(211,678	)		(12,464	)

(Loss) income before income tax				(344,293	)		44,287			(719,925	)		343,487
Income tax benefit (expense)				20,064			(20,330	)		—			830,967

Net (loss) income			$	(324,229	)	$	23,957		$	(719,925	)	$	1,174,454

Basic (loss) income per share:
Net (loss) income			$	(0.15	)	$	0.01		$	(0.34	)	$	0.56

Diluted (loss) income per share:
Net (loss) income			$	(0.15	)	$	0.01		$	(0.34	)	$	0.56

Weighted average number of shares outstanding:
	Basic			2,132,447			2,091,223			2,132,447			2,091,223

	Diluted			2,132,447			2,144,289			2,132,447			2,113,465

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


				Six Month Ended June 30,

				2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income				$	(719,925	)	$	1,174,454
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Depreciation			1,803,924			1,811,193
		Amortization			376,839			390,381
		Deferred income tax benefit			—			(888,083	)
		Dental Center closings			—			193,652
		Valuation allowance on cash surrender value - life insurance			—			244,011
		Loss on disposal of equipment and other adjustments			244,424			45,722
		Changes in operating assets and liabilities:
			Increase in management fee receivable from Coast P.A		(385,387	)		(2,405,954	)
			(Increase) decrease in supplies, inventory and small tools		(2,948	)		30,703
			Decrease in prepaid expenses and other assets		209,920			627,769
			(Decrease) increase in accounts payable and accrued expenses		(2,971	)		818,890

		NET CASH PROVIDED BY OPERATING ACTIVITIES			1,523,875			2,042,738

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures					(707,545	)		(477,345	)
Collections on notes receivable from Equity Doctors					48,594			36,533

		NET CASH USED IN INVESTING ACTIVITIES			(658,951	)		(440,812	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit					1,760,055			—
Proceeds from exercise of stock options					147,301			—
Purchase of treasury stock					(51,916	)		—
Debt issue costs paid					(180,936	)		—
Payments on long term debt					(75,993	)		(151,472	)
Payments on capital leases					(85,288	)		—

		NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			1,513,223			(151,472	)

INCREASE IN CASH AND CASH EQUIVALENTS					2,378,148			1,450,454
Cash and cash equivalents at beginning of period					2,824,966			2,545,770

Cash and cash equivalents at end of period				$	5,203,114		$	3,996,224

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
		Interest (paid) collected, net		$	(108,201	)	$	60,053

		Income taxes refunded, net			—		$	1,311,388

		Non-cash stock option receivable from Coast P.A			—		$	52,859

		Assets acquired under capital lease financing		$	123,345		$	—

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.

COAST DENTAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2003 and 2002
(Unaudited)

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, 2002, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

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.

There were no items of other comprehensive income in the periods presented; accordingly, comprehensive income (loss) equals net income (loss).

As of June 30, 2003, the Company has one stock-based employee compensation plan, which is described more fully in the 2002 Annual Report on Form 10-K. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation.


		Quarter Ended						Six Months Ended
		June 30,						June 30,

		2003			2002			2003			2002

Net (loss) income, as reported		$	(324,229	)	$	23,957		$	(719,925	)	$	1,174,454
Add: Stock-based employee compensation expense included in reported net loss, net of related income tax effects			62,936			—			62,936			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income tax effects			(20,055	)		(14,556	)		(44,745	)		(16,840	)

Pro forma net (loss) income		$	(306,348	)	$	9,401		$	(701,734	)	$	1,157,614

(Loss) earnings per share:
	Basic—as reported	$	(0.16	)	$	0.01		$	(0.34	)	$	0.56
	Basic—pro forma	$	(0.14	)	$	0.00		$	(0.33	)	$	0.55
	Diluted—as reported	$	(0.16	)	$	0.01		$	(0.34	)	$	0.56
	Diluted—pro forma	$	(0.14	)	$	0.00		$	(0.33	)	$	0.55

In April 2002, Statement of Financial Accounting Standards No. 145 (“SFAS 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 affects 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 adopted SFAS 145 on January 1, 2003. Adoption in 2003 did not have a material impact on the Company’s financial statements.

In June 2002, Statement of Financial Accounting Standards No. 146 (“SFAS 146”) “Accounting for Costs Associated with Exit or Disposal Activities” was issued. SFAS 146 supersedes Emerging Issues Task Force (“EITF”) Issue No. 94-3. The principal difference between SFAS 146 and EITF Issue No. 94-3 relates to when an entity can recognize a liability related to exit or disposal activities. SFAS 146 requires that a liability be recognized for a cost associated with an exit or disposal activity when the liability is incurred. EITF Issue No. 94-3 allowed a liability related to an exit or disposal activity to be recognized at the date an entity commits to an exit plan. The provisions of SFAS 146 are effective for all exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS 146 to have a material impact on its financial statements.

On December 31, 2002, Statement of Financial Accounting Standards No. 148 (“SFAS 148”) “Accounting for Stock-Based Compensation — Transition and Disclosure” was issued. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. The disclosure requirements for annual and interim financial statements are effective beginning in 2003. The Company has not yet determined whether it will change to the fair-value method of accounting for stock-based compensation.


(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, 2003

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from _______________ to ______________


Florida		59-3136131
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2502 Rocky Point Drive North, Suite 1000, Tampa, Florida		33607
(Address of principal executive offices)		(Zip Code)


CONDENSED BALANCE SHEET
CONDENSED STATEMENTS OF OPERATIONS
CONDENSED STATEMENT OF CASH FLOWS
NOTES TO CONDENSED FINANCIAL STATEMENTS
Management’s Discussion and Analysis of Results of Operations and Financial Condition
Ex-11.1 Computation Per Share Earnings (loss)
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

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