UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
| ¨ | 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: 1-13263
Castle Dental Centers, Inc.
(Exact name of registrant as specified in its charter)
| DELAWARE |
76-0486898 | |
| (State or other jurisdiction of |
(I.R.S. Employer | |
| incorporation or organization) |
Identification No.) | |
| 3701 Kirby Drive, Suite 550 |
77098 | |
| Houston, Texas |
(Zip Code) | |
| (Address of principal executive offices) |
Registrant’s telephone number, including area code: (713) 490-8400
N/A
(Former name, former address and former fiscal year, if changed since last year)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares of Common Stock issued and outstanding, par value, $0.001 per share, as of May 12, 2003 was 6,417,206.
CASTLE DENTAL CENTERS, INC.
| Page | ||||
| PART I |
FINANCIAL INFORMATION |
|||
| Item 1. Financial Statements (Unaudited) |
||||
| Condensed Consolidated Balance Sheets As of December 31, 2002 and March 31, 2003 |
3 | |||
| Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2002 and 2003 |
4 | |||
| Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2002 and 2003 |
5 | |||
| 6 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | |||
| Item 3. Quantitative and Qualitative Disclosures About Market Risks |
19 | |||
| 19 | ||||
| PART II. |
OTHER INFORMATION |
|||
| 19 | ||||
| 20 | ||||
| 20 | ||||
| 20 | ||||
| 20 | ||||
| 21 | ||||
| 23 | ||||
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CASTLE DENTAL CENTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
| December 31, 2002 |
March 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
1,522 |
|
$ |
2,640 |
| ||
| Patient receivables, net |
|
6,362 |
|
|
6,497 |
| ||
| Unbilled patient receivables, net |
|
2,650 |
|
|
2,587 |
| ||
| Prepaid expenses and other current assets |
|
1,438 |
|
|
1,167 |
| ||
| Total current assets |
|
11,972 |
|
|
12,891 |
| ||
| Property and equipment, net |
|
11,273 |
|
|
10,517 |
| ||
| Intangibles, net |
|
14,900 |
|
|
14,882 |
| ||
| Other assets |
|
2,811 |
|
|
2,580 |
| ||
| Total assets |
$ |
40,956 |
|
$ |
40,870 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ |
2,276 |
|
$ |
3,970 |
| ||
| Accounts payable and accrued liabilities |
|
11,436 |
|
|
11,353 |
| ||
| Total current liabilities |
|
13,712 |
|
|
15,323 |
| ||
| Long-term debt, net of current portion |
|
47,219 |
|
|
45,069 |
| ||
| Other long-term liability |
|
1,935 |
|
|
1,926 |
| ||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred Stock, $.000001 par value, 1,000,000 shares authorized, 211,282 shares Series A-1 issued and outstanding |
|
— |
|
|
— |
| ||
| Common stock, $.000001 par value (.001 for December 31, 2002), 101,000,000 shares authorized, 6,417,206 shares issued and outstanding |
|
6 |
|
|
— |
| ||
| Additional paid-in capital |
|
46,575 |
|
|
46,581 |
| ||
| Accumulated deficit |
|
(68,491 |
) |
|
(68,029 |
) | ||
| Total stockholders’ equity |
|
(21,910 |
) |
|
(21,448 |
) | ||
| Total liabilities and stockholders’ equity |
$ |
40,956 |
|
$ |
40,870 |
| ||
The accompanying notes are an integral part of the consolidated financial statements.
3
CASTLE DENTAL CENTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
| Three Months Ended March 31, | |||||||
| 2002 |
2003 | ||||||
| Net patient revenues |
$ |
25,488 |
|
$ |
24,474 | ||
| Expenses: |
|||||||
| Dentist salaries and other professional costs |
|
7,249 |
|
|
7,033 | ||
| Clinical salaries |
|
5,655 |
|
|
4,509 | ||
| Dental supplies and laboratory fees |
|
3,001 |
|
|
2,584 | ||
| Rental and lease expense |
|
1,522 |
|
|
1,442 | ||
| Advertising and marketing |
|
840 |
|
|
677 | ||
| Depreciation and amortization |
|
915 |
|
|
864 | ||
| Other operating expenses |
|
1,955 |
|
|
1,726 | ||
| Bad debt expense |
|
777 |
|
|
1,329 | ||
| Restructuring costs and other charges |
|
526 |
|
|
151 | ||
| General and administrative |
|
2,771 |
|
|
2,311 | ||
| Asset impairment |
|
104 |
|
|
2 | ||
| Total expenses |
|
25,315 |
|
|
22,628 | ||
| Operating income |
|
173 |
|
|
1,846 | ||
| Interest expense |
|
1,628 |
|
|
1,094 | ||
| Other (income) expense |
|
(13 |
) |
|
7 | ||
| Income (loss) before income taxes and cumulative effect of change in accounting principle |
|
(1,442 |
) |
|
745 | ||
| Income taxes |
|
— |
|
|
283 | ||
| Income (loss) before cumulative effect of change in accounting principle |
|
(1,442 |
) |
|
462 | ||
| Cumulative effect of change in accounting principle |
|
(37,000 |
) |
|
— | ||
| Net income (loss) |
$ |
(38,442 |
) |
$ |
462 | ||
| Income (loss) per common share: |
|||||||
| Income (loss) before cumulative effect of change in accounting principle |
$ |
(0.22 |
) |
$ |
0.01 | ||
| Cumulative effect of change in accounting principle |
|
(5.77 |
) |
|
— | ||
| Net income (loss) |
$ |
(5.99 |
) |
$ |
0.01 | ||
| Weighted average number of common and common equivalent shares outstanding |
|||||||
| Basic |
|
6,417 |
|
|
74,107 | ||
| Diluted |
|
6,417 |
|
|
74,613 | ||
The accompanying notes are an integral part of the consolidated financial statements.
4
CASTLE DENTAL CENTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| For the Three Months Ended March 31, |
||||||||
| 2002 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ |
(38,442 |
) |
$ |
462 |
| ||
| Adjustments: |
||||||||
| Provisions for bad debts |
|
777 |
|
|
1,329 |
| ||
| Depreciation and amortization |
|
915 |
|
|
864 |
| ||
| Amortization of loan cost |
|
183 |
|
|
242 |
| ||
| Accretion of debt discount |
|
— |
|
|
35 |
| ||
| Asset impairment |
|
104 |
|
|
— |
| ||
| Other |
|
— |
|
|
(6 |
) | ||
| Cumulative effect of change in accounting principle |
|
37,000 |
|
|
— |
| ||
| Changes in operating assets and liabilities: |
||||||||
| Patient receivables |
|
(1,726 |
) |
|
(1,480 |
) | ||
| Unbilled patient receivables |
|
51 |
|
|
58 |
| ||
| Prepaid expenses and other current assets |
|
(335 |
) |
|
271 |
| ||
| Other assets |
|
(5 |
) |
|
(11 |
) | ||
| Accounts payable and accrued liabilities |
|
1,078 |
|
|
32 |
| ||
| Net cash provided by (used in) operating activities |
|
(400 |
) |
|
1,796 |
| ||
| Cash flows used in investing activities: |
||||||||
| Capital expenditures |
|
(320 |
) |
|
(110 |
) | ||
| Net cash used in investing activities |
|
(320 |
) |
|
(110 |
) | ||