SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
(Mark one)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended March 31, 1998
--------------
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to _____________
Commission File No. 33-11935
--------
DENTAL SERVICES OF AMERICA, INC.
(Name of small business issuer in its charter)
DELAWARE 8021 59-2754843
------------------------- ---------------------------- ----------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation Classification Code Number) Identification No.)
or organization)
2260 SW 8th Street
Miami, Florida 33135
- ---------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (305) 642-9090
Check whether the issuer (1) has filed all reports required to be 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
---
The number of shares outstanding of the issuer's common stock, $.005 par value
per share as of March 31, 1998 is 1,840,743.
The number of shares outstanding of the issuer's preferred stock Class AA
(similar or equal to), $.01 par value per share as of March 31, 1998 is 100,000
The number of shares outstanding of the issuer's preferred stock Class AC
(similar or equal to), $.01 par value per share as of March 31, 1998 is 250,000
1
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND SEPTEMBER 30,1997
March 31, 1998 September 30, 1997
-------------- ------------------
(Unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 192,582 $ 353,150
Accounts receivable, net 242,369 55,207
Prepaid expenses 98,685 36,347
------------ -----------
Total Current Assets 533,636 444,704
Property and Equipment, net 1,872,719 1,546,541
Intangible Assets, net 562,558 574,400
Other Assets 51,,190 94,299
------------ -----------
Total Assets $3,020,103 $2,659,944
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 321,777 $ 148,249
Loan payable 295,000 --
Accrued expenses 59,424 100,274
Deposits on series 10, preferred stock 637,500 637,500
------------ -----------
Total Current Liabilities 1,313,701 886,023
Note Payable 137,267 --
Loan Payable, Officer 632,000 --
------------ -----------
Total Liabilities 2,082,968 886,023
------------ -----------
Redeemable Common Stock, $.005 par value; 5,000 issued and outstanding 50,000 50,000
------------ -----------
Stockholders' Equity:
Series A, convertible preferred stock, $0.01 par value, 100,000
authorized, issued and outstanding 1,000 1,000
Series C, convertible preferred stock , $0.01 par value, 250,000
authorized, issued and outstanding 2,500 2,500
Common stock, $0.005 par value; 25,000,000 shares authorized, 1,840,743
issued and outstanding 9,204 9,204
Additional paid-in capital 4,775,497 4,775,497
Accumulated deficit (3,901,065) (3,064,280)
------------ -----------
Total Stockholders' Equity 887,136 1,723,921
------------ -----------
Total Liabilities and Stockholders' Equity $3,020,103 $2,659,944
========== ==========
The accompanying notes to financial statements are an integral part of this
statements.
2
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 1998 AND 1997
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 358,872 $ 92,720 $ 615,593 $ 226,740
Operating Expenses 816,207 213,494 1,450,590 559,284
---------- ---------- ---------- ----------
Operating loss (457,335) (120,774) (834,997) (332,544)
Other Income (Expenses) (2,865) (3,246) (1,788) 192
---------- ---------- ---------- ----------
Net loss $(460,200) $(124,020) $(836,785) $(332,352)
========== ========== ========== ==========
Net Loss Per Common Share $ (0.25) $ (0.08) $ (0.45) $ (0.21)
========== ========== ========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
3
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
MARCH 31, 1998 AND SEPTEMBER 30, 1997
(Unaudited)
Series A/ Additional
Series C Common Stock Paid-In Accumulated
Preferred Shares Amount Capital Deficit Total
--------- ------ ------ ------- ------- -----
Stock
-----
Balance at October 1, 1995 $ -- 1,100,000 $5,500 $223,527 $(237,000) $(7,973)
Restatement of acquisition of DPA
under purchase method of accounting -- -- -- 692,000 -- 692,000
Issuance of common stock for consulting services -- 10,000 50 24,950 -- 25,000
Accretion on Redeemable common stock -- -- -- (37,500) -- (37,500)
Exercise of Non-Public warrants at
$2.50 per share -- 353,000 1,765 880,735 -- 882,500
Issuance of common stock at $2.50 per share -- 6,000 30 14,970 -- 15,000
Issuance of 200,000 Private
Warrants at $0.10 -- -- -- 20,000 -- 20,000
Net loss -- -- -- -- (371,334) (371,334)
------ --------- ------ ---------- ----------- -----------
Balance at September 30, 1996, as restated -- 1,469,000 7,345 1,818,682 (608,334) 1,217,693
Exercise of Non-Public warrants at $2.50 per share -- 98,950 495 246,880 -- 247,375
Exercise of Class A warrants at $2.50 per Share -- 59,460 297 148,353 -- 148,650
Redemption of Class A warrants at $0.05 per share -- -- -- (512) -- (512)
Issuance of 100,000 shares of Series A
preferred stock and 250,000 shares of
Series C preferred stock 3,500 -- -- 1,741,500 -- 1,745,000
Exercise of stock options -- 53,333 267 528,894 -- 529,161
Issuance of common stock for consulting services -- 120,000 600 186,900 -- 187,500
Issuance of stock for acquisition of dental
practice assets -- 40,000 200 104,800 -- 105,000
Net loss -- -- -- -- (2,455,946) (2,455,946)
------ --------- ------ ---------- ------------ -----------
Balance at September 30, 1997 3,500 1,840,743 9,204 4,775,497 (3,064,280) 1,723,921
Net loss -- -- -- -- (836,785) (836,785)
------ --------- ------ ---------- ------------ -----------
Balance at March 31, 1998 $3,500 1,840,743 $9,204 $4,775,497 $(3,901,065) $ (887,136)
====== ========= ====== =========== ============ ===========
The accompanying notes to financial statements are an integral part of these
statements.
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Cash Flows From Operating Activities:
Net loss $(836,785) $(332,352)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 64,304 910
Issuance of stock for consulting services -- --
Changes in operating assets and liabilities:
Accounts receivable (187,162) (93,810)
Prepaid expenses and other assets (62,338) (168,149)
Accounts payable and accrued expenses 132,678 (18,688)
--------- ---------
Net cash used in operating activities (889,303) (612,089)
--------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment (378,152) (45,223)
Purchase of marketable securities -- (4,441)
(Increase) decrease in other assets 42,620 (166,335)
Proceeds from sale of equipment -- 17,000
--------- ---------
Net cash used in investing activities (335,532) (198,999)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from sale of stock and exercise of warrants and options -- 360,232
(Payment of) increase in debt 1,064,267 75,000
--------- ---------
Net cash provided by financing activities 1,064,267 435,232
--------- ---------
Increase (Decrease) In Cash and Cash Equivalents (160,568) (375,856)
Cash and Cash Equivalents, beginning of period 353,150 559,272
--------- ---------
Cash and Cash Equivalents, end of period $192,582 $183,416
========= =========
The accompanying notes to financial statements are an integral part of these
statements.
5
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The accompanying unaudited consolidated financial statements of Dental
Services of America, Inc. and subsidiaries (the "Company" or "DSA") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the six months ended March 31, 1998
and 1997 are not necessarily indicative of the results to be expected for the
full year. The notes to the consolidated financial statements presented below
are an integral part of the balance sheet presented for the year ended September
30, 1997. For further information, refer to the financial statements and
footnotes thereto for the year ended September 30, 1997 included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission.
1. DESCRIPTION OF BUSINESS
The Company was incorporated in 1987 under the name Campbell Capital Corp.,
and was a 90.91% owned subsidiary of International Asset Management Group,
Inc. ("IAMG"). The Company remained relatively inactive until the
acquisition of 100% of the common stock of Dental Practice Administrators,
Inc. ("DPA") in July 1996. DPA was formed in October 1995 and managed 6
dental practices ("the Practices") in Florida when acquired (see Note 3).
In connection with the acquisition of DPA, the Company name was changed to
Dental Services of America, Inc.
The dental practices are owned by a corporation whose sole shareholder is a
licensed dentist and a member of the Company's Board of Directors. Licensed
dentists at each practice supervise the professional dental staff and
provide all of the clinical services to the patients. The Company receives
the gross dental revenue from the Practices and pays all operating and
other expenses, including those of the professional staff. The Company is
responsible for all matters relating to the operations including, but not
limited to, the leasing of rental space, maintenance, staffing and
supervision of the support staff, the purchasing of all necessary equipment
and supplies, and managing all of the administrative affairs of the
Practices. Each Practice serves primarily Medicaid patients. At September
30, 1997, the Company managed 7 Practices, all located in Florida.
In April 1997, the Company's wholly owned subsidiary, DentAll Plans of
Florida, Inc., obtained a license from the Florida Department of Insurance
to operate a prepaid dental care plan in Florida. Operations to date have
been minimal. In addition, the Company has two other inactive subsidiaries.
2. ACQUISITIONS AND RESTATEMENT OF 1996 FINANCIAL STATEMENTS
In July 1996, the Company acquired all the outstanding common stock of DPA
(which managed 5 dental practices and 1 portable unit) in a transaction in
which the shareholders and certain other persons who had made investments
in or provided services to DPA received 874,000 restricted shares of the
Company's common stock and 364,000 Non-Public warrants which were owned by
IAMG. The warrants are convertible into common stock at an exercise price
of $2.50 per share and expire on December 29, 1997. The 1996 financial
statements reflected the acquisition of DPA using the pooling-of-interest
method of accounting. Subsequent to the issuance of those financial
statements, certain information became available which required the
acquisition to be treated using the purchase method of accounting.
Accordingly, the accompanying 1996 financial statements have been restated
to reflect this change. The effect of the restatement on 1996 was to
increase net assets by $466,763, and increase net loss by $96,291 and the
loss per common share by $0.07.
6
The fair value of the restricted common stock and Non-Public warrants
issued ($692,000) has been allocated to the fair value of the net assets
acquired ($217,000), with the excess acquisition costs ($475,000) being
allocated to goodwill (for the five dental practices and one portable
practice acquired) and amortized on a straight-line basis over the
estimated life of the practices (25 years). The fair value of the common
stock and warrants exchanged in the acquisition is based on a valuation
performed by an independent third party. The Company reviews the recorded
amount of goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If this review indicates the carrying amount of the asset may
not be recoverable because of disposal of the operation or, as determined
based on the expected undiscounted cash flows of the operations acquired,
the carrying value of the asset is reduced to fair value.
The consolidated balance sheet at September 30, 1996 includes the balance
sheet of the Company and its wholly owned subsidiary, DPA. The consolidated
statements of operations, stockholders' equity and cash flows include the
Company's operations for the year ended September 30, 1996 and those of its
wholly owned subsidiary DPA from the acquisition date (July 29, 1996)
through September 30, 1996.
The following unaudited pro forma information reflects the effect of the
acquisition on the consolidated results of operations of the Company had
the acquisition of DPA occurred on October 1, 1995.
Year Ended
September 30,
1996
----
Revenues, net $ 625,485
Net loss $(383,670)
Net loss per common share $ (0.31)
Weighted average shares outstanding 1,218,945
During fiscal 1997, the Company reorganized its dental practices in an
attempt to achieve profitability. After analyzing the utilization patterns
of its dental practices and the income derived from those facilities,
management determined it was in the Company's best interest to close 3
practices and sell 1 practice, previously acquired in July 1996. The effect
of the closures and sale was a write off of goodwill of $157,701 net of
accumulated amortization of $4,211 ($153,490 net) in 1997.
In August 1997, the Company acquired the assets of a dental practice for
$200,000 and the issuance of 40,000 shares of the Company's restricted
stock which were valued at $2.625 per share ($105,000) on the acquisition
date ($305,000 in the aggregate). The cost of the acquisition in excess of
the fair value of assets acquired of $30,000 has been allocated to a
management agreement as the Company entered into an agreement to manage the
center. The value assigned to the management agreement ($275,000) is
included in "Intangible Assets" in the accompanying 1997 consolidated
balance sheet and is being amortized on a straight-line basis over 25
years.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the period reported.
Actual results could differ from those estimates.
7
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash equivalents. The
concentration of credit risk associated with cash and equivalents is
considered low due to the credit quality of the issuers of the financial
instruments.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and amortization is
computed over the estimated useful lives of the assets on a straight-line
method. Expenditures for maintenance and repairs are charged to expenses as
incurred and expenditures for additions and betterments are capitalized.
The cost of assets sold or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts and any resulting
gain or loss is reflected in the statement of operations.
Income Taxes
------------
The Company has established deferred tax assets and liabilities for
temporary differences between financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation account when, in the opinion of management, it is more likely
than not the tax assets will not be realized.
Loss Per Share
--------------
Loss per common and common equivalent share is computed using the weighted
average number of common and dilutive common-equivalent shares outstanding.
Dilutive common-equivalent shares consist of the incremental shares
issuable upon the exercise of stock options and warrants (using the
treasury stock method). Fully diluted earnings per share has not been
presented because the effect of common stock equivalents in calculating
loss per share would be anti-dilutive.
Fair Value of Financial Instruments
-----------------------------------
Carrying amounts of financial instruments included in current assets and
current liabilities approximate estimated fair value because of the
short-term maturities of these instruments.
Recent Accounting Pronouncements
--------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share", which simplifies existing
computational guidelines, revises disclosure requirements, and increases
the comparability of earnings per share ("EPS"). SFAS No. 128 is effective
for period ending after December 15, 1997 and requires restatement of all
prior period EPS data presented. The Company will adopt SFAS No. 128 in
fiscal 1998. The effect of adopting this standard is not expected to be
material.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains, and
losses) in a full set of general-purpose financial statements. SFAS No. 130
is effective for fiscal years beginning after December 31, 1997. The
Company will adopt SFAS No. 130 in fiscal 1999.
8
4. PROPERTY AND EQUIPMENT
Property and equipment, consisted of the following:
Estimated March 31, September 30,
Useful Life 1998 1997
----------- ---- ----
Land - $ 300,000 $ 300,000
Building 39 years 985,904 950,000
Dental equipment 5 - 7 years 289,757 169,940
Furniture, fixtures and office equipment 5 - 7 years 316,140 113,848
Leasehold improvements 10 years 60,716 40,577
----------- -----------
Total cost 1,952,517 1,574,365
Less accumulated depreciation and amortization (79,801) (27,824)
----------- -----------
Property and equipment, net $ 1,872,716 $ 1,546,541
=========== ===========
Depreciation and amortization expense was $51,977 and $23,632 for the
quarter ended March 31, 1998 and year ended September 30, 1997,
respectively.
5. INTANGIBLE ASSETS
Intangible assets, consisted of the following:
Amortization March 31, September 30,
Period 1998 1997
------ ---- ----
Goodwill 25 years $317,088 $317,088
Management agreement 25 years 275,000 275,000
-------- --------
Total cost 592,088 592,088
Less accumulated amortization (29,530) (17,688)
-------- --------
Intangible assets, net $562,558 $574,400
======== ========
6. STOCKHOLDERS' EQUITY
Common Stock
------------
In November 1997, the Company declared a one-for-five reverse common stock
split effective January 1, 1998. All references to the number of shares and
per share amounts have been restated to reflect the effect of the reverse
split.
In July 1996, the Company issued 5,000 shares of common stock for services
rendered with rights to put the shares of common stock back to the Company
at $10.00 per share ($50,000 in the aggregate) at any time through December
31, 1998. The put rights expire if the Company's common stock trades at
prices in excess of $11.25 per share for at least ten days during the
period from August 1, 1998 through December 31, 1998. As of September 30,
1997 and 1996, these shares and the associated put rights have been
classified as "Redeemable Common Stock" in the accompanying consolidated
balance sheets.
In June 1997, the Company issued 120,000 shares of common stock to a
consultant for services to be rendered, which were valued at the market
price of the common stock on the date of issuance ($1.5625 per share or
$187,500 in the aggregate). The amount has been expensed as "Consulting
services" in the accompanying 1997 consolidated statement of operations, as
the consultant no longer provides services to the Company. Also during
fiscal 1997, from November 1996 to February 1997, the Company issued 53,333
stock options to the same consultant, for the purchase of common stock at
an
9
exercise price of $2.50 per share when the market price of the Company's
stock ranged from $8.125 to $11.250 per share. All options were exercised
in February 1997, resulting in proceeds to the Company of $133,332 and a
charge to operations for consulting services of $395,829. The consultant
received $130,000 in fees simultaneously with the exercise of the options,
which has also been included in "Consulting services".
Warrants to Purchase Common Stock
---------------------------------
As of September 30, 1995, the Company had 1,000,000 Non-Public warrants
outstanding, which were held by IAMG and convertible into one share of
common stock at an exercise price of $2.50. In connection with the
acquisition of DPA in July 1996 (see Note 3), IAMG transferred 364,000
warrants and also sold 511,000 warrants to outside investors, of which
353,000 warrants were converted into common stock at $2.50 per share
resulting in proceeds to the Company of $882,500. During fiscal 1997,
98,950 shares of common stock were issued upon the conversion of Non-Public
warrants at $2.50 per share resulting in proceeds to the Company of
$247,375.
As of September 30, 1995, the Company had 100,000 Class A Warrants
outstanding, which entitled the holder to purchase, at $2.50 per share, one
share of common stock and receive one Class B Warrant upon the exercise of
Class A Warrants. The Class B Warrants entitle the holder to purchase one
share of common stock at an exercise price of $5.00 per share. During
fiscal 1997, 59,460 shares of common stock and 59,460 Class B Warrants were
issued upon the exercise of Class A Warrants resulting in proceeds to the
Company of $148,650. The Class A and Class B warrants may be redeemed by
the Company, in whole or in part, at any time and from time to time, at the
redemption price of $0.05 per warrant upon thirty days written notice.
During fiscal 1997, the Company redeemed 10,240 Class A Warrants for $512.
In July 1996, the Company issued 200,000 Private Warrants valued at $0.10
per warrant ($20,000 in the aggregate) to IAMG, in consideration for past
consulting and administrative services. Each Private Warrant entitled the
holder to purchase one share of common stock at an exercise price of $12.50
per share and are callable at $0.025 per warrant. The Private Warrants were
called in December 1997 for $5,000.
The outstanding warrants, conversion price and expiration dates at
September 30, 1997 are as follows:
Warrant Type Outstanding Conversion Price Expiration Date
------------ ----------- ---------------- ---------------
Non-Public Warrants 548,050 $2.50 Expired on December 29, 1997
Class A Warrants 30,300 2.50 Expired on December 29, 1997
Class B Warrants 59,460 5.00 June 29, 1998
Private Warrants 200,000 12.50 Called during December 1997 at
------- $0.025 per warrant ($5,000 in the
aggregate)
Total warrants outstanding 837,810
=======
As of September 30, 1997, the Company had reserved 837,810 shares of common
stock for the exercise of these warrants, of which 778,350 were called or
subsequently expired.
Series A and Series C, Convertible, Preferred Stock
---------------------------------------------------
In June 1997, the Company issued 100,000 shares of Series A, Convertible,
Preferred Stock for $495,000 to the President of the Company and 250,000
shares of Series C, Convertible, Preferred Stock in exchange for land and a
building to be used as the Company's administrative offices and as a dental
clinic, valued at $1,250,000 which had also been owned by the President.
The Series A and Series C preferred stock is redeemable, in whole or in
part, at the option of the Company at a redemption price of $5.00 per
share. The shares are not entitled to receive dividends, but are entitled
10
to four votes and one vote, respectively, on all matters to which
stockholders of the Company have a right to vote. The shares may be
converted at any time at the option of the holder into two shares (subject
to upward adjustment upon the Company achieving certain pre-determined
earning requirements) and one share, respectively, of the Company common
stock unless certain events have occurred, as defined, which terminate the
conversion feature.
Deposit on Series 10 Preferred Stock
------------------------------------
In July and August 1997, the Company received $637,500 in connection with
an offering of Series 10, 12% convertible preferred stock. The preferred
stock was never issued and in November 1997, the Board of Directors
rescinded the offering. Accordingly, the Series 10, 12% convertible
preferred stock has been reflected as a current liability in the
accompanying consolidated balance sheet. Investors who deposited $300,000
in connection with the preferred stock offering have indicated their intent
to have their funds applied to a planned private offering of the Company's
common stock.
Dental Preferred Stock
----------------------
The Company has designated 5,000,000 shares of preferred stock as Dental
Preferred Stock and has authorized the issuance of such stock to licensed
dental practitioners and other dental professionals, including licensed
dentists, dental office managers, dental assistants and dental hygienists.
None have been issued to date.
6. STOCK OPTION PLANS
The Company has a Director Stock Option Plan which authorizes the granting
of options to directors of the Company to acquire a maximum of the greater
of 60,000 shares or 5% of the number of shares of common stock outstanding
(92,037 and 73,450 at September 30, 1997 and 1996, respectively).
The Company also has an Employee Stock Option Plan which authorizes the
granting of options to executive officers, employees (including employees
who are directors), independent contractors and consultants of the Company
to acquire a maximum of the greater of 100,000 shares of common stock or 8%
of the shares of common stock outstanding (147,259 and 117,520 at September
30, 1997 and 1996, respectively).
Pursuant to the plans, unless otherwise determined, one-third of the
options granted are exercisable upon grant, one-third are exercisable on
the first anniversary of the grant and the final one-third are exercisable
on the second anniversary of the grant. However, options granted under the
plans shall become immediately vested if the holder is terminated by the
Company or is no longer a director of the Company subsequent to certain
"changes in control" of the Company, as defined. All options expire after
ten years from the date of grant. Generally, options granted under the
plans may remain outstanding and may be exercised at any time up to three
months after the person to whom such options were granted is no longer
employed or retained by the Company or serving on the Company's Board of
Directors.
11
The following is a summary of stock option activity for the years ended
September 30, 1997 and 1996:
Director Weighted Employee Weighted
Option Average Option Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
Outstanding at September 30, 1995 - $ - - $ -
Granted 19,000 2.500 18,000 3.299
Cancelled or expired (2,000) 2.500 - -
Exercised - - - -
------- --------- ------- ---------
Outstanding at September 30, 1996 17,000 2.500 18,000 3.299
Granted 23,000 7.933 163,093 3.115
Cancelled or expired (10,000) 6.250 (17,960) 3.802
Exercised - (53,333) 2.500
------- -------
Outstanding at September 30, 1997 30,000 $ 5.415 109,800 $ 3.331
======= ========= ======= =========
Exercisable at September 30,1997 14,333 39,267
======= =======
During fiscal 1997, the Company adopted Statement No. 123, ("SFAS No. 123")
"Accounting for Stock-Based Compensation", which requires the Company to
either recognize expense for stock based awards based on the fair value on
the date of grant or provide footnote disclosure regarding the impact of
such charges. The Company will continue to account for stock options
pursuant to APB No. 25. Accordingly, the Company does not record
compensation costs unless the market price exceeds the exercise price on
the date of grant. If the Company had elected to recognize compensation
cost based on the fair value of the options granted, the pro forma net loss
and net loss per common share would be as follows:
For the Year Ended For the Year Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Net loss - as reported $(2,455,946) $(371,334)
=========== =========
Net loss - pro forma $(2,718,125) $(406,523)
=========== =========
Net loss per share - as reported $(1.52) $(0.30)
====== ======
Net loss per share - pro forma $(1.69) $(0.33)
====== ======
The value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following weighted average
assumptions: expected volatility approximating 76%, risk-free interest rate
ranging from 6% to 7%, expected dividends of $0 and expected lives of 10
years.
7. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit, filed in September 1997, with a
former director/employee alleging breach of an employment contract. The
employee is seeking compensatory damages in excess of $25,000 and 40,000
shares of common stock. The suit is in the preliminary stage and management
believes it is without merit.
The Company is the Plaintiff and Cross Defendant in a lawsuit against one
of its dental practice Landlords for damages caused to the Company as a
consequence of an alleged wrongful eviction by the Landlord against the
Company managed dental practice.
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Leases
------
The Company leases facilities under long-term operating leases that expire
in 2004. Some of the leases provide for escalating fixed annual rentals.
The Company is also required to pay other expenses. Future annual minimum
lease payments required under the leases as of September 30, 1997 was as
follows:
September 30, 1997
---------------------------
Year Amount
---- ------
1998 $172,035
1999 96,755
2000 67,547
2001 42,300
2002 15,385
Thereafter 20,513
--------
Total $414,535
========
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Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Reference is made to the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997.
Total revenues, for the six months ended March 31, 1998 and 1997 was derived
from the Management Fee Income of the Company's dental clinics and portable
operation. The majority of these revenues are a result of billing the State of
Florida Medicaid program for services rendered to their clients on a fee for
service basis. Revenues for the six months ended March 31, 1998 were $615,593 an
increase of 63% as compared to the same previous period. The expenses for all
operations for that period were $1,450,590. This resulted in a loss from
operations of $834,997 before other income and expenses, from continuing
operations.
The Company continues to incur losses from operations. The Company manages eight
dental practices, one portable unit, and two mobile dental units. None of the
practices managed by the Company has been in operation for longer than 24
months. Many dental practices require a much longer period to achieve a
significant client base and reach a breakeven point.
As the dental practices mature and the Company continues its aggressive
acquisition program the practice management operations should become profitable.
Management intends to identify and acquire existing profitable practices that
will allow immediate improvements to the Company's cash flow. The Company is
presently negotiating the acquisition of several established dental practices.
The Company's subsidiary, DentAll Plans of Florida, Inc. was granted a license
by the State of Florida to operate a dental health maintenance organization on
April 1, 1997. This subsidiary continues in a development stage.
Dependence on Acquisitions for Future Growth
The Company's growth strategy is dependent principally on its ability to acquire
the assets of existing dental practices. Successful acquisitions involve a
number of factors that are difficult to control, including the identification of
potential acquisition candidates, the willingness of the owners to sell on
reasonable terms and the satisfactory completion of negotiations. As of the date
of this report the Company has acquired the assets of a dental practice located
in Lighthouse Point, Florida and has signed a contract to acquire the assets of
eight dental practices throughout Miami Dade County in Florida. The projected
revenues for these practices is expected to increase DSA's gross revenues by an
additional $4.6 Million Dollars for the next fiscal year.
There can be no assurance that the Company will be able to identify and acquire
acceptable acquisition candidates on terms favorable to the Company in a timely
manner in the future. Assuming the availability of capital, the Company's plan
includes an aggressive acquisition program involving the acquisition of the
assets at least 22 practices for fiscal year 1998. The Company continues to
evaluate acquisitions and negotiate with several potential acquisitions. The
failure to complete acquisitions and continue expansion could have material
adverse effect on the Company's financial performance. As the combined business
proceeds with its acquisition strategy, it will continue to encounter the risks
associated with the integration of acquisitions described above.
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Information System
The current and expected growth by the Company, and specifically the planning of
continuing acquisitions of the assets of existing dental practices and the
corresponding increased need for timely information, have placed significant
demand on the Company's existing information system. The Company is in the
process of implementing new information system to collect and organize data from
all of its operations. Once integrated, the Company anticipates that the new
system will result in the automation of patients information, timely electronic
billing and daily access, if desired, to information relating to revenues, and
other financial and operational data. While the Company has begun the process of
implementing the new system, the continued installation and implementation of
the system involves the risk of unanticipated delay and expenses. There can be
no assurance that it will effectively serve the Company's future information
requirements.
Financial Condition, Liquidity and Capital Resources
The Company's cash on hand was $192,582 and $353,150 at March 31, 1998, and
September 30, 1997, respectively. Working capital, including cash on hand was
$(779,865) at March 31, 1998 and $(441,319) at September 30, 1997. The Company's
recent corporate restructuring and recent acquisitions of dental practices has
placed extraordinary demands on the Company's working capital.
The Company has issued a private offering memorandum effective March 30, 1998
which could raise a maximum of $6 Million in working capital which will enable
it to continue with its acquisition and business development plan. As of the
date of the signing of this report, the Company has received over one-third of
the maximum capital authorized by the private offering memorandum. There can be
no assurance as to the aggregate amount of proceeds, if any, which the Company
will receive from this private offering. Additional financing may be obtained
through loans, issuance of additional securities, or through other private or
public financing arrangements. There can be no assurance that any such financing
will be available when it is required or, even if it is available, that it will
be available on terms acceptable to the Company.
Item 6. Exhibits and Reports on Form 8-K
Financial Statements
The following financial statements of the Company are included in this
report:
1. Balance Sheet as of March 31, 1998 and September 30, 1997;
2. Statement of Operations for the three and six months ended
March 31, 1998 and 1997;
3. Statement of Stockholders Equity for March 31, 1998 and
September 30, 1997;
4. Statement of Cash Flows for the six months ended March 31,
1998 and the year ended September 30, 1997; and
5. Notes to Financial Statements.
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Form 8-K
The Company filed a form 8-K during on December 24, 1997 to disclose a
one-for-five reverse split of its common stock effective January 1, 1998. The
reverse split was approved by the Company's Board of Directors and by a majority
of stockholders by written consent.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Quarterly Report on form 10-QSB to be signed on its behalf by
the undersigned, hereunto duly authorized, in the City of Miami, State of
Florida, on the 13th day of May, 1998.
DENTAL SERVICES OF AMERICA, INC.
By:
-----------------------------------
Luis Cruz, M.D.
Chief Executive Officer
By:
-----------------------------------
Ronaldo Figueroa, CPA
Chief Financial Officer
By:
-----------------------------------
Maria C. Suarez. JD
Vice-President, Director
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