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 JUNE 30, 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 June 30, 1998 is 4,975,811
The number of shares outstanding of the issuer's preferred stock Class A, $.01
par value per share as of June 30, 1998 is 100,000
The number of shares outstanding of the issuer's preferred stock Class C, $.01
par value per share as of June 30, 1998 is 250,000
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30,1997
June 30, 1998 September 30,
(Unaudited) 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 129,252 $ 353,150
Accounts receivable, net 477,951 55,207
Other Receivables 334,562 -
Prepaid expenses 96,054 36,347
------- ------ ------- ------
Total Current Assets 1,037,819 444,704
Property and Equipment, net 3,497,413 1,546,541
Intangible Assets, net 2,879,397 574,400
Other Assets 65,672 94,299
------ ------- ------- ------
Total Assets $ 7,480,301 $ 2,659,944
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 441,229 $ 148,249
Accrued expenses 163,117 100,274
Deposits on series 10, preferred stock 337,500 637,500
---- ------- ---- -------
Total Current Liabilities 941,846 886,023
Notes Payable 1,278,465 -
-- --------- ----------------- -
Total Liabilities 2,220,311 886,023
-- --------- ----- -------
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, 4,975,811
issued and outstanding 24,879 9,204
Additional paid-in capital 9,462,424 4,775,497
Accumulated deficit (4,280,813) (3,064,280)
- ----------- - ----------
Total Stockholders' Equity 5,209,990 1,723,921
---- ---------- ---- ---------
Total Liabilities and Stockholders' Equity $ 7,480,301 $ 2,659,944
============ =============
The accompanying notes to financial statements are an integral
part of this statements.
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 573,371 $ 210,029 $ 1,065,845 $ 608,153
Operating Expenses 1,084,179 588,728 2,276,747 1,319,399
--- --------- --- ------- --- --------- -- ---------
Operating loss (510,808) (378,699) (1,210,902) (711,246)
Other Income (Expenses) (9,821) (2,500) (2,308)
------- ------- ------ ------- ------ ----- -------
(5,631)
Net loss $ (520,629) $ (381,199) $ (1,216,533) $ (713,554)
============ ========== =========== ===========
Net Loss Per Common Share $ (0.10) $ (0.05) $ (0.24) $ (0.39)
========== ========== ============ ============
The accompanying notes to financial statements are an integral part
of these statements.
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 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 - - - 692,000 -- 692,000
accounting
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 - 6,000 30 14,970 - 15,000
per share
Issuance of 200,000 Private - - - 20,000 - 20,000
Warrants at $0.10
Net loss - - (371,334) (371,334)
-------- - ------------------------ ----------------- -------- -- --------
- -
Balance at September 30, 1996, as - 1,469,000 7,345 1,818,682 (608,334) 1,217,693
restated
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 - 59,460 297 148,353 - 148,650
Share
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 3,500 - - 1,741,500 - 1,745,000
preferred stock
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
Issuance of Non-Public common stock - 3,135,068 15,675 4,686,927 - 4,702,602
Net loss _____- __ _ ____- __ ___- ________- (1,216,533) (1,216,533)
---------- ----------- -----------
Balance at June 30, 1998 $ 3,500 4,975,811 $ 24,879 $ 9,462,424 $ (4,280,813) $ 5,209,990
========= = ========= ======= ========== ============ ===========
The accompanying notes to financial statements are an integral part
of these statements.
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Cash Flows From Operating Activities:
Net loss $ (1,216,533) $ (713,554)
Adjustments to reconcile net loss to net cash provided by operating ,
activities:
Depreciation and amortization 118,926 22,729
Changes in operating assets and liabilities:
Accounts receivable (422,744) (20,278)
Other Receivables (334,562)
Prepaid expenses and other assets (59,707) (60,998)
Accounts payable and accrued expenses 355,823 (70,131)
----- ------- ---- --------
Net cash used in operating activities (1,558,797) (661,414)
---------- -- --------
Cash Flows From Investing Activities:
Purchase of property and equipment (2,048,306) (40,091)
Purchase of intangible assets (2,326,489) -
Purchase of marketable securities - (4,060)
(Increase) decrease in other assets 28,627 (204,530)
Proceeds from sale of equipment 17,000
-------------------- ------
-
Net cash used in investing activities (4,346,168) (231,681)
- ---------- -- --------
Cash Flows From Financing Activities:
Proceeds from sale of stock and exercise of warrants and options 4,702,602 885,753
(Payment of) increase in debt 978,465 150,000
------------- ---- -------
Net cash provided by financing activities 5,681,067 1,035,753
--- --------- - ---------
Increase (Decrease) In Cash and Cash Equivalents (223,898) 142,658
Cash and Cash Equivalents, beginning of period 353,150 559,272
------------- ---- -------
Cash and Cash Equivalents, end of period $ $ 701,930
===== ==========
129,252
The accompanying notes to financial statements are an integral part
of these statements.
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
6
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.
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.
7
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 have 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.
4. PROPERTY AND EQUIPMENT
Property and equipment, consisted of the following:
Estimated June 30, September 30, 1997
Useful Life 1998 (unaudited)
Land - $ 351,000 $ 300,000
Building 39 years 1,283,687 950,000
Dental equipment 5 - 7 years 1,440,095 169,940
Furniture, fixtures and office equipment 5 - 7 years 425,183 113,848
Leasehold improvements 10 years 122,706 40,577
Total cost 3,622,671 1,574,365
Less accumulated depreciation and (125,258) (27,824)
amortization
Property and equipment, net $ 3,497,413 $ 1,546,541
Depreciation and amortization expense was $47,279 and $23,632 for the quarter
ended June 30, 1998 and year ended September 30, 1997, respectively.
5. INTANGIBLE ASSETS
Intangible assets, consisted of the following:
Amortization June 30, September 30, 1997
Period 1998 (unaudited)
Goodwill 25 years $ 2,643,577 $ 317,088
Management agreement 25 years 275,000 275,000
Total cost 2,918,577 592,088
Less accumulated amortization (39,180) (17,688)
Intangible assets, net $ 2,879,397 $ 574,400
8
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 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
9
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 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 eature.
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.
10
The following is a summary of stock option activity for the years ended
September 30, 1997 and 1996:
Director Weighted Average Employee Weighted Average
Option Exercise Price Option Shares Exercise Price
Shares
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:
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.
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)
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.
11
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
12
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 nine months ended June 30, 1998 and 1997 was derived
from the Management Fee Income of the Company's dental clinics and portable
operations. Portions 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 third quarter ended June 30,1998 were $639,962
an increase of 304% as compared to the same period last year. For the nine
months of fiscal year 1998 revenues total $1,255,555 as compared to $608,153 for
1997, representing an increase of 206%. The expenses for all operations for that
period were $2,805,433. This resulted in a loss from operations of $1,549,878
before other income and expenses, from continuing operations.
The Company continues to incur losses from operations. For the quarter ended
June 30, 1998, a large portion of the losses is attributed to the purchase of
the assets of ten existing dental practices during the month of June. This
implied, a substantial increase in the Company's payroll and other operating
expenses, while organizing, restructuring, and implementing procedures for the
new acquisitions. The Company now manages nineteen dental practices, one
portable unit, and two mobile dental units. Some of the practices managed by
the Company have not 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 Plantation, Florida and is currently negotiation to acquire the assets of two
dental practices in northern Florida.
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, a goal that is fifty percent
achieved The Company continues to evaluate 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.
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.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's cash on hand was $201,590 and $353,150 at June 30, 1998, and
September 30, 1997, respectively. Working capital, including cash on hand was
$(243,002) at June 30, 1998 and $(441,319) at September 30, 1997. The Company's
recent corporate restructuring and acquisitions of dental practices have placed
extraordinary demands on the Company's working capital.
The Company has issued a private offering memorandum effective March 31, 1998
that could raise a maximum of $6 Million in working capital, which will enable
the Company to continue with its acquisition and business development plan. As
of June 30, 1998, the Company has received, from the private offering, a total
of $4,702,602, including $300,000 from deposits on series 10, preferred stocks.
There can be no assurance as to the aggregate amount of proceeds, 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 June 30, 1998 and September 30, 1997;
2. Statement of Operations for the three and nine months ended June 30,
1998 and 1997;
3. Statement of Stockholders Equity for June 30, 1998 and September 30,
1997;
4. Statement of Cash Flows for the nine months ended June 30, 1998 and
the year ended September 30, 1997; and
5. Notes to Financial Statements.
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 August, 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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