SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended June 30, 1999
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 33-11935
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DENTAL SERVICES OF AMERICA, INC.
(Name of small business issuer in its charter)
DELAWARE 8021 59-2754843
------------------------ ---------------------------- --------------------
(State or jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation Classification Code Number) Identification No.)
or organization)
2260 SW. 8/th/. 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 filed pursuant
to section 13 or 15 (d) of Securities Exchange Act of 1934 during the preceding
12 month (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class August 18, 1999
----- -----------------
Common stock, $0.005 par value 6,061,893
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1999 1998
---- ----
UNAUDITED
ASSETS
------
Current Assets:
Cash and cash equivalents $ - $ 189,000
Accounts receivable, net 482,529 236,646
Other current assets 72,969 264,283
----------- -----------
Total Current Assets 555,498 689,929
----------- -----------
Property and Equipment, net 3,201,132 3,432,409
Intangible Assets, net 2,160,929 3,207,435
Other Assets 78,994 79,766
----------- -----------
Total Assets $ 5,996,553 $ 7,409,539
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long term debt $ 294,171 $ 294,171
Accounts payable 1,064,501 719,725
Accrued expenses 268,797 349,885
Deposits on series 10, preferred stock 200,000 287,500
----------- -----------
Total Current Liabilities 1,827,469 1,651,281
----------- -----------
Long Term Debt 1,241,714 1,333,725
----------- -----------
Commitments and Contingencies - -
----------- -----------
Redeemable Common Stock, $.005 par value; zero and 5,000 shares
issued and outstanding - 50,000
----------- -----------
Stockholders' Equity:
Series A, convertible preferred stock, $0.01 par value, 100,000
shares authorized, issued and outstanding 1,000 1,000
Series C, convertible preferred stock, $0.01 par value, 250,000
shares authorized, issued and outstanding 2,500 2,500
Common stock, $0.005 par value; 25,000,000 shares authorized,
6,061,893 and 6,036,893 shares issued and outstanding,
respectively 30,297 30,184
Additional paid-in capital 10,970,905 10,885,017
Accumulated deficit (8,077,331) (6,544,168)
----------- -----------
Total Stockholders' Equity 2,927,370 4,374,533
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,996,553 $ 7,409,539
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
2
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Three Month Ended For the Nine Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- -----
Dental Revenue $ 1,115,763 $ 643,982 $ 4,006,579 1,259,575
----------- ---------- ----------- ----------
Operating Expenses:
Clinical salaries and benefits 372,858 264,125 1,340,670 596,600
Other salaries and benefits 380,143 403,555 1,377,555 941,427
Dental supplies and laboratory fees 97,363 76,501 323,873 171,564
Occupancy 81,844 78,927 271,570 156,698
Advertising 1,380 103,279 52,323 167,895
Depreciation and amortization 134,299 56,439 1,357,904 118,926
Impairment loss on intangible assets 947,374 69,377 947,374 130,000
General and administrative 328,827 371,697 912,372 723,672
----------- ---------- ----------- -----------
Total operating expenses 2,344,088 1,423,901 5,636,268 3,006,783
----------- ---------- ----------- -----------
Operating loss (1,228,325) (779,919) (1,629,689) (1,747,208)
----------- ---------- ----------- -----------
Other Income (Expense):
Interest expense (29,240) - (139,134) -
Other, net 267,328 (67,791) 235,659 (117,224)
----------- ---------- ----------- -----------
Total other income (expense) 238,089 (67,791) 96,526 (117,224)
----------- ---------- ----------- -----------
Loss before income taxes (990,236) (847,710) (1,533,163) (1,864,432)
Income Taxes - - - -
----------- ---------- ----------- -----------
Net loss $ (990,236) $ (847,710) $(1,533,163) $(1,864,432)
=========== ========== =========== ===========
Weighted Average Common Shares Outstanding 6,061,893 2,769,156 6,062,331 2,061,961
=========== ========== =========== ===========
Net Loss Per Common Share $(0.16) $(0.31) $(0.25) $(0.90)
=========== ========== =========== ===========
The accompanying notes to Financial statements are an integral part of these
statements
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DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Nine Months Ended
June 30, 1999 June 30, 1998
------------- -------------
Cash Flows From Operating Activities:
Net loss $(1,533,163) $(1,216,533)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,328,899 118,926
Impairment loss on intangible assets
Provision for bad debt 88,000 -
Loss on legal settlement 36,000 -
Changes in operating assets and liabilities:
Accounts receivable (333,883) (422,744)
Current assets and other assets 192,086 (394,269)
Accounts payable and accrued expenses 267,438 355,823
----------- -----------
Net cash used in operating activities 45,377 (1,558,797)
----------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment (51,116) (2,048,306)
----------- -----------
Purchase of intangible assets (2,326,489)
(increase) decrease in other assets 28,628
Net cash used in investing activities (51,116) (4,346,168)
----------- -----------
Cash Flows From Financing Activities:
Proceed from sale of stock and exercise of warrants and options 4,702,602
(Payment of) increase in debt (183,262) 978,465
----------- -----------
Net cash provided by financing activities (183,262) 5,681,067
----------- -----------
Decrease In Cash and Cash Equivalents (189,000) (223,898)
Cash and Cash Equivalents, beginning of period 189,000 353,150
----------- -----------
Cash and Cash Equivalents, end of period $ - $ 129,252
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
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DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-QSB and Rule 10-01 of Regulation S-X. These
financial statements do not include all information and notes required by
generally accepted accounting principles for complete financial statements,
and should be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report on Form 10-KSB for
the year ended September 30, 1998. The September 30, 1998 fiscal year end
condensed consolidated balance sheet data was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles. The financial information
furnished reflects all adjustments, consisting only of normal recurring
accruals which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash
flows for the periods presented. The results of operations are not
necessarily indicative of results of operations, which may be achieved in
the future. The results of operations for the nine months and the quarter
ended June 30, 1998 have been restated to give effect to entries made
during the fourth quarter of fiscal year end September 30, 1998.
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 in Florida when acquired. In connection with the
acquisition, the Company name was changed to Dental Services of America,
Inc.
The Company provides management services to dental practices ("DP") under
long-term management service agreements ("MSA"). Corporate practices of
dentistry laws in Florida (the state in which the Company currently
operates) prohibit the Company from owning dental practices. In response to
these laws, the Company has executed management service agreements with
various dental practices. Under the terms of the MSA, the Company, among
other things, bills and collects patient receivables and provides all
administrative support to the DP. The sole shareholder of the corporation
which owns DP is a licensed dentist. Licensed dentists at each practice
supervise the professional dental staff and provide all of the clinical
services to the patients. At June 30, 1999 and 1998, the Company managed 14
clinics all located in Florida.
In 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board evaluated certain matters relating to the
physician practice management industry (EITF issue number 97-2) and reached
a consensus on the accounting for transactions between physician practice
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management companies ("PPM") and physician practices and the financial
reporting of such entities. For financial reporting purposes, EITF 97-2
mandates the consolidation of affiliated physician practices with the PPM
when certain conditions have been met, even though the PPM does not have an
equity investment in the physician practice. The accompanying financial
statements are prepared in conformity with the consensus reached in EITF
97-2. Accordingly, all accounts of the DP are included in the accompanying
consolidated financial statements.
2. STOCKHOLDERS' EQUITY
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 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 feature. Upon
dissolution, liquidation or winding up of the Company, the holders of
Series A and Series C convertible, preferred stock are entitled to a
liquidation preference payment of $5.00 per share before any distributions
to common shareholders.
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. During the current year, investors
who initially deposited $350,000 in connection with the preferred stock
offering applied their funds, plus accrued interest, to the private
offering of the Company's common stock. The Company plans on repaying the
remaining balance of funds received of $200,000.
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 license
dental practitioners and other dental professionals, including licensed
dentists, dental office managers, dental assistants and dental hygienists.
None have been issued to date.
3. LOSS PER SHARE
--------------
Basic loss per common share is computed by dividing net loss attributable
to common stockholders by the weighted average number of shares of common
stock outstanding during the period. Diluted loss per share, which assumes
that the convertible preferred stock is converted into common stock and the
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stock options and warrants to purchase shares of common stock are
exercised, is not presented because the effect would be anti-dilutive for
both the three and nine month periods ended June 30,1999.
4. DISPUTE SETTLEMENT AND ASSET IMPAIRMENT CHARGES
-----------------------------------------------
During the three and nine months ended June 30, 1999, the Company settled a
dispute with a former officer. The settlement consisted of payments
totaling $500,000 ($50,000 which was paid on July 21, 1999 and $450,000
which is payable by August 30, 1999) and one clinic location consisting of
property and equipment with a net book value of approximately $78,000. The
Company cancelled an outstanding promissory note to the former officer with
an outstanding balance of approximately $849,000 and recognized a gain on
extinguishment of debt of approximately $261,000, which is included in
"Other, net" in the accompanying condensed consolidated financial
statements. The Company also recognized an asset impairment charge related
to the goodwill of the one clinic location of $298,083, net of accumulated
amortization of $15,567 ($282,516 net), which is included in "Impairment
loss on intangible assets" in the accompanying condensed consolidated
financial statements.
During the three and nine months ended June 30, 1999, the Company closed
three clinics resulting in an impairment write off of intangible assets of
$717,611, net of accumulated amortization of $52,753 ($664,858 net), which
is included in "Impairment loss on intangible assets" in the accompanying
condensed consolidated financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
This discussion should be read in conjunction with the Notes to the Consolidated
Financial Statements contained herein and Management's Discussion and Analysis
of Financial Condition and Result of Operations appearing in the Company's Form-
10KSB for the year ended September 30, 1998. Management of the Company believes
that quarterly comparisons may not give a true indication of overall trends and
changes in the Company's operations.
Except for the historical information contained herein, the matters discussed in
this Form 10-QSB are forward looking statements which involve risks and
uncertainties including, but not limited to, economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services, and prices and other factors discussed in the
Company's other filing with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Reference is made to the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1998.
Total revenues, for three and nine months ended June 30, 1999 and 1998 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 Medicaid
beneficiaries. Revenues for the three and nine months ended June 30, 1999 were
$1,115,763 and $4,006,579. Total expenses for the three and nine months ended
June 30, 1999 were $2,344,088 and
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$5,636,268, respectively. This resulted in a loss from operations of $1,228,325
and $1,629,689, respectively, before other income and expenses, from continuing
operations.
The Company continues to incur losses from operations. For the three and nine
months ended June 30, 1999, the Company's loses was mainly due to (1) the
goodwill write-off totaling $947,374 as a result of several clinic closures, (2)
temporary closing of certain offices due to employee terminations including some
Dentists. The Company believes that a significant amount of the decrease in
revenue and volume for the three months ended June 30, 1999 was attributed to
the unanticipated clinic closures. The Company is addressing these problems and
believes that several of these centers will return to their normal volume while
some will be consolidated. The Company now manages twelve dental practices, one
portable unit, and one mobile dental unit. The Company continues to focus on
internal growth through an increase in patient flow and revenue. As the dental
practices mature and the Company continues to consolidate and optimize the
practices, the clinics should become profitable.
Dentall Plans of Florida, Inc. will no longer administer benefits under its
dental plans to its members effective May 1, 1999. However, the Company will
maintain its license from the Florida Department of Insurance.
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INTERNAL GROWTH
The Company is emphasizing a strong cost containment strategy while focusing on
internal growth through an increase in patient flow and revenue. The Company, at
the present time; is not seeking new acquisitions. As such time as the Company's
existing clinics are operating profitable, the Company may be in a position to
consider additional acquisition.
INFORMATION SYSTEM
The acquisition of the substantial number of practices in Fiscal 1998, have
placed significant demand on the Company's existing information system. The
Company has implemented the new information system at eight of its dental
practices. Once fully integrated, the Company anticipates that the new system
will result in the automation of patient information, timely electronic billing
and daily access, 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. The
Company recognizes and began addressing the year 2000 compliance during its
fiscal year ended September 30, 1998. The Company has reviewed its computer
system for the Y2K compliance and has implemented measures to ensure that its
business operations will not be disrupted. Its principal software vendor has
assured the Company that the Company's computer system is year 2000 compliant.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's cash on hand for the three months ended June 30, 1999 and
September 30, 1998 was zero and $189,000, respectively. Working capital,
including cash on hand was $(1,271,971) at June 30, 1999 and $(961,352) at
September 30, 1998. The Company's recent corporate restructuring and legal
settlements have placed extraordinary demands on the Company's working capital.
In order to fund continuing operations, the Company has been considering
refinancing certain properties.
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ITEM 3 - .
During the three and nine month periods ended June 30, 1999, Diluted EPS
equaled Basic EPS, because the impact of conversion of the Company's
director and employee stock options was anti-dilutive as the Company
incurred a net loss from operations.
For the Three Month Period Ended For the Nine Month Period Ended
June 30, 1999 June 30, 1999
Income (Loss) Shares Per Share Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------- --------------------------------------------
Net income $(1,065,236) 6,061,893 $(0.18) $(1,608,163) 6,062,331 $(0.27)
Less: Preferred stock - - - - - -
dividends (the preferred
(shares are not entitled to
dividends)
Basic EPS
----------------------------------------- --------------------------------------------
Income available to common
stockholders (1,065,236) 6,061,893 (0.18) (1,608,163) 6,062,331 (0.27)
========================================= ============================================
Effect of Dilutive Securities
Options to directors
Options to employees
Treasury stock purchased
with proceeds
Diluted EPS
----------------------------------------- --------------------------------------------
Income available to common
stockholders
and assumed conversions $(1,065,236) 6,061,893 $(0.18) $(1,608,163) 6,062,331 $(0.27)
======================================== ============================================
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"PART II- OTHER INFORMATION"
FINANCIAL STATEMENTS
The following financial statements of the Company are included in this report:
1. Balance Sheet as of June 30, 1999 and September 30, 1998;
2. Statement of Operations for the three and nine months ended June 30, 1999
and 1998;
3. Statement of Cash Flows for the nine months ended June 30, 1999 and 1998;
4. Notes to Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, 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 16th day of August, 1999.
DENTAL SERVICES OF AMERICA, INC.
By: ___________________________________
Luis Cruz, M.D.
Chief Executive Officer
By: ___________________________________
Ramiro Casanas
Chief Financial Officer
By: ___________________________________
Jose M. Garcia
Chief Operating Officer
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