SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
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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
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DENTAL SERVICES OF AMERICA, INC.
(Name of small business issuer in its charter)
DELAWARE 8021 59-2754843
- ----------------------- ----------------------------- --------------------
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation
or organization)
Issuer's Telephone Number, Including Area Code: (305) 642-9090
Securities registered under Section 12
(b) or the Act:
Name of Each Exchange
Title of Each Class On Which Registered
None None
---------------------------- -----------------------------
Securities registered under Section 12(g) of the Act:
None
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(Title of Class)
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 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 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 DP are owned by corporations 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. At
September 30, 1998 and 1997, the Company managed 21 and 7 DP, respectively,
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
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.
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2. STOCKHOLDERS' EQUITY
Common Stock
------------
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 expired on December 31, 1998. As of September 30,
1998 and 1997, these shares and the associated put rights have been
classified as "Redeemable Common Stock" in the accompanying consolidated
balance sheets.
In November 1998, the Company issued 20,000 shares of common stock to a
former director/employee in partial settlement of a lawsuit against the
Company for an alleged breach of employment and other agreements. The
former director/employee is also seeking damage for unpaid wages and other
benefits. The suit is in the preliminary stage and management believes it
is without merit.
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 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 $287,500.
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.
2
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1998 1998
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(unaudited)
ASSETS
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Current Assets:
Cash and cash equivalents $ 0 $ 189,000
Accounts receivable, net 355,325 236,646
Other current assets 212,526 264,283
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Total Current Assets 567,851 689,929
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Property and Equipment, net 3,492,369 3,432,409
Intangible Assets, net 3,174,391 3,207,435
Other Assets 78,994 79,766
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Total Assets $7,313,605 $7,409,539
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long term debt $257,760 $ 294,171
Accounts payable 1,085,486 719,725
Accrued expenses 258,116 349,885
Deposits on series 10, preferred stock 242,500 287,500
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Total Current Liabilities 1,843,862 1,651,281
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Long Term Debt 1,365,180 1,333,725
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Commitments and Contingencies - -
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Redeemable Common Stock, $.005 par value; 5,000 shares issued and
outstanding - 50,000
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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, 6,036,893
and 1,840,743 shares issued and outstanding, respectively 30,297 30,184
Additional paid-in capital 10,970,905 10,885,017
Accumulated deficit (6,900,139) (6,544,168)
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Total Stockholders' Equity 4,104,563 4,374,533
--------- ---------
Total Liabilities and Stockholders' Equity $7,313,605 $7,409,539
========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
3
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarter Ended
December 31, December 31,
1998 1997
---- ----
Dental Revenue $1,529,922 $ 347,758
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Operating Expenses:
Clinical salaries and benefits 523,871 139,855
Other salaries and benefits 568,985 277,418
Dental supplies and laboratory fees 105,674 24,643
Occupancy 94,688 33,660
Advertising 47,178 27,921
Depreciation, amortization and impairment
loss on intangible assets - 17,997
Consulting services - -
General and administrative 315,251 149,449
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Total operating expenses 1,793,732 670,944
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Operating loss (263,810) (323,186)
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Other Income (Expense):
Interest expense (58,720) -
Other, net (33,441) 20,232
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Total other income (expense) (92,161) 20,232
---------- ----------
Loss before income taxes (355,971) (343,418)
Income Taxes - -
---------- ----------
Net loss $ (355,971) $ (343,418)
========== ==========
Weighted Average Common Shares Outstanding 6,050,154 1,802,981
========== ==========
Net Loss Per Common Share $ (0.06) $ (0.19)
========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
4
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarter Ended
December 31, 1998 December 31, 1997
----------------- -----------------
(unaudited)
Cash Flows From Operating Activities:
Net loss $ (355,971) $ (377,146)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation, amortization and impairment loss on intangible assets 34,580 18,097
Issuance of stock for consulting services - -
Changes in operating assets and liabilities:
Accounts receivable (118,679) (52,346)
Current assets and other assets 52,529 12,938
Accounts payable and accrued expenses 228,992 1,076
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Net cash used in operating activities (158,549) (397,351)
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Cash Flows From Investing Activities:
Purchase of property and equipment (61,496) (76,711)
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Net cash used in investing activities (61,496) (76,711)
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Cash Flows From Financing Activities:
(Payment of) increase in debt (4,956) 295,000
----------- ------------
Net cash provided by financing activities (4,956) 295,000
----------- ------------
Decrease In Cash and Cash Equivalents (189,000) (179,29?)
Cash and Cash Equivalents, beginning of period 189,000 353,150
----------- ------------
Cash and Cash Equivalents, end of period $ - $ 173,851
=========== ============
The accompanying notes to financial statements are an integral part of these
statements.
(CONTINUED)
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DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarter Ended
December 31, December 31,
1998 1997
---- ----
(CONTINUED) (unaudited)
Supplemental Disclosures:
Cash paid during the quarter for interest expense $ - $ 2,625
======= ==========
Cash paid during the year for income taxes $ - $ 2,625
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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 months ended December 31, 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 first quarter ended December 31,1998 were
$1,529,922, an increase of 340% as compared to the same period last year. The
expenses for all operations for that period were $1,793,732. This resulted in a
loss from operations of $263,810 before other income and expenses, from
continuing operations.
The Company continues to incur losses from operations. For the quarter ended
December 31, 1998, a large portion of the Company's losses was attributed to the
poor performance historically associated with the seasonal decrease due to hot
days. The Company now manages twenty 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 to consolidate and
optimize 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's subsidiary, dental 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. The company
will no longer administer benefits under its dental plans to its members
effective May 1, 1999. However, the Company will maintain its license under the
Florida Department of Insurance.
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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.
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. The Company acquired the assets of 20 practices for
fiscal year 1998, 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 has implemented
the new information system to eight of its operations to collect and organize
data. Once fully integrated, the Company anticipates that the new system will
result in the automation of patients information, timely electronic billing and
daily access, if desired, information relating to revenues, and other financial
and operational data is available. 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 zero and $189,000 at December 31, 1998, and
September 30, 1998, respectively. Working capital, including cash on hand was
$(1,276,011) at December 31, 1998 and $(961,352) at September 30, 1998. The
Company's recent corporate restructuring and acquisitions of dental practices
have placed extraordinary demands on the Company's working capital.
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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 December 31, 1998 and September 30, 1998;
2. Statement of Operations for the three months ended December 31, 1998 and
1997;
3. Statement of Cash Flows for the three months ended December 31, 1998 and the
Quarter ended December 31, 1997; and
4. Notes to Financial Statements.
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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 22/nd/ day of February, 1999.
DENTAL SERVICES OF AMERICA, INC.
By: /s/ Luis Cruz
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Luis Cruz, M.D.
Chief Executive Officer
By: /s/ Ramiro Casanas
-------------------------------------
Ramiro Casanas, CPA
Chief Financial Officer
By: /s/ Pepe Garcia
-------------------------------------
Pepe Garcia
Chief Operating Officer
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