SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO 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 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
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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__
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1
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 September 30,
UNAUDITED 1998
---------------------------------
ASSETS
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Current Assets:
Cash and cash equivalents $ - $ 189,000
Accounts receivable, net 461,927 236,646
Other current assets 281,006 264,283
----------- -----------
Total Current Assets 742,933 689,929
----------- -----------
Property and Equipment, net 3,385,052 3,432,409
Intangible Assets, net 3,141,347 3,207,435
Other Assets 78,994 79,766
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Total Assets $ 7,348,326 $ 7,409,539
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long term debt $ 294,170 $ 294,171
Accounts payable 1,044,668 719,725
Accrued expenses 283,364 349,885
Deposits on series 10, preferred stock 212,500 287,500
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Total Current Liabilities 1,834,702 1,651,281
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Long Term Debt 1,596,017 1,333,725
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Commitments and Contingencies - -
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Redeemable Common Stock, $.005 par value; zero and 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,
6,061,893 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 (7,087,095) (6,544,168)
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Total Stockholders' Equity 3,917,607 4,374,533
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Total Liabilities and Stockholders' Equity $ 7,348,326 $ 7,409,539
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
2
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Three Month Ended For the Six Months Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
Dental Revenue $1,360,894 $ 267,835 $2,890,816 $ 615,593
---------- ---------- ---------- ----------
Operating Expenses:
Clinical salaries and benefits 443,940 192,619 967,811 332,474
Other salaries and benefits 428,427 260,454 997,412 537,872
Dental supplies and laboratory fees 120,837 70420 226,511 95,063
Occupancy 95,039 44,112 189,726 77,772
Advertising 3,766 36,695 50,944 64,616
Depreciation, amortization and impairment 138,146 44,489 276,231 62,487
loss on intangible assets
General and administrative 188,294 202,526 503,545 351,975
---------- ---------- ---------- ----------
Total operating expenses 1,418,449 851,315 3,212,181 1,522,259
---------- ---------- ---------- ----------
Operating loss (57,555) (583,480) (321,365) (906,666)
---------- ---------- ---------- ----------
Other Income (Expense):
Interest expense (51,174) - (109,894) -
Other, net 1772 (29,200) (31,669) (49,433)
---------- ---------- ---------- ----------
Total other income (expense) (49,402) (29,200) (141,563) (49,433)
---------- ---------- ---------- ----------
Loss before income taxes (106,957) (612,680) (462,928) (956,099)
Income Taxes - - - -
---------- ---------- ---------- ----------
Net loss (106,957) (612,680) (462,928) $ (956,099)
========== ========== ========== ==========
Weighted Average Common Shares Outstanding 6,061,893 1,611,643 6,055,959 1,708,363
========== ========== ========== ==========
Net Loss Per Common Share $(0.02) $(0.38) $(0.08) $(0.56)
========== ========== ========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
3
DENTAL SERVICES OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Six Months Ended
March 31, 1999 March 31, 1998
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Cash Flows From Operating Activities:
Net loss $(462,928) $ (956,099)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation, amortization and impairment loss on intangible
assets 276,231 62,487
Provision for bad debt 20,000 -
Loss on Legal Settlement 36,000 -
Changes in operating assets and Liabilities:
Accounts receivable (325,281) (187,162)
Current assets and other assets (15,951) (62,338)
Accounts payable and accrued expenses 191,901 132,678
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Net cash used in operating activities (280,028) (1,010,434)
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Cash Flows From Investing Activities:
Purchase of property and equipment (162,786) (335,532)
Net cash used in investing activities (162,786) (335,532)
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Cash Flows From Financing Activities:
(Payment of) increase in debt 187,292 1,064,267
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Net cash provided by financing activities 187,292 1,064,267
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Decrease In Cash and Cash Equivalents (189,000) (160,568)
Cash and Cash Equivalents, beginning of period 189,000 353,150
--------- -----------
Cash and Cash Equivalents, end of period $ - $ 192,582
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4
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 results of operations for the six months and the quarter ended
March 31, 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 March 31,
1999 and 1998, the Company managed 16 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 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.
5
2. STOCKHOLDERS' EQUITY
Series A and Series C, Convertible, Preferred Stock
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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
$212,500.
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 license
dental practitioners and other dental professionals, including licensed
dentists, dental office managers, dental assistants and dental hygienists.
None have been issued to date.
6
"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 six months ended March 31, 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 six months ended March 31,1999 were
$1,360,894 and $2,890,816, an increase of 408% and 370%, respectively. Total
expenses for the same periods were $1,418,449 and $3,212,181 respectively. This
resulted in a loss from operations of $57,555 and $321,365, respectively before
other income and expenses, from continuing operations.
The Company continues to incur losses from operations. For the three and six
months ended March 31, 1999, the Company's loses was attributed to the (1)
elimination of Preferred Medical Plan contract, (2) temporary closing of the
portable unit on January 31, 1999, and (3) a 25% decrease in volume. The Company
believes that a significant amount of the decrease in volume was attributed to
unanticipated operational problems at three of its high volume dental centers.
The Company is addressing these problems and believes that these centers will
return to their normal volume. The Company now manages fifteen dental practices,
one portable unit, and one mobile dental unit. The Company continues to stress
strong cost containment where needed coupled with an effective Marketing Plan to
support the profitable practices.
As the dental practices mature and the Company continues to consolidate and
optimize the practices, the clinics should become profitable.
Dental 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.
7
DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH
The Company is emphasising a strong cost containment strategy while focusing on
internal growth through increase patient flow and revenue. 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, at the present
time; is not seeking new acquisitions. The failure to complete acquisitions and
continue expansion could have material adverse effect on the Company's financial
performance.
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 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
2YK 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 was zero and $189,000 at March 31, 1999, and
September 30, 1998, respectively. Working capital, including cash on hand was
$(1,091,769) at March 31, 1999 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. In order to
fund continuing operations, the Company was required to borrow $155,000 on
February 8, 1999 from the Company's Chief Executive Officer who is a principal
stockholder and may require additional financing in the future.
8
"PART II- OTHER INFORMATION"
FINANCIAL STATEMENTS
The following financial statements of the Company are included in this report:
1. Balance Sheet as of March 31, 1999 and September 30, 1998;
2. Statement of Operations for the six months ended March 31,
1999 and 1998;
3. Statement of Cash Flows for the six months ended March 31, 1999 and 1998;
4. Notes to Financial Statements.
9
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 17th day of May, 1999.
DENTAL SERVICES OF AMERICA, INC.
By: /s/ Luis Cruz
---------------------------------------------
Luis Cruz, M.D.
Chief Executive Officer
By: /s/ Ramiro Casanas
---------------------------------------------
Ramiro Casanas
Chief Financial Officer
By: /s/ Jose M. Garcia
---------------------------------------------
Jose M. Garcia
Chief Operating Officer
10