BIRNER DENTAL MANAGEMENT SERVICES INC - FORM 10-Q - November 14, 2011

Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - BIRNER DENTAL MANAGEMENT SERVICES INCFinancial_Report.xls
EX-32.1 - EXHIBIT 32.1 - BIRNER DENTAL MANAGEMENT SERVICES INCex32_1.htm
EX-31.1 - EXHIBIT 31.1 - BIRNER DENTAL MANAGEMENT SERVICES INCex31_1.htm
EX-31.2 - EXHIBIT 31.2 - BIRNER DENTAL MANAGEMENT SERVICES INCex31_2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
September 30, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from            _______________________________________to__________________________________________
 
Commission file number 0-23367

BIRNER DENTAL MANAGEMENT SERVICES, INC.
(Exact name of registrant as specified in its charter)
 
COLORADO
  
84-1307044
(State or other jurisdiction of incorporation
or organization)
  
(IRS Employer
Identification No.)
 
1777 S. HARRISON STREET, SUITE 1400
DENVER, COLORADO
  
 
80210
(Address of principal executive offices)
  
(Zip Code)
 
(303) 691-0680
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by 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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer  o Accelerated filer o   Non-accelerated filer o Smaller reporting company x
    (Do not check if a smaller reporting company)  
                
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No  x          
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Shares Outstanding as of November 9, 2011
Common Stock, no par value
  
1,839,119

 
 
 

BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
 
 
PART I - FINANCIAL INFORMATION
 
Item 1.  Financial Statements Page
 
  Condensed Consolidated Balance Sheets as of December 31, 2010 and September 30, 2011 (Unaudited) 3
     
  Unaudited Condensed Consolidated Statements of Income for the Quarters and Nine Months Ended September 30, 2010 and 2011 4
     
  Unaudited Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income as of September 30, 2011 5
     
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months  Ended September 30, 2010 and 2011 6
     
  Unaudited Notes to Condensed Consolidated Financial Statements 8
     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 4.  Controls and Procedures 24
     
PART II - OTHER INFORMATION  
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 6.  Exhibits 26
     
Signatures 27
 
 
2
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
December 31,
    
September 30,
  
ASSETS
  
2010
    
2011
  
      **    
(Unaudited)
  
CURRENT ASSETS:
              
Cash and cash equivalents
   $ 406,208     $ 565,026  
Accounts receivable, net of allowance for doubtful accounts of $315,333 and $320,964, respectively
     3,429,373       3,238,318  
Deferred tax asset
     207,530       207,530  
Income tax receivable
     435,800       -  
Prepaid expenses and other assets
     598,297       673,382  
                 
Total current assets
     5,077,208       4,684,256  
                 
PROPERTY AND EQUIPMENT, net
     5,123,934       6,099,171  
                 
OTHER NONCURRENT ASSETS:
                
Intangible assets, net
     11,941,931       11,314,166  
Deferred charges and other assets
     155,674       141,523  
Notes receivable
     167,420       155,406  
                 
Total assets
   $ 22,466,167     $ 22,394,522  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
                 
CURRENT LIABILITIES:
                
Accounts payable
   $ 2,163,082     $ 2,163,348  
Accrued expenses
     2,410,689       1,981,921  
Accrued payroll and related expenses
     1,945,020       2,150,057  
Income taxes payable
     18,484       872,069  
Current maturities of long-term debt
     690,000       230,000  
Liabilities related to discontinued operations
     50,207       -  
                 
Total current liabilities
     7,277,482       7,397,395  
                 
LONG-TERM LIABILITIES:
                
Deferred tax liability, net
     1,265,436       1,265,436  
Long-term debt, net of current maturities
     3,747,017       3,578,040  
Other long-term obligations
     2,254,539       2,344,526  
                 
Total liabilities
     14,544,474       14,585,397  
                 
SHAREHOLDERS' EQUITY:
                
Preferred Stock, no par value, 10,000,000 shares authorized; none outstanding
     -       -  
Common Stock, no par value, 20,000,000 shares authorized;1,850,716 and 1,847,405 shares issued and outstanding, respectively
     493,638       436,435  
Retained earnings
     7,433,205       7,372,690  
Accumulated other comprehensive loss
     (5,150 )     -  
                 
Total shareholders' equity
     7,921,693       7,809,125  
                 
Total liabilities and shareholders' equity
   $ 22,466,167     $ 22,394,522  
 
**  Derived from the Company’s audited consolidated balance sheet at December 31, 2010.
 
The accompanying notes are an integral part of these financial statements.
 
3
 
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Quarters Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2010
    
2011
    
2010
    
2011
  
                         
REVENUE:
   $ 16,049,646     $ 15,492,724     $ 48,243,182     $ 48,984,473  
                                 
DIRECT EXPENSES:
                                
Clinical salaries and benefits
     8,970,172       8,767,612       27,445,532       27,716,934  
Dental supplies
     730,339       658,705       1,975,194       2,157,987  
Laboratory fees
     660,160       679,304       2,076,093       2,188,635  
Occupancy
     1,320,627       1,381,849       3,908,228       4,060,977  
Advertising and marketing
     226,083       758,776       707,422       1,944,036  
Depreciation and amortization
     630,139       633,200       1,788,269       1,860,980  
General and administrative
     1,422,274       1,364,070       4,019,773       4,398,635  
      13,959,794       14,243,516       41,920,511       44,328,184  
                                 
Contribution from dental offices
     2,089,852       1,249,208       6,322,671       4,656,289  
                                 
CORPORATE EXPENSES:
                                
General and administrative
     1,186,046 (1)     580,564 (1)     3,441,372 (2)     2,658,299 (2)
Depreciation and amortization
     19,542       35,575       63,489       86,578  
                                 
OPERATING INCOME
     884,264       633,069       2,817,810       1,911,412  
Interest expense, net
     32,524       19,883       129,543       66,178  
                                 
                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     851,740       613,186       2,688,267       1,845,234  
Income tax expense
     366,217       239,141       1,155,924       719,641  
                                 
INCOME FROM CONTINUING OPERATIONS
     485,523       374,045       1,532,343       1,125,593  
                                 
DISCONTINUED OPERATIONS (Note 9):
                                
Operating (loss) attributable to assets disposed of
     -       -       (250,125 )     -  
(Loss) recognized on dispositions
     -       -       (268,598 )     -  
Income tax benefit
     -       -       223,051       -  
                                 
LOSS ON DISCONTINUED OPERATIONS
     -       -       (295,672 )     -  
                                 
NET INCOME
   $ 485,523     $ 374,045     $ 1,236,671     $ 1,125,593  
                                 
Net income per share of Common Stock - Basic
                          
Continuing Operations
   $ 0.26     $ 0.20     $ 0.82     $ 0.61  
Discontinued Operations
     -       -       (0.15 )     -  
Net income per share of Common Stock - Basic
   $ 0.26     $ 0.20     $ 0.67     $ 0.61  
                                 
Net income per share of Common Stock - Diluted
                          
Continuing Operations
   $ 0.26     $ 0.20     $ 0.81     $ 0.59  
Discontinued Operations
     -       -       (0.16 )     -  
Net income per share of Common Stock - Diluted
   $ 0.26     $ 0.20     $ 0.65     $ 0.59  
                                 
Cash dividends per share of Common Stock
   $ 0.20     $ 0.22     $ 0.60     $ 0.64  
                                 
Weighted average number of shares of Common Stock and dilutive securities:
                                
Basic
     1,851,828       1,859,362       1,859,470       1,855,984  
                                 
Diluted
     1,893,082       1,914,075       1,899,203       1,917,594  
 
(1)  
Corporate expense - general and administrative includes $153,020 of stock-based compensation expense pursuant to ASC Topic 718 and $84,348 related to a long-term incentive program for the quarter ended September 30, 2010 and $104,759 of stock-based compensation expense pursuant to ASC Topic 718 and ($162,828) related to a long-term incentive program for the quarter ended September 30, 2011.
(2)  
Corporate expense - general and administrative includes $454,781 of stock-based compensation expense pursuant to ASC Topic 718 and $253,044 related to a long-term incentive program for the nine months ended September 30, 2010 and $238,415 of stock-based compensation expense pursuant to ASC Topic 718 and $0 related to a long-term incentive program for the nine months ended September 30, 2011.
 
The accompanying notes are an integral part of these financial statements.
 
4
 
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
 
   
Common Stock
     Other              
   
Shares
    
Amount
    
Comprehensive Income
     Retained Earnings     Shareholders' Equity  
               
 
    
 
        
BALANCES, December 31, 2010
     1,850,716     $ 493,638     $ (5,150 )   $ 7,433,205     $ 7,921,693  
Common Stock options exercised
     14,069       -       -       -       -  
Purchase and retirement of Common Stock
     (17,380 )     (295,618 )     -       -       (295,618 )
Dividends declared on Common Stock
     -       -       -       (1,186,108 )     (1,186,108 )
Stock-based compensation expense
     -       238,415       -       -       238,415  
Other comprehensive income
     -       -       5,150       -       5,150  
Net income, nine months ended September 30, 2011
     -       -       -       1,125,593       1,125,593  
                                         
BALANCES, September 30, 2011
     1,847,405     $ 436,435     $ -     $ 7,372,690     $ 7,809,125  
 
STATEMENT OF COMPREHENSIVE INCOME FOR NINE MONTHS ENDED SEPTEMBER 30, 2011
(UNAUDITED)
 
Net income
   $ 1,125,593  
Other comprehensive income
     5,150  
         
Comprehensive income
   $ 1,130,743  
 
The accompanying notes are an integral part of these financial statements.
 
5
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended
  
   
September 30,
  
   
2010
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income
   $ 1,236,671     $ 1,125,593  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
     1,851,758       1,947,558  
Stock-based compensation expense
     707,825       238,415  
Provision for doubtful accounts
     443,982       451,739  
Provision for deferred income taxes
     -       -  
Discontinued operations costs
     283,421       (50,207 )
Changes in assets and liabilities net of effects from acquisitions:
                
Accounts receivable
     (616,996 )     (260,684 )
Prepaid expenses and other assets
     (148,911 )     (75,085 )
Deferred charges and other assets
     (1,940 )     14,151  
Accounts payable
     (7,536 )     266  
Accrued expenses
     385,945       (459,904 )
Accrued payroll and related expenses
     389,339       205,037  
Income taxes payable
     78,377       1,289,385  
Other long-term obligations
     76,984       89,987  
Net cash provided by operating activities
     4,678,919       4,516,251  
                 
CASH FLOWS USED IN INVESTING ACTIVITIES:
                
Capital expenditures
      (2,127,237 )       (2,295,029 ) 
Notes receivable - related parties, net
     19,416       12,014  
Net cash used in investing activities
     (2,107,821 )     (2,283,015 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Advances – line of credit
     16,996,579       12,045,890  
Repayments – line of credit
     (17,168,602 )     (12,214,867 )
Repayments – Term Loan
     (690,000 )     (460,000 )
Proceeds from exercise of Common Stock options
     19,310       -  
Purchase and retirement of Common Stock
     (587,417 )     (295,618 )
Common Stock cash dividends
     (1,061,258 )     (1,149,823 )
Net cash used in financing activities
     (2,491,388 )     (2,074,418 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     79,710       158,818  
CASH AND CASH EQUIVALENTS, beginning of period
     779,622       406,208  
CASH AND CASH EQUIVALENTS, end of period
   $ 859,332     $ 565,026  
 
The accompanying notes are an integral part of these financial statements.
 
 
6
 
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended
  
   
September 30,
  
   
2010
    
2011
  
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
            
             
Cash paid for interest
   $ 177,223     $ 95,529  
Cash paid for income taxes
   $ 854,498     $ 61,896  
Cash received for income taxes
   $ -     $ 631,640  
                 
NON-CASH ITEM:
                
                 
Gain recognized on interest rate swap (net of taxes)
   $ 13,532     $ 5,150  
Accrued expense related to de novo office capital expenditures
   $ 594,000     $ -  
Tax credits on fixed asset purchases
   $ 345,537     $ -  
 
The accompanying notes are an integral part of these financial statements.
 
 
7
                
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2011
 
(1)         UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The condensed consolidated financial statements included herein are unaudited and have been prepared by Birner Dental Management Services, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. A description of the Company’s accounting policies and other financial information is included in the audited consolidated financial statements as filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2011 and the results of operations and cash flows for the periods presented.  All such adjustments are of a normal recurring nature.  The results of operations for the quarter and nine months ended September 30, 2011 are not necessarily indicative of the results that may be achieved for a full fiscal year and cannot be used to indicate financial performance for the entire year.
 
(2)         SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation/Basis of Consolidation
 
The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting. These financial statements present the financial position and results of operations of the Company and the dental offices (“Offices”), which are under the control of the Company.  The Offices are organized as professional corporations (“P.C.s”) and the Company provides business services to the Offices under long-term management agreements (the “Management Agreements”).  All intercompany accounts and transactions have been eliminated in the consolidation.
 
The Company treats Offices as consolidated subsidiaries where it has a long-term and unilateral controlling financial interest over the assets and operations of the Offices. The Company maintains control of substantially all of its Offices via the Management Agreements. The Company is a business service organization and does not engage in the practice of dentistry or the provision of dental hygiene services. These services are provided by licensed professionals. Certain key features of these arrangements either enable the Company at any time and in its sole discretion to cause a change in the shareholder of the P.C. (i.e., ''nominee shareholder'') or allow the Company to vote the shares of stock held by the owner of the P.C. and to elect a majority of the board of directors of the P.C.  The accompanying condensed consolidated statements of income reflect revenue, which is the amount billed to patients less contractual adjustments. Direct expenses consist of all the expenses incurred in operating the Offices and paid by the Company.  Under the Management Agreements, the Company assumes responsibility for the management of most aspects of the Offices' business (the Company does not engage in the practice of dentistry or the provision of dental hygiene services), including personnel recruitment and training; comprehensive administrative, business and marketing support and advice; and facilities, equipment, and support personnel as required to operate the practices.
 
The Company prepares its consolidated financial statements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, which provides for consolidation of variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The Company has concluded that the P.C.s meet the definition of VIEs as defined by this standard and that the Company is the primary beneficiary of these VIEs.  This conclusion was reached because the Company has the power to direct significant activities of the VIEs and the Company is obligated to absorb losses of and/or provide rights to receive benefits from the VIEs.
 
Revenue
 
Revenue is generally recognized when services are provided and are reported at estimated net realizable amounts due from insurance companies, preferred provider and health maintenance organizations (i.e., third-party payors) and patients for services rendered, net of contractual and other adjustments.  Dental services are billed and collected by the Company in the name of the Offices.
 
 
8
 
Revenue under certain third-party payor agreements is subject to audit and retroactive adjustments. To the Company’s knowledge, there are no material claims, disputes or other unsettled matters that exist concerning third-party reimbursements as of September 30, 2011.
 
Most of the Company’s patients are insured under third-party payor agreements. The Company’s billing system generates contractual adjustments for each patient encounter based on fee schedules for the patient’s insurance plan.  The services provided are attached to the patient’s fee schedule based on the insurance the patient has at the time the service is provided.  Therefore, the revenue that is recorded by the billing system is based on insurance contractual amounts. Additionally, each patient at the time of service signs a form agreeing that the patient is ultimately responsible for the contracted fee if the insurance company does not pay the fee for any reason.
 
Intangible Assets
 
The Company's dental practice acquisitions involve the purchase of tangible and intangible assets and the assumption of certain liabilities of the acquired dental Offices. As part of the purchase price allocation, the Company allocates the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, based on estimated fair market values. Costs of acquisition in excess of the net estimated fair value of tangible assets acquired and liabilities assumed are allocated to the Management Agreement related to the Office. The Management Agreement represents the Company's right to manage the Offices during the 40-year term of the Management Agreement. The assigned value of the Management Agreement is amortized using the straight-line method over a period of 25 years.  Amortization remained constant at approximately $225,000 for the quarters ended September 30, 2011 and 2010 and approximately $675,000 for the nine months ended September 30, 2011 and 2010.
 
The Management Agreements cannot be terminated by a P.C without cause, consisting primarily of bankruptcy or material default by the Company.
 
If facts and circumstances indicate that the carrying value of long-lived and intangible assets may be impaired, the Company will perform an evaluation of recoverability. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset will be compared to the asset’s carrying amount to determine if a write-down to market value or discounted cash flow value is required.
 
Stock Options
 
The Company recognizes compensation expense on a straight line basis over the requisite service period of the award. Total stock-based compensation expense included in the Company’s condensed consolidated statements of income for the quarters ended September 30, 2011 and 2010 was approximately ($58,000) and $237,000, respectively.  For the quarter ended September 30, 2011, stock-based compensation expense consisted of approximately $105,000 related to stock option expense and approximately ($163,000) for reversal of an accrual related to restricted stock units granted under the Company’s long-term incentive program (the “LTIP”).  The LTIP was adopted by the Board of Directors on June 3, 2009 and provides for long-term performance-based cash and stock opportunities for the executive officers of the Company.  For the quarter ended September 30, 2010, stock-based compensation expense consisted of approximately $153,000 related to stock option expense and approximately $84,000 related to restricted stock units granted under the LTIP.  Total stock-based compensation expense included in the Company’s condensed consolidated statements of income for the nine months ended September 30, 2011 and 2010 was approximately $238,000 and $708,000, respectively.  For the nine months ended September 30, 2011, stock-based compensation expense consisted of approximately $238,000 related to stock option expense.  For the nine months ended September 30, 2010, stock-based compensation expense consisted of approximately $455,000 related to stock option expense and approximately $253,000 related to restricted stock units granted under the LTIP.  Total stock-based compensation expense was recorded as a component of corporate general and administrative expense.
 
The Black-Scholes option-pricing model was used to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the most significant are expected stock price volatility, the expected pre-vesting forfeiture rate, expected dividend rate and the expected option term (the amount of time from the grant date until the options are exercised or expire). Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ended September 30, 2011 equal to the expected option term. Expected pre-vesting forfeitures were estimated based on historical pre-vesting forfeitures over the most recent periods ended September 30, 2011 for the expected option term.
 
 
9
 
Recent Accounting Pronouncements
 
In June 2011, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard update, which eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity.  Instead, an entity will be required to present items of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements.  The standard is effective for fiscal years beginning after December 15, 2011.  The Company adopted this accounting standard update in the three months ended March 31, 2010.  This update affects presentation and disclosure and therefore does not affect the Company’s consolidated financial position, result of operations or cash flows.
 
(3)         EARNINGS PER SHARE
 
The Company calculates earnings per share in accordance with ASC Topic 260.
 
   
Quarters Ended September 30,
  
   
2010
    
2011
  
   
Net Income
    
Shares
    
Per Share
Amount
    
Net Income
    
Shares
    
Per Share
 Amount
  
                                     
Basic EPS
   $ 485,523       1,851,828     $ 0.26     $ 374,045       1,859,362     $ 0.20  
                                                 
Effect of Dilutive Stock Options
     -       41,254       -       -       54,713       -  
                                                 
Diluted EPS
   $ 485,523       1,893,082     $ 0.26     $ 374,045       1,914,075     $ 0.20  
 
The difference in weighted average shares outstanding between basic earnings per share and diluted earnings per share for the quarters ended September 30, 2011 and 2010 relates to the effect of 54,713 and 41,254 shares, respectively, of dilutive shares of the Company’s Common Stock (“Common Stock”) from stock options, which are included in total shares for the diluted calculation.  For the quarters ended September 30, 2011 and 2010, options to purchase 313,500 and 296,350 shares, respectively, of Common Stock were not included in the computation of dilutive earnings per share because their effect was anti-dilutive.
 
   
Nine Months Ended September 30,
  
   
2010
    
2011
  
   
Net Income
    
Shares
    
Per Share
Amount
    
Net Income
    
Shares
    
Per Share
Amount
  
                                     
Basic EPS
   $ 1,236,671       1,859,470     $ 0.67     $ 1,125,593       1,855,984     $ 0.61  
                                                 
Effect of Dilutive Stock Options
     -       39,733       (0.02 )     -       61,610       (0.02 )
                                                 
Diluted EPS
   $ 1,236,671       1,899,203     $ 0.65     $ 1,125,593       1,917,594     $ 0.59  
 
The difference in weighted average shares outstanding between basic earnings per share and diluted earnings per share for the nine months ended September 30, 2011 and 2010 relates to the effect of 61,610 and 39,733 shares, respectively, of dilutive shares of Common Stock from stock options, which are included in total shares for the diluted calculation.  For the nine months ended September 30, 2011 and 2010, options to purchase 279,500 and 296,350 shares, respectively, of Common Stock were not included in the computation of dilutive earnings per share because their effect was anti-dilutive.
 
 
10
 
(4)         STOCK-BASED COMPENSATION PLANS
 
At the Company’s June 2005 annual meeting of shareholders, the shareholders approved the 2005 Equity Incentive Plan (“2005 Plan”). An amendment to the 2005 Plan was approved at the June 2009 annual meeting of shareholders to increase the number of authorized shares of Common Stock issuable under the 2005 Plan from 425,000 shares to 625,000 shares. The 2005 Plan provides for the grant of incentive stock options, restricted stock, restricted stock units and stock grants to employees (including officers and employee-directors) and non-statutory stock options to employees, directors and consultants. The objectives of this plan include attracting and retaining the best personnel and providing for additional performance incentives by providing employees with the opportunity to acquire equity in the Company. As of September 30, 2011, there were 31,368 shares available for issuance under the 2005 Plan. The exercise price of the stock options issued under the 2005 Plan is equal to the market price, or market price plus 10% for shareholders who own greater than 10% of the Company, at the date of grant. These stock options expire seven years, or five years for shareholders who own greater than 10% of the Company, from the date of the grant and vest annually over a service period ranging from three to five years. The 2005 Plan is administered by a committee of two or more independent directors from the Company’s Board of Directors (the “Committee”). The Committee determines the eligible individuals to whom awards under the 2005 Plan may be granted, as well as the time or times at which awards will be granted, the number of shares subject to awards to be granted to any eligible individual, the life of any award, and any other terms and conditions of the awards in addition to those contained in the 2005 Plan. As of September 30, 2011, there were 188,024 vested options and 217,665 unvested options under the 2005 Plan.
 
The Employee Stock Option Plan (the “Employee Plan”) was adopted by the Board of Directors in 1995 and was amended in 1997, 2002, and 2004.  The Board of Directors reserved 479,250 shares of Common Stock for issuance under the Employee Plan. The Employee Plan provided for the grant of incentive stock options to employees (including officers and employee-directors) and non-statutory stock options to employees, directors and consultants. The Employee Plan expired by its terms on October 30, 2005. As of September 30, 2011, there were 9,000 vested options outstanding and no unvested options outstanding under the Employee Plan.
 
The Company uses the Black-Scholes pricing model to estimate the fair value of each option granted with the following weighted average assumptions:
 
   
Quarters Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
Valuation Assumptions
  
2010 (5)
    
2011 (5)
    
2010
    
2011
  
                         
Expected life (1)
     -       -       3.4       2.97  
Risk-free interest rate (2)
     -       -       1.62 %     1.25 %
Expected volatility (3)
     -       -       59 %     57 %
Expected dividend yield
     -       -       4.50 %     4.46 %
Expected Forfeiture (4)
     -       -       8.49 %     10.50 %
 
(1) The expected life, in years, of stock options is estimated based on historical experience.
(2) The risk-free interest rate is based on U.S. Treasury bills whose term is consistent with the expected life of the stock options.
(3) The expected volatility is estimated based on historical and current stock price data for the Company.
(4) Forfeitures are estimated based on historical experience.
(5) The Company did not issue any options during the quarters ended September 30, 2010 and 2011.
 
 
11
 
A summary of option activity as of September 30, 2011, and changes during the nine months then ended, is presented below:
 
   
Number of
Options
    
Weighted-
Average
Exercise
Price
    
Range of
Exercise Prices
    
Weighted-
Average
Remaining
Contractual
Term (years)
    
Aggregate
Intrinsic
Value
(thousands)
  
Outstanding at December 31, 2010
     313,438     $ 16.95     $ 9.66 - $21.85       3.6     $ 853  
Granted
     147,000     $ 19.72     $ 19.03 - $19.75                  
Exercised
     39,749     $ 12.98     $ 9.66 - $19.40                  
Forfeited
     6,000     $ 14.60     $ 11.50 - $15.22                  
                                         
Outstanding at September 30, 2011
     414,689     $ 18.35     $ 10.20 - $21.85       4.3     $ 289  
                                         
Exercisable at September 30, 2011
     197,024     $ 18.75     $ 10.75 - $21.85       2.6     $ 125  
 
The weighted average grant date fair values of options granted were $5.98 per option and $5.16 per option during the nine months ended September 30, 2011 and 2010, respectively.  Net cash proceeds from the exercise of stock options during the nine months ended September 30, 2011 and 2010 were $0 and $19,310, respectively. There was no associated income tax effect from stock options exercised during the nine months ended September 30, 2011 and 2010.  As of the date of exercise, the total intrinsic values of options exercised during the nine months ended September 30, 2011 and 2010 were $284,259 and $422,868, respectively. As of September 30, 2011, there was approximately $739,471 of total unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted average period of 2.37 years.
 
(5)   LONG-TERM INCENTIVE PROGRAM
 
On June 3, 2009, the Compensation Committee of the Board of Directors adopted the LTIP.  The LTIP, which operates under the 2005 Plan, provides for long-term performance-based cash and stock opportunities for the executive officers of the Company.  Details of the LTIP are as follows:
 
The Company’s executive officers may earn an aggregate of up to $1,050,000 in cash and up to 80,000 shares of Common Stock of the Company.  The Company issued restricted stock units with respect to the 80,000 shares.  Frederic W. Birner, the Company’s Chairman and Chief Executive Officer, Dennis N. Genty, the Company’s Chief Financial Officer, and Mark A. Birner, D.D.S., the Company’s President, may earn up to 50%, 25% and 25% of the foregoing amounts, respectively.  Of the foregoing amounts, 24%, 33% and 43% can be earned in each of 2009, 2010 and 2011, respectively.
 
The executive officers may earn the foregoing amounts through achievement by the Company of performance targets related to patient revenue growth, practice additions, adjusted EBITDA margin and earnings per share growth.  The executive officers will earn 100% of the amounts allocated to a particular year if the Company exceeds all four of the annual performance targets, 90% if the Company exceeds three of the four annual performance targets, 66.7% if the Company exceeds two of the four annual performance targets, and 0% if the Company achieves fewer than two of the four annual performance targets.  The Compensation Committee will review each of the performance targets annually and will administer the LTIP.
 
All amounts vest only if the executive officer is employed by the Company on December 31, 2011 and will be payable during the first quarter of 2012.
 
For the quarter ended September 30, 2011, the Company reversed the 2011 estimated accrual by approximately $150,000 related to the cash portion and reversed the 2011 estimated  accrual by approximately $163,000 of stock-based compensation for the equity portion, respectively, of the LTIP because 2011 targets have not been met.  For the nine months ended September 30, 2011, the Company made no accrual for the cash or equity portions of the LTIP.   
 
 
12
 
(6)         DIVIDENDS
 
The Company has declared and paid the following quarterly cash dividends.
 
Date Dividend Paid
  
Quarterly Dividend Paid
per Share
     
April 10, 2009; July 10, 2009; October 9, 2009; January 8, 2010
  
0.17
April 9, 2010; July 9, 2010; October 8, 2010, January 14, 2011, April 8, 2011
  
0.20
July 8, 2011, October 14, 2011
  
0.22
 
The payment of dividends in the future is subject to the discretion of the Company’s Board of Directors, and various factors may prevent the Company from paying dividends or require the Company to reduce the dividends. Such factors include the Company’s financial position, capital requirements and liquidity, the existence of a stock repurchase program, any loan agreement restrictions, state corporate law restrictions, results of operations and such other factors that the Company’s Board of Directors may consider relevant.
 
(7)         LINE OF CREDIT
 
On June 3, 2011, the Company amended its Second Amended and Restated Credit Agreement (the “Credit Facility”).  The amendment decreased the interest rate margins and extended the expiration of the Credit Facility from May 31, 2012 to May 31, 2013.  The Credit Facility allows the Company to borrow, on a revolving basis, an aggregate principal amount not to exceed $7.0 million at either, or a combination of, the lender’s Base Rate or at LIBOR plus a LIBOR rate margin, at the Company’s option.  The Base Rate computes interest at the higher of the lender’s “prime rate” or the Federal Funds Rate.  The amendment eliminated a .25% Base Rate margin.  The LIBOR option computes interest at the LIBOR rate as of the date such LIBOR rate loan was made plus a LIBOR rate margin of 2.0%, which is a decrease from the previous 2.5% margin.  As of September 30, 2011, the Company’s LIBOR borrowing rate was 2.24% and the Base Rate borrowing rate was 3.25%.  A commitment fee on the average daily unused amount of the revolving loan commitment during the preceding quarter is also assessed at 0.25%.  The Company may prepay any Base Rate loan at any time and any LIBOR rate loan upon not less than three business days prior written notice given to the lender, but the Company is responsible for any loss or cost incurred by the lender in liquidating or employing deposits required to fund or maintain the LIBOR rate loan.  At September 30, 2011, the Company had approximately $3.6 million outstanding and approximately $3.4 million available for borrowing under the Credit Facility.  The outstanding amounts consisted of $3.5 million outstanding under the LIBOR rate option and $78,000 outstanding under the Base Rate option.  The Credit Facility is secured by the Company’s accounts receivable and Management Agreements and requires the Company to comply with certain covenants and financial ratios.  At September 30, 2011, the Company was in full compliance with all of its covenants under the Credit Facility.
 
(8)         TERM LOAN
 
In October 2006, the Company entered into a $4.6 million term loan (the “Term Loan”). Under the Term Loan, $2.3 million was borrowed at a fixed interest rate of 7.05% and the remaining $2.3 million was borrowed at a floating interest rate of LIBOR plus 1.5%. As of September 30, 2011, the floating rate was 1.75%.  The principal amount borrowed is repaid quarterly in 20 equal payments of $230,000 plus interest beginning December 31, 2006.  As of September 30, 2011, $115,000 was outstanding at the fixed rate of 7.05% and $115,000 was outstanding at the LIBOR plus 1.5% floating rate.  The Term Loan requires the Company to comply with certain covenants and financial ratios. At September 30, 2011, the Company was in full compliance with all of its covenants under the Term Loan.  The Term Loan matured on September 30, 2011 and was repaid in full on October 3, 2011.
 
Historically, the Company has not used derivative instruments or engaged in hedging activities. On October 12, 2006, the Company entered into a fixed-for-floating interest rate swap transaction on $2.3 million of the Term Loan.  The Company elected to designate the swap as a cash flow hedge under ASC Topic 815.  In the quarter ended September 30, 2011, the Company recognized, on its condensed consolidated balance sheet, approximately $1,000 of other comprehensive income to mark up the value of the cash flow hedge net of taxes.  As required by ASC Topic 820, the Company calculated the value of the cash flow hedge using Level II inputs.
 
 
13
 
(9)         DISCONTINUED OPERATIONS
 
Discontinued operations include the results attributable to two Offices in the Phoenix, Arizona market that were closed in May 2010.  The loss from discontinued operations includes both the current and historical results from operations, the fair value of all future lease obligations and an impairment charge to write down the fixed assets to fair value.  Current liabilities related to discontinued operations relate to the estimated lease obligations and estimated property taxes payable.
 
The following is a summary of the costs from discontinued operations for the quarters and nine months ended September 30, 2011 and 2010:
 
   
Quarters Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2010
    
2011
    
2010
    
2011
  
                         
Results of operations
   $ -     $ -     $ (250,125 )   $ -  
Future lease obligations, fair value
     -       -       (144,978 )     -  
Asset impairment charge
     -       -       (123,620 )     -  
Income tax benefit
     -       -       223,051       -  
                                 
Loss from discontinued operations
   $ -     $ -     $ (295,672 )   $ -  
 
(10)       SUBSEQUENT EVENTS
 
On November 2, 2011, the Company terminated for cause a dentist whose office had been acquired on December 30, 2009.  As part of the acquisition, the Company recorded an estimated fair value of contingent liabilities of $280,000 assumed in the acquisition.  According to the purchase agreement, the Company paid $5,000 to terminate the contract and the $280,000 contingent liability  was extinguished.
 
(11)       OTHER
 
The Company’s retained earnings as of September 30, 2011 were approximately $7.4 million, and the Company had a working capital deficit on that date of approximately $2.7 million. During the nine months ended September 30, 2011, the Company had capital expenditures of approximately $2.3 million, paid dividends of approximately $1.1 million and repurchased outstanding Common Stock for approximately $296,000 pursuant to the Company’s stock repurchase program, while decreasing total bank debt by approximately $629,000.
 
 
14
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
The statements contained in this report that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe, intend or anticipate will or may occur in the future, are forward-looking statements. When used in this document, the words “estimate,” “believe,” anticipate,” “project” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. These forward-looking statements include statements in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding intent, belief or current expectations of the Company or its officers with respect to the development of de novo offices or acquisition of additional dental practices (“Offices”) and the successful integration of such Offices into the Company’s network, recruitment of additional dentists, funding of the Company’s expansion, capital expenditures, payment or nonpayment of dividends and cash outlays for income taxes and other purposes.
 
Such forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties include regulatory constraints, changes in laws or regulations concerning the practice of dentistry or dental practice management companies, the availability of suitable new markets and suitable locations within such markets, changes in the Company’s operating or expansion strategy, the general economy of the United States and the specific markets in which the Company’s Offices are located, trends in the health care, dental care and managed care industries, as well as the risk factors set forth in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and other factors as may be identified from time to time in the Company’s filings with the Securities and Exchange Commission or in the Company’s press releases.
 
General
 
The following discussion relates to factors that have affected the results of operations and financial condition of the Company for the quarters and nine months ended September 30, 2011 and 2010. This information should be read in conjunction with the Company’s condensed consolidated financial statements and related notes thereto included elsewhere in this report.
 
Overview
 
The Company was formed in May 1995 and currently manages 64 Offices in Colorado, New Mexico and Arizona staffed by 71 general dentists and 38 specialists. The Company derives all of its revenue from its Management Agreements with professional corporations (“P.C.s”), which conduct the practice at each Office. In addition, the Company assumes a number of responsibilities when it develops a de novo Office or acquires an existing dental practice.  These responsibilities are set forth in a Management Agreement, as described below.
 
The Company was formed with the intention of becoming the leading provider of business services to dental practices in Colorado. The Company’s growth and success in the Colorado market led to its expansion into the New Mexico and Arizona markets. The Company’s growth strategy is to focus on greater utilization of existing physical capacity through recruiting more dentists and support staff and through development of de novo Offices and selective acquisitions.
 
Critical Accounting Policies
 
The Company’s critical accounting policies are set forth in its Annual Report on Form 10-K for the year ended December 31, 2010.  There have been no changes to these policies since the filing of that report.
 
Components of Revenue and Expenses
 
Revenue represents the revenue of the Offices, reported at estimated realizable amounts, received from third-party payors and patients for dental services rendered at the Offices, net of contractual and other adjustments.  Substantially all of the Company’s patients are insured under third-party payor agreements.  The Company’s billing system generates contractual adjustments for each patient encounter based on fee schedules for the patient’s insurance plan.  The services provided are attached to the patient’s fee schedule based on the insurance the patient has at the time the service is provided.  Therefore, the revenue that is recorded by the billing system is based on insurance contractual amounts.  Additionally, each patient at the time of service signs a form agreeing that the patient is ultimately responsible for the contracted fee if the insurance company does not pay the fee for any reason.
 
 
15
 
Direct expenses consist of clinical salaries and benefits paid to dentists, dental hygienist and dental assistants and the expenses incurred by the Company in connection with managing the Offices, including salaries and benefits of other employees at the Offices, supplies, laboratory fees, occupancy costs, advertising and marketing, depreciation and amortization and general and administrative expenses (including office supplies, equipment leases, management information systems and other expenses related to dental practice operations). The Company also incurs personnel and administrative expenses in connection with maintaining a corporate function that provides management, administrative, marketing, development and professional services to the Offices.
 
Under each of the Management Agreements, the Company provides business and marketing services at the Offices, including (i) providing capital, (ii) designing and implementing advertising and marketing programs, (iii) negotiating for the purchase of supplies, (iv) staffing, (v) recruiting, (vi) training of non-dental personnel, (vii) billing and collecting patient fees, (viii) arranging for certain legal and accounting services, and (ix) negotiating with managed care organizations. The P.C. is responsible for, among other things, (i) supervision of all dentists, dental hygienists and dental assistants, (ii) complying with all laws, rules and regulations relating to dentists, dental hygienists and dental assistants, and (iii) maintaining proper patient records. The Company has made, and intends to make in the future, loans to P.C.s to fund their acquisition of dental assets from third parties in order to comply with state dental practice laws.  Because the Company’s financial statements are consolidated with the financial statements of the P.C.s, these loans are eliminated in consolidation.
 
Under the typical Management Agreement, the P.C. pays the Company a management fee equal to the Adjusted Gross Center Revenue of the P.C. less compensation paid to the dentists, dental hygienists and dental assistants employed at the Office of the P.C.  Adjusted Gross Center Revenue is comprised of all fees and charges booked each month by or on behalf of the P.C. as a result of dental services provided to patients at the Office, less any adjustments for uncollectible accounts, professional courtesies and other activities that do not generate a collectible fee. The Company’s costs include all direct and indirect costs, overhead and expenses relating to the Company’s provision of management services to the Office under the Management Agreement, including (i) salaries, benefits and other direct costs of Company employees who work at the Office, (ii) direct costs of all Company employees or consultants who provide services to or in connection with the Office, (iii) utilities, janitorial, laboratory, supplies, advertising and other expenses incurred by the Company in carrying out its obligations under the Management Agreement, (iv) depreciation expense associated with the P.C.’s assets and the assets of the Company used at the Office, and the amortization of intangible asset value relating to the Office, (v) interest expense on indebtedness incurred by the Company to finance any of its obligations under the Management Agreement, (vi) general and malpractice insurance expenses, lease expenses and dentist recruitment expenses, (vii) personal property and other taxes assessed against the Company’s or the P.C.’s assets used in connection with the operation of the Office, (viii) out-of-pocket expenses of the Company’s personnel related to mergers or acquisitions involving the P.C., (ix) corporate overhead charges or any other expenses of the Company including the P.C.’s pro rata share of the expenses of the accounting and computer services provided by the Company, and (x) a collection reserve in the amount of 5.0% of Adjusted Gross Center Revenue. As a result, substantially all costs associated with the provision of dental services at the Office are borne by the Company, except for the compensation of the dentists, dental hygienists and dental assistants who work at the Office.  This enables the Company to manage the profitability of the Offices.  Each Management Agreement is for a term of 40 years.  Each Management Agreement generally may be terminated by the P.C. only for cause, which includes a material default by or bankruptcy of the Company. Upon expiration or termination of a Management Agreement by either party, the P.C. must satisfy all obligations it has to the Company.
 
Revenue is derived principally from fee-for-service revenue and revenue from capitated managed dental care plans. Fee-for-service revenue consists of P.C. revenue received from indemnity dental plans, preferred provider plans and direct payments by patients not covered by any third-party payment arrangement. Managed dental care revenue consists of P.C. revenue received from capitated managed dental care plans, including capitation payments and patient co-payments. Capitated managed dental care contracts are between dental benefits organizations and the P.C.s. Under the Management Agreements, the Company negotiates and administers these contracts on behalf of the P.C.s. Under a capitated managed dental care contract, the dental group practice provides dental services to the members of the dental benefits organization and receives a fixed monthly capitation payment for each plan member covered for a specific schedule of services regardless of the quantity or cost of services to the participating dental group practice obligated to provide them. This arrangement shifts the risk of utilization of these services to the dental group practice providing the dental services. Because the Company assumes responsibility under the Management Agreements for all aspects of the operation of the dental practices (other than the practice of dentistry) and thus bears all costs of the P.C.s associated with the provision of dental services at the Office (other than compensation of dentists, dental hygienists and dental assistants), the risk of over-utilization of dental services at the Office under capitated managed dental care plans is effectively shifted to the Company. In addition, dental group practices participating in a capitated managed dental care plan often receive supplemental payments for more complicated or elective procedures. In contrast, under traditional indemnity insurance arrangements, the insurance company pays whatever reasonable charges are billed by the dental group practice for the dental services provided.  
 
 
16
 
The Company seeks to increase its revenue by increasing the patient volume at existing Offices through effective advertising and marketing programs, adding additional specialty services, by opening de novo Offices and by making select acquisitions of dental practices.  The Company seeks to supplement fee-for-service revenue with revenue from contracts with capitated managed dental care plans. Although the Company’s fee-for-service business generally provides a greater margin than its capitated managed dental care business, capitated managed dental care business increases facility utilization and dentist productivity.  The relative percentage of the Company’s revenue derived from fee-for-service business and capitated managed dental care contracts varies from market to market depending on the availability of capitated managed dental care contracts in any particular market and the Company’s ability to negotiate favorable contractual terms. In addition, the profitability of capitated managed dental care revenue varies from market to market depending on the level of capitation payments and co-payments in proportion to the level of benefits required to be provided.
 
The Company’s policy is to collect any patient co-payments at the time the service is provided.  If the patient owes additional amounts that are not covered by insurance, Offices collect by sending monthly invoices, placing phone calls and sending collection letters.  Interest at 18% per annum is charged on all account balances greater than 60 days old.  Patient accounts receivable in excess of $50 that are over 120 days past due and that appear are not collectible are written off as bad debt and sent to an outside collections agency.
 
Results of Operations
 
For the quarter ended September 30, 2011, revenue decreased $557,000, or 3.5%, to $15.5 million compared to $16.0 million for the quarter ended September 30, 2010.  For the quarter ended September 30, 2011, net income decreased 23.0% to $374,000, or $0.20 per share, compared to $486,000, or $0.26 per share, for the quarter ended September 30, 2010.
 
For the nine months ended Sept 30, 2011, revenue increased $741,000, or 1.5%, to $49.0 million compared to $48.2 million for the nine months ended September 30, 2010.  For the nine months ended September 30, 2011, net income decreased 9.0% to $1.1 million, or $0.59 per share, compared to $1.2 million, or $0.65 per share, for the nine months ended September 30, 2010.  Net income for the nine months ended September 30, 2010 included a loss on discontinued operations of $296,000, net of income tax benefit.
 
During the first nine months of 2011, the Company generated $4.5 million of cash from operations.  During this period, the Company had capital expenditures of approximately $2.3 million, paid dividends of approximately $1.1 million and repurchased outstanding Common Stock for $296,000 pursuant to the Company’s stock repurchase program, while decreasing total bank debt by approximately $629,000.
 
 
17
 
The Company’s earnings before discontinued operations, interest, taxes, depreciation, amortization and non-cash expense associated with stock-based compensation (“Adjusted EBITDA”) decreased $1.3 million, or 23.8%, to $4.1 million for the nine months ended September 30, 2011 compared to $5.4 million for the nine months ended September 30, 2010. Although Adjusted EBITDA is not a GAAP measure of performance or liquidity, the Company believes that it may be useful to an investor in evaluating the Company’s ability to meet future debt service, capital expenditures and working capital requirements. However, investors should not consider these measures in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company’s operating performance or liquidity that is calculated in accordance with GAAP. In addition, because Adjusted EBITDA is not calculated in accordance with GAAP, it may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of Adjusted EBITDA to net income is made by adding discontinued operations before income tax expense, depreciation and amortization expense - Offices, depreciation and amortization expense – corporate, stock-based compensation expense, interest expense, net and income tax expense to net income as in the following table:
 
 
   
Quarters
    
Nine Months
  
   
Ended September 30,
    
Ended September 30,
  
   
2010
    
2011
    
2010
    
2011
  
RECONCILIATION OF ADJUSTED EBITDA:
                        
Net income
   $ 485,523     $ 374,045     $ 1,236,671     $ 1,125,593  
Add back:
                                
Discontinued operations (before income tax expense)
     -       -       518,723       -  
Depreciation and amortization - Offices
     630,139       633,200       1,788,269       1,860,980  
Depreciation and amortization - Corporate
     19,542       35,575       63,489       86,578  
Stock-based compensation expense
     237,368       (58,069 )     707,825       238,414  
Interest expense, net
     32,524       19,883       129,543       66,178  
Income tax expense
     366,217       239,141       932,873       719,641  
                                 
Adjusted EBITDA
   $ 1,771,313     $ 1,243,775     $ 5,377,393     $ 4,097,384  
 
 
18
 
The following table sets forth the percentages of revenue represented by certain items reflected in the Company’s condensed consolidated statements of income. The information contained in the following table represents the historical results of the Company. The information that follows should be read in conjunction with the Company’s condensed consolidated financial statements and related notes thereto contained elsewhere in this report.
 
BIRNER DENTAL MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Quarters Ended
  
Nine Months Ended
  
   
September 30,
  
September 30,
  
   
2010
    
2011
    
2010
    
2011
    
                           
Revenue
     100.0 %     100.0 %     100.0 %     100.0 %  
                                   
Direct Expenses:
                                  
Clinical salaries and benefits
     55.9 %     56.6 %     56.9 %     56.6 %  
Dental supplies
     4.6 %     4.3 %     4.1 %     4.4 %  
Laboratory fees
     4.1 %     4.4 %     4.3 %     4.5 %  
Occupancy
     8.2 %     8.9 %     8.1 %     8.3 %  
Advertising and marketing
     1.4 %     4.9 %     1.5 %     4.0 %  
Depreciation and amortization
     3.9 %     4.1 %     3.7 %     3.8 %  
General and administrative
     8.9 %     8.8 %     8.3 %     9.0 %  
      87.0 %     91.9 %     86.9 %     90.5 %  
                                   
Contribution from dental offices
     13.0 %     8.1 %     13.1 %     9.5 %  
                                   
Corporate Expenses:
                                  
General and administrative
     7.4 %  (1)   3.7 %  (1)   7.1 % (2)   5.4 % (2)
Depreciation and amortization
     0.1 %     0.2 %     0.1 %     0.2 %  
                                   
Operating income
     5.5 %     4.1 %     5.8 %     3.9 %  
                                   
Interest expense
     0.2 %     0.1 %     0.3 %     0.1 %  
                                   
Income from continuing operations before income taxes
     5.3 %     4.0 %     5.6 %     3.8 %  
Income tax expense
     2.3 %     1.5 %     2.4 %     1.5 %  
                                   
Income from continuing operations
     3.0 %     2.4 %     3.2 %     2.3 %  
                                   
Loss attributable to discontinued operations, net of income taxes
     0.0 %     0.0 %     ( 0.6 )%     0.0 %  
                                   
Net income
     3.0 %     2.4 %     2.6 %     2.3 %  
 
(1)
Corporate expense - general and administrative includes $153,020 of stock-based compensation expense pursuant to ASC Topic 718 and $84,348 related to a long-term incentive program for the quarter ended September 30, 2010 and $104,759 of stock-based compensation expense pursuant to ASC Topic 718 and ($162,828) related to a long-term incentive program for the quarter ended September 30, 2011.
(2)
Corporate expense - general and administrative includes $454,781 of stock-based compensation expense pursuant to ASC Topic 718 and $253,044 related to a long-term incentive program for the nine months ended September 30, 2010 and $238,415 of stock-based compensation expense pursuant to ASC Topic 718 and $0 related to a long-term incentive program for the nine months ended September 30, 2011.
 
 
19
 
Quarter Ended September 30, 2011 Compared to Quarter Ended September 30, 2010:
 
Revenue
 
For the quarter ended September 30, 2011, revenue decreased $557,000, or 3.5%, to $15.5 million compared to $16.0 million for the quarter ended September 30, 2010.  
 
Direct expenses
 
Clinical salaries and benefits. For the quarter ended September 30, 2011, clinical salaries and benefits decreased $203,000 or 2.3%, to $8.8 million compared to $9.0 million for the quarter ended September 30, 2010.  As a percentage of revenue, clinical salaries and benefits increased to 56.6% for the quarter ended September 30, 2011 compared to 55.9% for the quarter ended September 30, 2010.
 
Dental supplies. For the quarter ended September 30, 2011, dental supplies decreased to $659,000 compared to $730,000 for the quarter ended September 30, 2010, a decrease of $72,000 or 9.8%.  As a percentage of revenue, dental supplies decreased to 4.3% for the quarter ended September 30, 2011 compared to 4.6% for the quarter ended September 30, 2010.
 
Laboratory fees. For the quarter ended September 30, 2011, laboratory fees increased to $679,000 compared to $660,000 for the quarter ended September 30, 2010, an increase of $19,000 or 2.9%.  As a percentage of revenue, laboratory fees increased to 4.4% for the quarter ended September 30, 2011 compared to 4.1% for the quarter ended September 30, 2010.
 
Occupancy. Occupancy expense increased $61,000 or 4.6%, to $1.4 million for the quarter ended September 30, 2011 compared to $1.3 million for the quarter ended September 30, 2010.  As a percentage of revenue, occupancy expense increased to 8.9% for the quarter ended September 30, 2011 compared to 8.2% for the quarter ended September 30, 2010.
 
Advertising and marketing. For the quarter ended September 30, 2011, advertising and marketing expense increased to $759,000 compared to $226,000 for the quarter ended September 30, 2010, an increase of $533,000 or 235.6%.  As a percentage of revenue, advertising and marketing expense increased to 4.9% for the quarter ended September 30, 2011 compared to 1.4% for the quarter ended September 30, 2010.  The Company adjusts its advertising and marketing in response to market conditions and its financial performance.
 
Depreciation and amortization-Offices. For the quarter ended September 30, 2011, depreciation and amortization expenses attributable to the Offices increased to $633,000 compared to $630,000 for the quarter ended September 30, 2010, an increase of $3,000 or 0.5%.  As a percentage of revenue, depreciation and amortization expenses attributable to the Offices increased to 4.1% for the quarter ended September 30, 2011 compared to 3.9% for the quarter ended September 30, 2010.
 
General and administrative-Offices:  For the quarter ended September 30, 2011, general and administrative expenses attributable to the Offices decreased $58,000 or 4.1%, to $1.4 million compared to the quarter ended September 30, 2010.  As a percentage of revenue, general and administrative expenses decreased to 8.8% for the quarter ended September 30, 2011 compared to 8.9% for the quarter ended September 30, 2010.
 
Contribution from dental Offices
 
As a result of revenue decreasing $557,000 and direct expenses increasing $284,000 during the quarter ended September 30, 2011, contribution from dental Offices decreased to $1.2 million for the quarter ended September 30, 2011 compared to $2.1 million for the quarter ended September 30, 2010, a decrease of $841,000 or 40.2%. As a percentage of revenue, contribution from dental Offices decreased to 8.1% for the quarter ended September 30, 2011 compared to 13.0% for the quarter ended September 30, 2010.
 
Corporate expenses
 
Corporate expenses - general and administrative. For the quarter ended September 30, 2011, corporate expenses – general and administrative decreased to $581,000 compared to $1.2 million for the quarter ended September 30, 2010, a decrease of $605,000 or 51.1%.  This decrease includes a reversal of prior accruals for the long-term incentive program totaling $475,000 because 2011 targets have not been met.  There were also decreases of $155,000 in executive bonuses and $48,000 related to stock-based compensation expense pursuant to ASC Topic 718, offset by increases of $52,000 in corporate wages, $29,000 in rent expense, $14,000 in travel and meals expense, and $10,000 in moving expense.  As a percentage of revenue, corporate expenses - general and administrative decreased to 3.7% for the quarter ended September 30, 2011 compared to 7.4% for the quarter ended September 30, 2010.
 
 
20
 
Corporate expenses - depreciation and amortization. For the quarter ended September 30, 2011, corporate expenses - depreciation and amortization increased to $36,000 compared to $20,000 for the quarter ended September 30, 2010, an increase of $16,000 or 82.0%.  This increase is attributable to assets added related to the Company’s corporate office move in February, 2011.  As a percentage of revenue, corporate expenses – depreciation and amortization increased to 0.2% for the quarter ended September 30, 2011 compared to 0.1% for the quarter ended September 30, 2010.
 
Operating income
 
Primarily as a result of the decrease in contribution from dental Offices discussed above, the Company’s operating income decreased by $251,000, or 28.4%, to $633,000 for the quarter ended September 30, 2011 compared to $884,000 for the quarter ended September 30, 2010.  As a percentage of revenue, operating income decreased to 4.1% for the quarter ended September 30, 2011 compared to 5.5% for the quarter ended September 30, 2010.
 
Interest expense/(income), net
 
For the quarter ended September 30, 2011, interest expense decreased to $20,000 compared to $33,000 for the quarter ended September 30, 2010, a decrease of $13,000 or 38.9%. This decrease in interest expense is attributable to lower interest rates on the Credit Facility and decreases in the Term Loan and Credit Facility balances. As a percentage of revenue, interest expense decreased to 0.1% for the quarter ended September 30, 2011 compared to 0.2% for the quarter ended September 30, 2010.
 
Net income
 
As a result of the above, the Company’s net income was $374,000 for the quarter ended September 30, 2011 compared to net income of $486,000 for the quarter ended September 30, 2010, a decrease of $111,000 or 23.0%.  Net income for the quarter ended September 30, 2011 was net of income tax expense of $239,000 while net income for the quarter ended September 30, 2010 was net of income tax expense of $366,000. The effective tax rate was 39.0% for the quarter ended September 30, 2011 compared to 43.0% for the quarter ended September 30, 2010.  As a percentage of revenue, net income decreased to 2.4% for the quarter ended September 30, 2011 compared to 3.0% for the quarter ended September 30, 2010.
 
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010:
 
Revenue
 
For the nine months ended September 30, 2011, revenue increased $741,000, or 1.5%, to $49.0 million compared to $48.2 million for the nine months ended September 30, 2010.  
 
Direct expenses
 
Clinical salaries and benefits. For the nine months ended September 30, 2011, clinical salaries and benefits increased $271,000, or 1.0%, to $27.7 million compared to $27.4 million for the nine months ended September 30, 2010.  As a percentage of revenue, clinical salaries and benefits decreased to 56.6% for the nine months ended September 30, 2011 compared to 56.9% for the nine months ended September 30, 2010.
 
Dental supplies. For the nine months ended September 30, 2011, dental supplies increased to $2.2 million compared to $2.0 million for the nine months ended September 30, 2010, an increase of $183,000 or 9.3%.  This increase is primarily attributable to a clinical quality improvement program initiated by the Company during 2010 that led to an additional $201,000 in hygiene supplies purchased during the nine months ended September 30, 2011.  As a percentage of revenue, dental supplies increased to 4.4% for the nine months ended September 30, 2011 compared to 4.1% for the nine months ended September 30, 2010.
 
Laboratory fees. For the nine months ended September 30, 2011, laboratory fees increased to $2.2 million compared to $2.1 million for the nine months ended September 30, 2010, an increase of $113,000 or 5.4%.  As a percentage of revenue, laboratory fees increased to 4.5% for the nine months ended September 30, 2011 compared to 4.3% for the nine months ended September 30, 2010.
 
 
21
 
Occupancy. For the nine months ended September 30, 2011, occupancy expense increased to $4.1 million compared to $3.9 million for the nine months ended September 30, 2010, an increase of $153,000 or 3.9%.  As a percentage of revenue, occupancy expense increased to 8.3% for the nine months ended September 30, 2011 compared to 8.1% for the nine months ended September 30, 2010.
 
Advertising and marketing. For the nine months ended September 30, 2011, advertising and marketing expense increased to $1.9 million compared to $707,000 for the nine months ended September 30, 2010, an increase of $1.2 million or 174.8%.  As a percentage of revenue, advertising and marketing expense increased to 4.0% for the nine months ended September 30, 2011 compared to 1.5% for the nine months ended September 30, 2010.  The Company adjusts its advertising and marketing in response to market conditions and its financial performance.
 
Depreciation and amortization-Offices. Depreciation and amortization expenses attributable to the Offices increased $73,000 or 4.1%, to $1.9 million for the nine months ended September 30, 2011 compared to $1.8 million for the nine months ended September 30, 2010.  As a percentage of revenue, depreciation and amortization expenses attributable to the Offices increased to 3.8% compared to 3.7% for the nine months ended September 30, 2010.
 
General and administrative-Offices:  For the nine months ended September 30, 2011, general and administrative expenses attributable to the Offices increased to $4.4 million compared to $4.0 million for the nine months ended September 30, 2010, an increase of $379,000 or 9.4%.  This increase is attributable to a clinical quality improvement program initiated by the Company during 2010 that led to an additional $410,000 of general and administrative expenses during the nine months ended September 30, 2011.  As a percentage of revenue, general and administrative expenses increased to 9.0% for the nine months ended September 30, 2011 compared to 8.3% for the nine months ended September 30, 2010.
 
Contribution from dental Offices
 
As a result of revenue increasing $741,000 and direct expenses increasing $2.4 million during the nine months ended September 30, 2011, contribution from dental Offices decreased to $4.7 million for the nine months ended September 30, 2011 compared to $6.3 million for the nine months ended September 30, 2010, a decrease of $1.7 million or 26.4%. As a percentage of revenue, contribution from dental Offices decreased to 9.5% for the nine months ended September 30, 2011 compared to 13.1% for the nine months ended September 30, 2010.
 
Corporate expenses
 
Corporate expenses - general and administrative. For the nine months ended September 30, 2011, corporate expenses – general and administrative decreased to $2.7 million compared to $3.4 million for the nine months ended September 30, 2010, a decrease of $783,000 or 22.8%.  This decrease includes a reversal of prior accruals for the long-term incentive program totaling $487,000 because 2011 targets have not been met.  There were also decreases of $286,000 in executive bonuses, $217,000 related to stock-based compensation expense pursuant to ASC Topic 718, $69,000 in training and development, $60,000 in professional fees, and $15,000 in health insurance, offset by increases of $134,000 in corporate wages, $72,000 in rent expense, $51,000 in travel and meals expense, $34,000 in 401(k) expense, $21,000 in computer maintenance, $18,000 in social media consulting fees, and $11,000 in moving expense.  As a percentage of revenue, corporate expenses - general and administrative decreased to 5.4% for the nine months ended September 30, 2011 compared to 7.1% for the nine months ended September 30, 2010.
 
Corporate expenses - depreciation and amortization. For the nine months ended September 30, 2011, corporate expenses - depreciation and amortization increased to $87,000 compared to $63,000 for the nine months ended September 30, 2010, an increase of $23,000 or 36.4%.  This increase is attributable to assets added related to the corporate office move.  As a percentage of revenue, corporate expenses – depreciation and amortization increased to 0.2% for the nine months ended September 30, 2011 compared to 0.1% for the nine months ended September 30, 2010.
 
Operating income
 
Primarily as a result of the decrease in contribution from dental Offices discussed above, the Company’s operating income decreased by $906,000, or 32.2% to $1.9 million for the nine months ended September 30, 2011 compared to $2.8 million for the nine months ended September 30, 2010.  As a percentage of revenue, operating income decreased to 3.9% for the nine months ended September 30, 2011 compared to 5.8% for the nine months ended September 30, 2010.
 
 
22
 
Interest expense/(income), net
 
For the nine months ended September 30, 2011, interest expense decreased to $66,000 compared to $130,000 for the nine months ended September 30, 2010, a decrease of $63,000 or 48.9%. This decrease in interest expense is attributable to lower interest rates on the Credit Facility and decreases in the Term Loan and Credit Facility balances.  As a percentage of revenue, interest expense decreased to 0.1% for the nine months ended September 30, 2011 compared to 0.3% for the nine months ended September 30, 2010.
 
Discontinued operations
 
In May 2010, the Company closed two Offices in the Phoenix, Arizona market that resulted in a loss from discontinued operations of $0 and $296,000 for the nine months ended September 30, 2011 and 2010, respectively.  For the nine months ended September 30, 2010, the loss attributable to the discontinued operations was comprised of an operating loss of $250,000 and a loss on disposition of dental Offices of $269,000, partially offset by an income tax benefit of $223,000.
 
Net income
 
As a result of the above, the Company’s net income was $1.1 million for the nine months ended September 30, 2011 compared to net income of $1.2 million for the nine months ended September 30, 2010, a decrease of $111,000 or 9.0%.  The nine months ended September 30, 2010 was impacted by the loss from discontinued operations of $296,000, net of tax benefit.  Net income for the nine months ended September 30, 2011 was net of income tax expense of $720,000, while net income for the nine months ended September 30, 2010 was net of income tax expense of $933,000. The effective tax rate was 39.0% for the nine months ended September 30, 2011 compared to 43.0% for the nine months ended September 30, 2010.  As a percentage of revenue, net income decreased to 2.3% for the nine months ended September 30, 2011 compared to 2.6% for the nine months ended September 30, 2010.
 
Liquidity and Capital Resources
 
The Company finances its operations and growth through a combination of cash provided by operating activities and the revolving Credit Facility.  As of September 30, 2011, the Company had a working capital deficit of approximately $2.7 million, retained earnings of $7.4 million and a cash balance of $565,000.
 
Net cash provided by operating activities was approximately $4.5 million and $4.7 million for the nine months ended September 30, 2011 and 2010, respectively.  During the nine months ended September 30, 2011, excluding net income and after adding back non-cash items, the Company’s cash provided by operating activities consisted primarily of an increase in income taxes payable of $1.3 million, an increase in other long-term obligations of approximately $90,000, and a decrease in deferred charges and other assets of $14,000, offset by an increase in accounts receivable of approximately $261,000, an increase in prepaid expenses and other assets of approximately $75,000, and a decrease of approximately $255,000 in accounts payable and accrued expenses.  During the nine months ended September 30, 2010, excluding net income and after adding back non-cash items, the Company’s cash provided by operating activities consisted primarily of an increase in accounts payable and accrued expenses of approximately $768,000 and an increase in other long-term obligations of approximately $77,000, and an increase in income taxes payable of approximately $78,000, offset by an increase in accounts receivable of  approximately $617,000 and an increase in prepaid expenses and other assets of approximately $149,000.
 
Net cash used in investing activities was approximately $2.3 million and $2.1 million for the nine months ended September 30, 2011 and 2010, respectively.  For the nine months ended September 30, 2011, the Company invested approximately $2.3 million in capital expenditures, offset by a decrease in notes receivable of $12,000. For the nine months ended September 30, 2010, the Company invested $2.1 million in capital expenditures, offset by a decrease in notes receivable of $19,000.
 
Net cash used in financing activities was approximately $2.1 million for the nine months ended September 30, 2011 and $2.5 million for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, net cash used in financing activities was comprised of approximately $1.1 million for the payment of dividends, $460,000 for the repayment of the Term Loan, $169,000 used to pay down the Credit Facility, and $296,000 for the purchase and retirement of Common Stock. During the nine months ended September 30, 2010, net cash used in financing activities was comprised of approximately $587,000 used for the purchase and retirement of Common Stock, approximately $1.1 million for the payment of dividends, approximately $172,000 used to pay down the Credit Facility and $690,000 for the repayment of the Term Loan partially offset by approximately $19,000 in proceeds from the exercise of stock options.
 
 
23
 
On June 3, 2011, the Company amended its Credit Facility.  The amendment decreased the interest rate margins and extended the expiration of the Credit Facility from May 31, 2012 to May 31, 2013.  The Credit Facility allows the Company to borrow, on a revolving basis, an aggregate principal amount not to exceed $7.0 million at either, or a combination of, the lender’s Base Rate or at LIBOR plus a LIBOR rate margin, at the Company’s option.  The Base Rate computes interest at the higher of the lender’s “prime rate” or the Federal Funds Rate plus a margin.  The amendment eliminated a .25% Base Rate margin.  The LIBOR option computes interest at the LIBOR rate as of the date such LIBOR rate loan was made plus a LIBOR rate margin of 2.0%, which is a decrease from the previous 2.5% margin.  As of September 30, 2011, the Company’s LIBOR borrowing rate was 2.24% and the Base Rate borrowing rate was 3.25%.  A commitment fee on the average daily unused amount of the revolving loan commitment during the preceding quarter is also assessed at 0.25%.  The Company may prepay any Base Rate loan at any time and any LIBOR rate loan upon not less than three business days prior written notice given to the lender, but the Company is responsible for any loss or cost incurred by the lender in liquidating or employing deposits required to fund or maintain the LIBOR rate loan.  At September 30, 2011, the Company had approximately $3.6 million outstanding and approximately $3.4 million available for borrowing under the Credit Facility.  The outstanding amounts consisted of $3.5 million outstanding under the LIBOR rate option and $78,000 outstanding under the Base Rate option.  The Credit Facility is secured by the Company’s accounts receivable and Management Agreements and requires the Company to comply with certain covenants and financial ratios. At September 30, 2011, the Company was in full compliance with all of its covenants under the Credit Facility.
 
On October 5, 2006, the Company entered into a $4.6 million Term Loan to finance a “dutch auction” tender offer for shares of its Common Stock. Under the Term Loan, $2.3 million was borrowed at a fixed interest rate of 7.05% and the remaining $2.3 million was borrowed at a floating interest rate of LIBOR plus 1.5%.  The $2.3 million borrowed at a fixed rate was achieved by the Company by entering into a fixed for floating interest rate swap that the Company designates as a cash flow hedge under ASC Topic 815. The principal amount borrowed is repaid quarterly in 20 equal payments of $230,000 plus interest beginning December 31, 2006.  As of September 30, 2011, $115,000 was outstanding at the fixed rate of 7.05% and $115,000 was outstanding at the LIBOR plus 1.5% floating rate.  The Term Loan requires the Company to comply with certain covenants and financial ratios. At September 30, 2011, the Company was in full compliance with all of its covenants under the Term Loan.  The Term Loan matured on September 30, 2011 and was repaid in full on October 3, 2011.
 
As of September 30, 2011, the Company had the following debt and lease obligations:
 
         
Payments due by Period
  
   
Total
    
Less than
1 year
    
1-3 years
    
3-5 years
    
More than
5 years
  
                               
Debt obligations
   $ 3,808,040     $ 230,000     $ 3,578,040     $ -     $ -  
Operating lease obligations
     10,936,054       3,393,427       5,161,223       2,296,155       85,249  
Total
   $ 14,744,094     $ 3,623,427     $ 8,739,263     $ 2,296,155     $ 85,249  
 
The Company believes that cash generated from operations and borrowings under its Credit Facility will be sufficient to fund its anticipated working capital needs, capital expenditures and dividend payments for at least the next 12 months. In order to meet its long-term liquidity or capital needs, the Company may issue additional equity or debt securities, subject to market and other conditions or enter into additional term loans or revolving credit facilities.  There can be no assurance that such additional financing will be available on terms acceptable to the Company or at all. The failure to obtain the funds necessary to finance its future cash requirements could adversely affect the Company’s ability to pursue its strategy and could negatively affect its operations in future periods.
 
ITEM 4.  CONTROLS AND PROCEDURES
 
Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company evaluated the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act”) as of September 30, 2011.  On the basis of this review, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2011.
 
There has been no change in the Company’s internal control over financial reporting during the three months ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
24
 
 
PART II.  OTHER INFORMATION
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Issuer Purchases of Equity Securities
 
The following chart provides information regarding Common Stock purchased by the Company during the period July 1, 2011 through September 30, 2011.
 
Issuer Purchases of Equity Securities
  
Period
  
Total Number
of Shares
Purchased
    
Average Price
Paid per Share
    
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs (1)
    
Approximate
Dollar Value
of Shares That
May Yet Be
Purchased
Under the
Plans or
Programs (1)
  
July 1, 2011 through July 31, 2011
     -     $ -       -     $ 1,129,814  
August 1, 2011 through August 31, 2011
     -       -       -     $ 1,129,814  
September 1, 2011 through September 30, 2011
     14,880       16.67       14,880     $ 881,696  
Total
     14,880     $ 16.67       14,880          
 
(1)
The Company’s stock repurchase program has been ongoing for more than five years and there are no expiration dates on any of the plans.  Common Stock repurchases may be made from time to time as the Company’s management deems appropriate.  As of September 30, 2011, the dollar value of shares that may be purchased under the stock repurchase program was approximately $882,000.
 
 
25
 
ITEM 6.   EXHIBITS
 
Exhibit
Number 
 Description of Document
   
3.1 Amended and Restated Articles of Incorporation, incorporated herein by reference to Exhibits 3.1 and 3.2 to the Company’s Registration Statement on Form S-1 (SEC File No. 333-36391), as filed with the Securities and Exchange Commission on September 25, 1997.
   
3.2 Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (SEC File No. 333-36391), as filed with the Securities and Exchange Commission on September 25, 1997.
   
4.1 Reference is made to Exhibits 3.1 and 3.2.
   
4.2 Specimen Stock Certificate, incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1/A (SEC File No. 333-36391), as filed with the Securities and Exchange Commission on November 25, 1997.
   
31.1 Rule 13a-14(a) Certification of the Chief Executive Officer.
   
31.2 Rule 13a-14(a) Certification of the Chief Financial Officer.
   
32.1 Section 1350 Certifications of the Chief Executive Officer and the Chief Financial Officer.
   
101.INS XBRL Instance Document *
   
101.SCH XBRL Taxonomy Extension Schema Document*
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document*
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*
 
* Pursuant to Rule 406T of Regulation S-T, these Interactive Data Files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to the liability under these sections.
 
 
26
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
  BIRNER DENTAL MANAGEMENT SERVICES, INC.
         
         
Date:  November 14, 2011 
By:
  /s/ Frederic W.J. Birner  
  Name:   Frederic W.J. Birner
  Title:   Chairman of the Board and Chief Executive Officer
      (Principal Executive Officer)
         
         
Date: November 14, 2011  By:    /s/ Dennis N. Genty   
  Name:    Dennis N. Genty
  Title:    Chief Financial Officer, Secretary, and Treasurer
      (Principal Financial and Accounting Officer)
 
 
27

Stock widget

Investing forum

BIRNER DENTAL MANAGEMENT SERVICES INC Reports

Also read