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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549


_____________________

FORM 10-K

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One)
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  |                                                                                         
|           |  | For the fiscal year ended December 31, 2002                                             
|           |  |                                                                                         
|           |  | 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 No. 000-21501

_____________________

COAST DENTAL SERVICES, INC.

(Exact name of registrant as specified in its charter)


|                                         |  |                    
|---------------------------------------- |  | -------------------
|Florida                                  |  | 59-3136131         
|(State or other jurisdiction of          |  | (I.R.S. Employer   
|incorporation or organization)           |  | Identification No.)
|                                         |  |                    
|2502 North Rocky Point Drive, Suite 1000 |  | 33607              
|Tampa, Florida                           |  | (Zip Code)         
|(Address of principal executive offices) |  |                    

(813)-288-1999

(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

None


Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share(Title of Class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K o.

Indicate by check
mark whether the registrant is an accelerated filter (as fined in
Rule 12b-2 of the Act). Yes o No
x.

The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 1, 2003, was approximately $4.6 million based upon the
closing price of such shares on such date on the NASDAQ Stock Markets Small
Cap Market. As of March 1, 2003, there were 2,091,223 shares of outstanding
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive Proxy Statement to be used in
connection with the Registrants 2003 Annual Meeting of Shareholders, which
will be filed on or before April 30, 2003, are incorporated by reference in
Part III, Items 10-13 of this Form 10-K. Except with respect to information
specifically incorporated by reference in this Form 10-K, the Proxy Statement
is not deemed to be filed as a part hereof.



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TABLE OF CONTENTS



|                                                   |                                                                                                |  |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                              
|                                                   | Item 2. Properties                                                                            
|                                                   | Item 3. Legal Proceedings                                                                     
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                   
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                 
|                                                   | Item 6. Selected Financial Data                                                               
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                   | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                   | Item 8. Financial Statements and Supplementary Data                                           
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                   
|                                                   | Item 11. Executive Compensation                                                               
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                       
|                                                   | Item 13. Certain Relationships and Related Transactions                                       
|                                                   | Item 14. Controls and Procedures                                                              
|PART IV                                           
|                                                   | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|Ex-10.27 6th Amendment to Service/Support Agmnt   
|Ex-11.1 Computation of Per Share Earnings         
|Ex-23 Deloitte & Touche Consent                   
|Ex-99.1 CEO Certification                         
|Ex-99.2 Financial Accounting Officer Certification



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COAST DENTAL SERVICES, INC.
2002 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|                                                                                             |  |  |    |  |      |  | 
|-------------------------------------------------------------------------------------------- |  |  | -- |  | ---- |  | 
|                                                                                             |  |  |    |  | Page
|                                                                                             |  |  |    |  |     
|                                                                                            
|PART I                                                                                      
|                                                                                            
|Item 1 Business                                                                              |  |  | 1  | 
|Item 2 Properties                                                                            |  |  | 8  | 
|Item 3 Legal Proceedings                                                                     |  |  | 9  | 
|Item 4 Submission of Matters to a Vote of Security Holders                                   |  |  | 10 | 
|                                                                                            
|PART II                                                                                     
|                                                                                            
|Item 5 Market for Registrants Common Equity and Related Stockholder Matters                 |  |  | 10 | 
|Item 6 Selected Financial Data                                                               |  |  | 11 | 
|Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations |  |  | 12 | 
|Item 7A Quantitative and Qualitative Disclosures about Market Risk                           |  |  | 31 | 
|Item 8 Financial Statements and Supplementary Data                                           |  |  | 34 | 
|Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure  |  |  | 60 | 
|                                                                                            
|PART III                                                                                    
|                                                                                            
|Item 10 Directors and Officers of the Registrant                                             |  |  | 60 | 
|Item 11 Executive Compensation                                                               |  |  | 60 | 
|Item 12 Security Ownership of Certain Beneficial Owners and Management                       |  |  | 60 | 
|Item 13 Certain Relationships and Related Transactions                                       |  |  | 60 | 
|Item 14 Controls and Procedures                                                              |  |  | 60 | 
|                                                                                            
|PART IV                                                                                     
|                                                                                            
|Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |  |  | 62 | 





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INTRODUCTION

Unless the context otherwise requires, references in this document to
Coast Dental or the Company refer to Coast Dental Services, Inc., and its
predecessor; Dental Centers refer to dental offices to which we provide
comprehensive business services and support pursuant to services and support
agreements; Coast Florida, P.A., Coast Dental, P.A., Coast Dental of
Georgia, P.C., Coast Dental Services of Tennessee, P.C. and Adam Diasti,
D.D.S. & Associates, P.C. refer to the Florida, Georgia, Tennessee and
Virginia professional associations, respectively, which employ the dentists and
hygienists providing dental services at the Dental Centers pursuant to a
services and support agreement with us; Coast P.A. refers collectively to
Coast Florida P.A., Coast Dental, P.A., Coast Dental of Georgia, P.C., Coast
Dental Services of Tennessee, P.C., Adam Diasti, D.D.S. & Associates, P.C. and
any professional association or corporation, with which we have entered, or may
enter, into a services and support agreement (Services and Support
Agreement); internally developed Dental Centers refers to Dental Centers
which are initially opened, developed and managed by us pursuant to a Services
and Support Agreement with Coast P.A.; acquired Dental Centers refers to
Dental Centers resulting from the acquisition of an existing dental facility by
us, combined with the acquisition by Coast P.A., of the existing dental
practice located at that facility; Coast Dentists refers to the licensed
dentists employed by the Coast P.A. who provide dental services at the Dental
Centers; and Coast Dental Network refers collectively to the Dental Centers
and the Coast Dentists.




PART I




Item 1.Business

General

Coast Dental Services, Inc. is a leading provider of comprehensive
business services and support to general dentistry practices. We were
incorporated in August 1992 as Sunshine Health Services, Inc., a Florida
corporation, and changed our name to Coast Dental, Inc. in August 1994.
Effective March 31, 1996, Coast Dental, Inc. was merged into Coast Dental
Services, Inc., a Delaware corporation, for the purpose of reincorporating in
the State of Delaware and changing its corporate name. Effective August 30,
2002, we changed our state of incorporation from Delaware to Florida pursuant
to a reincorporation proposal approved by our shareholders at the annual
meeting held on August 2, 2002.

The laws in many states prohibit corporations that are not owned entirely
by dentists from employing dentists (and in some states, dental hygienists and
dental assistants), having control over clinical decision-making, or engaging
in the practice of dentistry. Coast P.A. employs the dentists and dental
hygienists and controls the clinical decision-making at the Dental Centers. We
obtain our revenue in the form of a service fee from providing comprehensive business services and support to Coast P.A. at the Dental
Centers.

As of December 31, 2002, we provided comprehensive business services and
support to 109 Dental Centers located in Florida, Georgia, Tennessee and
Virginia. Coast P.A. employed 133 dentists and 114 dental hygienists at
December 31, 2002 and provided dental services to approximately 517,000
patients during 2002 and there were approximately 614,000 unique provider
visits during 2002.

Recent Developments Overview

During 2002 and 2001, Coast Dental and Coast P.A. embarked upon several
new initiatives, some of which are described in more detail later in this
section, to help return us to profitability and to better position us if this
turnaround is achieved. As described in previous filings, there is excess
capacity in existing Dental Centers, which Coast P.A. believes it can best
utilize by increasing the number of dental professionals in these Dental
Centers. During the years 2002 and 2001, Coast P.A. has made progress toward
increasing the number of dental professionals, increasing the number of days
each week that Dental Centers serve patients and increasing the number of hours
each day that Dental Centers are open. Each of these accomplishments improves
our ability to increase net revenue, leverage the fixed costs associated with
each Dental Center and improve profitability. We have assisted Coast P.A. in
focusing its advertising approach to attract higher margin fee-for-service and
private insurance business to replace the lower margin managed care business it
elected to reduce in scope in late 2000 and grow net revenue. In addition to
shifting the advertising and marketing approach, we have worked with Coast P.A.
on the development and implementation of its own, branded discount plan, Coast
Smile Plus. The purpose of this plan is to attract patients that do not have
dental insurance and develop a loyalty by offering a discount from full
fee-for-





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service pricing which is comparable to private insurance pricing. As described
later in this section, Coast Dental and Coast P.A. have arranged for a national
financial institution to provide financing to patients of Coast P.A. who
meet the credit issuers criteria for lending. As also described later in this
section, Coast Dental and Coast P.A. have made progress in the rollout of the
Dentist Equity Model.

Recent Developments Self-Tender Offer

On March 4, 2003, we initiated a self-tender offer (the Offer) to
purchase all of the outstanding shares of common stock for $4.50 per share.
Following completion of the Offer, due to the very small shareholder base and,
the infrequent trading activity of our common stock, we intend to delist our
common stock from trading on the Nasdaq SmallCap Market and to terminate the
registration of our common stock under the Securities Exchange Act of 1934, as
amended. If this occurs, we will become a private company and there will be no
public market for our common stock. The purpose of the Offer is to provide
shareholders with liquidity for the common stock prior to delisting and
deregistration for a price that a Special Committee consisting of independent
members of the Board of Directors has determined to be fair to Coast Dentals
shareholders other than the Continuing Shareholders (as defined below).
Although the Offer is being made to all holders of Coast Dental common stock,
Terek Diasti, Chairman of the Board of Directors and Chief Executive Officer of
Coast Dental, Adam Diasti, a Director and President of the Company, and the
Diasti Family Limited Partnership, (collectively referred to as the Continuing
Shareholders) who beneficially own approximately 52% of our common stock
currently issued and outstanding (including all Company common stock issuable
pursuant to currently exercisable stock options) have advised us that they do
not intend to tender any of their shares of Coast Dental common stock pursuant
to the Offer.

We plan to finance the Offer through borrowings from the term loan portion
of the $4,000,000 Revolving Credit, Term Loan and Security Agreement
with Capital Source Finance LLC (CapitalSource) which includes a $2,000,000 revolver and a $2,000,000 term loan
(the Term Loan) and from Coast Dentals largest shareholder, the Diasti
Family Limited Partnership, under an agreement to loan up to $3,400,000 (the
Credit Agreement). Coast Dental will be the borrower under the Term Loan and
the Credit Agreement. We plan to repay the Term Loan and the Credit Agreement
when due through internally generated funds.

The Term Loan provides that CapitalSource will loan us up to $2,000,000 to
finance the Offer at an interest rate equal to the prime rate plus 4.75%. The
principal of the Term Loan is payable in monthly installments in months seven
through twenty-four from the date the funds are borrowed. The Term Loan is
secured by a first priority lien on all of our assets and will be guaranteed by
the Diasti Family Limited Partnership. We will be required to prepay all or a
portion of the Term Loan under certain circumstances. We will be required to
meet certain monthly financial covenants for minimum EBITDA (as
defined), minimum fixed
charge coverage ratio, minimum net leverage, minimum cash collections and
minimum liquidity in order to initially borrow and maintain borrowings under
the Term Loan. There can be no assurance that we can continue to meet these
monthly financial covenants. We are also subject to certain affirmative and
negative covenants. Upon borrowing on the Term Loan, we are required to issue
warrants to CapitalSource which are immediately exercisable into 1.00% of the
Companys issued and outstanding common stock at a strike price equal to $.01
per Share. We have the option to redeem the warrant upon the conclusion of a
successful tender offer.

The Credit Agreement provides that the Diasti Family Limited Partnership
will loan us up to $3,600,000 to finance the Offer at an interest rate of
5.00%. The loan will be due five years from the date the funds are borrowed.
The loan is subordinated to the Term Loan and, subject to the prior approval of
CapitalSource, will be secured by a second priority lien on all of our assets.

We do not have any alternative financing arrangements or alternative
financing plans in the event it is unable to borrow, for any reason, under the
Term Loan or the Credit Agreement.

As a condition of drawing on the $2 million CapitalSource term loan to
finance the Offer, the Diasti Family Limited Partnership and Coast P.A. will
guarantee certain of our indebtedness under the $4 million credit facility with
CapitalSource.

We have and will
continue to incur substantial costs in connection with the
self-tender offer.

Recent Developments Capacity Utilization

In an effort to utilize its excess capacity, increase gross revenues and
improve profitability, commencing in July 2001, Coast P.A. hired 39 (net)
dentists in the second half of 2001, increasing the number of dentists from 107
at June 30, 2001, to 146 at December 31, 2001, representing an increase of 36%.
Commencing in July 2001, Coast P.A. hired 15 (net)

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hygienists in the second half of 2001, increasing the number of hygienists from
100 at June 30, 2001 to 115 at December 31, 2001, representing an increase of
15%.

As of December 31, 2002, Coast P.A. employed 133 dentists or a (net)
decrease of 11 dentists over December 31, 2001 reflecting the closing and
consolidation of eight (8) Dental Centers and sale of one (1) Dental Center in
2002. As of December 31, 2002, Coast P.A. employed 114 hygienists or a decrease
of one (1) hygienist over December 31, 2001.

Despite the decrease in the number of dentists employed as of December
2002 by Coast P.A., total doctor days for Coast P.A. increased in fiscal year
2002 by 18% from 24,100 to 25,500, reflecting an increase in the number of days
the Dental Centers were opened and staffed with dentists. Total hygienist
days for Coast P.A. increased in fiscal year 2002 by 20% from 17,300 to 20,800,
reflecting an increase in the number of days the Dental Centers were opened and
staffed with hygienists.

Recent Developments Payor Mix

In the period from December 2000 to December 2002,
the payor mix of Coast P.A. has been
shifted from 57% managed care to 31% managed care. For the year ended December
31, 2002, 69% of Coast P.A.s patient revenues were derived from higher margin
fee-for-service and private insurance business, up significantly from 43% for
the year ended December 2000.

Recent Developments Patient Financing Program

In late January 2002, a private label, revolving credit program sponsored
by a national financial institution became available to patients of Coast P.A.
who meet certain minimum credit standards. We believe that this program will
increase incremental revenues because it provides an additional payment option
to patients of Coast P.A. who otherwise might avoid or delay dental treatment
plans, or accept a lower cost or less effective treatment due to the inability
to pay for the preferred treatment at the time the service is rendered. In
addition, we believe this program will assist Coast P.A. in reducing its
exposure to uncollectible patient accounts receivable and help to improve
overall cash flow. There are a few financing options available to patients at
all times, with promotional-type financing options available during certain
times of the year. This program includes a pre-approved credit program that
will reduce patient wait time in the office while credit lines are approved.
Our first year results with this program have been positive with patients
financing approximately $8,600,000 of dental services with Coast P.A. The
average patient transaction utilizing the financing program has been
approximately 3.75 times higher than the overall average patient transaction.

Recent Developments Coast Smile Plus Membership and Discount Plan

The Coast P.A. implemented a membership and discount plan called Coast
Smile Plus in 2001. Patients joining the membership plan can access a reduced
fee schedule. The pricing of the fee schedule offered to members is discounted
from fee-for-service pricing but is competitive with the pricing collected from
private insurance payors and higher than pricing from managed care payors. The
goal of this membership program is to build loyalty and generate repeat
business for the Dental Centers. Also effective February 2002, membership fees
and all dental services purchased by Coast Smile Plus members can be charged on
the Coast Dental patient financing program. In 2001, this membership and
discount program was piloted and memberships were sold passively through
point-of-sale marketing in the Dental Centers. Without any external marketing
programs, approximately 4,800 memberships were generated in 2001. Coast P.A.
generated $3.3 million in gross revenue from Coast Smile Plus members or 5% of
its 2001 gross revenue. In 2002, Coast Dental and Coast P.A. piloted and then
withdrew an initiative to market the Coast Smile Plus membership and discount
plan to large organizations, large employers and traditional distribution
channels for supplemental insurance and discount medical programs. After this
pilot, we continue to sell through passive point-of-sale marketing in the
Dental Centers. Approximately 8,300 memberships were generated in 2002 and
Coast P.A. generated $7.4 million in patient revenue from Coast Smile Plus
members or approximately 9% of its 2002 patient revenues. Coast P.A. is optimistic that this membership and discount plan will continue to
improve the payor mix.

Recent Developments Managed Care

During the latter part of 2000, Coast P.A. began notifying managed care
companies that it would continue to provide service to existing members but
would not accept new members to the managed care roster (known as panels) in
any of its Dental Centers until re-negotiations had occurred. A thorough review
of utilization data revealed that the majority of patient

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visits consisted of managed care patients, yet the fees earned in connection
with this business were below that of discounted fee-for-service patients. This
resulted in in-depth discussions with each of the managed care companies. In
some cases, agreements were reached whereby the panels were reopened. In other
situations, agreements could not be reached and the panels remained closed as
discussions continued or the contracts were terminated.

Since December 31, 2000, agreements have been terminated with 11 managed
care companies. Two of these companies were more significant to Coast P.A.s
operation while the remainder were smaller and less significant. The gross
revenue lost to Coast P.A. as a result of these terminations was approximately
$13.9 million, which represents approximately $9.3 million in net revenue to
the Company. Coast P.A. continues to believe that this lower margin business
can be replaced over time with higher margin fee-for-service and indemnity
business, provided the proper focus is placed on marketing and patient
financing programs to attract these types of patients and provide the source of
payment they desire. Coast P.A. believes that revenue lost from these managed
care contracts can be replaced over time with a smaller number of patients, but
recognizes that this replacement will take time, is not assured and has and
will continue to represent a risk to revenue, profitability and cash flow of
Coast P.A and consequently, Coast Dental. In 2001 and 2002, Coast P.A. was
able to replace some of this lost business. In 2001, Coast P.A.
fee-for-service and insurance patient revenues increased approximately $10.5
million (an approximate 23% increase in non-managed care production). In 2002,
Coast P.A. fee-for-service and insurance patient revenues increased $19.6
million or 50%. In 2002, Coast P.A. fee-for-service and insurance patient
revenues were in excess of $58.5 million and represented 69% of Coast P.A.s
total patient revenues.

Recent Developments Dentist Equity Model Update

Due to issues apparent in the dental practice management sector relative
to maximizing dentists long-term productivity and commitment to the success of
such relationship, Coast PA, with our assistance, developed a dentist equity
model (the Equity Model) whereby a dentist has the opportunity to acquire a
25% to 50% ownership interest in a Dental Center and participate in the
potential profits of that Dental Center. This opportunity was previously
unavailable to a Coast Dentist. The purpose of this change in operating model
is to provide affiliated dentists the opportunity to satisfy certain long-term
career goals and thereby address the retention and motivational concern that
Coast P.A., and the dental practice management industry in general, is facing.

During the third quarter of 2001, Coast P.A., with our assistance, began
the rollout of the newly developed Dentist Equity Model. These transactions
are structured as a sale of intangible and/or tangible assets of each Dental
Center. Coast P.A. sells a portion of its intangible Dental Center assets to
the dentist acquiring the interest. Coast P.A. and the dentist then
contribute their respective tangible and intangible assets to a newly formed
professional association. The dentist acquires an ownership interest in
certain of the assets of the Dental Center and finances all or a portion of
the purchase price with a secured note payable. The general terms of the notes
are seven years at 10.0% interest with an interest only period designed to
provide each selected dentist with a period of time during which the revenues
of the Dental Center can be improved and the cost structure can be optimized.
The Equity Doctor Dental Centers continue to operate under the existing
Services and Support Agreement with Coast Dental.

Coast Dental and Coast P.A. consummated the sale of interests in Dental
Centers under the Equity Model as follows: ten (10) in 2001 and six (6) in
2002. In fourth quarter 2002, Coast Dental and Coast P.A. divested
one Equity Model Dental
Center and sold the business and remaining assets to the owner-dentist. In
addition, in fourth quarter 2002, Coast Dental, Coast P.A. and four
owner-dentists dissolved four of the Equity Model Dental Centers and the
dentists remained in the practice and became employees of Coast P.A.

Continued rollout of the Equity Model is dependent upon reaching
agreements with selected dentists, and there can be no assurance that any such
agreements can be reached. The additional number of Dental Centers that will be
affected is unknown and it is uncertain, at this time, what ultimate effect the
Equity Model will have on our overall asset mix, liquidity or
performance. If the implementation is successful, the Company expects to
improve its liquidity and cash position, in the long term, as well as to create
an environment where select dentists with a meaningful ownership interest will
have a more significant personal and financial interest in the productivity and
success of the Dental Center. Correspondingly, until anticipated growth occurs
at these Dental Centers, our cash flows in currently profitable Dental Centers
can initially decline.

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To date, we have experienced a favorable impact from the implementation of
the Equity Model. Our gross profit percentage for the eleven (11) Equity Doctor
Dental Centers as of December 31, 2002 is approximately twice the gross
profit percentage of the Company as a whole. This reflects both increases in
net revenues and the controlling of variable costs at the Dental Centers.

See Item 8  Note 5 to our financial statements for the amount of our
assets sold, the proceeds received and the amount of the Equity Doctor Notes
Receivable outstanding.

Recent Developments Dental Center Closings

Coast Dental and Coast P.A. continuously evaluate the performance of the
Dental Centers and dental practices. During 2002 and 2001, decisions were made
to close and or consolidate into other locations a total of sixteen (16) Dental
Centers and in addition, in 2002, to relocate one Dental Center to a newer and
larger facility to support the continued growth of that Dental Center.
Locations selected for closure and or consolidation were under-performing and
certain of which had lease expirations in the near future. The closings and
consolidations and relocations by year were as follows: eight (8) closings and
consolidations in 2002 (of which two (2) were in fourth quarter 2002), one (1)
relocation in 2002; eight (8) closing and consolidations in 2001 all of which
were in fourth quarter 2001.

We believe that closing these Dental Centers will improve our overall
financial performance while allowing management to focus its efforts on
improving the performance of the remaining Dental Centers.

Recent Developments Information Technology Platform

We are in the early stages of an enhancement in our information
technology platform. The new platform is expected to increase efficiencies,
lower maintenance costs and provide more timely and comprehensive information
to support the Dental Centers. Activities to date have consisted primarily of
planning, preliminary technology and software evaluation, and upgrading the
telecommunications capabilities and hardware to a private frame relay. We have
secured a $1.5 million master lease credit facility from a national lender to
finance some of the related hardware and software for this
initiative. The majority of the cost of this initiative will be amortized over
the lease terms, generally three years, except for certain planning, process
change and post-implementation review costs that will be expensed as incurred.

Recent Developments Training and Development Program

In June 2002, Coast Dental and Coast P.A. implemented a twelve-month staff
training and development program designed to increase the productivity and
profitability of the Dental Centers. During 2002, the cost incurred by us for
this program was $533,000. Staff training and development costs are expected
to be in excess of prior year levels over the first half of 2003 as the new
training and development program is continued.

Services and Operations

We are primarily responsible for the business and administrative functions
of the Dental Centers, but do not provide dental care. We provide accounting,
information technology, human resource, payroll, training, marketing and
collection services for Coast P.A. and employ the Dental Centers personnel,
other than the Dentists and Hygienists. Coast P.A. maintains full control over
the dental practices of Coast Dentists, employs Coast Dentists and hygienists and sets standards of care in order to promote the provision of
quality dental care. Coast P.A. is also responsible for compliance with state
and local regulations of the practice of dentistry and with license or
certification requirements. Each Coast Dentist is responsible for acquiring and
maintaining professional liability insurance.

We have entered into Services and Support Agreements with Coast P.A.
pursuant to which we provide comprehensive business services and support, to the
extent allowable by law, for the Dental Centers. As Dental Centers are acquired
or internally developed by Coast Dental and Coast P.A., the Dental Centers are
generally expected to be governed by the existing Services and Support
Agreements, subject to possible future modifications or amendments.

As compensation for our management services under Services and Support
Agreements, we earn a monthly services and support fee. Dental Center expenses
paid by us from the services and support fee include all operating and
non-operating

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expenses incurred at the Dental Center except for the salaries and
benefits of Coast Dentists and hygienists. Our sole customers are
Coast P.A., each of which are owned, controlled and managed by Adam Diasti,
D.D.S., a major stockholder, director and executive officer of Coast Dental.
See Item 7Managements Discussion and Analysis of Financial Condition and
Results of Operations and Item 10Directors and Executive Officers of the
Registrant. Amendments to the Services and Support Agreements are approved by
the Audit Committee of our Board of Directors, which consists of independent
directors of Coast Dental. We are dependent on revenue from Coast P.A. and the
loss of compensation received from them pursuant to the Services and Support
Agreements would have a material adverse effect on us. See Notes 1, 4 and 10 to
the Financial Statements for further information about the Services and Support
Agreement and amendments made in fiscal years 2002 and 2000.

Governmental and State Regulations

Our operations and relationships are subject to a variety of governmental
and regulatory requirements relating to the conduct of our business and
business corporations in general. We believe that we exercise care in an effort
to structure our practices and arrangements with dental practices to comply
with relevant federal and state law and believes that such arrangements and
practices comply in all material respects with all applicable statutes and
regulations. The health care industry and dental practices are highly
regulated, and there can be no assurance that the regulatory environment in
which we operate will not change significantly and adversely in the future. In
general, regulation of health care providers and companies is increasing.

The laws of many states prohibit corporations that are not owned entirely
by dentists from employing dentists (and in some states, dental hygienists and
dental assistants), having control over clinical decision-making, or engaging
in other activities that are deemed to constitute or impinge upon the clinical
practice of dentistry. Florida law specifically prohibits non-professional
corporations from employing dentists and dental hygienists, exercising control
over patient records and making decisions relating to clinical matters, office
personnel, hours of practice, pricing, credit, refunds, warranties and
advertising. Under Georgia law, a corporation may employ dentists only if the
entity is organized as a professional corporation or association whose
stockholders or members are licensed dentists. Georgia dentists must maintain
patient records that document the course of treatment and may not waive
co-payment or bill a third party for more than the usual fee. We do not employ
dentists or dental hygienists and do not exercise control over any prohibited
areas. While Adam Diasti, D.D.S., the sole stockholder of Coast P.A., is also a
major stockholder, director and executive officer of Coast Dental, he acts independently
when making decisions in these areas on behalf of Coast P.A. and Coast Dental
has no control over his decisions in these areas.

Some states, including Florida, Georgia, Tennessee and Virginia, also
prohibit non-professional corporations from owning, maintaining or operating an
office for the practice of dentistry. These laws have generally been construed
to permit arrangements under which the dentists are not employed by or
otherwise controlled as to clinical matters by the party supplying facilities
and non-professional services. Florida law specifically requires that dentists
or their professional corporations maintain complete care, custody and control
of all equipment and materials used in the practice of dentistry. The Services
and Support Agreements between Coast Dental and Coast P.A. expressly provide
that we shall not exercise control over any matters that would violate the
requirements of the applicable state law.

Many states also prohibit fee-splitting by dentists with any party
except other dentists in the same professional corporation or practice entity.
In most cases, these laws have been construed as applying to the practice of
paying a portion of a fee to another person for referring a patient or
otherwise generating business, and not to prohibit payment of reasonable
compensation for facilities and services (other than the generation of
referrals), even if the payment is based on a percentage of the practices
revenues. The Florida fee-splitting law prohibits paying or receiving any
commission, bonus, kickback or rebate, or engaging in any split-fee arrangement
in any form with a dentist for patient referrals to dentists or other providers
of health care goods and services. According to Florida Court of Appeals
decision interpreting this law, it does not prohibit a management fee that is
based on a percentage of gross income of a professional practice if the manager
does not refer patients to the practice. Regulatory boards can come to
different conclusions than those reached by a judicial body in analyzing laws.
For example, the Florida Board of Medicine made a determination in applying the
Florida fee-splitting law, that under certain circumstances, a management fee
based upon a percentage of revenue will be found by them to be illegal. While
the Florida Board of Medicine does not have jurisdiction over dentistry, there
can be no assurance that the Florida Board of Dentistry will not adopt a
similar result.

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Many states, including Florida, Georgia, Tennessee and Virginia, prohibit
dentists from using advertising, which includes any name other than their own,
or from advertising in any manner that is likely to lead a person to believe
that a non-dentist is engaged in the practice of dentistry. The Services and
Support Agreements provide that all advertising shall conform to these
requirements. Florida law also requires all advertising to identify the Florida
dentist who assumes total responsibility for the advertisement and may not
include the name of a person who is not either actually involved in the
practice of dentistry at the advertised location or an owner of the practice
being advertised. Georgia law requires that advertising must contain the name
of at least one dentist practicing at the location unless the Georgia Board of
Dentistry has approved the use of a trade name. Virginia law does not allow the
use of a trade name at all.

These laws have civil and criminal penalties and have been subject to
limited judicial and regulatory interpretation. They are enforced by regulatory
agencies that are vested with broad discretion in interpreting their meaning.
Federal or state authorities have not examined the Companys agreements and
activities under these laws and regulations. For these reasons, there can be no
assurance that review of our business arrangements or the operation of the
Dental Centers will not result in determinations that adversely affect our
operations or that the long-term Services and Support Agreements or certain of
its provisions will not be held invalid and unenforceable.

In addition, these laws and their interpretation vary from state to state.
The laws and regulations of certain states into which the Company may seek to
expand in the future may require us to change the form of relationships entered
into with dentists in a manner that restricts our operations in those states.

Congress passed the Health Insurance Portability and Accountability Act,
or HIPAA, in 1996. Among other things, HIPAA established several requirements
regarding the privacy, security and electronic transmission of health
information. The Department of Health and Human Services, or HHS, has issued
several regulations. In general, these regulations apply to health care
providers, health plans, and health care clearinghouses. Among these
requirements, health care providers are required to enter into
agreements with their business associates that concern the protection
of health information.  We are considered under HIPAA to be a business associate of Coast P.A.,
which is a health care provider.

Pursuant to HIPAA, HHS issued final privacy regulations establishing
comprehensive federal standards relating to the use and disclosure of protected
health information. These regulations, among other things, establish limits on
the use and release of protected health information, provide for patients
rights to access, amend, and receive an accounting of the uses and disclosures
of protected health information, and require certain safeguards to protect
identifiable health information. The federal privacy regulations do not
supersede state laws that are more stringent. Thus, we must reconcile both the
federal privacy regulations and other state privacy laws that are more
stringent than the federal laws. Coast P.A. must be in compliance with the federal privacy regulations by April 14, 2003.
We are assisting Coast P.A. in working towards compliance with the federal privacy regulations by that
date.

Like the privacy regulations, the electronic transaction standards are
also final. The electronic transaction regulations establish uniform standards
relating to data reporting, formatting, and coding that covered entities must
use in conducting certain electronic transactions. Upon the compliance date,
health care providers and business associates must use these standards when
electronically transmitting a covered transaction with health plans or other
health care providers. The compliance date for these regulations was October
16, 2002, unless an extension was requested, which automatically extends the
compliance date to October 16, 2003. We did file the necessary extension so
our compliance date has been extended to October 16, 2003. We have arranged to
contract with health care clearinghouses to enable electronic claim
on behalf of Coast P.A. to comply with these regulations.

The HIPAA security regulations were finalized on February 20, 2003. The
purpose of the proposed security regulations is to establish a minimum standard
for the protection of electronic health information that is stored or
transmitted electronically. The regulations provide administrative procedures,
physical safeguards, and technical mechanisms that may be implemented to
satisfy the regulations. Health care providers are required to comply with the
security regulations by April 21, 2005.

We believe that health care regulations will continue to change, and as a
result, we regularly monitors developments in health care law. We expect to
modify our agreements and operations from time to time, if necessary, as the
business and regulatory environment change. However, there can be no assurance
that any such changes will not adversely affect our ability to operate as we
currently do or to remain profitable in doing so.

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Competition

We are aware of several other companies that are actively engaged in the
consolidation of existing dental practices and providing business services to
dental practices, some of which may have longer operating histories than us. We
assume that additional companies with similar objectives may enter our markets
and compete with us. The primary basis of competition between dental practice
management companies include, but are not limited to availability and cost of
financing growth, extent of working capital, liquidity, the extent of the
dental care network, management expertise and experience, sophistication of
management information systems, the elements of its operating system, the
relative motivation and productivity of affiliated dentists, the availability
and profitability of managed care business and practice management, and
opportunity for career enhancement agreements.

The business of providing dental practice management services is highly
competitive in each of the markets in which the Dental Centers operate. The
primary basis of competition within the dental services industry are price of
services, marketing exposure, convenience of location and traffic flow of
location, hours of operation, reputation, managed care contracts, quality of
care and appearance and usefulness of facilities and equipment. Coast Dentists
compete with other dentists who maintain group practices or operate in multiple
offices. Many of those dentists have more established practices in their
markets.

Seasonality

We have traditionally experienced our highest volume of patient visits
during the first and last quarters of the year and our lowest volume of patient
visits in the summer. Individual Dental Centers typically experience increased
patient visits during the period from October through March, when the
population of Florida increases for the winter, and decreased patient visits
during the summer months. Dental Centers located outside of Florida provided
24.5%, 22.8%, and 22.3% of total revenue to Coast P.A. for the years ended
December 31, 2002, 2001 and 2000, respectively. We also expect that certain
factors may mitigate this seasonality including growth in the
markets served outside of Florida, Coast Smile Plus (discount fee plan)
membership programs and patient financing programs.

Seasonality in fee-for-service business is partially mitigated by
capitation revenue from managed care contracts, which is earned on an equal
pro-rata basis over the year. For the years ended December 31, 2002, 2001 and
2000, capitation revenue from managed care contracts represented 10.6%, 16.2%
and 24.9%, respectively, of total revenue to Coast PA.

Service Marks

We believe our service marks are important to us. We have registered the
trademarks COAST DENTAL, COAST DENTAL and design/logo, COAST DENTAL OUR
SMILES ARE EVERYWHERE , OUR SMILES ARE EVERYWHERE, OWN A PRACTICE THAT
DOESNT OWN YOU, WELL GIVE YOU EVERY REASON TO
SMILE and the Coast Dental logo
with the United States Patent and Trademarks Office.

Employees

As of December 31, 2002, we had approximately 630 full-time and part-time
employees, of whom 52 were employed at our headquarters and 578 were employed
at the Dental Centers or in regional management. None of our employees are
represented by a collective bargaining agreement. The number of people employed
by us has increased from the levels maintained in 2001 and 2000. The increase
in 2002 was in the Dental Center personnel necessary to accommodate the
increased level of business volume per day and the increased number of doctor
days and hygienist days at Coast P.A.




Item 2.Properties

We presently lease an average of 2,100 square feet of office space for
each of the Dental Centers. The typical lease for office space is for a term of
approximately five years and generally provides for renewal options for
additional years. We estimate that the renewal options will be exercised and
the average lease term will be ten years. The average rental payments for a
leased Dental Center are approximately $3,100 per month. We plan to continue to
lease rather than purchase space for the Dental Centers to preserve our
available capital.

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We lease 10,000 square feet of office space in Tampa, Florida for our
corporate headquarters. This lease is for a term of three years and expires
January 31, 2006.

We anticipate that we can successfully renew or obtain suitable new leases
for our Dental Centers, but there can be no assurance that this will be the
case. We believe that our leased properties are adequate for the purposes for
which they are used and are suitably maintained for such purposes. We will
enter into new leases when we open new Dental Centers.

|                  |                 |                     |  |     |  |  |  |  | 
|----------------- | --------------- | ------------------- |  | --- |  |  |  |  | 
|Current Locations |                 | Number of Locations |  |     |  | 
|                  |                 |                     |  |     |  | 
|                  | West Florida    |                     |  | 24  |  |  |  |  | 
|                  | Central Florida |                     |  | 23  |  |  |  |  | 
|                  | East Florida    |                     |  | 24  |  |  |  |  | 
|                  | Georgia         |                     |  | 23  |  |  |  |  | 
|                  | Tennessee       |                     |  | 5   |  |  |  |  | 
|                  | Virginia        |                     |  | 10  |  |  |  |  | 
|                  |                 |                     |  |     |  |  |  | 
|                  | Total           |                     |  | 109 |  | 
|                  |                 |                     |  |     |  |  |  | 




Item 3.Legal Proceedings

We are a party to a
number of legal and administrative proceedings or other claims arising
in the ordinary course of business, including matters related to the
dental services provided to patients by Coast P.A. To date, these
proceedings have not had a material effect on our financial condition,
results of operations or cash flows. However, there can be no assurance that in
future periods these proceedings will not have a material adverse
effect on our business, financial condition, results of operations or
cash flows.

We previously
disclosed in our most recent Form 10-K and Form 10-Q that we
are a party to employee related matters two of which are
collective action complaints. Settlements have been reached for three
such matters with a maximum cost to us totaling $842,000 (including
plaintiffs legal fees and expenses). Through December 31,
2002, payments on these three matters totaling $200,000 have been
made and we expect to make the remaining payments in the next two
quarters.

We are a business
services company that provides comprehensive business services and
support to general dentistry practices and we do not provide or
perform dental services. The dental services are provided to patients
solely by licensed dentists and dental hygienists employed by Coast
P.A. We are named as a party in several professional liability
matters brought by patients against Coast P.A. However, we do not
expect to have any liability exposure because we do not provide or
perform dental services. Furthermore, we have never been found liable
in a professional liability lawsuit for dental services provided by a
dental professional. However, there can be no assurance that in the
future a court of law will not find us liable in a professional
liability lawsuit.

While the outcome of
the pending legal and administrative proceedings and other claims
cannot be predicted with certainty, management does not expect the
pending matters to have a material adverse effect on the financial
position, results of operations or cash flows of the Company. We have
accrued amounts we believe are appropriate at the present time with
respect to the pending and settled legal and administrative
proceedings and other claims based upon discussions with legal
counsel and the nature and present status of such proceedings. The
Company intends to vigorously defend our positions in each of the
pending matters.

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Item 4.Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders was held on August 2, 2002. Each share
of Common Stock entitled its holder to one (1) vote on the matters considered
by shareholders at the annual meeting. Shareholders present in person, or by
proxy, 2,048,430 shares of common stock voted on the matters described below:



| | (1) |  | The shareholders elected Geoffrey Faux to the Board of Directors to
hold office until such time as his term expires in 2005 and his successor is
elected and qualified or until his earlier resignation, removal from
office or death. Mr. Faux received 1,997,589 votes in favor of his
re-election and 49,660 shares abstained from voting.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | The terms of the remaining
directors continued following the annual meeting:                                                                                                                                                                                                                                                                 

|                  |  |               |      | 
|----------------- |  | ------------- | ---- | 
|Name:             |  | Term Expires:
|                  |  |              
|Terek Diasti      |  |               | 2003 | 
|Adam Diasti       |  |               | 2004 | 
|Donald R. Millard |  |               | 2003 | 
|Darrell C. Smith  |  |               | 2004 | 



| | (3) |  | The shareholders approved a proposal to reincorporate Coast Dental
from the State of Delaware to the State of Florida. The proposal
received 1,389,470 votes in favor of approval, 35,326 votes against and
3,003 shares abstained from voting.                                      
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (4) |  | The shareholders approved the proposal to ratify the appointment of
Deloitte & Touche LLP as Coast Dentals independent auditors for the
fiscal year 2002. Deloitte & Touche LLP received 2,045,368 votes in
favor of their appointment, 2,063 votes against and 999 votes abstained.




PART II




Item 5.Market for Registrants Common Equity and Related Stockholder Matters

Market Information

The common stock of Coast Dental Services, Inc. is quoted on the National
Association of Securities Dealers Automated Quotation System (NASDAQ). The
common stock of has been trading publicly under the symbol CDEN on the NASDAQ
since our initial public offering on February 11, 1997. Effective July 17,
2001, we completed a one-for-three reverse split of our common stock and began
trading on the NASDAQ Small Cap Market. The following table sets forth the high
and low closing sale price of our common stock as reported by NASDAQ for the
periods indicated (note that a one-for-three reverse stock split of our common
stock was effective July 17, 2001 and all information prior to this date has
been adjusted to give effect to this reverse stock split):

|     |                |      |   |      |  |  |   |      | 
|---- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|Year |                | High |   | Low 
|     |                |      |   |     
|2001 |                |      |   |      |  |  |   |     
|     | First Quarter  |      | $ | 4.50 |  |  | $ | 2.82 | 
|     | Second Quarter |      | $ | 2.82 |  |  | $ | 1.86 | 
|     | Third Quarter  |      | $ | 3.50 |  |  | $ | 2.55 | 
|     | Fourth Quarter |      | $ | 3.10 |  |  | $ | 2.12 | 
|2002 |                |      |   |      |  |  |   |     
|     | First Quarter  |      | $ | 3.15 |  |  | $ | 2.17 | 
|     | Second Quarter |      | $ | 6.00 |  |  | $ | 3.10 | 
|     | Third Quarter  |      | $ | 4.35 |  |  | $ | 2.60 | 
|     | Fourth Quarter |      | $ | 3.53 |  |  | $ | 2.63 | 

The bid prices reported for these periods reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not represent actual
transactions.

The closing bid price
per share of our common stock as of February 28,
2003 was $4.50 and there were approximately 60 stockholders of record as of
that date. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various securities brokers, dealers and
registered clearing agencies.

Except for an S Corporation distribution during 1996, we have never paid
cash dividends on our common stock. We presently intend to retain all future
earnings for the operation and expansion of our business and, accordingly, we
do not anticipate that any dividends will be declared or paid on the common
stock for the foreseeable future. In addition, our credit facility restricts
our ability to declare or pay cash dividends on our common stock. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deem relevant.

Other Information

Reincorporation

On August 30, 2002, we changed our state of incorporation from Delaware to
Florida pursuant to a reincorporation proposal approved by our shareholders at
the annual meeting held on August 2, 2002.

Disclosure Regarding Composition of the Audit Committee

In November 2002, the Board of Directors was expanded from five members to
seven members and two independent directors joined the Board  Peter M. Sontag
and Richard T. Welch. The composition of the Audit Committee was changed at
that time with the members now being Donald R. Millard, Peter M.
Sontag and Richard T. Welch with Directors Darrell C. Smith and Geoffrey L. Faux stepping down from
the Audit Committee.

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Item 6.Selected Financial Data

The following selected financial data with respect to our statement of
operations and comprehensive income (loss) for the years ended December 31,
2002, 2001, 2000, 1999 and 1998 and the balance sheet data as of December 31,
2002, 2001, 2000, 1999 and 1998 are derived from the Financial Statements of
which have been audited by Deloitte & Touche LLP, independent auditors. The
following data should be read in conjunction with the Financial
Statements and the related Notes to Financial Statements thereto
included in Item 8 and with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

|                                                                           |         |   |                                       |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |       | 
|-------------------------------------------------------------------------- | ------- | - | ------------------------------------- | ----- | ---- | - | ------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                           |         |   | December 31,                         
|                                                                           |         |   |                                      
|                                                                           |         |   | 2002                                  |       | 2001 |   | 2000   |       | 1999 |   | 1998  
|                                                                           |         |   |                                       |       |      |   |        |       |      |   |       
|                                                                           |         |   | (in thousands, except per share data)
|STATEMENT OF OPERATIONS
DATA FOR THE YEAR:                                 |         |   |                                       |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|Net revenue                                                                |         | $ | 55,964                                |       |      | $ | 43,561 |       |      | $ | 45,826 |       |  | $ | 44,598 |       |  | $ | 34,540 |      
|Income (loss) before cumulative effect of a change in
accounting principle |         |   | (3,944                                | )     |      |   | (9,367 | )     |      |   | (1,264 | )     |  |   | 656    |       |  |   | 4,171  |      
|Cumulative effect of a change in accounting principle(1)                   |         |   |                                      |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   | 634    |      
|Net income (loss)                                                          |         |   | (3,944                                | )     |      |   | (9,367 | )     |      |   | (1,264 | )     |  |   | 656    |       |  |   | 3,537  |      
|Basic earnings (loss) per common share:                                    |         |   |                                       |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|Income (loss) before cumulative effect of a change in
accounting principle |         | $ | (1.89                                 | )     |      | $ | (4.48  | )     |      | $ | (0.60  | )     |  | $ | 0.29   |       |  | $ | 1.64   |      
|Cumulative effect of a change in accounting principle                      |         | $ |                                      |       |      | $ |       |       |      | $ |       |       |  | $ |       |       |  | $ | (0.25  | )    
|Net income (loss)                                                          |         | $ | (1.89                                 | )     |      | $ | (4.48  | )     |      | $ | (0.60  | )     |  | $ | 0.29   |       |  | $ | 1.39   |      
|Diluted earnings (loss) per common share:                                  |         |   |                                       |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|Income (loss) before cumulative effect of a change in
accounting principle |         | $ | (1.89                                 | )     |      | $ | (4.48  | )     |      | $ | (0.60  | )     |  | $ | 0.29   |       |  | $ | 1.62   |      
|Cumulative effect of a change in accounting principle                      |         | $ |                                      |       |      | $ |       |       |      | $ |       |       |  | $ |       |       |  | $ | (0.25  | )    
|Net income (loss)                                                          |         | $ | (1.89                                 | )     |      | $ | (4.48  | )     |      | $ | (0.60  | )     |  | $ | 0.29   |       |  | $ | 1.37   |      
|Weighted average shares outstanding:                                       |         |   |                                       |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|                                                                           | Basic   |   |                                       | 2,091 |      |   |        | 2,091 |      |   |        | 2,098 |  |   |        | 2,302 |  |   |        | 2,538 | 
|                                                                           | Diluted |   |                                       | 2,091 |      |   |        | 2,091 |      |   |        | 2,098 |  |   |        | 2,302 |  |   |        | 2,537 | 
|BALANCE SHEET DATA AT YEAR END:                                            |         |   |                                       |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|Total assets                                                               |         | $ | 50,526                                |       |      | $ | 54,136 |       |      | $ | 64,204 |       |  | $ | 64,657 |       |  | $ | 71,502 |      
|Long-term debt including current maturities                                |         | $ | 196                                   |       |      | $ | 350    |       |      | $ | 2,214  |       |  | $ | 1,853  |       |  | $ | 2,920  |      



---

|(1) |  | We adopted SOP 98-5 which requires expensing of development and start-up
costs as incurred and wrote off the capitalized development costs as of
December 31, 1998. Development costs are expensed as incurred in all
subsequent periods.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.

A. Overview

We opened our first Dental Center in May 1992. As of December 31, 2002,
we provide comprehensive business services and support to 109 Dental Centers
consisting of 63 internally developed and 46 acquired Dental Centers, net of
consolidations and closings. We derive our revenue through fees earned from
Coast P.A. for providing comprehensive business services and support at the
Dental Centers, located in Florida, Georgia, Tennessee and Virginia. As of
December 31, 2002, 133 Coast Dentists and 114 Hygienists were employed by Coast
P.A., serving approximately 517,000 patients and there were approximately
614,000 unique provider visits during 2002. Coast P.A. and Coast Dental plans
to grow by utilizing existing excess capacity. Once the excess capacity is
optimized, Coast P.A. and Coast Dental expect to expand the Coast Dental
Network in new and existing markets through the addition of internally
developed and strategically opportunistic acquired Dental Centers.

Relationship with Coast P.A.The entities comprising Coast P.A. are all
owned by a related party  Adam Diasti, D.D.S., (who is a Director, President
and a majority stockholder of Coast Dental). We have 40-year evergreen dental
services agreements (Service and Support Agreements) with each entity
comprising Coast P.A. whereby we receive fees for services and support provided
to dental practices operated by Coast P.A.

Coast P.A. employs dentists and dental hygienists and provides all of the
dental services to patients. As employer of dentists and dental hygienists,
Coast P.A. incurs the cost of dentist and hygienist compensation, benefits, and
certain other expenses. Pursuant to the Services and Support Agreements, we
earn a service and support fee from Coast P.A. to provide comprehensive
business services and support to each Dental Center. In providing
these comprehensive business services and support to the Dental
Centers, we
incur all of the remaining operating expenses incurred by the Dental Centers
including employee costs for assistants and office staff, dental supplies and
lab fees, occupancy, advertising and Dental Center administrative costs. We
do not employ dentists and hygienists and, accordingly, Dental Center -
Salaries and benefits presented on the Statement of Operations does not
include the salaries and benefits of dentists and hygienists. In addition, we
acquire the property and equipment, leases the facilities and improves the
facilities in order to operate the Dental Centers.

Dependence on Coast P.A. We receive fees for services and support
provided to Coast P.A. under the Services and Support Agreements, but do
not employ dentists or hygienists or control the dental practices of Coast P.A.
Our net revenue is dependent on gross patient revenue generated by Coast P.A.
and, therefore, effective and continued performance of Coast P.A. and its
dentists and hygienists during the term of the Services and Support Agreements
is essential to our long term success.

Services and Support Agreement with Coast P.A.We have 40-year evergreen
dental services agreements (Services and Support Agreements) with each entity
comprising Coast P.A. whereby we receive fees for services and support provided
to Coast P.A. Net revenue represents the aggregate fees charged to Coast P.A.
under the agreements during the year. Gross patient revenue earned by Coast
P.A. at its dental practices is at established rates, net of refunds,
adjustments and discounts. The costs incurred by Coast P.A. include primarily
dentist and hygienist salaries and benefits. The service and support fee
arrangements have been agreed to between the principal and sole owner of
Coast P.A., Adam Diasti, D.D.S., (who is a Director, President and a
majority stockholder
of Coast Dental), and the Chairman of the Board and Chief Executive
Officer of Coast Dental, Terek Diasti. The services and support fee agreements
and any amendments thereto are approved by the Audit Committee, which is
comprised of independent directors. The factors considered in setting those
fees, which reflect the fair market value of our services and support, included
our evaluation of the services it provides, the costs incurred by us in
connection with providing the services and our negotiated return, balanced
against Coast P.A.s requirement for a retained amount which ensures its
financial viability, contemplation of a long-term relationship with us and the
future business opportunity related thereto.

Only the service fees earned by us for services and support to Coast
P.A. and our actual expenses are reflected in our financial
statements. Neither the expenses of Coast P.A. nor any of the patient gross
revenues earned by Coast P.A. are reflected in the financial
statements.

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Historically, the service and support fee was based on a percent of the
gross patient revenues of Coast P.A. (net of refunds, discounts, and
adjustments and inclusive of capitation revenues). Effective February 1, 1999,
the service and support fee became 73% of Dental Center gross revenue and
effective January 1, 2000, the service and support fee became 67% of Dental
Center gross revenue, with an allowable range of 66% to 72%. The percentage was
unchanged in 2001, and through May 31, 2002.

Effective June 1, 2002, Coast Dental and Coast P.A. amended the Services
and Support Agreement to change the methodology for determining the monthly
services and support fee earned and to provide for Coast P.A. to
grant us a secured interest in Coast P.A.s
trade accounts receivable for payment of services and support fees.
These changes were precipitated by the favorable impact on financial
performance of Dental Centers converted to the recently implemented Equity
Model, which model Coast Dental and Coast P.A. believe provides the Equity
Doctor and Coast P.A. an incentive for improving overall financial performance
of each Dental Center. This amendment incorporates the financial performance
of each Dental Center in the determination of the services and support fee
earned by us. The Audit Committee of the Board of Directors approved the
amendment to the Services and Support Agreement.

Effective June 1, 2002, the Services and Support fee earned by us for each
Dental Center is based on a combination of the actual costs of services
provided and the financial performance of the Dental Centers. As compensation
for its services and support of the Dental Centers, we earn a two-part monthly
services and support fee based on: 1) the actual direct and indirect expenses
incurred in providing the services and support to the Dental Centers (including
employee costs, supplies, advertising, occupancy, and Dental Center
administrative costs); and 2) the financial performance of the Dental Centers.
The performance-based portion of the fee is set at 90% of the excess of net
dental services revenue over direct and indirect Dental Center operating
expenses. Effective October 1, 2002, Coast Dental and Coast P.A. amended the
Services and Support Agreement to calculate the performance-based portion of
the service and support fee on the aggregate financial performance of all
Dental Centers and not on the stand-alone financial performance of each Dental
Center. The Audit Committee of the Board of Directors approved this amendment
to the Services and Support Agreement.

Expansion through Acquisitions  Acquisitions made with Coast P.A.Coast
Dental and Coast P.A. in prior years have jointly entered into asset purchase
agreements with existing dental practices. Coast P.A. acquired the patient
lists and any other professional assets and we acquired certain tangible
assets, principally the dental equipment, and assumed certain liabilities such
as the lease agreement for the facility. The fair value of the patient lists
was determined based upon general market information received from an
independent dental practice transition consultant regarding traditional dental
practice acquisitions. In addition to the purchase price allocations for
tangible assets, there are allocations for identifiable intangible assets and
non-identifiable intangible assets. The identifiable intangible assets
allocation was to non-compete agreements, which are partially allocated to us
and partially allocated to Coast P.A.

The purchase price allocation to Coast P.A. was limited to the value of
the patient files and an amount representing the estimated value of Coast
P.A.s right to prohibit the selling professional association and its
dentist(s) from competing in the dental business within the specified area
surrounding the acquired Dental Center. After a determination of the fair value
of the tangible assets and identifiable intangible assets acquired, the
remaining purchase price representing non-identifiable intangible assets was
allocated to Coast Dental and Coast P.A. (as the value of the Dental Service
Agreements (i.e. the Services and Support Agreements) attributable to the
Dental Center).

Recent Developments Overview

During 2002 and 2001, Coast Dental and Coast P.A. embarked upon several
new initiatives, some of which are described in more detail later in this
section, to help return us to profitability and to better position us if this
turnaround is achieved. As described in previous filings, there is excess
capacity in existing Dental Centers, which Coast P.A. believes it can best
utilize by increasing the number of dental professionals in these Dental
Centers. During the years 2002 and 2001, Coast P.A. has made progress toward
increasing the number of dental professionals, increasing the number of days
each week that Dental Centers serve patients and increasing the number of hours
each day that Dental Centers are open. Each of these accomplishments improves
our ability to increase net revenue, leverage the fixed costs associated with
each Dental Center and improve profitability. We have assisted Coast P.A. in
focusing its advertising approach to attract higher margin fee-for-service and
private insurance business to replace the lower margin managed care business it
elected to reduce in scope in late 2000 and grow net revenue. In addition to
shifting the advertising and marketing approach, we have worked with Coast P.A.
on the development and implementation of its own, branded discount plan, Coast
Smile Plus. The purpose of this plan is to attract patients that do not have
dental insurance and develop a loyalty by offering a discount from full
fee-for-

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service pricing which is comparable to private insurance pricing. As described
later in this section, Coast Dental and Coast P.A. have arranged for a national
financial institution to provide financing to patients of the Coast P.A. who
meet the credit issuers criteria for lending. As also described later in this
section, Coast Dental and Coast P.A. have made progress in the rollout of the
Dentist Equity Model.

Recent Developments Self-Tender Offer

On March 4, 2003, we initiated a self-tender offer (the Offer) to
purchase all of the outstanding shares of common stock for $4.50 per share.
Following completion of the Offer, due to the very small shareholder base and
the infrequent trading activity of our common stock, we intend to delist our
common stock from trading on the Nasdaq SmallCap Market and to terminate the
registration of our common stock under the Securities Exchange Act of 1934, as
amended. If this occurs, we will become a private company and there will be no
public market for our common stock. The purpose of the Offer is to provide
shareholders with liquidity for the common stock prior to delisting and
deregistration for a price that a Special Committee consisting of independent
members of the Board of Directors has determined to be fair to Coast Dentals
shareholders other than the Continuing Shareholders (as defined below).
Although the Offer is being made to all holders of Coast Dental common stock,
Terek Diasti, Chairman of the Board of Directors and Chief Executive Officer of
Coast Dental, Adam Diasti, a Director and President of the Company, and the
Diasti Family Limited Partnership, (collectively referred to as the Continuing
Shareholders) who beneficially own approximately 52% of our common stock
currently issued and outstanding (including all Company common stock issuable
pursuant to currently exercisable stock options) have advised us that they do
not intend to tender any of their shares of Coast Dental common stock pursuant
to the Offer.

We plan to finance the Offer through borrowings from the term loan portion
of the $4,000,000 Revolving Credit, Term Loan and Security Agreement with
 Capital Source Finance LLC (CapitalSource) which includes a $2,000,000 revolver and a $2,000,000 term loan
(the Term Loan) and from Coast Dentals largest shareholder, the Diasti
Family Limited Partnership, under an agreement to loan up to $3,400,000 (the
Credit Agreement). Coast Dental will be the borrower under the Term Loan and
the Credit Agreement. We plan to repay the Term Loan and the Credit Agreement
when due through internally generated funds.

The Term Loan provides that CapitalSource will loan us up to $2,000,000 to
finance the Offer at an interest rate equal to the prime rate plus 4.75%. The
principal of the Term Loan is payable in monthly installments in months seven
through twenty-four from the date the funds are borrowed. The Term Loan is
secured by a first priority lien on all of our assets and will be guaranteed by
the Diasti Family Limited Partnership. We will be required to prepay all or a
portion of the Term Loan under certain circumstances. We will be required to
meet certain monthly financial covenants for minimum EBITDA as defined, minimum fixed
charge coverage ratio, minimum net leverage, minimum cash collections and
minimum liquidity in order to initially borrow and maintain borrowings under
the Term Loan. There can be no assurance that we can continue to meet these
monthly financial covenants. We are also subject to certain affirmative and
negative covenants. Upon borrowing on the Term Loan, we are required to issue
warrants to CapitalSource which are immediately exercisable into 1.00% of the
Companys issued and outstanding common stock at a strike price equal to $.01
per Share. We have the option to redeem the warrant upon the conclusion of a
successful tender offer.

The Credit Agreement provides that the Diasti Family Limited Partnership
will loan us up to $3,600,000 to finance the Offer at an interest rate of
5.00%. The loan will be due five years from the date the funds are borrowed.
The loan is subordinated to the Term Loan and, subject to the prior approval of
CapitalSource, will be secured by a second priority lien on all of our assets.

We do not have any alternative financing arrangements or alternative
financing plans in the event it is unable to borrow, for any reason, under the
Term Loan or the Credit Agreement.

As a condition of drawing on the $2 million CapitalSource term loan to
finance the Offer, the Diasti Family Limited Partnership and Coast P.A. will
guarantee certain of our indebtedness under the $4 million credit facility with
CapitalSource.

We have and will
continue to incur substantial costs in connection with the
self-tender offer.

Recent Developments Capacity Utilization

In an effort to utilize its excess capacity, increase gross revenues and
improve profitability, commencing in July 2001, Coast P.A. hired 39 (net)
dentists in the second half of 2001, increasing the number of dentists from 107
at June 30, 2001, to 146 at December 31, 2001, representing an increase of 36%.
Commencing in July 2001 Coast P.A., hired 15 (net)

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hygienists in the second half of 2001, increasing the number of hygienists from
100 at June 30, 2001 to 115 at December 31, 2001, representing an increase of
15%.

As of December 31, 2002, Coast P.A. employed 133 dentists or a (net)
decrease of 11 dentists over December 31, 2001 reflecting the closing and
consolidation of eight (8) Dental Centers and sale of one (1) Dental Center in
2002. As of December 31, 2002, Coast P.A. employed 114 hygienists or a decrease
of one (1) hygienist over December 31, 2001.

Despite the decrease in the number of dentists employed as of December
2002 by Coast P.A., total doctor days for Coast P.A. increased in fiscal year
2002 by 18% from 24,100 to 25,500, reflecting an increase in the number of days
the Dental Centers were opened and staffed with dentists. Total hygienist
days for Coast P.A. increased in fiscal year 2002 by 20% from 17,300 to 20,800,
reflecting an increase in the number of days the Dental Centers were opened and
staffed with hygienists.

Recent Developments Payor Mix

In the period from December 2000 to December 2002, the payor mix
of Coast P.A. has been
shifted from 57% managed care to 31% managed care. For the year ended December
31, 2002, 69% of Coast P.A.s patient revenues were derived from higher margin
fee-for-service and private insurance business, up significantly from 43% for
the year ended December 2000.

Recent Developments Patient Financing Program

In late January 2002, a private label, revolving credit program sponsored
by a national financial institution became available to patients of Coast P.A.
who meet certain minimum credit standards. We believe that this program will
increase incremental revenues because it provides an additional payment option
to patients of Coast P.A. who otherwise might avoid or delay dental treatment
plans, or accept a lower cost or less effective treatment due to the inability
to pay for the preferred treatment at the time the service is rendered. In
addition, we believe this program will assist Coast P.A. in reducing its
exposure to uncollectible patient accounts receivable and help to improve
overall cash flow. There are a few financing options available to patients at
all times, with promotional-type financing options available during certain
times of the year. This program includes a pre-approved credit program that
will reduce patient wait time in the office while credit lines are approved.
Our first year results with this program have been positive with patients
financing approximately $8,600,000 of dental services with Coast P.A. The
average patient transaction utilizing the financing program has been
approximately 3.75 times higher than the overall average patient transaction.

Recent Developments Coast Smile Plus Membership and Discount Plan

The Coast P.A. implemented a membership and discount plan called Coast
Smile Plus in 2001. Patients joining the membership plan can access a reduced
fee schedule. The pricing of the fee schedule offered to members is discounted
from fee-for-service pricing but is competitive with the pricing collected from
private insurance payors and higher than pricing from managed care payors. The
goal of this membership program is to build loyalty and generate repeat
business for the Dental Centers. Also effective February 2002, membership fees
and all dental services purchased by Coast Smile Plus members can be charged on
the Coast Dental patient financing program. In 2001, this membership and
discount program was piloted and memberships were sold passively through
point-of-sale marketing in the Dental Centers. Without any external marketing
programs, approximately 4,800 memberships were generated in 2001. Coast P.A.
generated $3.3 million in gross revenue from Coast Smile Plus members or 5% of
its 2001 gross revenue. In 2002, Coast Dental and Coast P.A. piloted and then
withdrew an initiative to market the Coast Smile Plus membership and discount
plan to large organizations, large employers and traditional distribution
channels for supplemental insurance and discount medical programs. After this
pilot, we continue to sell through passive point-of-sale marketing in the
Dental Centers. Approximately 8,300 memberships were generated in 2002 and
Coast P.A. generated $7.4 million in patient revenue from Coast Smile Plus
members or approximately 9% of its 2002 patient revenues. Coast P.A is
optimistic that this membership and discount plan will continue to
improve the payor mix.

Recent Developments Managed Care

During the latter part of 2000, Coast P.A. began notifying managed care
companies that it would continue to provide service to existing members but
would not accept new members to the managed care roster (known as panels) in
any of its Dental Centers until re-negotiations had occurred. A thorough review
of utilization data revealed that the majority of patient

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visits consisted of managed care patients, yet the fees earned in connection
with this business were below that of discounted fee-for-service patients. This
resulted in in-depth discussions with each of the managed care companies. In
some cases, agreements were reached whereby the panels were reopened. In other
situations, agreements could not be reached and the panels remained closed as
discussions continued or the contracts were terminated.

Since December 31, 2000, agreements have been terminated with 11 managed
care companies. Two of these companies were more significant to Coast P.A.s
operation while the remainder were smaller and less significant. The gross
revenue lost to Coast P.A. as a result of these terminations was approximately
$13.9 million, which represents approximately $9.3 million in net revenue to
the Company. Coast P.A. continues to believe that this lower margin business
can be replaced over time with higher margin fee-for-service and indemnity
business, provided the proper focus is placed on marketing and patient
financing programs to attract these types of patients and provide the source of
payment they desire. Coast P.A. believes that revenue lost from these managed
care contracts can be replaced over time with a smaller number of patients, but
recognizes that this replacement will take time, is not assured and has and
will continue to represent a risk to revenue, profitability and cash flow of
Coast P.A and consequently, Coast Dental. In 2001 and 2002, Coast P.A. was
able to replace some of this lost business. In 2001, Coast P.A.
fee-for-service and insurance patient revenues increased approximately $10.5
million (an approximate 23% increase in non-managed care production). In 2002,
Coast P.A. fee-for-service and insurance patient revenues increased $19.6
million or 50%. In 2002, Coast P.A. fee-for-service and insurance patient
revenues were in excess of $58.5 million and represented 69% of Coast P.A.s
total patient revenues.

Recent Developments Dentist Equity Model Update

Due to issues apparent in the dental practice management sector relative
to maximizing dentists long-term productivity and commitment to the success of
such relationship, Coast PA, with our assistance, developed a dentist equity
model (the Equity Model) whereby a dentist has the opportunity to acquire a
25% to 50% ownership interest in a Dental Center and participate in the
potential profits of that Dental Center. This opportunity was previously
unavailable to a Coast Dentist. The purpose of this change in operating model
is to provide affiliated dentists the opportunity to satisfy certain long-term
career goals and thereby address the retention and motivational concern that
Coast P.A., and the dental practice management industry in general, is facing.

During the third quarter of 2001, Coast P.A., with our assistance, began
the rollout of the newly developed Dentist Equity Model. These transactions
are structured as a sale of intangible and/or tangible assets of each Dental
Center. Coast P.A. sells a portion of its intangible Dental Center assets to
the dentist acquiring the interest. Coast P.A. and the dentist then
contribute their respective tangible and intangible assets to a newly formed
professional association. The dentist acquires an ownership interest in
certain of the assets of the Dental Center and finances all or a portion of
the purchase price with a secured note payable. The general terms of the notes
are seven years at 10.0% interest with an interest only period designed to
provide each selected dentist with a period of time during which the revenues
of the Dental Center can be improved and the cost structure can be optimized.
The Equity Doctor Dental Centers continue to operate under the existing
Services and Support Agreement with Coast Dental.

Coast Dental and Coast P.A. consummated the sale of interests in Dental
Centers under the Equity Model as follows: ten (10) in 2001 and six (6) in
2002. In fourth quarter 2002, Coast Dental and Coast P.A. divested
one Equity Model Dental
Center and sold the business and remaining assets to the owner-dentist. In
addition, in fourth quarter 2002, Coast Dental, Coast P.A. and four
owner-dentists dissolved four of the Equity Model Dental Centers and the
dentists remained in the practice and became employees of Coast P.A.

Continued rollout of the Equity Model is dependent upon reaching
agreements with selected dentists, and there can be no assurance that any such
agreements can be reached. The additional number of Dental Centers that will be
affected is unknown and it is uncertain, at this time, what ultimate effect the
Equity Model, will have on our overall asset mix, liquidity or
performance. If the implementation is successful, the Company expects to
improve its liquidity and cash position, in the long term, as well as to create
an environment where select dentists with a meaningful ownership interest will
have a more significant personal and financial interest in the productivity and
success of the Dental Center. Correspondingly, until anticipated growth occurs
at these Dental Centers, our cash flows in currently profitable Dental Centers
can initially decline.

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To date, we have experienced a favorable impact from the implementation of
the Equity Model. Our gross profit percentage for the eleven (11) Equity Doctor
Dental Centers as of December 31, 2002 is approximately twice the gross
profit percentage of the Company as a whole. This reflects both increases in
net revenues and the controlling of variable costs at the Dental Centers.

See Item 8  Note 5 to our financial statements for the amount of our
assets sold, the proceeds received and the amount of the Equity Doctor Notes
Receivable outstanding.

Recent Developments Dental Center Closings

Coast Dental and Coast P.A. continuously evaluate the performance of the
Dental Centers and dental practices. During 2002 and 2001, decisions were made
to close and or consolidate into other locations a total of sixteen (16) Dental
Centers and in addition, in 2002, to relocate one Dental Center to a newer and
larger facility to support the continued growth of that Dental Center.
Locations selected for closure and or consolidation were under-performing and
certain of which had lease expirations in the near future. The closings and
consolidations and relocations by year were as follows: eight (8) closings and
consolidations in 2002 (of which two (2) were in fourth quarter 2002), one (1)
relocation in 2002; eight (8) closing and consolidations in 2001 all of which
were in fourth quarter 2001.

We believe that closing these Dental Centers will improve our overall
financial performance while allowing management to focus its efforts on
improving the performance of the remaining Dental Centers.

Recent Developments Information Technology Platform

We are in the early stages of an enhancement in our information
technology platform. The new platform is expected to increase efficiencies,
lower maintenance costs and provide more timely and comprehensive information
to support the Dental Centers. Activities to date have consisted primarily of
planning, preliminary technology and software evaluation, and upgrading the
telecommunications capabilities and hardware to a private frame relay. We have
secured a $1.5 million master lease credit facility from a national lender to
finance some of the related hardware and software for this
initiative. The majority of the cost of this initiative will be amortized over
the lease terms, generally three years, except for certain planning, process
change and post-implementation review costs that will be expensed as incurred.

Recent Developments Training and Development Program

In June 2002, Coast Dental and Coast P.A. implemented a twelve-month staff
training and development program designed to increase the productivity and
profitability of the Dental Centers. During 2002, the cost incurred by us for
this program was $533,000. Staff training and development costs are expected
to be in excess of prior year levels over the first half of 2003 as the new
training and development program is continued.

Growth Information

We took a very significant step beginning in 1998, shifting from an
acquisition model to a development model. Management began to emphasize the
opening of internally developed (de-novo) Dental Centers and placed less
emphasis on acquiring Dental Centers. While the growth of the patient base of
the de-novo Dental Centers has been slower than anticipated, which has
negatively impacted its financial performance management is committed to this
strategy and continues to believe it is the best long-range strategy.
Our current strategy is to increase capacity utilization at our
existing Dental Centers. After we achieve higher utilization, we may
resume expansion using the development model in order to achieve long term growth in a more cost effective and productive manner.

We opened 17 internally developed Dental Centers in 1999 in Florida,
Georgia and Tennessee. We did not open any internally developed Dental Centers
in 2000. During 2001, we opened two (2) internally developed Dental Centers,
one each in the Atlanta, GA and the Nashville, TN markets. The average cost, to
us, of an internally developed Dental Center has been approximately $225,000,
which includes the cost of equipment, leasehold improvements and working
capital. No internally developed Dental Centers were opened in 2002. We do not
anticipate opening any new internally developed Dental Centers during 2003.

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During 1999, Coast Dental and Coast P.A. acquired 11 Dental Centers
located in Virginia. The purchase price for these acquired Dental Centers was
$2.1 million, consisting primarily of $1.2 million in cash and $0.9 million in
promissory notes and certain assumed liabilities. Coast Dental and Coast P.A.
did not acquire any Dental Centers during 2000, 2001 and 2002.

During 1999, we consolidated one previously acquired Dental Center into an
existing Dental Center. During 2000, we consolidated twelve (12) Dental Centers
into six (6) Dental Centers to take advantage of changing market demographics.
In the fourth quarter of 2001, we closed eight (8) previously acquired Dental
Centers. In 2002 we closed eight (8) Dental Centers, of which two (2) were in
fourth quarter 2002, and sold one (1) Dental Center. We believe that closing
underperforming Dental Centers will improve our overall financial performance
while allowing management to focus its efforts on improving the performance at
the remaining Dental Centers.

Coast P.A. derives the majority of its gross revenue from a combination of
sources, including fees and insurance co-payments paid directly by patients,
private insurance reimbursements and capitation fees resulting from managed
care arrangements.

The following table outlines the historical payor mix for Coast P.A.s
gross revenue for the periods presented, which is not necessarily indicative of
the expected payor mix in the future. Coast P.A.s higher margin business is
the Self-Pay and Private Insurer categories. We earn our net revenues by
providing service and support to Coast P.A.

|                                              |       |      |                          |      |   |      |    |     |   |  |    |     |  
|--------------------------------------------- | ----- | ---- | ------------------------ | ---- | - | ---- | -- | --- | - |  | -- | --- | -
|                                              |       |      | Years Ended December 31,
|                                              |       |      |                         
|Payor Mix                                     |       | 2002 |                          | 2001 |   | 2000
|                                              |       |      |                          |      |   |     
|Self-pay (Fee-for-service)                    |       |      | 32                       | %    |   |      | 32 | %   |   |  | 25 | %  
|Private insurer (Indemnity and PPO insurance) |       |      | 37                       |      |   |      | 27 |     |   |  | 18 |    
|Managed Care (Dental HMOs)                   |       |      | 31                       |      |   |      | 41 |     |   |  | 57 |    
|Medicaid                                      |       |      |                         |      |   |      |   |     |   |  |   |    
|                                              |       |      |                          |      |   |      |    |     |   |  |    |    
|                                              | Total |      |                          | 100  | % |      |    | 100 | % |  |    | 100 | %
|                                              |       |      |                          |      |   |      |    |     |   |  |    |    

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B. Results of Operations

The following table sets forth, as a percentage our net revenue
(consisting of service and support fees earned pursuant to the Services and
Support Agreements), certain items from our statement of operations for the
years indicated. The performance of the Company during these years is not
indicative of future financial performance results or condition (See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Recent Developments).

|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |      |      |  
|---------------------------------------------- | ---------------------------- | ---------------------------- | ----- | ------------------------ | ---- | ---- | ----- | ---- | ----- | - | ----- | ---- | ---- | -
|                                               |                              |                              |       | Years Ended December 31,
|                                               |                              |                              |       |                         
|                                               |                              |                              |       | 2002                     |      | 2001 |       | 2000
|                                               |                              |                              |       |                          |      |      |       |     
|Net revenue                                    |                              |                              | 100.0 | %                        |      |      | 100.0 | %    |       |   | 100.0 | %   
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     
|Dental Center expenses:                        |                              |                              |       |                          |      |      |       |      |       |   |       |     
|                                               | Salaries and benefits        |                              |       | 35.2                     |      |      |       | 40.8 |       |   |       | 42.0 |     
|                                               | Dental supplies and lab fees |                              |       | 18.4                     |      |      |       | 18.6 |       |   |       | 18.4 |     
|                                               | Occupancy                    |                              |       | 13.8                     |      |      |       | 16.5 |       |   |       | 15.8 |     
|                                               | Advertising                  |                              |       | 7.4                      |      |      |       | 4.9  |       |   |       | 4.0  |     
|                                               | Dental Center depreciation   |                              |       | 5.6                      |      |      |       | 7.6  |       |   |       | 6.8  |     
|                                               | Administrative               |                              |       | 5.7                      |      |      |       | 3.9  |       |   |       | 3.4  |     
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     
|                                               |                              | Total Dental Center expenses |       |                          | 86.1 |      |       |      | 92.3  |   |       |      | 90.4 |  
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     
|                                               |                              | Gross profit                 |       |                          | 13.9 |      |       |      | 7.7   |   |       |      | 9.6  |  
|General and administrative expenses            |                              |                              | 13.1  |                          |      |      | 18.4  |      |       |   | 11.9  |     
|Amortization and corporate deprecation expense |                              |                              | 2.4   |                          |      |      | 3.0   |      |       |   | 2.8   |     
|Dental Center closings                         |                              |                              | 4.8   |                          |      |      | 6.3   |      |       |   | 2.8   |     
|Asset impairment charges                       |                              |                              | 2.9   |                          |      |      | 2.2   |      |       |   |      |     
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     
|                                               |                              | Operating loss               |       |                          | (9.1 | )    |       |      | (22.2 | ) |       |      | (5.1 | )
|Interest income, net                           |                              |                              | 0.2   |                          |      |      | 0.3   |      |       |   | 0.7   |     
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     
|Loss before income tax benefit                 |                              |                              | (8.9  | )                        |      |      | (21.9 | )    |       |   | (4.4  | )   
|Income tax benefit                             |                              |                              | 1.8   |                          |      |      | 0.4   |      |       |   | 1.8   |     
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     
|Net loss                                       |                              |                              | (7.1  | )%                       |      |      | (21.5 | )%   |       |   | (2.6  | )%  
|                                               |                              |                              |       |                          |      |      |       |      |       |   |       |     

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net revenue.Net revenue increased 28.5% from $43.6 million for 2001 to
$56.0 million for 2002. On a per Dental Center basis, net revenue increased
39% as there were fewer Dental Centers operated in 2002 compared to 2001 from
the Dental Center closings late in 2001 and throughout 2002. The increase in
net revenue is attributable to a number of factors including an 18% increase in
doctor days and a 20% increase in hygiene days of the providers affiliated with
Coast P.A.; an increase in the productivity of the Coast P.A. Dentists and
Hygienists; the implementation of the patient financing program by Coast P.A.
in 2002; the continued migration by Coast P.A. from lower-margin managed care
business to fee-for-service and private insurance; and growth in the Coast P.A.
Smile Plus discount and membership plan.

As of December 31, 2002 Coast P.A. employed 133 dentists or a (net)
decrease of 11 dentists over December 31, 2001 reflecting the closing and
consolidation of eight (8) Dental Centers and sale of one (1) Dental Center in
2002. As of December 31, 2002, Coast P.A. employed 114 hygienists or a decrease
of one (1) hygienist over December 31, 2001.

Despite the decrease in the number of dentists employed as of December
2002 by Coast P.A., total doctor days for Coast P.A. increased in fiscal year
2002 by 18% from 24,100 to 25,500, reflecting an increase in the number of days
the Dental Centers were opened and staffed with providers. Total hygienist
days for Coast P.A. increased in fiscal year 2002 by 20% from 17,300 to 20,800,
reflecting an increase in the number of days the Dental Centers were opened and
staffed with providers.

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The productivity of Coast P.A. Dentists and Hygienists, measured in
average patient revenues per day, increased 20% and 13%, respectively in 2002,
and was assisted by the initiatives described below. During the year ended
December 31, 2002, Coast P.A. patients using the patient financing program
implemented in 2002 financed approximately $8.6 million of gross
revenue. The average transaction value per patient who used the patient
financing program was approximately 3.75 times higher than the overall average
patient transaction value. The migration from lower-margin managed care
business continues as the percentage of gross revenue derived from managed care
business has declined from 57% of Coast P.A.s gross revenue for the year ended
December 31, 2000 to 31% for the year ended December 31, 2002. In addition,
the Company and Coast P.A. implemented the Coast Smile Plus discount and
membership plan in 2001, which contributed approximately 9% of Coast P.A.s
gross revenues in the year ended December 31, 2002.

Net revenues were 65% and 67%
of Coast P.A gross revenues in fourth quarter 2002 and 2001, respectively, or a decrease of 2% (or
$464,000) due to the October 1, 2002 amendment to the service and support fee agreements.

Salaries and benefits.Salaries and benefits increased 11.0% from $17.8
million for 2001 to $19.7 million for 2002. This increase in salaries and
benefits is due to increased staffing levels resulting from the need to staff
the Dental Centers at a level consistent with the increasing business volumes,
as well as annual salary and wage increases. However, salaries and benefits
declined from 40.8% of net revenues to 35.2% of net revenue, or a 5.6%
decrease, due to the higher capacity utilization at the Dental Centers in 2002
enabling better leveraging of the administrative staff.

Dental supplies and lab fees. Dental supplies and lab fees increased
26.9% from $8.1 million for 2001 to $10.3 million for 2002. The increase of
26.9% is consistent with and directly related to the increase in business
volume and the increase in net revenues of 28.5% as cited above. Dental
supplies and lab fees as a percent of net revenues decreased slightly from
18.6% of net revenues in 2001 to 18.4% of net revenues in 2002 due to the
continued use of preferred labs over alternative sources and from the
successful implementation by Coast P.A. of new patient merchandise product
lines.

Occupancy.Occupancy cost increased
6.9% from $7.2 million for 2001 to
$7.7 million for 2002. The increase in occupancy costs is primarily due to an
increase in information technology (IT) costs, partially offset by decreased
facilities cost from operating fewer Dental Centers. Dental Center IT costs
have increased $0.6 million from three IT initiatives undertaken in 2002: 1)
Improved reliability, availability and service levels of its network between
the Dental Centers and the Corporate office by installing a private frame relay
network which will enable us to implement new technology platforms; 2)
Internet-enabling the Dental Centers to allow faster information exchange with
insurance companies and to improve communications and gain efficiencies between
the Dental Centers and the Corporate office; and 3) Installation of additional
network servers and routers at the Dental Centers to support these initiatives,
which are being leased, resulting in an increase in IT lease expense. Repair
and maintenance costs increased $0.2 million in 2002. However this increase was
more than offset by a decrease of $0.7 million in base rent, utilities, and
property taxes during the year as a result of the eight (8) Dental Centers
closed in the fourth quarter of 2001, and the eight (8) Dental Centers closed
in 2002. Management anticipates that occupancy costs will remain relatively
stable on a per office basis for the foreseeable future. Occupancy costs
declined from 16.5% of net revenues to 13.8% of net revenue, or a 2.7%
decrease, due to the higher capacity utilization at the Dental Centers in 2002
enabling better leveraging of the fixed cost components of Occupancy costs.

Advertising.Advertising expenses increased 100% from $2.1 million in 2001
to $4.2 million in 2002. This increase represents the cost associated with the
increased focus on attracting fee-for-service and insurance patients and
implementing the patient-financing program. In addition, a significant portion
of the increased advertising cost is attributable to increased marketing
efforts for the Coast Smile Plus discount and membership program.

In connection with its ten-year anniversary in May 2002, Coast Dental and
Coast P.A. launched a television and radio advertisement program in second
quarter 2002. Advertising costs for the production and airing of these
advertisements totaled $455,000 in second quarter 2002. Television and radio
advertising costs were $179,000 in third quarter 2002.

The direct marketing program costs for the Coast Smile Plus discount and
membership program was $404,000 in third quarter 2002. The cost of the second
pre-approved patient financing credit card offers mailed in late third quarter
2002 was $434,000.

Advertising programs were reduced in fourth quarter 2002 with fourth
quarter advertising costs totaling $608,000.

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Advertising costs increased from 4.9% of net revenues in 2001 to 7.4% in
2002. Targeted levels for fiscal year 2003 are 4% to 6% of net revenues,
consistent with the fiscal year 2001 levels.

Dental Center depreciation.Dental Center depreciation expense decreased
5.7% from $3.3 million in 2001 to $3.1 million in 2002. The decline in
depreciation expense is primarily due to the assets written off in connection
with Dental Center closings (eight (8) in 2001 and eight (8) in 2002) and the
assets sold in connection with the Equity Model.

Dental Center administrative expenses.Dental Center administrative
expenses increased 86% from $1.7 million for 2001 to $3.2 million for 2002.
This increase is primarily due to an increase in finance charges, staff
training and development costs, and uniforms cost. Finance charges, a part of
which are earned by a related party, increased $682,000 during 2002 due to the
increased charge volume from the newly implemented patient financing program.
Finance charges are expected to increase in the future as the financed volume
increases. Increases in finance charges are offset by accelerated collections
of net revenues and enables higher productivity of Dental Center staff from
less billing and collection activities. In June 2002, the Company and Coast
P.A. implemented a twelve-month staff training and development program designed
to increase the productivity and profitability of the Dental Centers. During
the second, third and fourth quarters of 2002, the cost incurred by us for this
program was $533,000 (for Dental Center staff) and $288,000 incurred by Coast
P.A. (for Dentists and Hygienists). Staff training and development costs are
expected to be in excess of prior year levels over the first half of 2003 as
the new training and development program is continued. Uniforms cost increased
$162,000 for the year from implementation of a lab coat program in 2002 for all
Dental Center staff.

Corporate general and administrative expenses.Corporate general and
administrative expenses decreased 8.4% from $8.0 million for
2001 to $7.3
million for 2002. The decrease for the year is primarily due to a reduction in
professional fees and recruitment costs, partially offset by an increase in
insurance expense, salaries and IT lease costs.

During 2001, we recognized professional fees of approximately $670,000 in
connection with a recapitalization transaction that was abandoned in first
quarter 2001. This cost did not recur in 2002. In 2002, professional fees of
$65,000 were incurred in pursuing working capital financing other than the
credit facility closed in December 2002, which were expensed as
incurred.

Recruitment costs were $184,000 lower in 2002, due to the costs associated
with hiring experienced management personnel in 2001.

Insurance expense includes the net change in the valuation allowance on
the cash surrender value of key-man life insurance. The increase in the
valuation allowance was $377,000 in 2002 compared to $238,000 in 2001 for a
$139,000 year-to-year increase. In February 1998, we entered into split-dollar
life insurance arrangements with executive officers and directors, Terek Diasti
and Adam Diasti. Pursuant to the terms of the agreements, we lent money to pay
the premiums and have received collateral assignments of the life insurance
policies to secure repayments of the non-interest loans. We have the ability
to unilaterally cancel the policies on 30 days notice and receive the lesser of
the cash surrender value or the amounts loaned. We carry the non-interest
bearing loans at the lesser of the cash surrender value or the amounts loaned.
During 2002, the valuation allowance was increased $377,000 to reflect a
decline in the market value of the marketable securities underlying the cash
surrender value of the life insurance. At December 31, 2002, the non-interest
bearing loans are carried at $1,020,000 comprised of loans totaling $1,902,000
net of the valuation allowance of $882,000. In 2002, the Company
redeemed the cash surrender value of life insurance for two former
officers of the Company and collected cash proceeds of $380,000.

Salaries increased as we have attracted experienced management personnel
in the areas of operations, marketing, information technology and human
resources and also incurred severance costs in 2002. These salary increases
were partially offset by salary decreases from staffing changes and cost saving
measures implemented in the first and fourth quarters of 2002.

As discussed in Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations  Overview, we are investing in
an enhancement of our information technology platform. Information technology
expenses are expected to increase during the planning, implementation, and
post-implementation phases of this project. The majority of the cost of this
initiative will be amortized, generally over three years, except for certain
planning, process change, and post-implementation review costs that will be
expensed as incurred over the next several quarters. The corporate private
frame relay network and IT equipment leasing cost increased $89,000 in 2002.

We have and will
continue to incur substantial costs in connection with the
self-tender offer.

Depreciation and amortization. Depreciation and amortization levels in
the current year are comparable to the prior year. The minor change is
attributable to depreciation on the current year additions to corporate office
IT equipment and

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software offset by write-off of intangible assets in connection with the
closing of Dental Centers in 2001 and 2002 and the asset impairment charges
recognized.

Dental Center closings, consolidations, relocation and asset impairment
charges.Coast Dental and Coast P.A. continuously evaluate the performance of
the Dental Centers and dental practices. During 2002 and 2001, decisions were
made to close and/or consolidate into other locations a total of sixteen (16)
Dental Centers and in addition, in 2002, to relocate one (1) Dental Center to a
newer and larger facility to support the continued growth of that Dental
Center. Locations selected for closure or consolidation were under-performing
and certain of which had lease expirations in the near future. The
closings and consolidations and relocation by year were as follows: eight (8) closings and
consolidations in 2002 (of which two (2) were in fourth quarter 2002), one (1)
relocation in 2002; and eight (8) closings and consolidations in 2001 all of
which were in fourth quarter 2001.

We believe that closing the underperforming Dental Centers will improve
the overall financial performance of the Company while allowing management to
focus its efforts on improving the performance of the remaining Dental Centers.

2002 Activity

Total charges
recorded in 2002 were $4.2 million for the eight (8) Dental
Center closings and three (3) impaired Dental Centers compared to the total
charges recorded in 2001 for $3.7 million for the eight (8) Dental Center
closings and one (1) impaired Dental Center.

During second quarter 2002, Coast Dental and Coast P.A. closed three (3)
Dental Centers and combined the patient base into nearby Dental Centers. In
addition, one (1) Dental Center was relocated to a newer and larger facility to
support the continued growth of that Dental Center. A non-cash charge of
$194,000 was recorded to provide for the write-off of leasehold improvements,
surplus Dental Center equipment and the remaining lease obligations for these
office closings and relocation.

In third quarter 2002, we closed three (3) Dental Centers and in one of
these markets combined the patient base into a nearby Dental Center. A
non-cash charge of $1,778,000 was recorded to provide for the write off of
intangible assets ($1.2 million), leasehold improvements ($0.2 million) and
provide for the remaining lease obligations ($0.3 million) for these office
closings.

In fourth quarter 2002, we closed two (2) Dental Centers and in one of
these markets combined the patient base into a nearby Dental Center. A
non-cash charge of $652,000 was recorded to provide for the write off of
intangible assets ($0.3 million), tangible assets, including leasehold
improvement ($0.1 million) and provide for the remaining lease obligations
($0.2 million) for these office closings.

In fourth quarter 2002, we evaluated the recoverability of our investment
in long-lived tangible and intangible assets at the Dental Center level using
estimated undiscounted cash flows. As a result of this evaluation, three Dental
Centers were impaired. An impairment charge of $1.3 million was recorded in the
fourth quarter of 2002 after comparing the estimated fair value of the Dental
Center on a discounted cash flow basis with the carrying value.

2001 Activity

In the fourth quarter of 2001, eight (8) previously acquired Dental
Centers were closed. The Dental Centers were under-performing and five (5) of
these Dental Centers were nearing the expiration of the respective lease
agreements. In connection with these closings, we recognized a non-cash charge
of approximately $2.75 million in the fourth quarter of 2001 to provide for the
related asset impairments (fixed assets, leasehold improvements and intangible
assets) and the remaining lease and facilities commitments. Of this charge,
$0.4 million is for estimated lease and facilities commitments. The remainder
of the charge is a write down of tangible and intangible assets with no future
cash obligations.

We evaluated the recoverability of our investment in long-lived tangible
and intangible assets at the Dental Center level using estimated undiscounted
cash flows. As a result of this evaluation, one (1) Dental Center was impaired.
An impairment charge of $0.9 million was recorded in the fourth quarter of 2001
after comparing the estimated fair value of the Dental Center on a discounted
cash flow basis with the carrying value.

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Interest income, net.Interest income, net
decreased $9,000 from $138,000
in 2001 to $129,000 for 2002. The decrease for the year is due to a decrease
in interest expense as there were no borrowings outstanding under the line of
credit in 2002, and increases in interest receivable on Equity Dentist
notes receivable, partially offset by a decrease in interest income earned on
lower invested cash and cash equivalents.

Income taxes.In 2002, we recognized an income tax benefit of $1,027,000
compared to an income tax benefit of $154,000 in 2001.

On March 9, 2002, the Job Creation
and Worker Assistance Act of 2002
(Act) was signed into law. This Act contains a provision that enabled us to
carry back a substantial portion of our net operating losses to tax years 1997
and 1998 and file for additional refunds of federal income taxes previously
paid of $888,000. The total income tax refund filed for tax years 1997, 1998
and 1999 in April 2002 was $1,241,000. The Company collected the income tax
refund in second quarter of 2002.

The effect of the change in
tax law has been recorded as a reduction in
the deferred tax asset, a reduction in the valuation allowance and recognition
of a tax benefit and an increase in the income tax receivable of $888,000 in
the first quarter 2002, when the law was enacted.

In 2002, we generated a
federal net operating loss of $135,000 and an AMT
net operating loss of $877,000. We will be able to carryback the AMT net
operating loss of $877,000 to tax year 1998. The net operating loss of
$135,000 will be carried forward as no prior year taxable income is available
for carryback. A
reduction in the valuation allowance and recognition of tax benefit of $175,000
was recorded in the fourth quarter 2002.

We incurred a federal tax
net operating loss in 2002, 2001 and 2000. Based on the three-year
history of incurring net operating losses, we have provided a full
valuation allowance for our remaining net deferred tax asset. We will re-evaluate the amount
of the valuation allowance on an ongoing basis.

Year Ended December 31, 2001 Compared to Year
Ended December 31, 2000

Net revenue. Net revenue decreased
$2.3 million or 4.9% from $45.8 million
for 2000, to $43.6 million for 2001. The decline in net revenue is attributable
to Coast P.A.s termination of relationships with certain managed care
companies. These terminations represented a loss of approximately $9.3 million
in our net revenue in 2001 compared to 2000. However, this lost net revenue was
partially offset by an increase of approximately $7.0 million in net revenue
from non-managed care business, which is consistent with the strategy to pursue
this higher margin business. It is our expectation that declines in net revenue
from the termination of certain lower margin managed care contracts will
continue to be offset by increases in net revenues from higher margin
fee-for-service and private insurance sources. We believe that the net impact
of fewer Dental Centers, as a result of the previously discussed Dental Center
closings, and the increase in the number of affiliated dentists will result in
an increase in net revenue to us.

Salaries and benefits.Salaries and benefits decreased $1.5 million or
7.8% from $19.3 million for 2000, to $17.8 million for 2001. The decrease is
attributable to the management of staffing levels in accordance with the
anticipated volume of business. During late 2000, in anticipation of the
termination of certain managed care contracts, we began evaluating the staffing
levels at each Dental Center in relation to the anticipated reduction in
business volume. As 2001 progressed, this evaluation continued, both in light
of the termination of additional managed care contracts and the added patient
volume from other payor groups. We plan to continue this evaluation process to
assure that the appropriate level of staffing is in place to grow the business
at each Dental Center and meet the needs of patients without employing excess
staff.

Dental supplies and lab fees.Dental supplies and lab fees decreased $0.4
million or 4.3%, from $8.4 million for 2000 to $8.1 million for 2001. This
decrease is primarily attributable to a decline in the cost of internal and
external crown, bridge and denture lab fees. This reduction in cost is
primarily attributable to the use of Coast P.A. preferred dental labs by
doctors who previously had been using alternate sources. Typically, it takes
some time for dentists to adjust to the use of preferred labs versus the
alternative sources. The use of preferred labs results in lower overall lab
costs. Lab costs declined from 12.8% of net revenue in 2000 to 12.3% of net
revenue in 2001. It is the intention of the Company to continue to assist Coast
P.A. in sourcing and negotiating the best value and to take advantage of
industry technological improvements to continue to lower both supply costs and
lab fees.

Occupancy.Occupancy expense decreased by approximately $40,000 or 0.6%.
These expenses changed only moderately due to the fact that these costs are
relatively fixed and there were minimal changes in the number of offices under

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lease during 2001. We expect that this cost will decline as a percentage of net
revenue in future years as a result of anticipated increases in net revenue and
the cost reduction, in future years, associated with the closing of certain
Dental Centers, as noted previously.

Advertising.Advertising expense increased $0.3 million or 16.2% from $1.8
million for 2000, to $2.1 million for 2001. The increase in advertising costs
is attributable to the strategy to increase fee-for-service and private
insurance business. The increase, as a percent of net revenues, is from the
reduction in net revenue associated with the termination of certain managed
care contracts. Advertising campaigns were increased to attract fee-for-service
and private insurance patients to the Dental Centers. We expect that this cost
will continue to increase in the future as this campaign to attract
fee-for-service and private insurance patients continues. In addition, the
launching of a patient financing program with a national financial institution
whereby this financial institution will provide financing to patients meeting
its credit approval ratings. There will be additional advertising and marketing
costs associated with this program as it is implemented. The Company believes
that the increased revenue derived from these marketing campaigns will be
sufficient to cover the cost of this increased advertising.

Dental Center depreciation. Depreciation expense at the Dental Centers
increased $0.2 million or 5.4% from $3.1 million for 2000 to $3.3 million for
2001. The increase was caused by the full year depreciation impact in 2000 of
the $4.1 million of assets added during 2000 and the half year impact of
depreciation related to the $0.9 million of assets acquired during 2001. We
expect depreciation will remain at the same general level in 2002. Depreciation
expense will decline slightly due to the assets written down and disposed of in
connection with the eight (8) Dental Centers closed during the fourth quarter
of 2001 as well as the assets sold in connection with the Equity Model
conversions. However, this will be offset by the full year impact of asset
purchases made during 2001 as well as the half-year impact of assets that are
planned for acquisition during 2002.

Dental Center administrative.Other expenses increased $0.1 million or
8.5% from $1.6 million for 2000, to $1.7 million for 2001. This increase is
primarily attributable to the rising cost of property and liability insurance
coverage. Management anticipates that other Dental Center expenses will
continue to rise slightly in future years.

Corporate general and administrative expenses.General and administrative
expenses increased $2.6 million or 47.6% from $5.4 million for 2000, to $8.0
million for 2001. This increase is attributable to increased costs associated
with professional fees, salaries, vacation and recruitment. The amount of the
increase attributable to professional fees was approximately $1.9 million.
Included in this increase are the costs associated with the abandoned
recapitalization plan of approximately $670,000 as well as costs associated
with our portion of the Equity Model and other legal matters and pending
litigation. Salaries increased as we have attracted experienced management
personnel in the areas of operations, information technology and human
resources. Vacation costs for the corporate staff have risen as a result of the
low level of turnover at the corporate office. Finally, recruiting costs have
increased significantly as we assisted Coast P.A. with dentist and hygienist
recruiting efforts in the form of mailers, brochures and advertisements. We
anticipate that these costs will decline in dollars and percentage of net
revenue in 2002 as certain cost containment initiatives are fully implemented,
as net revenues increase and the need for dentists at Coast P.A. is reduced
from 2000 and 2001 levels.

Depreciation and amortization. Depreciation and amortization expenses
increased 1.2% from December 31, 2000. The cost approximated $1.3 million for
both 2000 and 2001. Management anticipates that this cost will decline in 2002
due to the intangible assets that have been written off in the fourth quarter
of 2001 in connection with the Dental Center closings and the impairment
charge.

Dental center closings and impairment charge. We continuously evaluate the
performance of our Dental Centers. In the fourth quarter of 2001, eight (8)
previously acquired Dental Centers were closed. The Dental Centers were
under-performing and five (5) of these Dental Centers were nearing the
expiration of the respective lease agreements. In connection with these
closings, we recognized a non-cash charge of approximately $2.75 million in the
fourth quarter of 2001 to provide for the related asset impairments (fixed
assets, leasehold improvements and intangible assets) and the remaining lease
and facilities commitments. Of this charge, $0.4 million is for estimated lease
and facilities commitments. The remainder of the charge is a write down of
tangible and intangible assets with no future cash obligations. Prior to the
impact of this charge, the combined negative gross profit of these Dental
Centers in 2001 was approximately $365,000. We believe that closing these eight
(8) Dental Centers will improve our overall performance in 2002 and beyond
while allowing management to focus its efforts on improving the performance at
the Dental Centers that remain open.

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We evaluated the recoverability of its investment in long-lived tangible
and intangible assets at the Dental Center level using estimated undiscounted
cash flows. As a result of this evaluation, one Dental Center was impaired. An
impairment charge of $0.9 million was recorded in the fourth quarter of 2001
after comparing the estimated fair value of the Dental Center on a discounted
cash flow basis with the carrying value.

Interest income, net.Interest income, net, decreased 55.5% from $0.3
million for 2000, to $0.1 million for 2001. This decrease was caused by a
decrease of the Companys invested cash balances. This decline was partially
offset by a reduction of interest expense due to the scheduled installment
payments on Dental Center acquisition debt.

Income taxes.For 2000, we recognized an income tax benefit of
approximately $0.8 million compared to an income tax benefit of approximately
$0.2 million for 2001. This change was attributable to our discontinuation of
recording an income tax benefit associated with tax losses and the recognition
of a valuation allowance on substantially all deferred tax benefits. The income
tax benefit reflected in 2001 represents only the current portion of the income
tax receivable that the Company believes is collectible in accordance with
current tax laws.

C. Liquidity and Capital Resources

At December 31, 2002, we had cash and cash equivalents of $2.8 million. At
December 31, 2001, we had cash and cash equivalents totaling $2.5 million for a
year-to-year increase of $0.3 million. This increase was from cash generated in
2002 of $1.4 million (principally from the collection of the $1.2 million
income tax refund) offset by $1.1 million used to fund capital expenditures and
debt service during the year.

To improve cash flows from patients, Coast Dental and Coast P.A., in
January 2002, arranged for a patient financing program through a related party
and an unrelated national financial institution. While this program was in its
first year during 2002, this program has accelerated the collection of net
revenues, for those patients of Coast P.A. that elect to use the program and
qualified for credit, as the financial institution pays the dental service fees
within twenty-four hours, net of related discounts. This program is expected to
reduce the growth of Coast P.A.s accounts receivable and accelerate cash flows
of Coast P.A. and Coast Dental thereby enhancing our liquidity. The credit
card debt of the patient is non-recourse to Coast P.A. and Coast Dental.

In February 2002, we received a financing commitment of $1.5 million to
finance information technology and telecommunications equipment from a national
lender through a master lease agreement. Through December 31, 2002, we have
made draws totaling $690,000 to lease certain information technology assets.
This commitment will provide another means to finance information technology
capital expenditures.

On March 9, 2002, the Job Creation and Worker Assistance Act of 2002
(Act) was signed into law. This Act contains a provision that enabled us to
carry back a substantial portion of our net operating losses to tax years 1997
and 1998 and file for additional refunds of federal income taxes previously
paid of $888,000. The total income tax refund filed for tax years 1997, 1998
and 1999 in April 2002 was $1,241,000. We collected the income tax refund in
second quarter of 2002.

Our line of credit facility with Bank of America expired on November 4,
2002. We pursued alternative financing throughout 2002 and secured a new
credit facility in December 2002. There were no borrowings outstanding under
the Bank of America credit facility at any time in fiscal year 2002.

On December 31, 2002, we closed on a $4 million Revolving Credit, Term
Loan and Security Agreement with a commercial lender, CapitalSource Finance,
LLC (Capital Source) that includes a $2 million revolving line of credit and
a $2 million term loan. We borrowed $1,760,000 under the
revolving line of credit on January 2, 2003. This credit facility has a three (3) year term, which
expires December 31, 2005. The term loan can only be accessed to finance the
buyback of our common stock. The $2 million revolving credit facility bears
interest at the prime rate plus 2.25%, or 7.0%, as of December 31, 2002. This
revolving line of credit is secured by substantially all of our assets,
requires us to meet certain minimum financial covenants and comply with
customary affirmative and negative covenants. There is a commitment fee for the
unused portion of the revolving line of credit of 1.00%, and a collateral
management fee of 1.26%. At closing on December 31, 2002, a commitment fee was
paid totaling $60,000 comprised of 1.00% on the $2 million revolving credit
facility and 2.00% on the $2 million term loan credit facility. Should we
terminate the revolving line of credit facility within the first twelve months,
an early termination fee of $60,000 is due and $20,000 is due if terminated in
the second twelve months. An investment banking firm affiliated with a
director of Coast Dental assisted

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us in securing the CapitalSource loan and earned investment banking fees
which were paid in first quarter 2003 (see also Notes 8 and 10 to the Notes to
Financial Statements).

We plan to finance the self-tender offer through borrowings from the term
loan portion of the $4,000,000 Revolving Credit, Term Loan and Security
Agreement with CapitalSource which includes a $2,000,000 revolver and a
$2,000,000 term loan (the Term Loan) and from our largest shareholder, the
Diasti Family Limited Partnership, under an agreement to loan up to
$3,400,000
(the Credit Agreement). We will be the borrower under the Term Loan and the
Credit Agreement. We plan to repay the Term Loan and the Credit Agreement when
due through internally generated funds.

The Term Loan provides that CapitalSource will loan us up to $2,000,000 to
finance the common stock buyback at an interest rate equal to the prime rate
plus 4.75%. The principal of the Term Loan is payable in monthly installments
in months seven through twenty-four from the date the funds are borrowed. The
Term Loan is secured by a first priority lien on all of our assets and will be
guaranteed by the Diasti Family Limited Partnership. We will be required to
prepay all or a portion of the Term Loan under certain circumstances. We will
be required to meet certain monthly financial covenants for minimum
EBITDA (as defined),
minimum fixed charge coverage ratio, minimum net leverage, minimum cash
collections and minimum liquidity in order to initially borrow and maintain
borrowings under the Term Loan. There can be no assurance that we can continue
to meet these monthly financial covenants. We are also subject to certain
affirmative and negative covenants. Upon borrowing on the Term Loan, we are
required to issue warrants to CapitalSource which are immediately exercisable
into 1.00% of the Companys issued and outstanding common stock at a strike
price equal to $.01 per Share. We may elect to redeem the warrant upon the
conclusion of a successful tender offer.

The Credit Agreement provides that the Diasti Family Limited Partnership
will loan us up to $3,400,000 to finance the Offer at an interest rate of
5.00%. The loan will be due five years from the date the funds are borrowed.
The loan is subordinated to the Term Loan and, subject to the prior approval of
CapitalSource, will be secured by a second priority lien on all of our assets.

We do not have any alternative financing arrangements or alternative
financing plans to fund the common stock buyback in the event we are unable to
borrow, for any reason, under the Term Loan or the Credit Agreement.

As a condition of drawing on the $2 million Term Loan to finance the
common stock buyback, the Diasti Family Limited Partnership and Coast P.A. will
guarantee certain of our indebtedness under the $4 million credit facility with
CapitalSource.

Our liquidity depends in part upon the ability of Coast P.A. to pay the
management fee receivable and any inability of Coast P.A. to generate
sufficient revenues and cash flows to pay the management fee receivable could
materially decrease our liquidity. See also Note 4 of the Notes to Financial
Statements regarding the management fee receivable. In addition, increases in
the management fee receivable and increased expense levels to support our
investment in training and development programs, advertising programs and an
upgraded information technology platform, without a corresponding increase in
net revenues, could negatively impact our liquidity.

There can be no assurance that borrowing capacity will be available under
the CapitalSource credit facility and or the Credit Agreement due to the
restrictive covenants of those agreements. If it is necessary to raise capital
to fund operations, and capital is raised through the issuance of equity
securities or securities convertible into equity securities, Coast Dental
shareholders may experience dilution in ownership percentages and book value.
Additionally, such securities may have rights, preferences and privileges
senior to those of holders of common stock.

Based upon our
anticipated capital needs for operation of our business,
general corporate purposes, and debt service, and the self-tender offer,
management believes that the combination of the funds expected to be available
under the credit facilities outlined above, our current cash reserves and cash
flow from operations should be sufficient to meet our funding requirements to
conduct its operations and for further implementation of its growth strategy
and current plans for the next year.

Additionally, to the extent our joint Equity Model initiative with Coast
P.A. is successful, additional cash could become available to us through
accelerated payment of Coast P.A. management fee receivable through improved
operating performance of the Dental Centers converted to the Equity Model, cash
proceeds generated from the conversion of Dental

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Centers to the Equity Model, or the assignment by Coast P.A. to us of
notes receivable from Equity Doctors. However, there can be no assurance at
this time that the Equity Model initiative will be successful.

In the event we are unable to generate our expected cash flows, decrease
our working capital level, or fail to have continued access to our credit
facilities, we could face liquidity and working capital constraints, which
could adversely impact future operations and growth.

We do not have any special purpose entities or off-balance sheet financing
agreements.

Acquisitions and Development of Dental Centers

The cost of an Acquired Dental Center is typically based upon a negotiated
percentage of the Dental Centers historical gross revenue. Acquired Dental
Centers typically generate sufficient cash flow to fund their operations. We
currently expect to grow the business through increasing the capacity
utilization of our existing dental centers. When we do increase the size of
its Dental Center Network, we presently plan to finance the addition of
internally developed and strategically opportunistic acquired Dental Centers
principally through existing cash and expected cash flow from operations and,
to a lesser extent, from debt.

We took a very significant step beginning in 1998, shifting from an
acquisition model to a development model. Management began to emphasize the
opening of internally developed (de-novo) Dental Centers and placed less
emphasis on acquiring Dental Centers. While the growth of the patient base of
the de-novo Dental Centers has been slower than anticipated, which has
negatively impacted its financial performance; management is committed to this
strategy and continues to believe it is the best long-range strategy.
Our current strategy is to increase capacity utilization at our
existing Dental Centers. After we achieve higher utilization, we may
resume expansion using the development model in order to achieve long term growth in a more cost effective and productive manner.

We opened 17 internally developed Dental Centers in 1999 in Florida,
Georgia and Tennessee. We did not open any internally developed Dental Centers
in 2000. During 2001, we opened two (2) internally developed Dental Centers,
one each in the Atlanta, GA, and the Nashville, TN, markets. The average cost,
to us, of an internally developed Dental Center has been approximately
$225,000, which includes the cost of equipment, leasehold improvements and
working capital. No internally developed Dental Centers were opened in 2002.
We anticipate not opening any new internally developed Dental Centers during
2003.

During 1999, Coast Dental and Coast P.A. added 11 acquired Dental Centers
located in Virginia. The purchase price for these acquired Dental Centers was
$2.1 million, consisting primarily of $1.2 million in cash and $.9 million in
promissory notes and certain assumed liabilities. Coast Dental and Coast P.A.
did not acquire any Dental Centers during 2000, 2001 and 2002.

During 1999, we consolidated one previously acquired Dental Center into an
existing Dental Center. During 2000, we consolidated twelve (12) Dental Centers
into six (6) Dental Centers to take advantage of changing market demographics.
In the fourth quarter of 2001, we closed eight (8) previously acquired Dental
Centers. In 2002, we closed eight (8) Dental Centers, of which two (2) were in
fourth quarter 2002, and sold one Dental Center. We believe that closing the
underperforming Dental Centers will improve overall financial performance while
allowing management to focus its efforts on improving the performance at
remaining Dental Centers.

Share Repurchases

On February 10, 1999, we announced that our Board of Directors authorized
the repurchase of up to 500,000 shares (166,667 shares after adjustment for
one-for-three reverse split) of its outstanding common stock. On March 25,
1999, we announced that our Board of Directors authorized the increase of the
previously announced share repurchase program from 500,000 (166,167 post-split
shares) to 1,500,000 (500,000 post-split) shares. At our Annual Meeting of
Shareholders held on July 16, 2001, the Board of Directors authorized an
increase to the previous share repurchase program from 1,500,000 shares
(500,000 post-split) to 2,250,000 shares (750,000 post-split shares).

We have been and may continue to repurchase these shares for cash in the
open market or in privately negotiated transactions, from time to time, subject
to market conditions. The repurchase program will continue until such time as
we

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have acquired all of the shares authorized for repurchase, unless sooner
terminated by the Board of Directors. No shares will be repurchased from our
officers or directors.

We did not repurchase any of its outstanding common stock in the past
three years under our share repurchase program or otherwise due to financial
constraints.

Recent Pronouncements

In June 2001, Statement of Financial Accounting Standards No. 143 (SFAS
No. 143), Accounting for Asset Retirement Obligations, was issued. SFAS
143, which is effective for us beginning in 2003, addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. We do
not expect the adoption of SFAS 143 in 2003 to have a material impact
on our financial statements.

In July 2001, Statement of Financial Accounting Standards No. 142 (SFAS
No. 142), Goodwill and Other Intangible Assets was issued. SFAS No. 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill and certain intangible
assets with indefinite lives, including assets of this nature recorded in past
business combinations, will cease upon adoption of this statement. On an annual basis, and when there is reason to suspect that the
carrying values of identifiable intangible assets have been diminished or
impaired, identifiable intangible assets must be tested for impairment, and
write-downs may be necessary. The Company
implemented SFAS No. 142 on January 1, 2002. We do not have any unidentifiable
intangible assets or goodwill; accordingly, the adoption of this standard did
not have any impact on our financial position, results of operations or cash
flows.

In October 2001, Statement of Financial Accounting Standards No. 144
(SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived
Assets, was issued and replaces SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.SFAS No. 144
requires that long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. We adopted SFAS No.
144 effective January 1, 2002 and the adoption did not have any impact on our
financial position, results of operations or cash flows.

In April 2002, Statement of Financial Accounting Standards No. 145 (SFAS
No. 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, was issued. This newly issued
standard rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of
Debt  an amendment of APB Opinion No. 30, which required all gains and losses
from the extinguishments of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria set forth by APB Opinion 30 will now be used to classify those gains
and losses. SFAS 145 also amends SFAS 13 to require that certain lease
modifications that have economic affects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. In
addition, SFAS 145 amends other existing authoritative pronouncements to make
various technical corrections. We do not expect the adoption of SFAS 145 in
2003 to have a material impact on our financial statements.

In June 2002, the Statement of Financial Accounting Standards No. 146
(SFAS No. 146) Accounting for Costs Associated with Exit or Disposal
Activities was issued. SFAS 146 supersedes Emerging Issues Task Force
(EITF) Issue No. 94-3. The principal difference between SFAS 146 and EITF
Issue No. 94-3 relates to when an entity can recognize a liability related to
exit or disposal activities. SFAS 146 requires that a liability be recognized
for a cost associated with an exit or disposal activity when the liability is
incurred. EITF Issue No. 94-3 allowed a liability related to an exit or
disposal activity to be recognized at the date an entity commits to an exit
plan. The provisions of SFAS 146 are effective for all exit or disposal
activities initiated after January 1, 2003. We do not expect the
adoption of SFAS 146 in 2003 to have a material impact on our
financial statements.

On December 31, 2002, the Statement of Financial Accounting Standards No.
148 (SFAS No. 148) Accounting for Stock-Based Compensation  Transition and
Disclosure was issued. SFAS 148 amends SFAS 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to the fair value
method of accounting for stock-based employee compensation. The disclosure
requirements for annual and interim financial statements are effective

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beginning in 2003. We have not yet determined whether we will change to
the fair-value method of accounting for stock-based compensation.

In November 2002, the
FASB issued FASB Interpretation (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Direct Guarantees of Indebtedness of Others. FIN 45 changes the
accounting for and the disclosure of guarantees. FIN 45 requires
that guarantees meeting the characteristics described in the
Interpretation be initially recorded at fair value in contrast to
FASB No. 5 which requires recording a liability when a loss is
probable and reasonable estimable. The disclosure requirements of
FIN 45 are effective for financial statements and annual periods
ending after December 1, 2002. The initial recognition and initial
measurement provisions of FIN 45 are effective on a prospective
basis to guarantees issued or modified after December 31, 2002.
We do not expect the adoption of FIN 45 to have a material
effect upon our financial statement.

In
January 2003, the FASB issued FASB Interpretation (FIN) 46,
Consolidation of Variable Interest Entities (an interpretation of
ARB No. 51). FIN 46 expands the consolidation requirements
of ARB No. 51 to include entities subject to a majority of the
risk of loss from the variable interest entitys activities or
entities entitled to receive a majority of the variable interest
entitys returns or both. The consolidation requirements of
FIN 46 apply immediately to variable interest entities created
after January 31, 2003 and apply to older entities in the first
fiscal year or interim period beginning after June 15, 2003.
The disclosure requirements of FIN 46 are effective in all
financial statements issued after January 31, 2003, regardless
of when the variable interest entity way established. We do not
expect the adoption of FIN 46 top have a material effect upon
our financial statements.

Critical Accounting Policies and Significant Estimates

Our business, significant accounting policies and contracts from which net
revenues are derived are described in Notes 1 and 10 of the Notes to Financial
Statements. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions about future events that
affect the amounts reported in the financial statements and accompanying notes.
Future events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of
our financial statements include estimates associated with the following
matters:



| |  |  | Our Services and Support Agreements with Coast P.A.
do not constitute a controlling financial interest in Coast P.A.
and, accordingly, we do not consolidate the gross patient
revenues, results of operations, cash flows and other accounts
of Coast P.A. in accordance with Emerging Issues Task Force
97-2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We evaluate the recoverability of long-lived tangible
and intangible assets of the Dental Centers based on our
assessment of future cash flows and, where impairment has
occurred, the impairment loss is measured using estimated
discounted cash flows. Our judgment as to future cash flows and
the discount rate used are significant estimates in making these
recoverability evaluations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | We evaluate the recoverability of the management fee
receivable from Coast P.A. and have determined that this
management fee receivable is fully collectible. If the financial
condition of Coast P.A. changes, resulting in an impairment of
its ability to pay, an allowance may be necessary to reduce the
carrying value of this asset to a net realizable value that is
less than the carrying amount of the receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | We evaluate the recoverability of the notes
receivable from Equity Doctors and have determined that these
notes receivable are fully collectible. If the financial
condition of Equity Doctor Dental Centers changes, resulting in
an impairment of its ability to pay, an allowance may be
necessary to reduce the carrying value of this asset to a net
realizable value that is less than the carrying amount of the
notes receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | We record a valuation allowance to reduce our net
deferred tax assets to the amount that is more likely than not
to be realized under enacted tax law. While we have considered
future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation
allowance, in the event we were to determine that we would be
able to realize more of our deferred tax assets in the future in
excess of our net recorded amount, an adjustment to the deferred
tax asset would increase reported income in the period such
determination was made. Likewise, should we determine that we
would not be able to realize all or part of our net deferred tax
asset in the future, an adjustment to the deferred tax asset
would be charged to income in the period such determination was
made. Any changes in the assessment could be from internal
circumstances or from favorable or unfavorable changes in future
tax laws.
|
| |  |  | We have estimated the costs associated with the
closure of eight (8) Dental Centers during 2001 and eight (8)
Dental Centers in 2002. The costs recorded in connection with
these closings are based on recorded assets and liabilities,
lease commitments and estimated costs to execute the plan. If
actual costs are significantly more than expected, earnings will
be reduced in 2003. Conversely, if actual costs are
significantly less than expected, earnings could be improved in
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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Various assumptions and other factors underlie the determination of these
significant estimates. The process of determining significant estimates is fact
specific and takes into account factors such as historical experience, current
and expected economic conditions, and in some cases, market discount rates. We
continuously re-evaluate these significant factors and makes adjustments where
facts and circumstances dictate. Actual results could deviate, and possibly
significantly, from those determined using the estimates described above.

See Item 7  Managements Discussion and Analysis of Financial Condition
and Results of Operations, Section C. Liquidity and Capital Resources for
further information.

We have a relatively low level of debt, and expect to finance future
capital needs through available capital, anticipated future earnings and the
CapitalSource revolving line of credit. The
CapitalSource credit facilities are variable rate loans tied to the prime rate
of interest. Our exposure to market risk for changes in interest rates is
primarily in our cash equivalents. Pursuant to our investing guidelines,
we mitigate
exposure by limiting maturity, placing cash equivalents with high credit
quality issuers and limiting the amount of credit exposure to any one issuer.
During the year ended December 31, 2002, we earned investment income of
approximately $43,000.

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Item 7A.Quantitative and Qualitative Disclosures about Market Risk

SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-K annual report, press releases and certain information
provided periodically in writing or orally by our officers or its agents may
contain statements which constitute forward-looking statements within the
meaning of Section 27A of the Securities Act, as amended and Section 21E of the
Securities Exchange Act of 1934. The terms Coast Dental Services, Coast
Dentals, Company, we, our and us refer to Coast Dental Services, Inc.
The words expect, believe, goal, plan, intend, estimate and similar
expressions and variations thereof, if used, are intended to specifically
identify forward-looking statements. Those statements appear in a number of
places in this Form 10-K and in other places, particularly, Managements
Discussion and Analysis of Financial Condition and Results of Operations, and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things:



|(i)    |  | the successful expansion of the Coast Dental Network through the
focus on existing Dental Centers in accordance with our growth strategy;
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------
|      
|(ii)   |  | our anticipated future cash flows;                                                                                                       
|      
|(iii)  |  | our liquidity and capital resources;                                                                                                     
|      
|(iv)   |  | our financing opportunities and plans;                                                                                                   
|      
|(v)    |  | our future performance and operating results;                                                                                            
|      
|(vi)   |  | our future service and support fee;                                                                                                      
|      
|(vii)  |  | the potential effect of the Equity Model implementation; and                                                                             
|      
|(viii) |  | our self-tender offer                                                                                                                    

Investors and prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
The factors that might cause such differences include, among others, the
following:





|       |  |                                                                                                                                                             
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)    |  | any material inability to successfully and fully optimize the
opportunities at existing Dental Centers;                                                     
|       |  |                                                                                                                                                             
|(ii)   |  | any reductions in our liquidity and working capital;                                                                                                        
|       |  |                                                                                                                                                             
|(iii)  |  | any adverse effect or limitations caused by any governmental
regulations or actions;                                                                        
|       |  |                                                                                                                                                             
|(iv)   |  | the ability to obtain acceptable financing, where desirable in the
future, in connection with our operating or growth plans;                                
|       |  |                                                                                                                                                             
|(v)    |  | any increased competition in business and in acquisitions;                                                                                                  
|       |  |                                                                                                                                                             
|(vi)   |  | effect of further reduced cash position and future inability to access
borrowings in current credit facilities;                                             
|       |  |                                                                                                                                                             
|(vii)  |  | any adverse impact on our net revenue or operating margins due to the
costs associated with increased growth at existing Dental Centers;                    
|       |  |                                                                                                                                                             
|(viii) |  | the future continued relationship with and success of our professional
association customers and the ability of Coast P.A. to pay management
fees due to us;
|       |  |                                                                                                                                                             
|(ix)   |  | any increase in the management fee receivable owed to us by Coast P.A.;                                                                                     

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|         |  |                                                                                                                                                                                                                                                           
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                                                           
|(x)      |  | any inability to achieve additional net revenue or earnings from the
internally developed Dental Centers or recently combined Dental
Centers;                                                                                                             
|         |  |                                                                                                                                                                                                                                                           
|(xi)     |  | any adverse impact from changes to the services and support fees agreed
to in the future between us and Coast P.A.;                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                           
|(xii)    |  | inability to generate sufficient net revenue to offset the costs of, or
unanticipated costs and expenses resulting from our focus on internal
efficiencies, staff training and development initiatives, and
advertising programs which may impact margins;
|         |  |                                                                                                                                                                                                                                                           
|(xiii)   |  | any slow down in the number of patients or the services performed by
Dentists or Hygienists of Coast P.A. which impacts net revenue;                                                                                                                      
|         |  |                                                                                                                                                                                                                                                           
|(xiv)    |  | any material decrease in the number of Dentists or Hygienists of Coast
P.A. available to service patients, would adversely affect productivity
and impact overall net revenue;                                                                            
|         |  |                                                                                                                                                                                                                                                           
|(xv)     |  | resulting costs and any negatives, including any reduced net revenues,
incurred with implementing the Equity Model;                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                           
|(xvi)    |  | any inability of Coast P.A. to incentivize, motivate, retain and attract new Dentists;                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                           
|(xvii)   |  | any future inability to substantially achieve the objectives expected
from the successful implementation of the Equity Model;                                                                                                                             
|         |  |                                                                                                                                                                                                                                                           
|(xviii)  |  | any future deregistration of our shares under the Securities and
Exchange Act of 1934 as a result of continued reduction in the number
of our shareholders;                                                                                               
|         |  |                                                                                                                                                                                                                                                           
|(xix)    |  | general economic and market conditions and combined general downturn in the economy;                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                           
|(xx)     |  | impact of loss of managed care business and inability to replace with higher margin business;                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                           
|(xxi)    |  | inability to generate positive cash flows;                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                           
|(xxii)   |  | the potential impact of negative market influences on our cash and cash equivalents;                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                           
|(xxiii)  |  | inability to improve Dentist retention or adverse affects of Dentist
turnover of Coast P.A.;                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                           
|(xxiv)   |  | any material decline in the number of patient visits of Coast P.A. as a
result of the level of advertising and marketing expenditures and any
other factor;                                                                                               
|         |  |                                                                                                                                                                                                                                                           
|(xxv)    |  | any disruption of operations caused by the project to enhance the
information technology platform, or a material increase in costs from
the enhancement;                                                                                                  
|         |  |                                                                                                                                                                                                                                                           
|(xxvi)   |  | inability to successfully replace capitated managed care business with other forms of business;                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                           
|(xxvii)  |  | inability to implement a successful patient financing program;                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                           
|(xxviii) |  | any inability of Dentists (under the Equity Model) to pay their
obligations under the notes receivable as they come due;                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                           
|(xxix)   |  | any inability to successfully defend against claims and litigation matters;                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                           
|(xxx)    |  | any inability to successfully improve gross revenues of Coast P.A.
through the Coast Smile Plus discount and membership program;                                                                                                                          
|         |  |                                                                                                                                                                                                                                                           
|(xxxi)   |  | any inability to generate sufficient revenue to meet the cost
associated with the patient financing program, including finance
charges, brokerage fees, marketing expenses and any other costs and
liabilities related to the program;                    

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|          |  |                                                                                                                                                                                                                                              
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(xxxii)   |  | any inability of Coast, P.A. to collect patient and insurance trade
accounts receivable;                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                              
|(xxxiii)  |  | declining market values in the investments underlying the cash
surrender value of life insurance which cause a decrease in the net
realizable value of non-interest bearing loans to executive officers
carried as long-term assets by us;   
|          |  |                                                                                                                                                                                                                                              
|(xxxiv)   |  | periodic impairment reviews caused by changing circumstances and
financial performance of individual Dental Centers can result in the
determination that some of our long lived assets are impaired and
result in impairment write downs;    
|          |  |                                                                                                                                                                                                                                              
|(xxxv)    |  | underperforming Dental Centers are evaluated for closure or
consolidation into nearby Dental Centers. Dental Centers closed or
consolidated can result in write-offs of long-lived assets and require
accrual of remaining lease obligations;
|          |  |                                                                                                                                                                                                                                              
|(xxxvi)   |  | any increased debt service requirements incurred to finance the
self-tender offer;                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                              
|(xxxvii)  |  | costs and expenses incurred with a successful or unsuccessful
self-tender offer;                                                                                                                                                             
|          |  |                                                                                                                                                                                                                                              
|(xxxviii) |  | any adverse claims resulting from the self-tender offer;                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                              
|(xxxvix)  |  | any inability to pay debt on the scheduled maturity date; and                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                              
|(xxxx)    |  | any future delisting of the Companys shares.                                                                                                                                                                                                

We undertake no obligation to publicly update or revise the forward looking
statements made in this Form 10-K to reflect events or circumstances after the
date of this Form 10-K or to reflect the occurrence of unanticipated events.

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Item 8.Financial Statements and Supplementary Data

COAST DENTAL SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS

|                                                                                                             |  |      |    | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                             |  | Page
|                                                                                                             |  |     
|Independent Auditors Report                                                                                 |  |      | 35 | 
|Balance Sheet as of December 31, 2002 and 2001                                                               |  |      | 36 | 
|Statement of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2002,
2001 and 2000 |  |      | 37 | 
|Statement of Stockholders Equity for the Years Ended December 31, 2002, 2001 and 2000                       |  |      | 38 | 
|Statement of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000                                 |  |      | 39 | 
|Notes to Financial Statements                                                                                |  |      | 40 | 

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INDEPENDENT AUDITORS REPORT

To the Board of Director of
Coast Dental Services, Inc.

We have audited the accompanying balance sheets of Coast Dental Services, Inc.
(the Company) as of December 31, 2002 and 2001, and the related statements of
operations and comprehensive income (loss), of stockholders
equity and of cash flows
for each of the three years in the period ended December 31,
2002. Our audits also included the financial statement schedules
listed in the index at Item 15. These
financial statements and financial statements schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements
and financial statement schedules based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Coast Dental Services, Inc. as of December
31, 2002 and 2001, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information
set forth therein.

Deloitte & Touche LLP
Certified Public Accountants

Tampa, Florida
March 28, 2003

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COAST DENTAL SERVICES, INC.
BALANCE SHEET

|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |            |            |            |           | 
|------------------------------------------------------------------------------------------ | ------------------------------------------------------ | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------ | ---------- | ------------ | ---------- | ---------- | ---------- | ---------- | --------- | 
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            | December 31,
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |             
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            | 2002         |            | 2001      
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     |                                                                     | ASSETS                               |            |              |            |            |            |            |           | 
|Current assets:                                                                            |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           | Cash and cash equivalents                              |                                                                                                     | $                                                                   | 2,824,966                            |            |              | $          | 2,545,770  |           
|                                                                                           | Management fee receivable from Coast P.A               |                                                                                                     |                                                                     | 17,395,559                           |            |              |            | 12,996,820 |           
|                                                                                           | Notes receivable from Equity Doctors  current portion |                                                                                                     |                                                                     | 114,564                              |            |              |            | 20,504     |           
|                                                                                           | Supplies, inventory and small tools, net               |                                                                                                     |                                                                     | 2,782,037                            |            |              |            | 3,357,659  |           
|                                                                                           | Prepaid expenses and other current assets              |                                                                                                     |                                                                     | 353,368                              |            |              |            | 507,542    |           
|                                                                                           | Income tax refund receivable                           |                                                                                                     |                                                                     | 175,332                              |            |              |            |           |           
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     | Total current assets                                                |                                      |            | 23,645,826   |            |            |            | 19,428,295 |          
|Property and equipment, net                                                                |                                                        |                                                                                                     | 13,765,708                                                          |                                      |            |              | 17,609,994 |           
|Note receivable from Coast P.A., non-interest bearing                                      |                                                        |                                                                                                     | 229,218                                                             |                                      |            |              | 229,218    |           
|Notes receivable from Equity Doctors, net of current portion                               |                                                        |                                                                                                     | 851,217                                                             |                                      |            |              | 798,900    |           
|Non-compete
agreements, net of amortization $841,183
and $702,502, respectively            |                                                        |                                                                                                     | 282,435                                                             |                                      |            |              | 392,081    |           
|Dental services agreements, net of amortization of $3,484,290
and $2,986,533, respectively |                                                        |                                                                                                     | 9,947,889                                                           |                                      |            |              | 13,414,809 |           
|Other assets                                                                               |                                                        |                                                                                                     | 1,803,501                                                           |                                      |            |              | 2,262,309  |           
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     | Total assets                                                        |                                      | $          | 50,525,794   |            |            | $          | 54,135,606 |          
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     |                                                                     | LIABILITIES AND STOCKHOLDERS EQUITY |            |              |            |            |            |            |           | 
|Current liabilities:                                                                       |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        | Accounts payable                                                                                    |                                                                     | $                                    | 2,549,386  |              |            | $          | 2,659,561  |           
|                                                                                           |                                                        | Accrued salaries and benefits                                                                       |                                                                     |                                      | 1,357,497  |              |            |            | 1,329,485  |           
|                                                                                           |                                                        | Other accrued expenses                                                                              |                                                                     |                                      | 2,180,220  |              |            |            | 1,623,201  |           
|                                                                                           |                                                        | Current maturities of debt and capital lease obligations                                            |                                                                     |                                      | 117,925    |              |            |            | 257,520    |           
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     |                                                                     | Total current liabilities            |            |              | 6,205,028  |            |            |            | 5,869,768 | 
|Long-term debt and capital lease obligations, excluding current maturities                 |                                                        |                                                                                                     | 78,354                                                              |                                      |            |              | 92,750     |           
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     |                                                                     | Total liabilities                    |            |              | 6,283,382  |            |            |            | 5,962,518 | 
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        | Commitments
and Contingencies                                                                       |                                                                     |                                      |           |              |            |            |           |           
|Stockholders equity:                                                                      |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        | Preferred stock, $.001 par value; 2,000,000 shares authorized,
none issued                          |                                                                     |                                      |           |              |            |            |           |           
|                                                                                           |                                                        | Common stock, $.001 par value; 50,000,000 share authorized, 2,091,223
shares issued and outstanding |                                                                     |                                      | 2,091      |              |            |            | 2,091      |           
|                                                                                           |                                                        | Additional paid-in capital                                                                          |                                                                     |                                      | 55,165,701 |              |            |            | 55,064,603 |           
|                                                                                           |                                                        | Retained earnings (deficit)                                                                         |                                                                     |                                      | (8,384,197 | )            |            |            | (4,440,400 | )         
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |           
|                                                                                           |                                                        |                                                                                                     | 46,783,595                                                          |                                      |            |              | 50,626,294 |           
|                                                                                           |                                                        |                                                                                                     | Less: Stock option receivable from Coast P.A., non-interest bearing |                                      |            | (2,541,183   | )          |            |            | (2,453,206 | )        
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |            |           
|                                                                                           |                                                        |                                                                                                     | Total stockholders equity                                          |                                      |            | 44,242,412   |            |            |            | 48,173,088 |          
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |            |           
|                                                                                           |                                                        |                                                                                                     | Total liabilities and stockholders equity                          |                                      | $          | 50,525,794   |            |            | $          | 54,135,606 |          
|                                                                                           |                                                        |                                                                                                     |                                                                     |                                      |            |              |            |            |           

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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COAST DENTAL SERVICES, INC.
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |            |            | 
|------------------------------------------------- | ---------------------------- | ---------------------------- | ---------- | ----------------------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                  |                              |                              |            | Year Ended December 31,
|                                                  |                              |                              |            |                        
|                                                  |                              |                              |            | 2002                    |            | 2001 |            | 2000      
|                                                  |                              |                              |            |                         |            |      |            |           
|Net revenue                                       |                              | $                            | 55,963,934 |                         |            | $    | 43,561,255 |            |            | $ | 45,825,978 |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Dental Center expenses:                           |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Salaries and benefits        |                              |            | 19,710,808              |            |      |            | 17,758,979 |            |   |            | 19,251,805 |           
|                                                  | Dental supplies and lab fees |                              |            | 10,269,053              |            |      |            | 8,089,068  |            |   |            | 8,449,766  |           
|                                                  | Occupancy                    |                              |            | 7,722,879               |            |      |            | 7,201,360  |            |   |            | 7,244,695  |           
|                                                  | Advertising                  |                              |            | 4,165,144               |            |      |            | 2,121,408  |            |   |            | 1,826,490  |           
|                                                  | Dental Center depreciation   |                              |            | 3,118,579               |            |      |            | 3,305,852  |            |   |            | 3,137,217  |           
|                                                  | Administrative               |                              |            | 3,181,404               |            |      |            | 1,710,136  |            |   |            | 1,576,126  |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  |                              | Total Dental Center expenses |            |                         | 48,167,867 |      |            |            | 40,186,803 |   |            |            | 41,486,099 | 
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Gross profit                 |                              |            | 7,796,067               |            |      |            | 3,374,452  |            |   |            | 4,339,879  |           
|General and administrative expenses               |                              |                              | 7,312,882  |                         |            |      | 8,024,709  |            |            |   | 5,435,995  |           
|Depreciation and amortization                     |                              |                              | 1,329,183  |                         |            |      | 1,305,299  |            |            |   | 1,289,645  |           
|Dental Center closings                            |                              |                              | 2,624,824  |                         |            |      | 2,750,994  |            |            |   |           |           
|Asset impairment charges                          |                              |                              | 1,628,572  |                         |            |      | 952,336    |            |            |   |           |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Operating loss               |                              |            | (5,099,394              | )          |      |            | (9,658,886 | )          |   |            | (2,385,761 | )         
|Interest income, net                              |                              |                              | 128,968    |                         |            |      | 137,871    |            |            |   | 309,504    |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Loss before income tax benefit                    |                              |                              | (4,970,426 | )                       |            |      | (9,521,015 | )          |            |   | (2,076,257 | )         
|Income tax benefit                                |                              |                              | 1,026,629  |                         |            |      | 154,354    |            |            |   | 812,317    |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Net loss                                          |                              |                              | (3,943,797 | )                       |            |      | (9,366,661 | )          |            |   | (1,263,940 | )         
|Unrealized gain on available-for-sale investments |                              |                              |           |                         |            |      | 82,323     |            |            |   | 24,070     |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Comprehensive loss                                |                              | $                            | (3,943,797 | )                       |            | $    | (9,284,338 | )          |            | $ | (1,239,870 | )         
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Basic earnings (loss) per share:                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Net loss per share           |                              | $          | (1.89                   | )          |      | $          | (4.48      | )          |   | $          | (0.60      | )         
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Diluted earnings (loss) per share:                |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Net loss per share           |                              | $          | (1.89                   | )          |      | $          | (4.48      | )          |   | $          | (0.60      | )         
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|Weighted average number of shares outstanding:    |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Basic                        |                              |            | 2,091,223               |            |      |            | 2,091,223  |            |   |            | 2,097,611  |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           
|                                                  | Diluted                      |                              |            | 2,091,223               |            |      |            | 2,091,223  |            |   |            | 2,097,611  |           
|                                                  |                              |                              |            |                         |            |      |            |            |            |   |            |           

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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COAST DENTAL SERVICES, INC.
STATEMENT OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |               |         |                |   |            |         |   |   |            |            |   |   |            |            | 
|---------------------------------------------------------------------------------- | ---------------------------- | - | ------ | ----- | ---------------- | - | ---------- | ---------- | -------- | - | --------------- | ---------- | ------------ | - | ------------- | ------- | -------------- | - | ---------- | ------- | - | - | ---------- | ---------- | - | - | ---------- | ---------- | 
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |               |         |                |   | Unrealized |         |   |   |            |            |   |   |           
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   | Retained        |            |              |   |               |         | Gain/(Loss) on |   |            |         |   |   | Total     
|                                                                                   |                              |   | Common |       | Additional Paid- |   | Earnings   |            | Treasury |   | Securities Held |            | Stock Option |   | Stockholders'
|                                                                                   |                              |   | Stock  |       | in Capital       |   | (Deficit)  |            | Stock    |   | for Sale        |            | Receivable   |   | Equity       
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |              
|Balance
on January 1, 2000                                                         |                              |   | 6,404  |       |                  | $ | 54,427,749 |            |          | $ | 6,195,430       |            |              | $ | (88,749       | )       |                | $ | ( 106,393  | )       |   | $ | (1,440,833 | )          |   | $ | 58,993,608 |           
|Sale of stock options to Coast P.A                                                 |                              |   |       |       |                  |   | 854,541    |            |          |   |                |            |              |   |              |         |                |   |           |         |   |   | (854,541   | )          |   |   |           |           
|Unrealized gain on securities held for sale                                        |                              |   |       |       |                  |   |           |            |          |   |                |            |              |   |              |         |                |   | 24,070     |         |   |   |           |            |   |   | 24,070     |           
|Purchase and retirement of common stock                                            |                              |   | (113   | )     |                  |   | (290,970   | )          |          |   | (5,229          | )          |              |   |              |         |                |   |           |         |   |   |           |            |   |   | (296,312   | )         
|Net loss for the year ended
December 31, 2000                                      |                              |   |       |       |                  |   |           |            |          |   | (1,263,940      | )          |              |   |              |         |                |   |           |         |   |   |           |            |   |   | (1,263,940 | )         
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |               |         |                |   |            |         |   |   |            |            |   |   |            |           
|                                                                                   | Balance on December 31, 2000 |   |        | 6,291 |                  |   |            | 54,991,320 |          |   |                 | 4,926,261  |              |   |               | (88,749 | )              |   |            | (82,323 | ) |   |            | (2,295,374 | ) |   |            | 57,457,426 | 
|Cancellation and issuance of shares
in connection with 1 for 3 reverse
stock split |                              |   | (4,196 | )     |                  |   | 4,196      |            |          |   |                |            |              |   |              |         |                |   |           |         |   |   |           |            |   |   |           |           
|Cancellation of treasury shares                                                    |                              |   | (4     | )     |                  |   | (88,745    | )          |          |   |                |            |              |   | 88,749        |         |                |   |           |         |   |   |           |            |   |   |           |           
|Sale of stock options to Coast P.A                                                 |                              |   |       |       |                  |   | 157,832    |            |          |   |                |            |              |   |              |         |                |   |           |         |   |   | (157,832   | )          |   |   |           |           
|Unrealized gain on securities held for sale                                        |                              |   |       |       |                  |   |           |            |          |   |                |            |              |   |              |         |                |   | 82,323     |         |   |   |           |            |   |   | 82,323     |           
|Net
loss for the year ended
December 31, 2001                                      |                              |   |       |       |                  |   |           |            |          |   | (9,366,661      | )          |              |   |              |         |                |   |           |         |   |   |           |            |   |   | (9,366,661 | )         
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |               |         |                |   |            |         |   |   |            |            |   |   |            |           
|                                                                                   | Balance on December 31, 2000 |   |        | 2,091 |                  |   |            | 55,064,603 |          |   |                 | (4,440,400 | )            |   |               |        |                |   |            |        |   |   |            | (2,453,206 | ) |   |            | 48,173,088 | 
|Sale of stock options to Coast P.A                                                 |                              |   |       |       |                  |   | 87,977     |            |          |   |                |            |              |   |              |         |                |   |           |         |   |   | (87,977    | )          |   |   |           |           
|Extension of stock options                                                         |                              |   |       |       |                  |   | 13,121     |            |          |   |                |            |              |   |              |         |                |   |           |         |   |   |           |            |   |   | 13,121     |           
|Net loss for the year ended
December 31, 2002                                      |                              |   |       |       |                  |   |           |            |          |   | (3,943,797      | )          |              |   |              |         |                |   |           |         |   |   |           |            |   |   | (3,943,797 | )         
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |               |         |                |   |            |         |   |   |            |            |   |   |            |           
|Balance on December 31, 2002                                                       |                              | $ | 2,091  |       |                  | $ | 55,165,701 |            |          | $ | (8,384,197      | )          |              | $ |              |         |                | $ |           |         |   | $ | (2,541,183 | )          |   | $ | 44,242,412 |           
|                                                                                   |                              |   |        |       |                  |   |            |            |          |   |                 |            |              |   |               |         |                |   |            |         |   |   |            |            |   |   |            |           

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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COAST DENTAL SERVICES, INC.
STATEMENT OF CASH FLOWS

|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |            |           |  
|--------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | --------- | ------------------------ | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | --------- | -
|                                                    |                                                                                           |                                                     |           | Years Ended December 31,
|                                                    |                                                                                           |                                                     |           |                         
|                                                    |                                                                                           |                                                     |           | 2002                     |            | 2001 |            | 2000      
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES:               |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|                                                    | Net loss                                                                                  |                                                     | $         | (3,943,797               | )          |      | $          | (9,366,661 | )          |   | $          | (1,263,940 | )        
|                                                    | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                     |           |                          |            |      |            |            |            |   |            |            |          
|                                                    |                                                                                           | Depreciation and amortization                       |           |                          | 4,447,763  |      |            |            | 4,611,151  |   |            |            | 4,426,862 |  
|                                                    |                                                                                           | Dental Center closings                              |           |                          | 2,624,824  |      |            |            | 2,750,994  |   |            |            |          |  
|                                                    |                                                                                           | Asset impairment charges                            |           |                          | 1,628,572  |      |            |            | 952,336    |   |            |            |          |  
|                                                    |                                                                                           | Impairment
of cash surrender value  life insurance |           |                          | 377,141    |      |            |            | 238,159    |   |            |            | 266,821   |  
|                                                    |                                                                                           | Loss on disposal of equipment and other             |           |                          | 115,903    |      |            |            | (78,752    | ) |            |            | 196,895   |  
|                                                    |                                                                                           | Deferred income tax expense (benefit)               |           |                          |           |      |            |            | 184,655    |   |            |            | (364,747  | )
|                                                    | Changes in operating assets and liabilities:                                              |                                                     |           |                          |            |      |            |            |            |   |            |            |          
|                                                    |                                                                                           | Management fee receivable from Coast P.A.           |           |                          | (4,286,292 | )    |            |            | (2,665,296 | ) |            |            | (587,701  | )
|                                                    |                                                                                           | Note receivable from Coast P.A.                     |           |                          |           |      |            |            |           |   |            |            | 300,000   |  
|                                                    |                                                                                           | Supplies, inventory and small tools                 |           |                          | 448,809    |      |            |            | 7,446      |   |            |            | (196,795  | )
|                                                    |                                                                                           | Prepaid expenses and other current assets           |           |                          | (662,891)  |      |            |            | 198,415    |   |            |            | (433,770  | )
|                                                    |                                                                                           | Accounts payable and accrued expenses               |           |                          | 659,573    |      |            |            | 658,739    |   |            |            | 902,926   |  
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|Net Cash Provided by (Used in) Operating Activities |                                                                                           |                                                     | 1,409,605 |                          |            |      | (2,508,814 | )          |            |   | 3,246,551  |           
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:               |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|                                                    | Capital expenditures                                                                      |                                                     |           | (883,964                 | )          |      |            | (1,042,571 | )          |   |            | (4,128,110 | )        
|                                                    | Proceeds from sale of property and equipment                                              |                                                     |           | 39,932                   |            |      |            | 21,054     |            |   |            |           |          
|                                                    | Collections on notes receivable from Equity Doctors                                       |                                                     |           | 98,071                   |            |      |            | 142,596    |            |   |            |           |          
|                                                    | Acquired assets, including intangible assets                                              |                                                     |           |                         |            |      |            | (22,373    | )          |   |            | (93,334    | )        
|                                                    | Purchase of available-for-sale investments                                                |                                                     |           |                         |            |      |            |           |            |   |            | (276,726   | )        
|                                                    | Sale of available-for-sale investments                                                    |                                                     |           |                         |            |      |            | 5,353,381  |            |   |            | 3,049,850  |          
|                                                    | (Increase) decrease in other assets                                                       |                                                     |           |                         |            |      |            | 12,173     |            |   |            | (428,367   | )        
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|Net Cash (Used in) Provided by Investing Activities |                                                                                           |                                                     | (745,961  | )                        |            |      | 4,464,260  |            |            |   | (1,876,687 | )         
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:               |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|                                                    | Purchase of treasury stock                                                                |                                                     |           |                         |            |      |            |           |            |   |            | (296,312   | )        
|                                                    | Proceeds from long term debt                                                              |                                                     |           |                         |            |      |            | 1,675,522  |            |   |            | 1,000,000  |          
|                                                    | Payments on long term debt                                                                |                                                     |           | (259,672                 | )          |      |            | (3,526,246 | )          |   |            | (596,807   | )        
|                                                    | Debt issue costs                                                                          |                                                     |           | (109,290                 | )          |      |            |           |            |   |            |           |          
|                                                    | Payments on capital leases                                                                |                                                     |           | (15,486                  | )          |      |            | (12,566    | )          |   |            | (42,749    | )        
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|Net Cash (Used in) Provided by Financing Activities |                                                                                           |                                                     | (384,448  | )                        |            |      | (1,863,290 | )          |            |   | 64,132     |           
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|Increase in Cash and Cash Equivalents               |                                                                                           |                                                     | 279,196   |                          |            |      | 92,156     |            |            |   | 1,433,996  |           
|                                                    | Cash and cash equivalents at beginning of period                                          |                                                     |           | 2,545,770                |            |      |            | 2,453,614  |            |   |            | 1,019,618  |          
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|                                                    | Cash and cash equivalents at end of period                                                |                                                     | $         | 2,824,966                |            |      | $          | 2,545,770  |            |   | $          | 2,453,614  |          
|                                                    |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:     |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|                                                    | Interest collected, net                                                                   |                                                     | $         | 156,658                  |            |      | $          | 178,577    |            |   | $          | 113,242    |          
|                                                    | Income taxes (paid) refunded, net                                                         |                                                     | $         | 1,311,388                |            |      | $          | (154,385   | )          |   | $          | (756,732   | )        
|                                                    | Non-cash stock option receivable from Coast P.A.                                          |                                                     | $         | 88,977                   |            |      | $          | 157,832    |            |   | $          | 854,541    |          
|                                                    | Capital lease obligations incurred                                                        |                                                     | $         | 121,167                  |            |      | $          |           |            |   | $          |           |          
|EQUITY DOCTOR DENTAL CENTER TRANSACTIONS:           |                                                                                           |                                                     |           |                          |            |      |            |            |            |   |            |           
|                                                    | Management fee receivable                                                                 |                                                     | $         | 112,448                  |            |      | $          | 120,237    |            |   | $          |           |          
|                                                    | Supplies, inventory and small tools                                                       |                                                     | $         | 126,816                  |            |      | $          | 323,053    |            |   | $          |           |          
|                                                    | Property and equipment                                                                    |                                                     | $         | 2,186                    |            |      | $          | 510,210    |            |   | $          |           |          
|                                                    | Notes receivable                                                                          |                                                     | $         | (241,499                 | )          |      | $          | (953,500   | )          |   | $          |           |          

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 1  DESCRIPTION OF BUSINESS

Organization.Coast Dental Services, Inc. (the Company), is a Florida
corporation. On August 30, 2002, the Company changed its state of
incorporation from Delaware to Florida pursuant to a reincorporation proposal
approved by the Companys shareholders at the annual meeting held on August 2,
2002.

Operations. The Company provides dental practice management services to an
affiliated group of dental practices. The affiliated group of dental practices
is referred to as Coast P.A, and is a related party, as described further below.

Relationship with Coast P.A.The entities comprising Coast P.A. are all
owned by a related party  Adam Diasti, D.D.S., (who is a Director, President
and a majority stockholder of the Company). The Company has 40-year evergreen
dental services agreements (Service and Support Agreements) with each entity
comprising Coast P.A. whereby the Company receives fees for services and
support provided to dental practices operated by Coast P.A.

Coast P.A. employs dentists and dental hygienists and provides all of
the dental services to patients. As the employer of dentists and dental
hygienists, Coast P.A. incurs the cost of dentist and hygienist compensation,
benefits, and certain other expenses. Pursuant to the Services and Support
Agreements, the Company earns a service and support fee from Coast P.A. to
provide comprehensive business services and support to each Dental
Center. In providing these comprehensive business services and support to the
Dental Center, the Company incurs all of the remaining operating expenses
incurred by the Dental Centers including employee costs for assistants and
office staff, dental supplies and lab fees, occupancy, advertising, and Dental
Center administrative costs. The Company does not employ dentists and
hygienists and, accordingly, Dental Center  Salaries and benefits presented
on the Statement of Operations does not include the salaries and benefits of
dentists and hygienists. In addition, the Company acquires the property and
equipment, leases the facilities and improves the facilities in order to
operate the Dental Centers.

Dependence on Coast P.A. The Company receives fees for services and
support provided to Coast P.A. under the Services and Support Agreements,
but does not employ dentists or hygienists or control the dental practices of
Coast P.A. The Companys net revenue is dependent on gross patient revenue
generated by Coast P.A. and, therefore, effective and continued performance of
Coast P.A. and its dentists and hygienists during the terms of the Services and
Support Agreements is essential to the Companys long term success.

Service and Support Agreement with Coast P.A.The Company has 40-year
evergreen dental services agreements (Service and Support Agreements) with each
entity comprising Coast P.A. whereby the Company receives fees for services and
support provided to Coast P.A. Net revenue represents the aggregate fees
charged to the Coast P.A. under the agreements during the year. Gross patient
revenue earned by Coast P.A. at its dental practices is at established rates,
net of refunds, adjustments and discounts. The costs incurred by Coast P.A.
include primarily dentist and hygienist salaries and benefits. The service
and support fee arrangements have been agreed to between the principal and sole
owner of Coast P.A., Adam Diasti, D.D.S., (who is a Director,
President and a majority stockholder of
the Company), and the Chairman of the Board and
Chief Executive Officer of the Company, Terek Diasti. The service and support
fee agreements and any amendments thereto are approved by the Audit Committee,
which is comprised of independent directors. The factors considered in setting
those fees include the Companys evaluation of the services it provides, the
costs incurred by the Company in connection with providing the services and the
Companys negotiated return, balanced against Coast P.A.s requirement for a
retained amount which ensures its financial viability, contemplation of a
long-term relationship with the Company and the future business opportunity
related thereto.

Only the service fees earned by the Company for its services and support
to Coast P.A. and the actual expenses of the Company are reflected in the
financial statements of the Company. Neither the expenses of Coast
P.A. nor any of the patient gross revenues earned by Coast P.A. are reflected
in the financial statements of the Company.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

The service and
support fee is based on an agreed-upon percentage of the
gross patient revenues of Coast P.A. (net of refunds, discounts, and
adjustments and inclusive of capitation revenues). Effective February 1, 1999,
the service and support fee became 73% of Dental Center gross revenues and
effective January 1, 2000, the service and support fee became 67% of Dental
Center gross revenues, with an allowable range of 66% to 72%. The
percentage has remained
unchanged in 2001 and through May 31, 2002.

Effective June 1, 2002, the Company and Coast P.A. amended the Services
and Support Agreement to change the methodology for determining the monthly
services and support fee earned by the Company and to provide
for Coast P.A. to grant the Company a secured interest in Coast P.A.s trade accounts receivable for
payment of services and support fees. This amendment
incorporates the financial performance of each Dental Center in the
determination of the services and support fee earned by the Company. The
Audit Committee of the Board of Directors approved the amendment to the
Services and Support Agreement.

Effective June 1, 2002, the Services and Support fee earned by the Company
for each Dental Center is based on a combination of the actual costs of
services provided and the financial performance of the Dental Centers. As
compensation for its services and support of the Dental Centers, the Company
earns a two-part monthly services and support fee based on: 1) the actual
direct and indirect expenses incurred in providing the services and support to
the Dental Centers (including employee costs, supplies, advertising, occupancy
and Dental Center administrative costs); and 2) the financial performance of
the Dental Centers. The performance-based portion of the fee is set at 90% of
the excess of net dental services revenue over direct and indirect Dental
Center operating expenses. Effective October 1, 2002, the Company and Coast
P.A. amended the Services and Support Agreement to calculate the
performance-based portion of the service and support fee on the aggregate
financial performance of all Dental Centers and not on the stand-alone
financial performance of each Dental Center. The Audit Committee of the Board
of Directors approved this amendment to the Services and Support Agreement.

Net revenues were 65% and 67% of Coast P.A. gross revenues in fourth
quarter 2002 and 2001, respectively, or a decrease of 2% (or
$464,000) due to the October 1, 2002 amendments to the service and support fee agreements.

Expansion through Acquisitions  Acquisitions made with Coast P.A.The
Company and Coast P.A. in prior years have jointly entered into asset purchase
agreements with existing dental practices. Coast P.A. acquired the patient
lists and any other professional assets and the Company acquired certain
tangible assets, principally the dental equipment, and assumed certain
liabilities such as the lease agreement for the facility. The fair value of the
patient lists was determined based upon general market information received
from an independent dental practice transition consultant regarding traditional
dental practice acquisitions. In addition to the purchase price allocations for
tangible assets, there are allocations for identifiable intangible assets and
non-identifiable intangible assets. The identifiable intangible assets
allocation was to non-compete agreements, which are partially allocated to the
Company and partially allocated to Coast P.A.

The purchase price allocation to Coast P.A. was limited to the value of
the patient files and an amount representing the estimated value of Coast
P.A.s right to prohibit the selling professional association and its
dentist(s) from competing in the dental business within the specified area
surrounding the acquired Dental Center. After a determination of the fair value
of the tangible assets and identifiable intangible assets acquired, the
remaining purchase price representing non-identifiable intangible assets was
allocated to the Company and Coast P.A. (as the value of the Dental Service
Agreements (i.e. the Services and Support Agreements) attributable to the
Dental Center).

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.The accompanying financial statements have been
prepared on the accrual basis of accounting. The Company does not own any
interests in, or control the activities of, Coast P.A. Accordingly, the
financial statements of Coast P.A. are not consolidated with those of the
Company.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimated.

Cash Equivalents.The Company considers all highly liquid investments with
an original maturity of 90 days or less to be cash equivalents.

Available-for-Sale Investments.Available-for-sale
securities owned in
2000 and 2001 consisting of tax- free municipal bonds were stated
at fair value with unrealized gains and losses included in comprehensive income
(loss). The amortized cost of these debt securities was adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization was included in interest income, net. Realized gains and losses,
if any, were recognized when incurred. The cost of securities sold was based on
the specific identification method.

Proceeds from the sale of available-for-sale investment securities during
2001 and 2000 were $5,353,381 and $3,049,850, respectively. Gross realized
losses of $82,323 and $38,000 for 2001 and 2000, respectively were realized on
these sales. The unrealized loss on these investments was $132,779 at December
31, 2000.

Management Fee
Receivable. The management fee receivable primarily represents the
non-interest bearing indebtedness of Coast P.A. for services and support fees
payable to the Company in accordance with the Services and Support Agreements.
Also, the Company, from time-to-time, has advanced funds under the Services and
Support Agreements to the Coast P.A. for operations or when Coast P.A. was
acquiring dental practices, for acquisitions of existing dental
practices. See further discussion in Note 4 and Note 10.

Supplies, Inventory and Small Tools.Supplies, inventory and small tools
are stated at the lower of first-in, first-out cost or market.

Property and
Equipment, net.Property and equipment are stated at cost net of
accumulated depreciation.
Equipment held under capital leases is stated at the present value of minimum
lease payments at the inception of the related leases. Depreciation of property
and equipment (including capital lease assets) is calculated using the
straight-line method over the estimated useful lives of the assets ranging from
5 to 15 years. Leasehold improvements are amortized on a straight-line basis
over the estimated useful life, generally 10 years.

When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
a gain or loss. Routine maintenance and repairs are charged to expense as
incurred, while costs of improvements and renewals are capitalized.

Non-Compete Agreements.Costs incurred in connection with the non-compete
agreements are being amortized over their estimated lives of three to nine
years on a straight-line basis.

Dental Service Agreements.Costs of acquisitions in excess of the
estimated fair value of property and equipment and any non-compete agreements
are allocated to the dental services agreement because the Company has
effectively acquired the long-term right to provide comprehensive services and
support to the dental practice of Coast P.A. The dental services agreement with
Coast P.A. represents the Companys exclusive right to provide
comprehensive services and support the Dental Centers during the term of the
services and support agreements. The assigned value of the dental services
agreement is amortized using the straight-line method over its estimated life
of twenty-five years.

Development Costs.The Company charges development costs and start-up
activities for new, expanded or relocated Dental Centers to expense as
incurred.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

Cash Surrender Value of Life Insurance.The Company carries the
non-interest bearing loans relating to the cash surrender value of key-man
insurance at the lesser of the cash surrender value or the amounts loaned. See
also Note 10. Any valuation allowance established when the cash surrender
value is less than the amount loaned is included in General and Administrative
Expenses in the accompanying statement of operations.

Revenue and Cost Recognition.Net revenue represents the aggregate fees
charged to Coast P.A. under the service and support agreements. Gross patient
revenue earned by Coast P.A. at its dental practices is at established rates,
net of refunds, adjustments and discounts. The costs incurred by Coast P.A.
include primarily dentist and hygienist salaries and benefits. Neither the
expenses of Coast P.A. nor any of the patient gross revenues earned by
Coast P.A. are reflected in the financial statements of the
Company. Only the service fees earned by the Company for its services and
support to Coast P.A. and the actual expenses of the Company are reflected in
the financial statements of the Company. In providing these
comprehensive services and support to the Dental Centers, the Company incurs
all of the remaining operating expenses of the Dental Centers
including employee costs for assistants and office staff, dental supplies and
lab fees, occupancy, advertising and Dental Center administrative costs.

Stock-Based Compensation.The Company accounts for stock-based
compensation under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and has disclosed in Note 12 of the financial
statements the effects as if the recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), had been adopted. The Company has not adopted the
expense recognition provisions of SFAS No. 123 for employee and director stock
options. The Company recognizes a stock option receivable from Coast P.A. when
Coast P.A. purchases stock options at fair value and Coast P.A. recognizes
the compensation expense. Under the fair value method, the
Companys pro forma net loss and diluted loss per share would
have been $(4,180,728) and $(2.00); $(9,542,236) and $(4.56); and
$(1,657,739) and $(0.79) for 2002, 2001 and 2000, respectively. See Note 12.

Income Taxes.Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
and are measured using the enacted tax rates and laws.

Comprehensive Income (Loss).Components of comprehensive income (loss)
include net income (loss) and unrealized gains (losses) on available-for-sale
investments net of income tax. The change in the unrealized gains (net of tax) was
$82,323 and $24,070 at December 31, 2001 and 2000, respectively.

Earnings Per Common Share.The basic earnings per common share are based
on the weighted average number of common shares outstanding during each period
adjusted for actual shares issued during the period. The diluted earnings per
common share are equal to the basic shares plus the incremental shares
outstanding as if all in-the-money options were exercised as of the end of the
period. The number of incremental shares is determined using the treasury stock
methodology. As of December 31, 2002, the weighted average
number of common shares are the same for both the basic and diluted per share
computation because inclusion of 23,019 shares of common stock
equivalents would have been anti-dilutive. On July 16, 2001, a
one-for-three reverse stock split was approved by the Companys shareholders
and became effective on July 17, 2001. All common share and per share amounts
in the accompanying financial statements (with the exception of the total
number of authorized common shares which was unchanged) have been adjusted to
reflect the consummation of this stock split in 2001.

Fair Value of Financial Instruments.The estimated fair value of amounts
reported in the financial statements has been determined by using available
market information and appropriate valuation methodologies. The carrying value
of all current assets and current liabilities approximates the fair value
because of their short-term nature. The fair value of long-term notes
receivable and long-term debt and capital leases approximates their carrying
value based on market prices.

Impairment of Long-Lived Assets Whenever significant events or changes
occur which might cause an impairment of value, the Company evaluates the
recoverability of its property and equipment and intangible assets by comparing
their carrying values to the estimated future undiscounted cash flows.
Impairment losses are measured as the amount by which the carrying value of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of carrying value or fair value less costs to sell. See
Note 6.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

New Accounting Standards.In June 2001, Statement of Financial Accounting Standards No. 143 (SFAS
No. 143), Accounting for Asset Retirement Obligations, was issued. SFAS
143, which is effective for the Company beginning in 2003, addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company does not expect the adoption of SFAS 143 in 2003 to have a material
impact on its financial statements.

In July 2001, Statement of Financial Accounting
Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets was
issued. SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach. Amortization of goodwill and certain
intangible assets with indefinite lives, including assets of this nature
recorded in past business combinations, will cease upon adoption of this
statement. On an annual basis,
and when there is reason to suspect that the carrying values of identifiable
intangible assets have been diminished or impaired, identifiable intangible
assets must be tested for impairment, and write-downs may be
necessary. The Company implemented SFAS No. 142 on January 1, 2002. The Company
does not have any unidentifiable intangible assets or goodwill; accordingly,
the adoption of this standard did not have any impact on the Companys
financial position, results of operations or cash flows.

In October 2001, Statement of Financial Accounting Standards No. 144
(SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived
Assets, was issued and replaces SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.SFAS No. 144
requires that long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. The Company adopted
SFAS No. 144 effective January 1, 2002 and the adoption did not have any impact
on the Companys financial position, results of operations or cash flows.

In April 2002, Statement of Financial Accounting Standards No. 145 (SFAS
No. 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, was issued. This newly issued
standard rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of
Debt  an amendment of APB Opinion No. 30, which required all gains and losses
from the extinguishments of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria set forth by APB Opinion 30 will now be used to classify those gains
and losses. SFAS 145 also amends SFAS 13 to require that certain lease
modifications that have economic affects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. In
addition, SFAS 145 amends other existing authoritative pronouncements to make
various technical corrections. The Company does not expect the adoption of
SFAS 145 in 2003 to have a material impact on its financial statements.

In June 2002, the Statement of Financial Accounting Standards No. 146
(SFAS No. 146) Accounting for Costs Associated with Exit or Disposal
Activities was issued. SFAS 146 supersedes Emerging Issues Task Force
(EITF) Issue No. 94-3. The principal difference between SFAS 146 and EITF
Issue No. 94-3 relates to when an entity can recognize a liability related to
exit or disposal activities. SFAS 146 requires that a liability be recognized
for a cost associated with an exit or disposal activity when the liability is
incurred. EITF Issue No. 94-3 allowed a liability related to an exit or
disposal activity to be recognized at the date an entity commits to an exit
plan. The provisions of SFAS 146 are effective for all exit or disposal
activities initiated after January 1, 2003. This statement is not expected to
have a material impact on the Company when adopted in 2003.

On December 31, 2002, the Statement of Financial Accounting Standards No.
148 (SFAS No.148) Accounting for Stock-Based Compensation  Transition and
Disclosure was issued. SFAS 148 amends SFAS 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to the fair value
method of accounting for stock-based employee compensation. The disclosure
requirements for annual and interim financial statements are effective
beginning in 2003. The Company has not yet determined whether it will change to
the fair-value method of accounting for stock-based compensation of SFAS 123
and accordingly it is not presently known if adoption of SFAS
148 will have a material impact on the
Companys reported results of operations or financial position in 2003.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Direct Guarantees
of Indebtedness of Others. FIN 45 changes the accounting for and
the disclosure of guarantees. FIN 45 requires that guarantees
meeting the characteristics described in the Interpretation be
initially recorded at fair value in contract to FASB No. 5 which
requires recording a liability when a loss is probable and reasonable
estimable. The disclosure requirements of FIN 45 are effective
for financial statements and annual periods ending after
December 1, 2002. The initial recognition and initial
measurement provisions of FIN 45 are effective on a prospective
basis to guarantees issued or modified after December 31, 2002.
The adoption of FIN 45 is not expected to have a material effect
upon the Companys financial statements.

In January 2003, the FASB issued FASB
Interpretation (FIN) 46, Consolidation of Variable Interest Entities
(an interpretation of ARB No. 51. FIN 46 expands the
consolidation requirements of ARB No. 51 to include entities
subject to a majority of the risk of loss from the variable interest
entity's activities or entities entitled to receive a majority of the
variable interest entitys returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003 and apply to older
entities in the first fiscal year or interim period beginning after
June 15, 2003. The disclosure requirements of FIN 46 are
effective in all financial statements issued after January 31,
2003, regardless of when the variable interest entity was
established. The adoption of FIN 46 is not expected to have a
material effect upon the Companys financial statements.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

NOTE 3  LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, the Company had
cash and cash equivalents of $2.8
million. At December 31, 2001, the Company had cash and cash equivalents
totaling $2.5 million for a year-to-year increase of $0.3 million. This
increase was from cash generated by the Companys operating
activities in 2002 of $1.4 million (principally from the
collection of the $1.2 million income tax refund) offset by $1.1 million used
to fund capital expenditures and debt service during the year.

To improve cash flows, the Company and Coast P.A. have arranged for a
patient financing program through a national financial institution in January
2002. This program accelerates the collection of net revenues, for those
patients that elect to use the program and qualify for credit, as the financial
institution pays the patient service fees within twenty-four hours, net of
related discounts and brokerage fees.

In February 2002, the Company received a financing commitment of $1.5
million to finance information technology and telecommunications equipment from
a national credit lender through a master lease agreement. Through December 31,
2002 the Company made draws under the facility in the amount of $690,000 to
lease certain information technology assets. Management believes this commitment will provide
another means to finance capital expenditures and thereby enhance the Companys
liquidity.

On December 31, 2002, the Company executed a revolving line of credit
facility with a commercial lender for its working capital needs, which permits
borrowings up to $2,000,000. The Company borrowed $1,760,000 under this
revolving credit facility on January 2, 2003. This credit facility replaced the
previous credit facility that expired in third quarter 2002 that the Company
had not borrowed on since third quarter 2001 due to non-compliance with certain
financial covenants. See Note 8 for further description of these credit
facilities.

Based upon the Companys anticipated capital needs for operation of its
business, general corporate purposes and debt service, management believes that
the combination of the funds expected to be available under the Companys
current cash reserves, the $2 million line of credit and expected cash flow
from operations should be sufficient to meet the Companys funding requirements
to conduct its operations and for further implementation of its growth strategy
and current plans through at least 2003. Additionally, to the extent the
Companys joint Dentist Equity Model initiative with the Coast P.A. is
successful, management believes additional cash could become available to the Company
through accelerated payment of the Coast P.A. management fee receivable through
the sale of certain Coast P.A. assets to the Dentist for cash or the assignment by the
Coast P.A. to the Company of notes receivable from Equity Doctors. However,
there can be no assurance at this time that the Equity Model initiative will be
successful.

In the event the Company is unable to generate its expected cash flows or
fails to have continued access to its $2 million line of credit facility due to
any covenant non-compliance or other events of default, the Company could face
liquidity and working capital constraints, which could adversely impact future
operations and growth.

NOTE 4  MANAGEMENT FEE RECEIVABLE FROM COAST P.A.

The management fee receivable represents non-interest bearing indebtedness
of Coast P.A. for services and support fees payable to the Company in
accordance with the Services and Support Agreements. See Notes 1 and 10.

Effective June 1, 2002, the Company and Coast P.A. amended the Services
and Support Agreements to change the methodology for determining the monthly
services and support fee earned by the Company and to provide for
Coast P.A. to grant the Company a secured interest in Coast P.A.s trade accounts receivable for payment of
services and support fees. The trade accounts receivable collateralizes a portion of the management fee receivable from Coast P.A. The
remainder of the management fee receivable is unsecured and represents a concentration of credit
risk. Presently, the Company expects Coast P.A. to pay the remainder of the
management fee receivable due to the Company from three sources: 1) cash
proceeds from the conversion of Dental Centers to the Equity Model; 2)
assignment of, and subsequent collection of, notes receivable from the
conversion of Dental Centers to the Equity Model; and 3) cash flows from
operations.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

The Company and Coast P.A. converted
sixteen (16) Dental Centers to the
Equity Model (ten (10) in fiscal year 2001 and six (6) in fiscal year 2002).
In fourth quarter 2002, the Company and Coast P.A. divested one Dental Center
and sold the business and remaining assets to the owner-dentist. In addition,
in fourth quarter 2002, the Company, Coast P.A. and four owner-dentists
dissolved four of the Equity Model Dental Centers and the dentists remained in
the practice and became employees of Coast P.A.

In connection with these conversions,
total consideration raised by the
Company and Coast P.A. originally totaled $1.47 million and after considering
the divestiture and four Equity Doctor dissolutions, consideration raised
totals $1.2 million. The Company and Coast P.A. expect to continue
implementation of the Equity Model, which is expected to continue to generate
cash and notes receivable consideration for Coast P.A., which can be used to
pay down the management fee receivable.

The Company evaluates the recoverability of the management fee receivable
from Coast P.A. and has determined at this time that the management fee
receivable is fully collectible and no valuation allowance is necessary. If
Coast P.A. is not successful with the strategies outlined above, or if the
financial condition of Coast P.A. changes, resulting in its inability to pay
the unsecured portion of the management fee receivable, a valuation allowance
may be necessary to reduce the carrying value of this asset to an
amount that is less than its carrying value. The inability of Coast P.A. to pay
the unsecured portion of the management fee receivable could have a material
adverse effect on the Companys financial condition.

The Company carries the management fee receivable from Coast P.A. as a
current asset because the account turns over throughout the year as service and
support fees are earned and are collected.

NOTE 5  DENTIST EQUITY MODEL AND NOTES RECEIVABLE FROM EQUITY DOCTORS

During the third quarter of 2001, Coast P.A., with the assistance of the
Company, began the rollout of the newly developed Dentist Equity Model,
whereby a dentist has the opportunity to acquire a 25% to 50% ownership
interest in a Dental Center and participate in the potential profits of that
Dental Center (the Equity Model). These transactions are structured as a
sale of intangible and/or tangible assets of each Dental Center.
Coast P.A. sells a portion of its intangible Dental Center assets to the dentist
acquiring the interest. Coast P.A. and the dentist then contribute their
respective tangible and intangible assets to a newly formed professional
association. The Equity Doctor Dental Centers continue to operate under the
existing Services and Support Agreement with the Company.

The Company and Coast P.A. consummated the sale of interests in Dental
Centers in accordance with the terms of the Equity Model as follows: ten (10)
in 2001 and six (6) in 2002. In fourth quarter 2002, the Company and Coast
P.A. divested one Dental Center and sold the business and remaining assets to
the owner-dentist. In addition, in fourth quarter 2002, the Company, Coast
P.A. and four owner-dentists dissolved four of the Equity Model Dental Centers
and the dentists remained in the practice and became employees of Coast P.A.

In connection with the ten (10) conversions to the Equity Model in 2001,
the Company sold tangible assets at their net book value, which approximated
market value, totaling approximately $833,000 and recognized no gain or loss on
the transactions. The Company received proceeds totaling approximately $833,000
in the form of cash ($29,000) notes receivable from dentists (approximately
$224,000) and a receivable from Coast P.A. (approximately
$580,000). Subsequently, Coast P.A. assigned its notes receivable of
approximately $700,000 (arising from the dentists for the purchase of Coast
P.A.s intangible assets) to the Company in exchange for a $700,000 reduction
to the receivable from Coast P.A.

In connection with the three (3) conversions to the Equity Model in first
quarter 2002, the Company sold tangible assets at their net book value, which
approximated market value, totaling $317,000 and recognized no gain or loss on
the transactions. The Company received proceeds totaling $317,000 in the form
of notes receivable from dentists (of $79,000) and a receivable
from Coast P.A. (of $238,000). Subsequently, Coast P.A. assigned its notes
receivable of $146,000 (arising from the dentists for the purchase of Coast
P.A.s intangible assets) to the Company in exchange for a $146,000 reduction
to the receivable from Coast P.A.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

Effective April 2002, the Equity Model conversion was modified to allow
for the sale of only the intangible assets of the Dental Centers owned by Coast
P.A. and not to sell the tangible assets of the Dental Center owned by the
Company.

In connection with
the three (3) Dental Centers converted to the Equity
Model in second quarter 2002, Coast P.A. assigned its notes receivable of
$292,500 (arising from the dentists purchase of Coast P.A.s intangible
assets) to the Company in exchange for a $292,500 reduction of the receivable from Coast P.A.
In fourth quarter 2002, the Company and Coast
P.A. divested one Dental Center and sold the business and remaining assets to
the owner-dentist. The Company received $270,000 of the sale of proceeds from this
divestiture in exchange for settlement
of the Equity Doctor note receivable and the leasehold improvements of the
leased facility assumed by the Equity Doctor as part of the transaction. The
Company incurred a loss of $93,000 on this asset sale transaction. In
addition, in fourth quarter 2002, the Company, Coast P.A. and four
owner-dentists dissolved four of the Equity Model Dental Centers and the
dentists remained in the practice and became employees of Coast P.A. The
Company acquired property and equipment from the Equity Doctor entities and
Coast P.A. with a fair value of $435,000 in satisfaction of $206,000 in Equity
Doctor notes receivable and a reduction in the Coast P.A. receivable of $229,000.

Trade receivables incurred (or reduced) in
connection with the Equity Model from Coast P.A. are classified in
management fee receivable in the financial statements.

The short-term notes receivable from
Equity Doctors have an interest rate of 10% with a term
of approximately three to five months. The long-term notes receivable from
Equity Doctors have an interest rate of 10% with a seven-year term including a one-year
interest-only period. Both the short-term and long-term notes provide for
principal and interest payments monthly. As of December 31, 2002 and 2001,
respectively, total notes receivable due from Equity Doctors are $966,000 and
$819,000 including the current portion of $115,000 and $21,000. These notes
receivable are secured by a collateral interest in all of the Equity Doctors
interest in the dental practice, are personally guaranteed by the Equity
Doctors and a key-man life insurance policy is in place with the Company as a
beneficiary. These secured notes receivable represent a concentration of credit
risk. The Company evaluates the recoverability of these secured notes
receivable and has determined at this time that these secured notes receivable
are fully collectible and no valuation allowance is necessary.

NOTE 6  DENTAL CENTER CLOSINGS AND IMPAIRMENT CHARGES

Dental Center Closing, Consolidations and Relocations. The Company and
Coast P.A. continuously evaluate the performance of the Dental Centers and
dental practices. During 2002 and 2001, decisions were made to close and or
consolidate into other locations a total of sixteen (16) Dental Centers and in
addition, in 2002, to relocate one Dental Center to a newer and larger facility
to support the continued growth of that Dental Center. Locations selected for
closure or consolidation were under-performing and certain of which had lease
expirations in the near future. The Company believes that closing
under-performing Dental Centers will improve the overall financial performance
of the Company while allowing management to focus its efforts on improving the
performance at the remaining Dental Centers.

The closings, consolidations and relocations in fiscal years 2002 and 2001
were as follows: eight (8) in 2002 (of which two (2) were in fourth quarter
2002), one (1) relocation in 2002; eight (8) closing and consolidations in
2001  all of which were in fourth quarter 2001. Of the sixteen (16)
facilities closed or consolidated over the two year period ending December 31,
2002, fourteen (14) were previously acquired Dental Centers with acquired
intangible asset values and two (2) internally developed Dental Centers without
any acquired intangible asset values.

In connection with the fiscal year 2002 closures,
the Company recognized a
non-cash charge of approximately $2.6 million in 2002 to provide for
the related asset impairments (fixed assets, leasehold improvements and
intangible assets) and the remaining lease and facilities commitments. Of this
charge, $0.6 million is for estimated lease and facilities commitments. The
remaining charge of $2.0 million is a write down of tangible and intangible
assets with no future cash obligation. Seven Dental Centers ceased operations
during 2002 while the eighth ceased operations in January 2003.

In connection with the fiscal year 2001 closures, the Company recognized a
non-cash charge of approximately $2.8 million in the fourth quarter of 2001 to
provide for the related asset impairments (fixed assets, leasehold improvements
and intangible assets) and the remaining lease and facilities commitments. Of
this charge, $0.4 million is for estimated lease and facilities commitments.
The remaining charge of $2.4 million is a write down of tangible and
intangible assets with no future cash obligation. Seven of these Dental Centers
ceased operations in December 2001 while the eighth ceased operations in
January 2002.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

The activity in the related accrued dental center closing expense is as follows:

|                                                       |  |              |            |      |  |   |            |  
|------------------------------------------------------ |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                                                       |  | December 31,
|                                                       |  |             
|                                                       |  | 2002         |            | 2001
|                                                       |  |              |            |     
|Accrued expense  beginning of year                    |  | $            | 420,304    |      |  | $ |           |  
|                                                       |  |              |            |      |  |   |            |  
|Closing and relocation charge  current year           |  |              | 2,707,819  |      |  |   | 2,750,994  |  
|Closing and relocation charge  revision to prior year |  |              | (82,995    | )    |  |   |           |  
|                                                       |  |              |            |      |  |   |            |  
|Subtotal  Closing and relocation charge               |  |              | 2,624,824  |      |  |   | 2,750,994  |  
|Write off of tangible and intangible assets            |  |              | (2,061,211 | )    |  |   | (2,330,690 | )
|Payments                                               |  |              | (261,062   | )    |  |   |           |  
|                                                       |  |              |            |      |  |   |            |  
|Accrued expense  end of year                          |  | $            | 722,855    |      |  | $ | 420,304    |  
|                                                       |  |              |            |      |  |   |            |  

The Dental Center closing accrual at December 31, 2002 includes $164,896
for the Dental Centers closed in 2001 and $557,959 for the Dental Centers
closed in 2002.

Asset Impairment Charges.The Company evaluates the recoverability of its
investment in long-lived tangible and intangible assets at the Dental Center
level using estimated undiscounted future cash flows. As a result of this
evaluation in 2002, three (3) Dental Centers were impaired. An impairment charge
of $1.3 million was recorded in the 2002 after comparing the estimated fair
value of the Dental Center on a discounted cash flow basis to their carrying
values. In addition, an impairment charge of $0.3 million was recorded in 2002
to reduce to realizable value of certain surplus dental equipment and certain
other equipment.

As a result of this evaluation in 2001, one (1) Dental Center was
impaired. An impairment charge of $0.95 million was recorded in 2001 after
comparing the estimated fair value of the Dental Center on a discounted cash
flow basis to its carrying value.

NOTE 7  LONG LIVED ASSETS

The Companys property and equipment, net consists of the following:

|                                  |  |              |             |      |  |   |             |  
|--------------------------------- |  | ------------ | ----------- | ---- |  | - | ----------- | -
|                                  |  | December 31,
|                                  |  |             
|                                  |  | 2002         |             | 2001
|                                  |  |              |             |     
|Furniture, fixtures and equipment |  | $            | 15,671,562  |      |  | $ | 16,486,663  |  
|Leasehold improvements            |  |              | 12,338,898  |      |  |   | 12,554,435  |  
|Leased equipment                  |  |              | 121,168     |      |  |   | 300,387     |  
|                                  |  |              |             |      |  |   |             |  
|                                  |  |              | 28,131,628  |      |  |   | 29,341,485  |  
|Less accumulated depreciation     |  |              | (14,395,020 | )    |  |   | (11,874,531 | )
|                                  |  |              |             |      |  |   |             |  
|                                  |  |              | 13,736,608  |      |  |   | 17,466,954  |  
|Construction in progress          |  |              | 29,100      |      |  |   | 143,040     |  
|                                  |  |              |             |      |  |   |             |  
|Total                             |  | $            | 13,765,708  |      |  | $ | 17,609,994  |  
|                                  |  |              |             |      |  |   |             |  

Depreciation expense was $3,668,891, $3,712,302 and $3,530,394 for the
years ended December 31, 2002, 2001 and 2000, respectively.

During 2002 and 2001, the Company sold property and equipment with a net
book value of approximately $317,000 and $833,000, respectively in connection
with the Equity Model. Of this total, property and equipment with net book
values of approximately $238,000 (in 2002) and $580,000 (in 2001); and $79,000
(in 2002) and $253,000 (in 2001) were sold to the Coast P.A. and selected
dentists, respectively. These assets were sold at market value, which
approximated the net book value and therefore, no gain or loss was recorded on
these transactions.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

In fourth quarter 2002, the Company, Coast P.A. and four owner-dentists
dissolved four of the Equity Model Dental Centers and the dentists remained in
the practice and became employees of Coast P.A. The Company acquired property
and equipment from the Equity Doctor entities and Coast P.A. with a fair value
of $435,000.

The Companys
acquired intangible assets consists of the following:

|                                     |                                |       |   |                         |        |              |   |         |         | 
|------------------------------------ | ------------------------------ | ----- | - | ----------------------- | ------ | ------------ | - | ------- | ------- | 
|                                     |                                |       |   | As of
December 31, 2002
|                                     |                                |       |   |                        
|                                     |                                |       |   | Gross
Carrying          |        | Accumulated 
|                                     |                                |       |   | Amount                  |        | Amortization
|                                     |                                |       |   |                         |        |             
|Amortized
intangible assets          |                                |       |   |                         |        |              |   |        
|                                     | Non-compete
agreements         |       | $ | 1,124                   |        |              | $ | (841)   |        
|                                     | Acquisition
costs              |       |   | 1,564                   |        |              |   | (278)   |        
|                                     | Service
and support agreements |       |   | 11,867                  |        |              |   | (3,206) |        
|                                     |                                |       |   |                         |        |              |   |         |         | 
|                                     |                                | Total |   | $                       | 14,555 |              |   | $       | (4,325) | 
|                                     |                                |       |   |                         |        |              |   |         |         | 
|                                    
|Aggregate
Amortization Expense:      |                                |       |   |                         |        |              |   |        
|                                    
|For
the year ended December 31, 2002 |                                |       |   |                         | $779   |              |   |        
|                                    
|Estimated
Amortization Expense:      |                                |       |   |                         |        |              |   |        
|                                    
|For
the year ended December 31, 2003 |                                |       |   |                         | $736   |              |   |        
|For
the year ended December 31, 2004 |                                |       |   |                         | $731   |              |   |        
|For
the year ended December 31, 2005 |                                |       |   |                         | $644   |              |   |        
|For
the year ended December 31, 2006 |                                |       |   |                         | $609   |              |   |        
|For
the year ended December 31, 2007 |                                |       |   |                         | $609   |              |   |        

NOTE 8  DEBT AND CAPITAL LEASE OBLIGATIONS

The Companys debt obligations consists of the following:

|                                                                                                                                   |  |              |         |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | December 31,
|                                                                                                                                   |  |             
|                                                                                                                                   |  | 2002         |         | 2001
|                                                                                                                                   |  |              |         |     
|Notes payable issued in connection with various acquisitions with varying
installments at interest rates ranging from 8.0% to 9.0% |  | $            | 90,598  |      |  | $ | 350,270  |  
|Revolving lines of credit                                                                                                          |  |              |        |      |  |   |         |  
|                                                                                                                                   |  |              |         |      |  |   |          |  
|Total long term debt                                                                                                               |  |              | 90,598  |      |  |   | 350,270  |  
|Less current maturities                                                                                                            |  |              | (90,598 | )    |  |   | (257,520 | )
|                                                                                                                                   |  |              |         |      |  |   |          |  
|Long-term debt, excluding current maturities                                                                                       |  | $            |        |      |  | $ | 92,750   |  
|                                                                                                                                   |  |              |         |      |  |   |          |  

Through November 4, 2002, the Company had a $5 million revolving line of
credit with a commercial bank, Bank of America, N.A. The credit facility was
originally in the amount of $20 million and was amended to reduce the credit
line to $5 million in 2001. This credit facility was a revolver, maturing
November 4, 2002, with interest at LIBOR plus a margin percentage ranging from
1.25% to 1.75%. Under terms of the 2001 amendment, no funds would be available
until the Company met certain financial performance levels. As of December 31,
2001 and through the date of expiration of the credit facility in November 2002
the Company did not meet the financial performance measures required to be able
to draw on the credit facility. Accordingly, as of December 31, 2001, and
through November 2002, the Company had no outstanding borrowings from this
facility.

On December 31, 2002, the Company closed on a $4 million Revolving Credit,
Term Loan and Security Agreement with a commercial lender, CapitalSource
Finance, LLC (Capital Source) that includes a $2 million revolving line of
credit and a $2 million term loan. This credit facility has a three (3) year
term and expires December 31, 2005. The term loan can only be accessed to
finance the buyback of the Companys common stock. See further discussion in
Note 14. The $2 million revolving credit facility bears interest at the prime
rate plus 2.25%, or 7.0%, at December 31, 2002. This revolving line of credit
is secured by substantially all of the Companys assets, requires the Company
to meet certain minimum financial covenants and comply with customary
affirmative and negative covenants. There is a commitment fee for the unused
portion of the revolving line of credit of 1.00%, and a collateral management
fee of 1.26%. At closing on December 31, 2002, a commitment fee was paid
totaling $60,000 comprised of 1.00% on the $2 million revolving credit facility
and 2.00% on the $2 million term loan credit facility. Should the Company
terminate the revolving line of credit facility within the first
twelve months,
an early termination fee of $60,000 is due and $20,000 is due if terminated in
the second twelve months. An investment banking firm affiliated with a
director of the Company assisted the Company in securing the CapitalSource loan
and earned investment banking fees, which were paid in first quarter 2003 (see
also Note 10). Under terms of the commitment letter from
CapitalSource, the Company agreed to reimburse the lender for certain
costs and expenses. The Diasti Family Limited Partnership, a related
party (see Note 10), paid a $50,000 deposit toward such costs in
December 2002. After the loan facility was closed, the Company
reimbursed the Diasti Family Limited Partnership the $50,000 in
January 2003.

The Company did not draw on the revolving line of credit at closing;
therefore, there were no borrowings as of December 31, 2002;
however, the Company
did draw $1,760,000 for working capital purposes on January 2, 2003.

The Company's capital lease obligations are as follows:

|                                                                                                                                             |                      |              |         |         |      |   |   |   | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------ | ------- | ------- | ---- | - | - | - | 
|                                                                                                                                             |                      | December 31,
|                                                                                                                                             |                      |              |        
|                                                                                                                                             |                      |              | 2002    |         | 2001
|                                                                                                                                             |                      |              |         |         |     
|Capital lease obligations, at varying interest rates of imputed interest
From 15% to 21%, collateralized by fully amortized leased
equipment |                      | $            | 105,681 |         |      | $ |  |  
|                                                                                                                                             | Less current portion |              |         | (27,327 | )    |   |   |  | 
|                                                                                                                                             |                      |              |         |         |      |   |   |  
|Capital lease obligations, net of current portion                                                                                            |                      | $            | 78,354  |         |      | $ |  |  
|                                                                                                                                             |                      |              |         |         |      |   |   |  

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

Scheduled payments on capital lease obligations and debt as of December
31, 2002 are as follows:

|      |  |               |         |           |  |   |        | 
|----- |  | ------------- | ------- | --------- |  | - | ------ | 
|      |  | Capital Lease |         | Long-Term
|      |  | Obligations   |         | Debt     
|      |  |               |         |          
|2003  |  | $             | 27,327  |           |  | $ | 90,598 | 
|2004  |  |               | 30,074  |           |  |   |       | 
|2005  |  |               | 33,098  |           |  |   |       | 
|2006  |  |               | 15,182  |           |  |   |       | 
|      |  |               |         |           |  |   |        | 
|Total |  | $             | 105,681 |           |  | $ | 90,598 | 
|      |  |               |         |           |  |   |        | 

NOTE 9  INCOME TAXES

For the years ended December 31, 2002, 2001 and 2000, respectively, the
income tax (expense) benefit consisted of the following:

|                           |                                             |   |           |           |      |   |         |          |   |   |         |         | 
|-------------------------- | ------------------------------------------- | - | --------- | --------- | ---- | - | ------- | -------- | - | - | ------- | ------- | 
|                           |                                             |   | 2002      |           | 2001 |   | 2000   
|                           |                                             |   |           |           |      |   |        
|Current:                   |                                             |   |           |           |      |   |         |          |   |   |         |        
|                           | Federal                                     |   | $         | 1,026,629 |      |   | $       | 336,222  |   |   | $       | 421,162 | 
|                           | State                                       |   |           |          |      |   |         | 2,787    |   |   |         | 26,408  | 
|                           |                                             |   |           |           |      |   |         |          |   |   |         |        
|                           | Total current income tax (expense) benefit  |   |           | 1,026,629 |      |   |         | 339,009  |   |   |         | 447,570 | 
|                           |                                             |   |           |           |      |   |         |          |   |   |         |        
|Deferred:                  |                                             |   |           |           |      |   |         |          |   |   |         |        
|                           | Federal                                     |   |           |          |      |   |         | (160,356 | ) |   |         | 287,792 | 
|                           | State                                       |   |           |          |      |   |         | (24,299  | ) |   |         | 76,955  | 
|                           |                                             |   |           |           |      |   |         |          |   |   |         |        
|                           | Total deferred income tax (expense) benefit |   |           |          |      |   |         | (184,655 | ) |   |         | 364,747 | 
|                           |                                             |   |           |           |      |   |         |          |   |   |         |        
|Total current and deferred |                                             | $ | 1,026,629 |           |      | $ | 154,354 |          |   | $ | 812,317 |        
|                           |                                             |   |           |           |      |   |         |          |   |   |         |        

The components of deferred tax assets (liabilities) as of December 31, 2002 and
2001, respectively, are as follows:

|                                   |                                                        |   |              |            |      |   |            |            |  
|---------------------------------- | ------------------------------------------------------ | - | ------------ | ---------- | ---- | - | ---------- | ---------- | -
|                                   |                                                        |   | December 31,
|                                   |                                                        |   |             
|                                   |                                                        |   | 2002         |            | 2001
|                                   |                                                        |   |              |            |     
|Deferred tax asset:                |                                                        |   |              |            |      |   |            |           
|                                   | AMT credit carryforward                                |   | $            | 753,449    |      |   | $          | 300,836    |  
|                                   | Net operating loss carryforwards                       |   |              | 302,563    |      |   |            | 1,891,462  |  
|                                   | Accrued Dental Center closing costs                    |   |              | 261,388    |      |   |            | 158,160    |  
|                                   | Basis
difference in fixed assets and intangible assets |   |              | 506,478    |      |   |            |           |  
|                                   | Impairment reserves                                    |   |              | 462,726    |      |   |            | 358,364    |  
|                                   | Other accrued expenses                                 |   |              | 990,268    |      |   |            | 888,583    |  
|                                   |                                                        |   |              |            |      |   |            |           
|Total deferred tax asset           |                                                        |   | 3,276,872    |            |      |   | (3,597,405 | )         
|                                   | Less: Valuation allowance                              |   |              | (3,276,872 | )    |   |            | (3,134,621 | )
|                                   |                                                        |   |              |            |      |   |            |           
|Net deferred tax asset             |                                                        |   |             |            |      |   | 462,784    |           
|Deferred tax liability:            |                                                        |   |              |            |      |   |            |           
|                                   | Basis difference in fixed assets and intangible assets |   |              |           |      |   |            | (462,784   | )
|                                   |                                                        |   |              |            |      |   |            |           
|Net deferred tax asset (liability) |                                                        | $ |             |            |      | $ |           |           
|                                   |                                                        |   |              |            |      |   |            |           

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

A reconciliation of the statutory federal income tax rate to the Companys
effective income tax rate as of December 31, 2002, 2001 and 2000 respectively,
is as follows:

|                                                      |  |              |       |      |  |      |       |   |  |  |      |  
|----------------------------------------------------- |  | ------------ | ----- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                                      |  | December 31,
|                                                      |  |             
|                                                      |  | 2002         |       | 2001 |  | 2000
|                                                      |  |              |       |      |  |     
|Statutory federal rate                                |  |              | 34.0  | %    |  |      | 34.0  | % |  |  | 34.0 | %
|State income taxes, net of federal income tax benefit |  |              |      |      |  |      | (0.2  | ) |  |  | 3.3  |  
|Tax exempt interest income                            |  |              |      |      |  |      | 0.6   |   |  |  | 5.1  |  
|Non
deductible intangible assets                      |  |              | (11.3 | )    |  |      | (0.6  | ) |  |  | (2.7 | )
|Change in valuation allowance                         |  |              | (3.9  | )    |  |      | (32.9 | ) |  |  |     |  
|Miscellaneous                                         |  |              | 1.9   |      |  |      | 0.7   |   |  |  | (0.6 | )
|                                                      |  |              |       |      |  |      |       |   |  |  |      |  
|Effective tax rate                                    |  |              | 20.7  | %    |  |      | 1.6   | % |  |  | 39.1 | %
|                                                      |  |              |       |      |  |      |       |   |  |  |      |  

For the year ended December 31, 2002, 2001 and 2000, federal net operating
losses were $0.2 million, $4.8 million and $0, respectively. These federal net
operating loss carryforwards will expire if unused by
December 31, 2022.

For the years ended December 31, 2002, 2001 and 2000, the state net
operating loss carryforwards were $6.3 million $6.8 million and $1.6 million,
respectively. These state net operating loss carryforwards will expire if
unused by December 31, 2022.

In 2002, the Company generated a federal net operating loss of $135,000
and an AMT net operating loss of $877,000. The Company will be able to
carryback the AMT net operating loss of $877,000 to tax year 1998. The net
operating loss of $135,000 will be carried forward as no prior year taxable
income is available for carryback.

On March 9, 2002, the Job Creation and Worker Assistance Act of 2002
(Act) was signed into law. This Act contains a provision that enabled the
Company to carry back a substantial portion of its net operating losses to tax
years 1997 and 1998 and file for additional refunds of federal income taxes
previously paid of $888,000. The total income tax refund filed for tax years
1997, 1998 and 1999 in April 2002 was $1,241,000. The Company collected the
income tax refund in second quarter of 2002.

The effect of the change in tax law has been recorded as a reduction in
the deferred tax asset, a reduction in the valuation allowance and recognition
of a tax benefit and an increase in income tax receivable of $888,000 in the
first quarter 2002, when the law was enacted.

The 2002 income tax
benefit of $1,027,000 includes the $888,000 tax
benefit from the change in law when enacted as well as an income tax benefit of
$139,000 for 2002 for the AMT net operating loss that can be carried back.

The Company incurred a federal tax net operating loss in 2002, 2001 and
2000. Based on the three-year history of incurring net operating losses, the
Company has provided a full valuation allowance on its remaining net deferred
tax asset. As a result, the Company can not conclude that the
realization of the deferred tax asset is more likely than not but will re-evaluate the amount of the valuation allowance
on an ongoing basis.

NOTE 10  RELATED PARTY TRANSACTIONS

The Audit Committee
of the Board of Directors, comprised of independent
directors, reviews and approves the Companys related party relationships and
transactions.

Service and Support Agreements with Coast P.A. The Company has agreements
to provide services and support to the dental practices operated by Coast P.A.
Currently the Companys only source of net revenue are the service and support
fees charged to Coast P.A. under these agreements. Adam Diasti, D.D.S., a
Director, President and a majority shareholder of the Company, is the sole
owner of Coast P.A. See Note 1 for a further description of the
relationship with Coast P.A. and Notes 1 and 4 for description of the
amendments to the Service and Support Agreements in 2002.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

Agreement with Adam Diasti, D.D.S.The Company has an agreement with Adam
Diasti, D.D.S., pursuant to which Dr. Diasti has agreed to sell all of his
shares of Coast P.A. stock to a licensed dentist designated by the Company if
certain events occur. Dr. Diasti is a Director and President and a majority
stockholder of the Company. The purchase price under the agreement, if the
certain event should occur, will be the fair market value of Dr. Diastis
shares of the Coast P.A.s stock. The Company has no financial interest in
Coast P.A., nor would it benefit financially from any sale of the Coast P. A.
stock.

Accounts Receivable from Coast P.A.As of December 31, 2002, the balance
of the management fee receivable from Coast P.A. was approximately $17.4
million. This amount is directly attributable to service and support fees
earned. Also, the Company, from time-to-time, has advanced funds under the
Services and Support Agreements to Coast P.A. for operations, or when Coast
P.A. was acquiring dental practices, advanced funds for acquisitions of
existing dental practices. A portion of the management fee receivable is
unsecured and represents a concentration of credit risk and exposes the Company
to risk of loss for these amounts should Coast P.A. be unable to pay its debts.
This receivable is considered fully collectible and no bad debt allowance has
been provided. See further discussion in Note 4 regarding the management fee
receivable from Coast. P.A.

Note Receivable
from Coast P.A.. The Company periodically advances funds
to/from Coast P.A. These advances to and from Coast P.A. are reflected on the
balance sheet as a note receivable from Coast P.A. for approximately $0.2
million at both December 31, 2002 and December 31, 2001. These notes receivable
are non-interest bearing and are due upon demand.

Loans to Majority Stockholders.Through June 30, 2002, the Company
periodically advanced funds to/from the majority stockholders. Advances to the
majority stockholders, and affiliates of majority stockholders shown
on the balance sheet in Other Assets, are
non-interest bearing and were approximately $182,000 and $163,000 at December
31, 2002 and 2001, respectively.

Stock Option Grants to Affiliated Professionals and Stock Option
Receivable from Coast P.A.Pursuant to the Companys Affiliated Professionals
Stock Plan, the fair value of the Companys stock options granted to affiliated
dental professionals employed by Coast P.A. are charged to Coast P.A. and
reimbursed to the Company. Upon the departure or termination of a dental
professional from Coast P.A., any options previously granted that are forfeited
by the dental professional pursuant to the terms of the affiliated professional
benefit plan, revert to Coast P.A. for reissuance to new dental professionals.
As a result of such forfeitures, Coast P.A. currently holds options to purchase
148,658 shares of the Companys common stock at exercise prices ranging from
$2.45 per share to $76.13 per share. At December 31, 2002 and 2001, the Company
has recorded a stock option receivable from Coast P.A. as a reduction of
stockholders equity in the amount of $2.5 million and $2.4 million,
respectively for amounts due for the stock option grants to the Affiliated
Professionals Stock Plan. This stock option receivable represents the fair
value of the options issued to the dental professionals employed by Coast P.A.
and is reimbursable to the Company from Coast P.A. See Note 12 for a further
description of the plan. This stock option receivable is considered fully
collectible and no bad debt allowance has been provided.

Dentist Equity Model. During the third quarter of 2001, Coast P.A., with
the assistance of the Company, began the rollout of the newly developed
Dentist Equity Model, whereby a dentist has the opportunity to acquire a 25%
to 50% ownership interest in a Dental Center and participate in the potential
profits of that Dental Center. These transactions are structured as a sale of
intangible and/or tangible assets of each Dental Center. Coast P.A. sells
a portion of its intangible Dental Center assets to the dentist acquiring the
interest. Coast P.A. and the dentist then contribute their respective
tangible and intangible assets to a newly formed professional association.
The Equity Doctor Dental Centers continue to operate under the existing
Services and Support Agreement with the Company.

The Company and Coast P.A. consummated the sale of interests in Dental
Centers in accordance with the terms of the Equity Model as follows: ten (10)
in 2001 and six (6) in 2002. In fourth quarter 2002, the Company and Coast
P.A. divested one Dental Center and sold the business and remaining assets to
the owner-dentist. In addition, in fourth quarter 2002, the Company, Coast
P.A. and four owner-dentists dissolved four of the Equity Model Dental Centers
and the dentists remained in the practice and became employees of Coast P.A.

See Note 5 for further discussion of the conversion of the Dental Centers
to the Equity Model.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

Supply Agreement.The Company entered into a Supply Agreement dated
September 27, 2000 with edentaldirect.com, Inc. Tim Diasti, a majority
stockholder of the Company, is an officer, director and shareholder of
edentaldirect.com, Inc. and brother of Terek and Adam Diasti. The Companys
executive officers and directors, Terek Diasti and Adam Diasti, and its directors, Donald
R. Millard and Darrell C. Smith are also shareholders of edentaldirect.com,
Inc. Under the Supply Agreement, the Company purchases dental products and
supplies from edentaldirect.com, Inc. During 2002, 2001 and 2000, the Company
paid edentaldirect.com, Inc. approximately $4,034,000, $1,380,000 and $89,000,
respectively, for dental products and supplies, which represents approximately
69%, 35% and 3% of the Companys total supply purchases for such periods. At
December 31, 2002 and 2001 the Company owed edentaldirect.com approximately
$212,000 and $420,000 for the purchase of dental products and supplies, which
is included in Accounts Payable in the accompanying financial statements. In
2002, the Company began purchasing Celara brand denture systems from
edentaldirect.com that are produced by Dentovations, Inc, which is 50% owned by
the Diasti Family Limited Partnership (a related party). The Companys
purchases of Celara denture systems totaled $22,000 through December 31, 2002.

Dental Lab Products In third quarter 2002, the Company began purchasing
a portion of its dental lab products from Summit Dental, Inc. d/b/a Global
Prosthetic Services (Summit). Summit is 51% owned by the sister and
brother-in-law of Terek and Adam Diasti. Terek and Adam Diasti are directors
of Summit. Terek Diasti has personally guaranteed the real property lease for
the space used by Summit to conduct its operations. Through December 31, 2002,
payments by the Company to Summit totaled $214,000.

Split Dollar Life Insurance Arrangement.In February 1998, the Company
entered into split-dollar life insurance arrangements with executive officers
and directors Terek Diasti and Adam Diasti. Pursuant to the terms of the
agreements, the Company lends the money to pay the annual premiums and has
received collateral assignments of the life insurance policies to secure
repayment of the loans. Upon the death of the covered person the Company is
entitled to receive repayment of the loans from the life insurance proceeds. In
2001, the Company loaned $56,000 and $87,000 to Terek Diasti and Adam Diasti,
respectively, for the premiums on the life insurance policies. There were no
loans in 2002. The Company has the ability to unilaterally cancel the policies
on 30 days notice and receive the lesser of the cash surrender value or the
amounts loaned. The total of these non-interest bearing receivables reflected
as Other Assets in the balance sheet at December 31, 2002 and 2001
is $1,020,000 and $1,777,000, respectively, net of valuation allowances on the
underlying investments of the split dollar life insurance policies totaling
$882,000 and $505,000. In 2002, the Company redeemed the cash
surrender value of life insurance for two former officers of the
Company and collected cash proceeds of $380,000. The change in the valuation allowance for the years
ended 2002, 2001 and 2000 was $377,000 (expense); $238,000 (expense); and
$267,000 (expense) and is recorded in General and Administrative Expenses in
the accompanying Statement of Operations.

Legal Services.Darrell C. Smith, a partner in the law firm of Shumaker,
Loop & Kendrick, LLP, became a director of the Company in 2002. This firm has
served as general counsel to the Company for several years. In 2002, the Company paid
the law firm fees totaling $477,000 for services rendered.

Investment Banking Services.A director of the Company, Geoffrey L. Faux
is a partner in the investment-banking firm of Harpeth Capital, LLC. Harpeth
Capital, LLC assisted the Company in securing its financing with CapitalSource
and was paid fees of $40,000 in first quarter 2003 for these
services, which were accrued at December 31, 2002.

Patient Financing  Brokerage Fees.Coast P.A. offers private label
credit card financing to its patients through a national bank.
eHealthCredit.com, Inc. (eHealth) markets the credit card program and
is paid a brokerage fee by the Company. The
Diasti Family Limited Partnership (an affiliate of the Company) and Darrell C.
Smith (a director of the Company) own 90% and 5%, respectively, of eHealth. In
third quarter 2002, the Company paid eHealth brokerage fees of approximately
$85,000 for the period from January 2002 to July 2002 in connection with the
credit card program. In addition, in third quarter 2002, the Company paid
eHealth a $15,000 penalty (the maximum quarterly penalty) as patient financing
volume in the second quarter 2002 was below certain specified target levels.
Brokerage fees due to Health as of December 31, 2002 were approximately
$137,000 and total brokerage fees earned by eHealth in fiscal year 2002 were
approximately $222,000. Further, the Company has entered into a guaranty with
the bank pursuant to which it has agreed to guarantee and become a surety for
eHealths obligations under the credit card program. eHealths obligations to
the bank would be for the unamortized cost of credit card approval machines, if
any, should Coast P.A. return any machines to the bank within the
period of the agreement. At inception of the
program, eHealths maximum obligation was $69,000. Further, although the
credit card program brokerage fee received by eHealth was previously required
to be split between eHealth and Adenta Patient Financing, LLC

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

(Adenta), a company owned in part by Diasti Holdings, LLC (also an affiliate
of Coast Dental), both Adenta and Diasti Holdings, LLC are in dissolution. No
fees have been paid by either the Company or Coast P.A. to Adenta or Diasti
Holdings, LLC. Adenta was an additional named insured on the Companys
property and casualty insurance policies through third quarter 2002. Estimated
annual premiums for inclusion on Adenta on these insurance policies was $2,100.

Loan from Diasti Family Limited Partnership.The Company entered into a
credit agreement with the Diasti Family Limited Partnership in February 2003
for the Diasti Family Limited Partnership to loan the Company up to
$3,400,000 at an annual interest rate of 5.00% to finance a buyback of the Companys common stock. The loan is due five years from the date the funds are borrowed.
Subject to the approval of the Companys senior lender, CapitalSource, the loan
is secured by a second priority lien on all of the Companys assets. See
further discussion of the proposed stock buyback in Note 14.

Loan Guarantee. Upon the successful completion of a buyback of
substantially all of the Companys outstanding common stock and drawing on the
$2 million Capital Source term loan, the Diasti Family Limited Partnership and
Coast P.A. will guarantee certain indebtedness of the Company under the $4
million credit facility with CapitalSource. See further discussion of the
proposed stock buyback in Note 14.

Loan Closing
Costs. Under terms of the commitment letter from CapitalSource
(see Note 8), the Company agreed to reimburse the lender for
certain costs and expenses. The Diasti Family Limited Partnership
paid a $50,000 deposit toward such costs in December 2002. After the
loan facility was closed, the Company reimbursed the Diasti Family
Limited Partnership the
$50,000 in January 2003. This liability is included in Other Accrued
Expenses in the accompanying balance sheet at December 31, 2002.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

NOTE 11  COMMITMENTS AND CONTINGENCIES

The Company leases space for operation of its Dental Centers, primarily
under non-cancelable operating leases, for generally a five to seven year term
with renewal options. Dental Center Occupancy expense includes rent expense
for these leased facilities totaling $4,719,000, $5,187,000, and $4,734,000
for the years ended December 31, 2002, 2001 and 2000, respectively.

Future minimum payments under non-cancelable leases are as follows:

|                         |  |                |            | 
|------------------------ |  | -------------- | ---------- | 
|                         |  | Future Minimum
|Years Ended December 31, |  | Lease Payments
|                         |  |               
|2003                     |  | $              | 4,387,000  | 
|2004                     |  |                | 2,782,000  | 
|2005                     |  |                | 2,036,000  | 
|2006                     |  |                | 1,159,000  | 
|2007                     |  |                | 585,000    | 
|Thereafter               |  |                | 199,000    | 
|                         |  |                |            | 
|Total                    |  | $              | 11,148,000 | 
|                         |  |                |            | 

The Company has entered into employment agreements with three of its
officers, two of whom are the largest stockholders of the Company and together
own a majority of the Companys common stock. The terms of the agreements are
from two to five years.

The Company is a party to a
number of legal and administrative proceedings and other claims
arising in the ordinary course of business, including matters related
to the dental services provided to patients by Coast P.A. To date, these
proceedings have not had a material effect on the Company's financial
condition, results of operations or cash flows. However, there can be no
assurance that in future periods these proceedings will not have a
material effect on our business, financial condition, results of
operations or cash flows.

The Company
previously disclosed in its most recent Form 10-K and Form 10-Q's
that it is a party to employee related matters two of which are
collective action complaints. Settlements have been reached for three
such matters with a maximum cost to us totaling $842,000 (including
plaintiff's legal fees and expenses). Through December 31, 2002,
payments on these three matters totaling $220,000 have been made and
the Company expects to make the remaining payments in the next two
quarters. The amounts accrued for these matters are included on the
Balance Sheet in Other Accrued expenses.

The Company is a
business services company that provides comprehensive business
services and support to general dentistry practices and it does not
provide or perform dental services. The dental services are provided
to patients solely by licensed dentists and dental hygienists
employed by Coast P.A. The Company is named as a party in several
professional liability matters brought by patients against Coast P.A.
However, it does not expect to have any liability exposure because it
does not provide or perform dental services. Furthermore, the Company
has never been found liable in a professional liability lawsuit for
dental services provided by a dental professional. However, there can
be no assurance that in the future a court of law will not find the
Company liable in a professional liability lawsuit.

While the outcome of
the pending legal and administrative proceedings and other claims
cannot be predicted with certainty, management does not expect the
pending matters to have a material adverse effect on the financial
position, results of operations or cash flows of the Company. The
Company has accrued amounts it believes are appropriate at the
present time with respect to the pending and settled legal and
administrative proceedings and other claims based upon discussions
with legal counsel and the nature and present status of such
proceedings. The Company intends to vigorously defend its positions
in each of the pending matters.

NOTE 12  STOCKHOLDERS EQUITY

Effective April 1, 1996, the Board of Directors adopted, and the
stockholders of the Company approved, two stock incentive plans: the Employee
Stock Option Plan (the Incentive Plan) and the Affiliated Professionals Stock
Plan (the Professionals Plan, together, the Plans). The purpose of the
Plans is to provide directors, officers, key employees and dental professionals
employed by Coast P.A. (subject to reimbursement by Coast P.A.) with additional
incentives by increasing their proprietary interest in the Company or tying a
portion of their compensation to increases in the price of the Companys common
stock. The aggregate number of shares of Common Stock subject to each plan is
750,000 shares.

The following tables summarize the stock option transactions for the
Affiliated Professionals Plan and the Incentive Plan for the three years ended
December 31, 2002. These tables reflect the retroactive adjustment for the
one-for-three reverse stock split that was consummated during 2001.

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COAST DENTAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS  (Continued)

Professionals Plan (For Affiliated Dental Professionals):

|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |          |       | 
|----------------------------------- | ----------------------------------- | --------- | ------- | --------- | -------- | --------------- | - | -------------- | ----- |  |  | - | - |  | - | ----- | ----- | ------- | - | -------- | ----- | 
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   | Weighted
|                                    |                                     |           |         | Number of |          |                 |   |                |       |  |  |   |   |  |   |       |       | Average
|                                    |                                     |           |         | Shares    |          | Range Per Share |   | Exercise Price
|                                    |                                     |           |         |           |          |                 |   |               
|                                    | Outstanding
as of January 1, 2000   |           |         | 177,141   |          |                 | $ | 9.75           |       |  |  |  |   |  | $ | 89.25 |       |         | $ | 28.62    |      
|                                    |                                     | Granted   |         |           | 129,547  |                 |   | $              | 5.25  |  |  |   |  |  |   | $     | 7.31  |         |   | $        | 6.39  | 
|                                    |                                     | Forfeited |         |           | (124,313 | )               |   | $              | 16.50 |  |  |   |  |  |   | $     | 46.05 |         |   | $        | 10.95 | 
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    | Outstanding as of December 31, 2000 |           |         | 182,375   |          |                 | $ | 5.25           |       |  |  |  |   |  | $ | 89.25 |       |         | $ | 15.75    |      
|Exercisable
as of December 31, 2000 |                                     |           | 160,853 |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    |                                     | Granted   |         |           | 98,300   |                 |   | $              | 2.55  |  |  |   |  |  |   | $     | 3.14  |         |   | $        | 2.88  | 
|                                    |                                     | Forfeited |         |           | (26,250  | )               |   | $              | 3.14  |  |  |   |  |  |   | $     | 76.13 |         |   | $        | 17.71 | 
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    | Outstanding as of December 31, 2001 |           |         | 254,425   |          |                 | $ | 2.55           |       |  |  |  |   |  | $ | 89.25 |       |         | $ | 10.71    |      
|Exercisable
as of December 31, 2001 |                                     |           | 83,775  |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    |                                     | Granted   |         |           | 33,465   |                 |   | $              | 2.45  |  |  |   |  |  |   |       | 3.11  |         |   | $        | 2.71  | 
|                                    |                                     | Forfeited |         |           | (26,423  | )               |   | $              | 2.45  |  |  |   |  |  |   |       | 76.13 |         |   | $        | 10.93 | 
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    | Outstanding Dental Professionals    |           |         | 261,467   |          |                 | $ | 2.45           |       |  |  |  |   |  |   | 89.25 |       |         | $ | 9.66     |      
|                                    | Outstanding Coast P.A.              |           |         | 148,658   |          |                 | $ | 2.45           |       |  |  |  |   |  |   | 76.13 |       |         | $ | 12.14    |      
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    | Outstanding as of December 31, 2002 |           |         | 402,859   |          |                 | $ | 2.45           |       |  |  |  |   |  |   | 89.25 |       |         | $ | 10.56    |      
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|Exercisable as of December 31, 2002 |                                     |           | 277,863 |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         
|                                    |                                     |           |         |           |          |                 |   |                |       |  |  |   |   |  |   |       |       |         |   |         

The fair value of the options at December 31, 2002 and 2001, totaling
$2,541,183, and $2,453,206, respectively, issued to the dental professionals
employed by Coast P.A. is charged to Coast P.A. and reimbursed to the
Company from Coast P.A. Stock options forfeited by dental professionals revert
to Coast P.A. under their original terms. As a result of such forfeitures,
Coast P.A. currently holds options to purchase 148,658 shares of the Companys
common stock at exercise prices ranging from $2.45 per share to $76.13 per
share.

Incentive Plan (For Directors and Employees):

|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |          |       | 
|----------------------------------- | ----------------------------------- | --------- | ------- | --------- | ------- | --------------- | - | -------------- | ---- |  |  | - | - |  | - | ----- | ----- | ------- | - | -------- | ----- | 
|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   | Weighted
|                                    |                                     |           |         | Number of |         |                 |   |                |      |  |  |   |   |  |   |       |       | Average
|                                    |                                     |           |         | Shares    |         | Range Per Share |   | Exercise Price
|                                    |                                     |           |         |           |         |                 |   |               
|                                    | Outstanding
as of January 1, 2000   |           |         | 122,163   |         |                 | $ | 13.50          |      |  |  |  |   |  | $ | 91.50 |       |         | $ | 30.78    |      
|                                    |                                     | Granted   |         |           | 97,501  |                 |   | $              | 4.59 |  |  |   |  |  |   | $     | 6.19  |         |   | $        | 6.18  | 
|                                    |                                     | Forfeited |         |           | (22,622 | )               |   | $              | 6.19 |  |  |   |  |  |   | $     | 76.13 |         |   | $        | 25.92 | 
|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |          |      
|                                    | Outstanding as of December 31, 2000 |           |         | 197,042   |         |                 | $ | 4.59           |      |  |  |  |   |  | $ | 91.50 |       |         | $ | 19.14    |      
|Exercisable
as of December 31, 2000 |                                     |           | 176,983 |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |         
|                                    |                                     | Granted   |         |           |        |                 |   | $              | 0.00 |  |  |   |  |  |   | $     | 0.00  |         |   | $        | 0.00  | 
|                                    |                                     | Forfeited |         |           | (50,570 | )               |   | $              | 4.59 |  |  |   |  |  |   | $     | 76.13 |         |   | $        | 17.61 | 
|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |          |      
|                                    | Outstanding as of December 31, 2001 |           |         | 146,472   |         |                 | $ | 4.59           |      |  |  |  |   |  | $ | 91.50 |       |         | $ | 19.81    |      
|Exercisable
as of December 31, 2001 |                                     |           | 88,467  |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |         
|                                    |                                     | Granted   |         |           | 198,833 |                 |   | $              | 2.25 |  |  |   |  |  |   |       | 5.27  |         |   | $        | 2.93  | 
|                                    |                                     | Forfeited |         |           | (50,323 | )               |   | $              | 2.25 |  |  |   |  |  |   |       | 76.13 |         |   | $        | 8.42  | 
|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |          |      
|                                    | Outstanding as of December 31, 2002 |           |         | 294,982   |         |                 | $ | 2.25           |      |  |  |  |   |  |   | 91.50 |       |         | $ | 10.38    |      
|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |          |      
|Exercisable as of December 31, 2002 |                                     |           | 90,905  |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |         
|                                    |                                     |           |         |           |         |                 |   |                |      |  |  |   |   |  |   |       |       |         |   |          |      

|                 |  |                     |         |                     |  |                |      |          |  |                |       |  |  |          |        |  |  |   |       | 
|---------------- |  | ------------------- | ------- | ------------------- |  | -------------- | ---- | -------- |  | -------------- | ----- |  |  | -------- | ------ |  |  | - | ----- | 
|                 |  | Options Outstanding |         | Options Exercisable
|                 |  |                     |         |                    
|                 |  |                     |         |                     |  | Remaining Life |      | Weighted |  |                |       |  |  | Weighted
|Ranges of        |  |                     |         |                     |  | In Years       |      | Average  |  |                |       |  |  | Average 
|Exercise Price   |  | Shares              |         | (Weighted Average)  |  | Exercise Price |      | Shares   |  | Exercise Price
|                 |  |                     |         |                     |  |                |      |          |  |               
|under $10.00     |  |                     | 230,259 |                     |  |                | 5.69 |          |  | $              | 2.17  |  |  |          | 26,557 |  |  | $ | 4.54  | 
|$10.01 to $20.00 |  |                     | 22,678  |                     |  |                | 6.52 |          |  | $              | 14.18 |  |  |          | 22,678 |  |  | $ | 14.18 | 
|$20.01 to $30.00 |  |                     | 23,720  |                     |  |                | 5.23 |          |  | $              | 27.81 |  |  |          | 23,345 |  |  | $ | 27.92 | 
|$30.01 to $40.00 |  |                     | 382     |                     |  |                | 4.23 |          |  | $              | 36.69 |  |  |          | 382    |  |  | $ | 36.69 | 
|$40.01 to $50.00 |  |                     | 4,575   |                     |  |                | 4.79 |          |  | $              | 45.37 |  |  |          | 4,575  |  |  | $ | 45.37 | 
|$50.01 to $60.00 |  |                     | 460     |                     |  |                | 5.45 |          |  | $              | 54.38 |  |  |          | 460    |  |  | $ | 54.38 | 
|$60.01 to $70.00 |  |                     | 3,396   |                     |  |                | 4.90 |          |  | $              | 67.93 |  |  |          | 3,396  |  |  | $ | 67.93 | 
|$70.01 to $80.00 |  |                     | 9,279   |                     |  |                | 5.28 |          |  | $              | 73.90 |  |  |          | 9,279  |  |  | $ | 73.90 | 
|$80.01 to $90.00 |  |                     | 233     |                     |  |                | 4.80 |          |  | $              | 85.88 |  |  |          | 233    |  |  | $ | 85.88 | 
|                 |  |                     |         |                     |  |                |      |          |  |                |       |  |  |          |        |  |  |   |       | 
|Total            |  |                     | 294,982 |                     |  |                |      |          |  |                |       |  |  |          | 90,905 |  |  |   |       | 
|                 |  |                     |         |                     |  |                |      |          |  |                |       |  |  |          |        |  |  |   |       | 

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

For purposes of pro forma disclosure in accordance with the provisions of
Statement 123 (See Note 2), the estimated fair value of the options at the date
of the grant is amortized, on a pro-forma basis, to expense over the vesting
period, generally three years. Under the fair value method, the Companys pro
forma net loss and diluted loss per share would have been $(4,180,728) and
$(2.00); $(9,542,236) and $(4.56); and ($1,657,739) and $(0.79) for 2002,
2001 and 2000, respectively. The Company estimated the fair value of the
Incentive Plan options utilizing an option pricing model based on a market
price and exercise price ranging from $2.25 to $89.25 per share, a risk-free
interest rate of 3.6%, a four year expected life, a 67.8% expected volatility, and no dividends.

The weighted average remaining contractual life for the options
outstanding as of December 31, 2002, for both plans, is approximately 6 years.

NOTE 13  BENEFIT PLANS

The Company has a 401(k) Retirement Savings Plan (the 401(k) Plan)
covering substantially all employees. Matching employer contributions, if any,
are set at the discretion of the Board of Directors or the applicable committee
thereof. For the years ended December 31, 2002, 2001 and 2000, respectively,
there were no Company matching contributions.

NOTE 14  SUBSEQUENT EVENTS
(unaudited)

CapitalSource Revolving Line of Credit.The Company made a draw of
$1,760,000 for working capital purposes on January 2, 2003 under the $2 million
working capital revolving line of credit with CapitalSource that it consummated
on December 31, 2002. See Note 8.

Self-Tender Offer.On March 4, 2003 the Company initiated a self-tender
offer (the Offer) to purchase all of the outstanding shares of common stock
for $4.50 per share. Following completion of the Offer and due to the very
small shareholder base and the infrequent trading activity of the Companys common
stock, the Company intends to delist its common stock from trading on the
Nasdaq SmallCap Market and to terminate the registration of its common stock
under the Securities Exchange Act of 1934, as amended. If this occurs, the
Company will become a private company and there will be no public market for
its common stock. The purpose of the Offer is to provide shareholders with
liquidity for the common stock prior to delisting and deregistration for a
price that a Special Committee consisting of independent members of the Board
of Directors has determined to be fair to the Companys shareholders other than
the Continuing Shareholders (as defined below). Although the Offer is being
made to all holders of the Companys common stock, Terek Diasti, Chairman of
the Board of Directors and Chief Executive Officer of the Company, Adam Diasti,
a Director and President of the Company, and the Diasti Family Limited
Partnership, (collectively referred to as the Continuing Shareholders) who
beneficially own approximately 52% of the Companys common stock currently
issued and outstanding (including all Company common stock issuable pursuant to
currently exercisable stock options) have advised the Company that they do not
intend to tender any of the Companys common stock pursuant to the Offer.

After the self-tender offer was announced, the
Company received two unsolicited offers for the purchase of the
Company. The Companys board of directors has rejected both of
these unsolicited offers.

The Company plans to finance the Offer through borrowings from the term
loan portion of the $4,000,000 Revolving Credit, Term Loan and Security
Agreement with CapitalSource which includes a $2,000,000 revolver and a
$2,000,000 term loan (the Term Loan) and from the Companys largest
shareholder, the Diasti Family Limited Partnership, under an agreement to loan
up to $3,400,000 (the Credit Agreement). The Company will be the borrower
under the Term Loan and the Credit Agreement. The Company plans to repay the
Term Loan and the Credit Agreement when due through internally generated funds.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

The Term Loan provides that CapitalSource will loan the Company up to
$2,000,000 to finance the Offer at an interest rate equal to the prime rate
plus 4.75%. The principal of the Term Loan is payable in monthly installments
in months seven through twenty-four from the date the funds are borrowed. The
Term Loan is secured by a first priority lien on all of the Companys assets
and will be guaranteed by the Diasti Family Limited Partnership. The Company
will be required to prepay all or a portion of the Term Loan under certain
circumstances. The Company will be required to meet certain monthly financial
covenants for minimum EBITDA (as defined), minimum fixed charge coverage ratio, minimum net
leverage, minimum cash collections and minimum liquidity in order to initially
borrow and maintain borrowings under the Term Loan. There can be no assurance
that the Company can continue to meet these monthly financial covenants. The
Company is also subject to certain affirmative and negative covenants. Upon
borrowing on the Term Loan, the Company is required to issue warrants to
CapitalSource which are immediately exercisable into 1.00% of the Companys
issued and outstanding common stock at a strike price equal to $.01 per Share.
The Company has the option to redeem the warrant upon the conclusion of a
successful tender offer.

The Credit Agreement provides that the Diasti Family Limited Partnership
will loan the Company up to $3,400,000 to finance the Offer at an interest rate
of 5.00%. The loan will be due five years from the date the funds are
borrowed. The loan is subordinated to the Term Loan and, subject to the prior
approval of CapitalSource, will be secured by a second priority lien on all of
the Companys assets.

The Company does not have any alternative financing arrangements or
alternative financing plans in the event it is unable to borrow, for any
reason, under the Term Loan or the Credit Agreement.

As a condition of drawing on the $2 million Capital Source term loan to
finance the Offer, the Diasti Family Limited Partnership and Coast P.A. will
guarantee certain indebtedness of the Company under the $4 million credit
facility with CapitalSource.

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COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS  (Continued)

NOTE 15- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth the Companys results of operations for the
periods indicated:

|                                    |         |                |            |               |  |                    |            |                   |  |   |            |       |   |   |            |       |  
|----------------------------------- | ------- | -------------- | ---------- | ------------- |  | ------------------ | ---------- | ----------------- |  | - | ---------- | ----- | - | - | ---------- | ----- | -
|Quarter Ended                       |         | March 31, 2002 |            | June 30, 2002 |  | September 30, 2002 |            | December 31, 2002
|                                    |         |                |            |               |  |                    |            |                  
|Net revenue                         |         | $              | 13,570,504 |               |  | $                  | 14,240,330 |                   |  | $ | 14,728,596 |       |   | $ | 13,424,504 |      
|Gross profit                        |         | $              | 2,295,134  |               |  | $                  | 2,320,732  |                   |  | $ | 1,950,990  |       |   | $ | 1,229,211  |      
|Net income/(loss)                   |         | $              | 1,150,020  |               |  | $                  | 23,957     |                   |  | $ | (2,042,334 | )     |   | $ | (3,075,440 | )    
|Net income/(loss) per common share: |         |                |            |               |  |                    |            |                   |  |   |            |       |   |   |            |      
|                                    | Basic   |                | $          | 0.55          |  |                    | $          | 0.01              |  |   | $          | (0.98 | ) |   | $          | (1.47 | )
|                                    | Diluted |                | $          | 0.55          |  |                    | $          | 0.01              |  |   | $          | (0.98 | ) |   | $          | (1.47 | )

|                           |         |                |            |               |   |                    |            |                   |   |   |            |       |   |   |            |       |  
|-------------------------- | ------- | -------------- | ---------- | ------------- | - | ------------------ | ---------- | ----------------- | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|Quarter Ended              |         | March 31, 2001 |            | June 30, 2001 |   | September 30, 2001 |            | December 31, 2001
|                           |         |                |            |               |   |                    |            |                  
|Net revenue                |         | $              | 11,152,467 |               |   | $                  | 10,654,160 |                   |   | $ | 10,376,817 |       |   | $ | 11,377,811 |      
|Gross profit               |         | $              | 1,166,158  |               |   | $                  | 839,171    |                   |   | $ | 617,543    |       |   | $ | 751,580    |      
|Net loss                   |         | $              | (1,373,768 | )             |   | $                  | (1,061,930 | )                 |   | $ | (1,634,625 | )     |   | $ | (5,296,338 | )    
|Net loss per common share: |         |                |            |               |   |                    |            |                   |   |   |            |       |   |   |            |      
|                           | Basic   |                | $          | (0.66         | ) |                    | $          | (0.51             | ) |   | $          | (0.78 | ) |   | $          | (2.53 | )
|                           | Diluted |                | $          | (0.66         | ) |                    | $          | (0.51             | ) |   | $          | (0.78 | ) |   | $          | (2.53 | )

The net loss and net loss per common share for the quarter ending
September 30, 2002 is due in part to the Dental Center closings charge and
increase in the valuation allowance on the cash surrender value of key-man life
insurance, which was recorded in September 2002. The impact of these charges on
net loss and net loss per share was approximately $(1.9) million and $(0.93)
per share, respectively.

The increase in the net loss and net loss per common share for the quarter
ending December 31, 2002 is due to the Dental Center closings and asset
impairment charges recorded in December 2002. The impact of these charges on
net loss and net loss per share was approximately $(2.2) million and
$(1.05)
per share, respectively.

The increase in the net loss and net loss per common share for the quarter
ending December 31, 2001 is due to the Dental Center closings and impairment
charge recorded in December 2001. The impact of these charges on net loss and
net loss per share was approximately $(3.7) million and $(1.77) per share,
respectively.

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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




PART III




Item 10.Directors and Executive Officers of the Registrant

The information required by this Item is incorporated herein by reference
to the information under the headings Management  Directors and Executive
Officers in the Companys definitive Proxy Statement to be used in connection
with the Companys Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission on or before April 30, 2003.




Item 11.Executive Compensation

The information required by this Item is incorporated herein by reference
to the information under the headings Management  Compensation of Executive
Officers and Directors in the Companys definitive Proxy Statement to be used
in connection with the Companys Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission on or before April 30, 2003.




Item 12.Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated herein by reference
to the information under the headings Management  Security Ownership of
Management and Others in the Companys definitive Proxy Statement to be used
in connection with the Companys Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission on or before April 30, 2003.




Item 13.Certain Relationships and Related Transactions

The information required by this Item is incorporated herein by reference
to the information under the headings Certain Relationships and Related
Transactions in the Companys definitive Proxy Statement to be used in
connection with the Companys Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission on or before April 30, 2003.




Item 14.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Within 90 days prior to the date of this report, we carried out an
evaluation (the Evaluation), under the supervision and with the participation
of our principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (Disclosure Controls). Based on the Evaluation, our principal
executive officer and principal financial officer concluded that, subject to
the limitations noted below, our Disclosure Controls are effective in timely
alerting them to material information required to be included in our periodic
Securities and Exchange Commission reports.

Changes in Internal Controls

We have also
evaluated our internal controls for financial reporting, and
there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date
of their last evaluation.

Limitations on the Effectiveness of Controls

Our management, including our principal executive officer and principal
financial officer, does not expect that our Disclosure Controls and internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can, provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further,

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the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can, be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management or board
override of the control.

The design of any system of controls also is based in part upon certain
assumptions about the likelihood, of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, control way become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent Limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

Certifications

Appearing immediately following the Signatures section of this report
there are Certifications of the principal executive officer and the principal
financial officer. The Certifications are required in accordance with Section
302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This
Item of this report, which you are currently reading is the information
concerning the Evaluation referred to in the Section 302 Certifications and
this information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.

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PART IV




Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K

(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS



| | (1) |  | Financial Statements: See
Item 8.            
| | --- |  | ---------------------------------------------
|
| | (2) |  | Financial Statement Schedules: See (D) below.
|
| | (3) |  | Exhibits: See Exhibit Index.                 

(B) REPORTS ON FORM 8-K

None.

(C) EXHIBITS

See Exhibit Index.

(D) FINANCIAL STATEMENT SCHEDULES

The Financial Statement Schedules required are either included in the
Notes to Financial Statements, or are otherwise omitted because of the absence
of the conditions under which they are required, except
Schedule II  Valuation and Qualifying Accounts
which is set forth on page 66 of this report.

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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2002, 2001 and 2000


|                                                               |                              |                |   |            |  |            |   |            |  |  |   |       |  |  |   |       | 
|-------------------------------------------------------------- | ---------------------------- | -------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | ----- |  |  | - | ----- | 
|                                                               |                              |                |   | Additions  |  |            |   |           
|                                                               |                              | Balance at     |   | Charged to |  |            |   | Balance at
|                                                               |                              | Beginning      |   | Costs and  |  |            |   | End of    
|                                                               |                              | of Period      |   | Expenses   |  | Deductions |   | Period    
|                                                               |                              |                |   |            |  |            |   |           
|                                                               |                              |               
|                                                               |                              | (in thousands)
|Deferred tax asset valuation allowance                         |                              |                |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                                                               | Year ended December 31, 2002 |                | $ | 3,135      |  |            | $ | 141        |  |  | $ |      |  |  | $ | 3,276 | 
|                                                               | Year ended December 31, 2001 |                |   |           |  |            |   | 3,135      |  |  |   |      |  |  |   | 3,135 | 
|                                                               | Year ended December 31, 2000 |                |   |           |  |            |   |           |  |  |   |      |  |  |   |      | 
|                                                              
|Reserve for closed Dental Centers                              |                              |                |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                                                               | Year ended December 31, 2002 |                | $ | 420        |  |            | $ | 2,625      |  |  | $ | 2,322 |  |  | $ | 723   | 
|                                                               | Year ended December 31, 2001 |                |   |           |  |            |   | 2,751      |  |  |   | 2,331 |  |  |   | 420   | 
|                                                               | Year ended December 31, 2000 |                |   |           |  |            |   |           |  |  |   |      |  |  |   |      | 
|                                                              
|Reserve for inventory obsolescence                             |                              |                |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                                                               | Year ended December 31, 2002 |                | $ |           |  |            |   | 373        |  |  | $ |      |  |  | $ | 373   | 
|                                                               | Year ended December 31, 2001 |                |   |           |  |            |   |           |  |  |   |      |  |  |   |      | 
|                                                               | Year ended December 31, 2000 |                |   |           |  |            |   |           |  |  |   |      |  |  |   |      | 
|                                                              
|Cash surrender value of life insurance valuation
    allowance |                              |                |   |            |  |            |   |            |  |  |   |       |  |  |   |      
|                                                               | Year ended December 31, 2002 |                | $ | 505        |  |            | $ | 377        |  |  | $ |      |  |  | $ | 882   | 
|                                                               | Year ended December 31, 2001 |                |   | 267        |  |            |   | 238        |  |  |   |      |  |  |   | 505   | 
|                                                               | Year ended December 31, 2000 |                |   |           |  |            |   | 267        |  |  |   |      |  |  |   | 267   | 

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COAST DENTAL SERVICES, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida on March 28, 2003. Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Company and in the capacities indicated on
March 28, 2003.

| |  |     |  |                                                                                                                      
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------
| |  |     |  | COAST DENTAL SERVICES, INC.                                                                                          
|
| |  |     |  |                                                                                                                      
|
| |  | By: |  | /s/ Terek Diasti, DVMTerek Diasti, DVMChairman of the Boardand Chief Executive Officer,
(Principal Executive Officer)

KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Terek Diasti his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his name or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report of Form 10-K,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power to do and perform each and
every act and things required and necessary to be done in and about the
premises, as fully as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

| |  |     |  |                                                                                                                            
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------
| |  | By: |  | /s/ Adam Diasti, DDSAdam Diasti, DDSPresident and Director                                                                 
|
| |  |     |  |                                                                                                                            
|
| |  | By: |  | /s/ Timothy G. MerrickTimothy G. MerrickVice President  Finance and Secretary
(Principal Financial and Accounting Officer)
|
| |  |     |  |                                                                                                                            
|
| |  | By: |  | /s/ Donald R. MillardDonald R. MillardDirector                                                                             
|
| |  |     |  |                                                                                                                            
|
| |  | By: |  | /s/ Geoffrey L. FauxGeoffrey L. FauxDirector                                                                               
|
| |  |     |  |                                                                                                                            
|
| |  | By: |  | /s/ Darrell C. SmithDarrell C. SmithDirector                                                                               
|
| |  |     |  |                                                                                                                            
|
| |  | By: |  | /s/ Peter M. SontagPeter M. SontagDirector                                                                                 
|
| |  |     |  |                                                                                                                            
|
| |  | By: |  | /s/ Richard T. WelchRichard T. WelchDirector                                                                               

64



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##### Table of Contents



CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Terek Diasti, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of Coast Dental
Services, Inc.;                                                                                                                                                                                                                                         
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|
| | 4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                               



| |  | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                 
|
| |  | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                       



| | 5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated
in this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |                                                                                    
|--------------------- |  | -----------------------------------------------------------------------------------
|Dated: March 28, 2003 |  | /s/  Terek DiastiTerek Diasti
Chief Executive Officer
(Principal Executive Officer)

65



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##### Table of Contents



CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Timothy G. Merrick, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of Coast Dental
Services, Inc.;                                                                                                                                                                                                                                         
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|
| | 4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                               



| |  | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                 
|
| |  | c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                       



| | 5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | d) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | e) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated
in this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |  |  |  |  |     |                                                                                                             
|--------------------- |  |  |  |  | --- | ------------------------------------------------------------------------------------------------------------
|Dated: March 28, 2003 |  |  |  |  | By: | /s/ Timothy G. MerrickTimothy G. Merrick
Vice PresidentFinance
(Principal Financial and Accounting Officer)

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##### Table of Contents



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                 
|Number  |  | Exhibit Description                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                 
|2.1*    |  | Articles of Merger and Agreement and Plan of Merger dated as of August 29, 2002, between Coast Dental Services,
Inc., a Delaware corporation, and Coast Florida Acquisition, Inc., a Florida corporation (filed with the State of
Florida in connection with the reincorporation from Delaware to Florida). [10]
|3.1*    |  | Restated Certificate of Incorporation of Coast Dental Services, Inc. [2]                                                                                                                                                                                                                                        
|3.1A*   |  | Articles of Incorporation of the Company (filed with the State of Florida in connection with reincorporation from
Delaware to Florida.) [10]                                                                                                                                                                    
|3.2*    |  | Bylaws of Coast Dental Services, Inc. [1]                                                                                                                                                                                                                                                                       
|4.1*    |  | Specimen of Coast Dental Services, Inc. Common Stock Certificate. [1]                                                                                                                                                                                                                                           
|4.2*    |  | Business Loan Agreement dated August 15, 1996 between Coast Dental Services, Inc. and Barnett Bank, N.A.[1]                                                                                                                                                                                                     
|4.3*    |  | First Amendment to Business Loan Agreement dated March 7, 1997 between Coast Dental Services, Inc. and Barnett Bank, N.A. [3]                                                                                                                                                                                   
|4.6*    |  | Amended and Restated Loan Agreement dated November 4, 1999 by
and among Coast Dental Services, Inc. and Bank of America, N.A. d/b/a Nations Bank, N.A.                                                                                                                                                          
|4.7*    |  | Revolving Credit Agreement, Term Loan and Security Agreement dated December 31, 2002 between Coast Dental Services and CapitalSource Finance, LLC.
[11]                                                                                                                                                         
|4.8*    |  | Credit Agreement dated February 28, 2003 between Coast Dental Services, Inc, and the Diasti Family Limited Partnership. [11]                                                                                                                                                                                    

(The Company is not filing any instrument with respect to long-term debt that
does not exceed 10 percent of the total assets of the Company and the Company
agrees to furnish a copy of such instrument to the Commission upon request.)

|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*  |  | Employment Agreement between Coast Dental Services, Inc. and Terek Diasti. [2]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.2*  |  | Employment Agreement between Coast Dental Services, Inc. and Adam Diasti, D.D.S. [2]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.4*  |  | Coast Dental Services, Inc. Stock Option Plan. [1]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.5*  |  | Coast Dental Services, Inc. Affiliated Professional Stock Plan. [1]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.6*  |  | Services and Support Agreement dated October 1, 1996 between Coast Dental Services, Inc. and Coast Florida, P.A. [1]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.10* |  | Form of Indemnification Agreement with officers and directors. [1]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12* |  | Agreement to Transfer Stock and Stock Pledge dated November 1, 1996, by and between Adam Diasti, D.D.S. and Coast Dental Services, Inc. [2] (The
Company has also entered to similar agreements with Adam Diasti with respect to his stock ownership in Coast Dental Southeast, P.A. n/k/a Coast
Dental of Georgia, P.C., Coast Dental Services of Tennessee, P.C., Coast Dental Services of Florida, P.A. n/k/a Coast Dental, P.A. and Adam Diasti,
D.D.S. & Associates, P.C. and such agreements are not being filed because they are not materially different in form from the Agreement to Transfer
Stock and Stock Pledge filed by the Company.)
|10.14* |  | Amendment No. 1 to Coast Dental Services, Inc. Stock Option Plan. [4]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.17* |  | First Amendment effective June 1997 to Services and Support Agreement between the Company and Coast Florida P.A. [5]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.18* |  | Second, Third and Fourth Amendments effective October 1, 1998, February 1, 1999 and January 1,
2000 to the Services and Support Agreement between
the Company and the Coast Florida, P.A. [6,8] (The Company has also entered into Services and Support
Agreements with Coast Dental Services of
Tennessee, P.C., Coast Dental Services of Florida P.A. n/k/a Coast
Dental, P. A. and Adam Diasti, D.D.S. &
Associates, P.C. in Virginia, which
agreements with amendments are not being filed because the terms thereof are not materially different from the
amended Services and Support
Agreements previously filed by the Company.)             
|10.19* |  | First Amendment effective February 1, 1999 to the Services and Support Agreement between the Company and Coast Dental Services of Georgia. P.C. [6]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.21* |  | Employment Agreement between Coast Dental Services, Inc. and William H. Geary, III [8]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.22* |  | Employment Agreement between Coast Dental Services, Inc. and Chris D. Salemi [8]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.24* |  | Amendment dated August 31, 2001 to Amended and Restated Loan Agreement dated November 4, 1999 by and between Coast Dental Services, Inc. and Bank of
America, N.A. d/b/a Nations Bank, N.A. and Third Renewal and                                                                                                                                                                                                                                                                                                                                                                                                                                    

67



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##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | Replacement Revolving Promissory Note by and among Coast Dental Services, Inc. and Bank
of America, N.A. d/b/a Nations Bank, N.A. incorporated by reference to Exhibit 4.6. [9]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.25* |  | Employment Agreement between Coast Dental Services, Inc. and Timothy G. Merrick [12]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.26* |  | Fifth Amendment to the Service and Support Agreement effective June 1, 2002 by and between Coast Dental
Services, Inc. and Coast Florida P.A. (The Company has also entered into Service and Support Agreements and Amendments thereto with Coast Dental
Services of Florida P.A. n/k/a Coast Dental, P.A., Coast Dental of
Georgia, P.C., Coast Dental Services of Tennessee, P.C. and Adam
Diasti, D.D.S. &
Associates, P.C., which Agreements and Amendments are not being filed because the terms thereof are not materially different in form from the
Service and Support Agreement previously filed by the Company and the fifth Amendment previously filed by the Company.) [13]
|10.27  |  | Sixth Amendment to the Service and Support Agreement effective October 1, 2002 by and between Coast Dental
Services, Inc. and Coast Florida P.A. (The Company has also entered into Service and Support Agreements and Amendments thereto with Coast Dental,
P.A., Coast Dental of Georgia, P.C., Coast Dental Services of Tennessee, P.C. and Adam Diasti, D.D.S. & Associates, P.C., which Agreements and
Amendments are not being filed because the terms thereof are not materially different in form from the Service and Support Agreement previously
filed by the Company and the fifth Amendment previously filed by the
Company).                                              
|11.1   |  | Computation of Per Share Earnings (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|23     |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|99.1   |  | Certification of Annual Report and Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|99.2   |  | Certification of Annual Report and Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                






|* |  | Previously filed as an exhibit in the Company filing identified in the
endnote following the exhibit description and incorporated herein by
reference.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | [1] Registration Statement on Form S-1 filed on October 7, 1996 (File No. 333-13613).
| |  |  | -------------------------------------------------------------------------------------
|
| |  |  | [2] Amendment No. 1 to Form S-1 Registration Statement filed on November 12, 1996.   
|
| |  |  | [3] Form 10-K filed on March 31, 1997.                                               
|
| |  |  | [4] Form S-8/A filed on July 31, 1997.                                               
|
| |  |  | [5] Amendment No. 2 to S-1 Registration Statement filed on September 19, 1997.       
|
| |  |  | [6] Form 10-K filed on March 31, 1999.                                               
|
| |  |  | [7] Form 10-Q filed on November 15, 1999.                                            
|
| |  |  | [8] Form 10-K filed on March 30, 2000.                                               
|
| |  |  | [9] Form 10-Q filed on November 14, 2001.                                            
|
| |  |  | [10] Form 10-Q filed on November, 14, 2002.                                          
|
| |  |  | [11] Schedule TO-I filed March 4, 2003.                                              
|
| |  |  | [12] Form 10-Q
filed on May 15, 2002.                                                
|
| |  |  | [13] Form 10-Q
filed on August 14, 2002.                                             

68